Proceeding ICEBM 2016

The Fifth International Conference on Entrepreneurship and Business Management
(ICEBM 2016)
Tainan, Taiwan – November 17-18, 2016
ISBN : 978-979-9234-59-9
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PREFACE
The International Conference on Entrepreneurship and Business Management (ICEBM) is a conference that
aims to facilitate the exchange of best practices information and knowledge dissemination in the field of
entrepreneurship, business, and management. The ICEBM is organized by Tarumanagara University and
collaborating universities as well as related institutions. The conference provides the forum for various
groups of professionals including practitioners, researchers, academicians, practitioners, government
officials, individuals in society, and graduate/ postgraduate students.
Following the success of the Fourth ICEBM that was held in Bangkok, this year the Fifth ICEBM is held in
Tainan in collaboration with Kun Shan University, Ciputra University, Udayana University, Kristen Krida
Wacana University and Trisakti School of Management. The main theme of the Fifth ICEBM is
“Entrepreneurship and Management in Turbulent Global Environment: From Start-Up to Global Business”.
The turbulent global environmental forces are constantly presenting new opportunities and threats.
Entrepreneurs and managers are increasingly taking a global view of the company’s market opportunities
and competitions. Mark Zuckerberg, Founder of Facebook, embraced change, created new solutions to
unmet needs and managed to shape the incredible rocket growth from start-up to global giant. A primary
feature of the conference is to consider the dynamics of entrepreneurship and management in the context of
globalization. This posits challenges toward professionals and entrepreneurs in finding ways to vitalize the
business development in the turbulent global environment.
In this Fifth ICEBM 2016, there were 126 abstracts received from the participants and 84 full papers were
reviewed by ICEBM Scientific Committee. This committee comprises of 46 reviewers from 13 different
institutions and 7 countries. The 84 full papers were received from 45 different institusions that came from 9
different countries: Brazil, China, Ethiopia, India, Indonesia, Malaysia, Philippines, Sweden, and Taiwan. A
total of 75 out of 84 papers have been accepted. Reviewing process in this year is similar to last year where
we applied a double blind peer-review process and scientific committee reviewed not just the abstracts
received but also the full papers. These papers address diverse areas of application in entrepreneurship and
business management. Starting from the field of accounting and finance, economics, marketing, and so forth
through addressing a wide variety of theoretical and methodological approach.
This year papers that have been published to the book of proceedings will be further evaluated for possible
submission to the special issue of Asia Pacific Management Review (APMR) and ASEAN Marketing
Journal (AMJ). We hope that this book of proceedings could promote and stimulate further the discussion of
practitioners and academics especially on business challenges and threats in turbulent global environment.
Finally, we would also like to thank all the contributing authors for their valuable work in supporting the
success of the Fifth ICEBM. Thank you very much for your contribution.
Conference Chair
Dr Keni
Prof. Chin-Chiuan Lin
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OPENING SPEECH FROM THE RECTOR OF TARUMANAGARA UNIVERSITY
Distinguished guests, ladies and gentlemen:

I am pleased to have the opportunity of addressing this important conference, widely known as the
International Conference on Entrepreneurship and Business Management (ICEBM for short). After its first
successful arrangement in Jakarta, followed by Bali, Penang, and Bangkok, this year’s conference in Tainan,
Taiwan, commemorates the fifth anniversary of the event, and I am immensely grateful for having found to
date the Conference a continued success.
The purpose of the seminar actually is to provide a forum that facilitates the exchange of knowledge and
experience of both practitioners and academics in entrepreneurship, business, and management. Here they
can mutually share their findings. I would like to further remind all of us about the importance of the current
Seminar, considering the chosen topic “Entrepreneurship and Management in Turbulent Global
Environment: from Start-Up to Global Business.” Basically the term start-up is still quite debated. The US
Small Business Administration describes start-up as a “business that is typically technology oriented and has
high growth potential.” It is considered that the only essential aspect of start-up is growth! Because of this
“growth potential,” a start-up is able to provide its goods and services to a wider or larger market. As this
happens, a start-up has no other choice but explores an unknown area or uses an innovative business model,
trying to disrupt existing markets. This enables a start-up to enter a global business. From start-up to global
business; one can imagine how difficult or turbulent is when a start-up involves globally or cross-border
transactions of resources between two or many nations. For this reason, this Seminar actually is not just
important but is even necessary in particular for those who try to understand and anticipate any possible
threats and opportunities, which come along with the rapid change in the global environment.
Distinguished guests, ladies, and gentlemen:

I would like to conclude with the following notes. Firstly, while we organize the event co-hosting with Kun
Shan University, this year’s conference becomes special for the support of 4 other universities: Universitas
Udayana, Universitas Kristen Krida Wacana, Ciputra University, and Trisakti School of Management
(TSM). They provide assistance in the preparation and execution, leading this event to a success. I am
thankful for their kind contribution. Secondly, our thanks also go to Kun Shan University for its utmost
support and wonderful cooperation. I sincerely thank the Faculty of Economics of Tarumanagara University,
in particular the organizing committee for their hard-work and dedication, making this important conference
successfully possible. Finally, I would like to express my gratitude for the presence of distinguished speakers
and a number of active participants from several countries. I wish you all a productive and fruitful seminar.
Thank you.
Prof. Dr. Agustinus Purna Irawan
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OPENING SPEECH FROM THE PRESIDENT OF KUN SHAN UNIVERSITY
First of all, it is an honor and a pleasure to hold the International Conference on Entrepreneurship and
Business Management (The Fifth ICEBM 2016). I and staff of Kun Shan University to interact with all of
you distinguished scholars and business elites at this marvelous conference.
In 2016, the government of R.O.C. (Taiwan) proposed a ”new southward policy” not only to revive the
foundation of the“go south”policy, but also to build new social and educational ties. Specifically, the policy
focusing on strengthening relations between Taiwan and South and Southeast Asian nations would be set up.
The policy would not be confined to trade and investment but would also include people-to-people, cultural,
educational, research and other types of exchanges. This policy shows commitment to make Taiwan more
ASEAN-oriented. Clearly, more business knowledge and understanding of South and Southeast Asian
countries is necessary to Taiwanese researchers and business men/women. Therefore, it is an honor to host
the Conference working together with the excellent partners of Universities in ASEAN. I look forward the
Conference would become the best forum to share ASEAN-related knowledge. After the Conference, I
sincerely hope that KSU will build a best academic and Business partners with the Tarumanagara University
(UNTAR).
Finally, I highly recommend that please take the break to explore this amazing city of Tainan. Enjoy the
Conference and take advantage of the opportunities it offers.
Prof. Yan-Kuin Su
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SPEAKERS
Mr. Steven Hsu

(The CEO of TXA (Tronxin Accelerator Limited) and Founder of
TXA Private Board of Directors)
Prof. Chaidir Anwar Makarim

(Tarumanagara University, Indonesia)
Ir. Dr. Rajendran Muthuveloo

(Univesiti Sains Malaysia, Malaysia)
Dr. Teoh Ai Ping

(Universiti Sains Malaysia, Malaysia)
Mr. Tony Antonio

(Ciputra University, Indonesia)
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SCIENTIFIC COMMITTEE
Prof. Vesa Routamaa University of Vaasa, Finland

Prof. Benjamin Yuan National Chiao Tung University, Taiwan
Prof. Felix T. Mavondo Monash University, Australia
Prof. Silvio Cardinali Universita Politecnica delle Marche, Italy
Associate Prof. Tomoki Fujii School of Economics, Singapore Management University,
Singapore
Chong Chee Leong, Ph.D. SIM University, Singapore
Prof. Chen Cheng-Nan, Ph.D. Kun Shan University, Taiwan
Associate Prof. Lu Te-Tsai Kun Shan University, Taiwan
Prof. Ya-Chin Wang Kun Shan University, Taiwan
Yen-Hui Ouyang Kun Shan University, Taiwan
Dr. Tzu-Chuan, Kao Kun Shan University, Taiwan
Che-Fei Chen Kun Shan University, Taiwan
Dr. Shuo-Pei Chen Kun Shan University, Taiwan
Dr. Chieh-Chung Chan Kun Shan University, Taiwan
Dr. Po-Hsu Ko Kun Shan University, Taiwan
Dr. Jer-Min Tsai Kun Shan University, Taiwan
Dr. Shu-Ching Huang Kun Shan University, Taiwan
Dr. Feng-Cheng Tung Kun Shan University, Taiwan
Dr. Li-Yueh Lee Kun Shan University, Taiwan
Dr. Wen-Jin Hwang Kun Shan University, Taiwan
Dr. Ming-Hsein Kang Kun Shan University, Taiwan
Ir. Dr. Rajendran Muthuveloo Universiti Sains Malaysia, Malaysia
Dr. Teoh Ai Ping Universiti Sains Malaysia, Malaysia
Prof. Tresna P. Soemardi University of Indonesia, Indonesia
Avanti Fontana, Ph.D. University of Indonesia, Indonesia
Dr. Yono Reksoprodjo University of Indonesia, Indonesia
Prof. Dr. Ni Wayan Sri Suprapti Udayana University, Indonesia
Dr. Luh Gede Sri Artini Udayana University, Indonesia
Dr. Christina Whidya Utami Ciputra University, Indonesia
Dr. Wirawan Endro Dwi Radianto Ciputra University, Indonesia
Dr. Trianggoro Wiradinata Ciputra University, Indonesia
Dr. Christian Herdinata Ciputra University, Indonesia
Prof. Carunia M. Firdausy Tarumanagara University, Indonesia
Dr. Sawidji Widoatmodjo Tarumanagara University, Indonesia
Dr. Indra Widjaja Tarumanagara University, Indonesia
Dr. Ignatius Roni Setiawan Tarumanagara University, Indonesia
Dr. Rina Adi Kristianti Tarumanagara University, Indonesia
Arnold Japutra, Ph.D. Tarumanagara University, Indonesia
Dr. Keni Tarumanagara University, Indonesia
Dr. Miharni Tjokrosaputro Tarumanagara University, Indonesia
Dr. Hetty Karunia Tunjungsari Tarumanagara University, Indonesia
Dr. Chairy Tarumanagara University, Indonesia
Dr. Agus Zainul Arifin Tarumanagara University, Indonesia
Dr. Ishak Ramli Tarumanagara University, Indonesia
Dr. Lerbin Aritonang Tarumanagara University, Indonesia
Dr. Vita Briliana Trisakti School of Management, Indonesia
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ADVISORY BOARD
Patron : Rector of Tarumanagara University
Board of Advisor : 1. Vice Rector of Academic

2. Dean of Faculty of Economics
3. Director of Tarumanagara Center for
Entrepreneurial Studies
4. Dr. Indra Widjaja
5. Lina, Ph.D.
6. Jap Tji Beng, Ph.D.
7. Arnold Japutra, Ph.D.
Committee Director : Dr. Sawidji Widoatmodjo
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ORGANIZING COMMITTEE
Tarumanagara University
Chair : Dr. Keni
Secretary : 1. Sofia Prima Dewi
2. Joyce Angelique Turangan
Treasurer : 1. Franky Slamet
2. Merry Susanti
Sponsorship Administration : 1. Herlina Budiono
2. Dr. Miharni Tjokrosaputro
Program : 1. Paula Tjatoerwidya Anggarina
2. Didi Widya Utama
Logistics : 1. Mei Ie
2. Yugih Setyanto
Design : Anny Valentina
Publication and Documentation : 1. Agus Budi Dharmawan
2. Ary Satria Pamungkas
3. AR. Johnsen F.
Kun Shan University

President : Prof. Yan-Kuin Su
Vice President/ Dean of International
and Cross-Strait Affairs : Prof. Tien-Shang Lee
Vice President/ Secretary General : Prof. Kuo-Shien Huang
Conference Chair/ Dean : Prof. Chin-Chiuan Lin
Program Chair/ Chair Prof. : Prof. Cheng-Nan Chen
International Coordinator/ Vice Dean : Prof. Ya-Chin Wang
Local Coordinator/ Director : Dr. Te-Tsai Lu
International Liaisons : 1. Dr. Shieunt-Han Tsai
2. Yueh-Feng Chuang
3. Winnie Ting
4. Prof. Shu-Mei Chen
Local Liaisons/ Chair of Department : 1. Dr. Shu-Mei Lin
2. Dr. Ho Ou Yang
3. Dr. Chan-Yau Chen
4. Prof. Ya-Chin Wang
5. Dr. Yao-Kai Chuang
Web Master : 1. Dr. Jer-Min Tsai
2. Dr. Shieunt-Han Tsai
Committee Members : 1. Dr. Linda Lin
2. Dr. Li-Yueh Lee
3. Dr. Bi-Fen Chang
4. Dr. Yi-Chang Chen
5. Dr. Cheng-Lung Li
6. Prof. Wen-Ruey Lee
7. Dr. Kua-Ping Liao
8. Kung-Huei Huang
9. Yen-Hui Ouyang
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TABLE OF CONTENT
PREFACE ......................................................................................................................................................................... ii
OPENING SPEECH FROM THE RECTOR OF TARUMANAGARA UNIVERSITY .......................................... iii
OPENING SPEECH FROM THE PRESIDENT OF KUN SHAN UNIVERSITY ................................................... iv
SPEAKERS ....................................................................................................................................................................... v
SCIENTIFIC COMMITTEE ......................................................................................................................................... vi
ADVISORY BOARD...................................................................................................................................................... vii
ORGANIZING COMMITTEE .................................................................................................................................... viii
TABLE OF CONTENT .................................................................................................................................................. ix
INFORMAL SECTOR IN INDONESIA: THE SIGNIFICANT ROLE OF THE LOWER CLASS
ENTREPRENEURS IN INDONESIA ECONOMY ...................................................................................................... 1
Chaidir Anwar Makarim ................................................................................................................................................................... 1
THE N-FACTORS FOR STRATEGIC ENTREPRENEURSHIP ............................................................................... 6
Rajendran Muthuveloo, Ai Ping Teoh ............................................................................................................................................... 6
ARE BUSINESSES INTELLIGENT ENOUGH TO ENDURE VOLATILITY AND THRIVE ON
COMPETITION?A CONCEPTUAL FRAMEWORK ON THE ROLES OF BUSINESS
INTELLIGENCE USE, STRATEGIC AGILITY AND ORGANIZATIONAL PERFORMANCE ....................... 10
Ai Ping Teoh, Rajendran Muthuveloo ............................................................................................................................................. 10
AN ANALYSIS OF INNOVATION STRATEGIES OF TAIWANESE CONVENIENCE CHAIN
STORES .......................................................................................................................................................................... 15
Tain-Fung Wu, Hsiao-Ching Yang,Thuy Thi Thanh Nguyen ......................................................................................................... 15
THE RELATIONSHIP BETWEEN PRODUCT ATTRIBUTES, PRODUCT INVOLVEMENT,
WORD-OF-MOUTH, AND PURCHASE INTENTION OF MEDICAL EQUIPMENT-COMPARING
TAIWANESE AND MAINLAND CHINESE MARKETS ......................................................................................... 20
Wan-I Lee, Yu-Ta Shih, Shan-Yin Cheng....................................................................................................................................... 20
KNOWLEDGE MANAGEMENT AND VALUE CREATION FOR TAIWAN CHILDREN’S
CLOTHING INDUSTRY: A QUALITATIVE CASE STUDY .................................................................................. 24
Cheng-Lung Li, Hsiu-Chen Tsai ..................................................................................................................................................... 24
STRATEGIC MANAGEMENT AND HIGHER EDUCATIONAL INSTITUTIONS - A CASE STUDY
BY USING BSC CONCEPT .......................................................................................................................................... 32
Cheng-Lung Li, Chih-Wei Liu ........................................................................................................................................................ 32
AN EXPLORING STUDY OF APPS DOWNLOAD INTENTIONS ........................................................................ 39
Avus CY. Hou, Rong-An Shang ..................................................................................................................................................... 39
EFFECT OF EQUATOR PRINCIPLES ADOPTION ON BANK LIQUIDITY ..................................................... 44
Naiwei Chen, Hsiu-Hsi Huang, Chia-He Lin .................................................................................................................................. 44
VECTOR ERROR CORRECTION MODELLING FOR FDI CAUSALITY IN TAIWAN................................... 49
Shailender Singh,Gajendra Singh .................................................................................................................................................... 49
EXPLORING THE IMPACT OF RESILIENCE ON THE FEMALE CAREER DEVELOPMENT
AND ENTREPRENEURIAL INTENTIONS: THE CASE OF REAL ESTATE INDUSTRY KUN
SHAN UNIVERSITY TAIWAN, R.O.C....................................................................................................................... 55
Cheng-Lung Li, Min-Chi Chung ..................................................................................................................................................... 55
FACTORS RELATED TO THE INTENTION OF STARTING A NEW BUSINESS IN EL
SALVADOR .................................................................................................................................................................... 60
Linda Lin, Ana Vanessa Peña, Cheng-Nan Chen ........................................................................................................................... 60
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ENTREPRENEURSHIP EDUCATION IN THE CONTEXT OF TECHNOLOGY

COMMERCIALIZATION – A CASE FROM TAIWAN ........................................................................................... 68
Tommy Shih , Yen-Yu Huang......................................................................................................................................................... 68
WHAT KIND OF SOCIEATAL CONTEXT IS ENTREPRENEURSHIP EDUCATION EMBEDDED
WITHIN? ........................................................................................................................................................................ 74
Yen Yu Huang, Tsung Ying Shih.................................................................................................................................................... 74
ENTREPRENEURSHIP AND COMMUNITY DEVELOPMENT- A COMPETENCY
PERSPECTIVE STUDY ................................................................................................................................................ 79
Yi-Chang Chen, Han-Ming Lin, Xiu-Man Ye................................................................................................................................. 79
FACTORS RELATED TO THE INTENTION OF STARTING A NEW BUSINESS IN EL
GUATEMALA ................................................................................................................................................................ 83
Linda Lin, Sergio Jose Acajabon Lantan, Cheng-Nan Chen ........................................................................................................... 83
A STUDY ON THE LONG-TERM CARE POLICY IN TAIWAN ........................................................................... 90
Hsieh Ming-cheng, Hsuen Sung-lin, Hsieh Ming-jui ...................................................................................................................... 90
CAN DARK TRIAD MEDIATE ENTREPRENEURIAL ATTITUDE ORIENTATION TOWARD
ENTREPRENEURIAL INTENTION? ........................................................................................................................ 95
Alaleh Dadvari, Ben-Roy Do .......................................................................................................................................................... 95
PERCEPTION OF PARENTS AS STAKEHOLDERS ON TRIMESTRAL SYSTEM AT DE LA
SALLE LIPA................................................................................................................................................................. 101
Lanie M. Santos ............................................................................................................................................................................ 101
TESTING THE EFFECTS OF WORKPLACE SPIRITUALITY AND ORGANIZATIONAL
CITIZENSHIP BEHAVIOR ON ORGANIZATIONAL HEALTH ........................................................................ 106
Wilfreda D. Dimaano, DBA .......................................................................................................................................................... 106
CONSUMER BEHAVIOUR IN THE PURCHASE OF ENVIRONMENTALLY FRIENDLY
HERBAL PRODUCTS IN DENPASAR CITY .......................................................................................................... 111
I Gusti Ayu Ketut Giantari, Ni Nyoman Kerti Yasa, Ni Wayan Ekawati, I Putu Yudi Setiawan, Gede Bayu Rahanatha............. 111
THE ROLE OF BLUE OCEAN STRATEGY IN MEDIATING INDUSTRIAL COMPETITION TO
COMPETITIVE ADVANTAGE ................................................................................................................................. 117
I Gusti Ayu Dewi Adnyani, Ni Nyoman Kerti Yasa, Putu Gde Sukaatmadja ............................................................................. 117
THE IMPACT OF BUDGETING PROCESS IN THE PERFORMANCE OF MICRO, SMALL AND
MEDIUM ENTERPRISES IN LIPACITY ................................................................................................................ 124
Lani R. Garachico, Ma. Margaret Garachico-Marasigan ............................................................................................................... 124
THE EFFECT OF SERVANT LEADERSHIP ON JOB SATISFACTION AND ORGANIZATIONAL
CITIZENSHIP BEHAVIOR: A CASE STUDY AT A PRIVATE SCHOOL IN INDONESIA ............................ 129
I Dewa Nyoman Sudarta, Desak Ketut Sintaasih, Agoes Ganesha Rahyuda ................................................................................. 129
CREDIT RISK MANAGEMENT OF DE LA SALLE SCHOOLS IN LUZON ..................................................... 136
Maria Delia Miraña Poot, MMT ................................................................................................................................................... 136
THE EFFECTS OF SELF ESTEEM AND MORTALITY SALIENCE ON ATTITUDE AND PRICE
OF COUNTERFEIT PRODUCTS, TERROR MANAGEMENT THEORY APPLICATION ............................. 141
Putu Saroyini Piartrini ................................................................................................................................................................... 141
PSYCHOLOGICAL EMPOWERMENT AND ORGANIZATIONAL COMMITMENT: THE
EFFECT ON PERFORMANCE OF RURAL COMMUNITY CREDIT UNION IN BADUNG
REGENCY, BALI PROVINCE .................................................................................................................................. 145
Desak Ketut Sintaasih, I Gusti Ayu Manuati Dewi, I Wayan Mudiartha Utama, Ni Wayan Mujiati, Ayu Desi
Indrawati ....................................................................................................................................................................................... 145
THE SURVIVAL AND GROWTH OF A NEWLY-ESTABLISHED MICRO, SMALL-SIZED
FAMILY FIRM: A DYNAMIC PROCESS PERSPECTIVE................................................................................... 153
Achmad Sobirin ............................................................................................................................................................................ 153
DID LOCAL ENTREPRENEUR BECOMES LESS IN VILLAGE PRAWIROTAMAN? .................................. 158
Elisabet Dita Septiari, Dhyah Ayu Retno Widyastuti, Nino Ardhiansyah ..................................................................................... 158
THE EFFECT OF MACRO ECONOMIC VARIABLES AND SOUTHEAST ASIA STOCK PRICE
INDEX TO INDONESIAN STOCK PRICE COMPOSITE INDEX ....................................................................... 163
Luh Gede Sri Artini,Nyoman Tri Aryati, PutuVivi Lestari ........................................................................................................... 163
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THE MODERATING EFFECT OF ORGANIZATIONAL CULTURE IN THE INFLUENCE OF

DISCIPLINE AND INCENTIVES TOWARD EMPLOYEES PERFORMANCE WHICH MEDIATED
BY MOTIVATION ....................................................................................................................................................... 167
Saparso, Rudolf Lumbantobing ..................................................................................................................................................... 167
DOES THE AGENCY COST MEDIATE THE INFLUENCE OF DETERMINANTS OF CAPITAL
STRUCTURE ON THE CORPORATE DEBT RATIO? ......................................................................................... 174
Rudolf Lumbantobing ................................................................................................................................................................... 174
INDONESIA PINEAPPLE SUPPLY CHAIN MANAGEMENT AND THE IMPROVEMENT OF
GLOBAL MARKET AND COMPETITIVENESS ................................................................................................... 180
Faurani Santi Singagerda, Abshor Marantika ................................................................................................................................ 180
A CRITICAL REVIEW OF SOME FACTORS TO AFFECT THE ADOPTION OF MANAGEMENT
ACCOUNTING TECHNIQUES ON MANUFACTURING INDUSTRIES ........................................................... 188
Ardiansyah Rasyid, Elizabeth Sugiarto D, Wilson Kosasih .......................................................................................................... 188
BRAND TRUST: ITS ANTECEDENTS AND OUTCOMESON COMMITMENT TO THE BRAND ............... 193
Vita Briliana .................................................................................................................................................................................. 193
TRASFORMATION KNOWLEDGE AND SKILLS RELATED TO THE ESTABLISHMENT OF
QUALITY CULTURE AND EFFECT ON PRODUCTS QUALITY ...................................................................... 200
Ayi Tejaningrum ........................................................................................................................................................................... 200
STRATEGIC SERVICE QUALITY IN FACING GLOBAL ENVIRONMENT: BENGKULU,
INDONESIA EVIDENCE ............................................................................................................................................ 206
John Tampil Purba, Kamaludin ..................................................................................................................................................... 206
DETERMINANT OF FUNDAMENTAL MICRO ECONOMIC ON THE ORGANIZATIONAL
PERFORMANCE OF THE RETAIL COMPANY LISTED IN INDONESIA STOCK EXCHANGE ................ 213
Tita Deitiana, Niken Purbasari ...................................................................................................................................................... 213
EFFECT OF COMPENSATI ON AND WORK DISCIPLINE ON EMPLOYEE PRODUCTIVITY ................. 218
Rr.W.Rachmawati ......................................................................................................................................................................... 218
EFFICIENCY ANALYSIS OF OPERATIONAL PERFORMANCE USING OPERATING
EFFICIENCY RATIO (OER) IN INDONESIA STATE-OWNED BANKS ........................................................... 223
Hanifah .......................................................................................................................................................................................... 223
WOMEN EMPOWERMENT MODEL THROUGH OPTIMIZING SOLID WASTE MANAGEMENT
IN MALANG................................................................................................................................................................. 228
Sri Budi Cantika Yuli, Nazaruddin Malik, Muhammad Sri Wahyudi Suliswanto ........................................................................ 228
STRATEGIES IN ORDER TO INCREASE FOOD SECURITY SYSTEMS IN EAST JAVA ............................ 233
Sudarti, Eris Tri Kurniawati .......................................................................................................................................................... 233
IMPLEMENTING DEVELOPMENT STRATEGY OF TOURISM PRODUCTS IN BALI: FROM
CULTURAL TO WELLNESS TOURISM ................................................................................................................ 237
Ni Wayan Sri Suprapti, I Komang Gde Bendesa, Putu Yudi Setiawan ......................................................................................... 237
MANAGERIAL BEHAVIOR PERSPECTIVE ON AGENCY FEES AND IMPLICATIONS ON
DIVIDEND POLICY .................................................................................................................................................... 242
Tita Deitiana, Stella Sumantri ....................................................................................................................................................... 242
FACTORS INFLUENCING THE QUALITY CULTURE ....................................................................................... 248
Lena Ellitan, Teodora Winda Mulia .............................................................................................................................................. 248
SUSTAINABILITY COLLABORATION MODEL FOR DEVELOPMENT OF DIGITAL
CREATIVE INDUSTRY IN CENTRAL JAVA ........................................................................................................ 252
Mutamimah, Suryani Alifah, Mustafa ........................................................................................................................................... 252
INNOVATIVENESS OF BATIK SMES AND MARKET ORIENTATION: A CONCEPTUAL
MODEL ......................................................................................................................................................................... 257
Rahab, Nurul Anwar, Darmanto Sahat Setyawan .......................................................................................................................... 257
BUILD LEGAL BASIS CONTROL MODEL TRADITIONAL MARKETS IN CONDITIONS
MODERN MARKET ................................................................................................................................................... 262
Retno Mawarini Sukmariningsih, Agus Nurudin, Rahab .............................................................................................................. 262
EXPLORING ANTECEDENTS AND CONSEQUENCE OF INDONESIAN MUSLIM YOUTHS'
ATTITUDE TOWARDS HALAL COSMETICS PRODUCT ................................................................................. 265
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Vita Briliana, Nurwanti ................................................................................................................................................................. 265

THE IMPLEMENTATION OF INVESTMENT MODEL TO INCREASE HOTEL’S CUSTOMERS
COMMITMENT IN JAKARTA ................................................................................................................................. 272
Keni, Ary Satria Pamungkas ......................................................................................................................................................... 272
THEORY OF PLANNED BEHAVIOR IN ENTREPRENEURSHIP EDUCATION: THE PRACTICE,
THE FLAWS, THE FUTURE ..................................................................................................................................... 279
Azura Omar, Ainon Jauhariah Abu Samah, Suhaimi Mhd Sarif ................................................................................................... 279
LIQUIDITY CHARACTERISTICS OF GOVERNMENT BOND MARKETS: A COMPARATIVE
STUDY ........................................................................................................................................................................... 287
Sugeng Wahyudi, Rio Dhani Laksana, Hersugondo, Hardjum Muharam, Robiyanto ................................................................... 287
MEANING OF CAREER AND WELL BEING THE KEY OF CAREER PERFORMANCE STUDY
OF THE CONCEPT OF A CAREER PERFORMANCE ........................................................................................ 292
Sumaryono, Suryana Sumantri, Diana Harding, Marina Sulastiana .............................................................................................. 292
CORPORATE FRAUD AND VALUE OF FIRM: EMPIRICAL EVIDENCE FROM INDONESIA
CAPITAL MARKET ................................................................................................................................................... 297
Hermeindito, J.E.Sutanto............................................................................................................................................................... 297
FREE CASH FLOW AND EARNINGS MANAGEMENT: BOARD OF COMMISSIONER, BOARD
INDEPENDENCE AND AUDIT QUALITY AS MODERATING .......................................................................... 302
Yulius Kurnia Susanto, Arya Pradipta, Indra Arifin Djashan ........................................................................................................ 302
INFORMATION SYSTEMS ADOPTION AMONG SMES IN SURABAYA GREATER AREA ....................... 307
Trianggoro Wiradinata, Tony Antonio .......................................................................................................................................... 307
THE PERSPECTIVE OF ETHICS IN THE CONSCIOUS MIND OF ACCOUNTING STUDENTS ................ 315
Deasy Ariyanti Rahayuningsih ...................................................................................................................................................... 315
ON THE IMPACT OF MARKET ORIENTATION TOWARDS MARKETING PERFORMANCE
WITH ENTREPRENEURIAL MARKETING AS INTERVENING AT THE FOOTWEAR
INDUSTRY IN EAST JAVA INDONESIA................................................................................................................ 320
J.E.Sutanto, Musriha ..................................................................................................................................................................... 320
ENTREPRENEURSHIP ECOSYSTEM BASICS AND INSIGHTS FROM INDIAN AUTO
COMPONENT MANUFACTURING SECTOR ....................................................................................................... 325
Premkumar Balaraman, Kalpana Kosalram, Sungkrityayan Khan, Arvind Balakrishnan ............................................................. 325
MOTIVATIONAL POSTURES, KNOWLEDGE, AND PEER REPORTING BEHAVIOR TO TAX
COMPLIANCE DECISSION: EXPERIMENTAL STUDIES ON STUDENT ENTREPRENEURS .................. 333
Elen Puspitasari,Yeye Susilowati .................................................................................................................................................. 333
THE INFLUENCE OF SIZE, BUSINESS RISK, WORKING CAPITAL TURNOVER, AND
PROFITABILITY TO CAPITAL STRUCTURE LISTED IN INDONESIAN STOCK EXCHANGE
2012 - 2014 ..................................................................................................................................................................... 341
Yeye Susilowati, Elen Puspitasari ................................................................................................................................................. 341
THE DEVELOPMENT OF MICRO, SMALL AND MEDIUM ENTERPRISES (SMES), AND
COOPERATIVE BASED FOOD COMMODITIES IN EAST JAVA, INDONESIA ............................................ 345
Wiyono, Zainal Arifin ................................................................................................................................................................... 345
THE INFLUENCE OF SELF EFFICACY AND LOCUS OF CONTROL TO PERFORMANCE
MEDIATED BY PROFESSIONAL COMMITMENT ............................................................................................. 350
Basukiyanto, Mohammad Fauzan, Inawati, Kis Indriyaningrum .................................................................................................. 350
THE INFLUENCE OF INTELLECTUAL CAPITAL TO ORGANIZATIONAL COMMITMENT
WITH TEACHER EFFICACY AS MEDIATING VARIABLE .............................................................................. 357
Mohammad Fauzan, Basukiyanto, Agustinus Suyatmo, Kis Indriyaningrum ............................................................................... 357
THE EFFECT OF AUDIT COMMITTEE AND QUALITY OF AUDITORS ON EARNINGS
MANAGEMENT (STUDIES ON SOME MANUFACTURING COMPANIES OF CONSUMER
GOODS, LISTED IN THE INDONESIA STOCK EXCHANGE 2012-2014)......................................................... 364
Michelle Kristian ........................................................................................................................................................................... 364
EXPLORING HIGHER RADICALITY OF PRODUCT INNOVATIONS AND HIGHER
FLEXIBILITY AND HIGHER AGILITY OF MANUFACTURING SYSTEM: HOW THE AGILITY
AND FLEXIBILITY AFFECT RESULTS?............................................................................................................... 369
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Selma Regina Martins Oliveira ..................................................................................................................................................... 369

AN EXPLORATORY STUDY OF BUSINESS EXIT PERCEPTIONS AMONG SME OWNERS IN
EAST JAVA-INDONESIA .......................................................................................................................................... 375
Mohammad Iqbal, Umar Nimran, Ari Irawan ............................................................................................................................... 375
DOES ISO LABELLING MATTER IN CONSUMER’S CHOICE? ...................................................................... 382
I Gede Mahatma Yuda Mahatma Bakti, Harryadin Mahardika, Arnold Japutra, Sri Rahayu Hijrahhati ....................................... 382
LOCAL WISDOM FOR GREENPRENEURSHIP AS A SOLUTION TO BATIK INDUSTRY IN
INDONESIA.................................................................................................................................................................. 389
Juliuska Sahertian, Denprahanto A. Krisprimandoyo, Tina Melinda, Fabio Ricardo Toreh ......................................................... 389
DETERMINANTS OF FINANCIAL RISK ATTITUDE AMONG THE HANDLOOM MICRO-
ENTREPRENEURS IN NORTH EAST INDIA ........................................................................................................ 396
Kishor Goswami, Kalpana Handique, Bhabesh Hazarika ............................................................................................................. 396
ANTECEDENTS AND CONSEQUENCES OF PERCEIVED DECEPTION:A STUDY OF GLOBAL
LUXURY SKIN CARE BRANDS IN INDONESIA .................................................................................................. 401
Evi Rinawati Simanjuntak, Irwin Saputra ..................................................................................................................................... 401
THE EFFECT OF LEADERSHIP STYLE TOWARDS CORPORATE CULTURE AND THE
IMPLEMENTATION OF GREEN MANAGEMENT AND ITS IMPACT ON COMPANY
PERFORMANCE ......................................................................................................................................................... 406
Kusdi Raharjo, Destiana, Arik Prasetya ........................................................................................................................................ 406
THE IMPACT OF TACIT KNOWLEDGE MANAGEMENT ON ORGANIZATIONAL
PERFORMANCE ......................................................................................................................................................... 413
Narendran Shanmugam, Rajendran Muthuveloo ........................................................................................................................... 413
THE FACTORS AFFECTING BALANCE SHEET TO CAPITAL STRUCTURE DURING
FINANCIAL CRISIS 2008-2011 (THE CASE ON COMPANIES IN ASEAN COUNTRIES) ............................. 419
Hendro Lukman ............................................................................................................................................................................ 419
THE ANTECEDENTS OF THE PASSENGER SATISFACTION: THE ROLE OF RAILQUAL ...................... 426
Kenji Bisma Wibawa Junardy, Sri Rahayu Hijrah Hati, Arnold Japutra, Harryadin Mahardika, Andreina Fara .......................... 426
THE IMPACT COUNTRY IMAGE AND SUBJECTIVE KNOWLEDGE ON CONSUMER
ATTITUDES AND BEHAVIORS: COMPARISON OF KOREAN AND JAPANESE RESTAURANTS .......... 430
Alwin Adityo, Sri Rahayu Hijrah Hati, Arnold Japutra, Harryadin Mahardika............................................................................. 430
THE EFFECT OF ADVERSITY INTELLIGENCE, SOCIAL RELATIONS AND RISK TAKING
PROPENSITY TOWARDS ENTREPRENEURSHIP INTENTION OF STUDENTS OF FACULTY
OF ECONOMICS AND BUSINESS (FEB) AT UNIVERSITAS MUHAMMADIYAH
PURWOKERTO (UMP), INDONESIA ..................................................................................................................... 436
Hermin Endratno, Purnadi ............................................................................................................................................................. 436
THE EFFECTS OF SERVICE QUALITY, PRICE AND PROMOTION ON CUSTOMERS’
PURCHASE DECISION OF TRAVELOKA ONLINE AIRLINE TICKETS IN JAKARTA,
INDONESIA.................................................................................................................................................................. 442
Rani Idawati, Carunia Mulya Firdausy .......................................................................................................................................... 442
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INFORMAL SECTOR IN INDONESIA:

THE SIGNIFICANT ROLE OF THE LOWER CLASS
ENTREPRENEURS IN INDONESIA ECONOMY
Chaidir Anwar Makarim
Professor of Civil Engineering

University of Tarumanagara, Jakarta, Indonesia
chaidir259@gmail.com
Abstract
This paper present an outlook on the potential of lower class entrepreneur in Indonesia in a strategic perspective.
Cognitive reshaping is what this approach all about. In 2012 The Association of Indonesian Street Vendors (APKLI)
reported a registered number of 23.4 million street vendors spread out across cities in Indonesia. Poor education,
growing number of workforce and unbalanced economic growth and crisis were the main reason of its continuous
growth. If each street vendor take responsibility of their family, a number of 23.4 – 93.6 million actively involved in this
lower class economy activity – or at the average it represents 20 – 35 % of the total population with a net income of
US$ 150-300 per month. This figure should increase in the following years in accordance with the population growth
and scarcity of jobs. With their elementary school background and the growing of workforce faster than the job
opportunities – unemployment is their prime reason to enter these activities. The observation shows that government
has not so far enhance or supportive to their economic activities. It concludes that creative as they are but at the same
time poorly educated to understands hygiene aspects, rules and ways to reach wider market in nationals as well as
international level – they surely plays an important role in Indonesian economy.
Keywords: Informal Sector, Cognitive Reshaping, Lower Class Entrepreneur, Strategic Perspective, Street Vendors,
Economic Growth, Hygiene Aspects, Elementary School
Introduction
Economic development in Indonesia has recently brought entrepreneurship play into a significant role. In 2012 small
and medium size enterprises reach 99.00 % of total enterprises in Indonesia. Data shows that small and medium
enterprises employed 107-million workers in 2012 or 91 % of total Indonesia workforce. Compare to other South East
Asia countries, Indonesia scores highest in new entrepreneurship business with a rate of 20.4 % compare to the next
country which is Vietnam at only 11.5 %. This shows that Indonesia total early–stage entrepreneurial activity scores the
highest in ASEAN countries survey report (Andrian, B.S. 2014).
Another research conducted by World Bank Entrepreneurship Survey (WBGES) as a part of their business report
shows the indicator called business density or registered corporation per 1000 in the working-age population (ages 15-
64), business density scored 0.29 compared to Singapore (8.04) or Malaysia (2.28). However, the growth of industries
now business density is the highest in 8-years with 9.69 % compared to Singapore (5.72 %) or Malaysia (-1.8 %)
(Andrian, B.S. 2016). This bring to the conclusions that in Indonesia :
1) The spirit and intention of entrepreneurship is high.
2) The potential of entrepreneurs knowledge and education on the related matter is low.
3) There is related rules and regulation to this class, even financial support but the effort was low and almost did
not reach its intended strategic support.
As the approach of the solution is based more on enforcing the rules, tax regulation, etc - the understanding of
considering this economic layer in Indonesia is poor and lack of strategic mission. On the other hand, data indicates that
56.9 % of street vendors occupy the sidewalks and the streets with the rest spread out in green areas, urban parks,
shopping and market areas, etc (Biro Pusat Statistik DKI Jakarta, 2002). This is where The Government
disproportionately concentrates more on the regulation then on the support.
The Low-Class Entrepreneur

Just like in India (Indira, D. 2014), informal workers in Indonesia consisted of 2-types. First, the namely agricultural
employment and secondly the non-agricultural employment. The first, usually stay in their hometown country and does
not migrate to big cities. The second one is the one who is more attracted to big cities activities where the usually end
up self employed street vendors. Typical trait of this class is: poor class of society, very low education, unskilled and
most of them are migrant. (Tabel-1)
Typical street vendors based on age is shown in table:
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Table.1. Characteristic of informal and formal sector

No Informal Sector Formal Sector
1 Easily entered Hardly entered
Dependency on local human
2 Out of country labour independent
resource
3 Family Business Company based ownership
4 Operating in a small, scale site Operating in a big scale
Labour intensive and adaptive Capital intensive and imported
5
technology technology
6 Informal out of school skill International/Out of school skill.
Market protected (by quota, trade
7 Irregular + competitive market
permit)
(Source : ILO 1972:6)
Table 2. Typical characteristic of street vendor by age in Malang City, East Java
Age (yrs) Frequency Percentage (%)
21-30 14 40.00
31-40 13 37.14
41-50 5 14.29
51-60 2 5.71
≥60 1 2.28
TOTAL 35 100.00
Source: Fernando, Y (2016)
Table-2 shows that 91.43 % of them (Age 21 - 50) form the base of where street vendor comes from. The following
is the characteristic of street vendor based on number of family descendants.(Tabel-3)
Table 3. Typical characteristic of street vendor based on family descendants. (Malang City)
Number of Family
Frequency Percentage (%)
Descendants
1-2 14 54.29
3-4 13 37.14
≥5 3 8,57
TOTAL 35 100.000
Source : Fernando, Y (2016)
Another survey results which explain on the street vendor income/month is shown on Table-4
Table 4.Street Vendor income/month
Income/Month (USD) Frequency Percentage (%)

40.00 – 80.00 2 5.71
80.00 – 120.00 5 14.29
120.00 – 160.00 12 34.29
160.00 – 210.00 14 40.00
>200 2 5.71
TOTAL 35 100.00
Source : Fernando, Y (2016)
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The following conclusion drawn from the above tables are as follows:
1. Age majority of street vendor or a practice of 91.43 % is between 21-50.
2. Most street vendor or a practice of 91.43 % carry responsibility of feeding 1- 4 family member.
3. Majority of street vendor or 74.29 % earn income between USD 120.00 – 200.00/month.
Education is about values. This where the good character is built. In old Indonesia character is built in the house
where the society was not as dynamic as it is today. That was when children kissed their parent’s hand before they leave
for school or when they come back home. In old Indonesia tradition, reflect the older people wisdom, ethical mind and
honesty. As what Martin Luther King Jr. said, “intelligence plus character – that’s the goal of true education”.
Further example, a study in Jakarta estimates a total of 500,000 street vendors around the city is the 6.25 % of
Jakarta main population of ± 8 million people with family dependants from 1 to 4 as stated on Table-2. Their economic
responsibility will grow up to 25 % of Jakarta total population. This concludes how strategic is their role in Indonesia
economic activity.
Informal workers in developing country such as Indonesia should be seen in strategic perspective - They are
survivors in bad economic climates without the government help.
Strategy to Support The Low Class Entrepreneur

In an overview study of street vendors across the globe (Indira, D., 2014) it was found that their growing is known
as a global phenomenon of economic crisis, urban poor, migration at one side/and a strong will to help themself to
survive with little formal knowledge of discipline
This low class informal workers is known as a universal phenomenon. Some of them are known as rural - urban
migrates due to unemployment and poverty in their country. They came from a low income economy class who try to
help themselves, without the guidance of formal education. In consequence, unknowingly, they "violate" rules,
regulation and hygiene practices. This is where the government should see and address the problem strategically.
For the urban low income family, street vendors provide good food at low prices. This statement is also valid for
urban low-middle income family including students which benefit from their practice because of the affordable price
offered.
As a comparative study from Asia, Winarno and Allain A. (1991) consider street food vendors (also known as
hawkers or sellers) as the only way out to survive in big cities in time of bad economy. Street food micro-industries is
vital for the survival of low-income people in many towns in Asia.
Statistics reported that annual sales of street food is at the amount of US$67 million (Cohen, 1996) in a small city of
Bogor and annual street food sales in the amount of US$2.2 billion in Malaysia.
Street food also create employment in a huge town as has been mentioned earlier. The International Labour
Organization reported that 29 % of the active urban labour force in Central America were street vendors (Allain, 1988).
This activities also involves entire families. Survey reported as much as 90 % women involved in this activities in
Philippines, 53 % in Senegal and 40 % in Indonesia (Tinker and Cohen, 1985). This is because they had relatively high
incomes or better than the minimum skilled labour employed in a former sector.
Training
A survey of hygiene practice among the street vendors show that they are not yet aware on the changing purity of
ground water they used to clean the food, dishes, spoon and further on to sanitize the table. Some of them even used
food supplement colour to enrich the taste which nowadays is not popular anymore, such as : saccharin, cyclamate,
nitrosamine or monosodium glutamate (MSG). Which gives flavour in the food. Their poor education is the main reason
for their sub-standard knowledge about the material and how it can endanger your health.
Although character education is both an old and growing discipline, which attempt to structurally develop the ethical
background and motivate student competencies it presence in elementary educational system in Indonesia is not either
not or ineffective. So is the presence of ethics-based curriculum this is why the newly elected Indonesia President has
Excellency Engineer Jokowidodo, proclaim the so called principle of Indonesia character of Ethics.
In "Five Minds For The Future", Prof. Howard Gardner, Harvard graduate school of education wrote that being
honest, frank, truthful, and ethical is one key to reach success in modern business competition. As what reverend
Marthin Luther King Jr. said : "... intelligence plus character - that is the goal of true education..."
Support and Regulation

Norhaslina Hassan (2003) evaluate the current strategies of managing the street hawkers in Kuala Lumpur by
accommodating the street hawkers into modern urban management in Kuala Lumpur. The majority of the hawkers (70
%) were against the proposal of relocation, while the majority of the residents (75 %) wanted the hawkers to be
relocated into a proper hawker center. The keywords there is; relocation should be in a strategic location.
The following is an example of their willingness and compromise in Jakarta around University of Tarumanagara
(Figure.1 - 4)
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Figure 1. More than 30 years of Sukomarem Original Figure 2. Inside Sukomarem street vendor food :
Street Vendor Food Practice in sideway of University Very popular among student
of Tarumanagara, Jakarta
Figure 3. Just relocated Sukomarem inside the student Figure 4. Lunch time for student looking for their
cafe University of Tarumanagara - Clean and comfort. favourite street food.
With a price different for food of 11.11 % (US$ 1.38 – 1.154) the student eat healthier food, comfort and safe. The
same approach to reworking the street vendor from sideway walk to inside the building has also done by a government
bank in Jakarta as shown on Figure 5-6.
The same thing can be done to the so called street hawker as shown on fig.4. The government should really
understand what's in their mind when they act to survive and working for – strategic place. They will against
reinforcement if it is not in a strategic place. This means : a place easily visit by customer during lunch or sometimes
dinner time.
It is only after we satisfy them, that we can later continue with : registration, taxation, financial support, etc. The
policy of support and regulation should not be interpreted as regulation first then support. This is where the local
Indonesian government made mistake - their policy is always uncompromised regulation first then comes the undecided
support later.
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Re-arrangement of sidewalk food vendor inside the Figure 6. sitting area of sidewalk food vendor
building of a Government Bank inside the building of a Government Bank
Conclusion
Observation on Pro's and Con's of regulating street vendors in Indonesia according to the Government Regulation of
Republic of Indonesia No. 125 concerning the Planning Coordination and Empowerment of Street Vendors should
address the followings :
• Economy. Street Vendors should be seen first as a the only way for uneducated low income people to survive in
bad economy. this is the class of people that try to help themselves without the goverment support. In developing
countries their activities represent 30 – 40 % of the total population. Strategically this is where positive support
and regulation is highly needed from the goverment.
• Support and Regulation. Since their role is strategically helpful for the government to help poor people help
themselves --- Appropriate regulation means participation of those most affected. There were records in Jakarta
where street vendor food after 2nd generation becomes a successful middle class, even international favourite.
The goverment should see the problem as a blessing to lower --- middle class activities. Training on education of
hygenic practice, healthy food, good and ethical business practice should be mastered by them as a must in order
to be successfull in higher level of national and international market. On-line business is one example that could
facilitate their journey to higher level market.
Cognitive reshaping in this case should be seen as a new way to start a process in which this low-class entrepreneur
operate differently.
References
Andrian B. Santoso, Analysis : Current condition of indonesia’s Enterpreneur,
http://www.thejakartapost.com/news/2014/12/10/analysis-current-condition-indonesia-s-entrepreneurs.html.
Accsess dated October 5, 2016.
Biro Pusat Statistik DKI Jakarta, “141-073 usaha kakilima di DKI Jakarta mampu menyerap 193.314 tenaga kerja
(Hasil Sensus Usaha Kaki Lima 2001)”. Retrieved 8 November 2002, from the World Wide Web:
http://bps.dki.go.id/P2_News/P28-Kakilima.htm
Cohen, M. 1985. The influence of the street food trade on women and children. In Advances in maternal and child
health. Eds. D. Jelliffe and E. F. P. Jelliffe. Oxford: Oxford University Press
Fernando, Yandhi. 2016. Faktor-Faktor Yang Mempengaruhi Pendapatan Pedagang Kaki Lima (Studi Kasus Di Pasar
Besar Kota Malang), Fakultas Ekonomi Dan Bisnis Universitas Brawijaya, Malang.
Indira, Dendukuri. 2014. “A Study of Street Vending Across the Globe”. International Journal of Advanced Research in
Computer Science and Software Engineering. Volume 4, Issue 9, September 2014. www.ijarcsse.com.
ILO. 1992 : 6 Table Urban World/Global City. David Clark. Routladge, 1996. USA, Canada.
Norhaslina Hassan, 2003. “Accommodating the Street Hawkers into Modern Urban Management in Kuala Lumpur‟.
The 39th IsoCaRP Congress, Malaysia.
Republik Indonesia, 2012. Peraturan pemerintah No.125 Tahun 2012 tentang Koordinasi Penataan Dan Pemberdayaann
Pedagang Kaki Lima. Jakarta.
Winanrno, F.G. And Allain, A. 1991. Street foods in developing countries: lessons from Asia.
http://www.fao.org/docrep/u3550t/u3550t08.htm. Access dated October 5, 2016
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THE N-FACTORS FOR STRATEGIC ENTREPRENEURSHIP
Rajendran Muthuveloo1), Ai Ping Teoh2)
Graduate School of Business, Universiti Sains Malaysia

11800 Penang, Malaysia.
1)
Rmuthuveloo@gmail.com / +604-6535292
Abstract
This paper discusses the x-factor hidden within every individual that leads us to be entrepreneurs. The authors claimed
that it can be developed and utilized through the theory of emergence for strategic entrepreneurship called RACE,
attained via the N-factors namely novelty and nobility. Novelty and nobility that exist at the superconscious level is the
link between superconscious mind and universal energy, while being the fundamental in developing strategic
entrepreneurship among leaders such as Founders, Entrepreneurs, Managers and Turnarounders. One of the
difficulties in developing entrepreneurship is due to inability to breakthrough from social needs to self-esteem needs.
RACE highlights that contemplation enables individuals to fulfill their self-esteem needs and move towards operating
from superconscious mind, which enhance entrepreneurship through novelty and nobility. Contemplation helps
individuals to move towards the superconscious level that is connected to the universal consciousness and subsequently
utilize it to be leaders. Through this connection, individuals would be able to discover and recover novel and nobel
ideas that will be beneficial for human kind. They would be able to create new concept, models and theories, while
utilise the ideas arises from the existing concepts under Technology Infinite Possibilities within the I-TOP Strategic
Agility Model. Technology Infinite Possibilities is crucial in attaining strategic agility that is needed to create
competitive edge and organizational sustainability.
Keywords: Theory, Entrepreneurship, Emergence, Contemplation, Creativity
Introduction
Theory of Emergence for Strategic Entrepreneurship called RACE incorporates four stages namely (i) Stage 1:
Reading/Listening/observation (R), (ii) Stage 2: Analysis (A), (iii) Stage 3: Contemplation (C) and Emergence (E) as
shown in Figure 1.
Figure 1: RACE- Theory of Emergence for Strategic Entrepreneurship
Individuals normally get to know and analyse existing theories and utilising them to enrich academic world and help
practitioners to be more profitable and sustainable by creating competitive edge based on our concious mind. Begining
with Stage 1, at conscious level, we get to know things via reading, observing or sensing via our five senses of sight,
touch, taste, smell and hearing. Upon sensing, as conscious level is still dominated by energy arising from the
subconscious level which was accumulated or formed throughout life experience arises from energy from experience,
childhood conditioning and influence of norms set in our current living environment, we refer to subconscious level to
analyse or interpret what we get to know at Stage 2.
In another word, we are trying to create future by utilisng the past as shown in Figure 2. We will react positively to
certain situations if the life experience is positive towards that situation and vice versa. In reality, we do not really put in
practice many new things we learned and eventually the knowing and understanding of new thing is just a waste. The
main obstacle toward practing new things is our subconcious mind. People at this level have two options, i.e. either
keep on living as they are, or move towards the super-conscious level. Many of us end up being in the conscious level
as the task to move towards super-conscious level is very challenging.
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Figure 2: Conscious Diagram
Individuals operate from the super-conscious level are people in touch with their self-within and has better chances
of doing thing differently. At this level, the individual will have the harmony within the physical, mental and spiritual
aspects of oneself. This harmony will provide the person with all the positivity, love and will energy needed to move
forward managing their life (Assagiolli, 1997). RACE will take them another level where they will be able to utilise the
superconciuos mind to be more novel and noble, the core requirement for entrepreneurship. Instead of preparing for
future by based on information from the past, it will enable to use foresight, which will enable you to recover and
discover needs and ways of doing things differently by utilising the concept of Technology Infinite Possibilities
(Muthuveloo and Teoh, 2013).
In order for us to be novel and noble, we need utilise the Stage 3, called contemplation. Contemplation will enable
us to move away from the boundary set by our subconscious mind and utilist the superconcious mind to be novel and
noble. Upon continous contemplation, one will able move to the stage 4 called emergence, where utilise their
superconscious mind which is connected to universal consciuosness, to recover and discover things. It allows room for
the generation of novelty and nobility, ways of seeing and doing things differently that are more beneficially for
mankind (Ferruci, 2004).
Novelty means creating something in a new way with a purpose, which could solve a problem or have an effect on
society or ourselves. I used to think that novelty means coming up with something, that no one has ever thought of.
According to Assagioli (1997), we are all creators, being novel and noble in every moment of our life by renewing and
sustaining what already exists or healing and making whole. It could range from little things to something that is
overwhelming. I believe that when we are in touch with the superconscious mind, we connected to the universal
unconsciousness and have the ability to recover things that have disappeared from our knowledge and discover new
things that are readily available. Yogananda (2000) said that when you tune yourself with the creative power of the
super-conscious mind, you will be in contact with the infinite intelligence that is able to guide you to solve all problems.
Power from the dynamic source of your being will flow uninterruptedly, so that you will be able to perform creativity in
any sphere of activity. He added that what lies behind us, in front of us and around us are tiny matters compared to what
lies within us, the superconscious mind. Whenever we want to produce something, do not seek for help from the outside
source; seek within. This is the most important of all creative thinking. All methods of business success, inventions, and
vibrations of music, inspirational thoughts and writings came through this.
The two most important characteristic of an entrepreneurship are elements of creativity and imagination that arises
from novelty and nobility (Satre, 1983). Novelty is a creative faculty within us. It provides us with the power to
discover and urge to do things in new ways. Imagination is a very important factor in novelty, but will only become
effective when it ripe into conviction with a strong will and nobility. When we imagine something with all the power of
our will, our imagination turns into convictions, which will hold against all odds to make our imagination come true
(Krishnamurthi, 1991). Imagination enables us to create, where breaking the bonds of known; the mind generates new
forms, ideas, images, music or pose, mathematical insight or mechanical invention.
How RACE assists business scholars and practitioners to be a entrepreneur

Referring to the hierarchy needs of Maslow (1943), social needs is the level one has to cross in order to achieve self-
esteem that is the fundamental to entrepreneurship. Many of us are not able to achieve self-esteem as we are caught up
in the social needs level as we are still opearting via our subconcious and conscious mind, we are bound the the past
experience and norms set by the society. We are dominated by passive and aggressive energy that we utilise to fulfil the
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social needs instead working towards attaining self esteem and eventually self fulfillment. We are caught in the social
needs horizon and working towards fulfilling the social needs, which eventually will leads us to be a medioacre.
RACE will enable us to move towards attaing self esteem by enabling us to utilise the superconcious mind via
contemplation. If we are dominated by a balanced energy store in superconcious mind, we will be able to work towards
attaining self-esteem that is needed to be novel and noble by utilising concepts such as I-TOP stratgic Agility Model,
SWIM-Strateic Management Process Model, Blue Ocean Strategy, Mind-Mapping, Design Thinking and Disruptive
Innovation in recovering and discovering new things, i.e. known as emergence. Refering to Figure 3, the RATS and
STAR acronym stands for the following:
Figure 3: RATS to STAR
Entrepreneurs realize and utilize their intellect to energize the ‘STAR-Factor’ that eventually leads to them to be
‘STAR’, who are people that have attained physically, mentally or spiritually energy to dominate the world, who
eventually become leaders and role models. They have great power to inspire many others to be stars. They are
remembered for their legacy, talents, sacrifice and contribution for generation even after their departure from this world.
They attain self esteem and utilizes super conscious mind, i.e. the “Transformers”. Transformers are people who are
generally novel and noble by nature and able to continuously manage situations positively by having strong influence
over the environment they are associated with (Lobb, 2000) . STAR-Factors comprised self –confidence, ambition,
thinking and rise is the inner feelings that guide you through to do something that you are not sure of doing it at that
moment. There will always be a question whether you are doing the right thing or it is worth doing what you are doing.
In most cases, we will be somehow ended up following this inner feeling and achieve things beyond our imagination.
This is the STAR-Factor, where people connected to our superconcious mind and guided by the inner self within. In the
business world, STARs are people who that make their presence ‘FELT’ The acronym ‘FELT’ comprises of Founder,
Entrepreneur, Leader and Turnarounder (Muthuveloo and Teoh, 2014).
Conclusion
RACE - The Theory of Emergence helps to concur social needs and move on to achieve self esteem that is needed
for Self Fulfilment. This can be only achieved by utilising the third dimension called contemplation, which enable us to
utilise our superconcious mind. Utilising energy from superconciusness mind will helps to overcome the dominant of
the subconcious mind or the past energy arrise from our childhood conditioning, past experiences and current living
environment. Upon continuos utilisation of superconcious energy, we will be able to tap the universal conciousness, be
novel and noble; recover and discover new ideas through model/concept such as I-TOP Atratgic Agilities Model,
SWIM-Strategic Management Process Model, Blue Ocean Strategy, Mind-Mapping, Design Thinking and Disruptive
Innovation which the authors called Emergence. In nutshell, RACE will enable you to be a entreprenuer by enabling
you work towards self esteem that is needed to be at the superconciuos level and utilise it to be novel and nobel. In
nutshell, RACE helps you to attain the entrepreneurship required to be STAR and leaders such as Founders,
Entrepreneurs, Managers and Turnarounders, who leave behind a legacy that is beneficial to humankind.
References
Assagioli, R. (1997). The Act of Will. Turnstone Press, London.
Ferrucci, P. (2004). What We May Be. Penguin Group (USA), New York.
Krishnamurthi, (1991). The Man, The Mystery and The Message. Element Books, Longmead, Shaftsbury, UK.
Lobb, M.S. (2000). “Great persons cast great lights and great shadows”, British Gestalt Journal, 9(2), 125-127.
Maslow, A. H. (1943). A Theory of Human Motivation. Psychological Review.
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Muthuveloo, R. and Teoh, A. P. (2013). Achieving Business Sustainability Via I-TOP Model. Americal Journal of
Economics and Business Administration 5(1), pp.15-21
Muthuveloo, R. and Teoh, A. P. (2014). Strategic Framwork for Strategic Management Process. American Journal of
Applied Sciences 11(9), pp. 1703-1713
Satre, J.P. (1983). The Psychology of Imagination. Philosophical Library, New York.
Yogananda, P. (2000). Where There is Light. International Publications Council of Self-Realisation Fellowship, Los
Angeles.
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ARE BUSINESSES INTELLIGENT ENOUGH TO ENDURE VOLATILITY

AND THRIVE ON COMPETITION?
A Conceptual Framework on the Roles of Business Intelligence Use,
Strategic Agility and Organizational Performance
Ai Ping Teoh1), Rajendran Muthuveloo2)
Graduate School of Business, Universiti Sains Malaysia

11800 Penang, Malaysia
1)
apteoh@usm.my
Abstract
In order to thrive in the globalized economy, organizations need to innovate to sustain in competition. Business
intelligence (BI) is currently one of the pillar of information technology being used by many organizations to collect
and analyze useful information so as to be able to make timely decisions. Such action is very important as organizations
need to stay agile, in which organization requires strategic agility in order to be able detect, plan ahead and react to
the changing business environment. As supported by previous literature based on resource base view, dynamic
capability and contingency theory, this paper proposes the roles of business intelligence on strategic agility and
organization performance. In order to support business intelligence use, IT infrastructure flexibility is also part of the
resources required by organization that may also affect its strategic agility and performance. In addition, this paper
integrates the possible moderating effect of environmental volatility, and using organization strategic agility as the
mediating factor. This paper aims to provide insights on the importance of business intelligence use and IT
infrastructure flexibility to organization while strategic agility mediates the significance of both elements on
organization performance.
Keyword: Business Intelligence, IT Infrastructure Flexibility, Environmental Volatility, Strategic Agility, Organization
Performance
1.0 Introduction
Business intelligence (BI) is the latest evolution from information technology tools that is used by business industry.
More and more companies in various industries adopt BI to gain competitive advantage in order to move ahead in the
business context. Pan et al. (2015) have examined how firms leverage IT to achieve firm productivity. While BI
functions as a tool, in order for an organization to perform and to excel, it requires certain strategic directions by the
organization management to make good use of BI. Thus, BI could enhance strategic agility of an organization to make
better decisions in order to attain better performance. In order for an organization to accomplish its goals and become
sustainable, it would need to survive the competitive environment utilizing limited resources and its internal capabilities
to emerge for market opportunities. Evaluation of the organization is a performance measurement for an organization
management to improve their activities and performance (Ebrahimpour, Salarifar & Asiaei, 2012). Organization must
change and react quickly in terms of time, cost and performance so as to sustain the business in a complex environment
(Thomas, 2014).
Organizational performance is usually measured by three specific areas of firm outcomes: (1) financial performance
(profits, return on investment, etc.); (2) market performance (sales revenue, market share, etc.); and (3) shareholder
return (economic value added, total shareholder return, etc.). Organizational performance also measures internal
performance outcomes which are normally associated with more efficient or effective operations and other external
measures that relate to considerations that have broader economic valuation such as reputation (Venkatraman and
Ramanujam, 1986). Organization performance is vastly influenced by the business environments which are dynamic
and competitive. Environmental pressure on managing business activities has influenced the growth of organizations,
in which it could even damage the organization (Ogunsiji & Akanbi, 2013). There are many other environmental
challenges which could hamper the achievement of organizational performance such as change in technology, social,
political, economic factors and even unexpected natural disasters (Ofoegbu & Akanbi, 2012; Fateme, Abdolrahman &
Tahereh, 2013).
An organization’s ability to react to the competitive business dynamism is likely to determine the success or failure
of its business performance. Organizations that are able to react and respond to the changing environment pressures to
achieve business objectives are considered agile companies. Strategic agility contains many elements, i.e. customer
base, brand, core competence, infrastructure and employees’ ability to change accordingly to the requirements. The
ability to organize and coordinate these elements into an integrated group of resources produces an enterprise capability,
becomes a distinctive competence if it is done better than the competitors. Weill, Subramani and Broadbent (2002)
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demonstrated a significant correlation between strategic agility and IT infrastructure capability. If managers can
describe their desired strategic agility, they are able to identify the IT infrastructure that they require so that to be above
the industry average and thus can create a distinctive competence. Strategic agility is the ability of an organization to
continually sense and explore customer and marketplace improvement opportunities and respond with the appropriate
capabilities and capacities to react on these opportunities with speed, and competitive success.
2.0 The Roles of Business Intelligence, Strategic Agility and Organizational Performance
Many different technologies and innovations have been introduced to help improving the decision making and
operational process. One of the critical resources that most companies required nowadays are Business Intelligence (BI)
systems, which could achieve such objective. BI systems mainly functions to provide useful information which should
be timely, relevant, and easy to use for various organizational level. With timely and precise information which could
be both strategic and operational, organizations would be able to improve and make good decisions which in turn help
to remain competitive in ever changing business world (Bose, 2008). Successful adoption and effective use of BI
systems are generally believed to positively impact organization performance. Organizations who have invested in BI
systems and implemented best practices have seen increased revenues and significant cost savings (Watson et al., 2006)
while others have not seen the promised benefits.
While the extent of use of BI systems drives the value generated by the organization in terms of its improved
performance and decision making, studies analyzing the use of BI systems with other collaborating factors are limited.
Implementing, managing and working with BI system requires a sophisticated and specialized IT infrastructure which
include the most recent technologies such as data warehouses, data mining and multi‐dimensional and visualization
tools. IT infrastructure flexibility enables organizational capabilities and impact firm performance (Fink & Neumann,
2009). Given its relationships with and dependence on IT components, the role of IT infrastructure flexibility is
considered important in the context of BI systems.
Implementing BI system is not an easy process which solely completed with the procurement of software and
hardware, but it requires a complicated task demanding proper integration of infrastructure and other resources such as
human resource capability. Various components of enterprise performance systems such as BI systems were often
studied in isolation with strategic execution discussed at strategic level decision support at the IT department level, and
process efficiency at the operational level. The integration of BI use with other factors to impact the agility of an
organization which shall in turn affect organization performance were not adequately explained.
This paper proposes the vital point of the relationship between BI use on organization performance through the
mediating role of strategic agility. While the use of BI system may be critical to organizational agility and success, this
paper proposes that IT Infrastructure flexibility on the impact on strategic agility and organization performance is
equally important. The purpose of this study is to obtain the awareness of the trends of technology, the factors affecting
an organization ability to react to the business environment such as human capital and the interaction with its business
environment.
The theoretical significance of this study is on the resource based view and contingency theory which are applied to
discuss the theoretical framework. An organization performance as the output are influenced by the efficient usage of
the assets within the organization available resources and capabilities which are not unlimited. The BI system and IT
Infrastructure are valuable, rare, inimitable and non-substitutable resources for an organization which could help in
achieving the long term business objective of the organization. This paper also utilizes the application of theory which
enable organizations to comprehend about the influence of strategic agility that enables organization to react speedily
under the environment influence which are volatile.
3.0 Conceptual Framework

The proposed relationships between the factors of research such as Business Intelligence (BI) Use, IT Infrastructure
Flexibility, Environment Volatility, Strategic Agility and Organization Performance are explained as presented in the
conceptual framework shown in Figure 1:
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Figure 1: Conceptual Framework

Based on previous literature, BI use in various organizations has been linked to various other processes to meet the
operation objectives and helps to improve decision making. However, the direct impact of BI use on organizational
performance through organization strategic agility has not been researched thoroughly. This paper highlights the
significance of BI use in a volatile business environment on the benefits it promises on organizations; how BI can help
to increase an organization’s strategic agility, which the effect of BI use could be amplified on the organization
performance. This paper aims to utilize the organizational strategic agility as a theoretical lens to view the strategic
importance of BI and IT Infrastructure in relation to business performance. Previous study of agility in terms of
enterprise agility, IT agility and supply chain agility (Tallon & Pinsonneault, 2011; Yang & Liu, 2012) mediate the
information technology capability to organizational performance on separate studies (Doz and Kosonen, 2008). This
paper combines the agility factors as an organizational unit which is strategic agility is considered a new concept which
has yet to be studied in depth by others.
4.0 Hypotheses Development

Organizational agility is defined as the ability to detect and response to the changing environment which is filled
with opportunities and threats, with speed and ease. Speed is one of the most emphasized agility factor for most IS
research (Tallon & Pinsonneault, 2011). Some research has defined agility as being having the dynamic capability to
integrate and reconfigure existing resources to gain and release new resources such as new thinking, new procedures
within the organization to counter the external opportunities and threats. The ability of to be able to gain such
competitive advantage shall enable the organization to have better performance. Thus, this paper hypothesizes that:
H1: Organizational strategic agility has a positive relationship on organizational performance.
Organizations agility’s main criteria is on both early sensing /detecting and acting/responding immediately to
changes in the business environment with a good business decision. BI usage in an organization will help to increase
the organization agility by improving their ability to detect and response to the environment changes. Functions in BI
usage is a construct for information management capability, which is the ability to provide information and data to the
users with appropriate reliability, accuracy in a timely and secure manner. This information capability is found to have
to have positive influence on three organizational capabilities, performance management capability, customer
management capability and process management capability. Organizational agility includes a few aspects, which
include customer service, partnership and operation agility. (Sambamurthy et al, 2003). BI helps to collect, analyze and
present the interpreted data to help organization make better decision at the right time. It helps to detect the customer
event patterns, identify operation opportunities and bottleneck, which help to improve on responding and acting on a
faster and timely manner. Thus, this paper hypothesizes that:
H2: Business Intelligence Use has a positive relationship on Organization Strategic Agility
The organization performance measurements include improved profitability, reduced in costs, and improved
efficiency (Wells, 2003). Other tangible benefits which are measurable such as return on investment (ROI) and
operational efficiency (Howson, 2006). Hence, this paper hypothesizes that:
H3: Business Intelligence Use has a positive relationship on Organization Performance
IT Infrastructure of an organization is an unique technology resources which occur over time (Ravichandran and
Lertwongsatien, 2005, Ray et al, 2005). A flexible IT infrastructure means to be able to easily and readily diffuse or
support a wide variety of hardware, software, communications technologies, core applications, data, commitments and
values within technical physical base and interact with the user of the IT infrastructure. IT Infrastructure flexibility
would enable the addition and modification business process, allowing the organization to detect and react quickly to
opportunity and threats arisen. (Ray et al, 2005). The extent of Information sharing and accessibility throughout the
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organization is reflects the flexibility of such infrastructure. IT Infrastructures which are flexible are able to deliver
technical solutions effectively and promptly. (Ravichandran & Lertwongsatien, 2005). In a changing business
environment, the strategic agility of an organization needs to be able to adjust accordingly to counter the challenges.
Thus, this paper hypothesizes that:
H4: IT Infrastructure Flexibility has a positive relationship on Organization Strategic Agility
In previous research, relationship of organization performance measures and business process performance has been
suggested. (Elbashira et al, 2008). An efficient IT is able reduce coordination costs, improved inventory management
and reliable lead time as well as helped on the effectiveness and efficiency of the operational capability. Such impact on
cost effects are part of performance measurement. Thus, this paper hypothesizes that:
H5: IT Infrastructure Flexibility has a positive relationship on Organization Performance.
The link between strategic agility and organization performance can be influenced by the rate of change in the
environment. Environmental volatility is found to be a primary contributor to uncertainty and risk in decision making in
previous study. Firms need to rethink and revise their business strategy due to the unexpected market change which
could have incomplete information, and the extent and type of environmental change may not be definite. Agility is
seen as a necessity in an organization resources. In a stable setting, an organization may not have many occasions to
exercise the options and respond to change and so there is less likelihood that agility will have a significant positive
effect on firm performance. However, in a volatile setting, the same degree of agility may have a far higher effect on
firm performance due to the higher degree of market uncertainty (Sambamurthy et al. 2003). Thus,
H6: Environmental volatility positively moderates the relationship between agility and organization performance.
Organization strategic agility is a higher-order capability that can used to improve performance. (Cai et al, 2013).
Under changing environment, agility is a type of dynamic capability. BI Use and the IT Infrastructure are one of the
resources and capabilities that could help to enable organization strategic agility, to perform as a platform for
organization agility to improve the performance of the organization. Cai et al (2013) has investigated information
technology capability and knowledge management to influence organization agility to improve firm performance. The
survey showed that the information technology capability has positively influence on agility and also agility influence
firm performance. The study of agility as a mediating factor in the supply chain context has shown that agility
significantly influence the relationship between information technology capability and performance. (Liu et al, 2009).
Business intelligence is applied to detect threats and opportunities which can improve the business process performance.
It also highlighted that quick actions enabled by business intelligence enable organizations to change their business
process, rules and policies to mitigate the risks. Both IT infrastructure flexibility and business intelligence use are the
resources that could enable organization strategic agility.
Thus, this paper hypothesizes that:
H7: Organizational Strategic Agility mediates the relationship between business intelligence use and organizational
performance.
H8: Organizational Strategic Agility mediates the relationship between IT infrastructure flexibility and
organizational performance.
5.0 Conclusion
Organizations require unique resources to stay agile in to maintain competitive in the changing business
environment. The usage of well-defined data in the form of business intelligence could help organization make better
decisions, which could in turn achieve better organization performance. This paper aims to propose the importance of
business intelligence use and its impact on both organizational strategic agility and organization performance. In a
nutshell, effective use of data or information system can be a source of strategic differentiation advantage to be ahead in
the business and stay sustainable.
References
Bose, R. (2009). Advanced analytics: opportunities and challenges. Industrial management & Data Systems, 109(2)
155-172.
Cai, Z., Huang, Q., Liu, H., Davison, R. M., & Liang, L. (2013). Developing organizational agility through IT
capability and KM capability: The moderating effects of organizational climate. PACIS Proceedings, 245.
Doz, Y., & Kosonen, M. (2008). The dynamics of strategic agility: Nokia's rollercoaster experience. California
Management Review, 50(3), 95-118.
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Ebrahimpour, H., Salarifar, M., & Asiaei, A. (2012). The relationship between agility capabilities and organizational
performance: A case study among home appliance factories in Iran. European Journal of Business and Management,
4(17), 186-195.
Elbashir.M.Z., Collier.P.A, Darvern.M.J. (2008) Measuring the effects of business intelligence systems: The
relationship between business process and organizational performance. International Journal of Accounting
Information Systems Vol.9 135-153
Fateme, S., Abdolrahman, M., & Tahereh, A. (2013). Assessment aspects of organizational agility (case study of
Khuzestan Sport and Youth organization). International Journal of Sport Studies, 3(6), 643-648.
Fink, L., & Neumann, S. (2009). Exploring the perceived business value of the flexibility enabled by information
technology infrastructure. Information & Management, 46(2), 90-99.
Hall, C. (2002), Profile of SMEs and SME Issues in APEC 1999-2000, APEC SME Minsterial Meeting Mexico
Ofoegbu, O. E & Akanbi P.A (2012). The influence of strategic agility on the perceived performance of manufacturing
firms in Nigeria. International Business and Economics Research Journal 11, (2) 153-160
Ogunsiji, A.S & Akanbi P.A (2013). The role of perceived environmental uncertainty and strategic agility on the
performance of selected banks I Oyo state of Nigeria. Information and Knowledge Management 3 (7), 23-30
Pan. G., Pan S.L & Lim C.Y (2015). Examining how firms leverage IT to achieve firm productivity: RBV and dynamic
capabilities perspectives, Inf. Manage.
Ravichandran. T. & Lertwongsatien, C. (2005). Impact of information systems resources and capabilities on firm
performance: a resource-based perspective. Proceeding of 23rd International Conference on Information Systems.
Ray. G., Muhanna, W.A. & Barney J. (2005), Information technology and the performance of the customer service
process: a resource-based analysis, MIS Quarterly 29 (4), 625–652.
Sambamurthy V, Bharadwaj A. & Grover V. (2003). Shaping agility through digital options: reconceptualizing the role
of information technology in contemporary firms. MIS Quarterly;27(2):237
Stuti, K, IAS (2005), Overcoming Barriers to Innovation for Indian SMEs, Ministry Small Scale Industries, New Delhi,
India
Tallon, P. P., & Pinsonneault, A. (2011). Competing perspectives on the link between strategic information technology
alignment and organizational agility: Insights from a mediation model. MIS Quarterly, 35(2), 463-486.
Thomas, E. F. (2014). Platform-based product design and environmental turbulence: The mediating role of strategic
flexibility. European Journal of Innovation Management, 17(1), 107-124.
Venkatraman, N., & Ramanujam, V. (1986). Measurement of business performance in strategy research: A comparison
of approaches. Academy of Management Review, 11: 801–814.
Wang, E. T. G., Klein, G. & Jiang, J. J. (2006). ERP misfit: Country of origin and organizational factors. Journal of
Management Information Systems, 23(1), 263-292.
Watson, H. J. (2009). Tutorial: Business intelligence - past, present and future. Communications of the Association for
Information Systems, 25(39), 487-510.
Weill, P., Subramani, M. & Broadbnt, M. (2002). IT infrastructure for strategic agility. Social Science Research,
4235(2), 1-29.
Yang, C., & Liu, H. M. (2012). Boosting firm performance via enterprise agility and network structure. Management
Decision, 50(6), 1022-1044.
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AN ANALYSIS OF INNOVATION STRATEGIES OF TAIWANESE CONVENIENCE

CHAIN STORES
Tain-Fung Wu1), Hsiao-Ching Yang2), Thuy Thi Thanh Nguyen3)
Department of Business Administration, Asia University, Taiwan, R.O.C.
damh70@yahoo.com.tw
Abstract
Innovation is an essential element in firm’s development. It can also assist the businesses to gain competitive advantage
and generate the precise strategy. Thus in this paper, we propose the matrix model of innovation in value chain to
analyze the innovation activities of convenience chain stores in Taiwan. The findings based on the interview of key
person in convenience chain stores are that time, customers’ demand and financial aspect impact on innovation in
value chain. For future research, we can apply quantitative research for testing results or expand participants in
qualitative research.
Keywords: Innovation, Value Chain, Convenience Chain Stores, Taiwan
Introduction
Founded in 1927, the Southland Corporation - the predecessor of 7-Eleven- is a pioneer in convenience
retailing.From the beginning, the stores of Southland Corporation had just provided milk, bread and eggs that were sold
more and more on Sunday and evenings when grocery stores were closed. Thus, Joe C. Thompson, Jr., one of founders
and later president and chairman of The Southland Corporation, realized the new idea for its business and began selling
the product line in all his stores. Passing almost ninety-year development, convenience stores are increasing in amount
and impacting on the rest of the world, then nowadays taking an important part of modern life. And this phenomenon is
viewed clearly in Taiwan. Until the end of 2014, the number of convenience stores in Taiwan reached 10,131 stores, or
one store per 2,300 people and higher than Japan with one store per 2,450 people (C.W. Huang & F. Huang, 2015). The
highest density the highest competitive that is the rule of market. Now there are four major convenience chain stores in
Taiwan, including 7-Eleven, FamilyMart, Hi-Life and OK. Thus focusing on those companies can help us to see full
view of convenience industry in Taiwan.
In order to survive in the competitive market as such as gain the competitive advantages the innovation path is a best
choice for most of firms (J.M. Utterback & F.F. Suhez, 1993 ; M.L. Tushman, P.C. Anderson, & C. O’Reilly, 1997).
The innovation is the process of absorbing knowledge and translating them into firm’s real activities (S. Roper, J. Du &
J.H. Love, 2008 ; K.L. Orengo Serra & N.B.P. García, 2013). Reference (M.T. Hansen & J. Birkinshaw, 2007)
suggested that this process is divided into three stages: (1) idea generation; (2) conversion; (3) diffusion. Then it can
generate the new value, product, service or progress which can help the firm take an advantages in given market (S.
Roper, J. Du & J.H. Love, 2008). However, it is really not easy implementing successfully in the uncertain environment
and intensively competitive market nowadays (J.M. Utterback & F.F. Suhez, 1993; D. Walters & M. Rainbird, 2007).
Beside external factors, innovation also is affected by internal factors such as entrepreneurial strategies, organizational
structure and group functions, and organizational climate (S.D. Saleh & C.K. Wang, 1993). Thus our purpose is analysis
of innovation activity in aspect of whole firm to find out appropriate strategy in given industry. In this paper we propose
the value chain matrix due to analyze the impact of innovation to the total value chain. Through this matrix model we
also want to understand deeply about innovation activities in given industry.
In this paper we use the case study of three companies in convenience retailing industry. The interview outline is
based on the conceptual model of value chain matrix. The result is presented by combining the secondary source and
interview information.
Literature review
1. Management Innovation
Reference (P.F. Ducker, 1985) defined innovation is firm’s determined action to revolutionize and exploit its
potential ability in future. Nevertheless the author did not distinguish between technology innovation and management
innovation. Technology innovation bases on generating the new products or services, however management innovation
creates “new organizational structure, administrative system, and management practices” (F. Damanpour, 2014). Thus,
management innovation is defined as application of “new management practices, process or structure” in order to get
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organization goals in the future (J. Birkinshaw, G. Hamel, & M.J. Mol, 2008; M.J. Mol & J. Birkinshaw, 2009; H.W.
Volberda, F.A.J. Van Den Bosch, & O.R. Mihalache, 2014). Due to relate to managerial system or human factor,
management innovation consists of three distinctive factors: (1) management innovation is difficult to protect because
of implicit nature (D.J. Teece, 1980); (2) scarce source of specialized expertise in management innovation field is a
significant issue; (3) uncertainty and ambiguity for members of firm appear when firm applies management innovation
(J. Birkinshaw, G. Hamel, & M.J. Mol, 2008). Therefore management innovation needs to reflect prudently in the
whole of administration system that called value chain.
2. Value chain
The concept of value chain is introduced by Michael E. Porter (M.E. Porter, 1985). Value chain includes two main
activities: support activities and primary activities. These two activities combine together to obtain the organizational
goals. Different industries have different value chain because of nature of themselves. Due to service industry, value
chain in convenience chain stores is arranged in Fig.1. In this article, we choose innovation to analyze seven elements
of value chain, included: products, service, warehousing and logistics, equipment, marketing, human resources and
brand.
Product innovation defined as applying new technologies or generation in design of product or vital components (J.
Mutterback & W.J. Abernathya, 1975; R. Roy & J.C.k.h Riedel, 1997). Convenience chain store belongs to retailing
industry, so they don’t produce product. Thus in this article, we suppose:
A01: Do the firms have a plan to produce new products? How frequency is it coming (every year or every quarter)?
Service innovation differs from product innovation because product innovation needs more investment than service
innovation (J.P.J. de Jong, A. Bruins, W. Dolfsma & J. Meijaard, 2003; H. Gebauer, R. Krempl, E. Fleisch & T. Friedli,
2008). In contrast, service innovation is more subject to human resource (HR) strategy (H. Gebauer, R. Krempl, E.
Fleisch & T. Friedli, 2008) and organizational structure (G. Sirilli & R. Evangelista, 1998). HR strategy can generate
HR practices, in which firms can influence and shape skills, attitudes and behaviors for their staffs (M.G. Martinsons,
1995; C.J. Collins & K.D. Clark, 2003; C.J. Chen&J.W. Huang, 2009). HR innovation generates not only new HR
practices but also new process of recruitment and policies of keeping the staffs. Whether service innovation can
contribute greatly to consumption; or service innovation failure leads to decrease the quality of the consumer-brand
relationship (S. Liao, C.Y. Chou, T.H. Lin, 2015). Thus in this article, we suppose:
A02: How do customers analyze about firms’ service? If they have any complaint, what do firms do?
A05: Do the firms have any innovative policies to maintain and recruit the talented employees?
Warehousing and logistics innovation is one portion of non-technical service innovation although technology is used
as vehicle to enhance the process (R.L. Chapman, C. Soosay & J. Kandampully, 2003). Up-to-date information and
communication technology (ICTs) can contribute to the effectiveness of overall strategy and of other activities outside
the traditional logistics task, further to help firms get the competitive advantages (A. Kerr , 1989; R.L. Chapman, C.
Soosay & J. Kandampully, 2003). ICTs in logistics refer to software - that can manage all stock in warehouse, order
process, barcoding, automated storage and information system; and hardware as equipment (R.L. Chapman, C. Soosay
& J. Kandampully, 2003). Investment in equipment leads to have high rate of return (J. B. de Long, L.H. Summers &
A.B. Abel, 1992) so firms need to use effectively all equipment. Thus in this article, we suppose:
A03: Do the firms have new ideas in order to use the equipment efficiently?
A04: Do the firms apply new technology for controlling warehousing and logistics? Does it the newest version?
Do the firms apply the modern software to manage the information system? What is its benefit?
If firm wants to become a successful business, it focuses on not only product innovation but also brand innovation
(S.P. Jaworski&D. Fosher, 2003). For brand, innovation defined as creating new ways to keep customers’ brand image
belief, which includes high brand equity, high customers loyalty, strong brand associations in customers’ memories (K.
L. Keller, 1993; R. Batra& P.M. Homer, 2004). Thus in this article, we suppose:
A06: How do the firms keep the good image from customers?
Marketing innovation defined as presenting “the new ways to marketing themselves to potential or existing
customers” (N. Halpern, 2010). In contrast, market innovation is activities which can support firms enter the new
market (A. Johne and R. Davies, 2000), so marketing innovation and market innovation are different. Inventing the new
marketing campaigns is a key role in firm. Thus in this article, we suppose:
A07: What is the latest marketing campaign in your companies? When did it happen? Does it bring the high
efficiency to the customers?
Fig. 1 The matrix of innovation in value chain

Value chain Warehousing
Products Services Equipment HR Brand Marketing
Factor and logistics
Innovation A01 A02 A03 A04 A05 A06 A07
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Methodology
In this article, we need to analyze innovation in value chain to find out the competitive strategy between
convenience chain stores, so the suitable methodology is individual depth interview (IDI), one kind of qualitative
research. In Taiwan, we have four big convenience chain stores, however Hi-Life and FamilyMart have the same big
shareholder, thus we only interview three brand name, including 7-Eleven, FamilyMart and OK. The participants are
store owners who have at least three-year management experience, so they can comprehend the performance procedure.
The type of sample is nonprobability – purposive.
We use semi-structure interview outline for this article. The interview spends one and half hours discussing about
structure questions. They are ranked in descending order of priority as Fig.1. The interview divided into two parts: first,
discuss about their position in the market and competitive strategy; second, participants answer the structure questions.
We record all the interview, then figure out what is the competitive advantages in their strategies.
Result
Product
Three convenience chain stores have product innovation team in the main company, however, the time to accept
application of new products is different. The longest time is OK with 3-4 months, FamilyMart releases new products
every month, which bases on half-year planning. The shortest time is 7-Eleven with every two-week. It proves that 7-
Eleven does attach special important to product innovation than the others, however FamilyMart also has clear planning
for the short terms.
Service
The procedure to solving customers’ complains is the same between three stores. When they received complaints,
firstly store manager should solve by all their efforts. If they cannot satisfy customers, the main company would assign
staff to help the stores. Three convenience chain stores have law team to support for stores to resolve the serious
problems. Although methods to complain which OK, FamilyMart and 7-Eleven apply are directly tell to manager and
call to company’s customer service, 7-Elven that has still one other method is send email to the company. It means that
7-Eleven attempts to get all customers’ complaints to satisfy them.
Equipment
Three stores not only attempt to exploit functions of equipment but also have maintenance team to support stores
fixing equipment. However their approaches are different. For example, in winter customers are not interest in ice-
cream, but the OK stores must sell the fixed quantity; if they cannot finish the target, they will be punished in money. In
contrast, FamilyMart and 7-Eleven have positive strategies, in which whether stores sell more than the target, they can
get higher profit or nothing happens.
Warehousing and Logistics

Technology in OK is not up-to-date because company invests less money in it. FamilyMart and 7-Eleven spend a lot
of money in modern technology, which can support them to manage all warehouse and order products. In modern
technology, there are two types of order, including automatic order and human order, but in the old technology, there is
only human order. Regarding to delivery time, if they order products in the morning, OK company delivers in tomorrow,
but FamilyMart and 7-Eleven deliver in the same day. Thus financial aspect is important to up-to-date technology.
Human Resource
In retailing stores, staffs are not necessary to obtain a lot of skills, so the stores do not have specific policies to
maintain or recruit the employees. They just need staff are responsible, independent and work-hard. The salary they pay
for staffs the same all stores. Thus no difference or competitive advantage between three convenience chain stores
exists in HR.
Brand
In order to keep company’s image, OK and 7-Eleven operate course every month to train staffs, but FamilyMart do
not have that course. Three parent companies assign one employee to investigate retailing stores every month for
quality of products and service. Nevertheless 7-Eleven is more special than the others because it has secret staff. It
means that the stores do not know who will come or when he or she will come. Thus 7-Eleven has a better method to
get the results.
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Marketing
Three convenience chain stores attempt to create new marketing campaign every month. When they release new
products, they also reduce the price to encourage customers buy them. However increasing revenue of new products
depends on type of product, in which fashion or healthy products are increased in sales. There is a special marketing
campaign in FamilyMart and 7-Eleven, which is collecting stamps to exchange gifts. However, customers prefer 7-
Eleven’s gifts because of its beauty and value.
In sum 7-Eleven always is the first position in convenience chain stores in Taiwan. How can they keep their position?
It is innovation. They accept to application of new product fast, attempt to satisfy all customers’ complaints in many
methods. They also spend a lot of money in technology and create encourage for retailing stores. In addition they
generate a keen method to investigate stores’ product and service quality. They can fulfill customers’ needs by using
beautiful and valuable gifts. The second position is FamilyMart. However until now FamilyMart cannot overcome 7-
Eleven. Although sometimes FamilyMart is a first store for creating new product, customers prefer 7-Eleven’ product.
For example, FamilyMart generate ice-creams which are made in store’s machine. Nevertheless customers prefer 7-
Eleven’ ice-cream because its material is imported from Japan. FamilyMart uses the domestic material. Another issue is
financial aspect. Franchise fee is different between three stores. The highest fee is 7-Eleven with 1-2 million New
Taiwan Dollar (NT$), the lowest fee is OK with NT$300,000, and FamilyMart needs fee of NT$900,000. Thus
financial aspect can effect to innovation in firms. They spend more money in innovation so they need a huge capital to
invest. To do that they must built a famous brand in customers’ view.
Conclusion
In convenience chain stores, innovation in HR is not significant, however innovation in product, service, equipment,
warehousing and logistics, brand, and marketing take an important part in reaching competitive advantage. 7-Eleven is
an evidence for innovation in value chain can support firm to get the high position in market. Time, customers’ demand
and financial aspect are important factors that can impact on innovation in value chain. As the other article, this paper
has some limitations. First, quantitative research is necessary to test deeply the results. Second, participants can expand
to managers in parent companies. Thus in future research, we can apply survey research by using quantitative
methodology. We can also consider to interview managers at headquarters for qualitative research. Maybe the results
are different.
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THE RELATIONSHIP BETWEEN PRODUCT ATTRIBUTES, PRODUCT

INVOLVEMENT, WORD-OF-MOUTH, AND PURCHASE INTENTION OF MEDICAL
EQUIPMENT—COMPARING TAIWANESE AND MAINLAND CHINESE MARKETS
Wan-I Lee1), Yu-Ta Shih2), Shan-Yin Cheng3)

1)
Department of Marketing and Distribution Management,National Kaohsiung First University of Science and Technology,Kaohsiung,Taiwan
2)
Innovision Optical Co,Ltd,Kaohsiung,Taiwan
3)
Department of Applied English,I-Shou University,Kaohsiung,Taiwan
1)
wilee@nkfust.edu.tw
Abstract
As the multiple applications of the internet are developed, purchasing commodities through the network has become
more popular currently. Nowadays, customers are able to purchase medical equipment not only at the pharmacy but
through the internet; notwithstanding, the studies for analyzing the effects of the customers’ purchasing intention on
acquiring medical equipment are deficient. To develop the hypotheses, the researchers built a research model based on
the relationship between product attributes, product involvement, word-of-mouth, and purchase intention of medical
equipment within both of the market in Taiwan and Mainland China. The model and measurements were based on the
literatures. The study collected the data consisting of 411 responses of shopping the medical equipment on the internet
and utilized the one-way analysis of variance and independent-sample t-test to analyze the statistics. The findings
demonstrate that word-of-mouth, product involvement, information, and prices had positive influences upon purchase
intention; conversely, product quality had no significant benefit to customers’ purchase intent. Additionally, the
customers in Taiwan concerned product quality more than prices owing to the consideration for the products’ actual
benefits; on the other hand, due to the increase of the purchasing power in Mainland China, the customers regarded
self-benefit and the value of the brands as being of vital importance rather than pursued the low-price products.
Furthermore, the results show that word-of-mouth from the internet such as the blogs would be adopted by the
customers easily and directly impact the product selection. The recommendation will be given as the references for
assisting the small and medium enterprises to plan the appropriate strategy for expanding the online business.
Keywords: Online Shopping, Product Attributes, Product Involvement, Word-of-Mouth, Purchase Intention
Introduction
According to the prediction made by Battle in 2003, a research and development institute in the United State,
medical equipment is one of the ten industries with the massive growth potential. The national health expenditure
accounts, released by the Ministry of Health and Welfare of Taiwan in 2010, revealed that the percentage of the
expenditure that households used to purchase medical equipment increased from 10.2% in 1996 to 14.1% in 2012,
which showed that this sort of products has become more popular in the daily life gradually.
Owing to the products being related to the body health and life safety, the more complicated and stricter
requirements to medical equipment will be expected than those to general product. There are so many products which
were sold through the internet nowadays. The small and medium enterprises, especially, use the internet to strengthen
the power of the brand and the market of the products.
On the basis of the legislation of medical equipment, there are the amount of differences for acquiring the license
between Taiwan and Mainland China; nevertheless, the main purpose, correspondingly, is to strictly control the firm
performance and quality. Due to the Pharmaceutical Affairs Law of Taiwan and the specification of the medical product
in Mainland China, the current study aims to seek the distinction between both of the market in Taiwan and Mainland
China to obtain the in-depth information about the factors of influencing the purchase intention. The findings will be
provided for the related experts or scholars for reference purposes.
As the multiple applications of the internet are developed, purchasing commodities through the network has become
more popular currently. Nowadays, customers are able to purchase medical equipment not only at the pharmacy but
through the internet. Thence, the way using the internet to create the additional profit and even solve the problems that
the traditional store has is the emphasis that most of the enterprises have concerned for a while. Accordingly, the
purpose of the study is to investigate the relationship between product attributes, product involvement, word-of-mouth,
and purchase intention of medical equipment within both of the market in Taiwan and Mainland China by the
quantitative questionnaire inquiry.
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Literature Review
Concerning the management for medical equipment, the related units and legislations regarded the quality of
products and the risk management as being significantly important. The Regulations of Governing the Management of
Medical Device promulgated by the Ministry of Health and Welfare of Taiwan in 2014 stated that medical equipment
was categorized into three classifications according to the level of risks of that, including class I (low risk), class II
(medium risk), and class III (high risk).
Kotler and Keller (2012) used different product’s characteristics including product design, quality, packaging design,
and features to build a research model. The results cleared that product attributes including product information, quality,
and prices had positive effects on purchase intention.
Blackwell, Miniard, and Engel (2001) claimed that product involvement was able to determine the customers’
product selection during the purchasing process. In addition, Schiffman and Kanuk (2000) considered that a high-
involvement purchase existed when the product was important to the consumer and, therefore, had the customer search
more information about the product or look for other alternative selections. Otherwise, the product only holding the
slight importance to the consumer was less likely to encourage customers to discover further information and the
alternatives.
A precedent study (Bickart & Schindler, 2001) demonstrated the trustworthy sources from the internet would
positively impact consumers’ purchase intention; this finding showed that online word-of-mouth would have a degree
of persuasion to increase the willingness of purchasing.
From the definition Schiffman and Kanuk (2000) had provided, purchase intention was the possibility that
determined the strength of the customers’ willingness to purchase the commodity; the higher the possibility was, the
stronger purchase intention would be.
Methods
The research framework of the presentstudy aims to investigate the relationship between product attributes, product
involvement, word-of-mouth, and purchase intention towards medical equipment. Taking the purposes into
consideration, the five research hypotheses would be addressed as Table 1 indicates.
Table 1. Research framework
Product Attributes
H1
・ProductInformation H2
・Product Quality Purchase Intention
・Product Price H3
H4
Product Involvement
H5
Word-of-mouth
Participants
A total of 411 respondents, including 220 participants in Taiwan and 191 of those in Mainland China, were involved
in the quantitative inquiry. The sample of the study consisted of the population who had had the experience of
purchasing the commodity from the network ever or were about to conduct. The demographic information revealed that
most of the participants had an undergraduate degree; also, of 411 participants, 87% of those were female. The age
range was 16 to 29. In addition, 35% of the participants in Taiwan whose monthly income was about 30,000 to 50,000
NT$ were the majority; on the other hand, 70% of the participators in Mainland China had a monthly income of 5000
CN¥.
Instrumentation
The current research adopted the questionnaire survey as the method of the quantitative inquiry. Fundamentally, all of
the research questions were based on the research framework and the review from the previous literatures. A
questionnaire involved the letter of transmittal mentioning that the individual information would be private for the
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reason of the participants’ protection. A 5-point Likert scale was applied to determine the strength of the participants’
perspective towards each question.
Data Analysis Procedure

Each scale was investigated in advance by utilizing exploratory factory analysis; the results supported as a single
dimension for each scale. The content validity for the survey was to determine whether the survey was appropriate for
measuring issue being related to product attributes, product involvement, word-of-mouth, and purchase intention.
Content validity testing of the survey was done by a panel discussion that served as experts with good experience in the
field. The reliability appropriate in the context is an estimate of the internal consistency—homogeneity. The criterion
was followed by Cronbach’sαstatistics to measure the form of reliability. Cuieford (1965) suggested that the value of
Cronbach’s  is equal to 0.50 as a minimum standard for group comparisons, which was a useful guideline. All of the
questionnaires appeared to have acceptable levels of reliability and validity.
Descriptive Statistics were used to quantitatively summarize the demographic variables such as the average age,
monthly income, educational background, and the proportion of the participants of each gender; afterwards,
implementing the one-way analysis of variance acquired the relation between the demographic variables and the main
points of the study including product attributes, product involvement, word-of-mouth, and purchase intention. Besides,
the differences in means between both of the population in Taiwan and Mainland China would be discovered by
conducting the independent-sample t-test. Moreover, therelevance amongst each main point of the research was
examined by the multiple regression analysis for interpreting the statistics.
Results and Discussions

After analyzing, the results from the sample in Taiwan evidence that product information, prices, involvement and
word-of-mouth had positive impacts on customers’ purchase intention towards medical equipment, which fit into the
hypothesis one, three, four, and five. However, product quality, on the contrary, was unable to influence purchase intent
positively; the hypothesis two cannot be established.
The findings from the sample in Mainland China also clear that customers regarded product information, prices,
involvement and word-of-mouth as positive effects upon purchase intent towards medical equipment; nevertheless,
product quality had no positive influences on purchase intention as well. Correspondingly, except the hypothesis two,
all of the other hypotheses conformed to the results.
The online marketing of medical equipment exists various factors to affect purchase intent.Thereby,in order to
pursue the practical application, the following suggestion and discussion will be further illustrated with two roles—the
customer and the enterprise.
As a costumer, medical equipment is relevant to the professional field; it is necessary for consumers to gain the
related information or knowledge about the product from the particularreading materials or the speech of the experts.
The finding reveals that product knowledge has been a common concern in Taiwan because customers are capable of
acquiringthe amount of information through diverse approaches.Thence, consumers may have the lower probability to
blindly adoptthe information from the questionable origins on the internet. In comparison, considering the majority of
customers in Mainland China, the approach for receiving the information, unlike customers in Taiwan, is insufficient
and inconvenient. Additionally, the online word-of-mouth such as the blog has been excessively commercialized, and
the authors’ reviews or individual perspectives turn into a portion of the advertisement; the online word-of-mouth,
consequently, become worthless.
On the other hand, as an enterprise, acquiring the license through submitting the application to the related units is a
prior issue before trading the product because medical equipment is regarded as the regulated product. As the results
indicate earlier, the company is supposed to concentrate more on using the advantages that the product possesses to
publicize the product, which may be one of the effective methods to establish the great impression of the product’s
quality on the mind of customers. Besides, product involvement, similarly, has great influences on purchase intention
with delivering the clearer information of the product and the value of the brand to customers to increase the brand
memorability.
In terms of the development of the medical equipment industry in Mainland China, customers are capable of
purchasing products from the internet as long as the enterprise obtains the related license, which reflects that the
industry is updated constantly with the current trends. However, the industry’s development in Taiwan, instead, is tardy
and may not have the industry improved positively owing to the present legislation merely allowing partial commodities
to be sold online rather than all of those. The industry will be restricted to expand unless the enterprise are able to
promote the product without the inordinately strict limitation and enhance the customer’s cognition towards the product
in a faster and more effective way.
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References
Bickart, B., & Schindler, R. M. (2001). Internet forums as influential sources of consumer information. Journal of
Interactive Marketing, 15(3), 31-40.
Blackwell, D. R., Miniard, P. W., & Engel, J. F. (2001). Consumer behavior. Boston: Harcount.
Cuieford, J. P. (1965). Fundamental Statistics in Psychology and Education (4th ed.). New York: McGraw Hill.
Kotler, P., & Keller, K. L. (2012). Marketing Management (14th ed.). England: Pearson.
Schiffman, L. G., & Kanuk, L. L. (2000). Consumer behavior (7th ed.). Chicago: Prentice Hall.
Schiffman, L. G., & Kanuk, L. L. (2005). Consumer behavior introduction: The impact of digital revolution on
consumer behavior. New York: McGraw Hill.
Authors’ bibliography
Wan-I Lee is an Associate Professor in the department of Marketing and Distribution Management at National
Kaohsiung First University of Science and Technology. She received her Ph.D. degree from the Department of
Mathematics, University of Norther Colorado, USA. Her current research interests are in customer relationship
management and healthcare marketing.
Shan-Yin Cheng is a student pursuing the B.A. degree in the Department of Applied English at I-Shou University in
Kaohsiung, Taiwan and holds a part-time position at Pai Han Foreign Language for teaching English. He currently
attends several courses from the Department of Managementas the prerequisite courses for applying for the Master’s
degree programme in Management. His research interests include English teaching and reading strategy.
Yu-Ta Shih is an Associate Vice President in Innovation Optics Co, Ltd for the enterprise management. He obtained the
M.S. degree in the department of Marketing and Distribution Management at National Kaohsiung First University of
Science and Technology in Kaohsiung, Taiwan. He has the profound experience in managing the marketing channels of
medical equipment.
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KNOWLEDGE MANAGEMENT AND VALUE CREATION FOR TAIWAN CHILDREN’S

CLOTHING INDUSTRY: A QUALITATIVE CASE STUDY
Cheng-Lung Li1), Hsiu-Chen Tsai2)
Kun Shan University Taiwan, R.O.C.

1)
chenglung.li@gmail.com
Abstract
Taiwan children’s clothing industry has been integrating into a complete supply chain. Most clothing firms also have
been deploying manufacturing plants in Asian countries (such as Vietnam, China, Myanmar, India and so on). However,
the impact of global competition on the change of economic environment and the migration of labor forces produce
high employee turnover rate. Consequently, Taiwan children’s clothing firms face the threat of loss of critical knowledge
and skills. Thus, it is vital for a company competition to develop the knowledge management and further create value
within the organization. This study is to explore how the firm could deploy the knowledge management and value
creation in Taiwan children’s clothing industry. The research adopts a qualitative case study of children’s clothing
company by conducting a depth interview for 10 clothing experts from different
departments(including procurement, sales, design and product technique). This study first investigates and evaluates the
current knowledge management system and then further to understand how the company could improve the system into
the business practices. The study found the best way to transfer knowledge is enterprise interaction by exchanging ideas
between internal and external work. The most effective way to create knowledge from internal employee accumulated
experience and knowledge , customer feedback and external suppliers, obtained from the interactive learning in the
storage and application of knowledge and sharing, combined with each other to produce benefits. The study suggests
that the company has to continuously improve current knowledge management system by building SOP library (cases,
personal experience) and supplier base (different customer characteristics and SOP) and by controlling the process of
transformation of knowledge so as to enhance company completion in the global environment.
Keywords: Knowledge Management, Clothing Industry, Expert Interviews, Case Study
Research Background
In recent years, Taiwan's children's clothing industry due to the declining birthrate is not easy to operate, many well-
known foreign brands imported sales impact and the change of the consumption habits, diversified sales platform, and
seriously affecting Taiwan's clothing industry to survive, how to create a blue ocean in the Red Sea, It is an important
issue.
With government decree movement and the environment is changed, amended at any time, knowledge management
is more important. How to make children's clothing industry R & D personnel, product development, strategic planning,
upstream and downstream supply chain management, merchandise and cross-sector coalitions, giving a higher value
product differentiation, will be presenting the best of the knowledge management effectiveness and evaluation. Retired
employee turnover, labor migration and national economic environment, enterprises are faced with the threat of
knowledge loss of business because they cannot retain key knowledge, attracted companies survive the crisis, how
knowledge management to achieve access, use, share and expand become critical.
Objective and Problems

This study was aimed at understanding how the garment industry knowledge management, in-depth interview to
assess knowledge and learning effectiveness and make recommendations for the construction of the garment industry
knowledge management, achieve common growth of the personal and corporate organizations.
Research questions: 1, children's clothing industry, for example, how to manage knowledge to make the most
effective use and import practices face? 2, how to take knowledge management methods to remedy damage caused by
the loss of tacit knowledge and create value?
Literature Review
Knowledge and Knowledge Management System
Definition of knowledge
Drucker (1995) will replace the knowledge of land, labor, capital, and machinery and equipment, has become the
most important production factor. Knowledge is confident understanding of a subject, and these have the ability to
recognize the potential for a specific purpose and use. It refers to the body of knowledge through research, investigation,
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observation or experience obtained, or a series of information. Davenport (1998) proposed the definition of "knowledge
is a combination of one kind of flow properties, comprising: a structured experiences, values and character of the
information through.
Knowledge Classification and Definitions

Contains the explicit knowledge and tacit knowledge
A knowledge classification table
type definition
Explicit knowledge * Explicit knowledge can be expressed in words and numbers, easy to hard data
Forms of communication and shared, for example, edited programs or universal
principles.
* * Exist in the document may be encoded (Codified)
* Easy to use text format recording * Easy Transfer
Implicit knowledge * Tacit knowledge is highly personal and difficult format knowledge, subjective
Understanding, intuition and hunches fall into this category. For example,
employees
experience. * Exists in the minds of men
* Non-coding (Uncodified) * difficult to use in the form of text records
* ¯ difficult to transfer
Knowledge Value Creation garment industry

Nonaka and Takeuchi (1995) states: knowledge creation spiral figure can be divided into four conversion mode
shown in Figure 2.3:
1. Socialization
The tacit knowledge to tacit knowledge, the company colleagues heritage experience, cases of early stage companies,
mostly using apprenticeship, apprenticeship is mainly transmitted through observation, imitation, practical exercises
learning technology, limited personal experience, not learning brainstorming ways to expand learning level.
2. Externalization
The tacit knowledge to explicit knowledge shall be by analogy, hypothesis, description, explain the concept in words
or statements expressed through advocacy, announced the way, this process is the key to knowledge creation. It is to
enhance the professional and technical clothing, if the employee's own experience of writing or preparing to operate
manual, can enhance work efficiency and avoid errors.
3.The combination
Explicit knowledge from outside to explicit knowledge, ideas and concepts will be demonstrated systematic way to
make knowledge transfer and sharing, discussion comments, corrections, become SOP is stored in the company's
internal Web site. Garment industry expertise, technical knowledge need to be constantly revised in order to meet actual
requirements, through various departments to review and revise and enhance the usefulness of knowledge. Link method
further comprising: through the Internet, the information and knowledge, to quickly communicate to colleagues, co-
workers each business data and files, pictures, etc., can download and reference.
4. The inside of
The explicit knowledge into implicit knowledge process. Important information and methods to acquire knowledge
from external and internal information, knowledge and create value through their own experience to understand output
for the company to improve the quality and effectiveness of the management, for example, the company formed the
form file, SOP, or the company's growth strategy change, with the company internal or external audits may amend or
adjust its content to match its practicality.
Research Methods and Design

This study is to explore how the firm could deploy the knowledge management and value creation in Taiwan
children’s clothing industry. The research adopts a qualitative case study of children’s clothing company by conducting
a depth interview for 10 clothing experts from differentdepartments(including procurement, sales, designing and
product technique). This study employed two types of interviews, including in-depth individual interview and group
interview .
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Case Company Profile

Company Profile
Case company was founded in 1976, mainly engaged in the retail sale of children's clothing and garment
manufacturing, instrument large companies always stick to their operating principle - agent prestigious brands, the
creation of "classic and fashion coexistence," the style of the brand, the production of "high-quality health "apparel
products, providing the perfect pre-sale and after-sales service. "Green Tree" was inspired by the urban shelter from the
storm, land desertification contend scientific literature as instrument of big business graphic signs, use has been nearly
half a century of history. Green tree logo convey to customers - "healthy, vigorous, and given rely on trustworthy" spirit
of enterprise, including also a metaphor for the business founders of the enterprise, "the storm of Freemasonry, united
and progressive" management philosophy. (4) domestic and international retail brands and business via the (1) clothing
apparel (2) Accessories (3) the physical store sales and virtual sales network: the main content of the business.
Providing a wide range of popular products and choices to customers most in need always to meet customer one-stop
shopping services, into the large instrument (Pepsi special) children's clothes, taste so different, is different.
year History
Mark the introduction of computer GGT AccuMark system, making clothing fully
1995 computerized, saving labor costs and production timeliness, Mark system to
enhance the usage of cloth.
1996 Art computerized design.
1997 The introduction of embroidery-making system
1998 Workers pay system introduced IE
2000 IT department set up, the company fully computerized operations.
2001 The introduction of NT production management system
2010 Establishing an internal Web site, build information platform
2013 Import ERP system
Case status of knowledge management company

Case company learning system by PDDRO, education training quality certification mechanism, providing complete
employee education and training.Education and training in three parts, new training, job training, learning and growth.
Education and training plans.
New training
Construction of the new knowledge management system complete courses for new employees quickly into the work
and corporate culture, the company has a sense of identity.
1.Order 2. Procurement Course curriculum courses3. Marketing 4. Finance5. HR course curriculum
6. Technical Course Business Course 7. The core functions of management functions
Research methods
This study was designed to investigate the case of employees as the interviewee, to explore research focuses on
knowledge management for each stage of the case the operating requirements and knowledge management processes
combined with the results of the knowledge requirement to complete the filing and classification, to plan the case
company knowledge management system to facilitate the subsequent new hires and transfers of staff training. Study
design uses expert in-depth interviews, interview type of design for the semi-structured interviews, focusing on the use
of broader research questions as Interview with the basis to guide Interview conducted interviews table or interview
guidelines (interview guide) shall, prior to the interview design is completed . In the analysis of qualitative research in
order to collect the integrity and diversity of information, respectively, recording, readily notes, transcript, listen,
observe and interview manner.
Study process following several points: 1, case study company knowledge management processes, application-based
questions of the interview. 2, the establishment of the questions of the experts. 3, use the table to record the interviews.
4, analyzed interviews, existing knowledge management process, proposed to be strengthened place. 5, aggregated
complete the planning system, the company's future proposals build on the knowledge management system.
Depth interviews and questions

In this study, according to the company's existing usage, knowledge management, process-related, content diagnosis,
interviews with in-depth interviews. The main purpose of the organizer to confirm each stage of the process, product
development, billing quotes, producing goods, etc. associated with the single phase, functional knowledge of what
management needs; reference interviews to discuss this research knowledge management capabilities still need what
part strengthened. Interview questions of three parts: First: Participants of the basic information, including service units,
seniority, job title, and so on. Second: Interviews can be divided into three facets 1. Current use of diagnostic content
diagnostic 2. 3. Knowledge management functions and processes relevant. Third: classified according to the kind of
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knowledge will distinguish learning courses do, Case interviews Objective To investigate the corporate knowledge
management functions. Case analysis company employee seniority, later via a weighted average basis, average length of
service of the Company is 8.3 years, seniority 8.3 years for the junior employees, seniority more than 8.3 years of senior
employees, seniority distribution in this study interviewer of the 8.3 years of the following the five employees, more
than 8.5 years of the five employees.the respondents of the service units, and job title, years of work introduced.
Name Job title service units Working (years)

Mr. A A business product Operations Assistant 1.9
Miss B Two business products Supervise 7.8
Miss C Department of Design Design Assistant 3.7
Miss D Design Division design 8.3
Miss E Technology Service Workers pay Leader 15.2
Miss F Technology Service QC Leader 12.4
Miss G Technology Service Manufacturing instructions 9.2
Miss H Technology Service Embroidery printing Buyer 4.8
Miss I Procurement Service purchase 10.1
Miss J Procurement Service Leader of Health 5.6
Process expert interviews and commentary

Phone calls and mail to inform the respondents described the intention and purpose of this study summarized. Mail
interview with the questionnaire respondents passed, please read it first, and to determine whether the respondents to the
questionnaire by the title of the issue is understanding that this process is the pre-test and revise the title of this item of
the questionnaire design. And the respondents agreed to the interview time and place. After the end of the interview
content into the interview transcript after using mail (or fax) to the respondents confirmed.
Respondents of this study a total of 10. After the conclusion of the interview, the interview will be recorded for the
transcript file aggregated, the manner of presentation forms, electronic files sent to respondents and respondents
confirm whether the content matches the structure of the echoes used to study questions of Design. According to the
stage of the main process is divided into: 1. Use existing problem diagnosis. 2. Content diagnosis. 3. Knowledge
management functions and processes relevant. Aimed at identifying users in various stages of commodity related work
processes, development, billing, quote, the goods with the single phases of the knowledge management functions
required of what; based on interviews of the results of this study to understand knowledge management capabilities the
need to strengthen those parts.
Interviews and analysis

Training Process
According to new employees training process, as the basis for the title of the content item. Depth interview
questions listed items, the recommendations of the Planning and diagnose problems, questions of design is divided into:
1. current system problem diagnosis 2. content of the diagnostic system 3. Knowledge management functions and
processes relevant.
1. Current System Problem Diagnosis

New hires senior staff
In the main sectors with restricted access, cross-sectoral authority may open part of interactive courses, with
different upper, middle and lower capital firms, will not take the initiative to contact the cross-sectoral, company
executives can assess needs, opening a platform for cross-sectoral responses. Establish a larger scope statement
detailing process execution and vendors with the way different services on a regular basis to share, at any time to
understand each vendor with the construction of various departments and subsidiaries system can not link information
will fault, repeated waste of manpower, to do repetitive work. Lack of horizontal communication and learning platform,
known with restricted access, business re-sales, you need a good marketing system, we can see sales and inventory
adjustable freighter. Build knowledge management is not deep enough, not fully effective build experience transfer,
knowledge management planning imperfect information faults, inefficiency
New employees
Will, for the design and development process more clearly, the production process than the unfamiliar, open to every
employee use, you can quickly enhance the expertise to reduce wrong "willing to learn," there is a complete set of
knowledge management system, query work more smoothly, efficiently boast large sector differences in production,
design billing bargaining fully understand, if no one with their own system of learning is very difficult to see, is not
necessarily effective. New employees (in different sectors of the system to respond to points of difference)Operating
system interface consistency is not good, it is cumbersome, jumping, learning mostly flat, the lack of live commentary
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video, no one with less effective learning, learning on their own system to see very difficult and not necessarily
effective."
2. Content of the diagnostic system
New employees
May, by the order process with senior staff to communicate easily left behind forms, unfamiliar with their own
operations, there are orders to follow standardized curriculum standard order process orders quickly understand the
operational processes, the dominant course is recommended by tacit knowledge, so that new entrants procurement staff
clearly the basic unit price contract work conditions and spreads the acceptable range, so that bargaining has to follow
basic standards. By senior staff with ways to communicate easily lost and incomplete forms, quotes and vendor
negotiations have left the package, may be afraid of trade secrets leaked bargaining follow basic standards, not every
job orders shall ask senior staff
New employees
Yes, through the foundation course can quickly understand the basics of the professional field, establishing the
foundation garment related proper noun, "a noun and physical control, without foundation senior staff to teach
newcomers, from basic courses to learn the basic operations and functions of the system."
Interview responses point of difference
New employees
Non-college system can help newcomers quickly learn ", saving human resources and cost, we can understand the
type and version of embroidery needle embroidery go way, printing plate making and printing method, printing color
separation effect, fully computerized, convenient storage from the system uniform valuation standards "
New employees
Can establish operating manual, the young new staff computers are strong, just look at the operating manual
operation, simple interface get started soon, the company saves labor costs ", an operation manual, the procurement
process based mode of operation, you can quickly learn on the line, new staff training time shall not be too long,
"embroidery layout software package basic course relatively complicated, if there is no operating manual, fast on-line
novice difficult."
Interview responses point of difference

New employees
Design System is one of the most confidential Systems, Inc., is the company's grasp trends and best selling system,
the most stringent level of confidentiality, many restrictions, in addition to the more professional and technical courses
more difficult, the special courses, artwork belongs to product development, more scruples, fear outflow
3. Knowledge management system functions and processes relevance

Will, through e-mail or skype or line, playing a typing, there is rapid contact with certified favorite is most
convenient to quickly resolve the problem with the line "Mark would, like calling cards, convenient card that relatively
clear and simple, unless the degree of resolve not only through e-mail or skype or even typing line, sent sent trouble
really slow contact

Important documents easily leaked, the mainland can not be real trouble "if the file is too large to send, but also
copy CD"Increased costs of telephone charges, the process is no evidence, ten thousand different job in question, I do
not know who is unclear about the problem, to find no one is responsible "problematic start to do a lot of time recording
data, a lot more work."

Information stored Suppliers opening portion and the NT and their own computer, in the same department skype or
line; different departments telephone e-mail or skype or line, special through meetings communication, stored in
departmental public areas and its own computer information stored Suppliers opening portions schedule and prepared to
say area and their computers; more convenient with the department by phone, different departments by telephone

Information is easy to not run too many old computers, transfer data if the person is not using skype sometimes
unable to close, some manufacturers will be exposure information, keep a lot of information confidentiality is not good,
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playing wipe; TENGELMORE card processing on behalf of no evidence, really finishing more information, fear of lost
data put public areas; card processing on behalf TENGELMORE no evidence
Company curriculum recommendations

1. by program type and tacit knowledge courses
Course contents belong to explicit knowledge. We recommend additional hidden curriculum. The facts and proper
nouns are easily save descriptive knowledge, know-how knowledge is procedural knowledge, relationships methods,
procedures and process knowledge more difficult to save, save by procedural knowledge, staff leaving the company will
not lose know-how know how.
2.SOP (law library) library

The main law library system expertise with modular and systematic collection aggregate, at this stage the course
content for the big steel, new staff can learn about about mode of operation, if different customers establish standard
operating mode, and each step of the teachings of senior staff and enhance the company's knowledge assets can also
strengthen the new teaching, allowing senior staff to reduce the burden.
3. Creating a database
Through the process, integration, filtering, indexing, classification, processing and other processes to establish a
database, so that rotation or new entrants to use knowledge, learn quickly and reduce errors, the department regularly
sharing case work experience and archiving, avoid errors repeatability occur.
4. The minutes of the problem solving process to save

Case filing and processing of each set up a platform, the problem may throw a question via internet 'via through this
platform, reply processing method, the platform can be recorded through the complete treatment and help relevant
experience (tacit knowledge) Storage and knowledge transfer, the couple may be thereby learning platform approach to
the question.
Conclusion
Knowledge Management for the garment industry found.
Globalization, Taiwan garment industry wants a place in the international arena, knowledge management areas, and
is co-maker must have the condition. Taiwan's garment industry has been transformed into high value target, via the
integration of enterprise knowledge management, knowledge management make closer to the market demand. Enhance
the professional knowledge and service concepts to increase market competitiveness.
Garment industry and foundries upstream of the quality required to maintain stability, knowledge management as
the core of enterprise management, quality first, quality is the benchmark, customers can have confidence in the
continuous trading.
Recommended for the garment industry knowledge management

Enhance knowledge within the members of the organization to manage knowledge and ideas to start from education
and training. Recommendations 1. Training internal lecturers: arrange to send foreign trainees or professionals, as
"internal lecturers." 2. hired external lecturer: arrange external lecturers teach and share knowledge, build databases for
staff reference. 3. Staff Proposal: employees have new ideas, if feasible, if the results and performance of the company
set aside money for encouragement after assessment. 4. The functions of the training plan: by relevance notch
professional functions of employees by the company in accordance with the provisions of the integrity of education and
training (including quality and quantity) and included in the assessment. 5. Professional license training and planning:
send relevant personnel to participate license exam before they can be adopted by such employment. 6. via an internal
company Web site or bulletin message across, the staff quickly learned that education and training and education
messages. 7. The enterprise can interact with universities to enhance the opportunities for cooperation academia.
Construction of Knowledge Management

First, the organizational structure
Organization will affect the operation of enterprises, departments and organizations that influence in the
organization, knowledge sharing and cooperation will be restricted. Recommendation (1) Good organization can
improve operational efficiency with executive power, will use the new knowledge in business operations and work,
transfer and pluralistic knowledge management functions. (2) learning organization as a knowledge management and
exchange feedback mechanisms; organization, knowledge management and integration of external members and
sharing. (3) in response to environmental change and uncertainty, reducing operational risk and reduce corporate losses,
must have flexible and policy features.
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Second, corporate culture

A member of the enterprise knowledge management concepts that affect performance due to the first, is to determine
the efficiency of the core-oriented. Recommendation (1) member companies must have a systematic knowledge, use at
work, solve the problem. (2) so that employees understand the attitude of openness and trust their own value in the
enterprise and the future goals of organizational change business plan may be held, support staff to enhance knowledge
management practices and behavior. (3) Sector Members to interact, share and exchange knowledge, discuss, filtering
and screening, converted into knowledge, knowledge into value. (4) the value of the company's vision and advocacy
organizations, may encourage the growth of knowledge within the company, spread the vision, power train staff of
spontaneous effort, only the knowledge accumulated energy. (5) on the internal, external and other related companies as
effectively communicate the company's vision and organizational values. With excellent production and R & D
knowledge, enhance supplier role, becoming a strategic partner of customers, play an important function in the supply
chain, expand consumer demand services. Business performance, employees usually work accumulated, correct
knowledge and ideas so that employees produce value, subtle and education and training, so that employees can utilize
in their work.
Solution: Do not safeguard intellectual assets shall loss how architecture knowledge management system, knowledge
transfer and creation of valueInformation Technology: Information through cross-sectoral interaction and exchange of
views, reducing the various departments, due to poor communication and misunderstandings, reduce communication
barriers, quick consensus. Recommendation
(1) to establish a database, storing knowledge through various departments and amended to increase knowledge of new
knowledge and feedback, staff knowledge management through information technology will be classified.
(2)the establishment of an internal information site, a knowledge platform to expand internal network link so that
information can be quickly and properly communicated and feedback, improve efficiency and establish a mechanism
to prevent important knowledge and information through theft and misuse of information.
(3)set up knowledge discussion area, a variety of different topics classified as a comprehensive integration and
discussion, as the company's basis for decision making
(4)establishment of information network, introduced related information and products, marketing channels outside the
pipe.
With the knowledge of the environment and changes in government regulations must constantly revise, garment
industry professionals instill strategic concepts, such as product development, strategic planning, supply chain
management, product differentiation, which is the benefit of knowledge management performance. Faced old structures,
business strategy and competitive manner, shall be converted to the new structure, competitive mode and practices,
knowledge management will do a good job, and strengthen competitiveness in the knowledge management, enterprise
"creativity" embodied "Productivity" in order to obtain a foothold in the price competition, "Red market" predicament.
Whole, how to adjust the sales operation knowledge management "Tacit Knowledge", the clothing industry is of
considerable importance. Only by constantly knowledge management to enhance competitiveness and create value, in
order to survive in a competitive environment.
References
Devenport, T.H., De Long, D.W. & Beers, M.C., “Successful Knowledge Management Projects, “ Sloan Management
Review, Winter 1998,
Liao Shuxian (2007). Information Management. Taipei: Book Gallery Futaba Limited.
Liao Shuxian, (2008). Knowledge management. Taipei: Book Gallery Futaba Limited.
Lin Dongqing (2004). Knowledge management. Outwit culture Limited. Taipei.
Lin Peiying, (2000) Knowledge Management System - A Case Study in the garment industry Master of Tamkang
University Institute of Management Section of enterprise management
Liu Changyong, (1999). Learning management think tank, http: //cm.nsysu.edu.tw/~cyliu/.
Liu Jingwei translation, (2000). Knowledge management first book, translated from Deloitte management consulting
firm (Arthur
Nonaka, I. & Takcuchi, H., The Knowledge Creating Company, Oxford University Press, Inc., 1995.
Ohmae (1982). Wisdom home strategy. Huang Hongyi translation. Changhe Press.
Weijia De, (2012) Enterprise Group Import and Knowledge Management System Performance Studies at Tamkang
University Department of Information Management Master of improvement
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Xu Sunnah (2004) Value Creation and Knowledge Management, National Taiwan University Graduate School of
doctoral thesis
You Keqiang (2000). Knowledge to create value. Vision magazine.
Zhang Ping Cup (2010). Make good use of knowledge management, and increase the competitiveness of the textile
industry
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STRATEGIC MANAGEMENT AND HIGHER EDUCATIONAL INSTITUTIONS

– A CASE STUDY BY USING BSC CONCEPT
Cheng-Lung Li1), Chih-Wei Liu2)

1)
Abstract
Since Taiwan Ministry of Education had executed the policy of Popularization of higher education from 1994 to 2005,
the number of college doubled consequently. Under the compact of the low birth rate in Taiwan, the colleges
particularly in private schools haves been intensively competing with each other for over 10 years. From1998 on, the
birth rate has been declining annually and the birth rate reached to7.21 ％ in 2010. The population of college student
will be reducing to half in 2028. Consequently, 40% of Taiwan colleges will be facing the crisis of shut down. This
study first aims to apply the concept of Balanced Scorecard (BSC) as a research framework to examine college’s
competitive policies and strategic management. Furthermore, this research employs a qualitative case study in terms of
conducting an in-depth interview with 6 school directors (academic affairs, student affairs, accounting, personnel,
international student affairs, general affairs, and library information center) as well as studying official documents for
data collection from a well-known private school in the southern Taiwan. The result found some essential ways so as to
develop the school sustainable competition as follows: how to establish organization policy with vision, how to
strengthen competitive advantage with unique marketing, how to highlight scholarship features and how to ensure
graduated students getting jobs.
Keywords: Balanced Scorecard (BSC), Qualitative Research, Strategic Management, College Competition
Introduction
According toTaiwan Ministry of Education and Statistics Department, the number of post-secondary school schools
has been changing from 23 in 1994 to 124 in 2015. However, the birth rate has been decreasing from 12.3% in 1998 to
7.21% in 2015, which is the least for the past 10years as said byTaiwan Ministry of the Interior Division of the
household.Obviously, the trend ofcontinuous low birth rate is most likely to cause a serious problem of lacking students
for Taiwan schools.
The Minister of Education Wu (2014) said the impact of university admissions due to low birth rate, within five
years, plans to reduce the number of the existing post-secondary schools under 100 by counseling University Transition
or Exit in 2016. Due to the trend of low birth rate, limited sources of school students, and intense enrollment situation,
most private universities have been forced todeploy organizational strategy, and build up strong competitive advantage
to highlight the features and scholarship positioned to attract more students to schools to ensure sustainable
development. The study aims to use the Balanced Scorecard (Balanced Scorecard, BSC) aligned with the four
dimensions basis: the "Financial ", " Customer ", " Internal Business Processes " and " Learning and Growth " to help
the case school transformits vision intopracticable roadmap , and implement its objectives and goals by employing
marketing strategy.
Balanced Scorecard (BSC) management system was designed to improve the organization performance. However,
Kaplan and Norton (1996) argued that the Balanced Scorecard used in government agencies and nonprofit organizations
is much more effective .Thus, the study tries to establish good performance appraisal system for the case of the school-
a private Southern University of Science and Technology in Taiwan. This research conducts the case study by applying
Balanced Scorecard(BSC) framework tocreate organizational vision、goal and policy, to unite the policy consensus、
organization resources, and to put the policy into practice, and further to achieve “the Leader of Taiwan professional
technology education and application ”.
Literature Review
Mintzberg and Lampel (1999) believe that strategy is a procedure and strategy development is a procedure of design
evaluation, innovation and continuous learning. Robbins and DeCenzo (2008) believe that when a business or an
organization tries to develop its strategy, executives will carry out " strategic management process," including strategic
planning, implementation of strategy and strategy evaluation, a total of nine steps, as Diagram 1. Among them, although
the strategic planning includes a previous seven steps of the management process strategy, but still relies on managers’
implementation of strategies and assessment, so that the strategy shows effective results.
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Diagram 1.Strategy Management Procedure
Annie Wu (1997) considered the balance of the Balanced Scorecard, mainly coming from three dimensions :( I)
external evaluation (shareholders, customers) and internal assessment (internal processes, learning and growth); (II) the
results of the assessment of past and future performance motivation; (III) the objective side (outcome measurement) and
subjective side (achievement motivation). Effective BSC cantell us the reason of strategythrough a series of causal link.
The objectives and measurement of the Balanced Scorecard deriving from the organization's vision and strategy through
four dimensions: finance, customers, internal processes, learning and growth to assess the performance of an
organization(Diagram 2.)
Diagram 2.Balanced Scorecard
Case Study Approach

3.1 Definition of Case Study
Case study explores a case’s activities in particular situations with context, hoping to understand the uniqueness and
complexity. Researchers are usually interested in understanding the process rather than the result, and thus they will
focus on the overall point of view, the phenomenon or situational context of the event, not just special variables (Linpei
Xuan, 2000). We can say that is a kind of case study research strategy, to choose a single case, using methods such as
observation, interviews, surveys, experiments, etc., in order to collect complete information, and to grasp the overall
situation context and meaning, in-depth analysis of the truth, explanation, solution or improvement (Qiu Yi Hui, 1999).
3.2 Reasons ofUsing Case Study

Zhou Qiwu, and Annie Wu (2000) pointed out that, although the Balanced Scorecard comes from the needs of
practitioners, and then are complete developed by the practitioners and academicstheory; however, the way of its
application constructing organizational strategy, and each organization has its own different established characteristics
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in background, people, and the direction of development, even in the organization within the same industry, there will
be differences between different visions and objectives. Even in the case of the same goals, we will use different
indicators. Therefore if we investigate the feasibility of the practical application of the Balanced Scorecard, using Case
Study should be a suitable approach. Therefore, Case Study will be used in this study and we’ll select cases for the
study, in between September 2015 to May 2016. We’llactually observe and read cases’ school-related data and
interview relevant people, etc., to understand the external environment, organization, strategy and business philosophy
of the case school with applying the concept of the Balanced Scorecard so that we can design viable strategy map.
3.3 Interviews Architecture

Kaplan and Norton (2000) believe that the mission of government and non-profit organizations should be placed in
the top of the, and the scorecard other goal of the scorecard should be integrated to enable an organization to achieve
the highest goal,whichbecomes a measure of its success; so can also help long-term mission of the organization is a
clear declaration of commitment. In this study, so architecture, design interview questions were as shown in Table 1.
Table 1.Interview Question Design

Four Dimensions Interviewee Interview Questions
1. What‘s the strategy of vertical linking senior high school students?
Dean
2.How to improve teaching performance？
Student Affairs 1. What are the services offered students?
Customers Office 2. What are the methods to make parents and students ease?
1. What is campus maintenance and safety management
General Services effectiveness?
2. How does administration support execution?
1. Where are the financial resources coming from?
Finance Accounting
2. What’s the ratio of the funds used in administrative, teaching?
1.How is each unit business execution performance?
Internal Process Secretary Room 2. How is the communication and coordination between the various
units?
1. How is teachers’ education and training?
Dean
2. How to maintain and purchase teaching equipment?
1.What’s the effectiveness of international and cross-strait academic
Learning and International Affairs exchanges?
Growth Group 2.What’s the effectiveness of international and cross-strait
Admissions?
1. How is the staff’s education and quality?
Personnel Office
2. What is staff training learning system?
1. Case School
4.1 Case School’sVision, Goals and Strategies
Case School had been founded since 1964 to 2000, as an "Industrial College", restructuredas a "University of
Technology", and it has laid an excellent tradition and solid foundation. To make more advantages and set a new
successful model for technical and vocational education system, the development vision will be "Taiwan leader in
professional and technical education and application", and established development goals:(I) to nurture students to
become "the new century, qualified people."(II) to assist teachers to become "the world's major technology application
specialist"; (III) to construct school to become "the promotion of human welfare and environmental education research
and development center."
Based on development goals, case school formulates development strategy:(I) to fulfill Ability Oriented Curriculum
and the goal of the cooperation of industry and learning in order to cultivate a new generation of high-quality corporate
personnel; (II) to constructpro-industry-university research quality teaching environment and to produce division to
empowercooperation energy;(III) to integrate industry-university superior education resources and to improve the
comprehensive competitiveness of the school.
4.2 Case School Scorecard Design

The Case in the study is a Private University of Science and Technology, a non-profit organization. According to its
vision, its main purpose is to provide excellent professional technology and education; that is, its main purpose is to
provide customer services, which doesn’t resembleother general enterprises which aim to gaining profits.Thus, this
study should investigate the BSC's "customer" facet, followed sequentially as "internal procedures", "learning and
growth" and "financial" and other dimensions.
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(I) Customer facet

Based on the development strategy designed by the case school, we can define the customer refers to the "student",
"parents" and "business", while enterprises include the two spindles: "Industry Cooperation" and "nurturing qualified
people for enterprises.According to the“Product and service attributes", "customer relations" and the "image of the
school" in "customer value proposition common mode", the other projects will be described later.
1. Properties of products and services: Firstly, based on "the establishment of a strategic alliance with the University
and College Vocational College" programmed by the Ministry of Education, in order to achieve the purpose of
commanding students resources, the case school deepen cooperative school students’ impression about the school and
attempt of entering the school with the surrounding high school vocational via various modes of cooperation and the
specific admission certification licensing multiple waysfrom the "vertical link senior high school students." Then
following the national industrial development, parents, alumni and business needs and other information, it should plan
a way out of students 'future workplace and positioning, and enhance teachers' professional competence, in order to
"improve the teaching performance." Finally, in response to industry changes and corporative demand for talent, it
should promote "industrial college and enterprise integration" to get close to the required industrial planning and
operation of manpower.
2. Customer Relations: Students perform excellently on both study and behaviors at school, and the parents will be at
ease. Being employedor advancing on study after graduation, students and alumni will be satisfied. After being
employed, students’ and alumni’ skills and work attitude can meet business needs in order to enhance the satisfaction of
parents, students and business owners as the main strategic objectives.
3. School image: The vision as "Taiwan leader in professional and technical education and application" is to become a
model university of technical and vocational education (Table 2).
Table 2. Balanced Scorecard of Customer Dimensions designedin this study

Strategy Topics Goals Metrics
 Number of cooperation
agreements
Vertical Link the Source of Senior High
 The number of recruited
School Students
students
 Student’s satisfaction
 Teachers’ Qualifications
 Professional licenses
Increase Customer Improve Teaching Performance
acquired
Satisfaction
 Parents’ satisfaction
 Industry-University
Cooperation Quality
Industry College and  Employment rate of
Enterprise’sIntegration graduates
 Business owners’
Satisfaction
 The evaluation of The
Ministry of Education
Establish School’s
Taiwan Leader in Professional and  School ranking
Good Reputation
Technical Education and Application  Students’ performance
and Image
 The performance of
graduates and alumni
Source: Finished by this study
(II) Internal Process Dimension

In response to the future impact, case school chose "Development Features" and "establishing reputation," to make
differences, in order to develop sustainably. In teaching, the school could strengthen practical teaching ability of
teachers and students practical abilities to foster industrial talented people. In curriculum planning section, to comply
with the social, national and international pulsation, through Industry College planning and business cooperation based
on the industry demand, the industry and case school may cooperate to design and plan the curriculum, and to compose
the teaching materials. Besides to the team teaching of teachers and the industry, enterprises also provide students with
internship opportunities to train themwith required industry expertise , and to develop their personality traits in need .
During students’ internship of 3-6 months, enterprises observe and nurture employees and interns retained working rate
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up to 60 to 70 percent. In addition, combined years of implementation of the " Cross - discipline integration of science
and technology project," the case school lets students graduate with the industrial production to meet feature needs, and
the talents needed by customized business in order to achieve the employment upon graduation, and graduates with
seamless enterprise integration. The interior process dimensions of the Balanced Scorecard of the study process as
shown in Table 3.
Table 3. The interior process dimensions of the Balanced Scorecard

 Teaching examination
 Teachers practical
experiences
Teachers’ practical teaching
 Renew teaching facilities
and enrich resources the
Innovation Process
book
 Students’ professional
licenses acquired
Students implementation capacity
 Students’ teamwork
literacy
 Cooperation plan and
interaction among
industry, official, schools,
Industry and School’s cooperation and research institutes
 Fighting for the
Running Process commission training
program for government
 The number of provided
internships
Internship
 The number of students
involved in internships
 Intern retention rate
CustomerService
Employment Opportunities  Employment rate of
Process
graduates
(III) Learning and Growth Dimensions

In order to achieve the vision of "Taiwan leader in professional and technical education and application," case
school must invest, motivate and enhance in upgrading staff skills, infrastructure, technology updates and shaping the
staff’s actions, performance and accountability in order to promote unity of purpose.
1. Employees’ skills: The case school should encourage teacher to get trained and to attend seminars for enriching
professional knowledge, so that they will increase the number of papers published and the cooperation programs to
enhance teaching and practical experiences. Also it should strengthen the administrative staff in-servicetraining, foster
the ability for innovation, and strengthen coordination and teamwork groove tune to improve administrative efficiency
and service quality.
2. Technical Basic Infrastructure: The case school should provide proactive information network services, establish
innovative teaching digital application platform to promote courses and materials digitized authentication in order to
form a convenient and secure e-campus, which may satisfy students’ overall and diversified demands for services.By
upgrading the information system, the case school should improve administrative processes operating time and
administrative efficiency.
3. Action Climate: The case school should enhance the satisfaction of teachers and employees, which may improve
work efficiency and service quality, and thus customer satisfaction may also be improved. The case school should adopt
or execute staff’s constructive and creative recommends, which may motivate staff to get involved in school affairs
more actively. Case School’s BSC with internal procedure dimensions is as shown in Table 4.
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Table 4.Case School’s BSC with internal procedure dimensions

 The number of
teachers’engaging in advanced
studies
Enhance teaching and practical
 The number of teachers’
experiences
attending the seminar
Employees’ Skills  The number of papers and
cooperation plans
 The number of administrative
Enhance administrative staff to participate in learning
efficiency and service quality  The number of administrative
staff in-service training
Construct convenient and secure
Technical Basic Infrastructure  The e-degree of the campus
e-campus
 The staff turnover rate
 The staff involvement rate
Action Climate Enhance employees’ satisfaction  The number of staff
suggestions and the number of
suggestions adopted
(IV) Finance Dimensions

Case school aims to use budget effectively, focuses on schooldevelopment, reviews the budgeted and actual
execution situation, and makes plans for improvementsyear after year, so that all departments in a can fully use
resources with reasonable allocation of fundsto achieve their expected goal, and to attain good teaching and research
achievements.On the other hand, during the execution process, during the execution process, case school should reduce
unnecessary waste and expenditure and according to cost analysis, should find out differential advantages, so that the
schoolcan control costsmore effectively, improve economic efficiency and reduce the waste of resources. Thereby it
can enhance the educational quality, and strengthen competitive advantages. BSC with Case School Finance
dimensions is as shown in Table 5.
Table 5. Case School’s BSC with finance dimensions

 Enrollment
 Financial support from
Ministry of Education
Source of Funding
Complete School Development  The total subsidy of other
and School Performance projects
 Public donations
 The balance of payments
Costs Control
and surplus
Conclusions and Recommendations

In finance dimension, the case school aims to “Source of Funding” and “Costs Control”, and it also needs to
"improve and enhance the educational development of school performance" to ensure sustainable development of the
school. In learning and growth dimensions, the school should take "enhancing the teaching and practical experiences",
"enhancing the administrative efficiency and service quality","constructinga convenient and secure e-campus" and
"enhancing employees’ satisfaction" as the goals to motivate employees to execute the strategies to realize the goals. In
the internal processes, “teachers’ practical teaching" and “Students’ implementation capacity" are the innovation
processes; “Industry and School’s Cooperation" and “Internship" are business running processes, and “Providing
Employment Opportunities” as the final sale service processes to meet customer demand.In the customer
dimension,“Vertical Link the Source of Senior High School Students”, “Improving Teaching Performance”, and
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“Industry College and Enterprise’sIntegration”are the goals. Moreover, the school should achieve “Taiwan leader in
professional and technical education and application" as a vision to meet the needs of students, parents and business
owners.
Therefore, we recommend that the case should be re-positioned as a school cultural and educational service
industries, based on the purpose of customer service (students, parents, business owners) with BSC, which may make
all staff have cohesive force to enhance their accountability, to inspire their potential, to turn the strategy into action,
and to develop innovative service management and business model, so that all the managers, staff and customers will
have win-win situation. This is the key to success and sustainability.
References
內政部戶政司人口統計資料，取自 http://www.ris.gov.tw/zh_TW/346
邱憶惠（1999）
。個案研究：質化取向。國立高雄師範大學教育系教育研究，7 期，頁 113-127。
林佩璇（2000）
。個案研究及其在教育研究上的應用。載於中正大學主編，質的教育研究方法，頁 239-262。
吳安妮，「平衡計分卡轉換策略為行動（上）」
，第 134 期，臺北，會計研究月刊 1 月份，1997 年，頁 133-139。
吳安妮，「平衡計分卡轉換策略為行動（中）」
，第 135 期，臺北，會計研究月刊 2 月份，1997 年，頁 102-105。
吳安妮，「平衡計分卡轉換策略為行動（下）」
，第 136 期，臺北，會計研究月刊 3 月份，1997 年，頁 08-117。
周齊武、吳安妮(2000)。企業推行平衡計分卡之可行結構─臺灣經理人員之觀點。會計研究月刊，第 174 期。
郭添財(2001)學校績效管理─平衡計分卡的內涵、應用及限制。取自國教之友 591 期。
教育部統計處教育統計查詢網，取自 https://stats.moe.gov.tw/qframe.aspx?qno=MQA3ADkAMQA1
Kaplan, R.S., & D.P. Norton. The Balanced Scorecard: Translating strategy into action.Massachusetts:Harvard Business
School Press,1996.
Mintzberg, H., & Lampel, J. 1999. Reflecting on the strategy process. Sloan Management Review, 40(3).
Robert S. Kaplan & David P. Norton(2000)”The Strategy-Focused Organization”,Harvard Business School
Press,2000p.p.157
Robbins, S. P., & DeCenzo, D. A. 2008. Fundamentals of management: Essential concepts and applications (sixth ed.),
Prentice Hall.
Authors’ Bibliography
Cheng-Lung Li, is an assist professor for the department of Business Administration, Kun Shan University of Taiwan.
His research interests are on the relationship (quanxi) capital and cross-cultural management.
Chih-Wei Liu graduated from Kun Shan University Taiwan, with the Master of Business Administration, majored in
Policy Management and hold the post of Chief of student Counseling in the Affiliated Senior Industrial Vocational
Continuing Education High School of National Cheng Kung University.
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AN EXPLORING STUDY OF APPS DOWNLOAD INTENTIONS
Avus CY. Hou1), Rong-An Shang2)

1)
Oriental Institute of Technology, No. 58, Sec.2, Sichuan Rd., Banqiao City 220, Taiwan
2)
Soochow University, No. 56, Sec. 1, Kuei-Yang St., Taipei 100, Taiwan
Abstract
Despite of Theory of Panning Behavior proposed people’s behavior is subjective oriented and think it over, Theory of
Trying explains that behaviors are not always rationality but also fuzzy. A research model was developed based on
Theory of Trying to explore users’ download Apps intentions. Data was collected from 127 respondents then analysis by
component-based structural equational modelling. The results indicate that Apps download intentions are affected by
social influence and privacy. The finding and implications are discussed.
Keywords: Theory of Trying, Download Intention, Purchase Intention, Apps
1. Introduction
There has been increasing number of people who “starts a day with smartphone and wraps up with smartphone”.
They deeply depend on smartphone for work, communication, social, and information seeking in everyday life. A
powerful smartphone can download and install many mobile applications (Apps) makes it becomes a customization
portable device which equipment with individual. In 2016, on an average around 2,000,000 available Apps in Apple
store and 2,000,000 Apps were registered in Android Market. As mobile Apps business is growing rapidly, many studies
about App store platform or Apps development have been conducted. However, despite of agent need, the research
focus on factors affecting users download Apps has few conducted. In this research, a research model was developed
based on Theory of Trying (TT) to explore what makes users download Apps? How major features of Apps affect the
download intentions.
2. Theoretical Background and Hypothesis
2.1. Mobile applications

Mobile applications refer as computer program which design to operation in portable device, i.e. smartphone or
Tablet. Apps can be installed by downloading in specific application sales outlet; for example, Apple App store or
Android market. As mobile contents making environments constituted where anyone can develop Apps, the number of
App registration case has been abruptly increased that accumulated registration case in App store increased from around
50,000 cases in Mar. 2009 to accumulated registration case 2,000,000 during July. 2016 with increases rate around. The
number of accumulated registration case in Google Android Market also increased from around 4,900 cases during Mar.
2009 to the figure 98,000 cases during July. 2016. Also, app is a concept which continuously being changed and
evolved. By now, app meant application program which has loaded in App store in Apple or Google Android Market.
However, now Apps are being extended well above smartphone, until to a range of substitutes with tablet, and further
even with web. As application field is being extended and becomes a core in business, these factors have been acting as
key deciding factors while purchasing smartphone.
2.2 Theory of Trying

Bagozzi and Warshaw (1990) proposed the Theory of Trying (TT) which focuses on the assessment of trying to act.
The TT expands on the originally proposed Theory of Planning Behavior (Ajzen, 1985) and attempts to explain the
process of trying to perform a behavior or to achieve a goal. The TT differs from the Theory of planning behavior in
three avenues: (1)it measures three attitudes attitude toward success, failure, and the process rather than a single
unidimensional attitude and incorporates two self-efficacy judgments as expectations of success and failure to define
aspects of goal pursuit; (2) it suggests that attitude toward success and attitude toward failure will influence intention to
act intention to the extent that expectation of success is high and expectation of failure is low; and (3) it proposes that
past behavior defined both in terms of frequency and recency has a direct effect on intention and behavior. Past behavior
is argued to serve a theoretical purpose (Ouellette & Wood, 1998) or experience, and hence providing information input
and a methodologic purpose (Triandis, 1977, 1980; Bentler & Speckart, 1979).
In other words, in theory of trying “an attitude toward a reasoned action is replaced by an attitude toward trying and
an intention is restricted to an intention to try” (Carsrud et al., 2009, p.155). In theory of trying, Bagozzi and Warsaw
(1990) divide goals into two categories: intermediate and end-state goals. In relation to this theory Gould et al. (1997)
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have identified two main reasons of why consumers may fail to try to consume. Firstly, consumers may fail to consider
the options available to them. Secondly, consumers may consciously refrain from buying for various reasons. Therefore,
this research proposed the following hypothesis:
H1: Expectation of success positively influence the apps download intention

H2: Expectation of failure negatively influence the apps download intention
2.3. Social influence

The development of Apps offers variety ways for people can using to communicate with each other, including e-mail,
instant messaging, and the most recent, social networking service (SNS). Among these, the use of SNSs can allow users
to meet people sharing common interests, with the purpose of developing romantic relations or maintain their social
network. Such objectives achieved through SNSs have shown significant influence on the social interaction between
people in the modern society (Boyd and Ellison, 2008).
In terms of other entertainment-oriented technology, the perceived social influece brought by massive multiplayer
online role-playing games is also critical to attract people participate online (Yoo and Duhan, 2006). Hsu and Lu (2004)
also found that massive multiplayer online games-playing generates social cohesion- a kind of social interaction
experience, which can makes players group together to fight online. The more players interact with other players in the
same online game, the greater enjoyment of the game they experience (Hou, Chern, Chen, & Chen, 2011).
The social influence by family and friends significantly affects people’s act behavior (Flanagan, 1978). The presence of
a family member or a friend using a particular service will to encourage this person to adoption the same service. This
social influence can also contribute to users wanting to download a specific App. In fact, the search for social
interaction is also an important reason for joining an active together (Choi & Kim, 2004). Some Apps offer an
interactive platform that allows users to communities in which users connect socially and work together in order to
achieve certain goal. Once users feel that they belong to a specific community, they will keep continue action with
members. Therefore, this research proposed the following hypothesis:
H1: social influence positively influences the expectation of success with Apps
2.4 Privacy
The use of Apps for consumer profiling raises distinctive consumer privacy concerns due to the possibility of
deriving “non-obvious private information . . . from data that, at the time of their collection, seemed to raise no, or only
manageable, privacy issues” (Big Data and Privacy, 2014). According to research report, “one can never know what
information may later be extracted from any particular collection of data, both because that information may result from
the combination of seemingly unrelated data sets, and because the algorithm for revealing the new information may not
even have been invented at the time of collection” (Big Data and Privacy, 2014). To illustrate the nature of the privacy
issues that arise in Apps usage when data analytics are applied to vast databases for the purpose of discovering data to
include in consumer profiles, it is helpful to consider a specific context, such as online behavioral advertising. In online
behavioral advertising, highly-detailed knowledge profiles about consumers are constructed for use in generating
targeted advertising (King & Jessen, 2010). Therefore, if Apps try to access the users profile or personal data, They may
concern future usage of the Apps then make user possible to delete the Apps from their devices. Therefore, this research
proposed the following hypothesis:
H2: Privacy positively influences the expectation of failure with Apps
3. Research Model
In this study, research model and hypothesis were set to analyze users’ download intentions. The research model is
shown as figure 1.
Fig 1 Research Model
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4. Research Method
4.1. Measurement
Based on the existing literature and the presented in above, a questionnaire was developed according to
measurement design rules as Appendix 1. Questionnaires were modified slightly from the prior studies to suit the
context of Apps download intention. There are 5 constructs for a total of 20 questions.
We considered the expectation to success in terms of social influence. The scale used for Social influence was measured
using five items from Hou et al ’s scale (Hou et al., 2011). The expectation to failure considered privacy. Privacy was
measured using four items proposed by Tillder (1998). Download intention was measured using Oliver and Swan’s
method. all items were measured using the 7-point Likert scale or 7-point semantic differential scales.
4.2 Data Collection
The questionnaire was first reviewed by two experts in the fields of marketing to validate it for the specific context.
Before starting the regular survey process, a pretest was conducted to evaluate the validity of the wording and the
measurement system used in the questionnaire. A total of 12 samples were obtained from the pretest.
We collected data via an empirical field survey with self-selected subjects. We placed messages on the largest survey-
related websites in Taiwan: mySurvey, (http://www.mysurvey.com.tw). These messages asked for volunteers who had
Apps purchase (download) experience.
5.Results
5.1. Descriptive statistics

A total of 135 respondents were yielded due to this research in progress. After removing those with unanswered
items, the total numbers of responses were 127. Approximately 56% of the respondents were female. The majority
respondents were between 21 and 30 years or older (58%), and 33% were 20 years or less. Approximately 53% of the
respondents were students.
Table 1. Construct reality analysis

Construct Items Path coefficient Cronbach’s alpha
DI** 4 0.93; 0.94; 0.91; 0.93 0.94
EOS 4 0.83; 0.88; 0.88; 0.89 0.92
EOF 4 0.84; 0.83; 0.81; 0.84 0.81
SI 3 0.96; 0.84; 0.88 0.89
PR 3 0.85; 0.86; 0.85 0.91
**Intention to Download (DI); Exception Of Success (EOS); Expectation Of Failure (EOF); Social Influence (SI);
PRivacy (PR)
5.2 Measurement model

The study utilized SPSS 17 to test the reliability of the survey instrument, and the result is shown in Table 1. The
Cronbach’s alpha of all concepts reached more than 0.8, meaning that they all reached a high reliability standard.
We conducted discriminant validity to verify the validity of the questionnaire. In the discriminant validity, the study first
calculated the AVE value with the factor loading of the standardized path coefficient generated by CFA. Second, if the
square root of the AVE of the concept in question is higher than the correlation coefficient between the concept and
other concepts, it means that variances are better explained with that concept and that it has discriminant validity. The
correlation matrix of all concepts is shown in Table 2.
Table 2. Correlation matrix

DI ETS ETF SI PR
Concepts
DI** (0.926)*
ETS 0.201 (0.851)
ETF 0.320 0.249 (0.890)
SI 0.241 0.295 0.359 (0.919)
PR 0.322 0.304 0.364 0.351 (0.903)
* Diagonal values in parenthesis is the square root of AVE
**Intention to Download (DI); Exception Of Success (EOS); Expectation Of Failure (EOF); Social Influence (SI);
PRivacy (PR)
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5.3 Structural model

Partial least square (PLS) is used to verify the research model. The analysis of PLS was conducted using the
SmartPLS 3.
Fig 2. Results of PLS analysis
Fig. 2 shows the results of the PLS analysis and the path coefficient of the constructs. The predictive validity was
evaluated by examining the R square and the path coefficient. The results indicate that our model explains 33% variance,
which is satisfactory. Social influence and privacy have positive effects on expectation to success and failure, thus H1
and H2 were supported. Expectation to success and failure also shows significant effect on download intention, which
supports H3 and H4.
6. Conclusion and limitaiton

The goal of present study is to enlist and adapt the Theory of trying to examine the download intentions of Apps.
Our findings indicate that the Theory of Trying can be extended to explain users download intentions, although the
antecedents that are important in the virtual world are not exactly the same to those influencing purchase intentions in
the real world, the present study demonstrate the potential positive outcome of the Theory of Trying applying into
online purchase context.
The proposed research model was empirically evaluated using a survey of 127 respondents about their perceptions
of app download (purchase). The results indicated that expectation to success was positively related to download
intention and expectation to failure too. Social influence was found to have a direct impact on expectation to success.
Privacy was found to have a direct impact on expectation to failure. The results may provide further insights into app
marketing strategies.
App download intentions is not an activity that people will think it over. There are many Apps with utility value for
everyday life. However, in some cases, users may download some Apps just for killing time. Therefore, even some
theories perspectives like Theory of Reason Action, Theory of Planning Behavior, Exception of confirmation
theory(Hsu & Lin, 2015), and Technology Acceptance model could offer explanatory power for this phenomena, our
study still bring some possible avenues for better understand users’ Apps download intentions.
Though this study provides several insights into the decision to download Apps, the findings should be treated with
caution. Convenience sampling method was adopted due to limit in sample extraction method. so the result from this
study should generalization carefully. Besides, most of respondents are age 20-30, the age group has not been
distributed with different age groups, ultimately age wise comparison analysis could not be carried out. Therefore, range
of sampling group via succeeding studies has to be extended.
Appendix A. Survey Instrument

Intention to Download (DI)
1. I find downloading apps to be worthwhile. (SD…SA)
2. I will frequently download apps in the future. (SD…SA)
3. I intend to keep download paid apps. (SD…SA)
4. I will strongly recommend others to download apps. (SD…SA)
Exception Of Success (EOS)
1. Using apps makes me feel very satisfied.
2. Using apps gives me a sense of enjoyment.
3. Using apps makes me feel very contented.
4. Using apps makes me feel very delighted.
Expectation Of Failure (EOF)
1. Apps are not well designed.
2. Apps have an unacceptable standard of quality.
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3. Apps offer inconsistent quality.

4. System quality of apps is unstable.
Social Influence (SI)
1. Most of my relatives frequently play the game that I currently play
2. Most people in my community frequently play the game that I currently play
3. Most people in my class/office frequently play the game that I currently play
PRivacy (PR)
Reference
Bagozzi, R. P., & Warshaw, P. R. (1990). Trying to Consume. Journal of Consumer Research, 17(2), 127-140.
Choi, D., & Kim, J. (2004). Why People Continue to Play Online Games: In Search of Critical Design Factors to
Increase Customer Loyalty to Online Contents. CyberPsychology & Behavior, 7(1), 11-24.
Flanagan, J. C. (1978). A research approach to improving our quality of life. American Psychologist, 33(2), 138-147.
Hou, A. C. Y., Chern, C. C., Chen, H. G., & Chen, Y. C. (2011). 'Migrating to a new virtual world': Exploring
MMORPG switching through human migration theory. Computers in Human Behavior, 27(5), 1892-1903.
doi:10.1016/j.chb.2011.04.013
Hsu, C.-L., & Lin, J. C.-C. (2015). What drives purchase intention for paid mobile apps? – An expectation confirmation
model with perceived value. Electronic Commerce Research and Applications, 14(1), 46-57.
doi:http://dx.doi.org/10.1016/j.elerap.2014.11.003
Hsu, C.-L., & Lu, H.-P. (2004). Why do people play on-line games? An extended TAM with social influences and flow
experience. Information & Management, 41(7), 853-868.
King, N. J., & Jessen, P. W. (2010). Profiling the mobile customer – Privacy concerns when behavioural advertisers
target mobile phones – Part I. Computer Law & Security Review, 26(5), 455-478.
doi:http://dx.doi.org/10.1016/j.clsr.2010.07.001
Big Data and Privacy: A Technological Perspective, supra note 11, at ix.
Big Data and Privacy: A Technological Perspective, supra note 11, at ix
Ghani, J.A. and Deshpande, S.P. Task characteristics and the experience of optimal flow in human-computer interaction.
Journal of Psychology, 128, 4 (1994), 381-391.
Ringle, C. M., Wende, S., Will, A.: SmartPLS 3.0 M3, www.smartpls.de. (2015)
Self-Regulatory Principles for Online Behavioral Advertising, Federal Trade Commission, United States (2009)
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EFFECT OF EQUATOR PRINCIPLES ADOPTION ON BANK LIQUIDITY
Naiwei Chen1), Hsiu-Hsi Huang2), Chia-He Lin3)

1)
Jiangxi Normal University, Nanchang, China
2) 3)
National Chung Cheng University, Chiayi, Taiwan
906218956@qq.com
Abstract
This study examines the effect of adopting Equator Principles (EPs) on the liquidity of banks that engaged in project
finance. Results reveal that the adoption of EPs has a positive effect on bank liquidity. Hence, the adoption of EPs
produces real impact rather than being mere window dressing as suggested by conventional wisdom. Financial
Institutions that adopted EPs hold more liquidity buffers likely because of the higher risks and costs that accompany the
adoption of EPs. Results suggest that banks that plan to adopt EPs in the future should increase their liquidity after
adopting EPs.
Keywords: Equator Principles, Liquidity, Project Finance, Corporate Social Responsibility
Introduction
Liquidity is important for banks because possessing sufficient liquidity enables banks to accommodate future risks
and thereby helps ensure monetary and financial stability. However, literature on bank liquidity is relatively scarce
despite its importance. Prior research on bank liquidity mostly dealt with liquidity risk rather than liquidity level. No
research to date has examined whether and how engaging in corporate social responsibility (CSR) behavior by adopting
Equator Principles (EPs) influences bank liquidity. This study aims to fill this gap by examining the effect of EPs
adoption on bank liquidity.
At the early stage, firms that engaged in CSR were concentrated in the non-financial industry. However, it is
considered more effective and efficient for the financial industry to engage in CSR because it can play a leadership role
in improving the environment and society (Bank Track 2009). More specifically, financial institutions or banks play an
important role in channeling funds to non-financial firms that seek financing to implement business projects. Hence,
these financial institutions can monitor and push non-financial firms to operate their businesses in an eco-friendly or
socially responsible way by imposing restrictions or requirements on debt covenants tailored to improve the
environment or society. However, not until the early 2000s did banks start to join the global efforts to combat climate
change and be socially responsible. Given the higher public awareness on global warming and the leadership role of the
financial industry in reversing the impact of global warming, four major banks, namely, ABN AMRO, Barclays,
Citigroup, and West LB, introduced the EPs in 2002.
EPs refer to the voluntary code of conduct that banks must follow in making project finance lending decisions. By
adopting EPs, banks help protect the environment by ensuring that the projects they finance are eco-friendly and
socially responsible.1However, the voluntary adoption of EPs entails higher risk and costs for the adopters of EPs or
EPs financial institutions (EPFIs). On one hand, EPFIs are expected to monitor firms that receive project financing from
them to ensure their operation is eco-friendly as well as socially responsible; however, such monitoring is costly
(Hansen 2006). On the other hand, the default risk of such firms is expected to be higher, such that EPFIs are likely to
suffer from higher illiquidity risk because the amount of project finance is usually very large due to the higher
environmental standard imposed on firms that receive project financing from EPFIs (Farrel 2003). Given the costly
monitoring and greater default risk, bank liquidity—an important indicator of bank health (London Banker 2011)—
should be adjusted upward by EPFIs to absorb any negative future shock as a precaution and ensure their sustainability
in a new regime. The study intends to verify such claim using the difference-in-differences (DD) method.
Literature Review
Compared with non-financial industries, CSR or greening in the banking industry is relatively less explored in
existing literature. Not until recently did CSR or greening in the financial industry received greater attention. The social,
environmental, ethical and trust (SEET) issues in the banking industry started to be widely discussed after the early
2000s. To formally address the SEET issues, financial institutions established principles or initiatives such as the EPs,
the United Nations Environmental Program Finance Initiative, and the United Nations Principles for Responsible
Investment. The effects of considering SEET issues in banking are relatively less explored(Hoepner and Wilson 2010).
1 For details, please visit the following website: http://www.equator-principles.com
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In addition, the literature mostly deals with the effect of environmental or social performance on the financial
performance of firms in the financial industry (Simpson and Kohers 2002; Llewellyn 2005; Scholtens and Dam 2007;
Heopner et al. 2010).
Adopting the EPs used to be criticized as window dressing or greenwashing because EPs may turn out to be
ineffective due to their voluntary nature, the low transparency of projects, and the lack of any effective governance
mechanism (Bank Track 2005). Research on EPs is limited in prior studies, most of which dealt with the motivation of
financial institutions to adopt EPs (Wright and Rwabizambuga 2006; Scholtens and Dam 2007), the effect of adopting
the EPs on the CSR ratings, financial performance, and liability risk of EPFIs (Scholtens and Dam 2007; Chih et al.
2010; Hansen 2006), and the effectiveness of the EPs (Schepers 2011; Andrew 2009; Kass and McCarroll 2006).
Existing literature has shown how bank liquidity relates to bank-specific variables and larger concepts such as
macroeconomic conditions and institutional environments (Delis et al. 2009; Valla et al. 2006; Acharya et al. 2009). In
spite of the growing literature on EPs, bank liquidity, which is less explored in existing literature, has not been linked to
EPs.
Methodology
The sample consists of 103 major global financial institutions (i.e., 36 EPFIs and 67 non-EPFIs that also provide
project finance) and spans the period 1996 to 2010. These banks are chosen from the top 10 project finance banks in 6
regions (i.e., North America, Europe, Asia, Australia, Middle-East and Africa, Latin America and the Caribbean) as
reported by the League Tables of Project Finance 2001–2010, Euromoney Institutional Investor PLC 2010. 2Afterward,
we classify the financial institutions into those that adopted the EPs (i.e., EPFIs) and those that did not (i.e., non-EPFIs).
The time period 1996–2010 is chosen because of data availability.
We use the ratio of net loans to total assets (LOANTA) as an inverse proxy of bank liquidity (Huang and Shen
2010). LOANTA is used to serve as an inverse proxy of bank liquidity because among several proxies for bank
liquidity, the asset-based liquidity measure is considered broader and is not affected by the liability structure of the
balance sheet of a bank (Valla et al. 2006). In addition, the results from estimating the econometric models are also
more significant when LOANTA is used as an inverse proxy of liquidity compared with when other proxies are used.
To distinguish between EPFIs and non-EPFIs, a dummy variable,SIGNxx, is created, which returns a value of one if
a given bank signed and adopted the EPs by year 20xx, and zero otherwise. To examine the effect of adopting EPs on
bank liquidity, we create another dummy variable,TIMExx, which returns a value of one if a given year is 20xx or
thereafter, and zero otherwise. The selection of other liquidity determinants follows previous research (Coval and
Thakor 2005; Delis et al. 2009; Altunbas et al. 2007; Agoraki et al. 2009; Barth et al. 2001).
Bank-specific variables (i.e., liquidity, capitalization, size, and loan loss provision) are gathered from the Bankscope
database (last update on March 4, 2011). Country-specific variables (i.e., private credit, lending interest rate, GDP
growth rate, and bank regulation variables) are gathered from different data sources. Specifically, private credit is from
the International Financial Statistics. Lending interest rate and GDP growth rate are from World Development
Indicators. Bank regulation variables are from Agoraki et al. (2009).
Given the nature of the data, the panel model is appropriate for the study. The random-effects panel model is
estimated to retain the time-invariant variable such as SIGNxx and bank regulation variables. Since intra-group and
intra-country correlations are embedded in the data structure, cluster-robust standard errors are estimated to compute t-
test statistics and p-values in hypothesis testing. The econometric model is similar to that of Delis et al. (2009).

Table 1 presents the results of how the adoption of EPs affects bank liquidity. With the DD method, our focus is on
the coefficient of the interaction variable SIGNxx×TIMExx, where xx denotes 03, 04, 05, 06, and 07. The coefficient of
this interaction variable is significantly negative in all columns, indicating that the adoption of EPs has a positive effect
on bank liquidity for EPFIs as opposed to non-EPFIs, given that LOANTA is an inverse proxy of bank liquidity. 3 This
finding is likely because the size of project finance is generally bigger,and thus banks that adopted the EPs should hold
more liquid assets as a buffer to absorb any negative shock resulting from potential default on the project finance. That
is, after the adoption of the EPs, liquidity became more valuable. Hence, EPFIs increased their liquidity for the
precautionary purpose to hedge against the heightened default risk and to prevent the potential loss resulting from
nonperforming loans (NPLs). 4
2 Please visit the following website for details: http://www.euromoneyplc.com

3 Estimation for banks that adopted EPs after 2008 is not conducted mainly because the majority of EPFIs adopted EPs before 2008,
and only six banks in the study sample did so in 2008 and 2009. Hence, any positive impact of adopting EPs on bank liquidity has
been reflected before 2008 for the EPFIs that adopted EPs by 2008. In addition, given the already higher level of bank liquidity
before 2008 for other EPFIs, any positive impact of adopting the EPs on bank liquidity resulting from the remaining six EPFIs that
adopted the EPs in 2008 and 2009 should be minimal.
4 Results are similar when the bank liquidity is proxied by other measures such as the ratio of loans to customer and short-term
funding, the ratio of loans to total deposits of capital borrowings, the ratio of liquid assets to customer and short-term funding, the
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Results provide important implications. For researchers, results indicate that the adoption of EPs produces real
impact because bank liquidity increases significantly after the adoption of EPs. That is, we provide evidence that refutes
the conventional wisdom that adoption of the EPs is a mere façade, concurring with the findings of Scholtens and Dam
(2007). Hence, future related studies should take into account the structural break resulting from the adoption of EPs.
Results also suggest that the positive effect resulting from the costly monitoring of EPFIs and increased default risk
associated with large project finance overwhelm any negative effect, such that the net effect on bank liquidity is
positive. For practitioners,results suggest that other financial institutions that plan on adopting EPs should build up
liquidity buffers to prepare for its consequences, such as any upcoming negative shock, because they are likely to incur
higher costs and/or risks under such circumstances.
Table 1 Impact of adopting the EPs on bank liquidity

Dependent variable: LOANTA
(1) (2) (3) (4) (5)
Independent variables
CAP 0.341** 0.333** 0.253 0.239 0.237
(2.17) (2.11) (1.58) (1.53) (1.50)
SIZE -0.426 -0.698 -1.291 -1.158 -1.043
(-0.55) (-0.87) (-1.63) (-1.45) (-1.30)
PROVISION -1.102*** -1.125*** -1.084*** -1.031*** -1.041***
(-3.38) (-3.46) (-3.38) (-3.25) (-3.24)
INTEREST -0.006 0.004 0.022 0.023 0.029
(-0.13) (0.08) (0.48) (0.50) (0.62)
PRIVATE 3.689* 3.694* 4.223** 3.352 2.984
(1.88) (1.85) (2.05) (1.57) (1.34)
GDPG 0.088 0.0860 0.0813 0.119 0.146
(0.49) (0.48) (0.45) (0.67) (0.80)
CAPITRQ -3.299*** -3.470*** -3.655*** -4.055*** -4.209***
(-2.68) (-2.87) (-3.04) (-3.43) (-3.52)
OFFPR -0.478 -0.540 -0.710 -0.553 -0.639
(-0.68) (-0.77) (-1.02) (-0.79) (-0.93)
MDISCIP 3.985 3.494 3.400 2.623 3.379
(1.04) (0.92) (0.92) (0.72) (0.92)
ACTRS 2.633 2.287 2.485 2.268 2.502
(0.84) (0.73) (0.81) (0.74) (0.82)
SIGN03 -6.612
(-1.55)
TIME03 -1.570
(-1.52)
SIGN03×TIME03 -5.011**
(-2.39)
SIGN04 -7.194*
(-1.80)
TIME04 -0.835
(-0.80)
SIGN04×TIME04 -4.363**
(-2.33)
SIGN05 -7.263**
(-2.06)
TIME05 0.968
(0.96)
SIGN05×TIME05 -4.849***
(-3.49)
SIGN06 -9.746***
(-2.87)
TIME06 1.514
(1.46)
SIGN06×TIME06 -2.113*
(-1.68)
SIGN07 -9.280***
(-2.67)
TIME07 2.200*
(1.90)
SIGN07×TIME07 -2.751**
(-2.01)
Constant 55.390* 64.540** 77.300*** 80.770*** 76.720***
(1.91) (2.22) (2.76) (2.94) (2.83)
ratio of liquid assets to total deposits and borrowings, the ratio of money lent to other banks to money borrowed from other banks.
These results are not reported for brevity.
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N 484 484 484 484 484

n 103 103 103 103 103
R2 0.323 0.326 0.333 0.368 0.369
LOANTA, an inverse proxy of bank liquidity, is defined as the ratio of net loans to total assets (TA), where net loans are residential mortgage
loans plus other mortgage loans plus other consumer/retail loans plus corporate and commercial loans minus reserves for impaired loans or
NPLs. Bank capitalization (CAP) is the ratio of equity to total Assets. Bank size (SIZE) is proxied by total assets in millions of USD. Loan
loss provision (PROVISION) is the ratio of loan loss provision to gross loan. The annual lending rate (INTEREST) is the rate charged by
banks on loans to prime customers. Private credit (PRIVATE) is demand, time and saving deposits in deposit money banks as a share of GDP.
GDP growth rate (GDPG) is annual percentage change in GDP. Bank regulation variables include capital requirements index (CAPITRQ),
official supervisory power index (OFFPR), market discipline index (MDISCIP), and restrictions on banks activities (ACTRS). The ranges of
the values of CAPITRQ, OFFPR, MDISCIP, and ACTRS are 0-8, 0-14, 0-8, and 1-4, respectively.A detailed description of how these indices
are constructed is provided by Agoraki et al. (2009). All variables are in percentages except TA and bank regulation variables. N represents
the number of firm-year observations; n stands for the number of firms. The numbers in the parentheses are cluster-robust t-values. ***, **,
and * indicate that t-values are significant at 1%, 5% and 10% levels, respectively.
References
Acharya, V. V., Shin, H. S. and Yorulmazer, T. (2009). Endogenous choice of bank liquidity: The role of fire sales Bank
of England Working Paper No. 376.
Agoraki, M. E. K., Delis, M. D. and Pasiouras, F. (2009). Regulations, competition and bank risk-taking in transition
countries. Journal of Financial Stability, 7, 38-48.
Altunbas, Y., Carbo, S., Gardner, E. P. M. and Molyneux, P. (2007). Examining the relationship between capital, risk
and efficiency in European banking. European Financial Management, 13, 49-70.
Andrew, J. (2009). Responsible financing? The Equator Principles and bank disclosures. Journal of the American
Academy of Business, 14, 302-307.
Bank Track (2005). Unproven Principles, The Equator Principles at year two, Amsterdam: Bank Track.
Bank Track (2009). Challenging Climate 2.0 – What banks must do to combat climate change, Updated position paper,
Copenhagen edition, Bank Track Dec 2009.
Barth, J.R., Caprio Jr.,G. and Levine, R. (2001). The regulation and supervision of banks around the world: A new
database. World Bank Policy Research Working Paper Number 2588.
Chih, H. L., Chih, H. H. and Chen, T. Y. (2010). On the determinants of corporate social responsibility: International
evidence on the financial industry. Journal of Business Ethics, 93, 115-135.
Coval, J. D. and Thakor, A. V. (2005). Financial intermediation as a beliefs-bridge between optimists and pessimists.
Journal of Financial Economics, 75, 535-569.
Delis, M. D., Gaganis, C. and Pasiouras, F. (2009). Bank liquidity and the board of directors. MPRA Paper no. 18872.
Farrel, L. M. (2003). Principal-agency risk in project finance. International Journal of Project Management, 21, 547-
561.
Hansen, R. C. (2006). The impact of the Equator Principles on lender liability: Risks of responsible lending. London
School of Economics and Political Science Working Paper.
Hoepner, A. G. F. and Wilson, J. O. S. (2010). Social, environmental, ethical and trust (SEET) Issues in banking: An
overview, Research Handbook for Banking and Governance. Edward Elgar Publishing.
Huang, Y.-L. and Shen, C.-H. (2010). The determinants of bank ratings higher than sovereign ratings. Journal of
Management, 27, 547-570.
Kass, S. L. and McCarroll, J.M. (2006). The Revised Equator Principles. New York Law Journal, 236, 3.
Llewellyn, D. T. (2005). Competition and profitability in European banking: Why are British banks so profitable?
Economic Notes, 34, 279–311.
London Banker (2011). Liquidity, bank capital and market reform (Friday, 2 September 2011).
Schepers, D. H. (2011). The Equator Principles: A promise in progress? Corporate Governance, 11, 90-106.
Scholtens, B. and Dam, L. (2007). Banking on the Equator. Are banks that adopted the Equator Principles different from
non-adopters? World Development, 35, 1307-1328.
Simpson, W. G. and Kohers, T. (2002). The link between corporate social and financial performance: Evidence from the
banking industry. Journal of Business Ethics, 35, 97-109.
Valla, N., Saes-Escorbiac, B. and Tiesset, M. (2006). Bank liquidity and financial stability. Financial Stability Review,
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2006, 89-104.
Wright, C. and Rwabizambuga, A. (2006). Institutional pressures, corporate reputation, and voluntary codes of conduct:
An examination of the Equator Principles. Business and Society Review, 111, 89-117.
Naiwei Chen is a professor of finance at Jiangxi Normal University, China. His research interests include political
economy, corporate governance, international finance, Islamic banking and finance, corporate social responsibility,
welfare, and economic growth. He earned his PhD in Economics at Texas A&M University, USA.
Hsiu-Hsi Huang and Chia-He Lin were masters students at National Chung Cheng University, Taiwan, under the
guidance of Naiwei Chen.
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VECTOR ERROR CORRECTION MODELLING FOR FDI CAUSALITY IN TAIWAN
Shailender Singh1), Gajendra Singh2)

1)
Department of International Finance,I-Shou University,Kaohsiung,Taiwan
2)
School of Management,Doon University,Dehradun,India
singh@isu.edu.tw
Abstract
Foreign Direct Investment (FDI) plays a crucial role in speeding up the development and economic growth of a country.
Most developing countries rely on FDI to promote their economy as they face a capital shortage for their development
process. The strong growth performances experienced by Taiwan economy greatly depends on the FDI; the Taiwan
government gives a lot of preferential policies to attract foreign capital inflows. But the main factors which influence
foreign capital inflows have always been the focus of academic debate. On the basis of Macroeconomic theory
knowledge, this research paper will make the econometric analysis on the data of Taiwan's total foreign direct
investment and factors influencing it ,which contain exchange rate, inflation rate, Taiwan stock exchange index, import
and business income tax during the years of 1998 to 2013.
Keywords: Exchange Rate, FDI, ARDL, Granger Causality, Net Export, VECM
1. Introduction
Taiwan’s business environment is facing increased competition from its neighbors in the region. Taiwan ranks a very
respectable 16th in the World Bank’s 2014 Doing Business report, but it is scoring below regional competitors, such as
Singapore (1st), Hong Kong (2nd), Malaysia (6th), and Korea (7th).During the 1980s, rising labor costs and the
appreciation of the Taiwanese dollar were often cited as reasons for Taiwan’s inability to attract foreign businesses
relative to their regional peers. Today, however, bureaucratic hurdles, an uncompetitive tax system, weak protection for
investors, weak contract enforcements, and relatively poor regional economic integration are believed to be responsible
for Taiwan’s lackluster foreign direct investment. (Wilson, 2014)
The “deindustrialization” of Taiwan is exemplified by the growing disparity between inbound and outbound FDI.
With the exception of the semiconductor industry, which continues its investment in R&D and capital equipment for its
expansion in high-end production, most of Taiwan’s manufacturing firms have cut their investments at home. Since
1997, Taiwan’s inbound investment has been consistently less than outbound investment. Between 2000 and 2012,
Taiwan’s outbound investment amounted to $165 billion, more than four times the level of inbound investment ($40
billion).In 2012; Taiwan’s stock of inbound FDI was valued at almost $60 billion—not much more than the $50 billion
in 2006. In 2012, FDI flows into Taiwan were $4.7 billion, while they were over $16 billion for Korea, its closest
competitor (Wilson, 2014).
This paper is committed to dissecting the degree to which those components influence FDI inflows in creating
nations. Alluding to prior studies led either in the rising or propelled economies on FDI inflows, researchers hold
diverse perspectives on the presence or heading of causality between FDI and its determinants. Prior investigations
looking into this area reported blended and uncertain results. This might be incompletely because of various reasons.
Examining the FDI with diverse techniques, set of information, and a sample of the study might prompt the conflicting
findings. This study is, in this manner went for experimentally rethinking the short and long-run connections among
FDI and its determinants (CPI,XR,TWSE,IMP, and BIT) in the Taiwan economy during the period of 1998-2016 by
embracing the most recent procedure ,autoregressive distributed lag (ARDL) test for validation of co-integration.
Furthermore, the study likewise endeavors examination of FDI of Taiwan utilizing error correction mechanism taking
into account VAR framework.
2. Research Framework
2.1 Data Source:

This research work is completed in context to the Taiwan economy during the time of 1998-2016 on the monthly
premise contains 218 perceptions, which ought to be satisfactory to validate the association of cointegration among the
variables used in the study. The information arrangement required includes FDI, CPI, XR, TWSE, IMP and BIT. All the
information utilized in this study are obtained from Taiwan Economic Journal (TEJ) and reports published by the Asian
Development Bank. The variables incorporated in this exploration are FDI as a dependent variable and CPI, XR,
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TWSE, IMP and BIT as independent variables. All the variables used in the study are converted into the logged version
for better results of time series analysis.
2.2 Model Specification

In the present research work, the short and long-run progressive associations among FDI and its determinants is
assessed with the help of utilizing ARDL Test, which was at initially exhibited by Pesaran et al. (1996). The ARDL
approach gives vigorous results to a smaller sample size of co-integration investigation. Subsequent to the sample size
of the present study as 34, this welcomes the appropriateness of ARDL model for the present study .The ARDL model
utilized within this research is composed of as follow:
LnFDIt= βo + β1lnCPIt + β2lnXRt + β3lnTWSEt+ β4lnIMPt + β5lnBITt + et (1)
Where ln is Natural Logarithm, FDIt is Foreign Direct Investment at time t, CPIt as an assessment of inflation, XRt is
the export rate, TWSEt is an index of Taiwan stock exchange, IMPt represents import, BITt shows Business income
tax and et is an error term.
The variables in the Equation (1) could be reframed as follows by considering ARDL framework:
p p p p
 ln FDI   O    i  ln FDI t 1   i  ln CPI t 1    i  ln XRt 1    i  ln TWSEt 1 
i 1 i 1 i 1 i 1
p p
  i  ln IMPt 1   i  ln BITt 1  1 ln FDI t 1  2 ln CPI t 1  3 ln XRt 1  4 ln TWSEt 1
i 1 i 1
 5 ln IMPt 1  6 ln BITt 1   t (2)
3. Results and Findings:
3.1 Unit root tests

In order to check the stationary properties of the time-series used in the VECM model, two of the well-known
stationary tests Augmented Dickey-Fuller (ADF) and Phillips-Perron (PP) were used by assuming that the null
hypothesis supports the non-stationary properties of time series. So the rejection of the unit root hypothesis favors
stationarity property. The findings are depicted in Table 1 and Table 2 in the form of t-test values along with their p-
values for all five variables of the model. Both tests criteria indicate that all the dependent and independent variables
used in the study have a tendency of non-stationery properties in time series when ADF and PP test were executed at
level.
Table 1. Results of Augmented Dickey-Fuller Test at Level &1st Difference

Variables Level First difference
Intercept but no trend Intercept and trend Intercept but no trend Intercept and trend
Test Critical Prob. Test Critical Prob. Test Critical Prob. Test Critical Prob.
Statistics Value Statistics Value Statistics Value Statistics Value
(5%) (5%) (5%) (5%)
LFDI -1.281 -2.875 .639 -7.407 -3.431 0.000 -8.153 -2.875 0.000 -8.201 -3.432 0.000
LCPI -6.463 -2.875 0.000 -6.484 -3.431 0.000 -8.875 -2.875 0.0000 -8.853 -3.431 0.0000
LXR -2.291 -2.875 0.176 -2.695 -3.431 0.239 -12.850 -2.875 0.0000 -12.812 -3.431 0.0010
LTWSE -3.777 -2.875 0.003 -3.931 -3.431 0.012 -6.123 -2.875 0.000 -6.105 -3.431 0.000
LIMP -3.622 -2.875 0.006 -4.335 -3..432 0.003 -3.505 -2..875 0.008 -3.494 -3.432 0.0423
LBIT -2.185 -2.875 0.213 -2.194 -3.432 0.490 -24.617 -2..875 0.000 -24.591 -3.432 0.000
Source: Data analysis.
When Augmented Dickey-Fuller Test is conducted with the Level of series, the computed T-statistics (with no trend
and with trend) for LFDI (-1.281 & -2.407), LXR (-2.291 & -2.695) & LBIT (-2.185 & -2.194) is larger than critical
values of LFDI (-2.875 & -3.431), LXR (-2.875 & -3.431) & LBIT (-2.875 & -3.432) respectively at the significance
level of 5%. While the rest of the three variables (LCPI, LTWSE & LIMP) demonstrates achieving stationary in level
itself being there T-Statistics lower than critical values. This means that the null hypothesis of unit root is accepted for
the variables LFDI, LXR & LBIT which demonstrate existence of unit root problem and rejected for the variables LCPI,
LTWSE & LIMP which shows their stationary properties. When Augmented Dickey-Fuller Test is conducted at first
difference of series, the computed value of T-statistics at significance level of 5% considering trend and no trend for
LFDI (-8.153 &-8.201),LCPI (-8.875& -8.853),LXR(-12.850 & -12.812),LTWSE (-6.123 and -6.105), LIMP (-3.505 &
-3.494) & LBIT (-24.617 & -24.591) is smaller than critical values of LFDI (-2.875 & -3.432),LCPI (-2.875 & -
3.431),LXR(-2.875 & -3.431),LTWSE (-2.875 & -3.431), LIMP (-2.875 & -3.432) & LBIT (-2.875 & -3.432)
respectively. This means that the null hypothesis of unit root is rejected for all the six variables, which implies that the
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first difference series of LFDI, LCPI, LXR, LTWSE, LIMP and LBIT achieves stationarity.
Table 2. Results of Phillips-Perron Test at Level &1st Difference
Variables Level First difference
Intercept but no trend Intercept and trend Intercept but no trend Intercept and trend
Test Critical Prob. Test Critical Prob. Test Critical Prob. Test Critical Prob.
Statistics Value (5%) Statistics Value (5%) Statistics Value (5%) Statistics Value (5%)
LFDI -12.189 -2.875 0.000 -13.005 -3.431 0.000 -90.360 -2.875 0.000 -99.074 -3.431 0.000
LCPI -8.588 -2.875 0.000 -8.620 -3.431 0.000 -33.360 -2.875 0.000 -33.246 -3.431 0.000
LXR -2.413 -2.875 0.139 -2.399 -3.431 0.379 -12.851 -2.875 0.000 -12.813 -3.431 0.000
LTWSE -3.267 -2.875 0.017 -3.355 -3..431 0.060 -14.663 -2.875 0.000 -14.656 -3.431 0.000
LIMP -4.814 -2.875 0.000 -5.086 -3.431 0.000 -22.713 -2.875 0.000 -22.647 -3.431 0.000
LBIT -11.224 -2.875 0.000 -11.199 -3.431 0.000 -28.014 -2.875 0.000 -27.943 -3.431 0.000
Results showed by Phillips-Perron test at level of series reveals that computed T-statistics (with no trend and with
trend) for LXR (-2.413 & -2.399) is larger than critical values of LXR (-2.875 & -3.431) at the 5% significance level.
While result shows that the critical value for rest of the five variable (LFDI, LCPI, LTWSE, LIMP & LBIT) is lesser
than their critical values, thereby evidencing the existence of stationary at level. P-P unit root test at first difference of
series also indicates that the computed T-statistics at significance level of 5% considering trend and no trend for LFDI (-
90.360& -99.074),LCPI (-33.360 & -33.246),LXR (-12.851 & -12.813),LTWSE (-14.663 and -14.656) ,LIMP (-22.713
& -22.647) & LBIT (-28.014 & -27.943) is smaller than critical values of LFDI (-2.875& -3.431),LCPI (-2.875& -
3.431),LXR (-2.875& -3.431),LTWSE (-2.875& -3.431) ,LIMP (-2.875& -3.431) & LBIT (-2.875& -3.431) respectively
at the 5% significance level. This means that the null hypothesis of unit root is rejected for all the six variables, which
signify the achievement of stationarity.This is the pre-condition for co-integration test, that is, the variables are
integrated of the same order. The study, therefore, proceeds to the co-integration test to obtain the number of co-
integrating equation.
3.2 Johansen Co-integration Test

Consequently, Johansen co-integration test is used to determine whether there are any long-term co-integration
relationships between LFDI and other five variables (LCPI,LXR, LTWSE,LIMP & LBIT) in Taiwan or not. In order to
check the co-integration among the variables, Trace Statistics and Max Eigen Statistics have been tested by assuming
the linear deterministic trend with a lag of 1 to 4 for each time series. To determine the number of co-integration
equation, this approach focuses on the rank of matrix S , the count for independent co-integrating vectors will represent
the rank (the sum of its non-zero Eigen-values).The null hypothesis of having co-integration will be rejected if the
calculated value exceeds the tabulated value.
Table 3. Johansen-Juselius Co-integration Test

Critical Value (5%)
Hypothesized No. of CE(s) Trace Statistic Max-Eigen Statistic
Trace Max-Eigen
r=0 210.0199* 90.65172* 95.75366 40.07757
r≤1 119.3682* 47.97187* 69.81889 33.87687
r≤2 71.39631* 37.50389* 47.85613 27.58434
r≤3 33.89242* 20.89355 29.79707 21.13162
r≤4 12.99887 8.370233 15.49471 14.26460
r≤5 4.628640* 4.628640* 3.841466 3.841466
Note: * At a Significance level of 5% hypothesis will be rejected.
Table-3 demonstrates the Johansen co-integration test results. It assures the long-term relationship among the
selected variables. The result shows that the series is co-integrated, as both the trace and the maximum eigenvalue tests
reject the null hypothesis of no co-integration (r=0) at 5% level. Table 3 reveals the trace statistics which indicates that
there is at least one (5) co-integrating equation between LFDI and other five variables (LCPI, LXR, LTWSE, LIMP &
LBIT) in Taiwan at 5%. Meaning that, they (the variables) move together in the long run. Under the Max-Eigen
statistics as shown in Table 3, it indicates that there are four (4) co-integrating equation between LFDI and other five
variables (LCPI, LXR, LTWSE, LIMP & LBIT) in Taiwan.
From the result, both trace statistic and maximum Eigenvalue statistic indicated strong value four co-integrations.
Trace Statistic is more than Critical Value at the 5 percent level of significance for five co-integrations, suggesting that
there is long run relationship co-integrating relations between variables. When we talk about the Unrestricted Co-
integration Rank Test here also results are indicating a long run relationship. Here Max-Eigen Value is more that Critical
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Value supporting four co-integrations. Therefore, it may be concluded that there exists a stationary, long-run
relationship among the variables.
3.3 Estimating a VEC Model
The presence of co-integration among variables under study offered ascends to the estimation of VEC Model. The
significance of the error correction term demonstrates about the weight of smaller endogenous conformity (to the long
term pattern) to take the framework back to longer harmony. Up to a specific degree, causality fundamentally involves
altogether of developments in the time series. After identifying the existence of co-integrating vector, VECM could be
composed as :
l m n o p
 ln FDI t  1   1  ln CPI t 1   1  ln XRt 1    1  ln TWSEt 1   1  ln IMPt 1   1  ln BITt 1
i 1 i 1 i 1 i 1 i 1
q
  1  ln FDI t 1  1 ECTt 1   1t (3a)
i 1
l m n o p
 ln CPI t   2    2  ln FDI t 1    2  ln XRt 1    2  ln TWSEt 1   2  ln IMPt 1   2  ln BITt 1
i 1 i 1 i 1 i 1 i 1
q
   2  ln CPI t 1  2 ECTt 1   2t (3b)
i 1
l m n o p
 ln XRt   3    3  ln FDI t 1   3  ln CPI t 1    3  ln TWSEt 1   3  ln IMPt 1   3  ln BITt 1
i 1 i 1 i 1 i 1 i 1
q
   3  ln XRt 1  3 ECTt 1   3t (3c)
i 1
l m n o p
 ln TWSEt   4    4  ln FDI t 1    4  ln CPI t 1    4  ln XRt 1   4  ln IMPt 1   4  ln BITt 1
i 1 i 1 i 1 i 1 i 1
q
   4  ln TWSEt 1  4 ECTt 1   4t (3d)
i 1
l m n o p
 ln IMPt   5    5  ln FDI t 1   5  ln CPI t 1    5  ln XRt 1   5  ln TWSEt 1   5  ln BITt 1
i 1 i 1 i 1 i 1 i 1
q
   5  ln IMPt 1  5 ECTt 1   5t (3e)
i 1
l m n o p
 ln BITt   6    6  ln FDI t 1    6  ln CPI t 1    6  ln XRt 1   6  ln TWSEt 1   6  ln IMPt 1
i 1 i 1 i 1 i 1 i 1
q
   6  ln BITt 1  6 ECTt 1   6t (3f)
i 1
where εit is serially uncorrelated random error terms. In this Vector Error correction model the ECTt-1 coefficients
to capture the adjustments of lnFDI, lnCPI, lnXR, lnTWSE, lnIMP, and lnBIT .The outcomes of vector correction
model (VECM) estimation results obtained from equations (3a) to (3f) are depicted in Table 4. Analyzing the data from
Granger Causality Test based on VECM, moving across through Equation No. (3a) horizontally the value of ECTt-1 is
showing statistically significant and negative at the level of significance of 5%.With this, the presence of long run
Granger causality moving from LCPI,LXR,LTWSE,LIMP & LBIT to LFDI is confirmed due to the negative sign of
error correction term. The resulting analysis also reveals the short-run causality movements that show the Granger
causality proceeding from LBIT to LFDI and LCPI to LFDI.
Table 4. Granger Causality Results based on VECM

Dependent Variable Independent Variables ECTt-1
χ2 Statistics (Source of Causation) Coefficient
(T-Ratio)
Δ LFDI Δ LCPI Δ LXR ΔLTWSE ΔLIMP Δ LBIT
Eq.(8a)Δ LFDI -- 7.115** 0.364 2.564 2.299 15.162*** -0.0168**
[0.028] [0.834] [0.277] [0.317] [0.001] (-2.0159)
Eq.(8b)Δ LCPI 0.911 -- 3.295 0.0.546 3.059 3.023 0.0009
[0.634] [0.193] [0.761] [0.217] [0.220] (0.1350)
Eq.(8c)Δ LXR 5.172* 0.540 -- 3.154 3.662 2.833 -0.0001**
[0.075] [0.763] [0.207] [0.160] [0.242] (-1.7421)
Eq.(8d)Δ LTWSE 4.964* 0.560 3.789 -- 0.889 0.780 0.0003*
[0.084] [0.756] [0.150] [0.641] [0.677] (0.6593)
Eq.(8e)Δ LIMP 0.743 0.059 1.837 1.653 -- 71.553*** -0.0023**
[0.690] [0.971] [0.400] [0.437] [0.002] (-4.6251)
Eq.(8f)Δ LBIT 0.471** 6.579** 2.984 3.864 0.850 -- 0.0947
[0.029] [0.037] [0.225] [0.145] [0.654] (7.6090)
Note: ***, ** and * represent significant at level of 1%, 5% and 10% respectively.
[...] Represent as p-value.
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In aforesaid Table No.4 Equation No.3 (b) indicates insignificant short-run and long-run equilibrium. A horizontal
row of Equation No.(3c) indicates that LXR retorts to long-run equilibrium because the negative value of ECTt-1 at a
significance level of 5% substantiate long-run causality moving from LFDI,LCPI,LTWSE,LIMP, LBIT to LXR . In the
same Equation No. (3c) Granger Causality movement may be a sense from the short-time perspective from LFDI to
LXR .Equation No. (3d) reveals insignificant long-run causality however short-run movement could be analysed from
LFDI to LTWSE. Equation No.(3e) affirm the ubiquity of long-run granger causality due to the presence of significant
and negative value of ECTt-1 but the movement is at a low speed from LFDI, LCPI, LXR , LTWSE ,LBIT to LIMP.
Furthermore, Eq. (3f) also, indicates the movement of Granger Causality from LCPI to LBIT and LFDI to LBIT. The
outcome of the study also affirms the bi-directional causality between LBIT and LFDI.
3.4 Impulse Response Functions

To further explore the interaction between foreign direct investment and its determinants, the study proceeds to test
the impulse response functions (IRFs) (Shin & Pesaran,1998).Figure 1 exhibits the generalized asymptotic impulse
response function which includes 6 small figures. Each small figure illustrates the dynamic response of each target
variable (LFDI, LCPI, LXR, LTWSE, LIMP & LBIT) to a one-standard-deviation shock on itself and other variables.
In each small figure, the horizontal axis presents the ten years following the shock. The vertical axis measures the
yearly impact of the shock on each endogenous variable.
Impulse responsive function uses Vector Autoregressive to measure the responsiveness of a series when the shock is
present in one of the variables and exceeds the time period. Impulse Responsive functions give an indication of the
system’s dynamic behavior. Generalized impulse response functions (GIFRS) lying underneath in Fig.1 , shows the
response and impact of each and every macro-economic variable of VAR under study. In the VECM System, the
GIRFs provides the support of causality status between foreign direct investment and its’ determinants.
Response of LFDI to Generalized One Response of LCPI to Generalized One
S.D. Innovations S.D. Innovations
1.6 1.2
1.0
1.2
0.8
0.8 0.6
0.4 0.4
0.2
0.0
0.0
-0.4 -0.2
1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10
LFDI LCPI LXR LFDI LCPI LXR

LTWSE LIMP LBIT LTWSE LIMP LBIT
Response of LXR to Generalized One Response of LTWSE to Generalized One

.020 .08
.015 .06
.010 .04
.005 .02
.000 .00
-.005 -.02
-.010 -.04
1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10

Response of LIMP to Generalized One Response of LBIT to Generalized One

.08 2.0
.06 1.5
.04 1.0
.02 0.5
.00 0.0
-.02 -0.5
1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10

Fig: 1
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4. Conclusion:
The study began by empirically examining the causal association among the selected macroeconomic variables
(LCPI, LXR, LTWSE, LIMP, and LBIT) with the foreign direct investment (LFDI) in Taiwan during the period of
1998-2016. The study uses multivariate VAR framework. The analysis started with stationary property examination of
the underlying time series data. The estimated results confirmed that LFDI, LCPI, LXR, LTWSE, LIMP, and LBIT are
not stable under the confidence level of 5% but their first order difference terms are all stationary. Hence, they are
integrated of order one. Results of study depict a long-run dynamic association of foreign direct investment with its
macroeconomic variables. The Johansen's multivariate co-integration test evidence from the result suggests that the null
hypothesis of no co-integration (r =0) is rejected, which indicates that LFDI and its determinants are co-integrated and
thus exhibit a reliable long run relationship. Having found co-integration among the variables we also carried out the
Granger-causality by the mean of VAR.The result shows the existence of unidirectional causality between LBIT &
LFDI (LBIT→LFDI).
5. References:
Pesaran, M.H., Shin, Y and Smith, R. J. (1996).Testing for the existence of a long-run relationship.DAE Working Paper
No. 9622. Department of Applied Economics, University of Cambridge.
Shin, Y. and H. M. Pesaran. 1998. Generalized Impulse Response Analysis in Linear Multivariate Models. Economics
Letters 58: 17-29.
Wilson, William T. (2014). Markets solutions should be Central to U.S.’s Taiwan Policy. Backgrounder, 2930, 1-12.
Author’s Bibliography
Dr.Shailender Singh was born in Dehradun, India on 4th June 1980. He completed his Post-Doctoral research in
finance area from School of Management, Universiti Kebangsaan Malaysia and also received his M.B.A, C.F.A, and
Ph.D. in the area of finance. Presently he is Associate Professor at Department of International Finance, I-Shou
University, Taiwan. In his current position, he teaches courses in Intermediate Accounting and Fixed Income Securities.
His primary research area is Time Econometrics and Empirical Finance. Before joining I-Shou University he held
academic positions at Management Development Institute of Singapore, Linton Universiti Kolej Malaysia, and Amity
University.
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EXPLORING THE IMPACT OF RESILIENCE ON THE FEMALE CAREER

DEVELOPMENT AND ENTREPRENEURIAL INTENTIONS:THE CASE OF REAL
ESTATE INDUSTRY KUN SHAN UNIVERSITY TAIWAN, R.O.C.
Cheng-Lung Li1) , Min-Chi Chung2)

1)
Abstract
According to previous studies, the career development of female is much more limited than that of male in Taiwan.
Thus, this research conducts a qualitative research method to explore what factors may result in their adversities
during life and career development and how they overcome difficulties, and finally enter into entrepreneurship. This
study uses Patterson & Kelleher (2005) resilience theory as the research model to explore the process of female’s
career development and the how resilience impact on female entrepreneurial Intensions. More importantly, this study
aims to understand how female face adversities and overcome them as well as successfully overturn their life.
This research conducts an in- depth interviews with five successful female real estate agents who had been
encountering life adversities including divorce, unemployment, cancer threat, and deep in debt. The study shows that
most respondents see entrepreneurship as a means of accommodating their work and child-rearing role simultaneously.
Thinking positively, children nurture and education, and faith building are key motives for them to bravely conquer
their life difficulties. The study also suggests that the real estate company provides an entrepreneurial environment for
those females.
Keywords: Resilience, Femal Career Development, Entrepreneurial Intensions, Real Estate
Introduction
According to previous studies, the career development of female is much more limited than that of male in Taiwan.
Thus, this research conducts a qualitative research method to explore what factors may result in their adversities during
life and career development and how they overcome difficulties, and finally enter into entrepreneurship(Orhan, and
Scott 2001).This study tries to explore the process of female’s career development and the how resilience impact on
female entrepreneurial Intensions. More importantly, this study aims to understand how female face adversities and
overcome them as well as successfully overturn their life.
Literature Review
The career developments of Women
Super (1957) put effort to distinguish the proportion of "seven kinds of career development type" for female work
and family. Based on thehistory of the femalelife development as the background, White (1995) proposed "successful
women's career development history”. He also argued that the career development process for female is divided into six
stages.In brief, the success of women's life cycle is a process of "stable, reflection, change and stable again".With the
cycle of the journey, to help women to think deeply of their career choice and development, then they could learn from
that and get a stable career.
Theory of resilience
“Resilience " refers to the individual in the face of adversity, a trait of the show, it can be used to explain why some
individuals exposed to hardship, was able to rebound from the bottom, and finally reached a positive adaptation, not
knocked down. In the early 1990s, the rise of positive psychology school on that: Although life had to face pressure or
bad events, but some of the positive personality traits (for example: optimistic or proactive personality) and emotional
(for example: joy, happy), can help individuals to convert pressure into assistance, to meet adversity with resilienceand
the pursuit of happiness（Diener, Oishi, & Lucas,2003）。
Patterson and Kelleher (2005) that the mechanism for the formation of tenacity includes: interpretation, ability,
action, between the three is not in accordance with the timeline sequence occurs, but in the course of tenacity of
continuous germination, keep interaction. It is only through the dynamic interaction of three-oriented, in order for the
individual in the face of adversity and setback, can generate personal advantage, to break through the storm. Specifically,
the intention of the resilience can be divided into six stages: (1) event (combat stress) (2) personal adversity explanation
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(3) toughness energy (4) toughness of action (5) success results (6) increase the toughness of future stress energy.
Stress Adaptation and female entrepreneurial motivation
Most surveys found that quite similar entrepreneurial motivations between male and female. Independence and the
need for self-achievement are always ranked first (Hisrich et al., 1996). However, working flexibility providing option
in terms of the hours worked is also identified as another important factor motivating female entrepreneurship
(Ducheneaut and Orhan, 2000).
When it comes to female entrepreneurs, “push” and “pull” factors are now common ways of explaining different
motivations for female to start a business (Brush,1990). Push factors are elements of necessity such as dissatisfaction
with a salaried job, insufficient family income, a need for a flexible work schedule because of family responsibility. Pull
factors relate to independence, self-fulfillment, entrepreneurial drive and desire for wealth, social status and power
(Ducheneaut, 1997).
Methodology
The researcher has been working at estate realtor industry for many years, and been inspired by mostly middle-aged
professional women. Those working professional females had been encountering life difficulties such as carrying home
debt, or credit card debt for her husband, suffering cancer, independently raising kids after divorce. However, how did
they overcome their life barriers and successfully become entrepreneurs and admirable elites in the real estate industry?
This is the main motivation for the study.
This case study of data collected in interviews completed within two months, the preparatory work before the
interview will want to collect information first study, in obtaining the consent of the respondents, the situation that is
successfully extending homeopathic interview, but still two hours are limited to avoid the interview too long, leading to
the proliferation of access to information too, for sampling data also relatively non-effective. Interview respondents
shall file the consent completed and the results obtained by the researchers in the collection, digestion and cross
rhetorical analysisbetween cases, to obtain the necessary information to complete the entire file system.Through this
study, drawn up in advance of the interview outline, access with non-structural patterns based, personal one on one
interviews, interviews take time to listen to a question → → Supplementary, asked respondents to speak freely, you can
easily tell if the heart . Then pick taped interviews with sixty minutes each time. Data processing in accordance with the
way the interview transcript → → → screening study marked emphasis → labeling → → write character narrative
pictorial theme link.
Interviewee background
In this study, women Tainan City Realty industry as the research object, the primary focus of the selection of the
study is to have who have been a major setback in the past and has successfully flipped obstacle, mainly to explore the
tremendous pressure when they foiled next, how to dealwith and adapt to. Whereby, through life, career contrast, the
study tries to discover the common description about "resilience” among interviewees. Based on the above conditions,
the five respondents to accept individual in-depth interviews, because involving personal privacy section, respondents
were not disclosed names and assigned A, B, C, D, E as the case code, because this Research focus is to find the
"resilience" as a common key, in addition to understand the rollover process in depth interviews, respondents will also
do background multi-alignment, such as age, education, children, marital status, etc., facilitate follow-up integration
time can be summarized as the use of background information on aggregate as shown in table 3.1:
Interview Structure
This study applied Patterson & Kelleher (2005) framework (resilience intention including six stages)and used a
qualitative case study methods, with in-depth interviews combined with the mechanism of resilience formed
(explanation, ability, action). The research design is to identify the process of respondents in the fight against
adversity.Interview outline set as follows:
(A) Event: What happened to make you in trouble?
(B) Personal adversity explanation: the face of extreme difficulties, what kind of idea do you have to produce?
(C) Energy toughness: What are the major reasons for you to support through this dilemma?
(D) Resilient action: What did you do to overcome this dilemma?
(E) Successful results: what is the most important thing for you successfully to overcome difficulties?
(F) Energy for the future to strengthen the resilience of adversity: Can you give some suggestions.
Results and Analysis

Misfortune people need to think optimistic way and believe that bad luck will soon be over. They are less likely to
suffer from depression, as well as have the ability to change the situation so that they increase endurance. People with
positive thinking can properly adapt to changes in the difficult environment.
Adversity coming
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Human life cannot always smooth sailing, happy moments before also thought to control within the drunken, the
next moment comes suddenly a thunderbolt always people cannot parry, usually female mission in life is to marry is
given, children, housekeeping, however, into the female after marriage, career women often become very big test, but
also become the female job career road the biggest stumbling block.
1. Marriage breakdown
"Since I started to be in debt, my mother in-law and her family began very mean to me. People did not respect me
at home. Originally, I thought that as long as my husband loves me, I can tolerate anything. One day I heard the
conversation between my husband and my mon-in-law about his having an affair with a woman. His mother actually
still stands by him. Suddenly, I felt there is no reason for me to stay at this family(case B).”
2. Money Debt
He just simply and casually swiped the card and I have to think about how to pay the bills. Every time I received
my salary, I was very headache about paying the money of credit card with high circulating interest. I really do not
know how to stop all this. We couldn’t even afford the rent and how to pay the bills“(case D).
Personal interpretation of adversity

Doom often makes the optimistic people with positive cheerful thought begin to hesitate and no longer believe
there is a hope in the life. However, we must clearly know that this is the process through the dark. Sadness is a normal
emotion, but we cannot be lost in the whirlpool.
1. Negative emotions enveloped
"At that time I really thought I must leave immediately. I hated why I had to be suffered with his rudeness and
cheating. Why did I have to bear these terrible things? However, as I watched m two children, I knew I couldn’t be
falling down. They are innocent. Without me, how do they do“(case A).
2. Do not want to accept the reality
"When I was bankruptcy and got divorced, I was scared facing the crowd. I don’t like people pointing to me. I was
afraid of being laughed at. I wanted to die anyway, and nobody cares. But whenever such miserable thought was
flashing to my brain, my child's face suddenly was appearing in my mind. I convinced myself to survive for my
children“(case B).
Resilience Intention
The constant flood of negative thoughts dilemma, if there is no power to resist, it will slump as the vortex, so how
to make their own "fear setbacks, keep the faith," the most important thing is to show resilience intention in the ring.
This case study data analysis found that looking for spiritual support is very important key element for respondents to
overcome adversity.
1. Focus on their children.
"I have to bear the pain and pressure of bankruptcy. If I did not carry them off, sooner or later my children will be
bearing the same burden as me. I believe that I can stand up again for children. I really
cannot leave debts to my next generation” (case B).
2. Attend nonprofit associations or religious groups
" I was attending a lecture about the Dharma. I cried a lot. I was so regretful that why I couldn’t hear the Dharma
till now. Suddenly I understood why I should go through them, because I owed him too much in my previous life. Now
I almost paid off. I began to positive karma to my life. I began to create positive karma. I also have to educate my kids
for the future“(Case D).
Entrepreneurial Intentions
Female resilience is formed by a force of positive action although they are suffered with limited conditions and
much stress. When they decided to return to work and would consider the most suitable working place and environment
which not only can offer high pay and bonus but also spend flexible time to fully take care of their children. As a result,
they can pay off their high debts and educate kids well. From then on, they started to cultivate themselves to be more
independent and effective or efficient worker to manage their work and life. They will find any possible solution face
their challenges and difficulties. Once they achieve one goal and then they will set up a higher goal to get more
achievement. The real-estate companies provide internal entrepreneurship for females. They can start up their business
and make more money based on their sales performance. They also can form their team to work as a profit center. The
work met their needs and fixed their life problems. Naturally they tend to pay entrepreneurship intentions on their works
and become entrepreneurs in the estate realtor industry.
1. Constantly revised to find the most appropriate method
"At beginning I was riding a motorcycle every day to look around the house and asking those people passing by
whether they were interested in buying or selling a house. Now I am looking back those days, they were full of tired but
sweet and worthy. At least I can work and take care of my kids at the same time” (case A).
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2. Recognize your own strengths and concentrate on that

"I've almost never left my living town. I was not familiar with other places, so I was just selling the houses around
my living town.-Huwei Liu region. I placed DM and fliers to every house and posters at community bulletins. Once I
received the request on selling house, I will clean it and reshape the house as the most perfect situation. Now as long as
someone is willing to sell a house, they will know to come to find me”(case B ).
3. Since it is the bottom, that left only better
"Sleeping at park were really terrible days, I keep telling myself to make more money quickly because I carried
two million card debts. I couldn’t find any job for a while. Finally a friend introduced me a job as a real-estate broker. I
spent almost triple as much time as other colleagues to run my business and thought that there should be harvested in
the future. Now I really did it by myself”( case D).
4. Crisis is a turning point; there is a will, there is a way.
"In the beginning because I have no to live, but in order to save money, I chose anew house to sell and live there
although there was no water or electricity. At least I had a place to shelter”( case E).
Successful results
No pain, no gain. This study result found that all respondents have overturned their life to get what they want-
successful life. Moreover, they all cherish the time of hardship and struggle to get happiness.
"I probably spent more than two years to pay debt off and bought my first house, although it’s a small one. No my mind
is free. I can make my dreams come true "(case A.)
Stress increase the toughness of the future energy

Positive energy is to continue to produce in order to play a role, we will often be a bunch of complicated things in
life, work pressure to disrupt the thoughts in life, how to make positive energy constantly in mind, and used to go to use
it, will be more in-depth topics.
"Cannot change the call what has happened, what did not happen on behalf may also change, I think it is important
to face reality, anyway, cannot be changed to accept their fate, wanted to approach the change has not happened, what
their own lives in order on efforts to create, do not always rely on others to help you, is the fastest way to change
yourself. "" CaseE”
Conclusion and Suggestion

Interestingly, the study shows that most respondents see entrepreneurship as a means of accommodating their work
and child-rearing role simultaneously. Thinking positively, children nurture and education, and faith building are key
motives for them to bravely conquer their life difficulties. The study also suggests that the real estate company provides
an entrepreneurial environment for those females.A previous research also echoes that there is a significant correlation
between resilience and Entrepreneurial intension among employees (Mangundjaya, Wustarih 2009).
Find spiritual sustenanceWomen demonstrated great resilience in the face of adversity career, especially for the
individual's own positive energy to play as a mother for child protection.In addition, the researchers discovered that in
fact the level of female’s education background without absolute impact as they face the life adversity. According
previous studies, female’s career adversity more falls in the age of thirty to four years old. That time females possibly
start into the period of marriage or to face the burden of raising children. If they suffer serious problems with marriage,
they will face the choice of child-rearing and survival. Naturally, they will demonstrate women's maternal qualities
(ability to protect their children) to play the recessive trait resilience automatically and possess positive energy in the
face of personal adversity
Researchers suggest that they could be participating in a number of inspired associations (such as Dharma lectures,
churches, the China Youth Corps, charity care groups, etc.) in the face of difficulties. They will more easily be able to
overcome the adversity.
Select the appropriate workplace ecologyToughness action is indispensable to a reversal of adversity program, all
energy must be translated into real action, in order to have the opportunity to turn in success. Although this time the
child is the driving force, but also a drag on the actions that must be overcome, females have to take into account under
the circumstances, usually requires a third party assistance (such as: parents, friends). Without facilitators, they will not
be able to overturn their life. Therefore, the Realty industry is a very appropriate working environment, although there
is no salary, but the low threshold, no age limit, no time constraint to work, they can make more money based on their
efforts an and performances. Besides, they can work hard to complete with their own the efforts to obtain the relative
remuneration. More importantly, they can overturn their life misfortune and start a brand new life because estate relator
agent provide an enter reship opportunity.
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References
Brush, Candida G (1990). "Women and enterprise creation: Barriers and opportunities." Enterprising women: Local
initiatives for job creation: 37-58.
Duchenaut, B. (1997) "Women entrepreneurs in SMEs. Report prepared for the OECD conference on women
entrepreneurs in small and medium sized enterprises: A major force for innovation and job creation".
Hisrich, Robert, et al. (1997) "Performance in entrepreneurial ventures: Does gender matter." Frontiers of
Entrepreneurship Research: 238-9.
Orhan, Muriel, and Don Scott. "Why women enter into entrepreneurship: an explanatory model." Women in
management review 16.5 (2001): 232-247.
MANGUNDJAYA, WUSTARI H. (2009) "The relationship of resilience and entrepreneurial
intentions." PROCEEDINGS of INTERNATIONAL ENTREPRENEURSHIP CONGRESS 2009:“SMEs AND
ENTREPRENEURSHIP” OCTOBER, 14-15-16,
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FACTORS RELATED TO THE INTENTION OF STARTING A NEW BUSINESS

IN EL SALVADOR
Linda Lin1), Ana Vanessa Peña2), Cheng-Nan Chen3)
Kun Shan University, Tainan, Taiwan
Abstract
Even though nowadays entrepreneurship is a universal concept, there are still some gaps between understanding
entrepreneurs and entrepreneurship, specifically in developing countries like El Salvador; which is the smallest and the
most densely populated country in Central America. The purpose of this paper is to fill this gap and provide solutions
and suggestions for business administration students and people interested in becoming future entrepreneurs.
The factors related to the intentions of starting a new business in El Salvador are the main problem for
entrepreneurship in the country. The relevance to these problems is that there are many possibilities to improve the
economy of the country, but there are not so many opportunities available for people to do it; furthermore, the lack of
financial help and help from the government stops them from becoming entrepreneurs.
In the literature review section, the principal factors related to the intention of starting a new business in El
Salvador are presented. The literature review is based on other research reviews, general concepts and the researchers'
review of opinions of El Salvador. The factors are as follows: cultural and social norms, lifestyle, entrepreneurial
aptitudes, perceived opportunities, perceived capabilities and fear of failure and finally, intention of starting a new
business.
The methods used for this research includes a framework that is presented in order to give a better idea of the
relation between the factors. In addition, the software SPSS for statistical analysis was used. Furthermore, a factor
analysis, an ANOVA test and a correlation test were conducted in order to accept or reject the hypotheses proposed.
The results show that: lifestyle and entrepreneurial aptitudes are strong related to perceived opportunities,
perceived capabilities, the intention of starting a new business and negatively related to the fear of failure. Perceived
opportunities and perceived capabilities are related to the intentions of starting a new business in El Salvador;.
Keywords:Lifestyle, Perceived Opportunities, Perceived Capabilities, Fear of Failure and Intention of Starting a New
Business
Introduction
In today’s world, the necessity of understanding the concepts of entrepreneurship and entrepreneurs is growing
among us. It is necessary that our society gets access to new, updated and detailed information about entrepreneurship
in El Salvador which is a developing country. This will help in knowing that entrepreneurship is one of the most
important parts in the development of a country and the promotion of productive individual initiatives is essential for a
better society; and a fair, secure and free environment for achieving social progress in every community. In El Salvador,
jobs are one of the most important parts in the development of the country, growth of the economy and a way to
emphasize the dignity of a person. In order to achieve all these, jobs need to be well paid and well protected by laws in
favor of the employees and employers; and also, an enjoyable task for the ones doing it daily.
A lot of the jobs in El Salvador are obtained by self-employment and entrepreneurship, around 31% of Salvadorians
between 18 and 64 years old work this way. Most of them, however, do not have any desirable conditions. The most
important objective of this paper is to make entrepreneurship a way of work that can be converted into one of the most
important parts of the economy in El Salvador and a great way of having a better life.
In El Salvador, the level of education is really low. Most people try to begin a business in order to survive, which makes
it a necessity and not an option. The demand for new business to open day by day in El Salvador is growing not only for
products that already exist and are better, but also for products that are new and innovative.
Theory and Hypothesis

In 2014 in El Salvador, 31.2% older than 18 years old were entrepreneurs. These tendencies are common in Central
American countries which are efficiency-driven economies. (Masferrer, 2014-2015) The main reasons why some are
still not entrepreneurs are: they already have a good job, they do not have necessity of an extra income, and they need to
study full time, or become housewives.
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To undertake a business is a decision that people make, and they depend on internal factors of each individual
(capabilities, attitudes, perceptions and aspirations), resourcing (human, social and financial capital) and environmental
conditions (social, political, legal, economic, etc.). Social values play a key role to determine whether individuals are
behaving entrepreneurial or not.
Social values are revised through three dimensions: If most people consider starting a new business a desirable
career choice; If those individuals who are successful at starting a new business enjoy a high level of status and respect
in the society; and If media attention to entrepreneurship contribute or not to develop an entrepreneurial culture in a
country.
During the years 2012 to 2014 it was possible to observe the increase in each value of entrepreneurship in El
Salvador. There are two different interpretations of this data: in a positive way, it is an increase of entrepreneurship
showing a better business environment or better perceived capabilities for entrepreneurs; it can also be understood as an
increase in entrepreneurship in a negative way as a result of bad market conditions and lack of jobs.
In El Salvador, there are entrepreneurs by necessity and by opportunity. The percentage by opportunity is lower than
the average for Latin American countries and the one by necessity is higher than the other countries. Higher
entrepreneurship by necessity means an economic environment where there is a lack of jobs or where a group of the
population does not have access to any type of salaries, lack of capabilities, etc.
The profile of entrepreneurship in El Salvador is lower than the in Latin America since it is the third poorest country
in Latin America. The factors related to the intention of starting a new business in El Salvador are multiple; and the
ones stopping them from becoming entrepreneurs are: financial help, lack of programs (public and privates) that help
entrepreneurs in general, the small market, the lack of competency in the internal market, etc.
Entrepreneurship
It is the process of designing, launching and running a new business and it will tend to include topics like
government programs, services, entrepreneurship courses, financial support, etc. that promote and support
entrepreneurs.
Entrepreneur
It might be described as a person who starts his or her own business, and assumes the risk but stands to gain the
profits. There are so many reasons why people become entrepreneurs: cannot have a boss, easily bored, cannot keep a
job, not too educated, etc. In El Salvador, 1/3 of the population is an entrepreneur. (Belloso, 2015) Salvadorians
entrepreneurs are: Dynamic, visionaries, innovative, creative and risk taker.
Cultural and Social Norms

Entrepreneurial culture is focused on remaining social roles and motivating new behaviors. Social entrepreneurship
involves resources, investment, analysis, etc. Social entrepreneurs will tend to solve problems by disrupting existing
systems and Cultural entrepreneurs will solve them by disrupting the belief systems. (Witter, 2011)
“Culture is one of the most precious things a company has,” said Herb Kelleher, Founder, Southwest Airlines. “So
you must work harder on it than anything else.” Salvadorians enjoy speaking about their job, family, customs and
almost everything. Salvadorians are good talkers and very comprehensible with foreign people.
H1: Cultural and Social Norms relate to Perceived Opportunities in El Salvador.
H2: Cultural and Social Norms relate to Perceived Capabilities in El Salvador.
H3: Cultural and Social Norms relate to Fear of Failure for starting a new business in El Salvador.
H4: Cultural and Social Norms relate to the intention of starting a new business in El Salvador.
Lifestyle
It is a way of life or living of a person or group with different attitudes, habits, possessions, etc. (Mifflin, 2011)
Lifestyle can make a big impact on the current social success, and on the opportunities a person will have to practice
and develop their skills in order to move forward and the importance of them changes over time.
Lifestyle entrepreneurship means creating a business around the kind of lifestyle a person desires, the business
supports their life and allows them to create freedom while making an impact in people’s lives. There are many reasons
why people have intentions to become a lifestyle entrepreneur, for example, to be near their aging parents or stay at
home with their young children, get off the travel grind and away from overbearing bosses and finally to do the kind of
work that they love.
In El Salvador the majority of the population lives in the central area, everyone speaks Spanish and a good percent
of the population can handle English as a second Language, urban cities in El Salvador include middle classes and
military public employees, commercial middlemen, and small businessmen. People living in urban cities usually make a
living being lawyers, doctors, politicians, etc. and some people are involved in real estate. Almost half of the population
is below the poverty.
H5: Lifestyle is related to the perception of opportunities in El Salvador.
H6: Lifestyle is related to perceiving more entrepreneurial capabilities in El Salvador
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H7: Lifestyle is related to having more fear of failure when starting a new business in El Salvador.
H8: Lifestyle is related to the intentions of starting a new business in El Salvador.
Entrepreneurial Aptitudes
Are defined as the skills to potentially create and develop enterprises and self-employment. Successful entrepreneurs
present specific characteristics like high entrepreneurial aptitudes to manage bureaucratic phases and personal financial
resources.
H9: Entrepreneurial aptitudes relate to perceived opportunities in El Salvador.
H10: Entrepreneurial aptitudes relate to perceived capabilities in El Salvador
H11: Entrepreneurial aptitudes relate to fear of failure when starting a new business in El Salvador.
H12: Entrepreneurial aptitudes relate to the intentions of starting a new business in El Salvador.
In El Salvador, the shortage of skilled labor is the key factor that limits investment in the country’s export sector and
its competitiveness in global markets. To address this problem, Millennium Challenge Corporation (MCC) funded the
renovation of technical schools, the development of demand-driven curricula, teacher’s training, and scholarships to
outstanding students to develop key skills to work in the country’s growth industries.
The most notable initiative in El Salvador is the government’s commission for small and medium businesses
(CONAMYPE) which created regional centers where entrepreneurs can get training and guidance. Other initiatives are
led by the export promotion agency (PROESA) and private foundations (FUSADES) to encourage the growth of the
export-oriented businesses. Still, the number of beneficiaries of these initiatives remains small, due to lack of funding
and/or incentives and information on the part of entrepreneurs. (SA, 2012)
Perceived Opportunities
Reflect the percentage who believes there is an occasion to start a business in the next six months in their immediate
environment. People are not really afraid of starting a business, but business risk is very high. There are plenty of
opportunities to personally know an entrepreneur and learn from their knowledge. (Acs, 2013) The perception of
business opportunities can automatically be related to the intention of starting a new business and the identification of
these opportunities is an important and essential skill that the aspiring entrepreneur must possess. (Vidal-Suñé, 2013)
Opportunity entrepreneurs who pursue an opportunity or try to increase their income or independence tend to be
younger (under 35), while entrepreneurs by necessity are on their 35-64 years old.
Governments can facilitate the identification of business opportunities and the entrepreneurial process by offsetting
entrepreneurs shortcomings in their resources and abilities, through programs of subsidies and financial aid, training
programs, providing information and advice, etc. (Dahles, 2005; Keuschnigg and Nielsen, 2004; Lorenzo et al., 2008).
H13: Perceived opportunities relate to the intention of starting a new business in El Salvador.
Perceived Capabilities
They can be explained as the percentage that believes they possess the abilities to achieve certain objectives,
especially in relation to entrepreneurship. Entrepreneurship involves possessing subjective visions about business
opportunities and mobilizing resources and capabilities to turn entrepreneurial visions into business reality (Shepherd
and DeTienne, 2005; Stuart and Sorenson, 2005). There are different types of capabilities, one of the most important is
Dynamic capability “or the ability to integrate, build, and reconfigure internal and external competencies to address
rapidly changing environments” (David J. Teece, Gary Pisano, and Amy Shuen). On the other hand, operational
capabilities affect the current operation of an organization. (Helfat et.al. 2007).
There is a necessity in El Salvador to develop a way to exploit the capabilities that an entrepreneur might acquire;
this might help with a fast and efficient innovation with low cost. An important component in this strategy can be
identified as the ability to strengthen the entrepreneurial technological capability specifically in the rural areas.
H14: Perceived capabilities relate to the intentions of starting a new business in El Salvador.
Fear of Failure
A common fear among entrepreneurs is the fear of failure, the fear of failure is the appraisal of threats in evaluative
situations with the potential for failure (Conroy 2001). These situations cause different behavioral responses: approach
the threat aggressively (fight), avoid facing the situation (flight), or be paralyzed in the situation (freeze) and it becomes
a barrier to entrepreneurship. Failure constitutes an integral part of starting a company.
H15: Fear of failure relates to the intentions of starting a new business in El Salvador.
Entrepreneurial intention
It can be described as the state of one’s mind to foster new businesses or ventures and a person will only initiate
entrepreneurial actions when one’s entrepreneurial conviction is high in relation to the perceived requirements of a
specific opportunity. Finally the demographic profile is one of the most important parts when conducting a research. In
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El Salvador, most of the population is Mestizos with an 86.3% and females accounting for more than half of the
population.
The main purpose of the study was the need to fill some important gaps about entrepreneurship in El Salvador that
some papers have not yet cover. More details about the factors related to the intentions of starting a new business in El
Salvador might help future entrepreneurs to overcome some obstacles in an easier way.
Methods
Sample and data collection

The method used to collect data was an entrepreneurial intention questionnaire, which included all the questions
necessary to fulfil the research.
The questionnaire was divided into eight sections including each of the factors being analyzed: Cultural and Social
norms, Lifestyle, Entrepreneurial Aptitudes, Perceived Opportunities, Perceived Capabilities, Fear of failure, and
Intention of starting a new business and finally the Demographic section in order to have a better idea of the profile of
the respondents.
The sampled was obtained from various schools, institutions, universities, organizations from El Salvador; the
expected responses were 150, finally obtaining a total of 225. The demographic frequency of the sample is listed in
Table 1. As it can be observed, most of the respondents were between 26 to 40 years old, females, mestizos,
Undergraduates, Single, from the Central part of the country, fully employed, with no experience in starting up a
business, currently working in the service sector and obtaining more than $10,200 as their annual income.
The questionnaire was sent to the different institutions, organizations, schools, universities, and included formal
instructions on how to answer, they were also asked to distribute the questionnaire to as many coworkers or classmates
as possible. To ensure anonymity and confidentiality, the questionnaire was created in a way in order not to ask for any
identity. Every time someone answered the questionnaire, an automatic notification was sent to the researcher.
Measures
Respondents answered the questions in the best way that described the way they think, the way they perceived the
opportunities for any entrepreneurial activity, the perception of their own capabilities and their fear to fail, also their
intentions to start any entrepreneurial activity.
Figure 1, Research framework for the study of the factors related to the intentions of starting a new business in El
Salvador.
Figure 1 Research framework
Discussion and conclusions

The purpose of this study was to investigate the factors related to the intention of starting a new business in El
Salvador. During the research, it was founded that there are not previous research that covers the same topic being
studied.
During the tests, the only significant difference found between the factors and the intention of starting a new
business in El Salvador were as follow: Necessities, Self-behavior, Feelings, Work experience, Abilities, Opportunities
and Skills are related to Dreams and Beliefs; Government is related to Dreams and Country is related to Beliefs.
Based on the results, the following hypotheses were accepted:
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H5: Lifestyle is related to the perception of opportunities in El Salvador.

H6: Lifestyle is related to perceiving more entrepreneurial capabilities in El Salvador
H9: Entrepreneurial aptitudes relate to perceived opportunities in El Salvador.
H10: Entrepreneurial aptitudes relate to perceived capabilities in El Salvador
H7: Lifestyle is related to having more fear of failure when starting a new business in El Salvador.
H8: Lifestyle is related to the intentions of starting a new business in El Salvador.
H12: Entrepreneurial aptitudes relate to the intentions of starting a new business in El Salvador.
H13: Perceived opportunities relate to the intention of starting a new business in El Salvador.
H14: Perceived capabilities relate to the intentions of starting a new business in El Salvador.
The following hypotheses were rejected:

H1: Cultural and Social Norms relate to Perceived Opportunities in El Salvador.
H2: Cultural and Social Norms relate to Perceived Capabilities in El Salvador.
H3: Cultural and Social Norms relate to Fear of Failure for starting a new business in El Salvador.
H4: Cultural and Social Norms relate to the intention of starting a new business in El Salvador.
H11: Entrepreneurial aptitudes relate to fear of failure when starting a new business in El Salvador.
H15: Fear of failure relates to the intentions of starting a new business in El Salvador.
Somewhat surprisingly, the fear of failure is not related to the intentions of starting a new business as it was
expected to be. Research suggests that the relation is not to strong in order to consider strictly related to the intentions
that Salvadorians might possess. This tends to highlight how erroneous it is to assume that having fear will means that it
will stop people from opening a business.
Since all individuals have different way of thinking, and the amount of respondents were only two hundred and
twenty five, it will be better to have a questionnaire answered from more than 600 hundred respondents. During the
research, only two methods were used; a factor analysis and the correlation test. As a suggestion, a linear regression
study should be conducted for further research.
The findings from this study suggest that nowadays the factors related to the intentions of starting a new business in
El Salvador are related to their Lifestyle, Entrepreneurial aptitudes, Perceived opportunities and Perceived capabilities.
In order to explain this, it can be said that the way a Salvadorian lives, the aptitudes he possess, the opportunities he
can perceive and the capabilities he have and perceive are definitely going to be related to the intentions they will have
in order to open a business; for example, this will help them decide when to start the business, which trends to follow,
how to manage it, etc.
Implications on Intention of Starting a new business in El Salvador

As this result from the analysis performed, some conclusions and implications interesting and relevant to the
structural management point of view for future businesses and entrepreneurs were drawn. These conclusions and/or
implications give hints and extra information on some approaches or possible strategies where they can focus to succeed
in the future; the implications this thesis leaves to the management perspective that it might be important to stablish a
strong education about Entrepreneurship from elementary school until University, helped by extracurricular activities
that involve Social behavior. Now talking about Entrepreneurial aptitudes it was observed that if a person possess
higher aptitudes they will have less fear of failure and higher perceived capabilities which are needed when trying to
become an entrepreneur, for this implication, it is necessary to remember that aptitudes are abilities to do something
which might be obtained from different trainings that can be used from elementary school by using projects of creating
your own business, trying to open the mind of the younger people to help them grow in an entrepreneurial environment
and culture.
The same as Entrepreneurial Aptitudes happens to Lifestyle, the better you live the less fear of failing you will have,
and the higher the capabilities and opportunities you will perceive. Now talking about Perceived opportunities, the
higher you perceive them the higher you will have intentions of starting a new business, this is related to finding a way
of surviving, so for example if you find a gap in a market you will find an opportunity to open a business which will be
unique and attract customers because is not out there already. Finally; as expected, higher perceived capabilities are
related to higher intentions of starting a new business. For extra information about how to measure the factors related to
the intentions of starting a new business, the entrepreneurial intention questionnaire can be found in the Appendix
section.
Appendix
Entrepreneurial intention questionnaire (all items are coded)
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C1 The national culture is supportive of individual success achieved through own personal efforts.
C2 The national culture emphasizes self-sufficiency, autonomy and personal initiative.
C3 The national culture encourages creativity and Innovativeness.
C4 People prefer to work for well-established organizations rather than new firms.
C5 Younger people expect to change jobs and occupations, many times before they retire.
C6 Younger people believe they should not rely too heavily on the government.
C7 Most people would prefer everyone had the same standard of living.
C8 A high value is placed on self-sufficiency autonomy individualism and personal initiative.
C9 The social security system provides appropriate encouragement for people to take the initiative and be self-
sufficient.
Lifestyle
L1 I love a lot of variety in my life
L2 I follow the latest trends and fashions
L3 I like to make things I can use every day.
L4 I like to understand how things work.
L5 I enjoy browsing through catalogs
L6 I am well and do not get sick often.
L7 I feel cheerful and hopeful.
L8 I am the one who helps people during emotional outbursts.
L9 I am honest, respectful and trustworthy.
L10 I am tolerant to listen and try to learn about others beliefs and values.
L11 I can live without a car or motorcycle.
L12 I can get along with people from a different culture or race.
Entrepreneurial aptitudes
A1 I believe I am a self-starter.
A2 I come from a family of business owners.
A3 I have innovative and creative ideas.
A4 I prefer being my own boss.
A5 I believe I have the aptitudes to open a business.
A6 I have experience as a manager or have managerial skills.
A7 I am committed to work more than 40 hours a week.
A8 I set goals and timetables for results.
A9 I am comfortable delegating responsibilities and critical tasks to others whom I believe to be competent.
A10 I am a problem solver and positive about the challenges or setbacks.
Perceived opportunities
O1 I can identify business opportunities
O2 There are plenty of good opportunities for the creation of new firms.
O3 There are more good opportunities for the creation of new firms than people able to take advantage of them.
O4 I can easily pursue entrepreneurial opportunities.
O5 I can react quickly to good opportunities for a new business.
O6 The lack of help from the government about information and training courses to start a new business in my country
is the most important factor that makes me not want to become an entrepreneur.
O7 I can easily focus on how to take advantage of opportunities.
O8 I believe that economic help to start a new business in my country is the most important factor that makes me not
want to start my own business.
O9 I can seek out new information and use it for business gain.
O10 I believe that the insecurity in the country is the most important factor that makes me not want to start my own
business.
Perceived capabilities
P1 I have the knowledge required to start a new business.
P2 I have the skills required to start a new business.
P3 I have the experience required to start a new business.
P4 In my country, many people know how to start and manage a small business.
P5 In my country, many people have experience in starting new businesses.
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Fear of failure
F1 I overcome rejection rapidly.
F2 I fear being a failure in my life.
F3 I have succeeded in my life.
F4 I am always saying “it will not work”.
F5 If I fail once, I do not like to try again.
F6 I can accept that I have failed.
F7 I am afraid of not having enough money to live.
F8 I do not like to change jobs because I get comfortable and do not like changes.
F9 I am afraid of taking risky decisions.
Intention of starting a new business

I1 I believe that getting enough primary and secondary education will provide adequate attention to entrepreneurship
and new firm creation.
I2 I think Universities provide a good and adequate preparation for starting up and growing new firms.
I3 I intend to start a new business or take a job during the next year.
I4 I have the intention to be a business owner someday.
I5 I want to start a new business.
I6 I want to buy an existing business.
I7 I want to buy a franchise.
I8 I want to start a business by myself.
I9 I want to start a business with others.
Demographic profile
a. What is your age?
18 - 25 Years, 26 - 40 Years, 41 - 55 Years, 56 - 64 Years
b. What is your gender?
Female, Male
c. Please specify your ethnicity
White, Indigenous, Mestizo, African
d. What is the highest level of education you have completed?
Elementary School, High School or Technical School, Bachelor’s Degree, Master’s or Ph.D.
e. What is your current marital status?
Single, Married, Divorced, Widowed
f. In which part of the country you currently reside?
West, Central, East
g. Which of the following categories best describes your current employment status?
Employed full-time, Employed part-time, Self-employed, Retired, Unemployed
h. Which of the following best describes your experience of starting up a business?
Once, Twice, More than two times, Non-experienced
i. Which of the following describes your current employment sector?
Agricultural, Services, Commercial, Industrial, Non
j. What is your current annual income?
$2,640-$5,400; $5,400-$7,800; $7,800-$10,200; More than $10,200
References
Acs, Z. (2013). Global Entrepreneurship and Developtment Index.
Belloso, M. (2015, November 11). El Salvador con la tasa más alta de abandono de negocios en A. L. La Prensa
Grafica.
Masferrer, M. S. (2014-2015). El emprendimiento en El Salvador. Escuela Superior de Economia y Negocios (ESEN).
Mifflin, H. (2011). American Heritage Dictionary of te English Language. Houghton Mifflin Harcourt Publishing
Company.
SA, M. P. (2012). A large number of small subsistence business owners facing low growth and high levels of crime.
GEM Consortium.
Vidal-Suñé, A. (2013). Institutional and economic determinants of the perception of opportunities and entrepreneurial
intention.
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Witter, C. E. (2011). Social or Cultural Entrepreneurship: An Argument for a New Distinction. Stanford Social
Innovation Review.
Dr. Linda Lin

Kun Shan University,
Tainan, Taiwan, ROC
E-mail: linchin1119@hotmail.com
Ana Vanessa Pena Trigueros

Tainan,, Taiwan, ROC
E-mail: ana.kuangtai@gmail.com
Dr. Cheng-Nan Chen

Tainan, Taiwan, ROC
E-mail: cnchen@mail.ksu.edu.tw
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ENTREPRENEURSHIP EDUCATION IN THE CONTEXT OF TECHNOLOGY

COMMERCIALIZATION – A CASE FROM TAIWAN
Tommy Shih1), Yen-Yu Huang2)

1)
Department of Business Administration, Lund University
P.O. Box 7080, SE-220 07 Lund, Sweden
2)
Institute of Technology Management. National Tsing Hua University
101, Sec. 2, Kuang-Fu Road, Hsinchu 30013, Taiwan
1)
tommy.shih@fek.lu.se
Abstract
The past few decades has been characterized by an increased policy emphasis on establishing a knowledge-based
society, where universities play an important role in forming the present and next generation of innovators and
entrepreneurs (Vanevenhoven, 2013). Entrepreneurship in particular has been seen as a major driving force of
economic growth and embeds in a broader political discourse on economic and societal value creation at national and
global levels.The purpose of the paper is twofold. Firstly to report on the practice of entrepreneurial education in
Taiwan, which has not received much attention in the global academic literature. Secondly, the study offers insights into
the complicated relationship between developing venture managers and fostering entrepreneurial mind-sets in the long-
term.Scholars argue that the first leg, which entrepreneurship education needs to be built upon is theory. Shane and
Venkataraman (2000), specify that the field of entrepreneurship needs form on a conceptual domain, which caters to the
need to explain the phenomenon of entrepreneurship. This includes explaining and predicating entrepreneurial
behaviors and activities. In this vein, the teaching of entrepreneurship should also be based on the accumulated
knowledge of practices and the conceptualization of these (Kuratko, 2005). Theories thus form methods and pedagogies
that can be applied in entrepreneurship teaching and give students tools to identify, evaluate and exploit entrepreneurial
opportunities and how to manage these. The other leg of entrepreneurship education is to do it. The understanding is
that action/practice-based learning is essential in order for students to acquire the mindset and hands on practice of
dealing with new venture creation and development. While students mostly do not get to experience the full range of
entrepreneurial challenges, action-based learning provides possibilities for practical reflection over a number of
critical issues in entrepreneurship, such as opportunity recognition, funding, marketing, team building and so forth.
Here it is also important that there is a strong connection to theory, which serves as the foundational approach to how
to deal with entrepreneurial activities (Fayolle & Gailly, 2008). A qualitative research approach is utilized. A
technology entrepreneurship course at a Taiwanese research university is followed over a semester. Observations,
interviews, focus group discussions, and class material served as the main sources of data. The research design
followed an abductive approach.The findings of the study, suggest the importance to think deeper of the goals with
technology entrepreneurship courses. Expectedly it is difficult to achieve quick technology commercialization results,
due to students’ inexperience, short course lengths, and often immatureness of technologies. Goals, such as
interdisciplinary learning, understanding of entrepreneurial processes, reflective learning should be emphasized more.
The study bases on the findings of a single educational course and is limited in its generalizability. Nonetheless, it offers
an example of the benefits and challenges with entrepreneurship education in Taiwan. As such it provides suggestions
for educational and policy action, which would go beyond the researched course.
Keywords:Entrepreneurship Education, Taiwan, Technology, Business, Qualitative Research
1. Introduction
The past few decades has been characterized by an increased policy emphasis on establishing a knowledge-based
society, where universities play an important role in forming the present and next generation of innovators and
entrepreneurs (Etzkowitz et al., 2000; Vanevenhoven, 2013). Entrepreneurship in particular has been seen as a major
driving force of economic growth and embeds in a broader political discourse on economic and societal value creation
at national and global levels (Shane, 2009). As Schumpeter (1934) stated over 80 years ago, entrepreneurs are critical
agents of societal change and integral to innovation. In this vein, it is not difficult to understand why entrepreneurship
has increasingly been seen as an important component of university curricula all over the world. Not only is the subject
taught at business schools, but natural science and technology students alike are also being offered elective courses in
entrepreneurship as part of their educational programs.
In the United States, entrepreneurship education has been in existence since the 1970s (Kuratko, 2005). In Asia,
entrepreneurship education has been a more recent phenomenon, which has increasingly been promoted particularly in
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East Asia (Mok, 2013). This study looks into entrepreneurial education in Taiwan. As one of the more developed
industrial nations in Asia, Taiwan is facing similar problems as other advanced countries in the world, such as a
changing demographic structure, and need for industrial transformation through the utilization of advanced knowledge.
Entrepreneurs are here integral in the process of achieving change on the economic and societal levels. Consequently,
education focusing on forming science based/high-tech entrepreneurs is also on the rise in Taiwan. Between 2005 and
2007 the number of entrepreneurship courses grew from 102 to 145 (Chen et al., 2015). In 2013, 70 universities in
Taiwan offered entrepreneurship related courses (MOE UCOURSE, 2013). However, with a lack of teaching tradition in
entrepreneurship, a traditional East Asian education system and a research system fairly disassociated from the industry,
Taiwan is in need of finding educational practices that are contextually suitable (cf. Wen & Liu, 2010).
Conceptually the study draws influence from literature describing a general problem in entrepreneurship education,
namely the ambiguity of what is to be taught and the role that this kind of education plays in forming students and their
role in society (Ronstadt, 1987; Vanevenhoven, 2013). Simplified there are mainly two goals of entrepreneurship
education (Thomas & Kelley, 2011). On the one hand it seeks to encourage students to create their own ventures and
provide them with skills to manage this process. On the other hand it seeks to develop students in a broader sense to be
productive and value creating individuals, also in the absence of a business venture. While the goals are not mutually
exclusive, the conflation of the two can cause difficulties in the teaching context (Vanevenhoven, 2013). As Fayolle
(2013) argues it is important to understand why, for whom and how entrepreneurship education matters.
Against this background, the present study follows a high-tech entrepreneurship course at a major Taiwanese
research university. The aim of the study is investigate the goals of the course and align with the students’ learning
experiences. From this research design we derive some implications for high-tech entrepreneurship education. The
contribution of this study is twofold. Firstly it reports on the practice of entrepreneurial education in Taiwan, which has
not received so much attention in the international academic literature 5. Secondly, the study offers insights into the
complicated relationship, common in entrepreneurship education, between developing venture managers and fostering
entrepreneurial mind-sets in the long-term.
The paper is organized as follows. In the next section, the method is discussed based on a qualitative research design.
This follows with the description of the entrepreneurial course and the students’ learning experiences. The paper ends
with the discussion and a conclusion.
2. Methodology
2.1 Research design

This research follows an entrepreneurship course at a Taiwanese research university. The study describes firstly the
background and pedagogical design of the entrepreneurship course. Secondly, the students’ perceptions of
entrepreneurship education and their entrepreneurial activities are tracked. The aim of this research design is to
investigate the goals of the course and align these with the students’ learning experiences. As learning experiences are at
focus, a process approach is adopted. The data collection is divided into three periods, which includes initial, middle,
and final period of the course. Both students and the teachers were interviewed over the course duration. Students’
practical projects also provided information on how they utilized the knowledge gained from the course.
The analysis of students perceptions, expectations and learning experiences were qualitatively investigated by using
a phenomenographic research approach, dealing with how people experience a particular phenomenon or an aspect of
the world around them (Marton & Booth, 1997; Täks et al., 2014). This empirical research approach is suitable for
investigating variation in conceptions of different educational phenomena - including learning, teaching and specific
disciplinary concepts (Åkerlind, 2008). The present study particularly investigates technology and business students’
entrepreneurial learning experience.
2.2 Data collection

The present study of students learning experiences was carried out over a period of four months in 2016 in the
context of an interdisciplinary elective entrepreneurship course offered at National Tsing Hua University. The
participants of the course were undergraduate seniors, graduate students and professionals from outside the university.
The class size was 17 students and categorized into technology students (8) and business students (9). They were
divided into six teams based on a technology idea.
In the beginning of the semester, the students were asked to fill in a questionnaire to explain why they choose this
course. Information was thereafter continuously collected throughout the course by means of in-depth interviews, focus
groups and observation. In addition to the data collected in 2016, one of the authors had attended the course as an
observer in earlier semester, including interviewed participating technology laboratories, and entrepreneurial
teams. Material such as class hand-outs, power point presentations from earlier course editions were also
collected for reference. Below we present the different data collection forms.
Only a handful of relevant hits came up on the search combination, “Entrepreneurship education”and“Taiwan”, in the EconLit database and on
5
Google scholar.
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3. Case presentation
3.1 Background to the course

National Tsinghua University (NTHU) is one of the top research universities in Taiwan. As a strong science and
technology-based university, the Taiwanese government as well as the NTHU leadership has emphasized the desire to
connect NTHU research more directly to industrial and societal needs. In the wake of the overall policy and university
ambitions several “entrepreneurship” related courses at NTHU were started, and one of these was the Technology
Commercialization Course. The idea of this course comes from the former Dean of the College of Technology
Management, Shih Ching-Tay, who has also served as president of Taiwan’s largest research institute, the Industrial
Technology Research Institute (ITRI).
The course was developed as a continuation of the “U-Spin” (2005-2008) and “I-Spin” (2008-2011) projects aimed
to commercialize academic research, and funded by the Ministry of Economic Affairs and Ministry of Science and
Technology (formerly National Science Council). Through the two projects, different colleges at NTHU were connected
in order to develop interdisciplinary cooperation, with a number of patents and some start-up firms as output. In 2011,
the Ministry of Science and Technology founded the “Germination Program”, set up at different universities, where
scientific research was to be directly connected to industrial needs and application. The government funded
entrepreneurial teams recommend by the universities’ germination centres to establish their own ventures. NTHU was
one of the six (extended to eight later) germination centres in the program.
However, the experience in all projects was the difficulty in gaining quick results and commercialization paths. A
reason was that professors and researchers had little time to spend on the commercialization projects and instead
assigned students to participate in the projects. The students, however, lacked experience in both research and
commercialization. Given the experiences, the College of Technology Management decided to focus on educating
students. The course Implementation of Technology Commercialization was to function as a multi-purpose experimental
initiative, where students could gain experience. Thereby the ambition was to shift focus from university technology
transfer to instead develop students’ mind-sets concerning entrepreneurship, provide resource connections, and increase
interaction between the fields of technology and business from the student side.
4. Students learning experiences

The basis of the course is the technologies, which make up the students’ projects. The six technologies used in the
course are from NTHU labs (3) and from personal projects (3) outside of the university. The level of matureness of the
technologies differed as well as their connection to the university world. Technologies included IT software, hardware,
an orthopedic product, and a pasture management system. Table 1 presents the technologies and the teams’ project
progress.
Table 1. The teams’ development of the projects

Teams Initial Mid-term Final
T1 Developed software, for Patent analysis, Value Proposition Technology verification;
interaction in class Business plan proposed
T2 Developed a prototype Find the problem of market Interview with experts and
(orthopedic insole) communication. Redefine the product customers. Technology
verification. Business plan
proposed
T3 Prototypeof website Market survey by questionnaire. Updated business plan: go back
(language search engine) Change of target customer according to lab to change project and
to feedback product
T4 Developed software (drawing Identify value proposition and market Market survey by questionnaire,
program for art education); developing plan, suggestion of business plan proposed (no
stage of obtaining more usage customers prototype, technology problem
suggestions unsolved)
T5 Pasture management system Cost and revenue figures Market survey through
(developed for 2 years reconsidered, need to find new market interview; Connecting related
outside). Have some market focus firms for possible prototype
data collected and a business support, Updated business plan
plan with feasibility considerations
T6 Proposal to develop a large- Change topic to smart air conditioning Business plan proposed without
screen display related product system; market potential evaluation developed technology
through literature review
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4.1 Initial student experiences from the course

Student expectations in the beginning of the course were varied. The initial interviews showcased that interest of
students to consider technology entrepreneurship as a possible profession was mixed. Most of technology students were
encouraged to participate in the course by their professor and had an interest in becoming entrepreneurs; business
students wanted practical experience but had less interest in starting ventures; and the “outside” students, with work
experience had already considered starting their own companies. Irrespective of entrepreneurial desire, the “action-
based” learning process was attractive to all students.
Differences in technology students’ expectations compared to business students were for natural reasons highly
related to the access to technology. The technology students that were working actively with research wanted to
understand how they could find market applications. The business students were less interested in becoming high-tech
entrepreneurs due to lack of access to technologies. They, however, wanted to work with technology and integration
between research and business, in jobs such as consultants, program managers and so forth. These aspirations are quite
similar to other interviews in earlier course editions.
In general students with entrepreneurial aspirations are low at NTHU. A reason is that Taiwanese students from top
tier universities do not generally have ambitions to become entrepreneurs, as they are usually quite attractive on the job
market (cf. Wen & Liu, 2010). From the interviews it was also noted that students were quite aware of the perceptions
of peers, parents and society, which emphasized the higher standing of working in big technology companies, relative to
working in ventures with uncertain futures. The interest in the course appears to also be on the decline. The first editions
of the course had between 26 and 33 students finishing, while the last course had only 17. Especially business students
tended to drop out early because of the technology focus and perceived lack of their own importance.
As a technology-driven entrepreneurial course, most of the technology students expected to get a better
understanding of market needs. These students were fairly positive that there might be some market potential for their
lab’s technology but realized that their insight into entrepreneurship was limited. For those students with strong
entrepreneurial desire, one important goal to join the course was to access resources but also to gain experience in
working in an interdisciplinary setting. Working in interdisciplinaryteams encourages students to learn and work with
people from different backgrounds, and to be able to evaluate business opportunities from different perspectives.
Nonetheless there was a tendency that technology students took a dominating role in the teams on what to do and how
to proceed, as they felt the technology was theirs. This could be problematic for the interactive learning process. As a
result some business students lost interest in the project during the course.
While cross-disciplinary interaction and communication was a goal, there were different approaches adopted by
students. One team consisting of members of a lab and a non-lab business student, separated their activities that had to
be done “for the course” and “for the development outside” of the course. Another team where product development
had already occurred for over two years had no new members to join the team, as the other students felt they had little
to contribute with. Willingness to openly discuss was correspondingly a factor to progress, but some challenges were
apparent. The teams that were interacting more closely with teachers and were willing to openly discuss projects,
naturally got more response from teachers. This resulted in more advice but incurred more changes to business plans.
Due to the large number of teachers, the amount of comments was also quite varied and the students’ ideas were often
challenged. A student mentioned:
We were very frustrated with being challenged all the time, and we kept changing the topic. But we noticed that it is
not possible to keep changing the topic and we should just stick with one idea. … However, I eventually gained some
understanding on how to evaluate my idea and defend it.
The quote exemplifies an issues experienced by most of the students, namely that they do not have enough knowledge
and capability to sort and systematically analyse the input from teachers. Furthermore the Taiwanese educational system
does not generally emphasize reflective discussion between teacher and the student (cf. Wen & Liu, 2010), which also
might affect the students’ potential to develop their projects.
4.2 Mid-term
The interaction between students of various backgrounds appeared to have improved over time. Students of both
technology and business backgrounds had strong pre-assumptions of the technology and the market that could be quite
different. A problem in the communication was often that they were discussing on the basis of different assumptions and
goals. For example a team member with a technology background mentions:
When we introduced our technology for the first time, people seem to misunderstand what we do. At the mid-term,
people however seem to know at last what we want to do ... We spend nine weeks to introduce our core technology,
but when we tell others the usage of the product, people have different understandings.
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Another team member with a business background reflects:
After nine weeks, all of us felt so frustrated that we have not been able to move on for such a long time. So we stood
outside the building to discuss after the group meeting. We kept on talking and finally realized that we in the group
had misunderstood what the others had said before. ... I admit that I had no confidence in them in the beginning.
Hence an important part of the course is interdisciplinary communication. The course also seeks to push students to
continuously test their assumptions (see Table 1 for an overview of the progress). Here, the action-based learning
process allows the students to control the learning tempo themselves. The mid-term report is an important formal
evaluation of the progress and requires the students to evaluate their project in terms of market potential. The students
are encouraged to verify their ideas and test their assumptions of the market. This analysis with respect to technology
ventures can be quite difficult as experienced by most teams, as there is a considerable development and time dimension
to business plan matureness. One of the teams with a more “mature” idea had developed the technology for many years
in the lab and some senior students had taken the course before with the same basic technology. This team was pushing
to introduce the technological product on the market and stated:
We got some feedback from users, and received much suggestion and reviews. We feel that there are many users, not
just only a small group … Last year the students with another product from our lab did not get this kind of feedback.
The level of development was enough for them to solicit market interest. The group member continues:
In this course, we keep on thinking what the next step is…we just put a questionnaire up on a website and ask users
to help. We got almost 300 responses within a month. We created this website for an assignment in the course just
one day before the deadline. Then, we never changed it.
For another team the structure of the course also did put some pressure to move forward.
During our discussions with customers, we got information about some professor at a university suggesting them to
use some medicine. From this, we find the influence of expert advice, and this changed our market strategy.
At this stage of the course the teams with the more developed product ideas benefitted more from the course while
others felt considerable pressure for not achieving the level required to solicit customer and user input.
4.3 Final stage

Moving into the final phase there were considerable differences in the teams’ project progress. As acquisition of
resources is intended to be a major activity in the final stage, the projects are expected by the teachers to be ready for
initial production or testing on the market. The comments from reviewers in the mid-term report were intended to push
the students to move forward and to gain further market insights. Here the teams’ pro-activeness to seek out external
information from industry professionals and potential customers was a major factor in their ability to progress. For
example one team actively sought advice from professionals within their field of which their product can be used. This
provided them with plenty of information on how they could pursue needs on the market. The business student in the
team was however left out in majority of times, as the technology team members believed that they solicited technical
information and data. The one time the business student were participating in an interview with a field expert, the whole
team noted that it was helpful, however in various ways. While the technology students, focused on the technical
aspects, the business student focused on what market segments could be addressed. Hence what information the team
took with them was different based on the students’ educational background.
Another team was provided market information through a senior lab member, not participating in the course, but
which had done a market feasibility analysis in an application for a research grant. The students of the team were able to
use this information together with their own market analysis. The positive response from users in the background
material gave the team confidence to start planning for resource acquisition. Other teams were of other opinions with
respect to the necessity of following through with the acquisition of resources at this stage. The members of two teams
expressed a common understanding that technology entrepreneurship is a long-term process. They were of the belief
that the technological challenges should be solved before trying to commercialize the technology. For instance a
technology student expressed the following:
"We’ve joined FITI’s6 competition, that shares a similar aim as this course. We noted some problems with the
technology in the FITI competition, which cannot be solved so fast … That this course pointed out the same problem
did not help. Unless I get some new research grants it will be difficult to correct the problem.
The struggle between technology developing and market planning was an occurring event. One technology student
noted:
6
FITI is a technology entrepreneurship initiative run by The Science & Technology Policy Research and Information Center, a
government support organization.
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Every time I meet our supervisor, we talk about the business plan, but this is no use for my research … Motivation is
a problem, I don’t think there is time pressure, because these things do not end on completion of the course. There is
no difference for me. Why should I do it now? I can do this job later.
4.4 Students’understanding after the course

All students appreciated the interdisciplinary process, however, capacity to work across disciplines is a problem. As
stated earlier, some teams tended to separate the job for technology and business students. However, for some teams
with more experience from for example entrepreneurship competitions, especially appreciated the opportunity to
cooperate over disciplinary fields for longer period of time. One business student mentioned:
The difference with pure business-plan competitions is that in this course, we can interact with technology students.
So, we can really change the technology according to market needs.
For other students the course allowed them to meet a variety of people they would not meet otherwise in their
educational program. A result of such an environment allowed some new teams to be formed outside of course structure.
Another important result is a change of mind-set among some participating students. Irrespective of whether they
wanted to be entrepreneurs or not, the students learned a structured way of thinking about the entrepreneurial process.
For one business student, the take away lessons was following:
This course gave me an attitude ... In our team, some members wanted to change the direction whenever they
encountered challenges. However, I think the most important thing in entrepreneurship is the people. Instead of
giving up quickly, we should persist. We can’t change topic before we try harder.
Another student also noted that entrepreneurship is something that can be learned, or at least components of the
entrepreneurial process:
Initially I thought being an entrepreneur is not so hard, especially for engineers like us. But when I started doing it, I
found it really difficult … If you want to be an entrepreneur, you have to have dedication. In the industry, people feel
R&D is important. But actually we are weak without other blocks such as communication, HR, finance and so on.
The course gave me a lot of understanding of the components of entrepreneurship and an attitude to face these
challenges”
The experiences mentioned above was also confirmed by other as well as earlier students that believed the course
had offered them a systematic way of seeing the entrepreneurial process. However they agreed that many of the ideas
developed would take some time to get implemented and that students necessarily would not want to set up their own
venture right away. In a long-term perspective the course had therefore offered them with valuable insights and some
earlier course participants had later decided to pursue entrepreneurial careers.
5. Finding
The study suggests the importance to think deeper of the goals with technology entrepreneurship courses.
Expectedly it is difficult to expect quick results, due to students’ inexperience, short course lengths, and often
immatureness of technologies. Thus, perhaps more relevant are the goals of interdisciplinary learning, understanding of
entrepreneurial processes, fostering mind-sets and reflective learning. These are goals that traditionally have been
difficult to achieve in the Taiwanese educational system. Long term the resolution of these challenges would best be
solved by an entrepreneurial education system, which takes into account broader societal goals and needs, the
encouragement of reflective thinking, in addition to the current policy support.
Finally, the study bases on a single educational course in entrepreneurship and is limited in its generalizability.
Nonetheless, it offers an example of the benefits and challenges with entrepreneurship education in Taiwan at a major
research university. As such it provides indications for direction and suggestions for educational and policy action,
which have implications beyond the borders of the researched university and course.
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WHAT KIND OF SOCIEATAL CONTEXT IS ENTREPRENEURSHIP EDUCATION

EMBEDDED WITHIN?
Yen Yu Huang1), Tsung Ying Shih2)
National Tsinghua University, Hsinchu, Taiwan

1)
hyy6273@gmail.com
Abstract
Entrepreneurship has been seen as an important component of university curricula all over the world. However, its
education by country differs according to existed context. To understand the challenge of entrepreneurship education,
the societal context which entrepreneurship education embedded within should be considered. This research is to figure
out the business, education and policy context in Taiwan.Base on the proposition proposed, the researcher explore the
implication process of an interdisciplinary elective technology entrepreneurship course offered at a Taiwanese research
university from year 2013 to 2016. It exams the conflict phenomenon of different concept of entrepreneurship, career
developing and students’ life goals in entrepreneurship education, the learning experience in action-based education,
and the integrating process of resources. Through the research, it provides indications for direction and suggestions for
educational and entrepreneurial policy.
Keywords: Entrepreneurship, Context, Education, Policy, Qualitative Research
Introduction
Entrepreneurship has been seen as an important component of university curricula all over the world. However, its
education by country differs according to existed context. While entrepreneurship is the value extracted from the
environment, and entrepreneur are embedded in a societal context, entrepreneurship education must begin from the
fusion of situational context. Corporate presence in every culture, but different in business patterns. There is kind of
myth that entrepreneurship is developed only in developed countries, and Western management methods and
entrepreneurial spirit can transplanted and solve the so-called "development" countries encountered problems. However,
the fact that entrepreneurship is a very common social activity, exists in every society, the only difference is that the
content of entrepreneurship (Birley & Muzyka, 2000). Following this point, to understandthe challenge of
entrepreneurship education in Taiwan, the societal context which entrepreneurship education embedded within should
be considered.
While discussing the entrepreneurship development in Taiwan, the research of experts’ opinion shows that
education is the most important issue(Wen, et al., 2010).The data from Global Entrepreneurship Monitor (GEM) 2015
indicate that Taiwan is a remarkably high level of entrepreneurial intention and growth aspiration, yet lower in
internationalization. Moreover, insufficient education and training at primary levels, and inadequate commercial and
services infrastructure are the constraints. To understand how challenge integrating entrepreneurship education into
current curricula is, the external forces such as business, education and policy context need to be concerned.
Fostering entrepreneurship education is not just transplanted, to know the context existed help we clarify how the
process work or not work. Entrepreneurship education has been promoted widely in Taiwan. However, embedded in the
existed societal context, how entrepreneurship education has been developed? What kind of role is entrepreneurial
education played?In Taiwan, innovation competition is popular, however few of them develop into start up.Moreover,
many people want to be entrepreneur, but few become innovation entrepreneur.The gap between innovation and
entrepreneurship is a big problem. To understand the reason behind this, the context of business should be considered.
Furthermore, although Taiwan has positive cultural toward entrepreneurship, the mindset of education is a problem.
Examination-orientation education in primary levels limit the students’ creativity, and resulting in less innovation in
start-up (Wen, et al., 2010). To explore the challenge of entrepreneurship education, it is important to know how
education context influence it. Beside those, political and government influences cannot be ignored. The approach to
entrepreneurship and the particularly policy initiatives designed to promote entrepreneurship played aninfluential role.
The purpose of this article is to improve our understanding of how societal context influence entrepreneurship
education.We accomplish this objective by examining the exist context of entrepreneurship, education, and policy. With
reference to this framework we then move into empirical setting. The research method is discussed based on a
qualitative and abductive research design. This follows with the discussion of the case to understand the impacts and
constraints of the process while fostering entrepreneurship education into a research university. In the final section, we
conclude by outlining education and policy implications.
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Conceptual background
What’s entrepreneurial education?

American universities have been the pioneers in the field of Academic Entrepreneurship education. From the
beginning, entrepreneurship education is related with economy develop and job market. As early as 1947, Harvard
Business School offered the first entrepreneurship course titled “Management of New Enterprises”. This concept of
education was veritable explosion in the United States. The subject cameto Europe rather late, courses and programmes
are becoming increasingly numerous(Volkmann, 2004). In Asia, entrepreneurship education is promoted widely as well.
In Taiwan, it started late since 1993, some universities have successively begun to offer entrepreneurship courses
(Chang & Sung, 2009). In 2013, 70 universities in Taiwan offered entrepreneurship related courses (MOE UCOURSE,
2013). Entrepreneurship education has become a popular phenomenon all over the world and the definition have been
extended to a broader concept.
More than being synonymous with being 'business-like' in the formal administrative sense, or with core skills or
transferable personal skills, Gibb (1999) defines entrepreneurship form the aspect of culture climate. He proposed the
concept of “entrepreneurial way of life”. He pointed out that, in the education context, it is the behaviors associated
with entrepreneurship, and entrepreneurship/enterprise can therefore be defined for educational purposesas “behaviours,
skills and attributes applied individually and/or collectively to help individuals and organisations of all kinds to create,
cope with and enjoy change and innovation involving higher levels of uncertainty and complexity as a means of
achieving personal fulfilment” (Gibb,2007).
Moreover, in the knowledge based economy with the challenge of complex and uncertainly environment,
Zhao(2012) argued about“mass entrepreneurship”. He said that since the college degrees do not guarantee gainful
employment or a meaningful life, the role of education in career developing need to reevaluate. Massive changes
brought about by population growth, technology, and globalization not only demand but also create opportunities for
“mass entrepreneurship” and thus require everyone to be globally minded, creative, and
entrepreneurial.Entrepreneurship is no longer limited to starting or owning a business, but is expanded to social
entrepreneurship, policy entrepreneurship, and intrapreneurship.
What’s societal context?

In management research, context refers to circumstances, conditions, situations, or environments that are external to
the respective phenomenon and enable or constrain it. Contextcan be an asset and a liability for the nature and extent of
entrepreneurship, but entrepreneurshipcan also impact contexts. Context is important for understandingwhen, how, and
why entrepreneurship happens and who becomes involved.Exploring the multiplicity of contexts and their impact on
entrepreneurship, it identifieschallenges researchers face in contextualizing entrepreneurship theory and offers
possibleways forward (Welter, 2011). Below, the business, education and policy context in Taiwanwill be discussed.
Business context in Taiwan

In Taiwan, to be entrepreneur as being a “boss” is a popular idea.An old saying “Better to be the head of a chicken
than the tail of an ox” describes this feature of Taiwan’s ideology, especially in the business field. However, the attitude
and motivation toward being an entrepreneur changed by different stage. In 1960s, Taiwan economic grow up stably.
While some people chase lifetime employment and job security, in the other hand, many people want to be entrepreneur
due to pressure of survive. These people learn by doing instead of learning from school. They set up their own business
and create opportunities for success as “black hands” bosses(Wu & Huang, 2003).
In 1970s~1980s, Taiwan economic boom cycle accelerated and semiconductor technology is developed. There were
more foreign enterprise employee, and the many entrepreneurs come from technical staff background. The orientation
of business star-ups was redirected to the IT industry and the service sector. In 1990s, Taiwan experienced PC
Revolution and international corporate downsizing manpower. There were more returnee scholars and many
entrepreneurs withRD background.
Recently, globalization and the accession to the WTO introduced a new environment for the further development of
entrepreneurship. While Taiwan is vulnerableto the impact of globalization, the rapid development of information
technology and Taiwan’s complicated relationship with China elevate the risk(Shiu, Wong, & Hu, 2014).In 2000s,
internet and ICT technology developed andthe trend of university start up is promoted. In 2010s, the economic
development focus isbiotechnology, energy technology, aging and health.Accompanied with the rise of China, Taiwan
faced the tension of competition and cooperation with China. While Taiwan suffering the challenge of environment
change and industry upgrade, entrepreneurship is been viewed as a solution, and how to raise the entrepreneurship spirit
of the new generation become an important issue.
With the era of knowledge economy, the global economy development model shift from "resources" to "knowledge"
based, and the economic system convert from "managed" to "entrepreneurial." Taiwan is a latecomer country that
demonstratesthe potential to move rapidly fromstrategies of ‘‘fast followership’’ to innovation,or at least to
‘‘innovation-led fast followership’’where the country follows the overall lead ofJapan or the United States but seeks to
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add acertain distinctiveness in the technologies it develops. To improve innovative capacity, Taiwan has sought to raise
the innovative potential particularly of universities. Universities are engaged in more direct technology promotion
activities, in sectors of strategic significance to the country. However, the results are still modest, and starting from a
low base.(Mathews & Hu, 2007).
Universities in Taiwan are encouraged to join world-class competition. However, the gap between research and
industry due to paper-driven academic reward system is a problem. Even Taiwanese scholars are in leading stage in
some area of science, the industry is relatively backward.
Proposition 1: Taiwan has the ideology of entrepreneur in the business field. However,while the concept of
entrepreneurship is changed by time and is proposed to solve different problem in different stage of economy
development, the definition of entrepreneurship education must be clarified by different purpose.
Education context in Taiwan

Learningexperience: goal-oriented vs self-efficacy
According to GEM report 2015,insufficient education and training at primary levels is the constraint of
entrepreneurship in Taiwan. Although Taiwan has positive cultural toward entrepreneurship, the mindset of
“diplomaism” in education is a problem. Examination-orientation education in primary levels limit the students’
creativity, and resulting in less innovation in start-up (Wen, et al., 2010). Moreover, considering self-efficacy is a
critical antecedent of entrepreneurial intent (Krueger et al., 2000), in Asian context, Lee, Wong, & Foo, (2009) found
that self-efficacy is the most important antecedent factors for entrepreneurial propensity such as Taiwan. While
entrepreneurship is an action based learning process, the way of learning in education need to be change.
Taiwan and some other Asian countries such as Singapore, Japan, and Korea are high-scoring countries on the PISA
(Programme for International Student Assessment) and TIMSS, however, scored much lower than Australia, the United
Kingdom, and the United States in the category of perceived entrepreneurship capabilities of the GEM survey in 2011
(Bosma, Wennekers, & Amorós, 2012).Zhao (2013) pointed out that East Asia’s highly touched test scores in math,
science and reading are masking important failures in developing innovators and entrepreneurs. Educational practices
and societal factors that help students achieve academically may hamper entrepreneurial qualities and reduce creativity.
He emphasize that although the level of entrepreneurial activities in a nation is affected by many factors, but one of the
most important factors is the percentage of individuals with entrepreneurial qualities because these are the individuals
who undertake entrepreneurship activities. And one of the most significant elements of entrepreneurial qualities is
perceived entrepreneurial capabilities — that is, an individual’s confidence in his or her ability to succeed in
entrepreneurship.
Proposition2:The learning experience without confidence and self-efficacy is a problem of action-based learning in
entrepreneurship education.
Vacation vs academic education

Witt & Redding (2013) point out that in amajorityof Asian economies, the acquisition of professional skills is left to
private initiative.In a number of countries, private employers try to provide at least some skills training, though usually
at a low level. Public vocational training systems are usuallyvery weak. This may partially be related to a shared
cultural notion that manual labor is a reflection of academic failure, with parents usually steering their children away
from vocational training schools. In addition, the curricula of existing vocationaltraining programs tend to be
misaligned with the requirements of employers. Extensive on-the-job training (OJT) is essentially a Japanese
phenomenon, though the practice is also evident, to a lesser degree, in Korea and Taiwan.
Prior to 1994, higher education in Taiwan was promoted to serve economic development. Thegovernment
implemented rather strict controls over the establishment of new HEIs, both publicand private, determining their size
and scale, appointing presidents, regulating admission quotasand curriculum standards, and supervising faculty and
student affairs on campus (Mok, 2014).Beginning in the mid-1990s, higher education in Taiwan experienced a period of
unprecedentedexpansion in response to global competition, domestic political elections, and rapid socialchange.Today,
nearly 70 percent of Taiwan’s18–22 age cohort studies in an HEI, the second highest rate in world after South Korea
(Wang,2014). The rapid expansion of the higher education system caused some unexpected consequences. For one, the
overly rapid upgrade of some vocational/technical colleges into universities changed thenature of some HEIs. This
allowed them to convert into “comprehensive universities” at theexpense of their original educational foundation for
vocational and technical training, which hadformerly been at the core of Taiwan’s economic development strategy
(Chou, 2008). Another impact came from the government’s introduction of market competitionmechanisms, which
accelerated the uneven distribution of resources among public/private andelite/non-elite HEIs and eventually increased
social stratification in Taiwan (Chou & Wang, 2012;Chen & Chen, 2009).The discrepancies between schooling and the
job market is a big problem in Taiwan.
Proposition 3: While there is discrepancies between schooling and the job market, college and career readiness is a
challenge in education context.
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Policy context in Taiwan

A country’s approach to entrepreneurship and the particularly policy initiatives designed to promote
entrepreneurship promoting and influencing entrepreneurship education (Pittaway & Cope, 2007). In Taiwan,
government play an important role in entrepreneurship, and the economic develop has been benefit from the social and
spatial context. The Industrial Technology Research Institute (ITRI) has developed public-private partnerships to
become a world leader in semiconductor manufacturing, digital displays and note-book computers (Amsden, 2006).
Moreover, over the past quarter century Regional innovation systems in the form of high technology clusters have
received significant public intervention to foster regional innovation and creation of new ventures through partnership
and spillover among various actors (Powell et al., 1996). Taiwan fostered the return of highly trained individuals to
establish new businesses in the hopes of encouraging entrepreneurial innovation, although the benefits of this policy
may have passed its peak (Economist, 2013).
Inspired by the US Bayh–Dole Act of 1980, Taiwan sought to free up university and endow them with greater
capacity to benefit from the intellectual property generation initiatives. In this spirit, the Taiwan government (Executive
Yuan) laid down a general ‘‘Basic Law on Science and Technology’’ in 1999, which reorganized the management of
intellectual property rights (IPRs), in public institutions in approximately the same manner as the Bayh–Dole Act in the
United States. Three mechanisms for technology dissemination between industry and universities were put into practice:
Technology Transfer Centers (TTCs) and universities; Technology Trade Centers (usually web-based systems); and
incubators. These are all models of public–private interaction that have been developed in the advanced countries, now
beingemulated by Taiwan (Mathews & Hu, 2007).
The incubator centers were vigorously promoted by the Small and Medium Enterprise Administration. Compare
with most incubation centers in other countries is not in the same place, in Taiwan, more than 80% is set in the
university campus. The main consideration is to connect with university resources, these funds are currently Incubation
center operations primarily from the Small and Medium Enterprise Administration.
However, while Taiwan academic units is still in the early development of academic entrepreneurship, with
academic institutions derived from the company's relatively small. Compared to the Taiwan academic institutions not to
use the intellectual property of the university to the creation of new companies, but mainly through the Incubation
Center on the campus of industry partners to help create and develop new business.
Proposition 4: Taiwan government play an important role in entrepreneurship education, especially in university.
Methodology
This research is plan to use the empirical setting of the implementation process of the course “Implementation of
Technology Commercialization” at National Tsinghua University (NTHU) as the casefrom year 2013 to 2016.As a new
education program, it suffered challenge from the context and change the context as well. The research utilizes
abductive approach. The empirical material analyzed based on the proposition identified per se, but also themes were
identified through a deeper empirical understand of the research topic.
This course was developed as a continuation of the “U-Spin” (2005-2008) and “I-Spin” (2008-2011) projects aimed
to commercialize academic research, and funded by government. The course seeks to foremost integrate students from
natural sciences, engineering and management. The students are categorized into two groups “business” and
“technology”, and are encouraged to cooperate as cross-disciplinary teams. The technology students are supposed to
work with a technology preferably form the lab, which they come from. As a policy driven course, this course seeks to
push lab technologies to the market place and pave the way for new ventures. However, it also play an important role in
education and resource aspect. This course seeks to fostering entrepreneurship in the university and build a platform for
university-industry collaboration and alumni as well.
As a longitudinal study of the implication process of the case, the researcher observed the course and related
activities, arrange in-depth interviews. Moreover, the secondary data such as project reports, news release offers a better
supports of background understanding. From this, it exams the conflict phenomenon of career developing and students’
life goals in entrepreneurship education, different goal setting according to different concept of entrepreneurship, the
problem of interaction team work between interdisciplinary students, the learning experience in action-based education,
and resource integrated process in policy context.
The expected finding and implication

Based on the proposition argued above, this research expect to discuss the challenge of the entrepreneurship
education embedded within Taiwan societal context from business, education, and policy aspect.Firstly, in the business
context, while the concept of entrepreneurship is changed by time and is proposed to solve different problem in
different stage of economy development, the definition of entrepreneurship education must be clarified by different
purpose. Without clear clarify, it is hard to set the teaching objectives, and the evaluation of the outcome of
entrepreneurship education may be confused.
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Secondly, in the education context, insufficient education and training at primary levels may affect the implication
of entrepreneurship education in higher education. As to teaching method, if the students have notdevelop the capability
of confidence and self-efficacy, they may suffer frustrate in action-based learning of entrepreneurship education.
Therefore, to develop the pedagogy of entrepreneurship education is important, and encouragement of reflective
thinking maybe an effective method. Moreover, entrepreneurship education is related with career education. But,
considering the discrepancies between schooling and the job market, the students’ career exploration capacity should be
encouraged.Finally, in the policy context, while government play an important role in entrepreneurship education, how
to integrate different resource and purpose in entrepreneurship education is important. Based on the discussion, this
research aim to provide suggestions for educational and entrepreneurial policy.
References
Amsden, A., 2006. Taiwan’s Innovation System: A Review of Presentations andRelated Articles and Books. In:
Submitted for NAS Jan. 4–6 symposium “21st Century Innovation Systems for the U.S. and Taiwan: Lessons From
a Decade of Change. Taipei, Taiwan.
Autio, E., Kenney, M., Mustar, P., Siegel, D., & Wright, M. (2014). Entrepreneurial innovation: The importance of
context. Research Policy, 43(7), 1097-1108.
Birley, S., & Muzyka, D. F. (2000). Mastering entrepreneurship: Editorial Dunken.
Chang, J.-C., & Sung, H.-Y. (2009). Planning and implementation of entrepreneurship education-Taking the National
Taipei University of Technology for an example. International Journal of Vocational and Technical Education, 1(2),
025-031.
Chou, C. P. (2014). Education in Taiwan: Taiwan’s colleges and universities. Taiwan-US Quarterly Analysis, 15.
Gibb, A. A. (2007). Enterprise in education. Educating tomorrow’s entrepreneurs. Pentti Mankinen, 1-19.
Krueger, N. F., Reilly, M. D., & Carsrud, A. L. (2000). Competing models of entrepreneurial intentions. Journal of
business venturing, 15(5), 411-432.
Lee, L., Wong, P. K., & Foo, M.-D. (2005). Antecedents of entrepreneurial propensity: findings from Singapore, Hong
Kong and Taiwan. MPRA Paper No. 594. Retrieved from http://mpra.ub.uni-muenchen.de/594/
Mathews, J. A., & Hu, M.-C. (2007). Enhancing the role of universities in building national innovative capacity in Asia:
the case of Taiwan. World Development, 35(6), 1005-1020.
Shiu, J.-W., Wong, C.-Y., & Hu, M.-C. (2014). The dynamic effect of knowledge capitals in the public research
institute: insights from patenting analysis of ITRI (Taiwan) and ETRI (Korea). Scientometrics, 98(3), 2051-2068.
Volkmann, C. (2004). Entrepreneurial studies in higher education: Entrepreneurship studies—an ascending academic
discipline in the twenty‐first century. Higher Education in Europe, 29(2), 177-185.
Welter, F. (2011). Contextualizing entrepreneurship—conceptual challenges and ways forward. Entrepreneurship
theory and practice, 35(1), 165-184.
Wen, C.T., Liu, C.Y., Hsieh R.M., et al., (2010). A Study of Entrepreneurship Environment in Taiwan: National
ExpertsPerspective. Journal of Entrepreneurship Research, 5(4), 35-72.
Witt, M. A., & Redding, G. (2013). Asian business systems: institutional comparison, clusters and implications for
varieties of capitalism and business systems theory. Socio-Economic Review, 11(2), 265-300.
Wu, R. I., & Huang, C.-C. (2003). Entrepreneurship in Taiwan: Turning point to restart. Entrepreneurship in Asia:
Playbook for Prosperity.
Zhao, Y. (2012). World class learners. Thousand Oaks, CA: Corwin, 192.
Zhao, Y., & Meyer, H.-D. (2013). High on PISA, low on entrepreneurship? What PISA does not measure. Paper
presented at the PISA, power, and policy: The emergence of global educational governance. Oxford, UK:
Symposium Books.
Author’s bibliography
Yen Yu Huang
Doctoral Candidate of Institute of Technology Management, National Tsing Hua University, Hsinchu, Taiwan
Tsung Ying Shih
Associate Professor of Institute of Technology Management, National Tsinghua University,Hsinchu, Taiwan
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ENTREPRENEURSHIP AND COMMUNITY DEVELOPMENT- A COMPETENCY

PERSPECTIVE STUDY
Yi-Chang Chen1), Han-Ming Lin2, Xiu-Man Ye3)
Kun Shan University, Tainan, Taiwan
sense3014@gmail.com
Abstract
According to a research stream of entrepreneurship study, a successful entrepreneur needs to manage any resource
which is useful for a start-up company. Therefore, more resources an entrepreneur has, more chances a new company
can be well established. These arguments based on the resource-based theory (RBT) identified different types of
resource and generally proposed the positive relationship between amount of resources and successful chance of new
companies. However, this study inquired the relationship and suggested the importance of entrepreneur competency
could be highlighted especially to new companies in traditional communities. Consequently, the interaction between
entrepreneurship and community development was investigated. This study picked up the shopping district of Zhengxing
Street in Tainan City as the targeting research area. Observation, interviews and community resource inventory were
conducted from November 2015 to April 2016. The results revealed that some “invisible competencies” based on the
competency iceberg model played vital roles especially to those entrepreneurs who migrated to traditional
communities.
Keywords: Entrepreneurship, Competency, Resource-Based Theory
Introduction
There is a increasing awareness of a need for a greater understanding of entrepreneurs in emerging and advances
economics (Shenkar and von Glinow, 1994). However, entrepreneurs in emerging markets are often rather unique
because of changing contextual environments. For example, entrepreneurs run their business in the contingent formal
and overdeveloped informal institutional environment (Puffer et al, 2010; Tonoyan et al, 2010). This environment is
rather hostile towards entrepreneurship. Meanwhile, entrepreneurs have a high level of human capital rather than
supplies of financial capital (Manev and Manolova, 2010). Based on resource-based theory (RBT), entrepreneurs have
more resources fitting to business environment are more likely to have successful business especial for start-up
companies. The statement suggests that entrepreneurs need to increase external resource integrating competencies.
Comparing to in developed markets, entrepreneur competencies in developing economics should be logically
highlighted in order to lead their businesses to survival and growth (Solesvik, 2013). However, is the fitting relationship
between external community resources and entrepreneurs generally the main issue of operating new companies in a
local community? If entrepreneurs are less likely to manage local external resources subjectively and objectively, what
kind of internal competencies do successful entrepreneurs have? These are the main research questions this study is
going to investigate.
The Concept of Entrepreneurship

The term entrepreneur was first used by Richard Cantillon. He viewed the term entrepreneur from the supply side.
Therefore, he pointed out that an entrepreneur has the willingness to bear risk (Evans et al. 1989). Following the idea of
risk taking, Harold (1994) indicated that entrepreneurs take personal risks in initiating change, and they expect to be
rewarded for it. Focusing on the process of change, Sarmah and Singh (1994) identified that an entrepreneur is one who
can transform raw materials into goods and services, who can effectively utilize physical and financial resources for
creating wealth, income and employment, who can innovate new products, standardize or upgrade existing products for
creating new markets and new customers. Consequently, this perspective suggests that the desire of the entrepreneur to
maximize profit and contribute to economic and social well being of the society. The compound of all these attributes in
operation is commonly termed as ‘entrepreneurship’. Consequently, entrepreneurship is a critical factor of country and
community developments in social and economic dimensions has been amply documented in the literature of different
academic domains.
The concept of Entrepreneurial Competencies

As the results of the previous studies declared, an entrepreneur is an individual who develops and grows the
businesses through creative and innovative activities, by introducing new products or services, by improving the
existing methods of production or service. Therefore, entrepreneurial competencies are crucially related with firm
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performance and its competitiveness (Colombo &Grilli, 2005; Man et al., 2002). Firm’s Resource Based Theory (RBT)
suggests that a firm can distinguish itself from its competitors and can create sustainable competitive advantage only if
it possess valuable, rare, and inimitable resources (Barney, 1991). In addition to external resources, the theorists of RBT
have observed that entrepreneur’s competencies are key resources as well. The valuable skills, knowledge and abilities
of an entrepreneur may lead to sustainable competitive advantage of firm because entrepreneurial competencies are
usually very rare and difficult for rivals to develop all essential competencies. For example, the manager’s capability in
finding or developing resources is valuable in business development process (Barney, 1991).
Bird (1995) referred entrepreneurial competencies to the underlying characteristics such as traits, knowledge,
motives, social roles and skills that lead to venture birth, survival its growth. Man et al. (2002) defined them as the
entrepreneur’s ability to successfully perform a job role. These characteristics of individuals can vary due to their
different motives, traits, social roles and skills (Boyatzis, 1982). Therefore, entrepreneurial competencies are possessed
by individuals who are the entrepreneur’s means who start organizations and then add value through resource
organization and opportunities (Bird, 1995). She stated that the competencies are essential to start a new venture but
successful entrepreneurs are those who survive and grow their businesses through their competencies. Most researchers
recognized entrepreneurial competencies are needed to start a new venture than those who manage the growth of an
existing business (Man et al., 2002; Chandler and Hanks, 1994; Chandler and Jansen, 1992).
Types of entrepreneurial competency

Man et al (2002) proposed the following components for analyzing entrepreneurial competencies: strategy,
commitment, conceptual, opportunity, relationship, learning, organizing, and personal competency. Robles and Zárraga-
Rodríguez (2015) summarized some literatures of entrepreneurial competencies and pointed out 20 important
competencies including risk assumption, self-determination, search and analysis of information, quality of work,
communication, self-confidence, develop social networks/generation of support networks, dynamism, change
management, initiative innovation, integrity, leadership, self-control results orientation, social mobility, negotiation,
troubleshooting, responsibility, and teamwork.
The Antecedents and Outcomes of Entrepreneurial Competencies

With regard to antecedents of entrepreneurial competencies, the entrepreneur’s psychological and behavioral,
demographic characteristics, managerial and technical skills are the most important determinants (Man et al., 2008;
Rasmussen et al., 2011). For example, Krueger and Brazeal (1994) mentioned that prior work experience could improve
skills and abilities of entrepreneurs mostly in identifying business opportunities. Maxwell and Westerfield (2002)
argued that level of formal education and previous managerial experience influenced on the entrepreneur’s
competencies of innovativeness.
With regard to outcomes of entrepreneurial competencies, there are much evidence indicated that entrepreneurial
competencies result into venture performance, profitability and its growth (Baum et al., 2001; Colombo & Grilli, 2005).
For example, Chandler and Jansen (1992) found that founder’s self-assessed entrepreneurial competencies have positive
relationship with firm’s growth. In addition, Lewis and Churchill (1983) pointed out that entrepreneur’s skills keep on
changing as the firm enters from one development stage to another. Therefore, it is important to know the changes that
result from venture’s growth because entrepreneur’s skills and capabilities for one stage will be not appropriate for
another (Mitchelmore, & Rowley, 2010).
Research Method
This study selected Zhengxing Shopping District (正興商圈) as research field. This shopping district is located in
West Central District, Tainan City. There are two existing shopping zones established by government for decades: Old
Market (舊大菜市) and Asakusa Market (淺草新天地). The research area is just next to the previous two shopping
zones.
In order to retrieve important entrepreneurial competencies, this study conducted multiple methods from November
2015 to April 2016: observation, two types of interview and local community resource inventory survey. The
researchers participated some activities held by the entrepreneurs in research field. With regard to interviews, the first
type interview is in-depth interview. 30 business district entrepreneurs expressed their experiences of starting business.
Meanwhile, Second type of interview, Behavioral Event Interview (BEI), was used simultaneously. BEI is an interview
technique to identify and assess the competencies of candidates for a particular job. All interviews used open
questionnaires for more information. Each interview was carried out for at least one hour and information record was
taken under interviewees’ permission. After interview, the study team conduct summarized documents word by word,
and coded important competencies by discussion with all team members.
Research Finding and Discussion

The main results of this study include the following points:
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A. The pioneers of entrepreneur in the community may be likely to create entrepreneurial atmosphere
At the beginning, some entrepreneurs just wanted to have new business in their hometown, Tainan City. However,
they wanted to introduce new ideas to the district because they had working experiences in other cities. They opened
new shops in the district, but they involved in different products from the existing shops in the district. In addition, most
interviewees pointed out that group members help each other because they shared the similar vision of district
development. They hope owners of new shops agree the idea that community development is the first priority.
Currently, there are 26 members in the group. They call themself as “Zhengxing Faction”(正興幫). The true meaning
of “幫” to the members is not grouping, they focus on helping because of the pronunciation of “幫” in Chinese.
B. Community image can be transferred by entrepreneurial group
The group set the different development path from previous shops. They highlighted the value of nature and local
life. They did some revolutionary marketing practices in the district. For example, they blocked the district every
weekend to have promotion event. Holiday events were held in the district as well. They created the mascot of district:
Zhengxing Cat. Zhengxing Cat is a collected image. There are 26 faces of cat referring to 26 group members and 26
stories. In addition, some members were also popular in media. Therefore, clear image of district integrated with group
members was identified by customers via social media. The traditional image of district, such as for ages, for food, was
gradually transferred to the image of creativity and particularity.
C. The role of local resources may be less likely to play significant role at start-up stage
Since the group members wanted to develop the district by their way, they tried to get rid of the influences of
government and existing community association. They did not stressed the linkage with local community. They did not
take any sponsorship form local government. They seldom had co-operation with exiting community associations.
Based on resource-based theory, the argument that high integration with local resource is more likely to achieve success
to a start-up enterprise may have further discussion.
D. Soft competencies play vital role during development process
Without highly integrating with local resource, the group members are more likely to use their soft competencies.
For example, they usually developed great teamwork. They were full of energies for community development. They
frankly communicated ideas in their meetings. They intended to learn new ideas and cooperated with other domestic
and international community development associations. The entrepreneurial competencies shown in the group
members are almost the same as the previous study (Robles and Zárraga-Rodríguez, 2015). However, these
competencies can be grouped in the category of soft competencies which different from skill, knowledge according to
the competency iceberg model.
E. Integration with local people for further development.
Based on the current energy of popularity, the group members tried to cooperate with some local people for
community prosperity. For example, they worked with the local people in the events and promoted the products made
by local people.
To sum up, the results of this study mainly support the positive relationship between entrepreneurial competencies
and business success. In addition, entrepreneurship and entrepreneurial competencies may have the influence on
community development and its development direction. Meanwhile, the necessity of integration between entrepreneurs
and local community resource at enterprise start-up stage may depend on the situational factors such as entrepreneurial
competencies. However, using appropriate mechanisms to increase connection with local community plays important
role for further business and community development.
References
Barney, J. (1991). Firm resources and sustained competitive advantage. Journal of Management, 17(1), 99-120.
Baum, J. R., Locke, E. A., and Smith, K. G. (2001). A multidimensional model of venture growth. Academy of
Management Journal, 44(2), 292-303.
Bird, B. (1995). Toward a theory of entrepreneurial competency. Advances in Entrepreneurship, Firm Emergence, and
Growth, 2, 51-72.
Boyatzis, R.E. (1982). The Competent Manager: A Model for Effective Performance. New York: Willey.
Buttner, E. H., and Moore, D. P. (1997). Women’s organizational exodus to entrepreneurship: self-reported motivations
and correlates with success. Journal of Small Business Management, 35(1): 34-46.
Chandler, G. N., and Hanks, S. H. (1994). Founder competence, the environment and venture performance.
Entrepreneurship Theory and Practice, 18(3), 77-98.
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Chandler, G. N., and Jansen, E. (1992). The founder's self-assessed competence and venture performance. Journal of
Business Venturing, 7(3), 223-236.
Colombo, M. G., and Grilli, L. (2005). Founders’ human capital and the growth of new technology-based firms: a
competence-based view. Research Policy, 24(6), 795-816.
Evans, D.S., and Leighton, L.S. (1989). Some Empirical Aspects of Entrepreneurship. American Economic Review,
79(3), 519-35.
Harold, K. (1994). Essentials of Management. New York: McGraw Hill Publishing Company.
Krueger, N. F., and Brazeal, D. V. (1994). Entrepreneurial potential and potential entrepreneurs. Entrepreneurship,
Theory and Practice, 18(3), 91-104.
Lewis, V. L., and Churchill, N. C. (1983). The five stages of small business growth. Harvard Business Review, 61(3),
30-50.
Man, T. W. Y., Lau, T., and Chan, K. F. (2002). The competitiveness of small and medium enterprises: A
conceptualization with focus on entrepreneurial competencies. Journal of Business Venturing, 17(2), 123-142.
Man, T. W. Y., Lau, T., and Snape, E. (2008). Entrepreneurial competencies and the performance of small and medium
enterprises: An investigation through a framework of competitiveness. Journal of Small Business &
Entrepreneurship, 21(3), 257-276.
Manev, I.M. and Manolova, T.S. (2010). Entrepreneurship in transition economies: review and integration if two
decades research. Journal of Developmental Entrepreneurship, 15(1), 69-99.
Maxwell, J. R., and Westerfield, D. L. (2002). Technological entrepreneurism characteristics related to the adoption of
innovative technology. SAM Advanced Management Journal, 67(1), 9-13.
Mitchelmore, S., and Rowley, J. (2010). Entrepreneurial competencies: a literature review and development agenda.
International Journal of Entrepreneurial Behaviour & Research, 16(2), 92-111.
Puffer, S.M., McCarthy, D.J., and Boisot, M. (2010). Entrepreneurship in Russia and China: the impact of formal
institutional voids. Entrepreneurship Theory and Practice, 34(3), 441-467.
Rasmussen, E., Mosey, S., and Wright, M. (2011). The evolution of entrepreneurial competencies: A longitudinal study
of university spin-off venture emergence. Journal of Management Studies, 48, 1314-1345.
Roblesa, L. and Zárraga-Rodrígueza, M. (2015). Key competencies for entrepreneurship. Procedia Economics and
Finance, 23, 828-832.
Sarmah, R.C. and Singh, A.K. (1994). Determinants of entrepreneurship in agriculture. Productivity, 35 (3): 538-539.
Shenkar, O., and von Glinow, M.A. (1994), Paradoxes of organizational theory and research: using the case of China to
illustrate national contingency. Management Science, 40(1), 56-71.
Solesvik, M. (2013). Entrepreneurial motivations and intentions: Investigating the role of education major.
Education+Training, 55(3), 253-271.
Tonoyan, V., Strohmeyer, R., Habib, M. and Perlitz, M. (2010). Corruption and entrepreneurship: how formal and
informal institutions shape small firm behavior in transition and mature market economics. Entrepreneurship Theory
and Practice, 34(5), 803-831.
Yi-Chang Chen was born in Taipei, Taiwan. He received the Ph.D. in Human Resource Management Section, Business
School, University of Wales, Cardiff, UK. He is currently Assistant Professor of the Department of Business
Administration, Kun Shan University, Taiwan. His research interests include talent management, leadership, and
consumer behavior.
Han-Ming Lin was born in Tainan, Taiwan. He is Professor of the Department of Tourism Culture Development, Kun
Shan University, Taiwan. His research interests include competency analysis, hospitality management, and tourism
management.
Xiu-Man Ye is graduated student of the Institute of Business Administration, Kun Shan University, Taiwan.
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FACTORS RELATED TO THE INTENTION OF STARTING A NEW BUSINESS IN

ELGUATEMALA
Linda Lin1), Sergio Jose Acajabon Lantan2), Cheng-Nan Chen3)
Kun Shan Univeristy, Tainan, Taiwan
Abstract
Entrepreneurship is a really pervasive concept of our time, but there are still some gaps in understanding
entrepreneurs and entrepreneurship, specifically in developing countries like Guatemala. This thesis focus on the
perception of opportunities, capabilities and fear of failure do the people of Guatemala have to start a new business
which are what we believe are factors that may affect the intentions of starting a new business.
Acknowledging that perception of opportunities, capabilities and fear of failure has an effect on the intention of
stating a new business, there are also factors that will help these perceptions become maximized, minimized or no effect
at all for the people in Guatemala. These factors are demographics, in this study demographic is perceived as a general
factor that is difficult to define because of being such a general factor, lifestyle, entrepreneurial aptitudes and social
and cultural norms.
The results of this thesis shows that those who have management skills have less fear of making decisions, less fear
of failure and a good perception of their own capabilities. Those that have entrepreneurial desire have a positive
reaction towards the perception of opportunities and also have a good perception of their own capabilities. Those that
have a good understanding of people, their surroundings, and who are positive and healthy have less fear of making
decisions and a good perception of their capabilities. Those people who follow daily tendencies, who are positive and
healthy and those that understand people and their surrounding have a good reaction of perception of opportunities.
Those people who have a good reaction and perception of opportunity have a relation with intention of becoming
and entrepreneur. Those who have a good perception of their capabilities have a relation on the intention of stating a
new business. On the contrary, those that have a fear of making decisions, have a direct relation with the intention of
becoming an entrepreneur.
Keywords: Entrepreneurship, Perceived Opportunities, Perceived Capabilities, Fear of Failure and Intention of Starting
a New Business
Introduction
In Guatemala, there have been many failed and successful entrepreneurs and learning from their mistakes will guide
me and other future entrepreneurs into the right path. Recognizing past entrepreneurial mistakes and failures will bring
to light the common mistakes that most failed entrepreneurs make.
One of the motivations is that, in a way, in Guatemala there are a lot of people in the rural areas that live in poverty
or have limitations so with the help of this research, it will show certain factors that one can have to become an
entrepreneur. This study, hopefully, will be a small help in the creation of programs from any sector in the areas that
need it the most.
The objective of this research is to analyze and discover the relationship of certain factors with the intention to start
a new business, without stereotyping any sector or social class. With the help of this analysis, people will have a guide
to start realizing certain factors that can help them if or when they decide to become and entrepreneur. The main
research question for this study is: “What qualities of the factors of a Guatemalan can affect the intention to start a new
business in Guatemala?”
Theory and Hypothesis

In Guatemala According to the Universidad Francisco Marroquin in Guatemala, 95% of the population sees being
an entrepreneur as a good option to undertake, on the other hand 64% believe they have the capabilities to do so, and
the other 37 % do not see it as an option for fear of failure. Also statistics show that 12% of the population that decides
to undertake being entrepreneurs, of which only 9.2% begins to generate revenue. Of this 9.2% of the population, only
7.4% will survive more than 3.5 years. After these 3.5 years, the risk and the likelihood of extinction is significantly
reduced.
According to the document, the total Guatemalan population aged 18 to 64, 20.4% are in the initial stage of
entrepreneurship, while 7.5% are entrepreneurs with extensive experience, which indicates that 27.9% of the total
Guatemalan population is involved in any entrepreneurial activity. Most importantly to highlight that according to
“Guatemala Emprende”, entrepreneurs between 18 and 24 years represent 33.3%, as international studies highlight that
the appropriate or most common age to become an entrepreneur is 35 years old. This measurement reflects 50% of new
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businesses and 26% of established businesses. In the same study, it is quantified that 4% are of potential business
entrepreneurs and 40% are of discontinued business.
As additional data, it is also good to note that poverty increased by 8.1% compared to 2006 according to the
National Survey of Living Conditions (ENCOVI 2014 for its acronym in Spanish) published on December 11, 2015.
The document reflects data from 2014 found that 59.3 percent of the Guatemalan population lives below the poverty
line, compared with 51.2% in the LSMS 2006 and 56.4% in 2000. ((ENCOVI, 2014)
This reflects the lack of job opportunities, which translates to the need to undertake in entrepreneurial ventures,
which by the same factors most often takes place under little planning and informality.
In Guatemala, 13.2% of the population perceived opportunities to become entrepreneurs. When talking about
established businesses, 58.7% mentioned that they opened it because they perceived opportunities. It is clear that men
have higher perceptions of opportunity with 13.4% compared to 13.1% for the women.
The fear of failure in Guatemala is higher in younger and older generations and the ones with less fear of failure are
between the ages of 25 and 34 years old.
Entrepreneurship
It is the process of designing, launching and running a new business and it will tend to include topics like
government programs, services, entrepreneurship courses, financial support, etc. that promote and support
entrepreneurs.
Entrepreneur
It might be described as a person who starts his or her own business, and assumes the risk but stands to gain the
profits. There are so many reasons why people become entrepreneurs: cannot have a boss, easily bored, cannot keep a
job, not too educated, etc.

Cultural norms are the standards we live by. They are the shared expectations and rules that guide behavior of
people within social groups. Cultural norms are learned and reinforced from parents, friends, teachers and others while
growing up in a society. Norms often differ across cultures.
H1: Cultural and Social Norms have a relation with Perceived Opportunities in Guatemala.
H2: Cultural and Social Norms have a relation with Perceived Capabilities in Guatemala.
H3: Cultural and Social Norms has a relation with Fear of Failure for starting a new business in Guatemala.
H4: Cultural and Social Norms has a relation with the intention of starting a new business in Guatemala.
Lifestyle
It is a way of life or living of a person or group with different attitudes, habits, possessions, etc. (Mifflin, 2011)
Lifestyle can make a big impact on the current social success, and on the opportunities a person will have to practice
and develop their skills in order to move forward and the importance of them changes over time.
Lifestyle entrepreneurship means creating a business around the kind of lifestyle a person desires, the business
supports their life and allows them to create freedom while making an impact in people’s lives. There are many reasons
why people have intentions to become a lifestyle entrepreneur, for example, to be near their aging parents or stay at
home with their young children, get off the travel grind and away from overbearing bosses and finally to do the kind of
work that they love.
H5: Lifestyle has a relation with the perception of opportunities in Guatemala.
H6: Lifestyle has a relation with perceiving more entrepreneurial capabilities in Guatemala
H7: Lifestyle is related to having more fear of failure when starting a new business in Guatemala.
H8: Lifestyle has a relation with the intentions of starting a new business in Guatemala.
Entrepreneurial Aptitudes
Are defined as the skills to potentially create and develop enterprises and self-employment. Successful entrepreneurs
present specific characteristics like high entrepreneurial aptitudes to manage bureaucratic phases and personal financial
resources.
H9: Entrepreneurial aptitudes have a relation with perceived opportunities in Guatemala.
H10: Entrepreneurial aptitudes have a relation with perceived capabilities in Guatemala.
H11: Entrepreneurial aptitudes have a relation with fear of failure when starting a new business in Guatemala.
H12: Entrepreneurial aptitudes have a relation with the intentions of starting a new business in Guatemala.
Perceived Opportunities
Reflect the percentage who believes there is an occasion to start a business in the next six months in their immediate
environment. People are not really afraid of starting a business, but business risk is very high. There are plenty of
opportunities to personally know an entrepreneur and learn from their knowledge. (Acs, 2013) The perception of
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business opportunities can automatically be related to the intention of starting a new business and the identification of
these opportunities is an important and essential skill that the aspiring entrepreneur must possess. (Vidal-Suñé, 2013)
Opportunity entrepreneurs who pursue an opportunity or try to increase their income or independence tend to be
younger (under 35), while entrepreneurs by necessity are on their 35-64 years old.
Governments can facilitate the identification of business opportunities and the entrepreneurial process by offsetting
entrepreneurs shortcomings in their resources and abilities, through programs of subsidies and financial aid, training
programs, providing information and advice, etc. (Dahles, 2005; Keuschnigg and Nielsen, 2004; Lorenzo et al., 2008).
H13: Perceived opportunities have a relation with the intention of starting a new business in Guatemala.
Perceived Capabilities
They can be explained as the percentage that believes they possess the abilities to achieve certain objectives,
especially in relation to entrepreneurship. Entrepreneurship involves possessing subjective visions about business
opportunities and mobilizing resources and capabilities to turn entrepreneurial visions into business reality (Shepherd
and DeTienne, 2005; Stuart and Sorenson, 2005). There are different types of capabilities, one of the most important is
Dynamic capability “or the ability to integrate, build, and reconfigure internal and external competencies to address
rapidly changing environments” (David J. Teece, Gary Pisano, and Amy Shuen). On the other hand, operational
capabilities affect the current operation of an organization. (Helfat et.al. 2007).
H14: Perceived capabilities have a relation with the intentions of starting a new business in Guatemala.
Fear of Failure
A common fear among entrepreneurs is the fear of failure, the fear of failure is the appraisal of threats in evaluative
situations with the potential for failure (Conroy 2001). These situations cause different behavioral responses: approach
the threat aggressively (fight), avoid facing the situation (flight), or be paralyzed in the situation (freeze) and it becomes
a barrier to entrepreneurship. Failure constitutes an integral part of starting a company.
H15: Fear of failure has a relation with the intentions of starting a new business in Guatemala.
Entrepreneurial intention
Entrepreneurial intention is often regarded as the purposive pursuit of forming a new organization (Gartner 1988).
Because many employees have not yet taken any concrete steps to start a business, intention among potential
entrepreneurs is seen as a “conscious state of mind that precedes action” (Shook, Priem & McGee, 2003, 380).
It can be described as the state of one’s mind to foster new businesses or ventures and a person will only initiate
entrepreneurial actions when one’s entrepreneurial conviction is high in relation to the perceived requirements of a
specific opportunity. Finally the demographic profile is one of the most important parts when conducting a research.
Entrepreneurial intention is the state of one’s mind to foster the new business or venture creation.
Methods
Sample and data collection

The method used to collect data was an entrepreneurial intention questionnaire, which included all the questions
necessary to fulfill the research.
The questionnaire was divided into eight sections including each of the factors being analyzed: Cultural and Social
norms, Lifestyle, Entrepreneurial Aptitudes, Perceived Opportunities, Perceived Capabilities, Fear of failure, and
Intention of starting a new business and finally the Demographic section in order to have a better idea of the profile of
the respondents.
The data collection for this research is base in the distribution of an online questionnaire of 177 participants. The
questionnaires will be distributed randomly to people who are interested in becoming future entrepreneurs specifically
in Guatemala or who are willing to give their opinions. Since the official language in Guatemala is Spanish, the
questionnaire will be done in Spanish and then translated into English for the analysis and understanding of the data
collected.
The questionnaire was sent to the different institutions, organizations, schools, universities, and included formal
instructions on how to answer, they were also asked to distribute the questionnaire to as many coworkers or classmates
as possible. To ensure anonymity and confidentiality, the questionnaire was created in a way in order not to ask for any
identity. Every time someone answered the questionnaire, an automatic notification was sent to the researcher.
Demographic Profile
The questions used to measure the demographic profile of the respondents were obtained from two different
resources in order to get better and more understandable information of the data required for this research. The first
questionnaire is called “Demographic questionnaire” by the Question Pro Survey team, and the second one was the 5
Examples of Survey Demographic Questions by Susan Wyse posted on the Snap Surveys Blog; the questions were
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based on a nominal scale with different answers in order to fit each respondents profile. The items taken into account
were: age, gender, and ethnicity, level of education, marital Status, current location, and experience of startup, current
employment status and annual income.
Figure 1, Research framework for the study of the factors related to the intentions of starting a new business in
Guatemala.
Figure 1 Research framework
Discussion and conclusions

By arranging the components using Pearson Correlation Coefficient, we made the correlation analysis between two
components to show if the components have a weak, medium, strong or no correlation.
The correlation analysis shows that none of the cultural and social norms components have a significant correlation
with any of the other components.
When the correlation analysis was done, it showed that management skills have a relation with fear of making
decisions and fear of failure in the future in Guatemala. However, entrepreneurial desire has a relation with fear of
failure of making decisions in Guatemala. This may be interpreted as those who desire to be entrepreneurs find it
difficult in making decisions that affects their future.
Management skills and entrepreneurial desire have a relation with perception of ones capabilities in Guatemala. This
indicates that those with management skills or those who want to become an entrepreneur have a better perception of
their capabilities.
Management skills have a relation with reaction of perception of opportunities and perceived opportunities available
to start a new business in Guatemala. This indicates that people who have management skills have a better perception
and reaction of opportunities that are available in Guatemala. Also, those with entrepreneurial desires have a better
perception and reaction of opportunities that are available in Guatemala.
Those who have a better understanding of people and their surroundings have a tendency to not have any fear of
making decisions. Also, those who are positive and healthy have a tendency to not have any fear of making decisions
and fear of failure in the future. These two groups of people also have a better perception of their capabilities and also
those who follow daily tendencies and routines have a better perception of their capabilities.
Those who have a better understanding of people and their surroundings and those who follow their daily tendencies
and daily routines tend to have a better reaction to the perception of opportunities in Guatemala. Those who are positive
and have a healthy life have a better perception of the opportunities in Guatemala. This may be that these people are not
worried about their health and tend to not be negative.
Those who have a reaction in perceiving an opportunity and those who have a better indication of their own
capabilities have better intention in become entrepreneurs. Also, those who perceive the opportunities available to start
a new business have a better intention to become an entrepreneur in Guatemala.
Those who have a fear of making decisions, which could be resigning from their jobs or investing their full time and
money in any personal business and not receiving anything in return or because of any personal duties, don’t have any
intention to become an entrepreneur.
Based on the results, the following hypotheses were accepted:

H7: Better entrepreneurial aptitudes have a relation with fear of failure in Guatemala.
H8: Better entrepreneurial aptitudes have a relation with perceived capabilities Guatemala.
H9: Entrepreneurial aptitudes have a relation with perceived opportunities
H10: Life-style has a relation with fear of failure in Guatemala.
H11: Life-style has a relation with perceived capabilities in Guatemala.
H12: Life-style has a relation with perceived opportunities.
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H13: Perceived opportunities have a relation with the intention of starting a new business in Guatemala.
H14: Perceived capabilities have a relation with the intention of starting a new business in Guatemala.
The following hypotheses were rejected:

H4: Cultural and Social Norms have a relation with the perceived opportunities in Guatemala.
H5: Cultural and Social Norms have a relation with the Fear of Failure in Guatemala.
H6: Cultural and Social Norms have a relation to perceived capabilities in Guatemala.
H15: Fear of failure has a relation with the intentions of starting a new business in Guatemala.
The demographic dimensions do not necessarily affect the intention of starting a business. Civil status is not
important because a person still has a good perception of one’s capabilities. Those between 26-40 years old have a
better perception of their capabilities which may be the result of their maturity. Experience of entrepreneur does not
affect neither the perception of one’s capabilities nor the perception and reaction of opportunities to start a new
business. Those who work for themselves have a better perception of their capabilities and a better reaction to
opportunities available to start a new business. Labor situation isn’t necessarily important when perceiving an
opportunity available to start a new business or the perception of one’s capabilities.
Those with a better monthly salary have a better perception of their capabilities. Those that are positive, healthy,
follow daily tendencies and understand those around them have a better perception of their capabilities and have a better
reaction of perception of opportunities. Those who have a better perception of their capabilities have a good perception
of their management skills and have a clear idea of their desire to become an entrepreneur. Those who have
management skills and a clear desire to become an entrepreneur have a better reaction and perception of opportunities
available to start a new business and they are not afraid to make decisions. Those who have an entrepreneurial desire
have a fear of failure in the future. Those that are positive, healthy, and understand those around them have less fear of
making decisions.
Those who are positive and healthy have less fear of making decisions in the future. Those who have a good
perception of their capabilities have an intention of becoming entrepreneurs. Guatemalans think that the quantity of
education to become an entrepreneur is good. Those who have a reaction and perception of opportunities have an
intention of starting a new business.
The results prove that the fear of making decisions have an impact in the intention of becoming an entrepreneur.
For extra information about how to measure the factors related to the intentions of starting a new business, the
entrepreneurial intention questionnaire can be found in the Appendix section.
Appendix
Entrepreneurial intention questionnaire (all items are coded)

C1 The national culture is supportive of individual success achieved through own personal efforts.
C2 The national culture emphasizes self-sufficiency, autonomy and personal initiative.
C3 The national culture encourages creativity and Innovativeness.
C4 People prefer to work for well-established organizations rather than new firms.
C5 Younger people expect to change jobs and occupations, many times before they retire.
C6 Younger people believe they should not rely too heavily on the government.
C7 Most people would prefer everyone had the same standard of living.
C8 A high value is placed on self-sufficiency autonomy individualism and personal initiative.
C9 The social security system provides appropriate encouragement for people to take the initiative and be self-
sufficient.
Lifestyle
L1 I love a lot of variety in my life
L2 I follow the latest trends and fashions
L3 I like to make things I can use every day.
L4 I like to understand how things work.
L5 I enjoy browsing through catalogs
L6 I am well and do not get sick often.
L7 I feel cheerful and hopeful.
L8 I am the one who helps people during emotional outbursts.
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L9 I am honest, respectful and trustworthy.

L10 I am tolerant to listen and try to learn about others beliefs and values.
L11 I can live without a car or motorcycle.
L12 I can get along with people from a different culture or race.
Entrepreneurial aptitudes
A1 I believe I am a self-starter.
A2 I come from a family of business owners.
A3 I have innovative and creative ideas.
A4 I prefer being my own boss.
A5 I believe I have the aptitudes to open a business.
A6 I have experience as a manager or have managerial skills.
A7 I am committed to work more than 40 hours a week.
A8 I set goals and timetables for results.
A9 I am comfortable delegating responsibilities and critical tasks to others whom I believe to be competent.
A10 I am a problem solver and positive about the challenges or setbacks.
Perceived opportunities
O1 I can identify business opportunities
O2 There are plenty of good opportunities for the creation of new firms.
O3 There are more good opportunities for the creation of new firms than people able to take advantage of them.
O4 I can easily pursue entrepreneurial opportunities.
O5 I can react quickly to good opportunities for a new business.
O6 The lack of help from the government about information and training courses to start a new business in my country
is the most important factor that makes me not want to become an entrepreneur.
O7 I can easily focus on how to take advantage of opportunities.
O8 I believe that economic help to start a new business in my country is the most important factor that makes me not
want to start my own business.
O9 I can seek out new information and use it for business gain.
O10 I believe that the insecurity in the country is the most important factor that makes me not want to start my own
business.
Perceived capabilities
P1 I have the knowledge required to start a new business.
P2 I have the skills required to start a new business.
P3 I have the experience required to start a new business.
P4 In my country, many people know how to start and manage a small business.
P5 In my country, many people have experience in starting new businesses.
Fear of failure
F1 I overcome rejection rapidly.
F2 I fear being a failure in my life.
F3 I have succeeded in my life.
F4 I am always saying “it will not work”.
F5 If I fail once, I do not like to try again.
F6 I can accept that I have failed.
F7 I am afraid of not having enough money to live.
F8 I do not like to change jobs because I get comfortable and do not like changes.
F9 I am afraid of taking risky decisions.
Intention of starting a new business

I1 I believe that getting enough primary and secondary education will provide adequate attention to entrepreneurship
and new firm creation.
I2 I think Universities provide a good and adequate preparation for starting up and growing new firms.
I3 I intend to start a new business or take a job during the next year.
I4 I have the intention to be a business owner someday.
I5 I want to start a new business.
I6 I want to buy an existing business.
I7 I want to buy a franchise.
I8 I want to start a business by myself.
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I9 I want to start a business with others.
Demographic profile
a. What is your age?
18 - 25 Years, 26 - 40 Years, 41 - 55 Years, 56 - 64 Years
b. What is your gender?
Female, Male
c. Please specify your ethnicity
Mestizo or Ladino and Maya
d. What is the highest level of education you have completed?
Elementary School, High School or Technical School, Bachelor’s Degree, Master’s or Ph.D.
e. What is your current marital status?
Single, Married, Divorced, Widowed
f. In which part of the country you currently reside?
Metropolitan, North, North-Orient, South-Orient, Central, South-Occident, North-Occident
g. Which of the following categories best describes your current employment status?
Employed full-time, Employed part-time, Self-employed, Retired, Unemployed
h. Which of the following best describes your experience of starting up a business?
Once, Twice, More than two times, Non-experienced
i. Which of the following describes your current employment sector?
Agricultural, Services, Commercial, Industrial, Non
j. What is the currently salary monthly?
$220-$450; $450-$650; $650-$850; More than $850, Non
References
Centro de investigaciones económicas nacionales (cien), “micro, pequenas y medianas empresas en guatemala”, may.
2010
GEM Global Entrepreneurship Monitor, “Global Entrepreneurship Monitor 2014 Global Report”, 2015
GEM Global Entrepreneurship Monitor, UFM Universidad Francisco Marroquin, “Reporte Nacional de
Emprendimiento Guatemala 2013 – 2014”, 2014
Intecap, “NUEVOS NEGOCIOS EN AMÉRICA LATINA DEBEN PROMOVER
FORMALIDAD Y GARANTIZAR DESARROLLO EN LOS PAÍSES.”, Feb. 2014
Viceministerio de Desarrollo de la Microempresa, Pequeña y Mediana Empresa, “GUATEMALA EMPRENDE”, 2015
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A STUDY ON THE LONG-TERM CARE POLICY IN TAIWAN
Hsieh Ming-Cheng1), Hsuen Sung-Lin2), Hsieh Ming-Jui3)

1)
PhD Student of Graduate Institute of Cultural & Creative Design, Tungfang Design Institute
2)
Chairman of Graduate Institute of Cultural & Creative Design, Tungfang Design Institute
3)
Chairman of Sino International Business Innovation Association
3)
hmingjui@gmail.com,2)hsuen.sl@msa.hinet.net,1)ming@rmail.nou.edu.tw
Abstract
The Long-Term Care Policy was adopted the Insurance system owing to following to the Health Insurance Model
Policy in Taiwan since 2009, However, the Long-Term Care Policy was changed from the Insurance to the Tax system
caused by the authorized Party Government changed. In fact, According to the contents of Long Term Care Services
Law, there are a lot of controversies about the financial resource between the Insurance and Tax system, and there
have their own different method in every country; however, the world's major national policy on long-term care are
difference also, some are adopted to the tax system such as Sweden, France, and Austria etc.,; some are used in
insurance system, such as Japan, Germany, and Korea...etc.,; However, Whether the content of Government Long-Term
Care Policy was suitable? Can it promoted smoothly? Can financing sources are sufficient and stable?... The
methodology in this study adopted the Literature Analysis , and found those elements such as the government's power of
administration and implementation should be the most important factors.
Keywords: Term Care Policy, Insurance System, Tax System
I. Introduction
The meaning of the LTC tax policy is to use of the Government's tax revenues to pay all costs for the long care
required to achieve the purposes of long-term care for the elderly. The LTC insurance policy transfer to the tax policy
after the political party rotation of Taiwan in May 2016.
According to the statistical data of the Ministry of Health and Welfare in of Taiwan in 2015, the number of
disable population will up 755,000 people, which, elderly population is 483,000, It estimates will increased to about
620,000 people in 2021. In addition, there are about 430,000 disable population are taken care of by families on their
own community, the ratio of long care by children is the highest 56%, followed by the spouse 34%. Most of people are
concerned, the long-term care of the elderly is a time-consuming and costly and very difficult, and therefore, how to
made a properly and good care for the elderly, the government's LTC policy is very important.
The Ministry of Health and Welfare made a planning of long-term care insurance system which as follow the health
insurance mode in 2008, it adopted the universal insurance mode, and the fulfillment of the LTC insurance policy was
follow and reference by the health care practices, according to the service to payment, and premium rates proposed for
health care one-fourth or one-fifth, it almost 1% to 1.23%, and the tentatively paid by employers 60%, Government
10%, popular people 30%, but a large of enterprise rebounded and reducing to 30%, so it is necessary to further
discussion or adjustment. However, the LTC insurance policy is still planning as not yet to take action, the LTC
insurance system was replaced by the LTC tax system owing to the government authorize change in 2016.
The population ageing is a serious problem in Taiwan, so the Government must have a long-term care policy for the
elderly, the Executive Yuan have already adopt to the LTC tax system based on the financial sources are more
convenience in 2016, it except to achieve the policy goal under the practice of authorize public power. For Government
forced to the long care issues, and try to solve the concerned problems, people are should give support certainly, so the
methodology in this study adopted the Literature Analysis, and try to know those problems such as are the policy
suitable? Can the policy promoted smoothly?... etc.
II. Literature Review

Some of the important researches about the long-term care are as the following:
Wu Sue-hohn(1998).
According to the Wu's study, it was from the existing problems of the long-term care in Taiwan, to the try to know
the changes of social welfare systems as well as the reformation of the long-term care in the world. Besides that, it was
try to made a strategy principle and specific proposal about the LTC policy in Taiwan, as for the reference in planning
of LTC policies of the Government.
Yuan, Chen Huizi (2005)
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Owing to the population aging and the number of LTC need increasing fast in recently years, however, the long-
term care service system are not reach perfect, this research try to adopt the implementation and experience by Japan
style (social security insurance system of nation) and the United Kingdom style (social security tax system of nation)¸
as the reference for the planning development and implementation strategy of the LTC policy in Taiwan.
Cheng-Yen-hui (2009)
According to the international experience of LTC policy in German, Japanese, Dutch, and Korean, Cheng's study try
to make an analysis and comparison between the financial mechanism and sources of financing of LTC insurance
system. the mainly findings and recommendations included those factors such as the payments depend on the number of
amount; payment standard should reflect reasonable cost structure, account services, and special services. the funds
should be come from the multiple sources, including revenue premiums and Government subsidy-oriented structure is
90%, the other sources of 10%. In addition, the financial control mechanisms include to those factors such as the care
fee pay was limited, adopted management system, fractional reserve deposit system, pay levels and pay adjustment and
so on.
Li Yu-chun (2013)
Owing to the lack of long term care services support in Taiwan, the long-term care issue has increasing attention
among concerned department in recent years. The LTC services mainly provided to elderly people as objects in the past,
although there are nearly 40% on the long care as not elderly in need. According to the survey of the Ministry of
Interior, the mainly three problems on elderly life are the health concerned (34.35%), spouse's care (18%), and
economic trouble (16.67%); so the Ma Government would promoted to a long-term care insurance in 2008, also the
LTC insurance policy became to the important policy while promoted by the Government. Besides that, Li's study had
summarized two series of survey by the Department of Health, and try to know the challenges on the LTC insurance
policy, its main objectives is to estimate the public need for long-term care or disability needs, as well as the description
of the LTC insurance system in detail.
Hsieh Ming-jui (2016)
The LTC policy was adopted the insurance system early in Taiwan, however, the long term care insurance system
transfer to tax model for the authorized party was changed after the May, 2016. According to the long-term care law,
the financial source of LTC were follow the insurance or the tax system, it exist a lot of controversies, each countries
also have their own different ideal in the world, some of them adopted tax system such as Sweden, France, and Austria;
and some are used in insurance system such as Japan, Germany, and Korea. However, if the Government adopted the
tax system, the financial source come from the legacy tax, real estate tax, and government budget, and the government
or the people all need to know the concerned problems such as: are the policies suitability? can the policy go forward
smoothly? and so on. Also, the Government's administrative ability and executive power are the important factors to
influence the LTC policies go smoothly in the future.
III. The Government's LTC Tax Policy

The Government adopted the LTC tax policy in May 2016, the content can be explains as followings:
1. Background
According to the LTC planning in the government, it's financial resources are based on the tax revenue and public
budgets, and raising funds for 300 to 400 billion yuan for the long care service in each year, and set a cross-sectors long
care team in the Government Centre.
The idea of local long care service is good, however, it need to pay about 400 billion yuan of funds in long care
service annually, so the financial sources is a important factor to the LTC policy was fulfill in the future; if the financial
resource of Government were need to adjust by the higher legacy tax and business tax, it is necessary to consider those
problems such as the rich people may stay at overseas, Enterprise may avoidance tax etc., so the content and fulfillment
of income tax should be amendment in the near future.
The other side, if the LTC insurance transfer to the tax system, it is necessary to combine the financial planning
between the Ministry of Finance and Ministry of Health and Welfare in order to fulfill the promotion and
implementation of policies well.
2. Financial Resource of LTC Tax System
According to the LTC tax system, the financial resource in government are base on the increasing to the legacy tax
10%, business tax 0.5%, and real estate tax, as the implementation of long-term care policy, so the Government's
financial resource of LTC policy are come from the tax revenue.
However, owing to the growth rate of elderly population is rising fast in Taiwan, the budget amount 40 billion yuan
annual is not enough to support the LTC policy, and it is a big difference with the 110 billion yuan of LTC insurance
policy, it mean that is the LTC tax system cannot math with the huge amount. In addition, according to the estimation
by the Taipei Veterans General Hospital Medical Center for the elderly, the mild disability population of about 720,000
people in Taiwan, if all of them were apply to the full long care service, it has over the fee of 40 billion yuan, and the
above does not include those people in moderate and severe disability population, that is the LTC tax systems may not
be able to match with its enormous care costs required.
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The Government announced to the 21 items priority Bill among the four Bill category in the May 2016, the
disputative problem is the financial resource of the LTC tax system, but the Government has negate the planning of
insurance system, and advocates tax system, and the financial resource are come from the legacy tax, real estate tax, and
public budget, and began to implementation after the day of May 20, 2016; However, the Government need to consider
the problem that specified tax whether enough to covers all the long care funds.
3. Problems of the LTC Tax System
According to the LTC tax system, the Government need to consider those problems such as was the financial source
adequate? stable? and timing?...etc., it explains are as follows.
(1).Adequacy of the tax source
According to the plans of the Executive Yuan, the Government will increase Legacy tax 10%, Business tax 0.5% in
order to cover its long care requirements. However, the currently tax revenue average about 25 billion yuan on the
legacy tax annual, but the heritage tax increased to 50%, the amount of legacy tax were less than 30 billion yuan in
2008, therefore, even improve legacy tax 10%, it has limit to help the requirement of long care; Besides that, legacy tax
is a national tax, which 80% needed referred to the local government using, the Central government retained 20% only,
how can complement the gap of long care fee?
(2).Difficult to ensure service continuity
According to the tax regulations, it's amount was subject to the regular basis and the limited budget, so the
protection of the long care was limited relatively. For example, Japan has adopted the tax system early, and later mixed-
mode switch to insurance, taxes, and still can't meet. If the government adopted the tax system in Taiwan, owing to the
financial sources can be instability, it mean that ensure the LTC service continuity are not easy.
(3).Administrative burden
In General, the LTC tax system must be restricted by the government's regulations, the strict control and
examination are not easy to conducive community input, and if the providing services focused on government agencies
and non-profit units, along with the rapid aging of the population, disability population, the long care scale is bound to
expand, and the Government Administration power may be difficult to bear.
(4).LTC tax system produced financial crowding effect easily
The financial source of long care will effect by tax revenue in the LTC tax system, the budget provision also must
has political competition with other resources, so the stability and the sufficient of long care sources were will be
impact by the different political situation; In other words, the object and range of long care services was limited by the
competition, and the existing budget scale may can't support the huge funding of long care, which the long care service
cannot get universal in the country.
(5).The LTC tax system budget was limited
The long care service of LTC tax system was limited by Laws specification, the fund of LTC have competition with
other policy funding for the budget was limited, and the tax burden rate is 12% in Taiwan, it below to the 17%-19% in
those countries such as Japan and Korea, it far below to the 31%-48% of the Europe countries; the government's
statutory spending accounted for annual expenditure ratio up 70%, it has almost get to the approximation of the ceiling
in borrowing, and the funding of the10 years long care plans on the base of public budget, only for the specific
conditions of people for priority service, it cannot universal to all people.
V. Suitability to the LTC Tax System

The Government announced to the document that the LTC tax system was the main system of long-term care for the
elderly in 2016, however, although this kind of tax system is simple to do in the practice, but we need to consider those
problems such as the adequacy of the financial resources and stability of the tax system, as well as the feasibility of the
policy, that is why the suitability of policies were require further consideration. The other side, government's
administrative efficiency and execution ability are the important factors affecting to the successful practices of the
policy. Therefore, whether the Government's long care system is effective? or can the policy promote successfully? it
can be discussion from the viewpoints such as the levying of taxes, tax amount, timing, and content appropriateness, as
well as the Government's executive power are as followings:
1. Content of tax levied
The different LTC policy, the difference financial resource, and according to the LTC tax system in DPP, a
successful policy of promoting is mainly based on the financial resources are adequacy and stability, and regardless of
the insurance or tax system, there are different advantages and disadvantages simultaneously.
According to the Government's LTC tax content, its financial resources come mainly from the levy of taxes for the
following projects, namely:
(1). The business tax increased from 5% to 5.5%. (2). The legacy tax increased from 10% to 20%. (3). The real
estate tax.(4). The public budgets.
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2. Amount of tax levied

It is necessary to consider the fact that the revenue adequacy and stability if the Government levied tax in order to
increases the financial source of LTC tax system, namely:
(1). Are the financial source adequacy?
(2). Will the tax revenues ensure that LTC service continuity?
(3). Can the administration of personnel and funds to be able to load?
(4). Can the tax system will made the financial crowding effect?
(5). Will the LTC tax revenue budget limited?
(6). Is necessary to promote LTC policy by added taxes?
3. Tax timing
It is necessary to consider the problem of appropriateness of timing if the government adopted the LTC tax system,
namely:
(1). The business in domestic economic was downturn, the housing market continued to deteriorate, is it
appropriate timing if increase to the business tax?
(2). The legacy tax are almost for the local governments, can the 10% legacy duty increasing could solve the
LTC tax source?
(3). The LTC financial sources may result in crowding effect under the poor economic situation.
(4). The domestic housing market is still in a period of recession, trading volume and price were fell, the real
estate taxes are relatively inadequate in 2016.
(5). Is it necessary to add tax to promote to the LTC policies? so the people need to consider the suitability of
tax timing.
4. The executive power of the Government
Whether the government adopt to the insurance or tax system in the LTC financial source, basically all have their
advantages and disadvantages, therefore, can the LTC policy go forward smoothly, not on the system itself, but
different in each country conditions, as well as the execution power by the Government's attitude and ability. According
to the foregoing analysis, is the LTC policy suitability? can the LTC tax system practice successful of the Government?
it depends primarily on the Government's appropriateness policy, as well as on the governance and implementation of
the policy.
VI. Results and Conclusions

According to the analysis and description of the foregoing, the results and conclusions of this study are as follows:
1. The number of disabled population in Taiwan accounted for more than one-fourth of the elderly population in
2015, For the domestic population aging was fast, how to make a good care system of the elderly and disabled
population depends on the Government's LTC policy. Government's LTC policy was build model of community,
universal, affordable long care service, so that the elderly are willing to support aging in place, and provide real-
time convenience of health care services. The LTC policy is not a political slogan only, Government must be
implement policies in order to support the aging and elderly people.
2. The LTC tax system is to use of the tax revenue of the financial source in order to achieve to the domestic purposes
of long-term care for the elderly. Public long care revenue was based on the increasing to the legacy tax 10%,
business tax 0.5%. However, it is necessary to consider those factors such as revenue sufficient, service continuity,
administration burden, financial crowding effect, budget constraints, and tax adding etc. , and how to ensure that the
LTC tax system practice popularity is the important factors to the Government.
3. There are many kind of methods to solve those problems in the LTC policy, but in the interests of political parties
under consideration the supremacy, the most important considerations may not be a national policy to promote ,
not the interests of the people, but only a political party's ideology of declarations. In addition, according to the
insurance and tax policy between the KMT and DPP, the different systems, and therefore the policy response were
different also, so the choice between the insurance and tax system is to achieve the policy objectives, and not in
response to political ideology.
4. According to the LTC policies in the major countries of the world, some of them was used insurance system, and
some of them adopted the tax system, which one is better, it depending on each country situation. Therefore,
whether the Government's LTC policy was suitability, it is necessary to consider the comprehensive of the tax
system, levying taxes is sufficient, and levy timing appropriateness. However, can the policy go forward smoothly,
it is not on the system itself, but different in national conditions, as well as the Government's attitude to the policy
and ability to the execution.
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References
Cheng Yen-Hui (2009). An evaluation on the long-term care insurance law of financial mechanisms and sources of
financing assessment. National Development Committee.
Council for Economic Planning and Development (2007). The evaluation on the demand of long-term care services in
Taiwan. The Executive Yuan.
Hsieh Ming-jui (2016). A study on the social change and the reverse mortgage policy in Taiwan. Seminar in Lin Kou
community, Taipei, Taiwan, May ,2016.
Hsin Ping-lung (2004). A Study on the peoples issues of long-term care service in Taiwan. the Ministry of the Interior.
Li Yuchun (2013). The long-term care insurance planning and prospects in Taiwan. Social Welfare Foundation-
Foundation of Chinese Culture.
Wu Shujohn(1998). A Study on the long-term care policies with social welfare system in Taiwan, Research and
Development Expenditure Credit (RDEC), the Executive.
Yuan. Chen Huizi (2005). The development planning of long-term care resources. Report of the Ministry of Interior.
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CAN DARK TRIAD MEDIATE ENTREPRENEURIAL ATTITUDE ORIENTATION

TOWARD ENTREPRENEURIAL INTENTION?
Alaleh Dadvari1), Ben-Roy Do2)
Department of Business Administration, National Central University, Taiwan

2)
benroydo@gmail.com
Abstract
The importance of factors influencing individual towards entrepreneurship motivates this research to investigate the
role of dark triad (DT) on the relationship between entrepreneurial attitude orientation (EAO) and individual
entrepreneurial intentions (EI). Entrepreneurial attitude orientation refers to an individual’s attitude to start a new
venture, such as innovativeness, risk taking, need for achievement, self-confidence, and locus of control these elements
have been found to predict entrepreneurial inclinations and entrepreneurial intentions are reliable predictors of
entrepreneurial action (Krueger, Reilly, & Carsrud, 2000). While prior research has established the link from
entrepreneurial attitude orientation towards entrepreneurial intention, there is a limited understanding of the individual
difference factors that lead an individual to become an entrepreneur. Dark triad, a set of personality characteristics
that includes narcissism, psychopathy, and Machiavellianism, has been found to predict personal and organizational
achievement. Given that dark triad has a positive convincing role on entrepreneur’s innovation as the new generation
of entrepreneurs are more likely to be self-reliant and loyal toward themselves, it is of particular interest to examine
how dark triad influence the relationship between EAO and EI. A critical question is whether individuals scoring high
on DT are more entrepreneurially inclined. Exploring the role of DT can contribute to entrepreneurial value creation.
A total of 295 college students in Taiwan participated in this study. A positive significant relationship between dark
triad and entrepreneurial intentions suggests that individuals with high dark triad are more intended to engage in
entrepreneurial activity. Structural equation modeling analysis provides support for the hypothesis that student’s dark
triad partially mediate the positive effect of entrepreneurial attitude orientation toward entrepreneurial intention.
Managerial implications, limitations, and directions for future research were discussed.
Keywords: Entrepreneurial Attitude Orientation, Entrepreneurial Intention, Dark Triad
Introduction
Starting up a new business is an individual decision, and individual’s attitude is at the central in defining
entrepreneurial activities (Begley & Boyd, 1988; Chye Koh, 1996). Entrepreneurial attitude orientation refers to an
individual’s attitude to start a new venture, such as innovativeness, risk taking, need for achievement, self-confidence,
and locus of control (Robinson, Stimpson, Huefner, & Hunt, 1991). These elements have been found to predict
entrepreneurial inclinations (Kollmann, Christofor, & Kuckertz, 2007), and entrepreneurial intention is a reliable
predictor of entrepreneurial action (Covin & Wales, 2011; Rauch & Frese, 2007; Rauch, Wiklund, Lumpkin, & Frese,
2009). Although previous research has addressed intentions as a mediator of attitude toward act , emerging evidence
suggests that personality characteristics may play a somewhat larger role in the origins of entrepreneurial success
(Gürol & Atsan, 2006). While prior research has established the link from entrepreneurial attitude orientation towards
entrepreneurial intention, understanding the factors that influence individual’s attitude to become an entrepreneur has
remained unclear (Zhao, Seibert, & Hills, 2005).
It has been argued that during the start-up phase, the major characteristics an entrepreneur must have include
innovativeness, ability to risk more, and strong will to act (Littunen, 2000). In this respect, some psychological research
have focused on the potential benefits of the dark triad (Brunell et al., 2008), a set of personality characteristics that
includes narcissism, psychopathy, and Machiavellianism (Jonason & Webster, 2010). Dark triad plays a positive
convincing role on entrepreneur innovation and intention for achievement (Kramer, Cesinger, Schwarzinger, & Gelléri,
2011), as well as personal success (O'Boyle Jr, Forsyth, Banks, & McDaniel, 2012) and organizational achievement
(Wisse, Barelds, & Rietzschel, 2015). However, some other research resulted in dysfunctional work and individual
behavior (Goldman, Van Fleet, & Griffin, 2006). There seems to be no clear source of evidence on the potential role of
dark triad and entrepreneurial intentions. Given that dark triad may have effective consequences on individual’s
entrepreneurial intentions, it would be important to explore how dark triad influence the relationship between
entrepreneurial attitude orientation and entrepreneurial intention.
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Theoretical background
Entrepreneurial intention is defined as an attentive state of mind that directs personal attention and experience
toward planed entrepreneurial behavior. As the decision to become an entrepreneur is considered voluntary and
conscious (Krueger et al., 2000), it is sensible to analyze how that decision is taken. A growing body of literature exists
that suggests entrepreneurial action follows the formation of entrepreneurial intention (Douglas, 2013; Zhang, Duysters,
& Cloodt, 2014). In this sense, entrepreneurial intention would be a determinant element towards performing
entrepreneurial actions (Liñán, Rodríguez-Cohard, & Rueda-Cantuche, 2011). In other words, entrepreneurial intention
is the potent predictor of entrepreneurial activity in individuals who intend to set up a new business in the future
(Obschonka, Silbereisen, & Schmitt-Rodermund, 2010).
However, personal characteristic has also been found to be an important predictor of entrepreneurial intention (Crant,
1996). Based on the theory of planned behavior (Ajzen, 1991), as intention predicts behavior, certain specific attitude
predicts and affects intention. Such behavioral intention results from attitude and becomes a determinant of behavior
(Vesalainen & Pihkala, 1999). We proposed that entrepreneurial attitude orientation is a possible predictor of
entrepreneurial intention. Entrepreneurial attitude is considered a better approach to describe entrepreneurs than other
characteristic or demographic variable, thus attitude would measure the extent to which individual positively or
negatively inclined to something (Liñán, 2004). Based on the body of research on personality and entrepreneurship,
entrepreneurial attitude orientation contains four constructs that are highlighted in entrepreneurs (Rauch et al., 2009).
Entrepreneurial attitude orientation such as innovativeness and risk taking indicates an individual’s intention towards
innovation and propensity towards risk (Robinson, Stimpson, Huefner, & Hunt, 1991). Need for achievement refers to
an individual’s interest in attempting to accomplish the goals (Kollmann, Christofor, & Kuckertz, 2007). Self-
confidence is related to an individual’s tolerance for ambiguity (Shariff & Saud, 2009). Finally, locus of control
explains an individual’s perception about life events that is related to the generalized expectation of a person on whether
he/she will be able to control the events in his/her life (Leone & Burns, 2000). Entrepreneurial attitude orientation is
studied as an independent variable consequently entrepreneurial intention is described as an outcome variable.
Therefore, it is proposed that:
H1: Entrepreneurial attitude orientation will be positively related to entrepreneurial intention.
The dark triad describes a cluster of three undesirable and interpersonally problematic behavior styles:
Machiavellianism, psychopathy, and narcissism (Paulhus & Williams, 2002). Although some researchers refer the dark
triad as a singular trait (e.g., psychopathy), others conceptualize it as composed of multiple attributes (Wu & Lebreton,
2011). The dark triad is regarded as short term, self-serving, explosive social strategies that correlates positively with
the use of manipulative behaviors (Jonason & Webster, 2010). For instance, Machiavellians are highly result orientated
and merely determined to pursue their goals (Zettler, Friedrich, & Hilbig, 2011). Narcissistic executives are good at
creating and seizing opportunities, and psychopaths may achieve high social status as being recognized as intelligent,
charismatic, and more effective leaders (Brunell et al., 2008). As intention do not transform immediately to action, the
dark triad may serve as a motivational factor may affect the decision process(Carsrud & Brännback, 2011). Therefore, it
is proposed that:
H2: Entrepreneurial attitude orientation will be positively related to dark triad.
The dark triad may also act as a motivational factor to inspire an individual’s entrepreneurial intention. For instance,
prior research suggest narcissism and psychopathy are positively related to entrepreneurial intention (Mathieu & St-Jean,
2013), and a few studies have found a positive, moderate correlation between successful entrepreneurs and psychopathy
(Akhtar, Ahmetoglu, & Chamorro-Premuzic, 2013; Babiak, 2007; Stevens, Deuling, & Armenakis, 2012). In other
words, besides clinically undesirable, the dark triad may be helpful in securing a successful career. The hypothesized
model is shown in Figure 1, and it is proposed that:
H3: Dark triad will be positively related to entrepreneurial intention.
H4: Dark triad mediates the relationship between entrepreneurial attitude orientation on entrepreneurial intention.
Entrepreneurial Attitude H1 (+) Entrepreneurial

Orientation Intention
H2 H3 (+)
(+) Dark Triad
Machiavellian Psychopathy Narcissism
Figure 1. Hypothesized model.
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Methods
Participants were 295 undergraduate students taking business administration related courses in a large public
university in Taiwan. About half of them were business majors, where most of them will seek employment after
graduation, engage in entrepreneurial activities, or attend graduate school. After removing 5 invalid responses, most
participants were female (62.4%), with average age of 20.73 years old (SD = 2.39). A Survey based methodology was
used through a self-administered questionnaire by researchers.
Entrepreneurial Intention (EI) was developed and validated by Linan and Chen (2011), with 6 items asking
participants about their intention to become an entrepreneur. Entrepreneurial Attitude Orientation (EAO) was assessed
using a 27- item scale created by Robinson et al. (1991).Dark triad was assessed using Short Dark Triad (SD3) scale
developed by Jones and Paulhus (2013), with 27 items measuring,Machiavellianism, psychopathy, and narcissism.
Respondents were asked to indicate the extent to which they agreed or disagreed with each statement using a 5-point
Likert scale, ranging from 1 (strongly disagree) to 5 (strongly agree).
Table 1. Mean, Standard deviation, and correlation of study variable

Reliabilit
Variable M SD 1 2 3 4 5
y
1. Entrepreneurial Attitude Orientation (EAO) .87 3.71 .49
.24*
2. Dark triad (DT) .78 3.09 .35
*
.22* .78*
3.Machiavellianism .77 3.12 .35
* *
.17* .87* .58*
4. Psychopathy .68 3.14 .48
* * *
.21* .86* .46* .63*
5. Narcissism .71 3.02 .40
* * * *
.51* .21* .19* .21*
6. Entrepreneurial Intention (EI) .92 3.25 .79 .13*
* * * *
Note. N = 290. * p< .05. ** p< .01.
Results
Descriptive statistics and correlations are presented in Table 1. Convergent validity and discriminant validity were
satisfactory as shown in Table 2. Structural equation modeling (SEM) using maximum likelihood estimation in AMOS
22.0 was employed. To evaluate the model fit, Chi-square statistic(χ²), χ²/dfratio, root mean square error approximation
(RMSEA), comparative fit index (CFI) were used (Shook, Ketchen, Hult, & Kacmar, 2004). The significance of the
mediating effect was tested using the bootstrap estimation procedure.
Table 2. Reliability, convergent validity and discriminative validity.

Variable CR AVE MSV ASV
1. Entrepreneurial Attitude Orientation (EAO) .77 .53 .34 .22
2. Dark triad (DT) .80 .57 .10 .06
3. Entrepreneurial Intention (EI) .92 .79 .34 .18
Model fit statistics of χ² = 8.999 (df = 4), CMNI/DF = 2.250, CFI = .986, RMSEA = .066, and NFI=.975 suggested a
significantly adequate and sufficient fit to the data. In the absence of mediator, the total direct path coefficient from
EAO to EI was significant, and H1 was supported (β = .709, z = 8.427, p < .001). With regards to EAO and DT, the
path coefficient was also significant, and H2 was supported (β = .170, z =3 .821, p < .001). Finally, the relationship
between DT and EI was found, and H3 was supported (β= .339, z = 2.431, p < .001). The result of hypothesis testing is
shown in Table 3.
Table 3. Hypothesis testing results
Construct path Construct Estimate S.E. C.R. P Result

EI <--- EAO .709 .074 8.427 .001 Significant
DT <--- EAO .170 .045 3.821 .001 Significant
EI <--- EAO .651 .087 7.522 .001 Significant
EI <--- DT .339 .139 2.431 .015 Significant
The significance of the mediating effect of dark triad was tested using 2000 bootstrap samples. The unstandardized
path coefficient along with effect of DT and its associated 95% of confidence interval is displayed in Table 4. With the
presence of intervening variable DT, the direct path was still significant. Thus, the partial mediation was found, and H4
was supported. The mediating effect of DT is shown in Figure 2.
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Table 4.The results of bootstrapping in testing the mediator DT

Unstandardized direct effect Unstandardized indirect effect Unstandardized total effect
Path Estimate P-Value Path Estimate P-Value Path Estimate P-Value
EI<--EAO .651 .001 EI<--EAO .058 .001 EI<--EAO .709 0.001
DT<--EAO .170 .005 DT<--EAO DT<--EAO .170 0.005
EI<--DT .339 .024 EI<--DT EI<--DT .339 0.024
Discussion
The primary aim of the study was to examine whether an individual’s entrepreneurial attitude orientation is
influenced by dark triad toward entrepreneurial intention. As expected, dark triad functioned as a partial mediator.
While high entrepreneurial attitude orientationis correlated with dark triad, the supposedly “destructive personality”
actually facilitates entrepreneurial intention, and more likely to engage in entrepreneurial activity. In other words,
despite the stereotype of dark triad undesirability, we found positive functionality of dark triad as a factor to influence
an individual’s intentions e1
to start venturing and
subsequently resulting in EAO .65 EI
economic and social

implications. This is .17 e2
.34
contrary to common
believe that the dark side DT
of personality can be
severely destructive and .69 1.02 1.00
may have negative impact Mac Nar Psy

on social entrepreneurship
concepts (Akhtar et al., e3 e4 e5
2013).
Fig 2. The mediating effect of dark triad (unstandardized coefficients)
While prior research on dark triad considered the sub-dimensions as distinct (O'Boyle Jr, Forsyth, Banks, &
McDaniel, 2012), we found they are highly correlated, and may interact with one another to demonstrated a collective
effect on entrepreneurial intention. The combination of Machiavellianism, psychopathy, and narcissism indicates high
enthusiasm in entrepreneurship might not be due to sincere interest of individuals, but rather self-serving social
strategies (Kramer et al., 2011).
The current study has some limitations. The sample size can be larger to include students from more diverse
background. As the data was collected using self-report questionnaire, common method variance may be of concern.
Given that dark triad seems to contradict with honesty and self-awareness, further research should examine on
consequences beyong entrepreneurial intention, such as professionalconduct or ethics.
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Ben-Roy Do is an assistant professor in the Department of Business Administration at National Central University. He
received his Ph. D. in Industrial-Organizational Psychology from University of Illinois at Urbana-Champaign, with
minor in Quantitative Psychology and invited into honor society of Phi Kappa Phi and Psi Chi. His research interest
includes Organizational Behavior, Human Resource Management, Consumer Psychology, and Psychometrics.
Alaleh Dadvari is a doctoral student in the Department of Business Administration at National Central University. Her
research interest includes Organizational Behavior, Human Resource Management, Consumer Psychology,
Psychometrics.
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PERCEPTION OF PARENTS AS STAKEHOLDERS ON TRIMESTRAL SYSTEM AT

DE LA SALLE LIPA
Lanie M. Santos
De La Salle Lipa, Lipa City, Philippines
lanie.santos@dlsl.edu.ph
Abstract
Educational reform programs prompted situation analysis for consideration of change in educational system. This
study determined the perception of parents on trimestral system for De La Salle Lipa (DLSL) in the areas of
curriculum; class schedule; academic load; students’ comprehension; facilities; tuition and fees; fatigue; and lifestyle.
Data were analyzed using simple percentage, frequency distribution, mean, correlation, and hierarchical regression
analysis.
Summarily, parents agreed that the implementation of trimestral system will bring positive effects on curriculum,
schedule, academic load, students’ comprehension, facilities, and tuition and fees. However, moderate agreement was
expressed with regards to fatigue and lifestyle, implying that these areas seemed to be more affected with its
implementation. Further, results showed that they have moderate openness to change towards trimestral system. There
is evidence of significant and positive relationship between parents’ perception on trimestral system and their openness
to change towards trimestral system, which indicates the more positive the perception of the parents on trimestral
system is, the more open to change they will be. Further, analysis revealed that monthly family income does not
moderate the relationship between parents’ perception on trimestral system and their openness to change towards
trimestral system. Thorough dissemination of information and consultation to parents regarding trimestral system areas
are necessary to increase their openness to change.
Keywords: Trimestral System, Higher Education, Openness to Change, Change Management
Introduction
One of the inevitable things in this world is change. It is experienced in organizations as a somehow normal process.
Higher education institutions, being an organization, should deal actively with change because of their fundamental role
in the society. Faced with internal and external pressures from their environments, it is essential for them to respond and
implement necessary changes. There are numerous factors highlighting the need for universities to accept such change
proactively. According to Kezar and Eckel (2002) and Newton (2002, 2003) cited by By, Diefenbach, & Klarner
(2008), lack of funding; changing funding criteria; increasing student numbers; higher student-staff ratios; growing
competition; new teaching and learning practices including new mechanisms and modes of delivery; changing student
profiles; and new technologies were some of these factors.
With ASEAN 2015, the compelling call for quality education is even more pressing (IIEE, nd). Educational reform
programs with regard to K to 12 implementation resulted to additional years in education. DLSL is one of the schools
in CALABARZON that offers senior high school, which involves additional two years of education in high school. This
may mean extended years in college. It is currently using the semestral system of education. This study attempted to
explore trimestral system as the answer to the additional years in education in the Philippines. Further, Bautista,
Ordonez, and Sanyal (1992) stated that private institutions depend almost entirely on tuition income for revenues to
meet operating costs. Trimestral system can be considered as a possible solution to combat the lost revenue brought by
lack of enrolment in certain levels because of senior high school. These are some of the areas to look at when
considering changes in educational system. Analysis of the situation is very vital for this management consideration.
Hence, this study was pursued.
Such change in education system will affect several areas including curriculum, class schedule, academic load,
students’ comprehension, facilities, tuition and fees, fatigue and lifestyle. Unfortunately, change is not easy for many
people. With change comes stress and fear (Coch & French, 1948 cited by Edwards, 2003). Change is an effort that
consists of actual physical changes to procedures and various emotional stimulation (Bernerth, 2004 cited by Nasir,
Abbas, and Zafa, 2014) that is painful in the workplace, going from something certain and familiar to the otherwise
(Nasir, Abbas, and Zafa, 2014). According to Burnes (2004 cited by Nasir, Abbas, and Zafa, 2014), change
management refers to ‘the process of constantly renewing the direction, structure, and capabilities of an organization to
be able to serve the continually varying needs of external and internal customers. Thus, there is a need to conduct an
empirical study that would be one of the bases for implementing such change in the education system. However, these
changes in organizations always go with a range of reactions, which may come from different stakeholders.
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This paper focused on the parents, being considered as one of the most significant stakeholders in educational
institution. According to Bautista, Ordonez, and Sanyal (1992), the parents, who generally paid the tuition fees, had
always played an active role in university life. The parents, in general, did not really oppose the trimestral scheme but
they were only apprehensive about the vacation schedules of the trimestral calendar that did not synchronize with the
semestral schedules of their other children studying in non-La Salle schools. The adoption of the trimestral scheme is in
line with the ASEAN integration (The Furrows, 2015). The system is believed to help students focus better on their
subjects while at the same time enhancing their level of comprehension (Sy, 2012). The shorter academic duration
created challenged for innovation, enabling students to learn what they have to learn in order for them to finish their
courses, and eventually their degrees (Contreras, 2014). As beneficiary and provider of the services provided by the
institution, the researcher saw an opportunity to determine and describe the perception of the parents on trimestral
system for De La Salle Lipa College Department.
Hypotheses
The following hypotheses were tested in this study:
Ho1: Parents’ perception on trimestral system is not significantly related to their openness to change towards
trimestral system
Ho2: Monthly family income does not moderate the relationship between parents’ perception on
trimestral system and their openness to change towards trimestral system
Conceptual Frameworks
With the aim to improve the customer service of a retail chain, Edwards (2003) studied the relationship between
openness to change and the individual difference variables of cognitive ability, conscientiousness, openness to
experience, emotional stability, and customer service orientation, as well as contextual factors such as the quality of
information provided regarding the change immediately following a series o f interventions designed to improve
customer service. Results of the analyses of the study of Edwards (2003) indicate that the individual difference
variables of emotional stability and openness to experience and the contextual variables of management effectiveness in
leading the change and utility of the change-related information provided to the participant were related to openness to
change in the expected direction. The model is illustrated in Figure 1..
Figure 1. Openness to Change: Correlates and Organizational Consequences

Source: Edwards (2003)
Conversely, the study of Santos (2015) focused on the perception of students on the implementation of trimestral
system for DLSL. Summarily, respondents agreed that the implementation of trimestral system will bring positive
effects on curriculum, schedule, academic load, students’ comprehension, facilities, and tuition and fees. However,
moderate agreement was expressed with regards to fatigue and lifestyle, indicating that these areas seem to be more
affected with its implementation. She determined the relationship between profile and students’ perception on trimestral
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system for DLSL. Out of the 40 relationships tested, results revealed significant relationship between the following: a)
gender and students’ comprehension; and b) monthly family income and academic load. Other relationships were not
significant. This means that perception on curriculum, class schedule, facilities, tuition and fees, fatigue, and lifestyle is
independent of age, gender, civil status, college, and monthly income. Further, effect sizes of all relationships range
from 0.112 to 217, implying a small effect of profile to their perception on the areas. This is illustrated in Figure 2.
Operational Framework
While the study of Edwards (2003) focused on determining the factors of openness to change, this research will
initially explore the relationship of openness to change and the aspects of the trimestral system. Moreover, while
Santos’ 2015 study focused on students, this time the focus were the parents. Figure 4 suggests that the relationship
between perception on trimestral system and the openness to change by the parents towards trimestral systemmay differ
in strength at different levels of monthly income. The researcher examined the main effect and the interaction model.
Methods
This study employed a descriptive and correlational research design. Questionnaires were distributed to parents
through sophomore students who were enrolled in the institution during the 2nd semester of SY 2015 – 2016. Parents of
sophomore students were chosen since they have idea of the college experience of their children and may possibly be
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affected if in case changes in the educational system will take place. With effect size of 0.3, probability of 0.05 and
power of 0.95, the minimum sample size is 111 but the researcher was able to retrieve 134 questionnaires.
The researcher adapted the validated questionnaire utilized in the study initially conducted for students. It was
slightly modified to fit the target respondents. The questionnaire consists of four parts. A six – point scale was designed
to help respondents qualify their perception on the different aspects of trimestral system and their openness to change,
which were labeled as Strongly Agree (6), Agree (5), Moderately Agree (4), Moderately Disagree (3), Disagree (2),
and Strongly Disagree (1). Last part was used to determine the respondents’ comments, suggestions or recommendation
about the trimestral system. Conversely, the whole instrument passed reliability test with Cronbach’s alpha of 0.929
indicating high internal consistency. Descriptive statistics, Pearson correlation analysis, and hierarchical regression
analysis were performed in this study.
Results and Discussion

Results showed that most of the respondents were earning P50,001 and above (30.6%) while least were earning
P40,001 to P50,000 (9%) having slight difference with those earning P10,000 and below (10.4%).
Perception on trimestral system

Summarily, respondents agreed that the implementation of trimestral system will bring positive effects on
curriculum (M = 4.7866, SD = 0.80979), schedule (M = 4.6772, SD = 0.84450), academic load (M = 4.5609, SD =
0.84566), students’ comprehension (M = 4.7184, SD = 0.72957), facilities (M = 4.7624, SD = 0.90981), and tuition and
fees (M = 4.7239, SD = 1.07486). However, moderate agreement was expressed with regards to fatigue (M = 3.9423,
SD = 1.13529) and lifestyle (M = 4.4007, SD = 1.25683), implying that these areas seemed to be more affected with its
implementation. Overall, trimestral system was perceived positively (M = 4.7866, SD = 0.80979).
Openness to change by the parents towards trimestral system

Results showed that parents have moderate openness to change towards trimestral system (M = 4.0909, SD =
0.67719). Seemingly, few changes in the institution and communication with the parents would play a significant role in
determining their openness to such change in educational system.
Relationship between perception on trimestral system and openness to change

Specifically, the relationship between parents’ perception on trimestral system and their openness to change towards
trimestral system is positive and statistically significant (p < .001). In general, correlation is also positive and
statistically significant between trimestral system and openness to change (r = .509 p < .001). This indicates the more
positive the perception of the parents on trimestral system is, the more open to change they will be.
Moderating effect of monthly family income on the relationship between perception on trimestral system and
openness to change
Three models were tested to determine the moderating effect of monthly family income on the relationship between
parents’ perception on trimestral system and their openness to change towards trimestral system. In model 1, perception
on trimestral system was entered. The obtained beta (.509) indicates positive correlation revealing that parents who
reported higher monthly income also reported better perception of trimestral system. An R2 of .259 was reached. The
second step shows that the main effect of monthly income was entered next. Perception on trimestral system is still in
the equation. Model 2 shows that the new variable does not explain significant new variance in the openness to change.
In addition the beta for monthly income is not statistically significant. Its positive beta indicates that higher monthly
income is associated with more positive perception on trimestral system. This is referred to as a main effect for monthly
income. An R2 change of .007 was observed. And finally, in Model 3, it was found that the interaction term does not
significantly added new variance to the openness to change, having only an R2 change of .003. Therefore, monthly
income does not moderate the relationship between the perception of trimestral system and openness to change.
Conclusion and Recommendation

It was also discovered that generally (r = .509)and specifically (p-values < .001)parents’ perception on trimestral
system is significantly related to their openness to change towards trimestral system. Therefore, H o1 is not supported.
Further, such relationship is found to be positive, indicating that the more positive the perception of the parents on
trimestral system is, the more open to change they will be. Further, analysis revealed that monthly family income does
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not moderate the relationship between parents’ perception on trimestral system and their openness to change towards
trimestral system, therefore Ho2 is supported.
Of the eight areas of trimestral system, fatigue and lifestyle, which garnered moderate agreement, should be the
utmost concern of DLSL if they will consider implementing change of educational system. The school should think
more activities that will help the students to balance their studies. Further, proper orientation of students should be done
to prepare students on such change that will affect their lifestyle.
While there are so many compelling reasons for changes, analysis of the situation is very vital for this management
consideration. The school is further recommended to create a task force committee that may conduct review and
thorough planning about the said educational system.
References
Amador III, J. and Teodoro, J. (2014). A united region: The ASEAN Community 2015. Retrieved October 28, 2014,
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Barnett, R., Parry, G. and Coate, K. (2001). Conceptualising Curriculum Change. Teaching in Higher Education, 6 (4),
435-449
Bautista, O., Ordoñez, V. & Sanyal, B. (1992) Change from a semester to a trimester system at the De La Salle
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By, R.T., Diefenbach, T. & Klarner, P. (2008) Getting Organizational Change Right in Public Services: The Case of
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Contreras, A. (2014) Trimester vs semester and comparing universities: A fallacy . Retrieved August 8, 2015,
Availablehttp://www.gmanetwork.com/news/story/345551/opinion/trimester-vs-semester-and-comparing-
universities-a-fallacy
Edwards, W. R. (2003) Openness to Change: Correlates and Organizational Consequences (Dissertation) Retrieved
from ProQuest Dissertations & Theses database. (UMI Number: 3069301)
Hübner, M. (2012). Do tuition fees affect enrollment behavior? Evidence from a ‘natural experiment’ in Germany.
Economics of Education Review. 31 (6), 949–960
IIEE (n.d). K to 12 and the Higher Education Landscape: Benefits and Effects to the Philippine Educational System.
Retrieved October 28, 2014, Available: http://iiee.org.ph/wp-content/uploads/2013/12/K-to-12-and-the-Higher-
Education.pdf
Musa, M. F. and Ahmad@Baharum, Z. (2012). Higher Education Physical Assets and Facilities. Procedia - Social and
Behavioral Sciences, 50, 2012, 472-478.
Nasir, H., Abbas, A.F., Zafa, F. (2014). Four Factors to Influence Organization & Employee Commitment to Change
within Pakistan. International Journal of Information, Business and Management, 6 (4), 183 – 200.
Newton, J. (2002) Barriers to effective quality management and leadership: case study of two
academicdepartments, Higher Education, 44(2), pp. 185–212.
Newton, J. (2003) Implementing an institution-wide learning and teaching strategy: lessons in managing change,
Studies in Higher Education, 28(4), pp. 427–441.
Rahaman, S. (2016). ‘School fatigue’ causing more students to opt out of pursuing higher education. Retrieved
http://cphpost.dk/news/school-fatigue-causing-more-students-to-opt-out-of-pursuing-higher-education.html
Santos, L. (2015). Perception of Students as Stakeholders on Trimestral System at De La Salle Lipa.
Sy, M. (2012)Trimestral Scheme of the Regular Graduate Programs Implemented in an Institution of Higher
Learning. Procedia - Social and Behavioral Sciences 40, 128 – 133 doi:10.1016/j.sbspro.2012.03.171
Sy, M. and Castillo, A. (2012). Trimestral Scheme of the Regular Graduate Programs Implemented in an Institution of
Higher Learning. International Peer Reviewed Journal IAMURE: International Journal of Education, 1, 104 - 120
The Furrows (2015). Trimestral Calendar Adopted. Retrieved August 8, 2015,
Availablehttp://www.dlsau.edu.ph/furrows/The%20Furrows%20-%20May%202015.pdf
Yates, L. and Young, M. (2010). Globalisation, Knowledge, and the Curriculum. European Journal of
Education, 45 (1), pp 4 – 10. doi:10.1016/j.sbspro.2012.03.171
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TESTING THE EFFECTS OF WORKPLACE SPIRITUALITY AND ORGANIZATIONAL

CITIZENSHIP BEHAVIOR ON ORGANIZATIONAL HEALTH
Wilfreda D. Dimaano, DBA
De La Salle Lipa, Lipa City, Batangas, Philippines
winnied04@yahoo.com/wilfreda.dimaano@dlsl.edu.ph
Abstract
This study determined the level of Workplace Spirituality (WS), Organizational Citizenship Behavior (OCB) and
Organizational Health (OH) of De la Salle Lipa College full time faculty and staff. It was found out that the level of WS
and OCB of Lasallian respondents are above average, while OH is slightly above average. Relationship among WS,
OCB and OH were discovered and was found out that positive and significant relationship exists among WS and OCB;
WS and OH; OCB and OH.
The effects of WS and OCB on OH was looked into using linear regression and results revealed that organizational
citizenship behavior positively and significantly affects OH while workplace spirituality positively but not significantly
affects organizational health (p-value > 0.05). This means that the higher the WS and OCB, the higher the OH would
be. The proposed enhancement program has been formulated for consideration of the schools administration to further
improve the culture of spirituality, citizenship behavior and organizational health.
Keywords:Workplace Spirituality, Organizational Citizenship Behavior, Organizational Health
Introduction
An educational institution is often viewed as a social system where each member plays a vital role as in moving
toward meeting common institutional vision, mission, goals and objectives (VMGO). In today’s competitive world,
successful organizations are those whose employees perform duties beyond their formal contract. (Ali, U., Waqar, S.,
2013). New realities of organizational success are emerging with the changing times. Non tasks behaviors are one of
such significant factors for organizational survival such as workplace spirituality (WS), organizational commitment
(OC), organizational citizenship behavior (OCB) and organizational health (OH). A substantial body of scholarly
literature exists demonstrating workplace spirituality, organizational citizenship behavior and organizational health. It
was observed that very few studies dwelt on organizational health; however, not much paper has been done or little was
known about the relationship between and among organizational spirituality, citizenship behavior and organizational
health (Ahmad &Omar, 2015; Crossman, 2015; Hassanreza, 2010; Guo & Shuo, 2013). Furthermore, unlike the
previous view regarding the spirituality and management as incompatible, the present view was changed whereby both
factors were seen as linked; and researchers as well as practitioners now realized that workplace spirituality shows
promise as a significant new management paradigm (James et al., 2011; Giegle, 2012). Little was known in the study of
the said constructs in a private Higher Education Institutions (HEIs) in the Philippines. Hence, a research gap was
established.
The focus of this study is De La Salle Lipa (DLSL) in Lipa City, Batangas. The following research objectives and
hypotheses were pursued in this paper: (1) To determine the level of WS, OCB and OH as self-assessed by the college
faculty and staff. (2) To investigate there is any significant relationship among WS, OCB and OH. (Ho1) (3) To
determine if OCB and WS significantly affects OH (Ho2).
This paper was conceptually based on the study of (a) Petchsawanga and Duchon (2012), in their paper entitled
“Workplace Spirituality, Meditation and Work performance” for organizational spirituality (b) Shih Yung Chou and
John Pearson (2011) in their paper entitled “ A Demographic Study of Information Technology Professionals’
Organizational Citizenship for OCB and (c) Hong, Law & Toner (2014) in their paper entitled “Organizational Health :
A study of a Malaysian Private Higher Learning Institution” for OH.
As a contribution to the body of knowledge, combining the three concepts in this paper is necessary to determine the
effects of the different organizational outcomes to organizational health.
Methods
Descriptive design was utilized in this study. Total enumeration with an allowance for un-retrieved data was
analyzed using descriptive statistics and the Pearson Product moment correlation. Further, linear regression analysis
was utilized in determining the effects of OCB and WS on OH.
The study was conducted at De La Salle Lipa College, Lipa City, Batangas, Philippines. A total of 172 Full-time
college faculty and staff of De la Salle Lipa during the school year of 2015 – 2016 were the respondents of the study.
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The instrument which was deemed to be of sufficient reliability and was utilized in gathering the required data is a
combined questionnaire which was be adapted from the above mentioned papers. The questionnaire consists of four
parts. First part is about the profile of the Lasallian faculty and staff in terms of age, gender, civil status, and years of
service. The second part pertains to the 22 questions that revealed the employees’ level of WS. The third part pertains to
the 23 questions on OCB. Finally the fourth part pertains to the 23 questions on OH. The instrument was validated by
experts and was found to be valid and reliable given a combined cronbach alpha of .928 (WS = .895; OC = .772; OCB
=.890: OH =.862) after a pilot survey for 25 respondents was done. In order to measure WS, OC, OCB and OH, the
scoring method was designed based on a 4 point Likert scale (strongly disagreed 1 to strongly agreed 4) for WS, OC,
and OCB while OH (1 rarely occurs and 4 always occurs). Pearson product moment correlation coefficient was used to
measure the strength of the linear association between WS and OH, WS and OCB and OCB and OH. The effect of OCB
and WS and OH was looked into using multiple linear regression.

Level of Workplace Spirituality in terms of Compassion
Results revealed an overall above average level of workplace spirituality in terms of compassion with a composite
mean result of 3.35. This means that respondents have an above average level of sense of awareness, sympathy, and
concern for other members of the Lasallian community. All of the statements pertaining to the compassion dimension
were rated above average as, being aware and sympathizes with others (W.M. = 3.44), trying to help co-workers relieve
their sufferings (W.M. = 3.39), easily putting themselves on other’ shoes (W.M. = 3.32) and being aware of co-workers
needs (W.M. = 3.27). Results revealed that respondents are spiritual persons where their awareness of the needs and
desire to help other members in the Lasallian community is very much present among them. Being compassionate is an
indication that respondents have an above average concern on the people around them and that they consider De la Salle
community, as a place where love, caring and concern for each other is felt.
Level of Workplace Spirituality in terms of Mindfulness
Responses of the college full time administrators/faculty and staff, revealed an above average workplace spirituality
in terms of mindfulness dimension with a composite mean result of 3.14. All the statements pertaining to mindfulness
dimension were rated above average (W.M. = 3.37) as rushing through work activities without being really attentive to
them; working automatically without much awareness of what they are doing (W.M. = 2.67); going to places on
automatic pilot and then wonder why they went there (W.M. = 3.28); tendency not to break or spill things because of
carelessness, not paying attention or thinking of something else (W.M.= 3.24); finding themselves working by paying
attention (W.M. = 2.99). and working automatically without being aware of what I am doing (W.M.= 2.67).
Level of Workplace Spirituality in terms of Meaningful Work
Level of workplace spirituality in terms of meaningful work was found to be Above Average with the resulting
composite mean of 3.33. All of the statements pertaining to meaningful work dimension were rated above average as,
the work they do is connected to what they think is important in life (W.M. = 3.44), experiencing joy in the work they
are doing (W.M. = 3.38); understanding what gives their work personal meaning (W.M. = 3.35); seeing the connection
between work and the larger social good of the community (W.M. = 3.36); believing others experience joy as a result of
their work (W.M.= 3.27) and their spirit is energized by their work (W.M. = 3.27) and looking forward to coming to
school most days (W.M. = 3.26).
Above result shows that generally, respondents found meaningful work at De la Salle Lipa. This is highly evident
among the respondent in the teaching profession.
Level of Workplace Spirituality in terms of Transcendence
Responses of the Lasallian college full time faculty and staff in Calabarzon revealed an above average workplace
spirituality in terms of transcendence with a composite mean result of 3.03. Statements pertaining to transcendence
dimension were rated above average as, experience of an energy or vitality at work that is difficult to describe (W.M. =
3.18); experience of happiness at work (W.M.= 3.31); experience of at work where everything is blissful (W.M. =
3.14); experience of complete joy and ecstasy (W.M. = 3.12). On the other hand, transcendence dimension was rated
average as having moments at work which they have sense of time and space (W.M. = 2.38). This means that Lasallian
full time faculty and staff have an above average level of spirituality in terms of transcendence, a sense of connection to
higher power. Lasallians feel a more positive state of energy or vitality, a sense of transcendence and experience of joy,
peace and bliss (Gatling, A., 2015; Sikkink, D. 2012).
Level of Organizational Citizenship Behavior in terms of Altruism
Responses of the college full time faculty and staff revealed that their level of organizational citizenship behavior in
terms of altruism is above average with composite mean result of 3.13. All of the statements pertaining to OCB-
altruism were rated above average as; they helped others with a heavy workloads (W.M. = 3.21); they are always
willing to give their own time to help others with work problems (W.M. = 3.19) and Lasallian are willing to help others
who had been absent (W.M. = 3.00).
This situation is evident when Lasallian faculty and staff are very much willing to accept extra loads when their
department chairs asked them to. Likewise, they are willing to share their time when committee tasks need to be
accomplished. These are not paid and does not form part of the regular workload as mentioned by a department chair
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who was interviewed. Lasallian faculty and staff helped newly hired co-workers in many ways as affirmed by a newly
hired faculty member.
Level of Organizational Citizenship Behavior in terms of Courtesy
terms of courtesy is above average with composite mean result of 3.27. All of the statements pertaining to OCB-
courtesy were rated above average as; Lasallian full time faculty and staff they made sure that they do not abuse the
rights of others (W.M.= 3.41); always try to avoid creating problems for co-workers (W.M.= 3.34); they are generally
mindful of how their behaviour affects other people’s job (W.M.= 3.24), they take steps to prevent problems with other
co-workers (W.M.= 3.15); they also make sure that they touch base with others before initiating an action (W.M.=
3.17).
Above results means that Lasallian full time faculty and staff are courteous. They are mindful of their co-workers
and ensures that a good working relationship is always present. According to an interview conducted among faculty and
staff, they observed that administrators of De la Salle Lipa do not abuse their power and authority in delivering their
respective functions.
Level of Organizational Citizenship Behavior in terms of Sportsmanship
terms of sportsmanship is above average with composite mean result of 2.76. Statements pertaining to OCB-
sportsmanship were rated above average as; they spend a lot of time complaining about trivial matters ( 3.11) ; they do
not make mountains out of molehills (W.M.= 2.89); they are not the classic “ squeaky wheel “ that always need
greasing (W.M.= 2.88); (reversely encoded) they expressed resentments with the organization that they are working for
(W.M.= 2.66); they do not find fault with what the organization is doing (W.M.= 2.58) and not focusing on what is
wrong with the situation (W.M.= 2.45). On the other hand an average result for the statement: I do not focus on what is
wrong with my own situation (W.M. = 2.45) was arrived at. Result above confirms what a Lasallian faculty said that
they are busy doing so many things and there is no more time for them to complain. Most cases that they find issues and
concerns are with the HRD.
Level of Organizational Citizenship Behavior in terms of Consciousness
terms of consciousness is above average with composite mean result of 3.19. All statements pertaining to OCB-
consciousness were rated above average as; Lasallian faculty and staff obey the rules and regulations of the organization
even when no one is watching (W.M. = 3.35); their attendance at work is above norm (W.M. = 3.26); they do not take
extra breaks (W.M. = 3.17); they do not take unnecessary time off work (W.M.= 3.15) and that they never take too long
lunches or break (W.M. = 3.09). This kind of behavior is expected of a faculty and staff of any school. Being teachers,
they were able to set a good example to their co-workers and students. Often times you would see the faculty and staff
in their offices, if not studying or preparing lessons, they have consultations with the students. Other notable
observation too is that generally, Lasallian faculty and staff do not look at their watches. They just resent the idea of
deductions made by HRD when they are late due to traffic or any domestic concern.
Level of Organizational Citizenship Behavior in terms of Civic Virtue
terms of civic virtue is above average with composite mean result of 3.29. All statements pertaining to OCB- civic
virtue were rated above average as; they generally attend and participate in meeting (W.M. = 3.41); they read and keep
up with organization’s announcements and memos (W.M. = 3.32); they keeping abreast with the changes in the
organization (W.M. = 3.26); and they attend functions that are not required but help the organizations image (W.M. =
3.18).
Level of Organizational Health in terms of Institutional Integrity
Responses of the college full time faculty and staff, revealed an average level of organizational health in terms of
institutional integrity with a composite mean result of 2.53. Only statement pertaining to the college/university is open
to the ever changing demand of the public was rated above average with weighted mean of 3.02. Statements pertaining
to institutional integrity were rated average as: this college/university is vulnerable to outside pressures (W.M. = 2.41);
faculty are protected from unreasonable community and parental demands (W.M. = 2.48); and a few vocal parents can
change school policy (W.M. = 2.22)
Level of Organizational Health in terms of Upper Management Influence
Responses of the college full time faculty and staff, revealed an average level of organizational health in terms of
upper management influence with a composite mean result of 2.54. Only statement pertaining to the faculty and staff
are able to work well with their administrators was rated above average with weighted mean of 2.80. Statements
pertaining to upper management influence were rated average as: the upper management get what they ask from their
superiors (W.M. = 2.15); and the upper management area able to influence the actions of their superiors (W.M. = 2.32).
Level of Organizational Health in terms of Resource Support
Responses of the college full time faculty and staff, revealed an above average level of organizational health in terms
of resource support with a composite mean result of 2.81. All of the statements pertaining resource support were rated
above average as: faculty have access to needed instructional materials and equipment (W.M. = 2.95); supplementary
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materials were made available for classroom use (W.M. = 2.75); and faculty are provided with adequate materials for
their classrooms (W.M. = 2.73).
Level of Organizational Health in terms of Academic Emphasis
Responses of the college full time faculty and staff of the De la Salle Lipa, revealed an above average level of
organizational health in terms of academic emphasis with a composite mean result of 3.16.
All of the statements pertaining academic emphasis were rated above average as: the faculty in the institution
believed that their students had the ability to achieve academically (W.M.= 3.28); this college sets high academic
standards for academic performance (W.M.= 3.23), and academic achievement was recognized and acknowledged by
the college (W.M.= 2.97).
It is good to note that at De la Salle Lipa academic emphasis is of great importance. Several programs and activities
were undertaken by the school administrations to enhance quality education. The strategic plans of each schools proves
emphasis on academics. Accreditations being pursued were likewise examples of the school thrust to academic
excellence. The mission of De la Salle Lipa which states that “To be a sign of faith as an excellent educational
institution, sharing in the Lasallian mission of teaching minds, touching hearts and transforming life (DLSL
Mission/Vision statement)“ is just a proof that the direction is of academic emphasis.
Level of Organizational Health in terms of Consideration
Results revealed an above average level of organizational health in terms of consideration with a composite mean
result of 2.47. Statements pertaining consideration were rated above average as: administrators look out for the personal
welfare of the faculty and staff (W.M.= 2.47), and that administrators often put suggestions made by the faculty and
staff into operation (W.M.= 2.53). On the other hand, statements pertaining to consideration were rated average as:
faculty concerns are sometimes given serious consideration (W.M. = 2.39) and administrators treat them as equals
(W.M. = 2.50).
Level of Organizational Health in terms of Initiating Structure
Results revealed an above average level of organizational health in terms of initiating structure with a composite
mean result of 2.70. All statements pertaining to initiating structure were rated above average as: the administrators
schedule the work to be done (W.M. = 2.73) and the administrators maintain definite standards of performance (W.M. =
2.66). As per interview with some of the staff, it was found out that the administrators asked them to follow rules and
regulations which are clear and doable. Clear output are expected and within a time frame. Examples are schedules of
exams, deadlines of grades etc. Administrators also made their attitudes clear to the faculty and staff below them.
Faculty also mentioned that they know what was expected of them and are directed to maintain definite standards of
performance. There are some respondents who felt that these initiating structure activities only occurred occasionally
among their administrators.
Level of Organizational Health in terms of Morale
Results revealed an above average level of organizational health in terms of morale with a composite mean result of
2.77. All statements pertaining to morale were rated above average as; faculty and staff often identify with the
college/university where they belong (W.M. = 2.90); they accomplished their jobs with enthusiasm (W.M. = 2.89);
there is a feeling of trust and confidence among each other (W.M. = 2.71) and their morale is high (W.M. = 2.65).
Overall Level of Organizational Health
Results revealed a slightly above average level of organizational health (C.M. = 2.72).
Dimension pertaining to organizational health were rated slightly above average as; academic emphasis (W.M. = 3.15);
morale (W.M. = 2.84); resource support (W.M. = 2.83); initiating structure (W.M. = 2.78);
Organizational health at De la Salle Lipa is considered to be higher than slightly above average. It is good to note
that as an educational institution that aims to provide quality education, organizational health must be given its top most
importance.
Relationship Between Workplace Spirituality, Organizational Citizenship Behavior and Organizational Health
Based from the result, all computed p-values under workplace spirituality, organizational citizenship behavior and
organizational health were all less than 0.05 alpha level, Thus, the null hypothesis of no significant relationship between
the treated variables is rejected. This only means that there is a relationship and implies that the more that they are
spiritually motivated in their workplace, the higher is their organizational citizenship behavior and the organizational
health.
Effect of Organizational Citizenship Behavior and Workplace Spirituality and Organizational Health
Model B Coefficients p-value Interpretation
Constant 1.425
Organizational Citizenship .405 .000 Significant
Behavior
Workplace Spirituality .226 .069 Not Significant
R2 = .283
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Above table shows the effects of Organizational citizenship behavior and workplace spirituality on organizational
health. Result shows that organizational citizenship behavior and workplace spirituality positively affects the level of
organizational health. OCB is significant at .000 level and WS is not significant at .069.
Recommendations
For Human Resource Department. Workplace spiritualty (mindfulness and transcendence) maybe improved in terms
of seminar / re-orientation to be spearheaded by the HRD which is related on Work focus and Job description (JD)
among faculty, staff and administrators. For Research and Planning Office. Organizational citizenship behavior
focused on sportsmanship, that an effective service quality and feedback system maybe design for the planning office to
continuously improve the services of the college/university. For Linkage Office. LaSalian schools organizational
Health (especially institutional integrity) may be improved through linkage with industry partners through MOA and
collaborations. The proposed enhancement program may be tabled for discussion and for consideration, implementation
and subsequent review. For future research. The study can be widen by considering in the future other organizational
measures.
References
Ahmad, A., & Omar, Z. (2015). Improving organizational citizenship behavior through spirituality and work
engagement. American Journal of Applied Sciences, 12(3), 200-207. Retrieved from
http://search.proquest.com/docview/1686762230?accountid=28547 July 08, 2015
Ali, U., Waqar, S. (2013). Teachers’ Organizational Citizenship Behavior Working Under Different Leadership Styles.
Pakistan Journal of Psychological Research, 2013, Vol. 28, No. 2, 297-316
Crossman, J. (2015). Eclecticism and commonality in employee constructions of spirituality. Journal of Management,
Spirituality & Religion, 12(1), 59. Retrieved from
http://search.proquest.com/docview/1663762007?accountid=28547
Geigle, D. (2012). Workplace Spirituality Empirical Research: A Literature Review. Business and Management Review
Vol.2 (10), 14-27 http://www.businessjournalz.org/bmr
Guo, G., & Zhou, X. (2013). Research on Organizational Citizenship Behavior, Trust and Customer Citizenship
Behavior. International Journal of Business and Management, 8(16), 86–90. doi:10.5539/ijbm.v8n16p86
Hassanreza, Z. ( 2010) Job satisfaction and organizational commitment as antecedents of Organizational Citizenship
Behavior (OCB) of Teachers.Procedia - Social and Behavioral Sciences, Volume 5, 2010, Pages 998–1003
Hong, K.S; Law S.L., & Toner A.M (2014) Organizational Health: A study of a Malaysia n Private Higher Learning
Institution. International Journal of Business and Society, Vol. 15 No. 2, 2014, 277 – 302
Pechawanga, P. & Duchon, D., (2012) Workplace Spirituality, Meditation, and Work Performance. Journal of
Management, Spirituality & Religion 9:2 (June 2012), pp. 189- 208; doi: 10.1080/14766086.2012.688623
About the Author

Wilfreda D. Dimaano, DBA, is the Graduate Program Chair of De la Salle Lipa, Lipa City, Batangas, Philippines. She
had been working with the same institution for 33 years as full time faculty member and was also able to handle various
administrative positions. She maintains a successful coaching and consulting practice for a number of privately held and
family owned enterprises. Her research interest is on organizational behavior and finance.
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CONSUMER BEHAVIOUR IN THE PURCHASE OF ENVIRONMENTALLY FRIENDLY

HERBAL PRODUCTS IN DENPASAR CITY
I Gusti Ayu Ketut Giantari1), Ni Nyoman Kerti Yasa2), Ni Wayan Ekawati3), I Putu Yudi Setiawan4), Gede Bayu
Rahanatha5)
Faculty of Economics and Business University of Udayana, Denpasar, Indonesia

1)
ayugiantari@unud.ac.id
Abstract
Environmental protection has received much attention in recent years; not only by the government for its legal
aspects, but also by producers in carrying out their businesses, and consumers who care about the environmental
issue. This study aims to examine and explore the influence of (1) consumer’ values, which consists of environmental
and health awareness; (2) attitude, perceived behavioral control, subjective norm and experience on consumer
behavior in purchasing herbal products which are environmentally friendly
This study population target was people in Denpasar, who had been purchased the herbal products at least two times
for the past six months. Therefore, the population number here is infinite. By using purposive sampling, we derived
sample size of 125 respondents. SEM based on partial least square employed in this study. We found that there is a
significant and positive correlation between health awareness variables and environmental awareness variables on
consumer behavior. Furthermore, perceived behavioral control, subjective norm, and experience are also obtained to
have significant and positive correlation on consumer behavior in purchasing environmentally friendly herbal
products. The result of this study can be considered by companies to construct various marketing strategies depending
on the target market. In further research, purchasing power variable might also be taken into account as moderator
which could strengthen the behavior to purchase environmental friendly herbal products.
Keywords: Consumer Behavior, Subjective Norm, Experience
Introduction
Nowadays, rapid growth of demand for herbal/organic product is happening along with increase in sales. This
condition occurs as a result from marketing strategy that is focused on consumer behavior. Without a deep
understanding of consumer behavior for the herbal / organic product, it is very difficult to formulate effective marketing
strategies. In addition, although there is many research on consumer attitudes and purchasing behavior of green/herbal
products (Chen, 2007), this study will be focused on the behavior of consumers in making purchasing decisions of
herbal and environmentally friendly products in Denpasar.
Based on argument above, the purpose of this research is to study the effect of 1) consumers value that consist of the
environmental awareness and health awareness to their behavior 2) attitudes, perceived behavioral control, subjective
norms and experiences to consumer behavior in buying herbal/ environmentally friendly products.
Literature Review
Green marketing is defined as a way to improve the company's business through environmentally friendly activities
(Polonsky, 1994). Nowadays there is a tendency that the consumers willing to pay more as attention to the
environmental efforts on the business activities and as a support to companies that excel in green marketing.
Green consumer is a consumer who is very supportive of business activities that are environmentally friendly. Green
consumers are also customers who are very concerned about how environmentally friendly products that they consume.
Green products are defined as products that are usually non-toxic, made from recycled materials, or at least the
packaging is recycled (Ottman, 1998). In general, green product known as ecological environment-friendly products or
products that have little impact on the environment.
Theory of Planned Behavior

Theory of Planned Behavior (TPB) describes the complex consumer behavior that requires perception behavior
control or the ability to behave (Ajzen & Fishbein, 1980). TPB structural diagram shown in Figure 1, which explains
that the intention of behaving (behavioral intention) is not only influenced by attitudes toward behavior (attitude
towards behavior) and subjective norm (subjective norm), but also influenced by the perceived behavior control
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(perceived behavioral control).TPB structural diagram shown in Figure 1, which explains that the intention of behaving
(behavioral intention) is not only influenced by attitudes toward behavior (attitude towards behavior) and subjective
norm (subjective norm), but also influenced by the perceived behavior control (perceived behavioral control). Perceived
behavioral control is influenced by past experience and person prediction regarding whether or not to perform certain
behaviors.
Source: Ajzen, 2005

Figure 1. Theory of Planned Behavior
Various definitions of "value" is exist in different contexts. In one example, the value is considered as "an overall
assessment of the product usefulness by consumer based on the perception of what is gained and what is given"
(Zeithaml, 1988, p 14), which focuses on consumer benefits or the value of using the product.
Attitudes toward the behavior refer to the personal evaluations that are favorable or unfavorable to perform the
behavior. According to Ajzen (1985), an individual is more likely to perform certain behaviors if he has a positive
attitude towards doing the behavior. A number of studies support the positive relationship between consumer attitudes
and behavioral intentions for green purchasing in different cultures, such as Asia, the United States, and Europe, and in
a different product category, such as organic food and wood-based products (Chan and Lau, 2000; Kalafatis et al.,
1999; Tarkiainen and Sundqvist 2005).
Person’s subjective norm is considered to reflect the social pressure to perform certain behaviors. If consumers
believe that other people think organic skin care products are good, consumers will have more intention to buy the
product significantly. Subjective norms significantly influence consumer intentions in the context of behaviors
associated with skin care (Hillhouse et al., 2000), and a strong relationship between subjective norms and intentions
have been shown in research on 'green' consumer behavior (Bamberg, 2002; Kalafatis et al., 1999).
Perceived behavioral control refers to the degree of control an individual who had behaved (Kang et al, 2006). The
higher levels of personal control were likely to reinforce the influence to engage in a particular behavior (Ajzen, 1991).
In particular, when people believe that they have more resources such as time, money, and control perception of their
high skills and therefore their behave intention is increased. Therefore, it is assumed that the intention to buy herbal
products is higher when consumers looked more control over the purchase of this product.
In connection with the study of the behavior in purchasing the green product (environmentally friendly), consumers
past experience with green products is "important in forming perceptions of specific products that will lead to the
intention to buy in the future", in its turn, consumers past experience affect the purchase or usage of the 'green' products
(D'Souza et al., 2006).
A number of studies have also been conducted on the consumer’s behavior for environmentally friendly products.
Including the use of variable values, belief/knowledge, needs and motivations, attitudes, and demographics that affect
consumer decision to purchase environmentally friendly products (Bui and Loyola, 2005). To date, there is very little
research conducted on green purchasing behavior of consumers (Tanner and Kast, 2003). Thus, it is important to
understand the green purchasing behavior, particularly in the context of the customer purchases in the city of Denpasar.
Figure 2, which explains research framework concepts.
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H1-H2 H3
Attitude Purchase Intention
Consumers Value
H4
Perceived
Behavioral Control
H5
Subjective Norms
H6
Experience
Figure 2. Research Framework Concepts.
Research method
Based on the existing problems, this research is a causality study. This research was conducted in Denpasar with
consideration that the per capita income of Denpasar Resident is quite high (2 nd highest after Badung) and the increasing
of concern for environmentally friendly product usage in the lifestyle of people in Denpasar. The populations in this
study are people in Denpasar with at least high school education and have never purchased or using herbal products
at least 2 times in the last six months. The indicator are 25 therefore the sample size are 125 people. This study uses
two kinds of analysis, the descriptive statistical analysis and quantitative techniques or inferential statistical analysis
methods that is being used in this research is variance Partial Least Square (PLS) based SEM analysis.
Results
This research uses seven latent variables that are variables of environmental awareness, health awareness, attitudes,
subjective norms, perceived behavioral control, experience and buying behavior with reflective indicator. The data
analysis results from examination of direct impact between research variables can be seen from the coefficients
on the diagram path and probabilities presented in Figure 3.
Figure 3. Path coefficient and direct impact hypothesis examination diagram
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Discussion
The influence of environmental awareness towards the attitude of purchasing eco-friendly herbal product
Based on the hypotesis result, it is known that environmental awareness has significant positive effect on the
attitude, therefore the hypothesis that stated ” the higher environmental awareness will improve the attitude of
consumers to purchase environmentally friendly herbal products” is proven. This also means that environmental
awareness could be use to explain the variation / change in consumer attitudes in buying environmentally friendly
herbal products in Denpasar. The results of this study is in accordance with Kim and Chung (2011) that stated
environmental awarenesshas significant influence on the attitude of purchasing environmentally friendly personal care
products in the US California. From the demographic characteristics,dominant respondents are adult women with an
average age 44.3 years, whereas this study dominant respondent were in the age range 27-38 years (60,40%).
The influence of health awareness towards the consumer attitude

Based on the hypotesis result, it is known that health awareness has significant positive effect on the
attitude,therefore the hypothesis that stated ”the higher health awareness will improve consumer attitudes towards
enviromental friendly herbal products” is proven. This also means that health consciousness could be use to explain the
variation / change in consumer attitudes in buying environmentally friendly herbal products in Denpasar. The results of
this study reinforce the study by Kim and Chung (2011) in which stated that health awareness which is the dimension of
customer value has significant positive effect on the attitudes of consumers towards environmental friendly personal
care products (Samphoo and lotion) in California United States.
The influence of attitude towards the purchase attitude of environmental friendly herbal products
Based on the hypothesis result it is known that the attitudes toward the product has significant positive effect on
purchasing behavior of enviromental friendly herbal products, therefore the hypothesis that stated ”the better the
attitude will be able to increase consumer behavior in buyingenvironmental friendly herbal products”is proven. This is
also means that the attitude could be use to explain the variation / changes in consumer behavior in buying
environmental friendly herbal products in Denpasar. The results of this study reinforce the Theory of Planned Behavior
(Ajzen, 1985), which stated that the attitudes affect the intention to behave.
The influence of perceived behavioral control towards purchasing attitude

Based on the hypothesis results it is known that the perceived control behavior has significant positive effect on
purchasing behavior,therefore the hypothesis that stated ”the higher perceivedcontrol behavior will be able to increase
consumer behavior in buying enviromental friendly herbal products. This also means that the perceived control
behavior could be use to explain the variation / changes in consumer behavior in buying environmental friendly herbal
products in Denpasar. The results of this study reinforce the Theory of Planned Behavior (Ajzen, 1991), which stated
that perceived behavioral control has effect on consumer behavior. The results of this study also supports previous
research studies which stated that the perceived behavioral control has effect on their behavior (Chen, 2007; Kang et
al.,2006).
Subjective norm influence towards purchasing attitude

Based on the hypothesis results it is known that the subjective norm has significant positive effect on purchasing
behavior, therefore the hypothesis that stated ”the higher subjective norm will be able to increase consumer behavior in
buying environmental friendly herbal products” is proven. This also means that subjective norms could be use to
explain the variation / changes in consumer behavior in buying environmental friendly herbal products in Denpasar. The
results of this study reinforce the Theory of Planned Behavior (Azjen, 1985) which stated that the subjective norms has
effect on the intention to behave. The results also support the research Kim and Chung (2011) in which stated that
subjective norms has significantl influence on consumer intentions in using environmentally friendly personal care
products.
The infuence of consumer experience towards purchasing attitude

Based on the hypothesis results it is known that consumer experience has significant positive effect on purchasing
behavior,therefore the hypothesis that stated ”more experience will be able to increase consumer behavior in buying
environmental friendly herbal products” is proven. This also means that consumer experiencecould be use to explain the
variation / changes in consumer behavior in buying environmental friendly herbal products in Denpasar. The results of
this study reinforce the research by Kim and Chung (2011) which statesd that the previous experience of using
environmentally friendly personal care products has significant positive effect on consumer intentions to buy
environmentally friendly personal care products.
Theoretical contribution
This study contributes to the development of the marketing management science, especially consumer behavior in
order to increase purchase intentions by using consumer’s value (environmental awareness, health awareness), attitudes,
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perceived behavioral control, subjective norms and experience. In detail, it can be described as follows 1) This research
enriches the theory of planned behavior (Ajzen, 2005) by providing a more detailed explanation about the experience
that can increase purchase intention via online when there are controls in behavior that are tailored to fit the resources
(financial), mastery in technology and information, and the confidence to shop online and 2) the results of this study
strengthen the research Kim and Chung (2011).
Research limitation
Some of the limitations encountered in this research that can be used as the basis for future research are: 1) The
study was conducted on people in Denpasar, thus limiting the generalizability of the findings on this study to a larger
area, 2) This research used survey methods where the data was collected in a particular time or in cross section,
meanwhile the business environment undergoing rapid changes, therefore the model of this research can be condusted
in the future.
Conclusion
Based on the analysis and discussion, the result can be summed up as follows: 1) Environmental awareness has
positive and significant impact on consumer attitude towards environmental friendly herbal product, 2) health
awareness has positive and significant impact on consumer attitude towards environmental friendly herbal product, 3)
attitudes has positive and significant effect on consumer behavior in buying environmental friendly herbal product, 4)
perceived behavioral control has positive and significant impact on consumer behavior in buying environmental
friendly herbal product in Denpasar, 5) subjective norms has significant influence on consumer behavior in buying
herbal environmental friendly herbal product in Denpasar, 6) experience has significant influence on consumer behavior
in buying herbal environmental friendly herbal product in Denpasar.
Suggestions
Suggestion or advice for environmental friendly herbal products entrepreneur: 1) Environmental friendly herbal
products entrepreneur can offer their product by using marketing strategies particular to targeted market segments. For
the people with lower buying capability, a different mixed marketing strategy need to be used compare than the public
with higher buying capability, 2) to improve buying behavior, herbal products environmentally friendly entrepreneurs
should guarantee the quality of the offered products in order to increase the buying behavior.
Suggestion for future researcher

Suggestion or advice for future researcher : 1) future researcher could conduct the study in broader market as in Bali
province for example, 2) with the rapid changing occur on business environment, this model can be used to re-examined
the relationship between consumer value variable, attitude, perceived behavioral control, subjective norm, and
experience in influencing the purchasing attitude, 3) Future research can use purchasing power as moderator to the
influence of experience to the influence of experience on purchasing intention in which is not being used in this
research.
References
Ajzen, I. (1985). From Intentions to Actions: A Theory of Planned Behavior, in Kuhl, J. and Beckman, J. (Eds), Action-
Control. From Cognition to Behaviour. Springer, Heidelberg.
Ajzen. (1991). The Theory of Planned Behavior, Organizational Behavior and Human Decision Processes, 50(2), pp.
179-211.
Ajzen. (2005). Attitudes, Personality, and Behavior (2nd Edition). Milton-Keynes, England: Open University
Press/McGraw- Hill.
Ajzen and Fishbein, M. 1980. Understanding Attitude and Predicting Sosial Behavior. Prentice Hall, Englewood Cliffs,
NJ.
Bamberg, S. 2002. Effects of implementation intentions on the actual performance of new environmentally friendly
behaviours – results of two field experiments. Journal of Environmental Psychology, 22, 399–411.
Bui, My H. &Loyola. (2005). Environmental marketing: a model of consumer behavior.
Chan, R. Y. K., & Lau, L. B. Y. (2000). Antecedents of green purchase: A survey in China. Journal of Consumer
Marketing, 17(4), 338-357.
Chen, M. (2007), Consumer attitudes and purchase intentions in relation to organic foods in Taiwan: moderating
effects of food-related personality traits, Food Quality and Preference, 18 (7), pp. 1008-21.
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D’Souza, C., Taghian, M., Lamb, P. and Peretiatkos, R. (2006), Green products and corporate strategy: an empirical
investigation, Society and Business Review, 1 (2), pp. 144-57.
Hillhouse, J. J., Adler, C. M., Drinnon, J. &Turrisi, R. (2000). Application of Ajzen's Theory of Planned Behavior to
predict sunbathing, tanning salon use, and sunscreen intentions and behaviors. Journal of Behavioral
Medicine, 20, 363–376.
Kalafatis, S.P., Pollard, M., East, R. & Tsogas, M.H. (1999). Green marketing and Ajzen’ s theory of planned
behaviour: A Cross-market examination. Journal of Consumer Marketing, 16 (5), 441-460
Kang, H., Hahn, M., Fortin, D. R., Hyun, Y. J., & Eom, Y. (2006). Effects of Perceived Behavioral Control on the
Consumer Usage Intention of E-coupons.Psychology & Marketing, 23, 841-864.
Kim, H.Y., Chung, J.E., 2011. Consumer purchase intention for organic personal care products. Journal of Consumer
Marketing, 28 (1). pp 40-47.
Ottman, J. A. (Ed.). (1998). Green Marketing: Opportunity for Innovation. NTC Business Books.
Polonsky, M. J. (1994). An introduction to green marketing. Electronic Green Journal.
Tanner, C., & Kast, S. W. (2003). Promoting Sustainable Consumption: Determinants of Green Purchases by Swiss
Consumer, Psychology & Marketing, 20 (10), pp.883-902.
Tarkiainen, A. & Sundqvist, S. (2005). Subjective norms, attitudes and intentions of Finnish consumers in buying
organic food, British Food Journal, 107 (11), pp. 808-822.
Zeithaml, V.A. (1988). Consumer Perceptions of Price, Quality, and Value: A Means–end Model and Synthesis of
Evidence. Journal of Marketing 52(3), pp. 2–22.
Authors Bibliography
I Gusti Ayu Ketut Giantari, born in Gianyar, Bali 2nd October, 1961. She received her doctorate in Marketing from
Brawijaya University, Malang, Indonesia (2013). Her research focuses on consumer behavior and strategic marketing.
Ni Nyoman Kerti Yasa, born in Denpasar, Bali on 17th July, 1962. She received her doctorate in Marketing from
Brawijaya University, Malang, Indonesia (2010). Her research focuses on marketing and strategic marketing.
Ni Wayan Ekawati, born in Denpasar, Bali on 27th September, 1968. She received her doctorate in stategic
marketing from Udayana University, Denpasar, Indonesia (2016). Her research focuses on marketing and strategic
marketing.
Putu Yudi Setiawan, born in Denpasar, Bali on 27th Januari, 1972. He received her doctorate in marketing from
Brawijaya University, Malang, Indonesia (2014). His research focuses on consumer behaviour and strategic marketing.
I Gede Bayu Rahanatha, born in Tabanan, Bali on 19th September, 1983. He received his master in marketing from
Udayana University, Udayana, Indonesia. His research focuses on marketing and strategic marketing.
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THE ROLE OF BLUE OCEAN STRATEGY IN MEDIATING INDUSTRIAL

COMPETITION TO COMPETITIVE ADVANTAGE
I Gusti Ayu Dewi Adnyani1), Ni Nyoman Kerti Yasa2), Putu Gde Sukaatmadja3)
Faculty of Economics and Business, Udayana University, Bali - Indonesia

1)
igadewi@yahoo.com
Abstract
This research is conducted with the background that there is a phenomenon of increasingly tight competition after
MEA has been enforced since 2015. Therefore, all businesses including Small and Medium Enterprises (SME) engaged
in timber industrial sector should anticipate by implementing suitable business strategies, namely, Blue Ocean Strategy
(BOS) to achieve competitive advantage.
To achieve such objectives, this research will be done through quantitative approach by taking sample of 130 people
who are SME managers engaged in timber industries in Gianyar Regency applying analytical technique, namely, Path
Analysis, which examines the role of BOS in mediating the effect of industrial competition to competitive advantage.
The results of the research show that the industrial competition has positive and significant effect to the
implementation of BOS. The implementation of BOS has positive and significant impact to competitive advantage and
industrial competition has positive and significant impact to competitive advantage. The implementation of BOS is able
to mediate significantly the effect of industrial competition to competitive advantage, meaning that by implementing
BOS, the impact of industrial competition to competitive advantage is getting better and positive.
The implication of this research is to provide contribution to SME managers engaged in timber industries in
Gianyar to maintain BOS to be applied as a competitive strategy and to constantly develop business programs of BOS,
such as, to constantly make innovation, develop differentiation and efficiency, as well as improve services so timber
industries may have high competitiveness to gain superiority in competition.
Keywords: Industrial Competition, BOS, Competitive Advantage
Introduction
Asean Economic Community (AEC) of 2015 is getting closer that will take effect in December 2015. With the
enactment of AEC 2015, the business industry in Indonesia, including Bali in general and Gianyar, in particular, will
face increasingly tight competition. To remain exist in the increasingly tight competition, a suitable and appropriate
business strategy is very necessary. Therefore, all the existing industries need to plan and implement a suitable and
appropriate business strategy.
The business strategy is a comprehensive and integrated plan taking into account the external and internal
environment in order to achieve the goals and vision of the company (O'Cass and Julian, 2003). Business strategies that
can be selected by a business may be varied, inter alia innovative strategy (Li et al., 2010; Govindarajan and Trimble,
2012; Yalabik et al., 2012; and Krishnan, 2012; Mc Adam et al., 2014) , differentiation strategy (Prajogo, 2007), service
strategy (Edelman et al., 2002), partnership strategy (Yasa et al., 2013), Blue Ocean strategy (Kim and Mauborgne,
2005a, 2005b; Casadesus-Masanell and Ricart, 2010 ; and Wubben et al., 2012) in effort to deliver the business achieve
its goals.
If observed and based on the results of interviews to several businessmen in the craft industry of statues in Gianyar,
they generally do innovation, differentiation, enhancing customer service, and cost efficiency. These four srategies are
now being used by the business sector of wooden craft in Gianyar to maintain the viability of their businesses and
achieve competitive advantage. The business competitive advantage of wooden industries in Gianyar is still stagnant.
This is reflected in the achievement of its performance, the foreign exchange earnings of Gianyar Region from wooden
industry export in 2014 slightly decreased in tight competition condition, namely, 21.3 million US Dollars. If compared
to the performance of previous year (2013), it was 21.6 million US Dollars. Therefore, to achieve competitive
advantage, all business of wooden industries in Gianyar need to implement a suitable and appropriate strategy to lead
their business to achieve improved performance through competitive advantages owned, such as excellence in product
quality, reasonable price, and service. The phenomenon of the implementation of several options of business strategies
have already been investigated by several researchers, among others: the effect of an innovative strategy to competitive
advantage or performance of a company (Mole and Worrall, 2001; Weerawardena and Coote, 2001; Terzlovski, 2002;
Chang, 2012); the influence of differentiation strategy to competitive advantage or performance of the company
(Subramaniam and Youndt, 2005; and Hsu, 2011); the influence of service strategy to improve business performance
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(Edelman et al., 2002); and the effect of partnership strategy to company performance or competitive advantage (Lee et
al., 2007; Wicker et al., 2010; Lee, 2011; Chong et al., 2011; Peng, 2011).
Based on the business issues of wooden industries in Gianyar and supported with some of the results of empirical
studies relating to the existing issues, the motivations of this researcher are: 1) to study the existing business issue; 2) to
develop the previous research by considering newer business strategy that is Blue Ocean Strategy (BOS) being
implemented by the wooden industry SMEs in Gianyar. Therefore, the objective of this research is to explain the role of
BOS in mediating the effect of industrial competition to the competitive advantage of wooden industry SMEs in
Gianyar.
Literature Review
Industrial Competition
According to Porter (1985), there are five forces affecting the intensity of competition in an industry, namely (1) the
threat of entry of new entrants, (2) the bargaining power of suppliers, (3) the bargaining power of buyers, (4) the threat
of substitute products and (5) competition in industries. The five forces determining the competitive intensity of an
industry include the existing competition in SME industries in general and ikat weaving craft industries.
To compile a good design of strategy and to be able to achieve competitive advantage in the industries , the
companies should be able to minimize the impact of the five forces. The intensity of industrial competition is also faced
by SMEs. Such conditions were revealed in the results of research by Metts (2007) and Singh et al. (2009). Industrial
competitive environment in the research of Ojeda-Gomez et al., (2007), Du (2007) and Hua et al. (2011), Tambunan
(2011), is a factor beyond the company that has to be observed and analyzed continuously. The competitive
environment of industry has been changing dynamically depending on the number of existing players, and also changes
in government regulations.
Blue Ocean Strategy (BOS)

BOS is one the competitive strategic options that can be implemented. BOS is the development of competitive
strategy of Porter (1990) stating that every company should choose one of the competitive strategy, whether the strategy
of cost leadership or differentiation strategy, while Kim and Mouborgne (2004a and 2004b) combined the concept of
Porter in a related chain and has an impact to the cost decrease, creativity increase, cost reduction, and better service
improvement. BOS is also based on innovation, as the emphasis is creativity producing innovative products.
Implementation of BOS is able to improve the performance of products in terms of matter product quality, more
interesting product appearance, always innovative product design, cheaper product costs, and better service, as well as
stronger product image as the top quality products. Since product performance is getting higher, then their capability to
compete also increases. Products having high performance certainly provides an added value to consumers so the
consumers feel more value and satisfied. This condition is certainly much helpful to the company to achieve greater
market share, and in the end is able to achieve competitive advantage. Competitive advantage is achieved through
superior in product quality, excellence in customer service, superior in terms of price, and superior in image or brand.
Competitive Advantage
Competitive advantage is the ability of top management to understand the process by which the capability of MCEs
is converted into a core competence to create opportunities for the company (Chelliah et al., 2010). Competitive
advantage is increasingly regarded as one of the main drivers of long-term success of the organization in this
competitive market. Competitive advantage basically develops from a value which is able to be created by a company to
its customers exceeding the cost of the company in creating them (Porter, 1985: 3). Values constitute what consumers
are willing to pay, and superior value derived from lower price bid than the competitors for equivalent benefits or
providing unique benefits that are more than just offsetting the higher price (Chang, 2012).
Competitive advantage illustrates how companies select and implement generic strategies (low cost, differentiation,
and focus) to achieve and maintain a competitive advantage. Typology of business strategies are developed and applied
as a theoretical basis to identify groups strategies and frameworks defining some generic strategies available to business
units (Parnell et al., 2015). Competition is the core of success or failure of the companies. This implies that the
company's failure depends on the courage to compete, success may not be obtained. Competition determines the
accuracy of company's activities reinforcing its performance, such as innovation, cohesive culture or good
implementation (Porter, 1994: 1).
Framework Concept of Research

The theories applied in this research are theory of Industrial Competition and Business Strategy (Porter, 1985).
According to the theory of Industrial Competition (Porter), it is said that the intensity of competition in an industry will
be tighter if the number of companies coming into play in the industry is getting more and more. Such conditions may
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lead the achievement of competitive advantage is increasingly difficult. Therefore, one of the ways that can be taken is
by implementing an appropriate and suitable business strategy, namely BOS, for the company to win the competition.
The phenomenon on the tight competition intensity in small micro enterprises as the business scale of wooden
industry is also revealed in the reseach of Metts (2007); Michael et al. (2014), and Rosa and Pedro (2014). Metts’
research (2007) showed that the sharp industrial competitive pressures gives a negative impact to the achievement of
company performance including the achievement of competitive advantage. These negative effects are strived to be
eliminated by the activities of making strategy by the leader through strategy-making process. Based on the result of
Metts’ research (2007) it is shown the results of the activity of making strategy has not been able to eliminate the
negative effects of industrial competitive pressures, however it only lowered the negative effect. Furthermore, this study
offers a solution by implementing the right business strategy, namely BOS that had been applied by Small Micro
Enterprise (wooden industry) for several reasons, among others, (1) BOS in this case is a business strategy to win the
competition by making innovation which helps businesses to improve performance very much by creating new
products, new processes, new materials (Abbas, 2014); (2) and BOS in this case try to create or perform differentiation.
Differentiation according Prajogo (2007) has been regarded as one of the company's strategy in the process of creating
value by offering unique products in the eyes of consumers, can reduce the pressure of competition, raises the value of
creativity and innovation, differentiation strategy in this case is able to strengthen the competitiveness of companies
according to Bennett and Smith (2002); (3) BOS is also an business strategy option always having orientation to
improving services, where the service according to Edelman et al. (2002) is able to improve the performance of the
company; (4) and BOS is also a business strategy that always pays attention to cost savings so as to achieve efficiencies
affecting the achievement of a low cost.
Based on the concept of framework describing of how each variable, a conceptual framework is compose as shown
in Figure 1.
Industrial Competitive
Competition
BOS
Advantage
Research Hypothesis:
Based on the existing concept of framework, the following research hypothesis can be formulated.
H1 : Industrial competition has positive and significant effect to BOS implementation
H2 : Industrial competition has negative and significant effect to Competitive Advantage
H3 : BOS Implementation has positive and significant effect to Competitive Advantage
H4 : BOS is able to mediate significantly the effect of industrial competition to competitive advantage.
Methods of Research
Seem from the nature of the problem, this study includes type of causality research. It means that this study aims at
examining the causal relationship between the variables of industrial competition, BOS, and competitive advantage.
This study will be conducted in all sub-districts in Gianyar, namely: Gianyar, Blahbatuh, Sukawati, Tegallalang,
Tamkaksiring, Payangan, and Ubud Sub-District.
There are three types of data variables to be studied in this research, the variables are: 1) Exogenous Variable:
Industry Competition (X); 2) Intervening Variable: BOS (Y1); Endogenous Variable: Competitive Advantage (Y2)
The sample size of this study is as many as 130 pieces of wooden industry SME. Determination of sample size for
this study is by using Slovin formula. In this way the entire samples are expected to be representative to represent
statue craft business in each of sub-district and at the end are able to represent the entire region of Gianyar Regency.
Variable indicator of industry competition variable, BOS, and competitive advantage is measured by the perception
of SME owners or managers in wooden industrial sector as strategists using Likert scale of five levels, from strongly
disagree = 1, disagree = 2, quite agree = 3 , agree = 4, and strongly agree = 5.
Data collection technique is conducted in two ways, namely through questionnaires and interviews with the owners
or managers of small micro business of woden industrial sector, observers/ experts of SME of wooden industrial sector.
The validity and reliability of the instruments used are tested in order to measure what you want to measure and found
out are consistent with the responses given by the respondents. The validity test of instrument uses correlation technique
of Pearson product moment with minimum limit r = 0.3 (Sugiyono, 2014: 150). The reliability test of instrument is
performed by calculating the reliability coefficient of Cronbach's Alpha with a minimum limit of Alpha coefficients
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>0.6 (Sekaran, 2003: 312). Both tests use SPSS computer program. The research uses data analysis techniques of path
analysis. To test the significance of customer’s satisfaction as mediator variable in the relationship between the
variables of brand communities and customer loyalty, then Sobel test is used (Baron and Kenny, 1986).
Discussion
Results and Discussion of Research Results

Based on the result of calculation of the validity and reliability it can be seen that each indicator has been able to
measure the variables and concepts tested, and between one concept and the other is free in nature. By the analysis of
confirmatory factor (goodness of fit test and significance test of wight factor), it is proved that the observed variables
may reflect analyzed factors. Through the overall suitability model test (goodness of fit test and causality test of
regression weight), it is proved that the overall model fit and causality relationship built are tested.
Effect of Industry Competition to BOS

Industry competition has significant influence to BOS. These results are proved by p-value obtained which was
0.000 smaller than 0.05. The relationship between Industrial Competition variable and BOS variables showed a positive
effect characterized by the inner weight of 0.505. These results can be interpreted that the higher the Industry
Competition the higher BOS implementation of wooden industry SME in Gianyar.
The results of this research are consistent with the conditions on the field that the stronger the Industry Competition
the more intensified the use of BOS Implementation. In this study, the indicators of Industry Competition formed by
variable indicator of the existing competition in wooden industry, lack of barriers to entry to wooden industry, the
existence of substitute products, bargaining power of suppliers, and the bargaining power of buyers have an important
role to the implementation of intensified BOS.The results of this research is consistent with the results of the study
(Kim and Mauborgne, 2005a, 2005b; Casadesus-Masanell and Ricart, 2010; and Wubben et al., 2012).
Effect of Industry Competition on Competitive Advantage

Industrial competition has a significant effect to Competitive Advantage. This result is proved by the p-value of 0.00
smaller than 0.05. The relationship between Industry Competition variable and Competitive Advantage variables
showed a positive effect characterized by the inner weight of 0.380. These results can be interpreted that the stronger
the Industrial Competition the more increase the Competitive Advantage.The indicators of Industrial Competition in
this study established by the indicator variable of the increasing number of sculpture businesses, weak barriers to entry
into the industry, the existence of substitute products, bargaining power of suppliers, and the bargaining power of
buyers have an important role to increase Competitive Advantage of wooden industry SME in Gianyar.
The results of this research are consistent with the conditions faced by SMEs in Gianyar although the intensity of
competition is getting tougher, but the wooden industries in Gianyar are still able maintain themselves and compete
with wooden industry SME in other region or countries, but seen from the impact in positive direction, this is in contrast
with the hypothesis that industrial competition negatively affect the competitive advantage. The conditions of wooden
industry SME Gianyar are different; namely, although the competition is getting tougher, even these conditions can
motivate creativity of the craftsmen to always make innovation and differentiation that can improve competitive
advantage. It is opposite with to the results of Metts’ research (2007) stating that the industrial competition can cause
performance degradation.
The Effect of BOS to Competitive Advantage

The implementation of BOS has a positive and significant effect to Competitive Advantage. This result is proved by
the p-value of 0.000 which is smaller than 0.05. The relationship between the implementation of BOS variables and
Competitive Advantage variables showed a positive effect characterized by the inner weight of 0.461. These results can
be interpreted that the more intensive the BOS is the higher the Competitive Advantage.
In this study, the BOS indicator established by variable indicator by making innovation, differentiation, enhancing
customer service, and efficiency have an important role to Competitive Advantage. The results of this study are
consistent with the empirical research conducted by Kim and Mougrberne (2005).
The Role of BOS in Mediating Effects of Industrial Competition to Competitive Advantage

The hypotheses testing on the role of BOS in mediating the effects of Industrial Competition on Competitive
Advantage using Path Analysis on direct and indirect effect found that the effect of Industrial Competition on
Competitive Advantage is 0.380, while the effect of Industrial Competition on Competitive Advantage through BOS is
0.613, so BOS has the role as mediator of the effect of the Industrial Competition to Competitive Advantage. This
means that the Industrial Competition encourages BOS positively so Competitive Advantage also increases. This is
consistent with the results of research conducted by Kim and Mauborgne (2005a, 2005b); Casadesus-Masanell and
Ricart (2010); and Wubben et al. (2012).
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Research implications
As noted in the analysis and discussion that this research could theoretically find a relationship between the latent
variables against Industrial Competition to BOS and Competitive Advantage. This research may provide contribution to
many businesses in wooden industry SMEs in Gianyar. Conceptual contribution is meant that wooden industry SMEs
must constantly maintain and strengthen the implementation of BOS through innovation, differentiation program,
customer service enhancement, and efficiency which led to an increase in Competitive Advantage.
Research limitations
Various limitations are also found in this study primarily due to the followings: 1) this study only uses respondents a
manager or businessmen of wooden industry SMEs in Gianyar so that research results can not be generalized
thoroughly. 2) The mediating variables studied were BOS variable, which turned out that the effect in this study is
significant to Competitive Advantage, so in the future it should be considered to choose mediating variables of other
SME business strategy, such as Differentiation Strategy, Leadership Cost Strategy, Prospector Strategy, Innovative
Strategy, CRM strategy, Partnership, or other alternative business strategies.
Conclusion
Based on the results of research, discussion and interpretation described in the previous chapter with reference to
several theories and previous research results, some conclusion can be drawn as follows:
Industrial competition has positive and significant effect to the implementation of BOS, meaning that the higher the
intensity of competition faced by wooden industry SMEs in Gianyar, the higher the implementation of BOS; Industrial
competition has positive and and significant effect to competitive advantage, meaning that the higher the intensity of
competition faced by wooden industry SMEs in Gianyar, the competitive advantage is increasing; BOS Implementation
has positive and significant effect to competitive advantage, meaning that the more intensive the implementation of
BOS will lead to competitive advantage of wooden indistry SMEs of Gianyar is increasing; and implementation of BOS
is able to mediate the effects of industrial competition to competitive advantage, meaning that the industrial competition
has a more positive and bigger effect to competitive advantage when implementing BOS.
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Authors’Bibliography
Name of Authors 1 : I Gusti Ayu Dewi Adnyani
Place and Date of Birth : Denpasar, 28 April 1969
Author’s educational background :
Degree Field of Degree Institution City Country
Master ( S2) Management Airlangga University Surabaya Indonesia
Bachelor ( S1) Management Udayana University Bali Indonesia
Major research of study : Management, Human Resource Management
Name of Authors 2 : Ni Nyoman Kerti Yasa

Place and Date of Birth : Denpasar, 17 Juli 1962
Doctoral (S3) Strategic Management Brawijaya University Malang Indonesia
Master ( S2) Strategic Management Gajah Mada University Yogyakarta Indonesia
Major research of study : Management, Marketing Management, Strategic Management
Name of Authors 3 : I Putu Gde Sukaatmadja

Place and Date of Birth : Sumba Timur, 7 Juli 1960
Doctoral (S3) Marketing Management Padjadjaran University Bandung Indonesia
Master ( S2) Agribusiness Management Padjadjaran University Bandung Indonesia
Major research of study : Management, Marketing Management
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THE IMPACT OF BUDGETING PROCESS IN THE PERFORMANCE OF MICRO,

SMALL AND MEDIUM ENTERPRISES IN LIPACITY
Lani R. Garachico1), Ma. Margaret Garachico-Marasigan2)

1)
De La Salle Lipa, Lipa City, Philippines
2)
The Hershey Company, Makati City, Philippines
1)
lani.garachico@dlsl.edu.ph
Abstract
Micro, Small and Medium Enterprises (MSMEs) plays a very important role in the country’s economic upswing.
Lorenciana (2014) said that good financial management is very crucial to succeed in business; however, most of
today’s micro, small, medium entrepreneurs lack the knowledge in handling their finances. Financial planning is one of
the aspects of financial management that needs to be looked into.Experts say a poor monetary plan can become a major
factor in business failure. Financial growth is very important in every company in order to expand their business. One
of the factors that can affect the financial growth of the company is having a good budgeting process. This study was
conducted to determine how formal budgeting process impacts the performance of micro, small and medium enterprise
(MSME) in LipaCity. It focused only on how budget process is used and how it impacts MSMEs’ performance. Also,
this study determines the impact of budget participation in managerial performance. Descriptive research design was
used in the study. Primary data were obtained thru the survey questionnaire. Mean and regression was used to analyze
the data gathered. MSMEs has low financial performance while goals are somewhat achieved and managers are
moderately motivated. Managers are also moderately satisfied and involved in budgeting process. Likewise, results
showed that managers are competent. Budgeting process has no significant impact in MSMEs performance except for
goal clarity which has significant impact in goal achievement. Lastly, budgetary participation has significant impact in
the manager’s performance.
Keywords: Budgeting Process, Budget Participation, MSMEs’ Financial,Managerial Performance
Introduction
Micro, small and medium enterprises (MSMEs) in the Philippines is growing rapidly. According to Department of
Trade and Industry (DTI), in 2014, 99.6% of total 946,988 businesses in the Philippines are under MSMEs. Moreover,
Region IV-A (CALABARZON), where LipaCity is located, is ranked as the second region with the most number of
MSMEs. MSMEs contributed almost 62.8% of total jobs generated by all types of business establishments. In terms of
value-added, MSME sector contributed 35.7% of the total and it accounts for 25% of the country’s total export revenue.
However, financial growth of these MSMEs is stagnant year on year. Various studies showed that lack of financial
management is one of the problem faced by the MSMEs in the Philippines. Lorenciana (2014) said that good financial
management is very crucial to succeed in business; however, most of today’s micro, small, medium entrepreneurs lack
the knowledge in handling their finances.Aldaba (2013) cited that this is one of the reasons why financial institutions do
not grant loans to MSMEs. Financial growth is very important in every company in order to expand their business.
One of the factors that can affect the financial growth of the company is having a budgeting process. According to
Qi (2010), budgeting process has significant and positive effect on the financial performance in small and medium sized
entity in China. Maritim (2013) moreover proved that budgeting process is an important factor to influence the financial
performance of the companies.
Another company performance that can be affected by the budgeting process is the manager’s performance as well
as job satisfaction. According to Hansen et. al (2009), participative budgeting established sense of responsibility to
employees who participated in the budget preparation. Achieving the goal set during the budget preparation will
become the personal goal of the employee which in turn increases their performance. The employee will also be
satisfied in their achievements.
As mentioned above, MSMEs increased rapidly every year. However, not much study was conducted to determine if
the budgeting process has significant impact on the overall performance of MSMEs such as financial performance and
managerial performance. This research will help identify if budgeting process has significant impact on the overall
performance of MSMEs.
Qi (2010) identified five sub-variables under the formal budgeting process namely; formal budget planning, budget
goal clarity and difficulty, budget sophistication and budgetary control. Firm performance on the other hand was
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categorized in three sub-variables, financial performance, budgetary performance and other performance. The result of
Qi (2010) showed significant findings. First, the formal budget planning strongly affect the growth of sales revenues of
Chinese SMEs while the more formal the budgetary control is the higher growth in profit. Another result in Qi (2010)
showed that budget goal characteristics (budget goal clarity and difficulty) strongly affect the budgetary performance of
Chinese SMEs. The mean values for both budget goal clarity and difficulty are relatively high compared with other
dimensions of formal budgeting process. The study of Qi (2010) also showed insignificant findings. Budgetary
sophistication has insignificant impact on sales while negative impact on profit. Insignificant relationship was also
identified between the budget goal clarity and job satisfaction and budget goal difficulty and job involvement.
Related Literature
Budgeting process is a crucial exercise in every organization. According to Pearce and Robinson (2010) budget
process is the forerunner of strategic planning. It is part of the strategic control of a company on which strategy is
implemented at the operating level. Otusanya (2004) as cited by Osundina (2012) asserted that aside from being a
manager’s planning tool, budgeting is one of the essential tools of communication and integration. It is through budget
communication that goals are being perceived by the members of the organization. Thus, to achieve a better result,
budgeting entails that the manager and the subordinates deliberate the budget jointly.
Performance reflects the outcome of the firm’s operations within a time period. Whether a firm attains a good or bad
performance depends on its measure of performance which may include customer satisfaction, employees and/or
shareholders satisfaction, sales growth, market share, return on capital invested (Amalokwu and Ngoasong, 2008 as
cited by Osundina, 2012). Adongo and Jagongo (2013) describe financial performance as to how firms utilize their
resources to maximize profits. It also refers to the firm’s whole financial health in a certain period of time against other
industries or sectors. The companies’ ultimate goal is to be profitable year-on-year. Profitability talks about the
financial performance of the company.
Wijewardena and De Zoysa (2001), as cited by Osundina (2012), stressed the varying impact of budget planning and
budgetary control on performance subject to the extent of its use. The authors cited a positive impact on the
performance of SMEs to a greater extent on the formal budgeting process. The study used sales growth and returns on
investment as performance measurement. Results of the study indicated a positive and significant relationship between
budgeting planning and sales growth, and between budgetary control and sales growth. On the other hand, no
substantial impact is seen between budgeting planning and returns on investment, nor between budgetary control and
return on investment. Similar findings were also seen between the budgeting process and performance in Sri Lanka's
SMEs (Fonseka and Perera (2004) as cited by Osundina (2012). Results showed higher growth sales among firms
engaged in more formal budgeting planning and control processes. Neither budgeting planning and returns on
investment, nor budgetary control and returns on investment exhibited a significant relationship. Mulani, et al. (2015)
stated that budgetary planning has a greater impact than budgetary control in the sales growth of firms. Furthermore,
finding showed that formal and tight control mechanism of control for budgetary process is directly related to SME
performance in India (Mulani, et al., 2015).
In terms of budget sophistication, regression results showed that there is a negative impact between budget
sophistication and profit while sales and budgetary sophistication are not significantly related. This is because most
Indian firms find budgetary sophistication very expensive as this includes the acquisition and installation of costly
financial modeling software, training and expensive training and follow up mechanism. Budget sophistication will
require Indian SMEs huge investments which will result to increased expenditure and lower profit (Mulani, et al.,
2015).
Budget goal clarity and difficulty also affects the over-all performance of a company besides the budgeting process
itself. Goal clarity as defined by Yuen (2004) refers to the degree to which the budget goals are clearly and specifically
understood by the employees responsible in accomplishing it. Locke & Schweiger (1979) as cited by Qi (2010), show
budgetary performance can be improved if the goal is clearer whereas unclear goal creates tension, confusion and
dissatisfaction among employees. In relation to budget difficulty, managers sometimes tend to set difficult budget goal
while others tend to set budget goals too easy. Garrison et. al (2012) talks about the human aspect of budgeting. Budget
process should not focus only on the technical aspect of it but also to motivate people. The budget should be set in a
highly achievable manner. A specific budget target must be able to illustrate the specific and desired outcome of the
activity. It must also offer information that will serve as foundation in the planning of a comprehensive and detailed
strategies and activities. A timeline showing what and when things will be done pertains to an achievable and
measurable budget target (Kewo, 2014). Meanwhile, Raghunandan, et al. (2012; citing Shah (2007), Robinson (2007)
and Rubin (2010)) define motivation as a catalyst for employees to attain specific goals. At the same time it is a
“resultant force” that affects ways on how employees achieve goal. It is by having a sense of purpose that budget serves
as a motivation to employees and managers. For this reason, involvement is a significant factor in the budgeting setting
process (Raghunandan, et al., 2012). A more tight but achievable goal also has a positive impact on the motivation of
employees and the performance of SMEs in India (Mulani, et al., 2015). Akande and Oluwaseun (2014) suggest that a
clear financial goal in mind will facilitate entrepreneurs in forming broader business strategy and sense of purpose.
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Findings of Darma and Halim (2005), as cited by Kewo (2014), showed a positive relationship between budget goal
clarity and organizational commitment, satisfaction and achievement of employees. According to the researchers,
budget targeting motivates employees to perform better. However, Mulani, et al. (2015) argued that budgetary goal
clarity has an insignificant impact with the employee’s motivation level. On the other hand, budget goal difficulty has a
negative relationship with employee involvement. Too tight budget goals have an undesirable effect on the performance
of the managers. Moreover, managers do not pursue a higher level of performance when goals are easy since it does not
provide them any incentive or motivation (Mulani, et al., 2015).
According to Garrison et al., (2012), the most effective budget program is the budget participation. “The initial flow
of budget data in a participative budgeting system is from lower levels of responsibility to higher levels of
responsibility. Each person with responsibility for cost control will prepare his or her own budget estimates and submit
them to the next higher level of management. These estimates are reviewed and consolidated as they move upward in
the organization.” (Garrison et al., 2012) Using budget participation, mid-level management feels that they are being
empowered by the top management. They will also feel that their judgments and views are being valued by the top
management. Moreover, this can help the company achieve goal congruence as the company’s goal will become the
personal goal of the employee participating in the budget creation. Another advantage mentioned by Garrison et al.
(2012) is the budget prepared by line managers tends to be more accurate than that of the top management due to the
fact that they are more exposed to the day to day operations.
Managerial performance refers to the ability of the employee to execute managerial tasks which involve planning,
investigating, coordinating, evaluating, supervising, staffing, negotiating and representing (Nikmah, n.d.). Another use
of budget in the company is to measure the performance of the managers. Hansen and Mowen (2006) stated that salary
increase and promotions more often than not is affected by the manager’s ability to achieve the budget.
Research Methodology
The researcher used descriptive research design. There are total of 1,305 registered entities in Lipa city. The sample
size is 59 as determined using the G Power with 0.35 effect size at 5% alpha with 4 predictors and with an actual power
of 0.9536733. The respondents of the study were the managers including top, middle and line managers from MSMEs
in Lipa City. The managers were chosen as respondents because they are usually involve in the budget preparation for
their respective departments.
Data for this study was collected by asking each manager complete a survey questionnaire. The researcher used
questionnaires from Qi (2010). The questionnaire is closed questions which can be answered by likert-scale rating or
respondents can choose in the list provided in the questionnaire. Part A of the questionnaire is for general information
of the SMEs such as Organization Name, Respondent’s Name and the Organization’s year of registration. Answers on
the first part will also determine MSME category as well as type of organization. Part B of the questionnaire is for the
MSME’s performance such as financial performance, managerial performance, budgetary performance and other
performance. Financial performance has 2 questions to determine the growth of revenue and profit of an MSME. The
questionnaire is designed by asking respondents to choose the percentage of revenue and profit growth. Meanwhile, the
level of performance will be measured with an eight-dimension scale. It will be assessed using Mahoney et al (1963) as
cited by Qi (2010) eight-item self-rating performance measure such as planning, investigating, coordinating, evaluating,
supervising, staffing, negotiating and representing. The eight dimensions are widely used in measuring managerial
performance using a 9 point likert-scale. Budgetary Performance and other performance on the other hand used 5 point
likert-scale. Part C of the questionnaire is for the formal budgeting process of MSMEs. It is measured from four features
which is the budget planning, clarity and difficulty of budget goals, budget sophistication and formal budgetary control.
A 7-point likert scale was used to measure the formal budgeting process of MSMEs. There are also few questions in
which the respondents need to tick mark multiple answers in one questions. These are questions related to department
inside the organization who used the budget process. Lastly, there are two yes or no questions under budgetary control.
The data were analyzed through the use of statistical tools (mean and regression analysis). In analyzing financial
performance, managerial performance and formal budgeting process, the mean of the respondents’ responses were
computed. Regression analysis was used to determine the impact of formal budgeting process on the performance of
MSMEs. To determine whether the impact of the independent variable to dependent variable is significant the result of
p-value is compared to significance level of 0.05. The lower the resulting p-value but not to exceed 0.05 the greater the
impact or is a significant predictor of firm’s performance.

The result of the study showed that the financial performance of MSMEs in Lipa City in terms of sales and profit is
low with a growth of an average of 21-30% in the past three years. Moreover, MSME's in LipaCity somewhat achieve
the budget goals set by the organization. Managers of MSME’s in LipaCity are moderately motivated in setting the
budgetary goals and have moderate involvement in their respective organization in terms of budgeting process. They are
also moderately satisfied with their jobs. In terms of managerial performance, the result indicates that managers of
MSME’s in LipaCity are competent in terms of managerial activities.
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The result of the budgeting process revealed that MSMEs in LipaCity use at a high extent the formal budget
planning and has an average control on variances. On one hand, budget process is slightly unsophisticated. The
managers agreed that goal set during the budgeting process of MSMEs in LipaCity is neither clear nor difficult to
achieve. Moreover, managers have high involvement and are highly influential in the budget setting.
The result of the study shows that formal budgeting process (planning, control and budget sophistication) has no
significant impact in MSME’s financial Performance. Though the result showed insignificant impact, it is important for
MSMEs to have planning even if not formal or detailed. Moreover, the organization does not need to plan for all the
operations of the organization but only to the department that is significantly important to the organization such as
marketing and sales. Control on one hand is as important as planning. On a regular basis, there should be a calculation
in the difference between actual and budget performances. There should also be investigation in the identified
significant differences and take appropriate action in time. Budget sophistication or the extent of software support,
technical staff and financial models should vary depending on the size of the organization. The bigger the organization
the more the budget process should be sophisticated.
The result of the study shows that budget goal clarity has significant impact in budget goal achievement. This only
shows that the clearer the goals are for managers of MSMEs in LipaCity the more likely they will achieve the goals set.
However, unclear goal creates confusion and tension in the organization. The study proves that budget goal difficulty
has no impact in MSMEs’ goal motivation. Further, it showed that budgeting process (goal clarity and goal difficulty)
has no significant impact in MSMEs’ other performance specifically goal motivation and job satisfaction. The possible
reason for having a result of insignificant impact is that there are other variable beside motivation and job satisfaction
that may be affected by budgeting process or there are other factors affecting job satisfaction and motivation.
Budget participation has significant impact in managerial performance. This only proves that empowering mid-level
managers has a direct impact in their performance. Moreover, having mid-level managers participate in the budgeting
process tends to give more accurate budget as they directly see the day to day operation which in turn affects their
performance and MSMEs performance.
References
Adongo, K.O., & Jagongo, A. (2013). Budgetary Control as a Measure of Financial Performance of State Corporations
in Kenya. International Journal of Accounting and Taxation, 1(1), 38-57.
Akande, O., & Oluwaseun, Y. (2014). Influence of budgeting system on Entrepreneurial Business performance:
perspective of Small Business Owner in Lagos State Nigeria. Journal of Business and Management (IOSR-JBM) e-
ISSN: 2278-487X, p-ISSN: 2319-7668. Volume 16, Issue 6. Ver. III, 58-64. www.iosrjournals.org.
Aldaba, R. M. (2013). ASEAN Economic Community 2015 SME development: Narrowing development gap
measure (No. DP 2013-05).
Garrison, R. H., Noreen, E. W., & Brewer, P. C. (2012). Managerial accounting. New York: McGraw-Hill/Irwin.
Hansen, D., Mowen, M., & Guan, L. (2009). Cost management: accounting and control. Cengage Learning.
Kewo, C. L. (2014). The Effect of Participative Budgeting, Budget Goal Clarity and Internal Control Implementation on
Managerial Performance. Research Journal of Finance and Accounting ISSN 2222-1697 (Paper) ISSN 2222-2847
(Online), 5(12), pp. 81-87. www.iiste.org.
Maritim, F. C. (2013). The effects of budgeting process on financial performance of commercial and manufacturing
parastatals in Kenya (Doctoral dissertation, University of Nairobi).
Mulani, J., Chi, G., & Yang, J. (2015). Effects of the budgetary process on SME’s performance: An Exploratory study
based on Selected SME’s in India. Research Journal of Finance and Accounting. ISSN 2222-1697 (Paper) ISSN
2222-2847 (Online) 6(14), pp.135-153.
Osundina, K. C., & Osundina, J. A. (2012). Budgeting Processes and the Performance of Food and Beverages
Manufacturing Companies in Nigeria. International Journal of Economic Development Research and Investment,
3(3), 61-69.
Pearce, J. A., & Robinson, R. B. (2000). Strategic management: Formulation, implementation, and control.
Irwin/McGraw-Hill.
Qi, Y. (2010). The impact of the budgeting process on performance in small and medium-sized firms in China.
University of Twente.
Raghunandan, M., Ramgulam, N., & Raghunandan-Mohammed, K. (2012). Examining the Behavioural Aspects of
Budgeting with particular emphasis on Public Sector/Service Budgets. International Journal of Business and Social
Science, 3 (14), 110-117.
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Yuen, D. C. (2004). Goal characteristics, communication and reward systems, and managerial propensity to create
budgetary slack. Managerial Auditing Journal, 19(4), 517-532.
Lani R. Garachico was born on February 1, 1963 at San Teodoro, Oriental Mindoro Philippines. She is currently the
Dean of the College of Business, Economics, Accountancy and Management of De La Salle Lipa. She is a Certified
Public Accountant. She finished her Bachelor of Accountancy from PolytechnicUniversity of the Philippines, Sta.
Mesa, City of Manila, Philippines and Master in Business Administration from Divine Word College of Calapan,
CalapanCity, Oriental Mindoro, Philippines.
Ma. Margaret Garachico-Marasigan was born on October 16, 1985 at San Teodoro, Oriental Mindoro, Philippines.
She is currently the Assistant Manager for Finance Control of The Hershey Company. She is a Certified Public
Accountant. She is a graduate of Bachelor of Science in Accountancy and Master in Management Technology from De
La Salle Lipa, LipaCity, Batangas, Philippines.
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THE EFFECT OF SERVANT LEADERSHIP ON JOB SATISFACTION AND

ORGANIZATIONAL CITIZENSHIP BEHAVIOR: A CASE STUDY AT A PRIVATE
SCHOOL IN INDONESIA
I Dewa Nyoman Sudarta1), Desak Ketut Sintaasih2), Agoes Ganesha Rahyuda3)
Faculty of Economics and Business Udayana University, Denpasar, Indonesia

3)
agoesgrahyuda@unud.ac.id
Abstract
The purpose of this study was to analize the influence of servant leadership on organizational citizenship behavior
(OCB) with the mediating of job satisfaction of Secondary School, High School and Vocational School permanent
teachers in Harapan School Denpasar. This research is a casual study to explain and provide insights on the
relationship of variable on servant leadership, job satisfaction and OCB. Population of this research are permanent
teachers of Secondary, High School and Vocational School of Harapan School located in Denpasar with 85 teachers
selected as respondents. Technique used to determine the research sample was known as proportional random
sampling. Questionnaire was being used as research instrument and the analysis of data used was descriptive and
inferential data analysis with Structural Equation Model – Partial Least Square (SEM-PLS). Findings revealed servant
leadership impacted positively and significance to job satisfaction and OCB; job satisfaction impacted positively and
significance to OCB and role of job satisfaction as mediator impacted positively and significance to servant leadership
and OCB. The research further concluded that there is in need for a powerfull servant leadership from school
management in applying values of leadership acceptable by teachers and with regard to factors forming the teachers’
job satisfaction. Suggestions on this research is to expand the scope of study to a larger population of organizations,
institutions and public industries to achieve complete and better result’s findings.
Keywords: Servant Leadership, Job Satisfaction, Organizational Citizenship Behavior
Introduction
Education is an important and strategic agenda of many state development agendas that requires serious attention of
all parties. An excellent education system would certainly become determining factor in the future progress of the
nation. One of the parties having strong influence on the Indonesian education is teachers and their existence as
educator and instructor who guide this nation’s young generation towards the right and proper direction.
Recently, there is a crutial issue facing the teachers and the educational organization i.e. the low level of
organizational citizenship behavior of teachers. Organizational Citizenship Behavior is a positive behavior of the people
within an organization, expressed in the form of willingness to work consciously and voluntarily. Robbins and Judge
(2008) suggested the successful organizations need employees who will do beyond the day to day tasks and willing to
perform tasks that are not listed in their job description, which will further improve performance. Research conducted
by Khazaei et al. (2011) proved it right and stated that there is a significant and positive correlation between OCB and
performance of senior high school teachers in Mazandaran Barat Province, Iran Jaya.
In order to have extra-role behavior or OCB of the teachers well presented, effective roles of leader, in this instance
the school principal, is strongly required. Leadership quality is frequently considered as the most important factor
determining the success and failure of an organization. To become an effective leader, school principal should be able
to positively influence all members of school community under his/her leadership to achieve educational goals at
school. Servant leadership has become a leadership theory presenting moral and ethics values as well as focused on
development, community building, authentic leadership, and shared leadership (Graham, 1991; Sauser, 2005; Laub,
2003; Sendjaya, Saros & Santora, 2008; in Vondey 2011). Stone, Russell and Patteerson (2004) stated the motivation
from servant leader in giving influence is focused on services given to their own followers. According to Greenleaf (in
Vondey, 2011) the best indicator in servant leadership is when the followers are content to become their own self as
servant.
Job satisfaction is a positive feeling on somebody’s performance resulted from evaluation against his/her
characteristics (Robbins dan Judge 2008:107). According to Luthans (2006:243), there are five dimensions of job
satisfaction, i.e.: salary, the job itself, career development, supervision, and co-worker. Increased job satisfaction
experienced by the teachers influence their behavior in the day to day working activities. The behavioral changes show
the characteristics of organizational citizenship behavior component suggested by Organ et al. (2006:17-18). Study
outcomes by MacKenzie et al. (1998) showed job satisfaction motivates employees to voluntarily conduct
Organizational Citizenship Behavior. Outcome of research performed by Huang et al. (2012) on nurses in Taiwanese
hospital showed that the hospital can improve the employees’ OCB by influencing their job satisfaction. Moreover,
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research conducted by Jahangir et al. (2004) revealed that job satisfaction and leadership style bring effect on the
employees’ OCB. Krishnan et al. (2009) conducted a research on 85 administration staffs of public higher educational
institutions in Malaysia, proving both intrinsic and extrinsic job satisfaction significantly affect OCB of the staffs
involved. Research done by Schappe (1998) indicated that job satisfaction significantly affects OCB. Additionally,
according to Alotaibi (2001), job satisfaction variables are frequently considered as antecedents of OCB within
organization.
This research aims to analyse the direct effects of servant leadership on OCB, direct effect of servant leadership on
job satisfaction, and indirect effect of servant leadership on OCB mediated by job satisfaction within educational
organization context, with teacher as the research subject.
Shweta and Srirang (2009) stated OCB is indicated by any form of efforts made under the employees’ discretion
providing benefits to the organization without demanding any reward whatsoever. OCB is influenced by two key factors
namely job satisfaction and servant leadership. Job satisfaction is resulted from the employee’ perception on how good
their job provides them with things deemed as important (Luthans, 2006:243). Similarly, Rivai and Mulyadi (2012:246)
mentioned that job satisfaction is the employees’ judgment on how far their job satisfies their overall needs. While,
servant leadership is a leadership style oriented toward servant leadership, knowledge-based practices, participatory,
responsibility aspect in the process, ethics and social values can defuse scandal or conflict within the organization.
Walumbwa, Hartnell, and Oke (2010) indicated that servant leadership can build employee's positive attitude and create
a working environment promoting the benefits for both individuals and team works. Johns (2006) and Ehrhart (2004)
further showed a strong relationship exists between leaders and followers with significant benefits of increasing the
organization’s effectiveness. Besides, servant leadership has a significant positive correlation with employee
satisfaction (Donghong, Lu, dan Lu, 2012).
H1: Servant leadership positively affects job satisfaction
Servant leadership can also bring influence on OCB Ehrhart (2004), which surveyed 298 employees of grocery
stores in the United States, and revealed a significant indirect relationship between servant leadership and OCB through
the mediating impact of prosedural justice climate. Neubertet al. (2008) stated the servant leadership through regulatory
focus has a significant and positive effect on OCB. Moreover, Liden et al. (2008) provided additional empirical
evidence regarding the relationship between servant leadership behavior and employees' behavior by using sample
involving 298 students from Midwestern University in the United States.
H2: Servant leadership positively affects OCB
According to Robbins and Judge (2008:113), job satisfaction should be a major determinant of the employees'
Organizational Citizenship Behavior (OCB). Outcomes of a study conducted by MacKenzie et al. (1998) showed job
satisfaction motivates employees to voluntarily perform OCB. Futhermore, Krishnan et al. (2009) conducted a study on
85 administrative staffs of public higher educational institutions in Malaysia, showing both intrinsic and extrinsic job
satisfaction significantly affect OCB of the staffs. Huang et al. (2012) performed reseacrch on nurses at hospital in
Taiwan, proving the hospital can improve the employees' OCB by influencing job satisfaction. Likewise, Jahangir et al.
(2004) showed job satisfaction affects the employees' OCB.
H3: Job satisfaction positively and significantly affects OCB
Job satisfaction is a mediating variable existing in the relationship between servant leadership and OCB. Kristof
(1996) in his study said that the use of servant leadership can increase job satisfaction, and the emergence of which can
improve the employees’ willingness and desire to play extra roles (high OCB) in the organization.
H4: Servant leadership positively affects organizational citizenship behavior under job satisfaction
mediating impact
Methods
This research employs causal research design, conducted in one of private school in Indonesia with permanent
teachers in junior high, senior high and vocational school as research subject. While, the research object is servant
leadership, job satisfaction and organizational citizenship behavior (OCB). The number of population in the research
was 85 people. Quisioner was distributed for data collection and Partial Least Square (PLS) approach was used to
examine the data collected (Sholihin dan Ratmono, 2013).

Based on the research outcomes, it was found that 65,21 percent of respondents aged between 46-55 years, with
equal proportion of male and femal respondents (50% respectively). The number of respondents awarded bachelor
degree reached 71,73 percent, and the rest have either lower or higher level of education. In addition, most of the
respondents have 11-20 years of work experiencewith proportion made up to 39,13 percent, While the rest have longer
work experience.
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Research outcomes showed the average value generated by each indicator are quite high. Respondents’ perception
towards organizational citizenship behavior is included as goodcategory with average value of 5,85. As regard
conscientiousness, providing report to supervisor and prior notification to co-worker when being absent got the highest
average value (6,34), meaning this sort of conduct is dominant in reflecting OCB construct. Degree of tolerance when
it comes to inconvenience in workplace has the lowest average value (5.23). Research outcomes indicated that most
respondents agreed to the proposed statement in the quisioner. Job satisfaction is representation of the employees'
attitude towards their job both pleasant and unpleasant condition in the workplace, also the balance between workload
and salary. Job satisfaction as variable consists offive dimensionsnamelysalary, career development, supervision, co-
workerand the job itselfwith average value of 5,82. Satisfaction with the opportunity to study on job indicator reached
the highest average value (6.21), meaning the behavior concerned is dominant in reflecting job satisfaction construct.
Income received by teachers according to the workload and responsibilities on pay indicator had the lowest average
score (5.63).
According to the information from research outcomes, it can be seen that most respondents answered agree to the
question posed. The average value of the servant leadership variable has an average value of 5.72, meaning the
respondents' perceptions of servant leadership is included as good category. Subordinates' anti corruption behavior
under trust indicator had the highest average value (6.06), meaning the behavior is dominant in reflecting the construct
of servant leadership. Leaders' persistance in difficulties for defending subordinates under service indicator had the
lowest average score (5.17).
Three criteria such as convergent validity, discriminant validity dan composite reliability were used in evaluating
outer model. Evaluation of the measurement modelbased on outer loading for reflective indicatorwith criteria i.e.
relective indicator shall be deemed valid if it has loading value of 0.50 and or t-statisticsvalue above 1.96. It means the
model has a convergent validity. The outcomes of this study indicated that all the reflective indicators of servant
leadership, job satisfaction and OCB in this study have met the convergent validity as there is no loading value under
0.50 or t-statistic value more than 1.96. The evaluation of measurement model based on cross loading was used to
assess whether or not the construct has good discriminant validity.Discriminant validity shall be deemed valid ifthe
cross loading of each indicatorof the related variablehas the highest value compared tothatof the other latent variables.
This research showed the cross loading obtained by eachlatent variable is higher than other latest variables, thus it can
be said that the latent variables have met the dicriminant validity. Moreover,it can be explained that all variables have
AVE value above 0.50, and √AVE value for each variable is higher than inter-variable correlation. The said outcomes
indicated the latent variables own indicators are better than those on other latent variables. Based on this analysis, it can
be seen that the data has a good discriminant validity. The last evaluation of measurement models is used based on
composite reliability where the composite reliability value of the three latent variableshas reached above 0.70, thus it
can be said that the composite reliability result is good and reliable.
Table 6
Dirrect Effect, Indirect Effectand Total Variable Effect
Direct Effect
Variables T Statistics
Coefficient
(|O/STDEV|)
Job Satisfaction -> OCB 0,813 4,800
Servant Leadership ->Job Satisfaction 0,749 8,661
Servant Leadership -> OCB 0,132 7,753
Indirect Effect
Total Effect
Source: Research Data Processing
Table6 shows that job satisfaction directly affects organizational citizenship behavior at 0,813 scale. Servant
leadership also directly affectsjob satisfactionat 0,749. Servant leadership has direct relationship with organizational
citizenship behavior at 0,132 scale. While, indirect effect of servant leadership on organizational citizenship behavior is
0,608. As of the total effect of servant leadership on organizational citizenship behavior reachsthe value of 0,740. The
oforementioned outcomes indicate that servant leadershipwill still affect OCB although without mediating impact of job
satisfaction.
This research indicates that servant leadership positively and significantly affects job satisfaction. It means servant
leadership bring real impact on job satisfaction. The outcomes of this study showsthat servant leadership is well
perceived by the teachers since they feel their income is worth compared to their workload and responsibilities, as well
asthe available opportunity of promotion to higher position, reward, and self develoment. Job satisfaction is not
onlyaffected bysatisfaction with supervisor, but also influenced bysatisfaction withsalary, job, promotion
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opportunityand co-workers. Those reasons motivate the employees to voluntarily take additional tasks or
responsibilities.
The outcomes of this research are in line with that of conducted byNetemeyer, Maxham, and Pullig (2005), which
found that servant leadership motivates employees to work and perform beyond the job basic requirements when
interacting with consumers. Walumbwa, Hartnell, and Oke (2010) showed that a conducive servant leadership can
improve employees’ positive attitude and create work environment promoting benefits for both individual and team
work. The outcomes of this research are also in line with the results of study conducted by Johns (2006) and Ehrhart
(2004), which further proved the strong relationship between leader and followers with significant benefits from
enhanced organizational effectiveness. Besides, servant leadership has a significant and positive correlation with
employees’ satisfaction (85%) (Donghong, Lu, dan Lu, 2012). Employees’ satisfaction is the key element in
determining organizational performance and effectiveness (Rehman, 2012).
Hypothesis testing results proved that servant leadership positively and significantly affects OCB. It means the
better the implementation intensity of servant leadership by Harapan School's Principal, the higher the OCB level of its
teachers. Conversely, the worse the implementation intensity of servant leadership by Harapan School's Principal, the
lower the OCB level of its teachers. These results indicate the leader's behavior brings a sense of pride and confidence
among subordinates, inspires and motivates subordinates, stimulates creativity and innovation of the subordinates, and
when leader treats subordinates individually and always train and provide tehwith guidance will certainly improve
subordinates' OCB. Improved OCB is indicated by the increasing behavioral initiative to assist or help colleagues
voluntarily and to maintain good relationship with co-workers in order to avoid disputes, willingness to accept anything
set by the organization even in unreasonable circumstances, high dedication to the job, and the desire to exceed
standards of achievement in every aspect, as well as the responsibility to get involved, participate, and engage in various
activities organized by the organization.
The above findings are in line withthat of found by Walumbwa, Hartnell, and Oke (2010), who conducted research
on servant leadership-OCB to 815 employeesin seven Kenya-based muntinational companies. The research outcomes
indicated thatservant leadership has indirect effecton OCB. Another studyon servant leadership effect on OCB was done
by Vondey (2010) with 114 samples across various industries in the United States. The study found partial direct
effectof servant leadership onemployees’ OCB. His findings also indicatedpositive effecton the relationship between
servant leadership and OCB. Güçel and Begeç (2012) investigated 67 administrative and faculty membersof private
university in Turkey with the objective of identifying servant leadership effect on OCB. The results showed that servant
leadership dimensions of vision and service positively and significantly affect OCB dimensions of sportmanship and
civic virtue. In line withresearch done by Güçel and Begeç (2012) on educational management in Turkeywith 300
samples from schools, universities, and teachers, Zehiri, Akyuz, Eren, dan Turhan (2013) foundthat servant leadership
positively affectsOCB and performance of teachers. This finding is also consistent with Baytok and Ergen (2013) whose
study identified positive relationship between Servant Leadership and Organizational Citizenship Behavior. Trust,
empowerment, and vision bring positive impact on OCB. In this instance, the teachers’ trust in the principaleffectively
encourages OCB.
Hypothesis testing results proved that job satisfaction positively and significantly affect OCB. It means, the higher
the job satisfaction level of teachers in Harapan School, the higher their OCB level. Contrariwise, the lower the job
satisfaction level of teachers in Harapan School, the lower their OCB level.
This study’s outcomes indicate the teachers having job satisfaction would raise the willingness to do the tasks
beyond their job description. Salary that is compatible with workload and responsibilities, interesting job that provides
learning opportunity, opportunity to accept job responsibility,chance to get a reward, promotion and advancement, self-
development, attention and good treatment from supervisor, provision of technical assistance to subordinates as well as
smart, friendly and mutually supportive colleagues in workplace will improve OCB of the teachers. Improving OCB of
the teachers can be done by increasing their job satisfaction.
The study's findings are in line with the outcomes of research conducted by Murphy et al. (2002), which found that
job satisfaction has a significant and positive relationship with OCB. Moreover, Schappe (1998) showed that job
satisfaction has a significant relationship with OCB. Krishnan et al. (2009) conducted a study on 85 administrative
staffs of public higher educational institutions in Malaysia, showing that both intrinsic and extrinsic job satisfaction
significantly affect OCB of the staffs. Research by William and Anderson (1991) found a positive relationship between
extrinsic with intrinsic job satisfaction and each dimension of OCB. Besides, this study is also consistent with research
done by Foote and Tang (2008), proving the relationship between job satisfaction and OCB is significant. The outcomes
of the research done by Huang et al. (2012) on nurse in Taiwanese hospital proved the hospital can improve the nurses'
OCB by influencing job satisfaction. Jahangir et al. (2004) showed that job satisfaction affects employees' OCB.
An examination of mediating variables proved that job satisfaction serves as mediating variables (full mediation).
The results of the test revealed that in improving the OCB of Harapan School's permanent teachers, job satisfaction
significantly affect the teachers in connection with the relationship between servant leadership and OCB. Since the
teachers feel satisfied, they voluntarily do the tasks beyond their job description. Servant leadership demonstrated by
principal has not been able to increase the teachers' OCB or in other words servant leadership could not improve the
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teachers' OCB without the mediating impact of job satisfaction. In this instance, job satisfaction as mediating variable
has a significant effect (real) on the increased OCB of Harapan School' teachers.
This finding is consistent with the statement of Jahangir, et al. (2004: 79), Alizadeh, Darvishi, Nazari, and Emami
(2012: 500)suggested that some of the most important factors affecting OCB include leadership behavior and job
satisfaction. The statement saying job satisfaction as a mediator is in line with a research conducted by Kristof (1996)
on job satisfaction factors which found two distinct groups: (1) work environment and job-related factors, and further
developed as how employees are treated, respected and valued, job characteristics, the collegiality of the co-worker and
relationships with co-worker as well as salary, which are considered as components of the first group; (2) individual
characteristics, previous work experience are considered as components of the second group of this job satisfaction
antecedents. In this study, it is relevant to use leadership, particularly servant leadership and transformational behaviors,
as job satisfaction antecedents, because leadership considered as component of the first group of the job satisfaction
antecedents and it relates to people in the workplace.
Conclusions
There are several conclusions that can be drawn from this study i.e. servant leadership positively and significantly
affects job satisfaction. It shows that the better the servant leadership implementation perceived by Harapan School’s
teachers, the higher their job satisfaction. In addition, it is known that servant leadership positively and significantly
affects organizational citizenship behavior. It means the better the servant leadership implementation perceived by
Harapan School’s teachers, the better their organizatinal citizenship behavior. Moreover, this study also found that job
satisfaction has positive and significant impact on organizational citizenship behavior. It means, the higher the job
satisfaction level of Harapan School’s teachers, the better their organizational citizenship behavior. Lastly, job
satisfaction as a mediating variable has positive and significant (real) impact on the relationship between servant
leadership and organizational citizenship behavior of Harapan School’s teachers. An examination of mediating
variables proved that the job satisfaction as a mediating variable has VAF value of 0.822, or 82.2 percent. As regard the
relationship between OCB and servant leadership, job satisfaction as mediator in fact brings job satisfaction to Harapan
School’s teachers. With job satisfaction the teachers are willing to voluntarily perform additional task beyond their job
description.
Some suggestions can be given based on the outcomes of this stud such as the leader, in this instance the school
principal and the government, should put wherever possible more attention on servant leadership behavior. It is because
servant leadership is a decisive variable in improving OCB among permanent teachers in private schools. In respect of
respondents' perceptions of servant leadership, the school principal should always give more attention and advocacy on
the needs of the subordinates, appreciate individual differences, as well as provide them with training and directiona as
it predominantly reflects the construct of servant leadership.The school principal should give more attention on the
efforts to increase the salary of the teachers according to the workload and responsibilities imposed, because in the case
study the salary (pay) got the lowest average value. Further research is expected to expand the research orientation into
larger organizational scope, both in public and private schools at the district, provincial level or other private
educational institutions, so these findings may differ from any research conducted in other area or other institutions
taking into account the cultural differences of each region or institution.
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I Dewa Nyoman Sudarta was born in Denpasar. He received his Master in HR Management from Udayana University,
Indonesia. His research focuses on HR Management and organizational behaviour.
Desak Nyoman Sintaasih was born in Denpasar. She received her Doctorate in strategic management from Brawijaya
University, Indonesia. Her research focuses on strategic management, strategic HRM, and HR practices.
Agoes Ganesha Rahyuda was born in Denpasar. He received his PhD in management from the University of Kent,
UK. His research focuses on recruitment, training and development, and compensation.
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CREDIT RISK MANAGEMENT OF DE LA SALLE SCHOOLS IN LUZON
Maria Delia Miraña Poot, MMT
De la Salle Lipa, Philippines
maridelmpoot@yahoo.com
Abstract
The main goal of an educational institution is to maintain its stability and to improve its growth and sustainability.
Thus, educational institution needs to focus on effective credit and collection management to avoid credit risk. This
study assessed the credit risk management (CRM) of the De La Salle schools in Luzon, Philippines. This study aimed at
knowing the profile of the respondents to determine their reliability on the 5Cs as standard basis of credit. This study
further determined the significant relationship of profile between the standard basis of credit and the impact of CRM to
the institution. Descriptive and correlation research designs were utilized. Respondents were the Chief Finance Officer,
Controller, Finance Director and the employees from the Finance Services Group of the De La Salle schools in Luzon.
Findings showed that the expectation of the respondents from effective CRM improved the collection efficiency of the
institution. Moreover, adequate training and effective communication on credit risk are crucial to better understand the
credit management objectives. Results of the study served as the basis in providing the relevant suggestions for an
efficient and sustainable credit delivery and prudent credit decision.
Keywords: Credit Risk, Credit Decision, Credit Policy
Introduction
Managing credit risk in an educational institution is an integral part of the credit control process of an organization.
Educational institutions are handling the accounts of the students. Most of the time, there are students who were not
able to take the examinations as scheduled due to default of payments. The researcher believed that knowing the credit
risk management of an educational institution is vital to maintain its stability and to improve its growth and
sustainability. Credit risk management also presents an opportunity to greatly improve the overall performance of the
institutions.
Credit risk is a default of payment for the committed loan. It occurs when a lender fails to receive money from the
borrower. It also refers to the probability of loss due to a borrower’s failure to make payments on any type of debt. The
creditor has a great responsibility to monitor properly the accounts of both the internal and external customers.
Establishing an effective communication with the customers plays a vital role in controlling credit.
Credit risk can be defined as the potential that a contractual party will fail to meet its obligations in accordance with
the agreed terms. Credit risk is also variously referred to as default risk, performance risk or counterparty risk. These all
fundamentally refer to the same thing; the impact of credit effects on a firm’s transactions. There are three
characteristics that define credit risk: exposure to a party that may possibly default or suffer an adverse change in its
ability to perform, the likelihood that this party will default on its obligations and the recovery rate that is, how much
can be retrieved if a default takes place (Brown & Moles, 2014).
Credit granting is a risk. The risk increases proportionately to the size of the credit applied for. A creditor, therefore,
has to weigh very carefully all the risk involved in credit extension of any amount, especially large one. All creditors
follow their own guidelines for determining the risk factor” or degree of risk of a prospective debtor. The credit risk
management process involves the judicious, timely and prudent checking of the five basis of credit; character, capacity,
capital, condition, collateral in applicable cases (Sison, 2012).
Credit risk management plays a vital role in the performance of the institution as it analyzes creditworthiness of
borrowers. If there is any loophole in credit risk assessment, then the recovery of the provided loans and advances is
challenged greatly. As a whole, profitability falls in a great uncertainty. A bad loan often arises from different factors or
combination of factors, but the most important reason is the absence of proper loan classification system. It can identify
problem loans immediately and take steps necessary to minimize potential defaults and consequent losses. Poor credit
risk management is often the reason of bankcruptcy (Ghosh, Islam, Hasan, 2014). To ensure proper risk management
without compromising on volume of credit/lending operations, one has to also ensure that the credit risk management
framework is appropriately designed and implemented (Arora, 2012).
Creditriskmanagement is a key issue for any company at anytime, but is especially important in the case of the
banking industry. This fact is more than evident in times of financial crises, when financial institutions can suffer high
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losses due to unpaid credits (Garcia, 2012). According to the study of Njanike (2009), the failure to effectively manage
credit risk contributed to a greater extent to the banking crisis. There is also need for banks to develop and implement
credit scoring and assessment methodologies, review and update the insider lending policies and adopt prudential
corporate governance practices. A number of financial institutions have collapsed or experienced financial problems
due to inefficient credit risk management systems. Credit risk is defined as the possibility of losses associated with
diminution in the credit quality of borrowers or counterparties (Bodla & Verma, 2009). Credit risk strategy is more
complex because it relates not only the development of credit policy, but also to the planning of the risk position. This
phase determines the sustainability of profits in the medium to long term. From an operational standpoint, risk strategy
should be developed once a year, during the planning processes, with input from the sales, capital management, and
planning functions (Giordani & Menghini, 2008). There is a need for a system, which will ensure close collaboration
between the grant of credit and its collection (Pagoso, 2010).
Character to a credit applicant comprises his inherent integrity and personal character. The credit applicant’s
personality, moral values, family, social and business relationships must be scrutinized to determine whether or not he
has the moral qualifications to enter into a credit transaction Capital is the property the credit applicant own in his name
whether movable or immovable. Capacity is the ability of the credit applicant to earn enough to repay credit obtained.
Condition refers to the debtors existing physical, economic, financial, and political situation in his place of
residence/business. Collateral refers to the properties whether personally owned or owned by another person that the
credit applicant is able to give as security for the credit obtained (Sison, 2012).
This paper intended to analyze the credit risk management of the De La Salle Schools in Luzon namely, De La Salle
Lipa in Lipa City, Batangas, De La Salle University-Dasmarinas in Cavite, De La Salle Health Sciences Institute in
Dasmariñas, Cavite, De La Salle University-Science and Technology Complex in Biñan, Laguna, De La Salle, Zobel,
De La Salle Araneta University in Malabon City, La Salle College Antipolo, De La Salle College of Saint Benilde, and
De La Salle University, Manila.
The paper was based on the conceptual framework Ankrah (2013) on how to analyze credit risk management. The
researcher made some minor modifications on Ankrah’s original concept to make it more applicable to an academic
institution. This paper was based also on the conceptual framework from the No Non Sense Credit and Collection
Discipline – Power; Credit Risk Management Process involves the C’S of credit; character, capacity, capital, condition
and collateral (Sison, 2014). The Credit Lending Process from the Credit Risk Management Seminar sponsored by the
Credit Management Association of the Philippines (CMAP).
Credit risk management in a financial institution starts with the establishment of sound lending principle and an
efficient framework for managing the risk. Credit risk management is an integral part of the loan process. Adequately,
managing risk in financial institutions is critical for the survival and growth of the financial institution (Ankrah, 2013).
Methods
The study used correlation to determine if the profile of the respondents responsible in CRM is significantly related
to the impact of CRM and the standard basis of credit. Descriptive research design was employed to determine the
demographic profile of the individuals who are responsible in credit risk management (CRM). The expectation on the
effective CRM was determined in terms of reduce financial loss, improve communication with the stakeholders,
improve decision making, improve resource allocation, and improve collection efficiency. The respondents were asked
on the availability of a CRM policy, the guidelines to support the goals and objectives of CRM and whether the
respondents do understand the CRM guidelines or policy. In addition, the number of times the institution changes its
CRM policy to support the development of CRM in the future was determined. The training for employees in CRM and
how often the institution provide CRM training courses to their employees were also considered as important variables
in this study, Furthermore, the study also determined if there is an effective communication of the CRM policy to
different stakeholders which includes the procedures for keeping the stakeholders up-to-date and informed with any
changes in the guidelines or policy. Lastly, the study investigated the impact of CRM to the institution, knowing if the
company has internal credit rating system, the challenges of the institutions on CRM and the process or methods used
by the institution in managing the risk.
The study was conducted at the De La Salle Schools in Luzon with total enumeration participated by the employees
of the Finance Services Group and the head of the Finance Services Group of each school, particularly, the Chief
Finance Officer, Controller or the Finance Director. The data gathering was done through the researcher’s proper
scheduling of visit to each school depending on the availability of the respondents. The study applied the percentage,
frequency distribution and the mean of the available data collected from the educational institutions in Luzon.
The instrument that was used in gathering the required data was adapted questionnaire of Ankrah’s (2013) concept
on how to analyze credit risk management. The researcher made some minor modifications on the questionnaire of
Ankrah’s original concept to make it more applicable to an educational institution.
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The most number of respondents were from De La Salle Health Sciences Institute with 21.6% while the least were
from De La Salle-Zobel and De La Salle University-Manila, both with 2.7%. The researcher requested the employees of
the Finance Services Group-Credit and Collection Section, the Finance Director, and Controller of each school to
participate in the study. Majority of the respondents belonged to 31-40 age bracket with 32.4%. The least number of
respondents belonged to 21-30 age bracket with 13.5%. Results revealed that majority of the respondents were in the
appropriate age level of handling the delicate tasks in the Finance Services Group, Credit and Collection Section.
Majority of the respondents were female with 75.7%. Only 9 were male or its equivalent of 24.3%.
The most number of respondents were Finance staff with 32.4% and the least number of respondents were Finance
Director with 5.4%. It can be clearly noticed that the respondents were from the Finance Services Group of the
institutions who have the knowledge of managing the accounts receivable. Majority of the respondents are Bachelor’s
degree holder with 83.8%. The respondents were all qualified employees of the Finance Services Group responsible in
managing the accounts receivable. Majority of the respondents had more than 5 years of experience with 70.3%. The
least number of respondents had 1-2 years and 3-5 years of experience with 8.1% both. It indicates that the employees
more than five (5) years of experience are equipped with the knowledge pertaining to the management of credit risk
within the Finance Services Group.
The results revealed that majority of the respondents expected that the CRM would improve collection efficiency,
the Head of Financial Control has the highest authority to establish the CRM policy with a count of 15 or 37.5% and the
CFO with a count of 13 or 32.5%. In the Finance Services Group, the Chief Finance Officer and the Controller are the
key officers who have a very big responsibility and have the authority to establish the CRM policy and procedure. The
institution has no documented CRM guidelines with 62.2% and documented CRM guidelines for proper monitoring is
very crucial for the Finance Services Group of the institution and its availability will reduce the risk in the institution.
The 40.5% of the respondents revealed that the guidelines support the goals and objectives of CRM, 37.8% revealed
that the guidelines do not support the goals of CRM, and 21.6% did not declare, 45.9% revealed that they understand
the CRM guideline or policy, 37.8% of the respondents do not understand the CRM guideline, and 6 or 16.2% did not
declare.
The results revealed that the institution should change its policies to manage credit risk between two to three years
with 35.1%. while 48.6% of the respondents revealed that the institutions have no policy to support the development of
CRM. Majority of the respondents with 78.4% revealed that the institution do not offer CRM trainings for the
employees. The Finance Services Group must allocate funds for training on CRM. It should be part of the institution’s
annual budget. Majority of the respondents revealed that the institution never provides CRM training courses with a
67.10%.
The best way of effective communication of CRM of the institutions is regularly communicating among
management and staff to reduce credit risk. Results revealed that the institutions have the procedure for keeping up-to-
date and informed with changes in regulations with a count of 17 out of 37 or 45.9% and similar count of 17 or 45.9%
revealed that there is no procedure for keeping up-to-date changes, while 3 or 8.1% did not declare. Majority of the
respondents revealed that the institutions do not have the internal credit rating system with 67.6%.
It was found out that the impact of CRM to collection efficiency has a mean score of 3.2286, reduces cost; mean
score of 2.9118, increases retention of good clients; mean score of 3.0294, reduces loan default; mean score of 3.0588
and prevents fraud with a mean score of 2.0294. Based on the results, the impact of the CRM is above average with a
composite mean of 3.0514. The results revealed that the CRM had a great impact on collection efficiency with the
highest mean score of 3.2286.
The reliability of the employees of the Finance Services Group on the standard basis of credit was found that
character had a mean score of 2.7222, capacity; mean score of 2.8333, capital; mean score of 2.7500, collateral; mean
score of 2.6667 and condition with a mean score of 2.5833. Based on the results, capacity had the highest mean score of
2,8333 which meant that it is very important in the credit decision process to look into the capacity of the customer. The
importance of the standard basis of credit is above average with a composite mean of 2.7111.
The respondents revealed that the institutions follow the Lending Decision process as to Credit Policy and
Information Needs with 43.20%.
Results revealed that profile is not significantly related to the impact of credit risk management (p-values > 0.05).
Age and education were positively related to the impact of credit risk management, which indicates that those who are
older and have higher level of educational attainment have better perception of the impact of CRM. In contrast, years of
experience showed a negative relationship to the impact of credit risk management. This means that those who have
shorter tenure in the school have better perceptions of the impact of CRM. For the relationship between profile and the
standard basis of credit, out of 36 relationships, only 3 relationships were found to be significant as follows: a) position
and character; b) position and 5C’s of credit; and c) gender and 5C’s of credit. Further all relationships were positive.
This means that older respondents with longer tenure and higher level of educational attainment perceived better
reliability of the employees of the Finance Services Group on the standard basis of credit as to character, capacity,
capital, collateral, and condition. The 5 Cs of credit was popularly used by most of the banks in order to determine and
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analyze the request for a loan and before granting the credit.
Challenges of the institutions on CRM

The respondents revealed that the challenges being faced by the institutions are increased workload and staffing, the
implementation procedure, the institution does not have credit assessment criteria in order to be considered a factor for
solution to enrollees, some students who do not have sufficient amount of money to pay during enrolment and
examinations, and uncertainty in the financial status of stakeholders. Another challenges are to discover and to analyze
what risks exist and how to handle those risks in a way best suited to the objectives of the institution. The respondents
also revealed that they can give is quality education and sometimes credit risk is less of priority. No formal training
which is a sign of non-commitment by top management in credit risk management. The credit risk management give a
right decision making, strategic focus and more responsible to actual credit exposure.
The methods or process used by the institution in managing credit risk.

They do not allow enrolment if the student has back accounts, issuance of postdated checks, listing of clients with
default in payments and bounced checks which will not be allowed to issue promissory notes, weekly monitoring of
accounts receivable, endorsement of accounts receivable to collecting agency for long due accounts, use of surcharge
for late payment. To verify and analyze credit risk, there should be tools, methods, training and service in managing
credit, established policy on non-releasing of cards and other documents for those who have unpaid accounts, clearance
process to proceed with next semester/term. Students who can’t pay in full are required to give promissory notes.
Retention of students credentials for unpaid graduates, background check and face-to-face interviews, the presence of
institutional policies of holding the school documents of the students with old account and acceptance of credit card
payment to reduce accounts receivable. Finally, they are improving system of collection.
References
Ankrah, G. (2013) Credit risk management. Academia. Retrieved from

https://www.google.com.ph/?gfe_rd=cr&ei=PNG7VMH9O8yL8QfhlIGwAg&gws_rd=ssl#q=credit+risk+managem
ent+by+Ankrahhttp
Arora, A. (2012) The impact size on credit risk management strategies in commercial banks: The empirical evidence
from India. IUP Journal of Financial Risk Management, 9(3),24-44. Retrieved from
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Bodla, B.S. & Verma, R. (2009) Credit risk management framework at banks in India. IUP Journal of Bank
Management 8 (1), 47-72. Retrieved from http://search.proquest.com/business/docview/
197117669/17B48B3EBACD4C10PQ/1?accountid=28547
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https://www.ebsglobal.net/EBS/media/EBS/PDFs/Credit-Risk-Management.pdf
Garcia, Gimenez, & Guijarro (2012) Creditriskmanagement: A multicriteria approach to assess creditworthiness.
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Ghosh, Islam, & Hassan. (2014). Credit Risk Management: An empirical study on BRAC Bank Ltd. Business
Management. ASA University Review, 9(2)71-84. Retrieved from
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c0f1b14fd1c1%40sessionmgr4009&hid=4209&bdata=JnNpdGU9ZWhvc3QtbGl2ZQ%3d%3d#AN=116350673&d
b=a9h
Giordani, T. & Menghini, F. (2008) Credit risk strategy and the sustainable profitability and risk appetite in consumer
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Njanike, K. (2009). The impact of credit risk management to bank survival. Annals of the University of Petrosani
Economic ,9 (2), p173-184. Retrieved from: http://web.a.ebscohost.com/ehost/results?sid=02886c14-db16-44f2-
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mdHlwZT0wJnNpdGU9ZWhvc3QtbGl2ZQ%3d%3d
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Pagoso, C. (2010). Money credit and banking (1st edition). Sampaloc, Manila: Rex bookstore, Inc.
Sison, N.E., Sison, N.F., Sison, M.O. (2012). No nonsense credit and collection discipline-power (4th Edition). Makati
City: Business Assistance, Credit Corporation (Bagco Credit).
About the Author
Maria Delia Miraña-Poot, Master in Management Technology, 2008 at De La Salle Lipa, Philippines. She is presently
connected with De La Salle Lipa, Lipa City, Batangas, Philippines for 8 years as full time faculty member of the
Business Administration Department, in the area of Finance and Economics under the College of Business Economics
Accountancy and Management since 2008. She is also an entrepreneur She worked at the Asian Institute of
Management (AIM) from 1989 to June 2008. She studied at the Lyceum of the Philippines with the degree of Bachelor
of Science in Business Administration major in Accounting and Economics, Cum Laude and currently pursuing the
degree of Doctor in Business Administration at the Lyceum of the Philippines University.
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THE EFFECTS OF SELF ESTEEM AND MORTALITY SALIENCE ON ATTITUDE AND

PRICE OF COUNTERFEIT PRODUCTS, TERROR MANAGEMENT THEORY
APPLICATION
Putu Saroyini Piartrini
University of Udayana, Bali, Indonesia
royetrini@unud.ac.id,royetrini@gmail.com
Abstract
Gross domestic product of Republic Indonesia has been suffering from counterfeit product transaction. Survey
conducted by University of Indonesia in 2014 reported that the loss made by counterfeit transaction was approximately
65 billion (IDR). Because of counterfeit product, original product could suffer from decreasing sales level and at the
same time made unemployment level increased. Actually, Indonesia has been socializing Intellectual Property Right Act
since 2002 but we still need to find a breakthrough to control counterfeit sales. The study explored the role of mortality
salience, one of psychosocial variables on attitude and average price of counterfeit product from perspective Terror
Management Theory. Data were accumulated from 380 Senior High School students to test worldview defense
hypotheses. The results reported that in low mortality salience condition, individual attitude toward counterfeit product
was more positive than in high mortality salience condition. In high mortality salience condition the average price of
the counterfeit product was lower than that in low mortality salience condition. In addition, the effect of psychosocial
condition, individual self esteem also moderated significantly the relationship between mortality salience and attitude
as well as average price of counterfeit product. In high mortality salience condition, counterfeit attractiveness was
lower particularly for high self esteem individuals than in low mortality salience condition. Individual self esteem is
important to control attitude toward counterfeit and its affordable price. The findings made positive contribution in
finding out the way to lessen counterfeit sales from demand side by communicating the impact of counterfeit product
usage on individual self concept. Further research is recommended to test the effect size of self esteem and mortality
salience condition.
Keywords: Mortality Salience, Self Esteem, Attitude, Price
Introduction
Gross Domestic Product (GDP) of Republic Indonesia has been suffering from counterfeit product transaction.
Survey conducted by University of Indonesia in 2014 reported that the loss made by counterfeit transaction was
approximately 65 billion (IDR). Because of Counterfeit product, original products could suffered from decreasing sales
level and at the same time and made unemployment level increases. Actually, Indonesian Government has been
socializing Intellectual Property Right Act since 2002. Indonesian Anti-Counterfeiting Society (IACS) also
discouraging counterfeits availability from the supply side by introducing Indonesian Clean Mall Award since 2015.
However, we still need to find a breakthrough to control counterfeit sales.
A number of researchers reported the influencing factors of consumers’ intention to buy counterfeit products.
Among those who collected counterfeit products were reported that counterfeit products delivered value, satisfaction
and status, which is similar to the original luxury products. They also reported intention to buy original brands (Nia and
Zaichkowsky, 2000). Consumers bought counterfeit products because of its ability to create value for their money.
Adult consumers selected a counterfeit garment over the original ones when there was a price advantage (Bloch et al.
1993). Purchasing counterfeit product was also reported to get the prestige of branded products without paying for them
(Cordell et al. 1996). Intention to buy counterfeit product were driven not only buy its lower price with authentic design
but also the prestige delivered by the original brand names.
Social status which was defined as the motivational process by which individuals strive to improve their social
standing through conspicuous consumption of consumer products that confer or symbolize status for both individuals
and surrounding others also reported influenced consumers’ intention to buy counterfeit products (Eastman et al. 1999).
It was because branded products made consumers able to communicate a positive image to those who surround them, so
that the willingness to purchase counterfeits significantly associated with social status. Previous research indicated that
consumers who purchase counterfeits believe they obtain the prestige delivered by the real luxuries (Ang. et al., 2001).
Research findings reinforced the reality that counterfeit products were bought for what they represent in the buyer’s
social environment. Wilcox et al. (2009) explained that the attitude toward luxury brands predicts the intention to buy
counterfeit products, and consumers responded more favorably to image appeals when such appeal was consistent with
their social goal of projecting a particular image in social settings. Penz and Stottinger (2008) conducted research in a
European Union country which involved 127 consumers, uncovered that perceptions of both original brands and
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counterfeits were considered to enhance consumers’ self-esteem and promote a certain status within a peer group.
Consumers’ aspirations influenced consumption motivation, and influenced consumers’ actions. Research findings
confirmed that intrinsically oriented goals of consumption were included self-acceptance, affiliation, community
feeling, and physical healthand safety goal while extrinsically oriented goals were included financial success, image,
and popularity(Grouzet et al., 2005; Kasser& Ryan, 1996; Kim, Kasser, & Hoonkoo, 2003; Sheldon, Ryan, Deci, &
Kasser, 2004).
From Terror management theory perspective (J. Greenberg, T. Pyszczynski, & S. Solomon, 1986) people were
motivated to pursue positive self-evaluations because self-esteem provided a buffer against death anxiety stimulated by
death event exposure that called high mortality salience condition. Research evidences showed that high levels of self-
esteem reduceddeath anxiety and defensive behaviors. Reminding ones mortality increased world-view defense self-
esteem striving reactions.
Terror management theory stated that cultural worldview weakened death anxiety effect. Reminding one own death
motivated to defend that cultural worldview. Greenberg et al. (1990) reported that having reminded their own death,
American participants got evaluated two essays written by foreigner that either attack or support US policies. Result
indicated that participants’ attitude toward pro US subject was more positive than anti US subject. Mc. Gregor et al.
(1990) also reported that reminding participants death Led to more physically aggressive behavior to those who
challenge their political belief, Jonas, et al. (2005) found that the activation of death-related thought led German
participants to voice decreased support for the Euro and increased support for the German Mark, preferences for goods
of German origin. Thus, Germans in this study were more negative toward that which threatened their economic system
and those products that were not of national origin
High levels of self-esteem weakened the effect of mortality reminder on both self-esteem striving and worldview
defense behaviors.The findings indicated that subjects who were exposed to death became more greedy and consumed
more resources in a forest-management game (Kasser & Sheldon, 2000).Different research conducted by Mendel and
Naomi(1999) found that subjects who were thinking about their own deaths were significantly more interested in
luxury cars or prestigious watches than low status items. Meanwhile, subjects who didn’t thinking about their own
death rated low-status items relatively similar to luxury ones. Mortality salience condition was predicted increasing the
desirability of high status products.The effect occurred primarily among low self-esteem consumers.Low self-esteem
participants responded to mortality salience activation by purchasing more (Mandel & Smeesters, 2008). Consumers
who were exposed to death-related stimuli reported higher amounts of purchasing and consumption luxuries than their
control counterparts (Fernández Moya, M. E., 2012).
Based on worldview defense hypothesis of terror management theory and its empirical evidences, relationship
among mortality salience, attitude and affordable of counterfeit product were formulated as:
H1a: Attitude toward counterfeit products of individuals with low self esteem, was significantly higher than those with
high self-esteem.
H1b: Willingness to pay counterfeit products of individuals with low self esteem, was significantly higher than those
with high self esteem.
H2a: In high mortality salience condition, Attitude toward counterfeit products was lower than in normal condition.
H2b: In high mortality salience condition, willingness to pay counterfeit products was lower than in normal condition.
H3a: Attitude toward counterfeit products of individuals with high self esteem significantly lower than that of
individuals with low self esteem in high mortality condition.
H3b:Willingness to pay counterfeit products of Individuals with high self esteem significantly lower than that of
individuals with low self esteem in high mortality condition.
Materials and Methods

Experiment involved 380 students of High School in Denpasar. 200 were female students. Their ages were between
16 – 18 years old. Subjects were randomly classified in high mortality salience condition and normal condition. Death
thought manipulation was conducted by asking participants to write down what would happened when they were
actually die and how was their feeling when they aware that death was something unavoidable or what would happened
when they went to the dentist for control group. They then completed the PANAS scale (Watson, Clark, Tellegen,
1988) and word puzzle. Finally, they asked to complete word completion scale.Three products were initially used as
stimuli because they were familiar for the students such as sport shoes, ball point and t-shirt. Self esteem was measured
by self esteem scale (Rosenberg, 1965). Attitude toward counterfeit was measured by Likert scale with five intervals,
comprising three indicators. Willingness to pay for counterfeits was measured by filling out the amount of price
afforded by participants of Nike sport shoes as stimulus. Data were analyzed by ANOVA to test research hypotheses
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Factor analysis showed that self esteem and attitude data were valid with total explained variance = 0.68 and 0.63.
A Cronbach Alpha test of reliability = 0.71 and 0.73 respectively. The result revealed not only the main effect of
mortality salience (F(1,378) = 8,46;p=0,04) on attitude toward counterfeit product and willingness to pay for counterfeit
products (F(1,378) = 6,13;p=0,03), but also main effect of self esteem on attitude toward counterfeits (F (1,378)
=7,34;p=0,02) and willingness to pay for counterfeits (F (1,378)=8,68;p=0,04). In mortality salience condition individual
afforded lower price (M= Rp.210.000,-Vs M= Rp.245.000) for counterfeit products than control counterparts and had
more negative (M= 2,31 Vs M=3,42 ) attitude toward counterfeits. Result also indicated that High self esteem
individuals afforded lower price for counterfeit products (M= Rp.170.000 Vs M= Rp.230.000) and had more negative
attitude toward counterfeits (M= 2.1 vs M=3.3). The interaction effect of self esteem and mortality salience indicated
that in mortality salience condition average affordable price of high self esteem individual was lower than that of low
self esteem individual (M=Rp.150.000 Vs M=Rp.190.000; t=2,25;p<0,05). The attitude toward counterfeits of
individuals with high self esteem was more negative than that of low self esteem ( M = 2.4 vs M=3.1; t=2.32 ; p<0.05).
The research findings uncovered that appreciation and counterfeit attractiveness in mortality salience condition
product was lower than in normal condition, especially for those who have high self esteem. It was because purchasing
counterfeits violated cultural worldview and decreased individual self esteem. Negative attitude toward counterfeits
was a reflection of worldview defense mechanism to maintain individual self esteem. Willingness to pay individuals
for counterfeit product was lower in mortality salience condition than in normal condition. Value of counterfeit
products in mortality salience condition was also lower than in normal condition. The findings were consistent with
previous empirical evidences regarding worldview hypothesis (Greenberg et al.1990; Mc. Gregor et al.1990, Jonas, et
al.2005). The effect of self esteem on attitude and affordable price of counterfeit products were also consistent with
findings reported by Greenberg, Pyszczynski, Solomon(1986). Individuals with high self esteem discouraged
counterfeits purchase because of its negative impact on their self esteem. Counterfeit products was illegal because it
violated Intellectual Property Right Act that perceived could have negative impact on individual self esteem.
Purchasing counterfeit products perceived as attacking cultural worldview. Implication of the finding is that social risk
of usage counterfeit products should be communicated to build individuals awareness. Limitation of the present study
was not taking into account the effect of Intellectual Property Right Act familiarity on attitude toward counterfeits and
intention to buy counterfeit products. If individual knowledge regarding Intellectual Property Right Act relatively low,
will it affect attitude toward counterfeit products and its affordable price. Further development need to accommodate
those aspects in model of intention to buy counterfeit using different sample unit to test consistency of the results.
References
Arndt, J.,Solomon, S., Kasser, T., & Sheldon, K. M. (2004). The urge to splurge: A terror management account of
materialism and consumer behavior.Journal of Consumer Psychology, 14(3), 198-212.
Bloch, P. H., Bush, R. F., & Campbell, L. (1993). Consumer “accomplices” in product counterfeiting: a demand side
investigation. Journal of Consumer Marketing, 10(4), 27-36.
Cordell, V. V., Wongtada, N., &Kieschnick, R. L. (1996). Counterfeit purchase intentions: role of lawfulness attitudes
and product traits as determinants.Journal of Business Research, 35(1), 41-53.
Eastman, J. K., Goldsmith, R. E., & Flynn, L. R. (1999). Status consumption in consumer behavior: Scale development
and validation. Journal of Marketing Theory and Practice, 7(3), 41-52.
Fernández, Moya, M. E. (2012). Purchase and consumption of luxury goods.
Greenberg,J.,Pyszczynski,T.,&Solomon, S. (1986). The causes and consequences of a need for self-esteem: A terror
management theory. InPublic self and private self (pp. 189-212).Springer New York.
Grouzet, F. M.,Kasser, T., Ahuvia, A., Dols, J. M. F., Kim, Y., Lau, S., ...& Sheldon, K. M. (2005). The structure of
goal contents across 15 cultures.Journal of personality and social psychology, 89(5), 800.
HoonAng, S., Sim Cheng, P., Lim, E. A., &KuanTambyah, S. (2001). Spot the difference: consumer responses towards
counterfeits. Journal of consumer Marketing, 18(3), 219-235.
Jonas, E., Fritsche, I., & Greenberg, J. (2005).Currencies as cultural symbols–an existential psychological perspective
on reactions of Germans toward the Euro. Journal of Economic Psychology, 26(1), 129-146.
Kasser, T., & Ryan, R. M. (1996). Further examining the American dream: Differential correlates of intrinsic and
extrinsic goals. Personality and social psychology bulletin, 22(3), 280-287.
Kim, Y., Kasser, T., & Lee, H. (2003).Self-Concept, Aspirations, and Weil-Being in South Korea and the United
States. The Journal of Social Psychology,143(3), 277-290.
Kasser, T., & Sheldon, K. M. (2000). Of wealth and death: Materialism, mortality salience, and consumption
behavior. Psychological science, 11(4), 348-351.
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Mandel, N., & Heine, S. J. (1999). Terror management and marketing: He who dies with the most toys wins. NA-
Advances in Consumer Research Volume 26.
Mandel, N., &Smeesters, D. (2008). The sweet escape: Effects of mortality salience on consumption quantities for high-
and low-self-esteem consumers.Journal of Consumer Research, 35(2), 309-323.
Nia, A., & Lynne Zaichkowsky, J. (2000). Do counterfeits devalue the ownership of luxury brands?. Journal of Product
& Brand Management, 9(7), 485-497.
Penz, E., &Stöttinger, B. (2008). Original brands and counterfeit brands—do they have anything in common?. Journal
of Consumer Behaviour, 7(2), 146-163.
Phau, I. (2010). Predictors and purchase intentions of counterfeits of luxury branded products.
Pyszczynski, T., Greenberg, J., Solomon, S., Arndt, J., &Schimel, J. (2004). Why do people need self-esteem? A
theoretical and empirical review.Psychological bulletin, 130(3), 435.
Rosenberg, M. (1965). Rosenberg self-esteem scale (RSE). Acceptance and commitment therapy. Measures
package, 61.
Sheldon, K. M., Ryan, R. M., Deci, E. L., &Kasser, T. (2004). The independent effects of goal contents and motives on
well-being: It’s both what you pursue and why you pursue it. Personality and social psychology bulletin, 30(4), 475-
486.
Watson, D., Clark, L. A., &Tellegen, A. (1988). Development and validation of brief measures of positive and negative
affect: the PANAS scales. Journal of personality and social psychology, 54(6), 1063.
Wilcox, K., Kim, H. M., &Sen, S. (2009). Why do consumers buy counterfeit luxury brands?. Journal of Marketing
Research, 46(2), 247-259.
Author’s Bibliography.
Putu Saroyini Piartrini was born in Yogyakarta in 1964. She completed Doctoral Program, University of Indonesia in
2008. Major research interests in consumer behavior, employee behavior and organization development.
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PSYCHOLOGICAL EMPOWERMENT AND ORGANIZATIONAL COMMITMENT: THE

EFFECT ON PERFORMANCE OF RURAL COMMUNITY CREDIT UNION IN
BADUNG REGENCY, BALI PROVINCE
Desak Ketut Sintaasih1), I Gusti Ayu Manuati Dewi2), I Wayan Mudiartha Utama3), Ni Wayan Mujiati4),
Ayu Desi Indrawati5)
Department of Management Faculty of Economic and Business, Udayana University, Denpasar, Indonesia
1)
sintaasih@yahoo.com
Abstract
The success of rural community credit union (RCCU) as a financial institution owned by Desa Pekraman (indigenous
village) is determined by the role of managerial board as controller at operational level of organization. This study
aims to analyze the effect of psychological empowerment and organizational commitment on performance of RCCU.
Additionally, this study examines the role of organizational commitment in mediating the effect of psychological
empowerment on RCCU performance. Sample was amount to 45 units of RCCU, and respondent in each unit were
managerial board including the director, secretary, and treasurer. Data collection method used was questionnaire.
Technique of analysis implemented in this study was Path Analysis. The findings show that psychological empowerment
has positive and significant effect on organizational commitment. Organizational commitment also affects performance
of RCCU positively and significantly. Psychological empowerment does not emerge as influential variable of RCCU
performance. Yet, in model which excludes organizational commitment variable, psychological empowerment has
positive and significant effect on performance of RCCU. Additionally, organizational commitment emerges as variable
which fully mediates the relationship between psychological empowerment and performance. Implication of this study is
that it is critically need for RCCU as business institution of Desa Pekraman supported by managerial board with high
psychological empowerment because it can strengthen the organizational commitment which in turn take the credit
union for achieving higher performance continually. In this case, performance of RCCU not only related to financial
performance, but also, more importantly, associated with learning and growth performance.
Keywords:Psychological Empowerment, Organizational Commitment, Performance
Introduction
Rural community credit union (RCCU) as financial institution owned by DesaPekraman (indigenous village) in
Bali, growth rapidly in spuring on economic growth of rural community. In serving village member, RCCU not only
providing financial transaction such as credit, saving, and deposit, but also payment of electricity, telephone, and
drinking water bills. Even, some of them providing service of earth and building tax, motorcycle credit, and cell phone
credit. Such an institution empower Balinese community actively through absorption and distribution of funds owned
by indigenous village, so able to contribute in coping social problem for supporting resistenace and sustainability of
Balinese custom and culture.
The success of RCCU is closely connected to the frame of community-based management pattern in Balinese
custom and culture. In this case, the success of RCCU is determined by the role of managerial board as controller at
operational level of organization. Managerial board of RCCU consists of director, secretary, and treasure, elect by
village member based on result of paruman desa (village community meeting) basen on Governor Rule number 11,
2013 (Pemerintah Daerah Provinsi Bali, 2013). The success of RCCU which is reflected by “health status” depend
much on commitment and empowerment of managerial board in fulfiling the task mandated by the member of
community.
In human resource management literature and empirical studies it the connectedness between empowerment and
organizational commitment and performance has been reviewed extensively. Empowerment concept is reviewed from
psychological and structural perspectives. Psychological empowerment is measured by four indicators i.e, meaning,
competence, self-determination, and impact (Chiang & Hsieh, 2012; Sun et al., 2012). Several researchers proved that
psychological empowerment affect individual performance positively (Tutar et al., 2011; Liden et al., 2000; Indradevi,
2012; Chiang & Hsieh, 2012). Performance of each individual in organization fully contributes to the performance of
organization.
In relation with organizational commitment, Luthans (2006: 249) argues that organizational commitment is an
attitude wich reflects employee loyalty on organization expressed in attention toward the sustainable organization
growth and success. High committed organization member will show positive view and has strong effort to do their
best for the sake of organization success. Naqvi et al. (2011) and Kebriaei et al. (2014) also found that
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psychological empowerment positively associated with organizational commitment. Whereas, Mokhtarian and
Mohammadi (2011) proved that with higher psychological empowerment employees will able to increase their
performance which in turn will contribute to the improvement of organization performance. Shagholi et al. (2011)
concluded that organizational commitment able to develop organization culture and furtherly improve organization
performance.
Regarding empirical studies of psychological empowerment, organizational commitment, and performance
discussed previously, integrative association among the three variables has not been explored. Additionally, most of
those empirical studies done in business organization. Reserach on local wisdom-based organization such as RCCU in
Bali has not been done extensively. In this study, psychological empowerment and organizational commitment of
managerial board and their effect on RCCU performance is analyzed. In details, the aims of this study are as follows: 1)
examine the effect of psychological empowerment on organizational commitment of RCCU managerial board; 2)
examine the influence of psychological empowerment on RCCU performance; 3) analyze the effect of organizational
commitment of managerial board on RCCU performance; and 4) examine the role of organizational commitment in
mediating the effect of psychological empowerment of managerial board on RCCU performance.
Literature Review and Hypothesis
Psychological empowerment and orgainizational commitment

There were many studies related to association between empowerment and organizational commitment.
Organizational commitment consists of three components i.e, affective commitment, continuance commitment, and
normative commitment (Allen & Meyer, 1990; Luthans,2006:249-250; Jaros 2007). Affective commitment is emotional
involvement, identification, and engagement in organization. Individual with high affective commitment possess close
emotional to organization. Continuance commitment is a kind of individual commitment based on rational needs or
consideration of sacrifice if he/she leaves the organization. Individual with high continuance commitment will remain
staying in organization, not because of emotional reason but due to awareness of lose when leaving the organization.
Normative commitment reflects commitment based on norm or belief of responsibility toward organization. In other
words, employees feel that they have to stay for the sake of loyalty. Normative commitment toward organization may
growth from some pressures felt by individual during the process of socialization (from family or culture), at the time
when individual start to join the organization.
Zhu et al. (2004) state that psychological empowerment affect organizational commitment. Seibert et al. (2011) in
their meta analysis study also found that psychological empowerment is strongly related to important attitude of
employees such as job satisfaction and organizational commitment. From psychological perspective, empowerment is
conceptualized in four cognitive elements i.e, meaning, competence, self-determination, and impact. Naqvi et al.
(2011) argue that the stronger the psychological empowerment felt by employee, the stronger their involvement and
commitment to organization. In the contrary, if the employee felt less empowered they will have low commitment to
organization. As a consequence, organization cannot achieve the objective optimally. Kebriari et al. (2014) prove as
well that psychological empowerment has a positive association with organizational commitment.
H1: psychological empowerment of managerial board influence organizational commitment positively.
Association between organizational commitment and RCCU performance

In this study, association of organizational commitment and RCCU performance is reviwed from Balance
Scorecard perspective. Managerial board of RCCU who has high organizational commitment will be loyal to and
proud of their main task and function in managing RCCU, so will further give positive impact on performance of
the unit. Luthans (2006:249) argued that organization member who has high commitment will has positive view and
try hard to do their best for the organization. The study of Achmad and Maharani (2015) shows that organizational
commitment moderates the relationship between human resource practice and organization performance. Furtherly,
they state that individual who proud of his/her organization and feel that he/she is become the part of organization
has contributed to improve organization performance. Study of Chun et al. (2013) about realtionship between
organizational commitment and performance at organizational level shows that collective organizational
commitment and Organizational Citizenship Behavior (OCB) mediates association between corporate ethics and
organization performance from financial aspect. Whereas, Luquea et al. (2015) who examined realtionship betw een
employee commitment and supply chain dimension for explaining organization performance found that relationship
between employee commitment and organization performnace (operational performance) is fully mediated by
integration of supply chain. It can be said that employee commitment affects organization performance through
supply chain integration. Additionally, employee commitment contributes to improvement of internal integration
and furtherly affect operational performance. Several studies were also show that there is positive association
between organizational commitment and performance such as research done by Tolentino (2013); Imran et al.
(2014); and Sani (2013).
H2: organizational commitment of managerial board influence RCCU performance positively.
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Psychological empowerment and RCCU performance

In performance management model, it is stated that individual traits which is include ability and skill, become tha
basic material of performance. Organization performance can be determined by ability and skill of personnel in
organization, starting from low level employee until high level manager. In this study, the association between
psychological empowerment of managerial board and performance of RCCU is examined. As manager of RCCU,
psychological empowerment includesmeaning, competence, self-determination, dan impact, become the main element
for directing RCCU to achieve success. Chenhall and Langfield-Smith (2007) state that measurement approach of
organization performance has developed from traditional performance measurement which is focused on financial
performance, to performance measurement of organization cross functional. Organization performance concept is
based on idea that organization is an integration of productive assets consists of human resource, physical resource,
and capital for achieving objective (Carton & Hofer, 2006:3). Kaplan and Norton (1996:8) introduce Balanced
Scorecard approach which focused on financial and non financial measurement composed into four perspectives i.e,
financial, customer, internal businessprocess, and learning and growth.
Research examined association between psychological empowerment and performance has been done by several
researchers. Sun et al. (2012) investigate empowerment in three perspectives i.e, leadership, structural, and
psychological. From psychological perspective, empowerment is conceptualized into four cognitions: meaning,
competence, self-determination, dan impact. Chiang and Shieh (2012) has also constructed psychological
empowerment into four perspectives whic is measured by some indicators. Avrama and Priescub (2012) quote Thomas
and Velthouse statement that psychological empowerment comprises of four aspects: 1) the appreciation of the
existence of a certain sense of approach, 2) the feeling of competence, 3) work self-determination, and 4) the feeling of
personal impact over results.
Psychological empowerment in this study is referred to Chiang and Hsieh (2012) and Sun et al. (2012) which is
measured by four indicators i.e, meaning, competence, self-determination, and impact. Fernandez and Moldogaziev
(2013) found that employee empowerment through sharing of information, resources, reward, and authority, contribute
positively to individual performance. Other reserachers (Liden et al.,2000; Tutar et al,2011; Indradevi, 2012; Chiang &
Hsieh, 2012), also proved that psychological empowerment affect individual performance positively. Performance of
each individual in organization fully contributes to organization performance.
H3: Psychological empowerment of managerial board affects RCCU performance positively.
Organizational commitment as mediating variable of relationship between psychological empowerment and

performance
Based on empirical studies (Liden et al., 2000; Tutar et al.,2011; Indradevi, 2012; Chiang & Hsieh, 2012; Fernandez
& Moldogaziev, 2013), psychological empowerment has positif effect on performance. Additionally, psychological
empowerment affect organizational commitment positively (Naqvi et al.,2011; Kebriaei et al., 2014), and organizational
commitment affect performance positively (Tolentino, 2013; Sani, 2013; Achmad & Maharani, 2015; Luquea et al.,
2015; Imran et al., 2014). At the organizational level, study done by Chun et al. (2013) shows that organizational
commitment mediates the relationship between corporate ethics and organization performance from financial aspect.
H4: Organizational commitment of managerial board mediates the relationship between psychological
empowerment and RCCU performance.
Research Method
This study applies quantitative approach with associative explanation level. Research was carried out in RCCU in Badung
regency, Bali Province. The number of sample was 45 unit of RCCU estimated by implementing Roscoe Method (Sekaran,
2007:160) and determined proportinally. Respondent of this study was managerial board in each RCCU consists of director,
secretary, and treasure. Therefore, the total number of respondent was 135.
Research variable are identified as independent variable i.e, psychological empowerment (X), dependent
variable i.e, RCCU performance (Y), and mediating variable i.e, organizational commitment (M). Pshycological
empowerment is empowerment as a psychological cognition which focused on self-motivational process of RCCU
managerial board which contributes to the increase in intrinsic motivation. Pshycological empowerment is
conceptualized through four cognition i.e, meaning, competence, self-determination, and impact (Tutar et al., 2011;
Chiang & Hsieh, 2012). Performance is defined by final result achieved by RCCU through activities carried out,
measured by four perspectives of balanced scorecard (Kaplan & Norton,1996:8; Suartana & Ariyanto, 2012), consists of
financial, customer, operational process, and learning and growth perspectives.
Each variable comprises of several indicators measured by five points Likert Scale from 1 (strongly disagree) to
5 (strongly agree). Data collection method is questionnaire which has been tested by validity and reliability test. Product
moment correlation method is implemented for testing the validity of instrument. The result shows that correlation
coeficient between score of each items and total score for each variables was positive and greater than 0.30 (r>0.30). It
means that all indicators were valid. Examination of reliability of instrument done through internal concistency
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approach by estimating Cronbach’s Alpha (α). The result shows that the three variables have Conbach’s Alpha
coeficient greater than 0.60 (α ≥ 0.60), means that all variables in this study were realiable. Technique of analysis
applied in this study was Path Analysis. Mediating role of organizational commitment in the relationship between
psychological empowerment and performance done by examining the effect among variables under studied (Hair et al.,
2010:744) and significance level of mediating role was analyzed through Sobel Test.
Result and Discussion

Results
Based on identification of respondent’s characteristics, most of managerial board of RCCU is male (65%) and most of
them are 41-50 years old (66%). Even, 19 percent of them is already 50 years old. This may reflect that small amount of
young people involve in the management of RCCU. Regarding educational level, about 64 percent graduated from high
school. Yet, many of them graduated from higher education institution (33%). Most of the respondents have 20 years of
tenure.
Confirmatory analysis results of psychological empowerment, organizational commitment, and performance of
RCCU show that loading factor of each indicators was greater than 0.50. This is an indication that all indicators reflect
the variables actually. Based on data analysis, the result of hypothesis testing by using Path Analysis showed at Table 1
and path diagram of analysis result can be seen at Figure 1.
Table 1. Recapitulation of Hypothesis Testing

Parth
p-
Relationship of variable coefficient Annotation
value
(standardized)
Psychological empowerment (X) Organizational commitment (M) 0.692 0.000 Sig.
Organizational commitment (M) RCCU performance (Y) 0.389 0.021 Sig.
Psychological empowerment (X) RCCU performance (Y) 0.318 0.057 Not Sig.
Test of organizational commitment as mediating variable: model without mediation
Psychological empowerment (X) RCCU performance (Y) 0.587 0.000 Sig.
Source: primary data.
Organizational
commitment (M)
Psychological RCCU
empowerment (X) performance
(Y)
. Figure 1.
Path Diagram
Discussion
The effect of psychological empowerment on organizational commitment

Psychological empowerment affects organizational commitment positively. The sign of path coefficient is positive
which is means that the better psychological empowerment of managerial board, the stronger the organizational
commitment. Therefore, hypothesis 1 is confirmed. Based on descriptive analysis, it is indicated that psychological
empowerment of managerial board of RCCU in Badung Regency is falled in “good” category (means=4.07). Such a
condition is mainly showed from “meaning” aspect which shows the view of managerial board that their job is
important and meaningful for them. This will drive their commitment toward organization, especially related to
affective commitment which reflected by view that RCCU where they work has important meaning for their life, so
strenghten their sense of belonging and feel that they become the part of the ”big family” of RCCU.
Besides that, the results of confirmatory analysis show that good psychological empowerment of managerial board
is also reflected by self determination (loading factor= 0.858), which indicates discreation and opportunity possess by
the managerial board in deciding the way of doing their own job. This situation drives their commitment toward RCCU,
showed by normative commitment. Most of managerial board in Badung Regency shows high loyalty by remaining
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work at RCCU. For them, loyalty toward organization is a wise attitude, so they have dedication not to leave though
there are a job offering from other organization.
This results are consistent with the finding of Naqvi et al. (2011) which show that psychological empowerment is
positively influence on organizational commitment. It is argued that the stronger the psychological empowerment felt
by employee, the stronger involvement and commitment toward organization. Paralell with such a finding, Kebriari et
al. (2014) also found that psychological empowerment has positive and significant effect on organizational
commitment. More empowered employees will have higher commitment toward his/her organization.
The effect of organizational commitment on RCCU performance

Result of this study shows that organizational commitment affect performance of RCCU positively. The sign of path
coefficient is positive, indicates that the higher the organizational commitmentof managerial board, the higher the
performance of RCCU. Therefore, hypothesis 2 is supported. Looking into descriptive analysis and confirmatory
analysis, this finding is supported by empirical data. The result of descriptive analysis shows that organizational
commitment of managerial board is good (mean=3.85), especially for affective commitment, which show that the board
has view that RCCU where they work has an important meaning for their life. Additionally, they feel that they belong to
the institution. This kind of good commitment will drive them to do strong effort for achieving higher performance. The
data show that the performance of RCCU in Badung Regency is good, particularly from financial aspect (mean=4.28)
including income, net profit, and assets which are continually increase every year and furtherly has an impact on RCCU
health which is also in good condition.
This result is consistent with confirmatory factor analysis results which indicate that organizational commitment of
managerial board is reflected dominantly by normative commitment (loading factor=0.924). This is an indication that
the managerial board possesses high loyalty and commited not to leave the unit although there are better job
opportunities in other organization. With this kind of commitment, the managerial board able to reach better
performance of RCCU from learning and growth aspect. As discussed previously in descriptive analysis section,
performance of RCCU from learning and growth aspect focused on treatment of employees on their contribution. In this
study, the managerial board treats the employees well by giving proper incentive/bonus; maintain a good relationship
between superior and the employees and among employees themselves; and providing facility support, comfortable
work environment, and proper reward/compensation. This findings support empirical result of study done by previous
researchers such as Tolentino (2013), Sani (2013), and Imran et al. (2014), wich indicate that there is a positive
relationship between organizational commitment and performance. Luthans (2006: 249) also argues that organization
member who has high organizational commitment will has a positive view toward organization and will make greater
effort for achieving the best for organization.
The effect of psychological empowerment on RCCU performance

In this study, psychological empowerment is found to be not significantly related with performance of RCCU (path
coefficient=0.318, p=0.057). Therefore, hypothesis 3 is not supported. This finding is not consistent with the result of
study of Liden et al. (2000); Tutar et al. (2011); Chiang and Hsieh (2012); Indradevi (2012); and Fernandez and
Moldogaziev (2013). Yet, in model which is not includes organizational commitment, psychological empowerment
indicated to be positively affects RCCU performance. This is become an indication that psychological empowerment of
the managerial board reflected by four cognition i.e, meaning, compentence, self determination and impact, emerges as
important determinant for driving the RCCU toward success i.e, healthy RCCU.
The role of organizational commitment as mediating variable in relationship between psychological

empowerment and RCCU performance
The effect of psychological empowerment on RCCU performance in the model without mediating variable i.e,
organizational commitment, is significant (p= 0,000); the effect of psychological empowerment on organizational
commitment is significant (p= 0,0000); the effect of organizational commitment on RCCU performance is significant
(p= 0,021); the effect of psychological empowerment on RCCU performance in the model with mediating variable
(organizational commitment) is not significant (p= 0,057). Therefore, organizational commitment fully mediates the
influence of psychological empowerment on RCCU performance. ,
The significance level of mediating role of organizational commitment was tested by Sobel Test. Through this test,
it was found that the value was 17.84853, greater than critical value (1.96) at α =0,05. It means that organizational
commitment fully mediates the influence of psychological empowerment on performance of RCCU. Therefore,
hypothesis 4 is supported. This is an indication that managerial board who shows good psychological empowerment,
especially in the aspect of “meaning”, will possess good organizational commitment which further givepositive impact
on performance. The better the psychological empowerment, the stronger the organizational commitment, and the
higher the performance of the organization.
Additionally, the latitude possess by managerial board in deciding the way they do the job (self determination) has
push their loyalty and will make them to remain staying in the organization (affective commitment). This kind of
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commitment will affect performance positively from the aspect of “learning and growth”, that is good treatment of
employees as the spearhead of operational activities of RCCU.
Theoretical and Practical Contribution of the Study

The findings of this study contribute to add empirical evidence related to psychological empowerment,
organizational commitment, and performance of organization, especially to local wisdom-based organization.
Interesting result is shown by evidence that organizational commitment does fully mediates the association between
psychological empowerment and performance. The better the psychological empowerment in organization, the stonger
the organizational commitment which furtherly will drive better performance of RCCU.
Practical implication of this study directs local wisdom-based organization like RCCU in Bali for considering
psychological empowerment of the managerial board elect through meeting of community member. Rural community
credit union as an institution owned by indigenous village has to be supported by the managerial board which possesses
good psychological empowerment which will stregthen the commitment toward organization, so successfully in
achieving continous improvement of performance.
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Bibliography
Desak Ketut Sintaasih, was born in Denpasar, Bali, 1 August 1959. Graduated in Bachelor Degree of Management in
1983 from Faculty of Economics, Udayana University, Denpasar, Bali, Indonesia. Obtained Master Degree in
Management (Human Resource Management) from Airlangga University, Surabaya, Indonesia, in 1996. Finish
Doctoral Degree in 2011 in Management (Human Resource Management) from Brawijaya University, Malang,
Indonesia. Since 1986, work in Faculty of Economics and Business, Udayana University as a lecturer. Most of reserach
carried out is related to Human Resouce Management field.
I Gusti Ayu Manuati Dewi was born in Denpasar, Bali, 27 April 1962. Graduated in Bachelor Degree of Management
in 1987 from Faculty of Economics, Udayana University, Denpasar, Bali, Indonesia. Obtained Master Degree in
Population and Human Resource Development from University of South Australia, in 1996. Finish Doctoral Degree in
2013 in Management (Human Resource Management) from Gajah Mada University, Yogyakarta, Indonesia, Since
1988, work in Faculty of Economics and Business, Udayana University as a lecturer. Most of research carried out is
related to Human Resouce Management field.
I Wayan Mudiartha Utama was born in Kelungkung, Bali, 10 March 1955. Graduated in Bachelor Degree of
Management in 1981 from Faculty of Economics, Udayana University, Denpasar, Bali, Indonesia. Obtained Master
Degree in Management from Udayana University, in 2003. Since 1985, work in Faculty of Economics and Business,
Udayana University as a lecturer. Most of research carried out is related to Human Resouce Management field.
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Ni Wayan Mujiati, was born in Beraban, Tabanan, Bali, 15 October 1960.Graduated in Bachelor Degree of
Management in 1985 from Faculty of Economics, Udayana University, Denpasar, Bali, Indonesia. Obtained Master
Degree in Management (Human Resource Management) from Airlangga University, Surabaya, Indonesia, in
1998.Since 1986, work in Faculty of Economics and Business, Udayana University as a lecturer. Most of reserach
carried out is related to Human Resouce Management field.
Ayu Desi Indrwatiwas born in Denpasar, Bali, 25 November 1983.Graduated in Bachelor Degree of Management in
2005 from Faculty of Economics, Udayana University, Denpasar, Bali, Indonesia. Obtained Master Degree in
Management from Udayana University, in 2006. Since 2008, work in Faculty of Economics and Business, Udayana
University as a lecturer. Most of research carried out is related to Human Resouce Management field.
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THE SURVIVAL AND GROWTH OF A NEWLY-ESTABLISHED MICRO, SMALL-

SIZED FAMILY FIRM: A DYNAMIC PROCESS PERSPECTIVE
Achmad Sobirin
Indonesian Institute of Family Firm (IIFF), Department of Management, Universitas Islam Indonesia
Ring Road Utara, Codong Catur, Depok, Sleman Yogyakarta, Indonesia.
achmad.sobirin@uii.ac.id
Abstract
The purpose of this study is to investigate the dynamic process i.e. the survival and growth of a newly established micro,
small-sized family firm from the perspective of entrepreneurial orientation (EO) and strategic entrepreneurship (SE)
concepts. Conceptually the degree of EO of family firm varies from firm to firm. It is high among family business
founders but tends to decrease when the later generations are involved. Meanwhile SE says that the success of business
and how it creates wealth is dependent on how well the entrepreneur integrates entrepreneurship behavior (EO) and
strategic management perspectives. To identify the degree of EO and the implementation of SE of the firm being
studied, we divided the firm development into several stages according to organizational life cycle theory. The finding
of this study shows that generating income to make a living was the characteristics of the firm during the early stage of
existence. No single strategy was implemented in that stage. This would mean that entrepreneurship behavior, i.e.
opportunity seeking behavior tends to dominate the early stage of firm’s development. However, in the following stages
when the firm has been able to accumulate financial resources to compete and the firm started to grow, strategic
management was adopted without sacrificing entrepreneurial orientation. Overall these findings provide initial
evidence that small medium sized family firm does implement strategic entrepreneurship along its life cycle but with
different degree.
Keywords: Family Firm, Entrepreneurial Orientation, Strategic Entrepreneurship
Introduction
During the Soeharto era (1967-1998), little was done to promote the small-scale business sector. The Government of
Indonesia looked to the great corporations as the engine of economic growth of this country (Berry, et al., 2002).
However, a very different view has emerged following financial crisis that happened in this country in 1997. Micro,
Small, and Medium Enterprises (MSMEs) have been regarded as the backbone of and played an important role in the
economy of Indonesia as this sector has proven more resilient, increased household income and created more
employment and social progress than their larger counterpart.
The critical roles that MSMEs play are justified if MSMEs are survived (Bruderl, et al. 1992). The problem is that
not all MSMEs are survived, growing and successful. Many fail to develop into thriving, prosperous businesses (Indarti
& Langenberg, 2004). In many cases, firms that enter small remain small (Hidayati, 2015), among others because of
liability of smallness (Aldrich & Auster, 1986). They face formidable barriers to growth such as financial constraints,
limited infrastructure, lack of management talents, and also the desire to stay small and informal so as to avoid taxes.
This is especially true for newly established Micro Small Enterprises (MSEs) which also face a problem of liability of
newness (Stinchcombe & March, 1965). They tend to be vulnerable in the infancy period following start up (Watson &
Hogarth-Scott, 1998). Their chance to survive therefore is limited (Stearns, et al. 1995). Previous study, for example,
shows that about 50 percent of small businesses are still trading after the first three years from initial set up (Ropega,
2011). Similar finding also shows that more than 40% of the firms did not survive after 3 years, and 42% of the firms
survived after 5 years (Cader & Leatherman, 2011), and the remaining have to be dissolved because of bankruptcy, fail
to make ‘go for it’, or to avoid further losses (Everett & Watson, 1998).
Despite the failure rate of newly established MSEs is relatively high, it does mean that all of them are folded. Some
are able to survive but not all new firms that survive grow. Conceptually the failure, survival or growth of new firms is
not determined by single factor but by a multitude of factors. According to Bruderl et al. (1992), three key factors
should be taken into consideration to explain the survival or discontinuance of new firms. These are: individual
characteristics of founders/entrepreneurs; structural characteristics of the new firm; and contextual factors of conditions
of the environment that impact on the new firm’s effort to deliver a good or service to the market. In addition, Nichter
&Goldmark (2009) said that relational factors will also determine the survival or discontinuance of newly established
firms. Notwithstanding these factors, most research has focused on founders/owners as a key factor influencing new
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firm survival and success. This is understandable given the fact that founder/owner are the main actor in MSE. He or
she is the one who has established the firm, dominates its process, and manages its daily activities (Frese, et al. 2002).
To have a better understanding the dynamic process of a newly established micro-family firm in terms of its survival
and growth, this paper investigates the entrepreneurial orientation of and the actions taken by the founder/owner in
implementing the strategy of the firm. With regard to the type of strategy, this paper adopts the concept of strategy
called "strategic entrepreneurship" originally proposed by Ireland, et al. (2001) as the basis to portray and analyze the
development of the firm being studied. According to this concept, strategic entrepreneurship (SE) is essentially the
melding of the entrepreneurship (opportunity seeking behavior) and strategy domains (advantage seeking behavior).
Findingbalance between opportunity-seeking and advantage-seeking behavior is a must if the firm wants to be
successful. This behavior needs to be supported as well by managerial mindset within the firm (Ireland, et al. 2003) and
requires a high innovation (Ireland &Webb, 2007).
To apply the concept of strategic entrepreneurship into the firm being studied, this study was designed in accordance
with organizational life cycle theory (Adizes, 1979). Therefore the development of the firm will be divided into several
stages so that the degree of the implementation of strategic entrepreneurship in each stagecan be identified.
Research Method
In this study, a qualitative method was preferred because human actions cannot be understood unless the meaning
that humans assign them is understood.By reviewing the qualitative inquiries, particularly as suggested by Creswell
(1998), the researcher undertook in-depth interviews by phenomenological approach that is believed more suitable for
the current research. To truly understand participants’ opinions without orientating them, the researcher therefore
decided to lead face to face interview with open-ended questions, based on the literature review. Open-ended questions
allow the informants to elaborate on their answers without any predetermined responses. Interviews were conducted in
two periods that is in 2013 with Mr. Kertajaya – the founder of the firm as the main informant, followed by the second
interview in 2016 with Jelvina – the successor as the main resource person. In fact, the study is ongoing process.
The Case: Gavibora Batik Firm (GBF)

One of the victims of financial crisis that happened in Indonesia in 1997 was Gatot Kertajaya – former employee
who became unemployment and was forced to return to his hometown Bandar Lampung – the capital city of Lampung
Province.After some time of being unemployed, as the head of family with two children, Mr. Kertajaya decided his
fortune to be self-employment at least for temporary survival rather than looking for another jobin such difficult time. In
year 2000, with only three million rupiahs at hand (equal to US$ 300) he started to establish a micro business, if it can
be said so. Withthe help of his relative living in Pekalongan City known as “City of Batiks”, Mr. Kertajaya bought a
variety of batik clothes and then brought into his hometown to be sold directly to the end consumers by means of door-
to-door selling in local market.Thistiny business which initial reason for being was just to make a living gradually has
become a successful Family Business Enterprise (FBE) known as Gabivora Batik Firm (GBF) that everyone tries to
imitate. For example, ten years later, sales have increased exponentially. In addition, the number of outlets to serve the
customers also continued to grow. There were 10 outlets spread across several cities in Lampung and one in Jakarta.
Not only financially successful, the local government also named Kertajaya family as a role model of how to run
business successfully without sacrificing the harmony and happiness of the family.
Notwithstanding that Gabivora Batik Firm (GBF) has turned into medium sized family business, until the year 2010,
Mr. Kertajayawas still acting as owner-manager of the business. However, knowing that the business continued to
grow, he also involved all family members – wife, eldest daughter and other immediate family members to be part GBF
management, each with different tasks and responsibilities. More important than that, for the sake of the survival of the
firm in the future, starting from 2012 his eldest daughter was given a bigger role in handling the internal affair of the
business. She handled the marketing function and R&D, while Mr. Kertajaya himself focused on external affairs such
as: maintaining network, and to certain extent giving advice to his daughter when she faces critical decision. In other
word, GBF was entering the transition period from the first generation to the next generation family business. In the
recent development, Jelvina has taken over the leadership of the firm.
The dynamic process of this family business is explained and summarized in following business life cycle stages
Legend
Entrepreneurial orientation
Strategic entrepreneurship
Fig. 1 Business life cycle of GBF
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Discussion and conclusion

The main question of this exploratory study is how Mr. Kertajaya has successfully developed a family business even
though at first he was rather reluctant to enter in the business world realizing that he was just an employee not an
entrepreneur. Besides, we also wanted to know whether this success could last up to the next generation as the previous
literature says that only about 30% of family firms survive to the second generation (Barth, 2005). To answer these
questions, two concepts– strategic entrepreneurship (Ireland, 2001) and the Organizational Life Cycle (Adizes, 1979)
were prepared as a medium for analysis.
As shown in Fig.1, during the first stage of life cycle, Mr. Kertajaya did not implement any single strategy. Even
entrepreneurial orientation (EO) of Mr. Kertajaya did not appear, nor his entrepreneurial spirit. Business runs as it is, as
if its life and death is dependent on luck. He said “If I’m lucky I believe the business may be running well but, you
know, I have to prepare the worst case scenario – finding new job despite very difficult”. He went on to say, “for the
moment, selling batik is just to make a living so that my family can still buy daily meals and survive”. But fortune was
apparently in favor of this family. Not only sufficient for the needs of daily meals, his efforts of selling batik clothes can
also be used to buy more merchandise and develop business. This success is actually not merely a good fortune but also,
unwittingly, is supported by two other factors – the ability of Mr. Kertajaya to sell high quality batiks with low price
and the business environment that supports his business. Departing from this small success, apparently the impact is
remarkable. The course of Kertajaya’s life has changed. His entrepreneurial spirit began to surface which in turn was
transmitted also to the whole family and gradually formed a culture of entrepreneurship. To this point it can be said that
Kertajaya family has become a "business family" running the "first generation family business". GBF now exists along
with the accompanying prerequisites behavior – entrepreneurial spirit and culture. Since then Mr. Kertajaya continued
to explore business opportunities and take advantage of them that are still widely open. He also dared to innovate, took
more risks and was more proactive in penetrating market. What might still be a problem is that Kertajaya could not
manage his business autonomously and compete aggressively mainly due to limited financial resources.
But because of the proactive nature and persistence to continue to look for opportunities and create better network,
capital issue was gradually resolved. Financially BGF obtained soft loan which of course can be used to overcome the
problem of capital. In addition, BGF also received large orders from the local government as a token of appreciation as
Mr. Kertajaya introduced new batik design that combines the art of batik with local content that, according the local
government official, promotes the identity of this province through the art of batik. Now Mr. Kertajaya feels more
autonomous in running his business and is able to compete aggressively. With relatively sufficient capital, Mr.
Kertajaya began to focus on arranging his businessto be more professional and strategically competitive although he
was still serving as owner-manager of the business. However, the pattern of "one man show" as practiced before was
gradually abandoned. The whole family members – wife, eldest daughter and close family were involved in the
business, each with different task and responsibility. More important than that, the involvement ofhis eldest daughter in
the family businessis a sign that Mr. Kertajayawas preparing his successor.Sooner or later he would step down from the
business and expectedly would position himself as a mentor and an ambassador as the business turned to the next
generation.
In the meantime, Mr. Kertajaya himself as head of family and business focused in the business development and
developing business network while the daily activity was handled by his wife and daughter. To maintain GBF as a
market leader, for example, Mr. Kertajaya has decided to expand his business by opening up new outlets. Until 2013
when the first study was conducted, no less than 9 outlets were spread across the Bandar Lampung city, other cities in
the province of Lampung and one in Jakarta.
The impact of the establishing new outlets followed by an increase in production capacity as well as supported by
the application of information technology (internet), the number of sales increased many fold compared to sales in prior
periods. Similarly, the target market began to spread. If the original target market was focused only on the upper middle
class, now the lower class also becomes the target. To serve this new target market, BGF produced a more affordable,
relatively low quality “batik print”. However, Sobirin (2012) who also conducted a related study criticizes this strategy
arguing that targeting all market segments may cause market cannibalism.
Regardless of any strategy adopted by GBF, this study has shown that, particularly in this case, the small medium
sized family business throughout its life cycle has implemented strategic entrepreneurship as conceived by Ireland and
colleagues (Ireland et al., 2001; Ireland, et al., 2003; Ireland & Webb, 2007; Hitt, 2001), although the level of
implementation varies at each stage through which the firm operates. When the business is still at the embryonic stage,
both entrepreneurial orientation and strategic management did not exist. Entrepreneurial spirit that gradually turned into
a culture of entrepreneurship began to emergeafter the founder felt that the business is a right decision he’s ever made.
Similarly, entrepreneurial orientation began to take shape after entrepreneurial spirit is being part of the life of the
founder. However,of the five dimensions of entrepreneurial orientation as suggested Lumpkin &Dess (1996) only three
dimensions are quite prominents. These are: innovation, risk taking and pro-activeness.
The positive impact of this entrepreneurial orientation is that, GBF is able to address the financial issue. The
accumulated capital can be used to encourage the firm to implement various strategies so the firm is more competitive.
Unfortunately the level of EO tends to stagnate and even tends to decrease as GBF entered into growth stage and
sustainable growth stage particularly when this firm was taken over by the successor – Jelvina. Meanwhile, the
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orientation of strategic entrepreneurship is continued to dominate the firm’ life cycle. The finding of this study is
consistent with previous findings (see for example Ireland et al., 2007; Cruz and Nordqvist, 2007), that is the
entrepreneurship behavior tends to decrease when later generations involve in the business.
This study was based only on a single case involving two different generations of family business. The result of this
study may apply only on this case and cannot be generalized to other cases. Therefore, other researchers are expected to
prove this let say using a multi-case study. Other researchers are suggested to emphasize on analyzing the EO of second
generation given that previous research said that second generation entrepreneurial orientation tended to decrease
(Kellermans et al., 2008; Lumpkin, et al. 2008; Cruz and Nordqvist, 2007).
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Name : Achmad Sobirin
Place and date of birth : Pemalang, Central Java, April 12, 1957
Educational Background : Drs in accounting – Gadjah Mada University (1983)
MBA - University of the Philippines (1993)
PhD in Commerce – University of Santo Tomas Philippines (1997)
Fields of Research : Family Business Studies
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DID LOCAL ENTREPRENEUR BECOMES LESS IN VILLAGE PRAWIROTAMAN?
Elisabet Dita Septiari1), Dhyah Ayu Retno Widyastuti2), Nino Ardhiansyah3)
Universitas Atma Jaya Yogyakarta, Yogyakarta, Indonesia

1)
eseptiari@gmail.com
Abstract
Prawirotaman is one of the interesting tourism village in Yogyakarta both for domestic and foreign tourists.
Prawirotaman is known as a backpacker village for foreign tourists. Many hospitality services were established to
fulfill tourists’ demand. Moreover, villagers who have had location strategically in Prawirotaman, tried to increase the
monetary values of their place as guess houses, restaurants, or rent for commercial places. However, in 1970an,
Prawirotaman was known as batik village. The founders village and their lineage became batik entrepreneur. Many
Prawirotaman’s villagers became an employee of batik home industries. They shifted from a batik village become a
tourist village was caused by the unsupported situation for batik entrepreneurs.
This study was written to answer did local entrepreneur still survived in Prawirotaman after the shifter. This study
also wants to elaborate the impact of tourist village for villagers.
Design/methodology/approach: A qualitative method will be employed in this research. In depth interview and
observation has been applied to identify the villagers’ entrepreneurial skill. Participants triangulation and member
checking has been used to test validation. Content analysis will be used to answer the research problem.
Practical implications: This study will give information about the history of Prawirotaman in terms of
entrepreneurial skills, the impact of shifting for villagers, and especially for government who supported Prawirotaman
as one of the tourism destination in Yogyakarta, to develop policies.
Keywords: Local Entrepreneur, Tourism, Culture, Ethnic Entrepreneur
Introduction
Yogyakarta is one of the provinces that are loaded with the value of local wisdom. Nowadays, the local wisdom has
been disappeared slowly. Javanese culture was changing by contemporary culture because of assimilation with another
culture and modernization. Culture in Yogyakarta has been derived from Mataram Kingdom. Mataram was very famous
among others kingdom, which located between Central Java and Yogyakarta. Mataram became the center of Javanese
culture before split into two regions which were Yogyakarta and Surakarta in 1755 (Koentjaraningrat, 1993). Ideally,
culture could be one of region competitive advantage for tourism, but in the fact, the culture was faded, such as in
Prawirotaman village.
According to Sumintarsih and Adrianto (2014), Prawirotaman, a village which located in the palace circles, were
given as gifts to Soldiers Abdi Salem Prawirotomo. Prawirotomo has been battling with invaders to protect Keraton
Yogyakarta. Then, the clan of Prawirotomo became batik entrepreneurs. They set up home industry for making batik,
especially stamp batik. Prawirotaman originally known as batik village, then turn into hostelry village. For foreign
tourists, the village is known as a backpacker village. Many people in Yogyakarta equate Prawirotaman with Legian in
Bali.
The changes in the economic activity from product (batik) to services (hospitality) preceded by a loss in the batik
industry. Shifted of consumer preference in batik and also unsupported government regulation has been made batik
entrepreneurs switch to another industry for survival. The changes have impacted in other aspects. According
Sumintarsih and Adrianto (2014), one of the physical changes that can be seen was Javanese batik home has turned into
modern buildings with many bedrooms for rent. Changes can also be felt in terms of language, Javanese language began
rarely used, becak rider is fluent in English language.
Several times after becoming a tourism village, not all of the villagers get positive impact in their lives. Some
villagers still live in poverty, and could not find opportunities from tourism village. Some of villagers sold their land or
rent their land to the comer entrepreneurs. Based on the pre-survey ever conducted in Kampung Prawirotaman there is
some potential that could be developed by the community of which in terms of historical value, batik and accessibility
of the region. However, some local entrepreneur is loose with comers entrepreneur in hospitality business competition.
This research focused to elaborate the local entrepreneur in Prawirotaman that can survive, and also the impact of
shifting for villagers.
Method
Qualitative method with a case study approach and observation has been used to describe the local entrepreneur in
Prawirotaman that can survive, and also the impact of shifting for villagers. The sources of data were found from
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primary data and also secondary data. The primary data were obtained by focus group discussion (FGD), in-depth
interview, and observation. Secondary data were found by literature review, statistic, and its documents. The
triangulation was used for validation. As triangulation, researchers made use of multiple participants to provide
corroborating evidence. Member checking from participants were also used to establish the credibility of the data.
1. Prawirotaman Village
Local entrepreneurs occupy a key role in the development of the Prawirotaman Village. The growth of
Prawirotaman was influenced by the founder's business which has been changed based on the situation and
opportunities. Prawirotaman village known as batik center. The owners of batik industry are dominated by descendant
of Prawirotomo who were Werdayaprawira, Suroprawira, Mangunprawira. Besides, as a soldiers Prawirotomo they also
become entrepreneurs of batik, and many local villagers work as laborers in the rumah batik (Sumintarsih and Adrianto,
2014). Some brands of batik are very well known at that time such as batik Tuti, Batik Cap Jip, Batik Cap Scissors,
Batik Cap Narodo, Batik stamp Ringin, Surya Tex, Batik Cap Parikshit, Batik Cap Baby, and batik Cap Sun (Murtolo,
1998). In 1970an, industry batik less favorable because the government policy to withdraw mori subsidy, the shifting
preferences of traditional Javanese clothes into modern fashion, and cheap fabric entries especially from China.
After the down trend of batik business, the entrepreneurs turned their business to the boarding house. Batik house
converted into some bedrooms and were rent. The boarding houses were selected by foreign tourists in line with the
growth of DIY as a tourist attraction (Sumintarsih and Adrianto, 2014). One by one, the boarding house and batik house
were converted into a hotel or home stay. The hospitality industry spread out in Prawirotaman. Tourism facilities such
as a cafe, car rental, gift shop, money changer increased. However, most of these facilities are owned by businessmen
from outside Prawirotaman. People who have large land prefer to rent their land as commercial or sell their land at a
high price (Sumintarsih and Adrianto, 2014).
2. The growth of commercial area in Prawirotaman

Based on figure 1, Prawirotaman has been dominated by commercial area. The area divided into hotels or
guesthouses, cafes, travel agent, market and shops. The numbers of hotels and guesthouses were more than other
business. Moreover, in RW 8, They held almost along the main street. The villager's house has been moved in the back
of the hotel or guess house. Based on the map, public space for villagers becomes less. The composition of green open
space in Prawirotaman village has also become smaller. A very high intensity of the developing commercial area was
resulting in reduced green open space. Slum housing also found in some area. Based on interviews with the RW 8’s
head, the slum housing was habited by the hotels or guess houses employee whom from outside.
Figure 1. Prawirotaman commercial area map

Sources: primary data, 2016
3. Local and comer entrepreneurs

Table 1 below indicates the numbers of comer entrepreneurs higher with the local entrepreneur. Based on our
survey, from 76 owner’s commercial places, 40 are comers or 53%. Most of local entrepreneurs are in the hospitality
industry (53%) because they have land, capital which were handed on from an ancestor. Then 14% are in tour and travel
industry, 11% are in souvenir industry (leather, batik, wayang, and antiques), and only 8% are in culinarry. Moreover,
Prawirotaman was near traditional market but the market traders were from outside Prawirotaman.
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Table 1. The ownership of commercial land in Prawirotaman street

Status Status
(C: (C:
comer, comer,
Business L: Business L:
No Business name type Local) No Business name type Local)
Kelana Tour C
1 Dragon art & antique Art C 40 Travel
Hafa Cargo C
2 Cargo 41 Antik Fine Art Art L
C L
3 Veno's Burger Culinary 42 Hani's Cafe and Resto Culinary
C L
4 Bottle Trip culinary 43 Pokaribs Cafe Culinary
C L
5 Cinema bakery and Coffee culinary 44 warung Heru Culinary
C L
6 Cafe Janur Culinary 45 Tropis Homestay Hospitality
C L
7 Warung Putu Bujangga Culinary 46 wisma gajah Hospitality
C L
8 Warung Goa Indian Food Culinary 47 Hotel Erlangga Hospitality
Easy Going Restaurant & C L
48 GH Putra Jaya Hospitality
9 Cafe Culinary
L
C 49 Prambanan Guess House Hospitality
10 Via-Via Culinary
C 50 Duta Guest House Hospitality L
11 Tempo Del Gelato Culinary
L
Havermeelkoek C 51 Prayogo Lama Hotel Hospitality
12 Culinary
L
cafe lawas 613 C 52 Eclipse Hotel Hospitality
13 Culinary
Guest House Mercury L
Bamboo resto C 53 Hospitality
14 Culinary
Hotel Ki Agung L
C 54 Hospitality
15 gading Resto Culinary
Guest House Delta L
C 55 Hospitality
16 Borobudur GH Guess house
Hotel Muria L
C 56 Hospitality
17 Ministry Hotel Hospitality
Metro Guesthouse 2 L
C 57 Hospitality
18 Hotel Perwita Sari Hospitality
Guest House Agung L
C 58 Hospitality
19 Grand Rosela Hotel Hospitality
Wisma Kroto L
C 59 Hospitality
20 Agung Mas Hotel Hospitality
Hotel Makula L
C 60 Hospitality
21 Parikesit Guess House Hospitality
Hotel Cepuri L
Hotel Prayogo Baru C 61 Hospitality
22 Hospitality
Metro Guesthouse L
Gallery Prawirotaman C 62 Hospitality
23 Hospitality
Cristalit Hotel L
Greenhost Hotel C 63 Hospitality
24 Hospitality
L
Green Santika laundry C 64 Laundry By Kilo Laundry
25 Laundry
L
C 65 Jari Menari Massage & Spa Salon and Spa
26 Dewata Rental Rental
Kirana Spa L
C 66 Salon and Spa
27 Bake Rental Rental
L
C 67 Asjava Leather Souvenir
28 Salon Crew You Salon and Spa
Ida Curiosa Object L
C
29 Sayana Spa dan Salon Salon and Spa 68 &Furniture Souvenir
C Alamanda Batik L
30 Minimarket and Laundry Shop 69 Souvenir
C Nata Putra Art Shop Wayang L
31 Grocery Store Shop 70 Souvenir
C L
32 Electrobell Shop 71 Kresna Tour Tour and travel
C L
33 Gallery Batik dan T Shirt Souvenir 72 Bromo travel Tour and travel
Baskya Handmade Gallery C Kama Jaya L
34 Souvenir 73 Travel
C Jogja bagus L
35 Annas Rental Tour and travel 74 Travel
C Nomad Tour Travel L
36 Zen Borneo Tourist Service Travel 75 Travel
Belfa Tour C L
37 Travel 76 Money Changer
Nomadua Tour C
38 Travel Sources: primary data, 2016
Adhistira C
39 Travel
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4. The impact entrepreneur for community

Except for observation, in-depth interview with RW 7, 8, 9 head, and Focus Group Discussion with women's
community in Prawirotaman was also made to analyses the impact of the entrepreneur. Based on the interview, most
women that not from Prawirotomo descent did not felt the advantages of Prawirotaman as a tourist village. They wished
the development of commercial areas in Prawirotaman would provide opportunities for them to increase family
revenue. Moreover, they complained about surrounding environment that getting worse.
In the other side, government supporting were less. They just give the training to produce something such as batik
but did not think how to distribute the product. The training should be completed with the market channel for
distributing the product.
Conclusion
The development of Prawirotaman village must be supported by the community. Not all of the people in the
community has an entrepreneur spirit, so they can not see the opportunity from the tourist village. They only felt the
negative impact of the development in Prawirotaman village.
Most of the Prawirotaman’s local entrepreneurs were in the hospitality industry. They changed their batik house as
hotels or guest houses. But, they must be innovative because many big entrepreneurs also built hotels in Prawirotaman
street. The government must actively improve the entrepreneur spirit of the Prawirotaman community not only by
training but also find the market channel for products from Prawirotaman village.
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Cetakan I (x + 148 hlm; 17 x 24 cm), Diterbitkan Balai Pelestarian Nilai Budaya Yogyakarta.
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penyusunan kamus diakses dari http://badanbahasa.kemdikbud.go.id/lamanbahasa/artikel/1366, tanggal 14 Januari
2016.
Thohir, Mudjahirin. (2007). Memahami Kebudayaan: Teori, Metodologi, dan Aplikasi. Semarang: Fasindo.
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The first author is Elisabet Dita Septiari. She is a lecture who was born in Jayapura, Indonesia on September, 12th
1982. She was graduated her Bachelor and Master degree from Gadjah Mada University in economic and business
faculty with marketing concentration. The major research of study was marketing and entrepreneurship.
The second author is Dhyah Ayu Retno Widyastuti, M.Si who has been a lecture in Social and Politic
Faculty,Universitas Atma Jaya Yogyakarta. Then, The third author is Nino Ardhiansyah, S.T., M.Sc. He was also
become lecture in Architecture Faculty, Universitas Atma Jaya Yogyakarta.
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THE EFFECT OF MACRO ECONOMIC VARIABLES AND SOUTHEAST ASIA STOCK

PRICE INDEX TO INDONESIAN STOCK PRICE COMPOSITE INDEX
Luh Gede Sri Artini1),Nyoman Tri Aryati2), PutuVivi Lestari3)
Management departement of Economy and business Faculty at Udayana University, Denpasar, Indonesia
1)
lg_artini@yahoo.com
Abstract
This study is a combination of previous studies about a relationship between the stock market with a macro economic
performance and research on the international capital market integration. Macroeconomic variables used in this study
was limited to GDP growth, inflation, interest rate of Bank Indonesia Certificates (SBI) and the value of the US dollar
against the rupiah exchange rate, and stock index that used are Kuala Lumpur Stock Index, Thailand stock index and
Singapore.
The objective of this paper are to to analyze the movement of macroeconomic and examine the degree of four stock
market integration in South East Asia based on data from 2010 to 2014 with the period of observation January 2010 –
December 2014. Regression model is used to analysis the effect of economic factor (GDP, inflation, interest rate and
exchange rate) and South East Asia stock market index (KLCI, STI and STI) to the movement of the Indonesian
composite stock market index in Indonesian Capital Market partially and simultaneous.
The results of this research indicate that GDP, inflation, interest rate, exchange rate, KLCI, SETI and STI have
significant effect on the IHSG. Based on the test results the coefficient of determination, the value of the Adjusted R
Square of 96,9 % while the remaining 3,1 % is influence by other variables not included in this research. Partially
GDP, Inflation and STI have insignificant positive effect on IHSG, interest rate have significant negative effect on
IHSG. While KLCI and SETI have significant positive effect.
Keywords: Macro Economic, Southeast ASIA Stock Market Index
Introduction
The movement of Jakarta Composite Index (JCI) rose 22.29%, to 5226.947 in late 2014 and never reached a highest
record, at the level of 5246.483 on 8 September 2014. This trend can’t be separated from the influence of
macroeconomic factors and support from policy makers. Jones (2014) states that the factors which influence the
fluctuation of the stock price at capital market is an indication of economic activity aggregates such as GDP, currency
exchange rates, inflation, and interest rates, in addition to government policies that support the development of capital
markets. The increasing number of market players, macroeconomic growth and political development in the country
also affect the stock market of a country.
Understanding the current and future condition of the economy is the first step in understanding what is happening
and what is likely to happen to the financial market.Based on a knowledge of the economy-stock market relationship to
understanding the stock market, we also consider forecasts of change in the stock market (Jones, 2014)
Bellalah and Habibah (2013) find that the Impact of Macroeconomic Factors on Stock Exchange Prices vary from
one country to another. An explanation of the difference in behavior between the three stock markets may lie as USA
economy is most affected by financial crises, 2007 and Japanese economy slump after 1990, china is least affected
economy by financial crises, 2007. In the context of recent global financial recession, no study has so far been traced
which explains the causal relationship between macroeconomic variables and stock markets of USA, Japan and China.
The capital market of Indonesia or the Indonesian Stock Exchange has become part of the global stock markets
(Tamara, 2013). Capital market liberalization allows foreign investors to invest in the equity of the domestic market and
domestic investors trading in equities in other countries. Investors can earn more return through diversified stock
portfolio of various indices (Nikunj et al., 2012).There is a sense of the Capital Market Integration.According to the
Theory of Capital Asset Pricing Model, that the Capital Market Already integrated if the Risk of the securitiesin the
same level will have the same price, althoughtraded on different Capital Market ( Bodie, Kane & Marcus, 2014).
AFTA ( ASEAN Free Trade Area ), which is a forum for cooperation among ASEAN countries is expected to
accelerate economic growth in ASEAN. Similarly, the implementation of the AEC in 2015 have led to a more
integrated economy of countries in Southeast Asia . Even now there are ASEAN Linkage , which is emerging stock
exchanges of ASEAN which comprises of the Kuala Lumpur Stock Exchange, Hanoi Stock Exchange, Ho Chi Minh
Stock Exchange, Indonesia Stock Exchange
Numerous studies have examined the relationship between the stock market index price and the state of economy.
One of the studies to provide an assessment of stock market behavior and various macroeconomic variables for
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Emerging Financial Market was conducted by Chen (2007) for China hotel Stock return, found the result that there is a
relationship between economic and non - economic variables to the stock return.
The other paper that analyses the relationship between three international stock markets by Demitropoulos (2008)
assess the degree of market integration in an international content. The stock markets that have been examined are
among those with the highest capitalization. The capital markets of London, Toronto and Hong-Kong were examined
for the period 1997-1999.By applying a new methodological framework proposed by Peiro et al. (1998) found that the
FTSE-100 and TSE-35 indexes have a low dispersion of data around the mean and also the Hang-Seng index had some
more severe fluctuations compared to the other two indexes in the period under investigation.Madaleno and Pinho
(2011) exploring stock market linkages using continuous time wavelet methodology. In order to sustain and improve
previous results regarding correlation analysis between stock market indices, namely FTSE100, DJIA30, Nikkei225 and
Bovespa, extend such analysis using the Coherence Morlet Wavelet, considering financial crisis episodes.Results
indicate that the relation among indices was strong but not homogeneous across scales, that local phenomenon’s are
more felt than others in these markets and that there seems to be no quick transmission through markets around the
world, but yes a significant time delay. The relation among these indices has changed and evolved through time, mostly
due to financial crisis that occurred at different time periods. Results also favor the view that geographically and
economically closer markets exhibit higher correlation and short run movements among them. Strong movement is
mostly confined to long-run fluctuations favoring contagion analysis.
In Indonesia, Muzammil (2011) conducted a research to analyst the influence of Southeast Asian Stock Index to
Indonesia Stock Price Index has showed that Kuala Lumpur Stock Exchange Index and the index of PSE (Philippines
Stock Exchange) has a significant positive effect on Indonesian Stock price Index and STI (Straits Times Index) have
significant negative effect to Indonesian Stock Price Index
During the observation period between 2010-2014 there was volatility stock price at Indonesian Stock market and
the relationship between macroeconomic variables with Indonesian Stock Market have inconsistent result with existing
theory. The inconsistent result from earlier study is an interesting phenomenon to make a study again. In addition the
results of previous studies on the effect of GDP, inflation, interest rate, exchange rate of the rupiah against the US
dollar, tends to be inconsistent or differ between the study of other studies and based on previous research on the effect
of Stock Price Index against IDX still find a different results then this study will be analyzed again on the influence of
the GDP , inflation , interest rate, exchange rate of the rupiah against the US dollar and combining with the Kuala
Lumpur Stock Exchange (KLSE), Stock Exchange of Thailand Index (SETI) and the Straits Times Index (STI), to the
composite stock Price Index of IDX .
Method
The aim of this study is to investigate the macro fundamental analysis in stock market and the international stock
market integration.Specifically, our objective is to determine the influence of various economic factor such as GDP,
inflation, interest rate, exchange rate of the rupiah against the US dollar and addedby the Kuala Lumpur Stock
Exchange Index, Stock Exchange of Thailand Index and the Straits Times Index (STI), to the Indonesian Stock price
Index of IDX.
The period under investigation extends from January 2010 to December 2014. Monthly data were extracted from the
Yahoo finance for market stock Indexes that consist of Kuala Lumpur Stock Exchange (KLSE), Stock Exchange of
Thailand Index (SETI) and the Straits Times Index (STI), to the Indonesian Stock Index of IDX and the macroeconomic
data were extracted from the official website of Indonesian central statistical agency.
This paper hypothesizes a positive relation between the GDP and stock market index in nature. As GDP rise,
profitability will generally increase and it means a favorable impact on domestic stock market. Wijayanti and Kaluge
(2013) results showed that in the short-term and long-term positive effect on the GDP growth to JCI.
The relationship between inflation rate and stock market index was hypothesized to be negative in nature. As
inflation rate rise, production and input cost will generally increase, decreasing firm profit and cash flow. This
perceived risk will further erode investor confidence and increase their search for alternative investments and ifinvestor
search for alternative investment it can be a negative effect on the stock price index
The effect of interest rate on the stock price index was hypothesized to be negative in nature. As interest rate rise,
the stock price index will generally decrease because investor preferred to invest their fund in conventional saving that
give them higher return.
There is a negative relation between the exchange rate and the stock market index was hypothesized to be negatively
related, if an appreciation (depreciation) of the domestic currency in term of USD would have an unfavorable
(favorable) impact on the domestic stock market.
Regional integration of financial markets in Asia's emerging economies has accelerated in recent years, these
markets remain more integrated with global financial markets than with other financial markets in the region. the
relationship among South East Asia’s Capital market were hypothesized to be positively. The hypothesizes are
investigated by regression analysis and using Statistical Package For Social Science (SPSS) software.
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In order to begin our analysis we will discuss some basic measures of descriptive statistics such as the mean, the
standard deviation, minimum and maximum, as to have an idea about the distribution of our data within the sample.
The mean for GDP is 1,930,258,000,000 andGDP has the highest standard deviation (160.788), compared to the other
variables, a fact that indicates a greater dispersion of data around the mean, which is also identifiable from the wide
range between the minimum and maximum values.
On the other side, Inflation rate indicate a low dispersion of data around the mean since the standard deviation is
relatively close to it and the range between the minimum and maximum values.The mean for interest rate is 6,5750 and
interest rate has a relatively close standard deviation to the mean and the range between the minimum and maximum
value. The next variable is exchange rate, the mean for exchange rate is 9.935 and the standard deviation is 1,246 that
indicates a greater dispersion of data around the mean, and the range between the minimum and maximum values is
relatively wide.
The highest mean for stock indexes is Indonesian composite stock index and continuously by strait Time Index,
Kuala Lumpur Composite Index and stock exchange Thailand Index thus the standard deviation for Indonesian
composite index indicates a greater dispersion of data around the mean, and for three others stockindex have a relatively
close standard deviation to the mean.
The result of regression analysis for each relationship, we will discussion the effect of macroeconomic variables and
some south east Asia stock indexes to Indonesian Composite stock Index.
Table 1 summary of regression Analysis Coeffici entsa
Unstandardized Standardized
Coef f icients Coef f icients 95% Conf idence Interv al f or B
Model B Std. Error Beta t Sig. Lower Bound Upper Bound
1 (Constant) 12.433 749.652 .017 .987 -1492.556 1517.421
PDB .001 .000 .158 1.432 .158 .000 .002
Inf lasi 25.366 30.925 .023 .820 .416 -36.719 87.452
Suku Bunga 169.705 57.751 .160 2.939 .005 53.765 285.644
nilai Tukar -.166 .038 -.292 -4.368 .000 -.243 -.090
KLSE .754 .372 .189 2.025 .048 .006 1.501
SETI 2.409 .326 .883 7.391 .000 1.755 3.064
STI -.275 .218 -.074 -1.262 .213 -.713 .163
a. Dependent Variable: IHSG
As we can see the relationship between Gross Domestic Product (PDB) and Indonesian composite stock Index
(IHSG) has a positive effect, this result indicate that as GDP increase, the purchasing power of consumer increase and
the demand of the product decrease then the firm profitability will increase and this is a favorable condition for stock
index, although there is positive effect of GDP toIndonesian Stock Index, there’s no statistically significant.
The relationship between inflation rate was hypothesis to be negative related, but this relationship was found to be
positive related. An interesting point in the result of the study was the relationship observed between inflation rate and
Indonesian Composite stock index has a positive related, this result would be inverse as expected. The positive
relationship exist because of Indonesian government always control the level of inflation rate in Indonesia. This positive
related result indicate that inflation rate increase, the Indonesian Composite stock Index will be increase but not
significant.
As hypothesized, the relationship between interest rate and Indonesian Composite Stock Index should be negatively
related. This hypothesis was found to be positive related and has a significant effect. The possibly explained of this
result, that interest rate in Indonesia has a small dispersion because of the government control and investor in
Indonesian Stock Exchange used interest rate in their investment decision.
The relationship between exchange rate and Indonesian Composite stock Index was hypothesized to be negatively
related, this relationship was found to exist between exchange rate and Indonesian Composite stock Index significantly.
This result showed an appreciation (depreciation) of the domestic currency in term of USD would have an unfavorable
(favorable) impact on the domestic Stock Market.
As hypothesized, the relationship between Kuala Lumpur Composite Index and Indonesian Composite Stock Index
should be positively related. This hypothesis was found to exist significantly between Kuala Lumpur Composite Index
and Indonesian Composite Stock Index. This result indicate that Kuala Lumpur Stock Exchange and Indonesian Stock
Exchange has a significant integration.
The relationship between Stock Exchange Thailand Index and Indonesian Composite Stock Index was hypothesized
positively related. This hypothesis was found to exist significantly between Stock Exchange Thailand Index and
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Indonesian Composite Stock Index. This result indicate that Thailand Stock Exchange and Indonesian Stock Exchange
significantly integrated.
The relationship between Singapore Strait Time Index and Indonesian Composite Stock Index was hypothesis to be
positively related but the result of the relationship between Singapore Strait Time Index and Indonesian Composite
Stock Index was found to be negatively and there’s no statistically significant. An interesting point in the result of the
study was the relationship observed between Singapore Strait Time Index and Indonesian Composite Stock Index was
has a negative related, this result would be inverse as expected.
References
Bodie, Z. Kane, A and Marcus, A. J. (2014). Essentials of Investment. Mc-Graw Hill. USA
Dimitropoulos, P. E.(2008). International Stock Market Integration: Evidence from Canada, China and The United
Kingdom. Journal Economics, Management, and Financial Markets, 3 (1), pp: 37-61.
Jones, C. P. (2014). Investment: Analysis and Management.John Wiley and Sons, Inc. USA
Muzammil, A. (2011). Analisis Pengaruh Indeks Saham Asia Tenggara terhadap Indeks Harga Saham Gabungan
(IHSG) di Bursa Efek Indonesia. Skripsi. Universitas Pembangunan Nasional “Veteran”, Jakarta.
Nikunj, R. Patel, Mohanty, S. and Pathak, N. (2012). Are Stock Markets Interdependent ? A Study On Selected Stock
Markets. Asian Journal of Research in Business Economics and Management, 2 (11).
Royfaizal, R. C.Lee, C. and Azali, M. (2009). ASEAN-5 + 3 and US Stock Markets Interdependence Before, During
and After Asian Financial Crisis. International Journal of Economics and Finance, 1(2), pp:45-54.
Sakthivel, P. Bodkhe. Naresh. and Kamaiah, B. (2012). Correlation and Volatility Transmission across International
Stock Markets: A Bivariate GARCH Analysis. International Journal of Economics and Finance, 4 (3), pp: 253-264.
Srikanth, P. and Aparna, K. (2012). Global Stock Market Integration - A Study of Select World Major Stock Markets.
Journal of Art, Science & Commerce, 3 (1), pp: 203-211.
Tamara, S. F. (2013). Pengaruh Dow Jones Industrial Average, DeutscherAktienindex, Shanghai Stock Exchange
Composite Index, dan Straits Times Index Terhadap Indeks Harga Saham Gabungan di Bursa Efek Indonesia
(Periode 2010 – 2012). Jurnal Fakultas Ekonomi dan Bisnis Universitas Brawijaya, Malang.
Wijayanti, A. (2013). Pengaruh Beberapa Variabel Makro ekonomi dan Indeks Pasar Modal Dunia Terhadap
Pergerakan Indeks Harga Saham Gabungan (IHSG) di BEI. Jurnal Ilmiah Fakultas Ekonomi dan Bisnis Universitas
Brawijaya, Malang.
LuhGede Sri Artini was born in Denpasar, Bali. She received her Doctorate in Finance from Airlangga University,
Indonesia. Her research focuses on Financial Management and Investment
Nyoman Tri Aryati was born in Denpasar, Bali. She received her master in Finance from Gajah Mada University,
Indonesia. Her research focuses on Financial Management and Investment
PutuVivi Lestari was born in Tabanan, Bali. She received her master in Finance from Udayana University, Indonesia.
Her research focuses on Financial Management and Investment
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THE MODERATING EFFECT OF ORGANIZATIONAL CULTURE IN THE INFLUENCE

OF DISCIPLINE AND INCENTIVES TOWARD EMPLOYEES PERFORMANCE WHICH
MEDIATED BY MOTIVATION
Saparso1), Rudolf Lumbantobing2)
Lecturers in the Magister of Management at Krida Wacana Christian University, Jakarta-Indonesia

1) 2)
saparso@ukrida.ac.id, rudolf.tobing@ukrida.ac.id
Abstract
The purpose of this study was to test and explore the mediating effect of motivation and organizational culture on the
influence of discipline and incentives upon organizational performance. This study involved 89 employee respondents
who were surveyed by interviews using questionnaires. All respondents were surveyed as to their organizational culture
orientations, motivations, incentives, discipline, and performances. The hypotheses were analyzed with the use of
moderates regression analysis and path analysis to test the direct and indirect effects of exogenous and intervening
variables on employees performance. Results of the path analysis showed that motivation was have indirect significant
positive in the effect of discipline and incentives on employees performance. It was revealed that the positive effects of
discipline and incentives on employees performance would be more positive when motivation was high. While, based
on the results of moderates regression analysis showed that there were significant negative interaction effect between
both incentives and motivation with organizational culture on employees performance. Otherwise, there was no
significant positive interaction effect between discipline and organizational culture on employees performance. These
findings concluded that the positive effects of incentives on employees performance might be more positive when
motivation and organizational culture were synchronized in contrary level.Thus, the findings suggested that increasing
employees performance through discipline and incentives should be conducted when organizational culture was held by
among organizational members as high as employees’motivation.
Keywords: Incentives, Discipline, Performance, Organizational Culture, Motivation
Introduction
Organization theory states that performance management is the process through which managers ensure that
employees’ activities and outputs contribute to the organization’s goals. This process requires knowing what activities
and outputs are desired, observing whether they occur, and providing feedback to help employees meet expectations.
Few studies have suggested that the importance of motivation and organizational culture involved in employee’s
activities and outputs contribute to the organization’s goals. Robbins and Judge (2009) stated that motivation has
dimensions of perseverance as a measure of how long a person can sustain the effort to achieve the goal. Motivation
decline caused by several things including delays in providing incentives, the lack of recognition, etc. Another
important aspect of internal employee relations is the application of disciplinary measures impose penalties to
employees who failed to meet the standards established in accordance with the culture of the organization. Decrease in
motivation, low labor discipline and weak organizational culture imply reducing earned incentives. These conditions
make the company changes the incentive system. This leads to a decrease in motivation that affect employee
performance. Thus, to improve employee performance human resources should be able to understand and carry out
well the existing organizational culture, so that they have a high work discipline and receive high incentive payments.
Based on these reasons, this study tried to explore and examine the factors that influence employee performance ie
incentives, work discipline, motivation, and organizational culture.
Purpose of the Study

The purpose of this study is to establish empirically the effect of work discipline and incentives toward the
performance of employee which mediated by motivation and organizational culture.
The results of this study would be useful to provide suggestion to the policy of the company to increase the
effectiveness of human resources related to the provision of incentives, motivation, work discipline and organizational
culture, which affects the performance of employees.
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Conceptual Background
Incentives
Louis et al (2012) stated that organizations pay compensation to employees for productivity to improve
performance. This compensation is called incentives as a inducement offered in advance to influence future
performance that tie to the performance of an individual employee, a team of employees, a total business unit, or some
combination of individual, team, and unit (Milkovich & Newman, 2011). Furthermore, Reece et al (2011) argued that
incentives to encourage workers to develop good work habits and to repeat behavior that is beneficial to employees and
the organization. Incentives can take the form of additional money, time off from work, or some other type of reward.
Organizations select forms of incentive pay to energize, direct, or control employees’ behavior (Noe et al, 2011).
Work Motivation
Motivation as a factor that comes from both internal and external causes something circumstances to achieve the
goal. Barry et al (2011) identified two types of motivation, namely: (1) internal motivation; derived from internal
stimulus resulting from the work, (2) external motivation; comes from action taken by others, usually in the form of
gifts. Characteristic of external motivation in money, fringe performance, and rewards as incentives in the form of extra
money, time off work, or other types of rewards. Robbins and Judge (2009) explains that an employee will be motivated
to exert effort high when he believes that the employee attempted to show good performance when there is appreciation
of the organization that will meet their own personal goals that focus on hope, intermediaries, bonuses, increasing
wage, or promotion.
Discipline
The purpose of work discipline to teach employees about what to expect, and create a situation where the employee
should try to do what's expected. Gomez et al (2007) stated that managers rely on to communicate to employees that
need to change a behavior. For example, some employees are habitually late to work, ignore safety procedures, neglect
the details required for job, engage in unprofessional conduct with coworkers. Mondy (2008) defined discipline as the
state of employees self control and orderly conduct that indicates the extent of genuine teamwork within an
organization. Noe et al (2011) showed that the organization establishes a formal disciplinary process that can have
serious consequences when employees repeat the offense.
Organizational Culture
Culture is a community’s set of shared assumptions about how the world works and what ideals are worth striving
for (Noe et al, 2011). The perspective of organizational culture refers to the basic assumptions and beliefs shares by
members of an organization. These beliefs operate unconsciously and define in a basic “taken for granted” fashion an
organization’s view of itself and its environtment (Meija, et al, 2012). Reece et al (2011) stated that the organizational
culture is the collection of shared values, beliefs, rituals, stories, and myths that foster a feeling of community among
organizational members.
Employee Performance
Performance is results have been achieved from an activity of either services or goods within a certain time to limit a
person's ability and should be supported by the quality and accuracy of work (Langton & Robbins, 2006). Employee
performance depends on the performance appraisal work tops with considering the skills, leadership, time management,
organizational skills and productivity to analyze each employee individually. Finally, Noe et al (2011) defined
performance management is the process through which managers ensure that employees’ activities and outputs
contribute to the organization’s goals.
Development of Hypotheses
Incentives versus Performance

Stajkovic et al (2001) showed that the incentives were significant positive effect on performance. So it can be
postulated relationship between incentives to performance in this study is "the higher the incentives would higher
improve performance". Consequently, this study hypothesizes that (H1) Incentives have directly positive effect on
performance.
Work Discipline versus Performance

Indriyanti (2010), Horng & Lin (2009) explored that discipline was significant positive effect on performance.
Consequently, this study postulates hypothesize that (H2) work discipline has directly positive effect on the employee
performance.
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Motivation versus Performance

Duma (2007), Springer & Gary (2011) showed that motivation has significant positif effect on performance. So it
can be postulated realtionship between motivation to performance in this study as is “the higher the motivation, the
higher performance”. Concequently, the hypothesis (H3) can be postulated as motivation has positive effect on
performance.
Incentive versus Motivation

Sagala (2008), Murdock & Kevin (2002) revealed that a significant incentive positive effect on motivation, and
therefore can be postulated relationship between the incentive and motivation in this study in hypothesis (H4) is the
incentive has positive effect on motivation.
Discipline versus Motivation

Haenlein et al (2011), Ashton et al (2011) revealed that discipline was significant positive effect on motivation. So it
can be postulated the relationship between discipline to motivation in this study is stated as the hypothesis (H5) is the
discipline has positive effect on motivation.
Motivation mediates the effect of Incentive and Discipline on Performance

Stajkovic et al (2001), Duma (2007), Springer & Gary (2011) showed that the positive effect of insentive on
performance would increase while the employee motivation was high. Haenlein et al (2011), Ashton et al (2011)
revealed that discipline has positively significance influence to motivation. Further, Duma (2007), Springer & Gary
(2011) showed the significance positive effect of motivation on performance. Thus, based on their results this study can
postulate the hypothesis stated as (H6) the motivation has postively mediated the effect of incentives and work
discipline on the employee performance.
Organizational culture moderates the effect of Incentive on Performance

Levin et al (2009), Xenikou et al (2006), revealed that organizational culture positive effect on performance, and
Stajkovic et al (2001) showed the findings in its study that the incentive was a significant positive effect on
performance, thus it can be postulated that the interaction incentives organizational culture will improve performance.
Consequently, the proposed hypothesis (H7) in this study is stated as the interaction of organizational culture and
incentives positively affect employee performance.
Organizational culture moderates the effect of Discipline on Performance

Indriyanti (2010), Horng & Lin (2009), Sumiah (2011), Xenikou et al (2006) revealed that the discipline has
significant positive effect on performance. Levin et al (2009), Xenikou et al (2006) revealed that organizational culture
has significant positive effect on performance, thus it can be postulated hypothesis (H8) in this study is stated as the
interaction of the discipline and the organizational culture will further improve performance.
Organizational culture moderates the effect of Motivation on Performance

Duma (2007), Springer & Gary (2011), Sumiah (2011), Xenikou, Athens; Simosi, Maria (2006) revealed that the
motivation positive significant effect on the performance when in synergy with the organization's culture. Thus it can be
postulated the hypothesis (H9) in this study is stated as the interaction of motivation and organizational culture will
further improve performance.
Method
The Sample
The sample size in this study were 89 employees drawn of 115 employees which is determined by Slovin technique.
This research used proporsional sampling with purposive. The primary data obtained through a questionnaire by
collecting data of proporsional sampling with purposive.
Measurement Scales
All items were measured on 5-point Likert-type scales with anchors of 1 = strongly disagree and 5 = strongly agree
(Sekaran & Bouqie, 2013). The variables were classified into three types of variables, namely: (1) exogenous
variables: incentives, work discipline, (2) endogenous variables: motivation, and employee performance, and (3)
moderator variable was organizational culture. All variables were unobservable variables which were measured by
indicators. The instrument used items questionnaire containing a list of statements using validity and reliability.
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Analysis Data
Data were analyzed by using a structural model of the equations below:
Equation 1: Motiv = α1 Inc + α2 Dis + €1
Equation 2: Perform = β1 Inc + β2 Dis + β3 Motiv +β14 Inc x β24 Dis x OC + β34 Motiv x OC + €2
B1
B2 B3 B4 B5 B6 B7 B8 B9
X1
X2
Organizational
X3
Culture
X4
Incentive
X5
KN10
Motivation Performance KN9
KN8
DK01 KN7
DK02
KN6
KN9
DK03
Work
Discipline
DK04 KN01 KN02 KN03 KN04 KN5
M1 M2 M3 M4 M5 M6
DK5
DK5
Source: Empirical model which was built in this study

Figure 2. Diagram of Structural Equation Model
Analysis and Results

The test results of validity and reliability can be seen in the table below:
Table 1. Summary Validity and Reliability Test Results Variable:

Variable Number of Validity Cronbach Reliability
indicators Alpha
Discipline 5 Valid 0,699 Reliblel
Incentives 5 Valid 0,699 Reliable
Motivation 6 Valid 0,699 Reliable
Organizational Culture 9 Valid 0,699 Reliable
Performance 10 Valid 0,699 Reliable
Hypotheses Testing
Estimation structural equation model-1: Motiv = 0.338Inc + 0.121Dis. The coefficient of determination (R2) showed
14.5% of the variation of motivational can be explained by variations of incentives and discipline variables. The
estimated equation model-1 above indicated that incentives and discipline significant positive effect on motivation.
Estimation structural equation model-2:
Perform= 0.011 Inc +0,476 Dis + 0,017 Motiv -0,083 IncxOC + 0,148 DisxOC - 0.245MotivxOC
The coefficient of R2 model showed 42,4% of the variation of employee performance can be explained by variation
organizational culture, incentives, motivation and work discipline. The results statistical hypotheses testing of
coefficients equation model-2 above showed the statistical conclusions are as follows: incentives, discipline, and
motivation have significantly positive effect on employee performance (accept H1-H3). Motivation has significant
positive mediated the effects of incentives and work discipline on the employee performance (accept H6). The
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Organizational culture has no significance positive moderated the positive effect of work discipline on employee
performance (reject H8) , but significant negative moderated the effects of incentives and motivation on employee
performance (H7 and H9). Calculating all path coefficients described pictogram path diagram as figure 3 below:
B1
B2 B3 B4 B5 B6 B7 B8 B9
0.
0 .6
0.791
0.8
0.4 9
52
63
X1
0.5 0.800.632 02
0.
89
7
69
67
6
X2 0.4
92
0.6 Org Culture
X3 08
0.405 Incentives
- 0.
X4
0.654
083
0.434
- 0.24
X5
0.3 -0.01
0.14
38 1
5
8
0.6
81 KN10
0.193
0.643
Motivation 0.017 Performance 0.3
59 KN9
3 2 7
0.5 0.6 .46
KN8
0.5 4 0
0
1
DK01
0.12 0.476
KN7
0.584
14
0.657
3
0.69
53
0.579
0
08
0.71
0.5 0
0.59 9 66
79
40
0.6
0.
DK02
0.3
KN6
4 KN9
0.
DK03
Work
0.707 Discipline
2
0.74606
DK04 KN01 KN02 KN03 KN04 KN5
0. M1 M2 M3 M4 M5 M6
DK5
DK5
Source: The processed data in this study

Figure 3. The pictograf path diagram of structural equation model
Table 2. Hypothesis testing of Motivation as intervening variable:

EFFECT INC MOTIVPERF DISMOTIV PERF
Direct 0,011 **) 0,476 **)
Indirect 0,0057 0,0021
Total 0,0167 0,4781
Source: Output SPSS Manual **) significance level α = 0,05
Tabel 2 above provided statistical results: the positive effect incentives on performance would more positive while
motivation increased, with additional effect about 51,8%. The positive effect discipline on performance would more
positive while motivation increased, with additional effect about 0,44%. Thus, motivation has very significant positive
mediation effect of incentives toward employee performance. The incentives would increase employee motivation,
which in turn have a positive impact on employee performance.
Discussion
The findings of this study showed evidence that the compensation paid to the employee organization could improve
performance (accept H1), as revealed by Robbins (2006) and Louis et al (2012). These results support Stajkovic et al
(2001) which described the positive effect incentives on employee performance. This study also revealed that the work
discipline was very significant positive effect on employee performance (accept H2). The findings supported studies by
Torrington and Hall (2008), Indriyanti (2010), and Horng & Lin (2009), which revealed a strong direct relationship
between work discipline with employee performance. This study reinforced the evidence found by Robbins & Judge
(2009), and Barry et al (2011) who urged that the motivation was needed to drive employees to be more active in their
work and achieve the target. The significance of these findings gave support on Duma (2007), Springer & Gary (2011),
which proved the positive influence motivation toward the employee performance (accept H3). The findings of this
study provide evidence of support on Sagala (2008), Murdock & Kevin (2002) which showed evidence of significant
positive effect incentives on motivation (accept H4). And supported the results study Haenlein et al (2011), Ashton et al
(2011) who showed work discipline has positive effect on motivation (accept H5).
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These results of this research revealed that motivation has significant positive mediation influence of incentives and
work discipline toward employee performance (accept H6). Incentives program induced employee motivation to work
harder, which in turn has a positive impact on employee performance. These results supported Stajkovic et al (2001),
Duma (2007), Springer & Gary (2011), who revealed an increase in performance through the provision of incentives
could be done when employee motivation was high. Positive impact on employee performance on a high motivation
could also be done by the company through the work discipline (Haenlein et al, 2011, and Springer & Gary, 2011).
The findings of this study revealed that the positive effects of incentives on employees performance might be more
positive when motivation and organizational culture were synchronized in contrary level (H7-H9). To improve
employee performance in the organizational culture conditions less well understood by all members of the
organization, could be done through the provision of alternative compensation/ incentive or reward to stimulate
employees to work better. The findings were not enough to support Xenikou et al (2006), revealed that interaction
between organizational culture and the incentive or motivation could improve performance. The findings of this
research have not supported on research Indriyanti (2010), Horng & Lin (2009), Sumiah (2011), and Xenikou et al
(2006), which revealed that the interaction between work discipline and organizational culture significant positively
affect on employee performance. These findings show evidence that organizational culture or work discipline have
contributed very positively on the employee performance. When an organizational culture was understood and
implemented properly then the employee performance would be better.
Conclusion
Incentives, work discipline, and motivation have significant positive effect on employee performance. Motivation
has significant positive effects on the indirect positive effects of incentives and discipline on employee performance.
Increasing employee performance through the provision of incentives and enforcement of work discipline should be
done by the company when employees were motivated to work harder. The interaction effect motivation and
organizational culture have significant positive effect on employee performance. This conclusion confirmed that when
the organizational culture is not well understood by members of the organization, then the increase in employee
motivation through incentives would improve employee performance.
Implications
The findings concluded that the positive effects of incentives on employees performance might be more positive
when motivation and organizational culture were synchronized in contrary level, and showed that work discipline was
very significant positive influence toward employee performance. Recommendations can be given as a solution to the
findings of this study that in order to improve employee performance, organization should improve work discipline.
However, for organizations where the culture of the organization is not well understood or well executed by members of
the organization, then the increase in employee motivation through incentives should be the top priority in a bid to
stimulate employees to work harder and be more productive, which in turn implies on organizational performance is
getting better.
References
Barry L. Reece, Emeritus, Rhonda Brandt, Karen F. Howie, (2011). Effective Human Relations. 11th Edition. South
Western Cengage Learning.
Duma (2007). Pengaruh Kemampuan dan Motivasi Kerja terhadap Kinerja Karyawan Logistic PT. Seamless Pipe
Indonesia Jaya. Jurnal Manajemen Trisakti, 57-67.
Haenlein, Michael; Kaplan, Andreas M (2011). The Influence of Observed Heterogeneity on path coefficient
Significance: Technology Acceptance within The Marketing Discipline. Journal of Marketing Theory and Practice,
suppl. Special Issue on The Use of Partial Least Squares 19. 2, 153-168.
Horng, S-c; Lin, S-y.(2009) Ordinal Optimization of G/G/1/K Polling Systems with k-Limited Service Discipline.
Journal of Optimization Theory and Applications 140. 2, 213-231.
Indriyanti (2010). Pengaruh Kemampuan dan Disiplin Kerja terhadap Kinerja Kerja Karyawan PT. Rizky Karunia Jaya
Palembang. Jurnal Manajemen Trisakti, 25-32.
Louis R. Gomez-Mezia, David B. Balkin, Robert L. Cardy (2012). Managing Human Resources. Pearson Education,
Inc.
Mondy, R., Wayne (2008), Human Resource Management, 10th Edition, New Jersey: Pearson Education, Inc.
Murdock, Kevin (2002). Intrinsic motivation and optimal incentive contracts. The Rand Journal of Economic s33. 4
650-671.
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Noe, Raymond A., John R. Hollenbeck, Barry Gerhart, Patrick M. Wright, (2011). Fundamentals of Human Resource
Management. 4th Edition. The Mc Graw-Hill Companies, Inc.
Robbins, Stephen P. dan Timothy A. Judge, (2009). Organization Behavior. 5th Edition, New Jersey, Pearson
Education, Inc.
Robbins Stephen P., Nancy Langton, (2006). Fundamentals of Organization Behavior. 3th Edition. Pearson Education
Canada Prantice hall.
Sagala (2008), Pengaruh Insentif dan Program Pelatihan terhadap Motivasi Sales Person yang dapat Meningkatkan
Kinerja Kerja Karyawan PT. Putera Satria Indo. Jurnal Manajemen Trisakti, 73-83.
Sekaran, Uma., Roger Bougie (2013). Research Methods for Business. 6th Edition, John Willey & Sons Ltd.
Sumiah (2011), Pengaruh BudayaOrganisasi, Employee Engagement dan Kepuasan Kerja terhadap Kinerja Kerja
Perusahaan PT. Indonesia Power. Jurnal Manajemen Trisakti, 38-46.
Springer , Gary Jon, (2011). A Study of Job Motivation, Satisfaction, and Performance among Bank Employees.
Journal of Global Business Issues. 29-42
Stajkovic, Alexander D; Luthans, Fred (2001). Differential effects of incentive motivators on work performance.
Academy of Management Journal 44. 3, 580-590
Xenikou, Athena; Simosi, Maria (2006). Organizational culture and Transformational leadership as predictors of
business unit performance. Journal of Managerial Psychology 21.6, 566-579
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DOES THE AGENCY COST MEDIATE THE INFLUENCE OF DETERMINANTS OF

CAPITAL STRUCTURE ON THE CORPORATE DEBT RATIO?
(AN EMPIRICAL STUDY OF THE DIFFERENCES IN DEBT RATIO BETWEEN THE
LISTED COMPANIES OF MANUFACTURING SECTOR AND THE NON-
MANUFACTURING SECTOR IN INDONESIAN STOCK EXCHANGE)
Rudolf Lumbantobing
Lecturer in Faculty of Economic Krida Wacana Christian University, Jakarta-Indonesia
rudolf.tobing@ukrida.ac.id
Abstract
The purpose of this study is to investigate the mediating effect of agency cost toward the capital structure differences
between the industrial companies of manufacturing sector and non-manufacturing sector listed in the Indonesian Stock
Exchange (IDX).This study proposed descriptive research by applying path analysis to analyze mediating effect on
influences of capital structure determinants toward debt ratio. The results depicted that the insider ownership and
dividend yieldin both sectors were not significant have positive effect on the agency cost. While growth opportunity and
firm size significant positively effected on agency cost. The agency cost has significant positive effect on debt ratio.
Based on the result of path diagram, this study found that the agency cost mediated the effect of determinants of capital
structure onthe corporate debt ratio. This study concluded that there weresignificant differences of agency cost effect on
debt ratio between the companies in bothsectors. Theeffect of intervening variable of agency cost on debt ratio of
manufacturing sector was higher than the non-manufacturing sector. Debt ratio in both sectors has no significant
differences.
Keywords: Agency, Debt Ratio,Dividend, Growth Opportunity, Path Analysis
Introduction
Generally to achieve high firm value investors hand over the management to the agent business. To increase the value,
managers often behave as opportunistic agents to make decisions that are risky by creating debt that causes high
financial leverage for the company’s capital structure (Ross et al, 2009; and Booth et al, 2014). The value of the firm
that is affected by the distribution of ownership among insiders who enjoy the benefits and outsiders might not benefits
has been expressed by Jensen & Meckling (1976). In the framework of their thinkings they showed that increasing of
insider ownership will reduce debt financing and agency conflict. Lumbantobing (2015) showed that firm size and
growth opportunities have significantly positive effect on corporate debt policy. The larger firm size and growth
opportunities there will be more funds used to run the company’s operations and realize the growth opportunities of
investment through external financing. Increasing external funds when firm size and investment growth are more higher
will increase the agency conflict between shareholders and managers. Commonly to reduce the agency conflict,
companies use dividend policy by dividend payment to reduce dicritioner cost that available to the managers (Cruthley
& Hansen; 1989). Based on the gap problem of the contradiction theories and empirical findings from various studies of
capital structure, the proposed problem statement in this study is “Does the agency cost mediate the influence of
determinants of capital structure toward the differences in debt ratio between industrial companies of manufacturing
sector and non-manufacturing sector which listed in Indonesia Stock Exchange?”
Purpose of the Study

The special purpose of this study is to investigate and test the mediating effect of agency cost on the influences of
determinants of capital structure toward the differences in debt ratios between companies of manufacturing sector and
non-manufacturing sector listed in the Indonesian Stock Exchange.
Literature Review
Crutchley & Hansen (1989), Chen & Strange (2005) revealed that agency problem arises because of the separation
between the owner as a shareholder with the manager as an agent. Managers often act as an agent of a personal interest
rather than the interests of the companyso that raises organizational conflict. The organizational conflictincurs costs that
are resolution costs to the conflict of interest between principal and agent, which called as agency cost. Ross et.al
(2009) definedthatagency costs are all kinds of fees are borne by shareholders in order to prevent or surpress the agency
problems and maximize shareholders’wealth. To motivate the managers perform their functions properly, the managers
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should be given incentives and adequate supervision. Jensen & Meckling (1976) argued that agency cost can be
reducedif managers has equity or shares ownership in company. Equity ownership by the managers is needed for all
decisions taken by the managers do not only responsible to the owner of the company, but also by their selves.
Lumbantobing (2008) quoted Jensen (1989) and Damodaran (2001) revealed that agency conflict can be surpressed by
increasing debt so that decreases waste that can be done by managers. The use of debt makes the company obliged to
pay interest and principal payable periodically, so that reduce the managers willingness to usefree cash flow of existing
funds in the company to finance unprofit activities.
Jensen and Meckling (1976) argued that the distribution of ownership between insider ownership and outsider can
affect the value of the company. The increase in insider ownership will reduce the agency conflict through the reduction
of incentives in taking advantage. The greater insider ownership, the differences of interest between shareholders and
company managers will be lower, they are acting more cautious in taking a decision. Lumbantobing (2015) quoted
Chen & Strange (2005)revealed that insider ownership has a positive relationship with the capital structure, which
impacts on the efficiency of the debt ratio has positive influence on managerial share ownership.
Firm size indicates the amount of total assets, sales and market capitalization. Lumbantobing (2008) quoted Barney
(2002) who argued that large firms were diversified tend to take advantage of high debt capacity. To obtain additional
funding from the creditor without violating debt agreements, the managers raise the political costs on the disclosure of
financial statements. This led to increase agency costs along with increasing of the firm size.
Jensen (1986) as quoted Fatmasari (2011) stated that firms with high investment opportunities tend to have a high
growth rate, active investing, has a lower free cash flow and a low assets in place. In such condition the company will
tend to use external funding sources in the form of high debt. Spend these assets are assumed to be lead agency costs on
companies, where managers can behave wasteful in investing the cash available, as described Myers & Majluf (1984) in
the pecking order theory.
Dividend policy plays an important role in determining the value of the company. Investors will feel more secure to
obtain current cash dividends now more certain than waiting for future cash earned from risky capital gains (Gordon,
1959 in Lumbantobing, 2008). Further, Rozeff (1982) and Easterbrook (1984) explained that the dividend payments
will reduce the sources of funds controlled by managers, thereby reducing agency costs. Although the dividend payment
can reduce agency conflict, but on the other hand can lead to charges. Costs will arise when a company pays high
dividends while the cash flow is obtained from internal sources is no longer adequate, prompting the company to meet
the needs of debt funds (Lumbantobing, 2008).
Theorical Framework and Hypotheses

Based on the framework constructed of theoretical concepts and review of the literature, it can be constructed a
building on the model of empirical research studies on the pictographs are as below:
Source: The proposed empirical research model was developed in this study
Research Hypotheses are as below:
H1: Agency cost mediates positive the influence of growth opportunity toward debt ratio
H2: Agency cost mediates positive the influence of firm size toward debt ratio
H3: Agency cost mediates negative the influence of insider ownership toward debt ratio
H4: Agency cost mediates positive the influence of dividend toward debt ratio
H5: The mediating effect of agency cost on the effects of determinants of capital structure
toward debt ratios in the industrial companies of both sectors are different
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The objects of this research were the listed companies which have been classified to the industrial sector of
manufacturing and non-manufacturing sectors in Indonesian Stock Exchange (IDX), period of year 2012 to 2014. The
variables in this study consist of Independent variables: (a) Dividen Yieldexpresses ratio of how much the company
paid a dividend every year to a price per share, (b) Firm Sizeexpresses as size of assets be measured by logaritma
natural of assets total, (c) Insider Ownership is the number of shareholders, directors or executive officers of the
company has a significant proportion of the company's shares, and (d) Growth opportunities describes the growth of
corporate investment be measured from asset growth from year to year. Intervening variable is a proxy for agency costs
measured as asset utilization ratio that describes the productivity achieved by management in acquiring the company's
sales. The more effective use of the asset management company to achieve annual sales will be getting a bit of extra
costs incurred for monitoring and controling (Lumbantobing, 2008). And as Dependent variable is debt ratiomeasured
asdebt to assets that describesthe ratio of total debt to assets total.
Data Analysis Techniques
Modeling in this study using multiple linear regression analysis and path analysis. The structural equation models as
follows:
Structural equation 1: Agency cost model

AC = α1GO + α2SIZE + α3IO + α4DIV+ α5D1 + α15GO.D1 + α25SIZE.D1 + α35IO. D1 + α45DIV.D1 + ε1
which AC= agency cost; GO= growth opportunity; SIZE= size of assets, IO= insider ownership; DIV= Dividen; D1=
Dummy for industry (D1 = 1 manufacturing, and D1 = 0 non-manufacturing)
Structural equation 2: Debt ratio model

LEV = β1GO + β2SIZE + β3IO + β4DIV+ β5AC + β6D1+ β16 GO.D1 + β26SIZE.D1 + β36IO.D1 + β46DIV.D1 + β56AC.D1 +
ε2 which LEV symbol forleverage or debt ratio
To analyze direct and indirect effects of determinants of capital structure toward debt ratio through intervening
variable, expressed by path analysis as below:
AC = δ1GO + δ2SIZE + δ3IO + δ4DIV + ε1 and LEV = γ1GO + γ2SIZE + γ3IO + γ4DIV + γ5AC + ε2
EFFECT GOACLEV SIZEACLEV IOACLEV DIVACLEV

Direct γ1 γ2 γ3 γ4
Indirect δ1 γ5 δ2 γ5 δ3 γ5 δ4 γ5
Total γ1 + δ 1 γ5 γ2 + δ2 γ5 γ3 + δ3 γ5 γ4 + δ4 γ5
Data Analysis
Based on regression output of SPSS 20 statistical software package were used to analyze the data showed the results
as below:
Estimateequation model 1 (agency cost) based on industry different:

AC = -0,071GO -0,088SIZE + 0,138IO -0,037DIV + 0,130D1** -0,316GO.D1 -0,095SIZE.D1 –0,128IO.D1 –
0,092DIV.D1
Estimate equation model 2 (leverage) based on industry different:

LEV = -0,041GO –0,111SIZE –0,385IO + 0,006DIV+ 0,308AC -0,027D1-0,161GO.D1 + 0,263SIZE.D1 +
0,434IO.D1 + 0,111DIV.D1 + 0,294AC.D1
The effect of Growth Opportunity, Firm Size, Insider Ownership, and Dividendto Leverage which mediated by
Agency Cost:
EFFECT GO – LEV SIZE – LEV IO- LEV DIV- LEV

Direct -0,209** 0,068 -0,008** 0,080
Indirect -0,2054 -0,07384 0,026 -0,04212
Total -0,4144 -0,00584 0,018 0,03788
Note: **) significant at alpha level 0,05
Discussion of Results
Growth Opportunity
The results of model estimation equation agency cost shown that growth opportunities significantly negative effect
on the debt ratio. These results provided evidence supporting the results of a study Fatmasari (2011) and Mao (2003),
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which revealed a negative influence the growth opportunities toward debt ratios, where a company with high growth
opportunities tends to use lower debt ratios.
Firm Size
The test showed that firm size has significantly negative effect on AUR, thus the larger firm size, agency cost is
increasing. This result provided evidence supporting the findings of Canback (2006) and Lumbantobing (2008), which
revealed that agency cost increases with firm size. While testing the model estimation showed that the debt ratio of the
firm size was not significant positive effect on the debt ratio. These results did not support the findings of
Lumbantobing (2008) and Homaifar et al (1994) which stated that the large companies that have the ability to return the
debt to earn the trust of creditors to issue debt in large quantities, so the larger firm size of the company, debt capacity
obtained more increasing. Not enough evidence to show that companies in Indonesia which have a large firm size will
use debt as an alternative funding.
Dividend
The results of this study showed dividends were not significantly affect to agency cost that has implications not
enough to confirm the opinion of Jensen and Meckling (1976), Rozeff (1982), and Easterbook (1984) which stated that
the dividend be used to reduce the agency conflict between managers and shareholders. The results of this study also
demonstrated that dividends has significantly positive effect on the debt ratio. These findings confirmed the results of
the study Lumbantobing (2008) which mentioned positive influence on the dividend policy where the debt ratio higher,
retained earnings that are used for the payment of dividends, while corporate investment remains financed by debt.
Another possibility retained earnings were used for the payment of dividends, while additional debt for monitoring
costs in an attempt to discipline the managers.
Insider Ownership
The results of this test has not been enough evidence showing that the administration shares the manager will
increase agency conflicts which then increases the agency cost. Results of testing the model equations debt ratio also
showed that insider ownership has no significantly affect to the debt ratio. These findings did not enough provide
evidence supporting the argument of Jensen and Meckling (1976) who argued that greater insider ownership then the
difference between the interests of shareholders with the company managers would be lower. The results of this study
also did not support the findings of Chen & Strange (2005), and Lumbantobing (2015) which revealed that insider
ownership has a positive relationship with the debt ratio, which impact the efficiency of the debt ratio positive effect on
share ownership managerial.
Agency Cost
Results of testing debt ratio model in this study showed that AUR significant positively effect on debt ratio. In other
words, the agency charges a significant negative effect on the debt ratio. These findings were consistent to the results of
studies Jensen (1989) and Lumbantobing (2008), which revealed that the influence of asymmetric information tends to
push the pecking order behavior so companies are profitable and face agency costs tend to use retained earnings as a
first priority funding, reducing the ratio of corporate debt. These findings explained indication of companies in
Indonesia with high agency costs using high debt in an effort to reduce its agency conflict (as disclosed Damodaran,
2001).
Testing the mediating effect the agency cost on influence of determinants of capital structure to debt ratio.
Based on the above table indicated that the agency costs significantly mediate the positive effect of the growth
opportunities to debt ratio. The positive effects on the growth opportunities, the company debt ratio will be positive
when the company’s agency cost increases. These findings supported the study of Jensen (1986), and Wahyudi (2005)
which stated that companies with high growth rate of investment opportunities tend to use external funding sources in
form of high debt. Spending these assets can lead agency costs on companies, where managers can behave wasteful to
invest available cash. As for the indirect effect of firm size and dividend on the ratio of debt through the agency cost
indicated that the agency cost was not significantly mediate the effect of firm size and the ratio of dividends to the
company's debt ratios. For insider ownership variables, the results indicated that the agency cost significantly mediates
the negative effect of insider ownership to debt ratio of the company. The increase in insider ownership will reduce the
agency conflict in which lower differences of interest between shareholders and managers. The managers will act more
cautiously in making decisions, including the use of debt.
Dummy
The test results estimation equation model of agency cost showed a significant effect on agency cost manufacturing
than non-manufacturing companies. However, there was not enough evidence of differences in the effect of firm size,
insider ownership and dividends to the agency cost between manufacturing and non-manufacturing sectors. As for the
variables of growth opportunities, there are significant differences in growth opportunities to influence agency costs at
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manufacturing and non-manufacturing sectors. This shows the effect of growth opportunities on agency cost in non-
manufacturing sector was higher than the manufacturing sector. Testing models debt ratio by industry showed there was
not enough evidence to debt ratio differences between manufacturing and non-manufacturing. But there were significant
differences in the effect of agency costs between manufacturing and non-manufacturing against the debt ratio. These
findings suggested the influence of agency cost to the debt ratio on manufacturing sector was higher than the company's
non-manufacturing sector.
Conclusions
These results indicated opportunities for growth and firm size significantly positive effect on the agency cost, while
insider ownership and dividends were not significantly affect to the agency cost.
The results demonstrated the growth opportunities and agency costs significant negatively effect on the debt ratio,
while the dividend significant positively effect toward the debt ratio. However, these findings have not been sufficient
evidence showed that companies with firm size and a high proportion of insider ownership would have a high debt ratio
as well.
The results indicated that the agency costs significantly mediate the direct effect of growth opportunities, firm size,
insider ownership and dividend toward the debt ratio. With the indirect relationship through the agency cost is low, the
increase in growth opportunity, firm size, the dividend will reduce the ratio of corporate debt. While the influence of
insider ownership will improve the ratio of corporate debt.
The results showed differences in the effect of agency costs for differences debt ratios manufacturing company with
a non-manufacturing company. Agency costs more significant effect on the debt ratio of manufacturing sector than non-
manufacturing sector. Effect of growth opportunities on agency cost non-manufacturing companies was greater than the
cost of agency manufacturing companies. However, this study has not been enough research evidence indicates a
significant difference corporate debt ratio of both sectors industrial companies.
Recommendations
These results revealed that the positive effects of firm size on the debt ratio will be negative when agency costs
increase, so does the findings that show the negative effects of growth opportunities and dividend against the debt ratio
will be negative when the agency cost decreases; the recommendations can be given to the study this is for large
companies manufacturing and non-manufacturing that want to lower the ratio of debt need to reduce their agency costs
when the conditions of the companies gained high growth opportunities. Thus, maximization the value of the company
through optimization of excellent capital structure based on the agency theory can be realized.
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INDONESIA PINEAPPLE SUPPLY CHAIN MANAGEMENT AND THE IMPROVEMENT

OF GLOBAL MARKET AND COMPETITIVENESS
Faurani Santi Singagerda1), Abshor Marantika

1)
University of Sang Bumi Ruwa Jurai, Bandar Lampung, Indonesia
2)
IBI Darmajaya, Bandar Lampung, Indonesia
1)
faurani@saburai.ac.id
Abstract
This research to analyze a supply chain management of Indonesia pineapple competitiveness in global market,
based on General Directorate of Horticulture Department of Agriculture (2012), Indonesia is one of the largest
pineapple supplier in the world. And, the fact that role of Indonesia pineapple export does not meet the world market
standards because of low competitiveness and cannot reach the world market demand.
The objectives of research is to analyze supply chain of pineapple in improving market access and competitiveness,
including: mapping potential for pineapple production, analyzing role of actors in the pineapple supply chain,
analyzing structure and supply chain information systems, then analyzing distribution system and value-added supply
chain
The results showed that the problems of Indonesia pineapple supply chain is not only flow of products and funds,
but also includes informations, services, and activities. Gaps in the role of perpetrator, control of information, and
imbalance of service are very important factors in the formation of prices and profits. The government policy is also
remained on aspects of the production, and lack of institutional aspects and marketing. In the institutional aspect, it is
necessary to strengthen the role of associations and farmers' groups to be able more independent with government
projects.
Keywords: Supply Chain Management, Competitiveness, Global Market, Government Policy
Introduction
Economic growth becomes important in the context of a nation's economy because it can be one measure of growth
or achievement of the nation's economy, although it can not be denied by other measures. Kates et. al (2008) states that
economic growth is one of indicator of development progress. With the increasing globalization of the door wide open
as a gateway for trade liberalization both at the local, regional, national, and international, and as the start of the Asean
Economic Community so as to make the higher level of competition in the field of service industry and manufacturing.
The free market is a dangerous threat that must be anticipated but also as a great opportunity for business development.
The commencement of the global market supported by advances in information technology will accelerate market
changes.
Horticultural products is a group of agricultural products traded and directly feel the impact of trade liberalization,
which has historically horticultural product has a strategic value for producers, traders and consumers in Indonesia,
where the market of horticultural products is relatively more open, with extensive market segmentation. Strategic
environmental changes in the general economy, particularly the agricultural sector also affects the market dynamics of
horticultural products. It can be seen from the implications of trade liberalization and market integration, which
encourages the growth of the modern market is becoming increasingly rapidly, in addition to tradition in all markets.
Pineapple which is one of the flagship products of horticultural commodity has an economic value and high market
demand. Based on data from the Directorate General of Horticulture Department of Agriculture (2011), among the
commodity fruits, pineapple has value and volume which tends to the highest in the period 2003 - 2011. Indonesia is the
fifth largest pineapple producer after Brazil, Thailand, Philippines and China. But the role of Indonesia pineapple export
is no 19th with products that do not meet the world market standards.
In this case, the pineapple agribusiness development needs to consider all aspects and agribusiness segments from
upstream to downstream and devices supporting efforts towards a balance between the promotion of increased
production, improved distribution and promotion of increased consumption, and benefit for all parties. In this regard,
pineapple agribusiness development programs need to be developed with attention to map existing conditions and
problems, make the analysis of repair needs, set targets and devise corrective action plan through the Supply Chain
approach. This approach can improve the development of good pineapple product quality, quantity and routine that can
ultimately answer the challenges of the globalization era.
In addition, generally several characteristics inherent in the development of pineapple is that unplanned
development, cultivate a crop growers over the price information on the previous season, while the balance of supply
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and demand can not be anticipated. Due to further (i) fluctuations in price between the time which have a very high (ii)
application of the technology is based on what the farmer wants, not seeing what plants need, especially relating to the
product quality of market demand (iii) from the institutional aspects, that can be identified by binding factor which can
unite farmers in one solid (iv) container diversification and not take into account the sharing of risks, but rather on
efforts to maintain the stability of (v) farmers income are always in the position of the less advantaged in terms of
information, especially information price (vi) not all market players enjoy the benefits in accordance with the sacrifices
rendered (vii) no incentives at the farm level to develop products according to market segmentation.
Therefore, to improve competitiveness and address the issue of pineapple trade cannot be done partially, by just
looking at the market with the perpetrators, linkages with other aspects such as cultivation (production technology) as
well as institutional support is crucial to success in solving marketing problems. It means that the supply chain from
the supply of the means of production, production, post-harvest, marketing to distribution to the consumer, and
information systemto be very important, as consideration for developing support for farmers in order to strengthen their
market access.
The objectives of this research is to analyze the supply chain pineapple of horticultural commodities in improving
market access and competitiveness, including: a. Mapping the potential for pineapple production, b. Analyzing the role
of actors in the supply chain of pineapple, c. Analyzing the structure and supply chain information systems of
pineapple, and d. Analyzing supply chain economics of pineapple. Using some theories, regulations and empirical
studies from previous research such as international trade theory, competitiveness, supply chain management,
information system, and Indonesia pineapple trade performance in 2008-2012.
Factors Affecting the Competitiveness of the Local Pineapple

Price as one of formers for the value of a product is a component that determines the number of requests for a
product where it is said that the price relates to explain the economic activity in terms of value creation and transfer,
covering trade in goods and services between the different economic agents (Salvatore, 2013). Sometimes, prices can be
an alternative that refers to the amount of the payment requested by the seller of goods or services, not the amount of
the payment eventually. The requested amount is often called the bid or selling price, while the actual payment may be
called the transaction or traded price.
Similarly, the bid price or the purchase price is the amount of payment offered by a buyer of goods or services, even
if the meaning is more common in asset or financial markets than in the consumer market (Salvatore, 2013). While the
price theory itself asserts that the market price reflects the interaction between the two sides (demand and supply)
opposite. On one side is the demand that is based on marginal utility, while on the other hand it is based on the marginal
cost. Almost the same as other commodities, for commodities of the pineapple, the process of price is caused by the
amount of demand in the market, so the price formation process itself must be associated with a number of supply and
quality of the goods it self. This is in line with the increasing of income in the world community, who want a product
that takes aesthetic value and high nutrient levels. Neither the factor changes in demand that became an element of the
formation of market prices as well as an element for the formation of a price.
When the price increases, manufacturers will tend to increase production and sales volume. But the desire of
producers to increase their sales volumes are generally not carried out immediately. First of all they will consider
whether a higher selling price than ever before will be prolonged or not (it takes time). The second is that to be able to
sell more than the previous number of manufacturers must produce more.Therefore, a product that is bought and sold in
a market will eventually establish a price based on the large number of demand and supply that is available, so in the
end of product itself will shift the amount or quantity of goods in accordance moved at the prevailing price. Associated
with the era of liberal trade lately, pineapple products is also a commodity that is traded between regions and between
countries. Where as a commodity that is traded between countries, involving many parties involved.
The International trade also can be interpreted as commercial transactions between economic subjects with the state
of the economy subjects of other countries, both on goods and services (Krugman, 2000). The economic question is the
subject of the population that is composed of ordinary citizens, export companies, import companies, industrial
companies, state enterprises or government departments that can be seen from the trade balance.
Supply Chain Management

Supply-chain activities confirm the interaction between the functions of marketing, purchasing and production in a
company (Siagian, 2005). Supply chain managementis the management of activities in order to acquire the raw
materials into goods in process and finished good then the product will be sent to consumers through distribution
systems (Heizer & Render, 2004).
It is known that the supply-chain as the latest techniques in the management of material and information to win the
competition (Cooper, 1997). In other words, the relationship between the parties are involved in the activities of the
supply chain must consider how the synergistic relationship between the parties concerned can work well.
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Source: Heizer & Render, 2004.

Figure 1: Supply Chain Structure
Along with the development of the times, there was a change of environment and business orientation. This change
which is due to the increasingly complex needs of consumers is critical, rapidly growing information infrastructure and
transport, the growing awareness of the importance of social and environmental aspects, as well as the globalization of
the world economy. This was resulted in a new paradigm to the urgency of competitive advantage. In the end, the
paradigm is what delivers that approach based Supply chain management system of alliances both internal and external,
so that, the functional in a supply-chain structure is needed to achieve the competitive advantage. Beside that,the main
function of Supply chain management itself, namely as converting raw materials into finished products to the hands of
consumers, and as mediation market (Lambert, et.al; 1998). This function will be associated with Supply chain
management strategies that must be run, by knowing the characteristics of the product as illustrated in Table 2 and 3.
Table 2: Supply Chain Management Strategy Products by Type

Product
STRATEGY FUNCTIONAL INNOVATIVE
LEAN RIGHT FALSE
AGILE FALSE RIGHT
Source: Zabidi, 2001
Table 3: Characteristics of Functional Versus Innovative Products

Characteristics Function Innovation
Life Cycle Long Short
Variation of Product Less Much
Demand Stability High Low
Volume High Low
Error of estimation Low (10 %) High ( 40% - 100% )
Profit margin Low High
Lead time Long Short
Consumer aspiration Cheap Quick
Source: Zabidi, 2001
Lean Supply-Chain emphasis on saving costs occurring in the physical supply chain activities and strategies
appropriate when applied to the production system that has a typical product is more basic needs. While Agile Supply-
chain emphasis on speed of response in accepting the varying consumer needs and require specialization, these
strategies are appropriated when I was applied to the characteristics of the product which requires continuous
innovation.
In the implementation of Supply Chain Management strategy, there are some pitfalls that should be aware by the
holders of supply chain activities. In the study of literature Lee and Billington (1992), mentions that traps include:
performance measures that are not clearly defined, customer service that is not clearly defined, status of shipment data
inaccurate, information systems are inefficient, neglect of the impact of uncertainty,policies simple inventory,
discrimination against internal consumers, coordination between activities supply, analysis of incomplete delivery
method, obstacles of communication, designing a product that does not consider Supply chain, operational separate
supply chain, the definition of improper charges, and incomplete supply chain itself
From exposure to the above, finally it was said that supply chain management will soon be a must for any company
that wants to survive, not only for companies that want to lead the competition in the market (Zabidi, 2001). Approach
to the supply chain is a network of interdependent organizations and cooperate in the flow of products, informations,
services and values ranging from the manufacturer to the end customer.
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The supply chain also saw changes in the value of the products within each chain due to the investment of each
offender, as well as gaps in product attributes at each supply chain that have implications for the benefits derived
imbalance between actors in the supply chain (Lambert et.al, 2001). In these conditions, policies and services are
essential to ensure that the supply chain takes place in an efficient and fair for all actors.
The role of government is very important to encourage the supply chain that takes place efficiently so that market
participants can be proportionally benefited in accordance with the sacrifice. The supply chain is not only the flow of
products and funds alone, but also includes the flow of informations, services and activities (Beamon and Benita, 1999).
Gaps in the role of perpetrator, control information, and an imbalance of services are a very important factor in the
formation of prices and profits among the actors in the supply chain. When farmers have been identified as the weakest
party in the supply chain, the institutional strengthening of farmers is the duty of the government.
Discussion
Indonesia is the largest pineapple producer after Brazil, Thailand, the Philippines and China, but the role of
Indonesia pineapple export is no 19th with the lower export volume related to the quality of products which do not meet
world market standards (hotikultura, 2013). Less competitive of Indonesian pineapple commodities in the international
market thought to be caused by the production system in locations scattered, small-scale enterprises and inefficient, as
well as a limited production number, beside that, the support of banking, trade, export and import policy is impartiality
with the perpetrators of domestic horticulture agribusiness.
The total value of Indonesia pineapple trade in 2012 is 139 million USD, most of it is to the United States, the
second is the European countries, the Middle East and Latin America such as Peru, Uruguay, Panama, then there is
India (http://finance.detik.com/read/2012/01/02/192700/1804972/4/ri-jadi-negara-pengekspor-nanas-terbesar-di-duni).
It is known for commodities with wild fruits that pineapple able to contribute 20 percent of the total exports of tropical
fruits in Indonesia after the banana, and 70 percent is consumed in the form of a fresh pineapple producing countries
(hortikultura, 2013)
Based on the terms of the Regulation of Republic of Indonesia Number: 24 / M-DAG / PER / 6/2008 concerning
Determination of Bananas and Pineapples Export to Japan in the framework of the EPA (Indonesia Japan-Economic
Partnership Agreement) quota pineapple 1,000 metric tons during the period 2008 - 2012. This opportunity is still
untapped until now because of the difficulty of requirements that must be met in Indonesia, especially from the
phytosanitary aspect (Ministry of Trade, 2012). Phytosanitary policies, generally applied by developed countries, where
this policy for a country like Indonesia is one of the externalities in increasing the volume of export sales. So that, the
necessary cooperation and coordination between the parties and agencies to reduce these barriers.
Beside that, the aspect of production capability, generally for commodities pineapple is not optimal, in addition to
the production of commodities optimality problems relating to land issues, breeding, cropping and cultivation; post-
harvest and production issues such as assurance quality, receipt of goods, storage, up to marketing and distribution
process including in this case is the payment process of a transaction that will ultimately inhibit the period / vulnerable
time the process of moving products from producers to consumers. All of these elements if included in a production
strategy are parts of the supply chain of production which by Siagian (2005) is said to be a supplier-customer
interaction, inter-connected and related. Of course, the quality improvement efforts should be made continously,
sustainable and structured.
Source: Directorate General of Horticulture, (2010) and Author Modification, (2013)

Figure 2: Commodity Supply Chain Process Circuit Local Pineapple
In Figure 2 can be seen how the elements in the supply chain activities for pineapple commodities, this could be
done in order to achieve optimality of the relationship between the supplier and the customer so as to form a customer
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satisfaction which leads to increased production and pineapple trade transaction itself. The figure also explained various
parties ranging from farmers (both plasma and non-plasma) each interac and coordinate with various parties, so that the
commodities to be sold to arrive at the destination in accordance with timely, price, quantity, and quality desired. And
of course it concerns the level of customer satisfaction in consuming the desired product as well in this case is
satisfaction for a manufacturer to produce the desired benefits.
Approach to the supply chain is a real form of economic activity, business and the investments made by all parties
involved in pineapple agribusiness (Saptana, 2001). With this approach, the market participants in each main supply
chains and farmers get benefit in accordance with the sacrifices rendered. Pineapple supply chain can also see the
change in value of pineapple in each chain. Therefore, the investment of each offender, as well as gaps in pineapple
attribute on any implications for the supply chain benefits imbalance between actors in the supply chain. In these
conditions, policies and services are essential to ensure that the supply chain takes place in an efficient and fair for all
actors (Linton, et.al: 2007).
Thus, the simple effort that can be done to help farmers is that the government can help to map out the price of
pineapple in series within some period of time. The data series on the price fluctuations could be used as guidelines to
see the trend in the movement of the price of pineapple specifically in order to obtain the pattern of price fluctuations.
This information is also useful for decision-making and planning regarding the extent and timing of production.
Prerequisite for this is that the accuracy of price data is recorded, it is necessary that there is a mechanism that allows
carrying all price movements over time. Data will be better in one location compared to other locations, so it can be
seen that the behavior of the price for a larger scale, finally, farmers minimize the risk associated with the issue price.
The next important aspect is the institutional problems of farmers. In the pineapple growers, farmers associations
have not been well explored. The main thing there is in the trust, the experience has been very difficult to build unity
because of the lack of mutual trust between the farmers and this is an accumulation of previous experience with similar
efforts. Government with various empowerment efforts actually weaken the position of farmers, since the group formed
by the project based only project needs and less well prepared, and each project is likely to create a new group, and this
makes the public confidence in the activities of the group to be low.
Pricing information, an issue that is always attached with pineapple product is asymmetric information problems.
Mastery of information imbalance occurs between businesses ranging from production activities until the end of the
marketing actors (Lambert, et.al; 2001). In many cases, the information of consumer prices is not transmitted quickly to
all businesses, so that there is always a disadvantage, and the most disadvantaged farmer’s pineapple (Vagneron et.al,
2009). In addition, a decrease in the price of pineapples at the consumer level is very quickly communicated to farmers,
but on the contrary if the price increase will be very slow informed. Supply chain approach is a mechanism to establish
a price information system that enables all businesses to get information proportionally (Lambert et.al: 1998).
Firdaus and Bayu (2007) showed that Indonesia does not have a comparative advantage in world pineapples trade.
This is indicated by RCA index value of exports of Indonesia pineapple during the period 2001- 2005 is worth less than
1. This reinforces of the theory analysis Porter diamond which shows that the key of internal and external factors that
can increase the Indonesia pineapple competitiveness is the availability of natural resources, demand conditions in
country fulfilled, not optimal industrial presence seed / seedlings and pineapple processing company and the farmer
groups (Gapoktan) in the face of competition.
The above shows that in the supply chain of pineapple essential role of information technology in Indonesia. Hinson
(2010) found that earned chain value as the company focused on e-business rather than exports. The opposite in
Indonesia pineapple is still focused on export. This means that the competitiveness of pineapple become more
competitive only by developing better capabilities and improve e-resources (Verdouw et al., 2010).
According to Vagneron et al. (2009), pineapple increasingly is driven by downstream industries that lead to quality
and economies of scale. However, due to constraints on the length of the supply chain, small farmers get the biggest
risk. Therefore, the more transparent price information would enable all businesses to benefit in accordance with the
sacrifices rendered. Efforts to shorten the chain of existing trading system should be seen within the framework of that
what is important is not just to cut the chain but how to distribute profits more fair.
 Information System Supply Chain Process

Decisions information of design network system has a significant impact on the investment performance of the
pineapple products supply chain because these decisions determine the composition of the supply chain and a set of
constraints that accompany triggers supply chains, it can also be used to reduce supply chain costs or sacrifice
distribution to improve competitiveness (competitive). James A. and Mona J. Fitzsimmons (2006) which states that
supply chain management is a total system approach to deliver the products to the end users by using information
technology to coordinate all elements of the supply chain from suppliers to retailers start and reach the next level which
is a competitive advantage which is not available in traditional logistics system. While the definition of Supply Chain
Management by Chase, Aquilano, Jacobs (2006) is a system for implementing a total approach to manage the entire
flow of information, materials, and services from raw materials through factories and warehouses to the final consumer.
The entire network design decisions have an impact on each other and the chain must be taken into consideration on
price and profit distribution more fair and proportional to the pineapple commodity. Success in supply chain network
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design will maximize the company's profits when the demand is satisfied customer needs and have a response to the
products offered of pineapple-based e-business. In this case, the required effectiveness measurement on model of
pineapple product supplies chain. The problem often faced the company is unknown to the criteria that affect product
supply chain, so it can be a major priority and significance of each determinant factor that can predict the effectiveness
of each of the factors and distribution channels. According to Heizer and Render (2004) the company must decide a
supply chain strategy in obtaining goods and services from outside. Here are a variety of factors that influence the
pineapple supply chain models:
SCN = α + β1Fcs + β2LcF + β3MAc + β4MaA + β5Spy + β6IS + ε ……………………..…(1)
Note : SCN = Supply Chain Network Fcs = Facility
LcF = Location Facility Mac = Market Access
MaA = Market Allocation Spy = Supplier
To strengthen the current role of information systems in the distribution chain, we need to identify the role of each
of the factors that affect the information network
Here are a variety of factors that influence decisions in the supply chain of pineapple network design.
ND = α + β1Stg + β2IS + β3EM + β4PL + β5INF + β6Comp + β7TR + β8LFC + ε …………(2)
note : ND = Network Design Stg = Strategy
EM = Economy Macro PL = Political
INF = Infrastructure Comp = Competitive
TR = Time Response LFC = Logistic and Facility Cost
Pineapple product distribution process that is happening now is more focused on the export business of the e-
business will go through the distribution chain is quite long. This leads to inefficiency and information asymmetry in
the delivery of the pineapple product information, so that the price information will be unbalanced between the
suppliers to the end customer. Besides the focus distribution occurring in Indonesia to more pineapple products to
overseas export process. In this case, the system is able to accommodate the required delivery of more accurate price
information and transparent, so it is expected that the information system that is built will have an impact on increasing
profits and can shorten the distribution chain. Figure 3 show that supply chain management is to manage the flow of
information, products and services across the entire network be it customers, the company to suppliers (Russell and
Taylor ,2009).
Source: Russel & Taylor, (2009)

Figure 3. Schemeof Information System
Meanwhile, according to James A. and Mona J. Fitzsimmons (2006), the physical form of a product in the supply
chain can be seen as a stage of materials processing of value-added network, each of which is defined by the input
supply, transformation and output material demand. The following chart given supply chain for goods.
Based on figure 4, the supplier, manufacturing, distribution, retailing, and recycling / remanufacturing are connected
with arrows illustrating the flow of material to stock inventory between each stage. Transmission of information in the
opposite direction is shown as a dotted line and including activities undertaken by the supplier, the product design
process, and customer service. At the manufacturing stage to represent the traditional operating where the raw materials
come from external suppliers; material changes in certain ways to add value, create inventories of finished goods. Stage
at the downstream such as retail distribution and also adds a value to the material.
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Source: Authors, (2016)

Figure 4. Flow of Supply Chain for Goods
Conclusion
Gaps in the role of preparatory control information, and an imbalance of services is a very important factor in the
formation of prices and profits among the actors in the pineapple supply chain. When farmers have been identified as
the weakest party in the supply chain of pineapple, then the institutional strengthening of farmers is the duty of the
government.
The government policy is still based on the aspects of the production of pineapple, but is still lacking in institutional
aspects and marketing. In the institutional aspect, it is necessary to strengthen the role of associations and farmers'
groups to be able to be independent and not dependent on government projects. In terms of the market, it should be the
government's role in providing information about market prices for farmers so they can reduce the risk of farmers due to
price fluctuations.
Thestake holders should take into account on network system information design for on price and profit
distribution. It means that ssuccess in supply chain network design will maximize the company's profits when the
demand is satisfied customer needs and market response to the products offered and global competitiveness.
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Informasi dalam Memenangkan Persaingan. Jurnal Usahawan No.2
http://finance.detik.com/read/2012/01/02/192700/1804972/4/ri-jadi-negara-pengekspor-nanas-terbesar-di-dunia
http://horti.pertanian.go.id
http://kemendag.go.id
Faurani Santi Singagerda, was born in Bandar Lampung Indonesia at 16 September 1973, Graduated from Doctorate
Program in Agriculture Economics in Bogor Agriculture Universities, Indonesia in 2015. She also graduated from
Faculty of Economics and Business University of Maastricht Netherland in 2003. Over the past few years, she was a lot
of focus on the study of capacity management, total quality management, . and also has published in several
international journal articles.
Abshor Marantika, was born in Bandar Lampung, at 13 Maret 1974, Graduated from Management Doctorate
Program Padjajaran University, Bandung Indonesia at 2012. Focus on Finance Management and Management
Information System Studies, and several articles about Management and Information Systems has brought her to some
several articles.
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A CRITICAL REVIEW OF SOME FACTORS TO AFFECT THE ADOPTION OF

MANAGEMENT ACCOUNTING TECHNIQUES ON MANUFACTURING INDUSTRIES
Ardiansyah Rasyid1), Elizabeth Sugiarto D2), Wilson Kosasih3)

1) 2)
Tarumanagara University, Faculty of Economics, Accounting Dept., Jakarta 11470 Indonesia
3)
Tarumanagara University, Faculty of Industrial Engineering, Jakarta 11470 Indonesia
1)
ardiansyahr@fe.untar.ac.id
Abstract
This research is to investigate that there are some factors to affect new adoption in management accounting techniques
on Indonesia manufacturing industries, specifically, Jakarta, Bogor, Depok, Tangerang and Bekasi region. The
research can achieve a clear portrait about how some factors can significantly affect the adoption of management
accounting techniques. The research has used some questioners which sent to several respondents who work in
manufacturing industries as a middle level management. We have some methods to distribute the questioners to
respondents by door to door, sending by e-mail and media telecommunication (what’s app or close relationship) up to
hundreds questioners. The result can be obtained 45 respondents but we should eliminate two respondents, because it is
not suitable with research requirements. The research model is from the two paths. The first path is from the seven
variables that contain six exogenous variables to affect one endogenous variable. The second path model is from the
three variables that divided to the one mediating variable and the other one exogenous variable to affect one
endogenous variable (like path modelling). The research result can find that high competition does not effect to the new
accounting adoption but for the other five variables; cost system changing, technology changes, organization climate,
consumer demand, size can significantly affect to new accounting adoption from the first path. For the next path, the
research finds that the new accounting adoption can significantly affect to corporate performance and also corporate
performance measurement perceived.
Keywords: New Accounting Adoption, Exogenous Variables, Endogenous Variables, Management Accounting
Practices
Introduction
Some problems of implementation from theories and the metamorphosis of some mentions have previously found
some relationship between changes in management accounting or implementation and some contextual factors, but the
findings were merely inconclusive, inconsistent, and a mixture of (Al-Omiri & Drury, 2007a; Baird, 2007; Baird,
Harrison, & Reeve, 2007; Cobb, Innes, & Mitchell, 1993; Innes & Mitchell, 1995; Innes, Mitchell, & Sinclair, 2000;
Langfield-Smith, 1997; Pierce, 2004. Furthermore, from the perspective of the organization, understand the factors that
contribute to the behavior that is innovative in the organization and organizational decisions to continue with the
changes that are so dynamic organization, but this is still in relative terms, inconclusive and inconsistent, (Cho & Pucik,
2005).
Theoretical and Literature Review

The research is planned to answer that overall change on management accounting is introduced and practiced over
three decades ago, but it is still fast to move from some of the traditional systems (Al-Omiri & Drury, 2007b; Anderson
& Young, 1999; Baird, 2007; Gosselin, 1997; Langfield-Smith, 1997). Those research have been done in Australia
through some researches like by Chenhall and Langfield-Smith (1998) has found that the level of adoption for the
whole techniques and concepts in management accounting. With respect to the foregoing, it was found the following
rating on the rule level of adoption of some techniques traditional management accounting: "financial budgeting and
planning analysis (1), capital budgeting (2), and a performance evaluation by using return on investment (3)”. Similarly,
some studies were published that relate to the spread of innovation management accounting in the UK and New Zealand
found a similar picture (Abdel-Kader & Luther, 2006; Al-Omiri & Drury, 2007a; Cotton, Jackman, & Brown, 2003.
Key performance indicators (KPIs) are such, resource accounting and budgeting (RAB), zero-based budgeting
(ZBB), functional analysis or functional analysis, and resource management (Lapsley & Wright, 2004), in line with the
technique mentioned above. Chenhall and Euske (2007) refers to several innovations of management accounting is the
most under management control system as follow: activity-cost-management, target costing, life cycle costing, quality
costing and management innovation performance such as economic value added (EVA), shareholder value analysis
(SVA), the value based management (VBM), and balanced score card (BSC). There is no universal consensus regarding
to whether the technique which is the latest innovation management accounting (Cadez & guilding, 2008). Some
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researchers argue that some management accounting techniques drawn from other disciplines such as engineering and
economics (Miller, 1998; Miller, Kurunmäkii, & O'Leary, 2008). According to Miller et al. (2008), practices such as
standard costing, discounted cash flow (DCF), the difference between fixed and variable costs, break-even analysis, and
more are drawn from disciplines other than accounting and later adapted, also they were formed as the core of
accounting. However, with no regard to the authenticity of which is drawn from the techniques of management
accounting, according Chenhall and Langfield-Smith (1998), a technique that most popular of which was recently
developed which has received great attention by the Australian practitioners can be described as follows this: ABC;
ABM; BSC; benchmarking; SMA; and TC.
Data Collection Techniques

The Respondents were asked to identify the targeted level of implementation of management accounting techniques
that divided to the six most widely in the organization as follows: SC; ABC; ABM; BSC; LCC; and TC. In an open
question, respondents were asked to inform management accounting techniques which were adopted, but it is not
contained in the questionnaire or introduced concepts and theories in the organization (company). By replicating Booth
and Giacobbe (1998), the way in which the questionnaire was designed to search for information about the level of
implementation of the change or innovation management accounting techniques
Research Hypothesis
The hypotheses are as follows:
Hypothesis 1: states organization size factor (OS) to affect the adoption of new management accounting technique
(NAMA).
Hypothesis 2: states high competition factor (HC) to affect the adoption of new management accounting technique
(NAMA).
Hypothesis 3: states cost system changing factor (CSC) to affect the adoption of new management accounting technique
(NAMA).
Hypothesis 4: states a technology change factor (TC) to affect the adoption of new management accounting technique
(NAMA).
Hypothesis 5: state organization climate (OC) to affect the adoption of new management accounting technique
(NAMA).
Hypothesis 6: states consumer demand factor (CD) to affect the adoption of new management accounting technique
(NAMA).
Hypothesis 7: states the adoption of new management accounting technique (NAMA) to affect corporate performance
(PKOBP).
Hypothesis 8: states the perception of importance Corporate Performance Measurement (PPKP)
Changes affect Organizational Performance Compared to Competitors (PKOBP).
Results and Analysis

Reliability and Validity Indicators for Latent Variable (Exogenous Variables)
The model testing require to fulfill some qualification like reliability and validity indicators In order to achieve the
perfect condition for research result. The testing result for validity and reliability indicators such as table 1 below:
Table 1. Composite reliability coefficients

HC CSC TC OC CD SIZE
0.922 0.952 0.939 0.929 0.909 0.935
Table 1 can be viewed for the whole latent variables (Exogenous variables) have composite reliability coefficients more
than 0.6. It means that the whole latent variables like: HC, CSC, TC, OC, CD and Size to fulfill internal consistency
measurement.
The other testing for reliability can be obtained by knowing the Cronbach alpha and the result as below from table 2:
Table 2. Cronbach’s alpha coefficients

0.898 0.946 0.928 0.912 0.882 0.860
Table 2 indicate Cronbach alpha for the whole latent variables are more than 0.6. It means Table 2
Table 3. Average variances extracted (AVE)

0.664 0.573 0.588 0.597 0.562 0.877
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the entire latent variables (exogenous variables) have fulfilled reliability requirement. On table 3, the result is for
average variances extracted (AVE) that aim to test for required fulfillment for convergence validity. The above table
indicates AVE values for the entire latent variables are more than 0.5. This result means the entire variables can be as
indicators for at any block.
Structural Model Testing

On structural model testing stage, the research has to fulfill the specified requirements that under specific
circumstance like for this research has only 43 respondents. Because of this, the research has to use specific method to
run the data by using partial least square method (small sample). For those sample, partial least square can be used to
test a structural model through the R-square value for one endogenous variable in this model (Nama as new adoption
management accounting techniques) (first path) that connect to six variables exogenous variables (HC, CSC, TC, OC,
CD Size also as latent variables). Beta (regression) coefficient of any exogenous variables (latent variables) can indicate
that variable has a significant connection to the one endogenous variable (new adoption management accounting
techniques). At this stage the significance value can also be determined by the p-value of each relationship between
each of the exogenous variables (latent variables) with an endogenous variable, as shown in Figure for the below:
SIZE
(R)2i
β = 0.29
HC
(P = 0.02)
(R)6i
β = 0.08
(P = 0.30)
CSC
(R)15i β = 0.27
(P = 0.02) β = 0.26
NAMA PKOBP
β = 0.24 (R)6i (P = 0.03) (R)12i
TC
(R)11i (P = 0.04)
R 2= 0.68 R 2= 0.76
β = 0.24
(P = 0.04)
OC
(R)9i β = 0.21
β = 0.75
(P = 0.07)
(P < . 0.01)
CD
(R)8i
PPKP
(R)12i
Figure 1. Research model of testing result presentation
On the above figure, the figure indicates the testing result from every exogenous variables (Size, HC, CSC, TC, OC and
CD) (Latent variables) affect to endogenous variable (NAMA) (New adoption management accounting techniques) for
as below:
1. Organization size (SIZE) (Latent variable or exogenous variable) significantly affect to new adoption
management accounting techniques (NAMA) as an endogenous variable). Because the result is for beta
coefficient 0.29 with p-value 0.02 indicate the p-value is less than 0.1.
2. High competitiveness (HC) (Latent variable or exogenous variable) does not significantly affect to new
adoption management accounting techniques (NAMA) as an endogenous variable). Because the result is for
beta coefficient 0.08 with p-value 0.30 indicate the p-value is more than 0.1.
3. Cost system changing (CSC) (Latent variable or exogenous variable) significantly affect to new adoption
management accounting techniques (NAMA) as an endogenous variable). This result is because the beta
coefficient 0.27 with p-value 0.02 indicates less than 0.1.
4. Technology change (TC) (Latent variable or exogenous variable) significantly affect to new adoption
5. Organization Climate (OC) (Latent variable or exogenous variable) significantly affect to new adoption
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6. Consumer demand (CD) (Latent variable or exogenous variable) significantly affect to new adoption
7. New adoption management accounting techniques (NAMA) (Latent variable or exogenous variable)
significantly affect to corporate performance (PKOBP) as an endogenous variable). This result is because the
beta coefficient 0.26 with p-value 0.03 indicates less than 0.1.
8. Perception of corporate performance measurements (PPKP) (Latent variable or exogenous variable)
significantly affect to corporate performance (PKOBP) as an endogenous variable). This result is because the
beta coefficient 0.75 with p-value less 0.01 indicates less than 0.1.
Sequentially, from number 1 up to 6 is the first path (stage) that performs the influence of the factors that have been
stated Size, HC, CSC, TC, OC and CD as exogenous variables (latent variables) to new adoption management
accounting techniques as an endogenous variable. On the next path (stage), the path shows the influence of new
adoption management accounting techniques and the perception of corporate performance measurement as two
exogenous variables (both as latent variables) that affect the corporate performance as an endogenous variable. The
result has indicated that the two latent variables significantly affect to corporate performance.
Conclusion, Constraint and Future Research

This research has explored a model of factors to affect new adoption of management accounting techniques using
Partial Least Square (PLS) approach. This approach found that coefficient determination for the first path model is 68
%. The meaning is those factors like; Size, HC, CSC, TC, OC and CD influence is around 68% to new adoption of
management accounting techniques from research samples. The remaining is 32% from the other factors to affect this
variable (new adoption of management accounting concepts).
For the second path, this research found coefficient determination is 76%. This means the perception of corporate
performance and new adoption of management accounting techniques to affect corporate performance are 76%. The
remaining is 24% from the other factors to affect to corporate performance.
This result is to describe some factors can affect new adoption techniques, even one variable from high competition
(HC) does not affect to new adoption of management accounting techniques. This new adoption of management
accounting techniques affect to corporate performance. The adoption is really to aim to increase the capacity earning by
some new mechanism in management reporting and decision quality.
This research faces some constraint, for as below:
1. Knowledge of respondents does not match with the form questioners.
2. The form questioners are too long and high level language.
3. It is not easy to find respondents to fill this questioner like, lack time, busy time and some tight procedures.
4. This research sample is small only 43 respondents that can perfectly answer as research requirements.
5. Some respondents does not match with our research target.
6. The research can only use specific statistical software to run small sample, PLS software.
Future Research
The research must simplify the form of questioners to make respondents to fill that questioner easily. This also aims
to increase amount of respondents to participate in this research. We need to consider to add some variables in order to
obtain perfect model. If the research sample is big data, therefore we can use the right software and get a best result to
generalize this finding or the research can accomplish new finding or new theory in this field research.
References
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factors. International Journal of Production Economics, 127(2), 238-248.
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Baird, K. (2007). Adoption of activity management practices in public sector organizations. Accounting and Finance,
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Cadez, S., & Guilding, C. (2008). An exploratory investigation of an integrated contingency model of strategic
management accounting. Accounting, Organizations and Society, 33(7/8), 836-863.
Chenhall, R. H., & Euske, K. J. (2007). The role of management control systems in planned organizational change: An
analysis of two organizations. Accounting, Organizations and Society, 32(7/8), 601-637.
Cho, H. J., & Pucik, V. (2005). Relationship between innovativeness, quality, growth, profitability, and market value.
Strategic Management Journal, 26(6), 555-575.
Cobb, I., Innes, J., & Mitchell, F. (1993). Activity-based costing problems: The British experience. Advances in
Management Accounting, 2, 63-83.
Cotton, W. D. J., Jackman, S. M., & Brown, R. A. (2003). Note on a New Zealand replication of the Innes et al. UK
activity-based costing survey. Management Accounting Research, 14(1), 67-72.
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Gosselin, M. (1997). The effect of strategy and organizational structure on the adoption and implementation of activity
based costing. Accounting Organizations and Society, 22(2), 105-122.
Innes, J., & Mitchell, F. (1995). A survey of activity-based costing in the U.K.’s largest companies. Management
Accounting Research, 6(2), 137-153.
Innes, J., Mitchell, F., & Sinclair, D. (2000). Activity-based costing in the U.K.’s largest companies: A comparison of
1994 and1999 survey results. Management Accounting Research, 11(3), 349-362.
Langfield-Smith, K. (1997). Management control system and strategy: A critical review. Accounting Organizations and
Society,22(2), 207-232.
Lapsley, I., & Wright, E. (2004). The diffusion of management accounting innovations in the public sector: A research
agenda. Management Accounting Research, 15(3), 355-374.
Lincoln, Y., & Guba, E. (1985). Naturalistic inquiry. Beverly Hills, CA: SAGE.
Miller, P. (1998). The margins of accounting. European Accounting Review, 7(4), 605-621.
Miller, P., Kurunmäkii, L., & O’Leary, T. (2008). Accounting, hybrids and the management of risk. Accounting,
Organizations and Society, 33(7/8), 942-967.
Pierce, B. (2004). Activity based costing. Accountancy Ireland, 36(5), 28-31.
Qian, L., & Ben-Arieh, D. (2008). Parametric cost estimation based on activity-based costing: A case study for design
and development of rotational parts. International Journal of Production Economics, 113(2), 805-818.
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BRAND TRUST: ITS ANTECEDENTS AND OUTCOMES ON

COMMITMENT TO THE BRAND
Vita Briliana
Trisakti School of Management, Jakarta, Indonesia
vita@stietrisakti.ac.id
Abstract
Recently, transport businesses in Indonesia have been competing to provide good services for people who need a
means of transport that is fast, safe and comfortable. A taxi is one kind of transport that does this and is in high
demand. The Blue Bird Group, one of the transport service companies, has extended its services, from taxis to
limousines, car rentals and bus charters. The company has stayed true to its commitment to keeping its customers
satisfied.
The purpose of this paper is to provide an improved understanding of the effect of brand attitude, perceived quality,
brand prestige and customer-oriented behavior towards brand trust, as well as brand trust towards commitment to the
brand. Empirical evidence from both in-depth interviews and data garnered from 200 surveys was integrated into a
conceptual model, which was tested using structural equation modeling. The causal model was validated using
SmartPLS 2.0. The results indicate that brand trust is an important antecedent of commitment to the brand and
mediates the influence of brand attitude, perceived quality, brand prestige and customer-oriented behavior. The
findings provide insight for marketing managers into developing successful branding strategies for service companies.
The study provides a comprehensive framework of the antecedents and outcome of brand trust on commitment to the
brand.
Keywords: Brand Attitude, Perceived Quality, Brand Prestige, Customer-oriented Behavior, Brand Trust, Commitment
to The Brand
Introduction
A service brand is an assurance of future satisfaction, and service companies build strong brands through
distinctiveness, performance, message consistency and by appealing to consumers emotionally. Berry (2010) argues
that branding services is different from branding goods because of the characteristics that make services distinct from
goods.
In some big cities, a taxi is just a common means of transport used by almost all levels of society, but especially the
upper and middle classes. For the middle class, a taxi is not an unusual form of transport anymore. This is because
incomes have increased and automatically standards of living have improved too. In addition, nowadays, people really
need transport that provides comfort. One distinctive attribute of services is that there are often few cues for consumers
to evaluate. The challenge in taxi transport is immense because there is a big difference between the size of the
population and the number of taxi vehicles. Jakarta has a population of 10,177,900 out of a total Indonesian population
of 255 million (Source: Statistics Indonesia, 2016). The number of transport units in Indonesia is around 104 million,
with 17.5 million units operating in Jakarta. This capital city is crowded with some 13 million motorcycles and
approximately 3.26 million cars. Number of taxis as much as 37,000 units of various brands of existing taxi meters. It is
a huge opportunity for transport services like taxis to gain more of the market segment, because as the economy grows
so will the demand grow simultaneously. There are some land transport companies doing business in Indonesia,
including Blue Bird Group and Express Group which are two highly competitive taxi companies. In 2014, Express
Group added 2000 vehicles to its fleet to make a total of 12,000 units. Meanwhile, the Blue Bird regular taxis, that
already consisted of 25,545 vehicles on 31 December 2014, has continued to expand its operational fleet, ending 2015
with a total of more than 33,000 units. Blue Bird Group has succeeded in receiving four awards in the taxi category.
Among others, it was a winner in the Sulamapapua (Sulawesi, Maluku, Papua) Region, the Sumatera Region and the
Java-Bali Region, and was the Top Winner in Indonesia of the WOW Service Excellence Award 2015. Furthermore, for
the third time the company won a prestigious award at the Indonesian Customer Satisfaction Awards presented at the
Shangri-la Hotel on November 12, 2015 (source: http://www.bluebirdgroup.com/4 May 2016).
The Blue Bird Group is adding to their fleet in numbers that are responding to the high demand for comfortable
transport. To provide easy access and excellent service, Blue Bird has opened an exclusive taxi outlet at Soekarno-Hatta
Airport. Higher demand means that the company must build brand trust (BT) with all its customers. With BT, the
company can keep its customers for a long time and increase their satisfaction, which is important for running a taxi
business. When a company is a service business, building BT is a must. Being trusted by satisfied customers will put the
company in a strong market position, and now, Blue Bird Group is leading the market in the taxi segment in Indonesia.
The development of effective branding strategies is important for transport organizations. This is especially significant,
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given the changes the industry is facing. If there is a gap between the number of citizens and the number of taxis, people
find other alternatives. But a taxi company must make extra efforts to get and keep customers. Living up to the
customers’ BT is important for companies to make and keep people loyal to the brand.
The purpose of this research is to provide an improved understanding of the effects of brand attitude (BA),
perceived quality (PQ), brand prestige (BP) and customer-oriented behavior (COB) on BT, as well as BT on
commitment to the brand (CTB), specifically in public transport.
Literature Review
Brand Attitude (BA) is the company’s ability to evaluate performances of their brand in fulfilling customer needs. In
the many years the Blue Bird Group has operated, it has developed and evaluated the company’s ability to fulfill
customer needs and satisfaction. Customers’ BA can arise from many sources, such as advertising and other people’s
experiences. The information gathered about the positive and negative aspects of the Blue Bird regular taxi service, can
be used by the company for evaluation. Kotler and Keller (2016) state that BAare overall evaluations of the brand in
terms of the quality and satisfaction it generates.BA is the evaluation of the brand’s perceived ability to meet a current
relevant need.
Perceived Quality (PQ) is an estimation of the quality of a brand or product that customers make from any
information that they get about the product. Providing very good quality for the customer is the most important
objective for Blue Bird Group. Customers can judge the quality of Blue Bird taxis, based on aspects, such as service
price, brand image, promotional messages or customer service image. If the PQ is perceived as high by the customer,
they will show a preference for choosing that brand rather that the brand’s competitors. Schiffman (2015) argues that
PQ is the consumer judging the quality of a product or service on the basis of a variety of informational cues that they
associate with the product. A number of factors can influence a consumer’s assessment of quality, including personal
product experience, special needs and consumption (Yoo et al., 2000). High PQ will foster trust in a brand and motivate
a consumer to choose a brand over competing products (Netemeyer et al., 2004).
Basically, regularly using the best taxi company, such as Blue Bird Group, will increase passengers’ prestige more
than if they use another company. BP makes it easy for consumers to trust Blue Bird taxis with their patronage. BP has
been found to decrease the information search process for consumers because they may perceive brands with high status
as more trustworthy and reliable (Steenkamp et al., 2003). According to Truong et al., (2009) BP can represent the
relatively high status of product positioning associated with a brand.
COB is the ability of a service provider or company to offer and deliver appropriate solutions for customers’
interests and needs. Blue Bird Group has seen the consumers’ needs and provided an easy system for them to use, from
ordering until payment. The company has a good brand image as a leader in the taxi market. This is facilitated by
comfortable vehicles; efficient ways or apps to order a taxi; easy payment systems, such as using cash, vouchers, debit
and credit cards; as well as professional and friendly drivers. It has more taxi vehicles than its competitors and so many
taxi shuttles at shopping malls, hotels and the airport in Jakarta.According to Suh et al. (2011) COB is enhanced when
the leadership of service firms and their employees fulfill the customer-centric organizational mission. COB is the
ability of the service provider to help consumers, which leads not only to an increase in customer satisfaction and a
positive relationship with employee performance (Brown et al., 2002) but, more importantly, retains these consumers,
especially in the case of services with high interaction, as seen in the taxi industry.
BT is the feeling of customers trusting a specific brand for its ability to perform its stated function. The feeling of
trust derives from our past experience, prior interaction and also from the experience of others. When consumers trust a
specific brand, they can become emotionally attached to the company and its brand. Chaudhri and Holbrook (2001)
define BT as the willingness of the average consumer to rely on the ability of a brand to perform its stated function. Yoo
et al (2000) also argue that BT is simply the trust a consumer has in a specific brand. Increasing BT in customers is
important for companies to make them loyal, keep consuming the product or service and demonstrate CTB.Lastly, trust
is often mentioned as a determinant of commitment (Gilliland and Bello, 2002). Actually, commitment comprises
potential vulnerability and uncertainty, and consumers will be less committed when trust is not well established. If the
consumers believe they can trust the brand, they solve the issue of uncertainty by engaging in a relationship with it.
Thus the consumers’ commitment to a brand would be the consequence of their trust in it (Lacey, 2007).
This study’s proposed research objective is to be achieved using a two-stage model. BA, PQ, BP and COB are
proposed as antecedents of BT in the first stage of the model. In the second stage of the model, the influence of BT on
CTB. To examine the relationships between predictors and response construct, structural equation modeling with partial
least squares (PLS) version 2.0. Briliana (2014) was applied to evaluate the measurement model. The structural model
PLS analysis was selected because it can assess all paths simultaneously for model prediction and does not need a large
sample size (Hair et al., 2017). Furthermore, in most social studies data tend to be distributed non-normally and PLS
does not require any normality assumptions. The research framework is presented in Fig 1.
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Stage One
Brand Attitude (BA)
Perceived Quality (PQ) H2

Brand H5 Commitment
Trust totheBrand
H3 (BT) (CTB)
Brand Prestige (BP)
H4
Customer-Oriented
Behavior (COB)
Research Framework
This study used a self-administrated questionnaire with closed-ended questions. The questionnaire was distributed
using non-probability purposive sampling. While purposive sampling was used, the breakdown of most of the
demographic characteristics of the respondents was representative of the real population of Indonesia. Cross-sectional
data were collected by means of a structured survey in Jakarta over multiple days in July 2016. The survey was based
on an area sampling technique conducted at airport Soekarno Hatta areas in Jakarta.Respondents for the study qualified
according to pre-set criteria, i.e., they are people who often use Blue Bird taxis or routinely use cabs, so they are
potential Blue Bird Group customers. All of the questionnaires were distributed at Blue Bird taxi queues at Soekarno-
Hatta Airport to people who were paying the fares with their own money.

From a distribution of 250 questionnaires 230 were returned, of which 200 (or 80%) were usable for further analysis.
Table 1 describes the characteristics of the sample.
Table 1 Characteristics Sample

Frequency %
Gender Male 16 8
Female 184 92
Age 22-30 years old 6 3
31-39 years old 130 65
40-48 years old 52 26
> 49 years old 12 6
Educational level Senior High School 6 3
Diploma 130 65
Bachelor 52 26
Master 12 6
Income per Month IDR 4,000,000 – 6,000,000 38 19
IDR 6,000,001 - 8,000,000 90 45
> IDR 8,000,001 72 36
Occupation Student 2 1
Employee 12 6
student also employee 80 40
Entrepreneur 102 51
Other 4 2
Frequency 1 time per week 36 18
of using taxis 2-3 times per week 162 81
≥ 4 times per week 2 1
According to the respondents’ profiles, the study found the majority (37%) were in the 31 to 39 year age group,
holders of bachelor degrees (65%), entrepreneur (102%) and earning a monthly income of IDR 6,000,001 to 8,000,000
(45.1%). Most of them (81%) admitted that they use taxis 2-3 times per week.
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Table 2 shows the composite reliability (CR) and Cronbach’s Alpha (α), which exceeded the 0.70 recommended
values of Hair et al(2017). The assessment of the structural model involves an estimation of the path loadings and the R2
values (Table 2). Path loadings indicate the strengths of the relationships between the independent variables and the
dependent variable, while R2 values measure the predictive power of the structural models. Interpreted as multiple
regression results, the R2 indicates the amount of variance explained by the exogenous variables. Here, correlation
between constructs that exceed the square roots of their AVE indicates that they may not be sufficiently discriminable.
Using a bootstrapping technique, path loadings and t-statistics for hypothesized relationships were calculated. The PLS
analysis results are shown in Table 3. In marketing, researchers usually assume a significance level of 5%. Hypotheses
with a t-value above 1.96 will be accepted and a hypothesis will be rejected when its t-value is found to be less than
1.96 for significance level = 5% and for significance level = 1%. Hypotheses with a t-value above 2.326 will be
accepted and a hypothesis will be rejected when its t-value is found to be less than 2.326 (Hair et al., 2017).
Table 2 Summary result of the measurement model and convergent validity

Variables Adapted from Items Loadings AVE R Square Composite Reliability
Brand BA1 0.879
Lichtenstein & Bearden BA2
Attitude 0.729 0.581 0.801
(1989) BA3
(BA) 0.781
BA4 0.671
Perceived PQ1 0.881
Keller & Aaker (1992) PQ2
Quality (PQ) 0.914 0.981 0.855
PQ3 0.821
Brand BP1 0.865
Kirmani et al. (1999) BP2
Prestige (BP) 0.951 0.856 0.786
BP3 0.895
Customer-oriented COB1 0.770
Kim et al. (2004) COB2
Behaviour (COB) 0.783 0.738 0.834
COB3 0.875
COB4 0.765
Brand Trust BT1 0.879
Chaudhuri & Holbrook BT2 0.760
(BT) 0.928 0.906 0.918
(2001) BT3 0.897
Didier & CTB1
Commitment 0.918
Lombart (2010) CTB2 0.838
to the brand (CTB) 0.906 0.888 0.923
CTB3 0.877
Table 2 summarizes the results of the measurement model. The item reliability, construct reliability (CR), and AVE
(Hair et al., 2017) support the convergent validity of the Confirmatory Factor Analysis(CFA) results. The CR, which
shows the degree to which construct indicators demonstrate the latent construct, ranged from 0.876 to 0.923, which was
above the cutoff value of 0.7. The AVE ranged from 0.581 to 0.981, which was greater than 0.50, justifying the use of
the construct. Overall, these results indicate that the measurement model has good convergent validity.
All the Cronbach's alpha values were greater than 0.70 indicating the good reliability of all measures. The construct
with the highest Cronbach's alpha was CTB (0.838), which indicates a good internal consistency of the items in this
construct; the lowest Cronbach's alpha was BT (0.760), which indicates low inter-item correlations (Table. 2). To
examine the discriminant validity, the study followed the Fornell-Larcker criterion. The square root of the AVE for each
construct was compared; if they are greater than the correlation coefficients of the corresponding inter constructs,
discriminant validity is achieved (Table. 3).
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Table 3. Discriminant Validity

1 2 3 4 5 6
PQ 0.990
BT 0.871 0.952
CTB 0.807 0.788 0.942
BP 0.771 0.731 0.895 0.925
COB 0.630 0.656 0.717 0.851 0.859
BA 0.625 0.603 0.609 0.820 0.756 0.762
Note: Diagonal (in bold) represent the square root of average variance extracted (AVE) while the other entries represent the squared
correlations
Structural model was used to test the hypothesis proposed in this study. Figure 2 shows the results of the test of the
hypothesized structural model from the SmartPLS output. The t-values are generated using bootstrapping with re-
samples of 500. This permits us to measure the statistical significance of the path coefficients.
BA1 BA2 BA3 BA4
0.671
BA
PQ1
0.881 BT1 BT2 BT3
0.272
PQ2
0.914 0.879 0.928 0.897 CTB1
PQ3 PQ
0.918
0.879
0.672 CTB
CTB2
BP1 0.906
0.865 0.838
0.159
BP
BP2 0.781 COB4
0.895 0.76
BP3 COB3 CTB3
5
0.875
COB
COB2
0.770 COB1
Fig.2. The Structural Model
Table 4 Summary of Structural Model

Path Coefficient Standard Error t-value Decision
H1 BA BT 0.272 0.098 2.834* Supported
H2 PQ BT 0.879 0.029 26.237** Supported
H3 BP BT 0.159 0.047 1.326 Not Supported
H4 COB BT 0.781 0.081 5.087** Supported
H5 BT CTB 0.672 0.067 7.242** Supported
Note: significance at *p<0.05,**p<0.01(One -Tailed)
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This study found that Hypothesis 1 is supported, as BA was found to be positively related to BT (ß = 0.272; t-value
2.834). The findings in this study about BA align with Elyria et al. (2014) and Lichtenstein & Bearden (1989) in which
BA was found to improve BT. When individuals have favorable attitudes about a service brand, this will be positively
related to feelings of reliability and confidence in the brand. Support for Hypothesis 2 is shown, as PQ was found to be
positively related to BT (ß=0.879; t-value 26.237). The findings of this study are consistent with previous research
(Keller & Aaker 1992; Netemeyer et al., 2004; Elyria et al., 2014). PQ is a primary variable influencing the value
perceptions of consumers. Obtaining a product with PQ is a high priority for the customer, making them prefer to
choose that brand rather than the brand’s competitors. On the other hand, Hypothesis 3 examines the effects of BP on
BT. The findings in this study about BP does not positively relate to BT (ß=0.159; t-value 1.326), which supports
previous findings (Elyria et al., 2014). One reason for this is perhaps that BP is strongly linked to an individual’s self-
concept and social image, and can create value for the consumer through status. Meanwhile, the finding supports
Hypothesis 4 as COB was positively related to BT (ß=0.781; t-value 5.087). The findings in this study about examining
the effects of COB on BT consistent with previous studies from Kim et al. (2004) and Elyria et al. (2014), in which
customer orientation is the set of beliefs that puts the customer’s interests first. In the same way, interestingly, the study
supports Hypothesis 5 since BT related positively to COB (ß=0.672; t-value 7.242). These findings are consistent with
previous studies about the relationship between BT and COB (Didier et al., 2010; Elyria et al., 2014). Relationships
characterized by trust will often result in the desire for long-term commitment between two parties.
Thus, this research highlights several interesting results. All the antecedents of BT studied directly influence the five
hypotheses which had been proposed; four hypotheses with t value > 1.96 are accepted, while one hypothesis with t
value < 1.96 is rejected. The results suggest that BA, PQ and COB can serve as meaningful constructs contributing to
the formation of consumers’ BT. Lastly, BT strongly influences consumer commitment to the brand.
The results obtained in this research point out the relevance, for managers, of the concept of BT in predicting three
constructs belonging to the field of BA, PQ, COB and CTB. Indonesia’s rising middle class and affluent consumers,
along with the trend towards urbanization and the growth of its metropolitan cities, is expected to create growth in
demand for land passenger transport services. With a large-scale fleet, a broad product portfolio, presence in major
cities, extensive distribution network and marketing channels, as well as a brand widely recognized to meet growing
consumer demand and provide the best service for consumers. There are several limitations. First, the use of airport
passenger samples may not be representative of the larger population. Another avenue for further research is to replicate
the proposed model on other samples, not only airport passengers, to increase the generalizability of the results.
Therefore, future research is needed to examine the generalizability and robustness of the proposed model with a larger
set of product/service categories.
References
Berry, L. L. (2010), “Effectively branding and selling services commentaries”, Journal of Services Research, Vol. 13,
No. 1, pp. 4-36
Blue Bird Group, (2016 May 4), Retrieved from www.bluebirdgroup.com/
Briliana, V. (2014), “Customer To Customer Online Know How Exchange: A Study On The Antecedents And
Outcome”, unpublished doctoral dissertation, Universiti Sains Malaysia (USM).
Brown, T, J. Mowen, J. C., Donavan, D. T. & Licata, J. W. (2002). The customer orientation of service workers:
personality trait effects on self and supervisor performance ratings. Journal of Marketing Research, Vol 34, pp.110-
119.
Chaudhuri, A. & Holbrook, M. B. (2001), “The chain of effects from brand trust and brand affect to brand performance:
the role of brand loyalty”, Journal of Marketing, Vol. 65, No. 2, pp. 81-93.
Didier, L. & Lombart, C. (2010), "Impact of brand personality on three major relational consequences”, Journal of
Product & Brand Management, Vol. 19 No. 2 pp.114 – 130
Kemp, E., Jillapalli, R., & Becerra, E. (2014) "Healthcare branding: developing emotionally based consumer brand
relationships", Journal of Services Marketing, Vol. 28, No. 2, pp.126 - 137
Gilliland, D. & Bello, D. (2002), “The two sides to attitudinal commitment: the effect of calculative and loyalty
commitment on enforcement mechanisms in distribution channels”, Journal of the Academy of Marketing Science,
Vol. 30 No. 1, pp. 24-43.
Hair, J. F., Hult, G. T. M., Ringle, C. & Sarstedt, M. (2017). A Primer on Partial Least Squares Structural Equation
Modeling (PLS-SEM), 2nd ed., California: SAGE Publications Inc.
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Kirmani, A., Sood, S. & Bridges, S. (1999), “The ownership effect in consumer responses to brand line stretches”,
Journal of Marketing, Vol. 63, No. 1, pp. 88-101.
Kim, J. Y., Moon, J., Han, D. & Tikoo, S. (2004), “Perceptions of justice and employee willingness to engage in
customer-oriented behavior”, Journal of Service Marketing, Vol. 18, No. 4, pp. 267-275.
Kotler, P. & Keller, K. L. (2016). Marketing Management. 15th ed., Pearson Education Limited.
Lacey, R. (2007), “Relationship drivers of customer commitment”, Journal of Marketing Theory and Practice, Vol. 15,
No. 4, pp. 315-33.
Lichtenstein, D. R. & Bearden, W. O. (1989), “Contextual influences on perceptions of merchant-supplied reference
prices”, Journal of Consumer Research, Vol. 16, pp. 55-66
Netemeyer, R. G., Krishnan, B., & Wirth, F. (2004), “Developing and validating measures of facets of customer-based
brand equity”, Journal of Business Research, Vol. 57, pp. 209-244.
Schiffman, L. G. (2015), Consumer behavior, 11th ed., Pearson.
Statistics Indonesia. (2016, April 2). Retrieved from http://www.bps.go.id/
Suh, T. & Kwon, I. W. (2011), “The impact of mission fulfillment on the internal audience: psychological job outcomes
in a services setting”, Journal of Service Research, Vol. 14, No. 1, pp. 76-92.
Steenkamp, Jan-Benedict, E. M., Batra, R. & Alden, D. L. (2003), “How perceived brand globalness creates brand
value”, Journal of International Business Studies, Vol. 34, No. 1, pp. 53-65.
Truong, Y., McColl, R., & Kitchen, P. J. (2009). New luxury brand positioning and the emergence of massive brands.
Journal of Brand Management, Vol.16, pp. 375–382.
Yoo, B., Donthu, N. and Lee, S. (2000), “An examination of selected marketing mix elements and brand equity”,
Journal of the Academy of Marketing Science, Vol. 28, No. 2, pp. 195-211.
Vita Briliana is a Senior Lecturer in Marketing at Trisakti School of Management. She received the Master’s degree in
Marketing from PPM School of Management, Indonesia and the Doctoral degree (DBA) in Marketing from the
Universiti Sains Malaysia (USM) Penang, Malaysia. Her present research interests include Electronic Commerce,
Social Media, Brand Strategy and Consumer Behavior. Vita Briliana is corresponding author and can be contacted at
vita@stietrisakti.ac.id.
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TRANSFORMATION KNOWLEDGE AND SKILLS RELATED TO THE

ESTABLISHMENT OF QUALITY CULTURE AND EFFECT ON PRODUCTS QUALITY
(Case Studies in SMEs)
Ayi Tejaningrum
Bandung Indonesia
tejaningrumayi@gmail.com
Abstract
Small and medium enterprises in Indonesia, especially in West Java yet have high competitiveness mainly concerned
with the quality of the product. This study aims to analyze the process of transformation of knowledge and skills related
to the quality of the establishment of a culture of quality. Research conducted on 264 SMEs in West Java, with a
qualitative method is to describe the conditions of the transformation process. Analysis of Variance or Annova with two
way method as an analytical tool to distinguish the process of transformation of knowledge and skills among SMEs with
good product quality, average and poor. Value Transformation knowledge of the average quality of Means 3.1790, Q1:
2500, Q2: 3500, Q3: 4.000 with a standard deviation of 1.2057. While the value to the transformation of skills means:
4.2985, (Q1): 4,000, (Q2): 4400 and (Q3): 4600. It can thus be concluded that the process of transformation of
knowledge and skills in the process of establishing a culture of quality in SMEs are not going well. By using a 95%
confidence level that the process of transformation of knowledge and skills for the formation siginifikans quality impact
product quality.
Keywords: Transformation Knowledge, Quality Culture, Transformation Skill
Introduction
Learning organization is an organization that continues to adapt to the changes that occur both internal and external
to the organization. Likewise member organizations make the learning process of what is felt, seen, done and
experienced. What affects a person in the act comes from what they feel, what they heard, what they saw, this condition
becomes a member oganisasi for how to behave. By continuing to proceed in order to learn the organization will grow
and strive to maintain the life of the changes that occur. What is called the learning process is the linkage change
someone's behavior to a particular situation caused by repeated experience (Ivancevich, Konopaske, Matteson: 2006).
In business organizations, especially small medium and micro enterprises (SMEs) requires him to continue to make
the learning process for the formation of an organizational culture that is able to adapt. In the present century, the
quality becomes a major factor to enable the organization to survive and win the competition. Quality must become a
habit, organizational values, beliefs, thought patterns that make it as a culture. Tejaningrum (2015) SMEs have a low
quality of cultural values, with the average value of the internal supply at 3.62661 at the upstream and downstream
3.5662 3,360, from 5,000 max value.
Table 1: Cultural values of quality supply chain SME

Industrial Cluster Internal Supply Upstream Downstream
Soy Chips 3.6635 3.613 3.48
Chips Fish balls 2.82925 2.781 3.0208
Industrial Shirts 4.3385 4.018 3.820
Industrial hoods 3.6618 3.473 3.656
Cassava Chips 3.64 2.917 3.840
Average 3.62661 3.360 3.5662
Tejaningrum: 2016
The low value of quality culture be one reason for the poor quality of the product. Transformation of knowledge and
skills is a process conducted by the organization to become a habit or culture. This study wants to analyze further how
the culture of quality established in SMEs. Tejaningrum (2016) From the results of the analysis showed the low
capability of processes that occur in a series of supply chain SMEs in the downstream, upstream and internal supply
with a value of CP: ranging from 0:38 to 0:42, CPU 0.75 - 0.85, CPL 0.00 and Cpk 0.00 due to the low culture of
quality. This condition is an interesting study, because the culture is formed by the behavior of individual behaviors that
exist in the organization. The individual is an employee and owner (head of the organization), it is very interesting from
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this study is that the intensity of communication and interaction between individuals within SMEs is very high
considering the amount of labor that is relatively few. The intensity of the high interaction between the member and the
member as well as between members and leadership will provide the interconnections that high, which affect each other
in the process of the formation of habits, values, mindsets, beliefs, norms agreed upon (culture) especially in relation to
custody and processing quality product. The study involved 264 SMEs in West Java and is divided into three clusters,
namely fasyen, culinary and craft. This study further wish to analyze the effect of the transformation of knowledge and
skills related to the formation of a lot of quality culture against a lot of quality products that consumers perceived.
Theoretical review
Transformation Knowledge and Skill

Iska Neni Zikri (2008) mentioned that learning is a process that takes a long time to be gained from experience and
interaction with the environment that will make a difference in life. Brunner (Sabri: 2007) or the process of
transforming information to absorb the lessons that can take place in three forms, namely: The enactive, The Iconic, and
The Symbolic. (1) Form enactive: is the concept of learning in which people play the role / imitate, in the process of
transformation of a culture of quality here people learn from what he did in the planning, custody and control of product
quality. (2) The Iconic is a transformation process through which information or individual learning through
imagination or shadow. In the context of a culture of quality associated with the transformation process information
received from informants (boss / customer), etc. (3) Shape Symbolic: Symbolic Forms is a form of transformation of
higher learning from other forms of transformation enactive and Iconic. done through the process of thinking using
language symbols or notions. Learning by humans as a way to get the values that will guide them when interacting with
the environment, especially in the troubleshooting process. Values are efaktif desire, consciousness or desires that guide
behavior. This value is the one who will consistently guide individuals when they interact, value consistently do
individuals behave is called culture.
Quality Culture
In the context of the organization, organizational values are the values adopted by the organization's members. An
employee A new entry to an organization, he had to make adjustments with the new organization, the adjustment
process is influenced also by the values that exist in itself formed by organisasi ever. Managers must understand that
every individual comes to the values espoused, is called to understand the culture of the organization. By the definition
of the concept of organizational culture is delivered by Ivancevich, Konopaske and Matteson (2006) which states what
is perceived as an employee and how that perception menciptakan a pattern of beliefs, values and expectations. Edgar
Scheint (1985) mention culture as an invented, discovered or developed by a given group when they are dealing with
the problem by adapting the external and internal factors. At the macro level organizational culture is determined by
three main parts: the value of which is owned by the founders, values which are owned by the leader of the organization
and the value of which is owned by members of the organization. The value of these values interact and collaborate to
influence one another, who won the dominant value of those interactions will become the dominant culture in the
organization, so how the organization behaves will be easily seen when members of the organization behaves.
In connection with the culture of quality, more focused into the values of the quality delivered Goetsch & David
(1997: 3), Shigeru Mizuno (1997: 6). Juran (1995: 9), Crosby (N. Logothetis, 1991: 83): (1) comply with the
specifications that match or even exceed the expected customer specifications, both internal customers and external
customers where these specifications must include the specification of goods and services to menghantarkannya. (2)
The quality is dynamic in line with changing consumer behavior over time (3) The dimensions of quality should be
sourced from the perception of the consumer, not the manufacturer (Tejaningrum: 2012). Thus in the process of
transformation of knowledge and skills in the formation of a culture of quality was an attempt by the organization to the
realization of the products or services in accordance with desired specifications consume, where efforts such efforts
have become values, beliefs, thought patterns, beliefs, habits of members of the organization. As for the dimensions of
the quality perceived by the consumer is closely related to the expected product specification. There are eight
dimensions of quality, Garvin (1988): Performance, Feature, Reliability, conformance to specifications, durability,
Servicebility, Esthetic, Perceived quality.
In regard to the transformation of knowledge and skills, when referring to concepts that are presented above, there
are two variables are used as benchmarks for the implementation of the process of transformation of knowledge and
skills of quality, namely: (1) how the employees involved in the process of care quality, this patronizing efforts of
improving skills and (2) how to transform organizations through artifacts and standards / written instructions, this
corresponds to an effort to increase knowledge.
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The purpose of this study is to see how the implementation of the transformation of knowledge and skills related to
the preservation and improvement of product quality, and how the influence of transformation, knowledge and skills to
the perceived quality of products consumers. To see the process of transformation of knowledge and skills of data
analysis using statistical desktiftip by entering values central symptoms such as average, quartiles, standard deviation
and median as data analysis. As for the analysis of whether the transformation of knowledge and skills affect the quality
of the product or not, it will use as a multiple correlation analysis tool.
Research hypothesis
H0: ρ = 0
H1: ρ ≠ 0
Population and Sample

The study population was MSMEs in 9 cities / regencies in West Java with each city / county took a sample of 30.
so the number of overall sample is 270, but since there are six questionnaires that do not qualify then the number of
.
samples to be processed into 264 The sampling method is simple random sampling, where all the MSMEs in the same
location likely to be sampled. Terms of SMEs is a creative industry that includes fasyen, culinary, printing, crafts, and
in accordance with the provisions of MSMEs based on Law No. 12 Year 1997 regarding Indonesian SMEs.
Profile Transformation Process Knowledge

As noted earlier that the process of transformation of knowledge and skill in the establishment of a quality culture is
divided into two variables: (1) how the employees involved and the quality control process (RE) and (2) how the
transformation of knowledge and skill run through artifacts and instructions in writing / standardization (KN). Here are
the results of the analysis of 264 SMEs where the average employee engagement (RE) in the quality control process has
a value of 4.298 include the category either with a standard deviation of 0.5253. the results appear below: A total of
25% (Q1) figures the average implementation of employee involvement in quality control process is to enter the
category of either (4.000) and 50% (Q2) above and below the value of 4.400 and below 75% worth of 4.600 (Q3), Thus
in general the process of involving employees in the maintenance of good quality already in the category
Descriptive Statistics: RE
Variable N N* Mean SE Mean StDev Minimum Q1 Median Q3 Maximum

RE 264 0 4,2985 0,0323 0,5253 2,0000 4,0000 4,4000 4,6000 5,0000
Histogram (with Normal Curve) of RE

50 Mean 4,298
StDev 0,5253
N 264
40
30
Frequency
20
10
0
2,4 3,0 3,6 4,2 4,8 5,4
RE
Figure 2 : Transformation Skills Quality of MSMEs in West Java
As for the process of transformation of knowledge through artifacts and standardization of procedures (KN) data is
much different from the first category (RE). Here is the analysis of 264 samples.
Descriptive Statistics: KN
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KN 264 0 3,1790 0,0742 1,2057 1,0000 2,5000 3,5000 4,0000 5,0000
Average value of KN is equal to 3.1790 or there in the category enough, with a value of Quartile 1 (Q1) of 2.500
means that under 25% of the data from the transformation of knowledge and skills through artifacts and standardization
in the low category, while the median value or Quartile 2 (Q2) to 3.500 means that the data is 50% above the value of
3.500 and 50% under 3,500, meaning that 50% of SMEs the process of transformation of its existing knowledge in the
category of being. While below 75% (Q3) the transformation of knowledge and skills through the artifacts have a value
of 4.000.
Histogram (with Normal Curve) of KS

50 Mean 3,179
StDev 1,206
N 264
40
Frequency
30
20
10
0
0,8 1,6 2,4 3,2 4,0 4,8 5,6
KS
Figure 2: Transformation Knowledge Quality of MSMEs in West Java
Descriptive Statistics: RE, KN and Total

RE 264 0 4,2985 0,0323 0,5253 2,0000 4,0000 4,4000 4,6000 5,0000
KN 264 0 3,1790 0,0742 1,2057 1,0000 2,5000 3,5000 4,0000 5,0000
Total 264 0 3,7387 0,0450 0,7312 1,6250 3,2750 3,8375 4,2750 5,0000
The above data shows the ratio of RE and KE value to the total value of transformation of knowledge and skills in
the field of quality. Overall it can be concluded that the average value of transformation of knowledge (KN) and skills
(RE) Minitab software 16 The following is the result of the analysis of 264 SMEs where the average employee
engagement is: means 3.7387, Q1 3.2750, Q2 : 3.8376 and Q3 : 4.2750. To analyze further whether there is a difference
between SMEs that process of transformation of knowledge and skill goes well with SMEs is not good, the quality of
products, the following are the results of analysis;
Descriptive Statistics: QP

QP 264 0 4,0917 0,0310 0,5035 2,7273 3,7330 4,1111 4,4333 5,0000
Histogram (with Normal Curve) of QP

30 Mean 4,092
StDev 0,5035
N 264
25
20
Frequency
15
10
0
2,8 3,2 3,6 4,0 4,4 4,8 5,2
QP
Of the data shows that the value of value to the consumer's perception of the quality of the product 50% (Q2) exists
below and above the value of 4111, while 25% of the data is below the value of 3733 or are in the category of pretty.
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The Influence Transformation Knowledge and Skills to Product Quality
To see if the process of transformation of knowledge and skills related to the establishment of a culture of quality, affect
the quality of the product, here are the results of regression analysis with the help of software mini tab 16
Model Summary
S R-sq R-sq(adj) R-sq(pred)
0,479909 9,85% 9,16% 7,60%
Coefficients
Term Coef SE Coef T-Value P-Value VIF
Constant 3,372 0,244 13,82 0,000
KN 0,1150 0,0259 4,44 0,000 1,12
RE 0,0823 0,0595 1,38 0,168 1,12
Regression Equation
QP = 3,372 + 0,1150 KN + 0,0823 RE

From the data above shows that the influence of transformation of knowledge and skills of employees to the perceived
quality of the product that the consumer is (7.6) 2 x 100% = 57.76% with a P-value of 0.000 to KN and 0168 for RE.
thus influence the process of transformation of knowledge and skills in the formation of a quality culture influence of
57.76%.

The process of transformation of knowledge and skills related to quality in SMEs as a whole has not gone well, this
condition is to be one of the reasons for the low culture of quality, because quality must be taught delivered and
practiced in the end will become a habit, values, thought patterns, rules (culture).
The value of knowledge transformation in the quality of SMEs are as follows: Means 3.1790, Q1: 2500, Q2: 3500,
Q3: 4.000 with a standard deviation of 1.2057. That is still lower quality care transformation processes in SMEs through
the standardization of processes, procedures, materials, machines etc are also not written the things related to guard the
quality (artifacts), this condition will result in inconsistencies or lack of uniformity in action process.
Scores transformation skills in the form of employee involvement in the process of quality care has the following
value means: 4.2985, quartiles 1 (Q1) : 4,000 quartile 2 (Q2) : 4400 and quartile 3 (Q3) : 4600. This indicates that the
transformation process in the form of guard skills quality, relative has been running well in comparison with the
transformation of knowledge.
There is a significance difference between SMEs that the transformation process quality knowledge and skill goes
well with SMEs that lack running well on the perception of consumers in terms of product quality. It can thus be
concluded that one factor causes poor product quality in SMEs because of the ineffectiveness of the transformation of
the quality of knowledge and skills related to quality care.
Reference
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Juran (2015). Juran’s Quality Management and Analysis. Mc Graw Hill International Edition. Singapore.5-19
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Pydek., 2001. The Six Sigma Handbook, Jakarta. Four Salemba
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No. 11142, posted 16. October 2008
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and Management. Maranatha University. Bandung Indonesia.
Tejaningrum. A. (2014) Inconsistency Quality Products (on Six Sigma Programs) Effect on Customer Loyality: Case
Study of Industry “Tahu”. Journal “Management Study” ISSN 2328-2185, January 2014. Vol 2 No 1. David
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Actual Economic, Local Solution For Global Challenges. 2 sd 3 July 2015. Pattaya Thailand.
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Tejaningrum. A. (2014a) Inconsistency Quality Products (on Six Sigma Programs) Effect on Customer Loyality: Case
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Tarumanagara.
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STRATEGIC SERVICE QUALITY IN FACING GLOBAL ENVIRONMENT: BENGKULU,

INDONESIA EVIDENCE
John Tampil Purba1), Kamaludin2)

1)
Pelita Harapan University, Karawaci Tangerang, Indonesia
2)
Bengkulu University, Bengkulu, Indonesia
1)
jpoerba88@gmail.com, 2)Kamaludinapur@gmail.com
Abstract
The globalization of Information Communication and Technology become a new regime in the worldwide
economics. Because it is a compulsory for adaptation of civilization on information and communication technology in
order to improve the competitiveness in domestic and international institutions. The usage of information technology
(ICT) in today's era to become faster, rapid and massive way that can facilitate all the activities in all areas of activities
inside the organization. The aims of this paper is to assess how the service quality especially in information technology
and systems give better service in supporting the routine and non-routine works in the organizations to serve their
customers. Here, the researchers using the SERVQUAL model which adopted and modified according to the object of
research services of the business unit. This research conducted in Bengkulu Sumatera a few months ago by distributing
questionnaire to respective respondents. From sum the data collected by the researchers are 278 respondents then
doing statistically processed. From the collecting data there are findings on tangibles’ 61,724, and Variable of
Reliability 57,631, for Responsiveness 67, 271, for Assurance 53, 467 and for variable Empathy 42,693. Some of
variable have met the expectations, while the other variables are still not fulfilling the need of respondents. This paper
also provided the proposed strategic recommendations as part of the Good University Governance to be implemented
in facing the global environment.
Keywords: Strategy, Quality Service, ICT, Global Environment, Indonesia Evidence
Introduction
Indonesia higher education institutions improvement is highly concerned especially in era of the government of Joko
Widodo, the President Republic Indonesia, so the Minister of Higher Education and Research Technology, pay attention
in improving them by providing the regulations and financial support. Each of higher education shall perform in line
with regulation in order to get the accreditation or recognition from the government also from the society in the country.
There a number of standards in achieving the reputation as standards requirements. Then, the service quality of the
higher institution shall be good because it lies in the organization’s ability to provide an overall climate and culture for
change through its various decision-making systems, operating systems, and human resource practices (Mosadeghard,
2006). Alignment with that, the service itself is the transformation from hierarchical from top to down structural
management commitment, decentralization by involving all the employee with effective leadership become the
prerequisite for technology adaptation towards the implementation of quality assurance systems (Mizikaci, 2003). The
concept of service quality came from Parasuraman et al. (1988) concluded that service quality by comparing
expectations with five generic service-quality dimensions, as follows: (1) tangibles, the appearance of physical
facilities, equipment, and personnel; (2) reliability; the ability to perform the promised service dependably and
accurately; (3) responsiveness; the willingness to help customers and provide prompt service; (4) assurance; the
knowledge and courtesy of employees and their ability to inspire trust and confidence; and (5) empathy; the level of
caring and individualized attention the firm provides to its customers. Due to those it is required to know the
information from the stake holders for better services.
Midkiff, S. (2013) to realize the Networked Learning Initiative, Learning Technologies within the IT organization
will position itself to serve as a university hub for networked learning services, including consulting on instructional
design; support for design, development, and creation of digital media content; support for universal design for
accessibility; and access and support for in-house and cloud-based services for course management, content delivery,
and collaboration. In the higher education environment, he added; the services must support and recognize the
importance of asynchronous online classes as the emerging primary model for teaching and learning at a distance; the
ever growing importance of appropriately leveraging information technology for teaching and learning for local classes;
and the rapid increase in technological capabilities. It should also be recognized that, to achieve these goals, reallocation
of resources will be necessary that cause the IT organization to reduce its support for certain technologies, such as
interactive videoconferencing for instruction. Purba, J.T. & Rorim, P. (2014) By using information communication
technology can support the provision of delivering services in real time output to the stakeholders such as transcript of
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records, load of teaching, syllabus, grades, student finance reports and others immediately. Strategic management in
higher education become center of attention in order to achieve the improvement, being strategic educational
management and effective educational leadership distinctive characteristics and the main components of this type of
management in education (Medina, Maria.J.L. & Encomienda, 2013). In the alignment to that; strategy often involve
complex decisions related to the high degree of uncertainty, the necessary need an integrated approach, thus the concept
of strategy management adhere to the leadership skills of a person in an organization / company to be able to manage all
its forces to changes in the environment in which company/organization was competing. (Purba, J.T. 2002).
Implementing strategy service quality in higher education need support of information communication technology as
the tools of services and decision management for the sustain and growth.
Methods
In this paper the researcher distributed questionnaires to 278 respondents, as known that instrument itself is a pre-
formulated written set of questions to which respondents record their answers, usually within rather closely defined
alternatives (Sekaran, 2013). This way is an efficient data collection because it is usually less expensive and time
consuming rather than the other research instrument (Bryman, 2006). The research model is as described below:
Figure 1: Research modelling
Testing hypotheses also done by the researcher in this paper in order to examine the significance between Expected
of Service Quality and Perceived of Service Quality.

From the 278 respondents drawn from Bengkulu University where this research done, the researchers did test for the
validity and reliability to determine whether the data obtained from the questionnaire has met the level of validity and
reliability are required. Testing of the validity of using the Pearson correlation coefficient, while the reliability test using
Cronbach's Alpha. Calculations using IBM SPSS 20 program, and the results can be seen in table 1.
Table 1: Test result validity and reliability variables Expected of Service Quality
Dimension Items Pearson Correlation Cronbach’s Alpha
Tangible X1 ,848(**) ,844
X2 ,716(**)
X3 ,746(**)
X4 ,808(**)
X5 ,802(**)
Reliability X6 ,770(**) ,796
X7 ,748(**)
X8 ,715(**)
X9 ,723(**)
X10 ,758(**)
Responsiveness X11 ,839(**) ,828
X12 ,813(**)
X13 ,855(**)
X14 ,743(**)
Assurance X15 ,471(**) ,828
X16 ,729(**)
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X17 ,757(**)
X18 ,811(**)
X19 ,808(**)
X20 ,785(**)
X21 ,503(**)
Empathy X22 ,717(**) ,727
X23 ,634(**)
X24 ,749(**)
X25 ,730(**)
X26 ,625(**)
** Correlation is significant at the 0.01 level (2-tailed).
In table 1 shows that the Pearson correlation value for each item statement> 0.30 significance level at 0.01 level (2-
tailed). Therefore, all items on the statement of Services Quality Expected variable is valid. Cronbach's Alpha
coefficient value for each group of indicators or dimensions in the variable Expected of Services Quality, has been
greater than 0.6, so it can be said that the questionnaire is reliable.
Table 2: Test result validity and reliability variables Perceive of Service Quality
Dimension Items Pearson Correlation Cronbach’s Alpha
Tangible X1 ,892(**) ,861
X2 ,740(**)
X3 ,749(**)
X4 ,703(**)
X5 ,827(**)
Reliable X6 ,745(**) ,817
X7 ,768(**)
X8 ,829(**)
X9 ,748(**)
X10 ,718(**)
Responsiveness X11 ,836(**) ,846
X12 ,862(**)
X13 ,821(**)
X14 ,793(**)
Assurance X15 ,626(**) ,859
X16 ,772(**)
X17 ,771(**)
X18 ,800(**)
X19 ,820(**)
X20 ,831(**)
X21 ,508(**)
Empathy X22 ,501(**) ,496
X23 ,632(**)
X24 ,607(**)
X25 ,604(**)
X26 ,545(**)
** Correlation is significant at the 0.01 level (2-tailed).
In Table 2 shows that the Pearson correlation value for each item statement> 0.30 significance level at 0.01 level (2-
tailed). Therefore, all items on the statement of variable Perceived Quality of Services is valid. Cronbach's Alpha
coefficient values for indicators or dimensions of physical evidence, reliability, responsiveness, and assurance on
variable Perceived Quality of Services, has been greater than 0.6, so it can be said to be the result of the questionnaire is
reliable, whereas for indicators or dimensions of empathy variable Perceived Quality of Services less than 0.6 so that
the indicators or dimensions of empathy already meet the elements of validity.
Variable descriptive analysis Expected and Perceived Quality of Services
Below is a descriptive analysis of the variables Expected of Services Quality and Perceived Quality of Services. As
well known Expected of Services Quality and Perceived Quality of Services consists of five dimensions: tangibles,
reliability, responsiveness, assurance and empathy. Each dimension consists of several items statement. The average
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value for each variable in the variable group Expected and Perceived Quality of Services shown in Table-3. The average
value of the tangiblesof service quality indicators for the Perceived Quality of Services is 3.62, while for Expected of
Services Quality is 3.72. There are three items a statement of the indicators of tangibles(Perceived of Services Quality)
which is below the average value, namely: physical facilities are visually appealing and comfortable (X2), Employee
services technology and information systems look tidy (X3), and technology services and information system is
equipped with a computerized database system (X5). The average value of the indicator of reliability for the Perceived
Quality of Services is 3.42, while for Expected of Services Quality is 3.63. There are three items a statement of
indicator reliability (Perceived of Services Quality) which is below the average value, namely: technology and
information systems are equipped with a cooling system are adequate (X6), reading room comfortable (X7), and when
the student has a problem, technology services and information systems show a genuine interest in solving it (X10). The
average value of the indicator of responsiveness to the Perceived Quality of Services is 3.58, while for Expected of
Services Quality is 3.90. There are two items of the statement of indicator responsiveness (Perceived of Services
Quality) which is below the average value, namely: the service provided at the time of service of technology and
information systems promise to do (X12), and employees inform students when the service will be performed (X14).
The average value of the indicator assurance to the Perceived Quality of Services is 3.26, while for Expected of
Services Quality is 3.75. There are four items statements of indicators assurance (Perceived of Services Quality) which
is below the average value that is: employees are willing to help students (X16), employees are never too busy to
respond to the demand of students (X17), employees are consistently courteous (X20), and employees have the
knowledge to answer questions from the students (X21). The average value of the indicator of empathy for the
Perceived Quality of Services is 2.83, while for Expected of Services Quality is 3.48. There are two items of the
statement of indicators empathy (Perceived of Services Quality) which is below the average value, namely: technology
services and information systems provide individual attention to students (X22), and technology and information
systems to understand the interests of students at heart (X25)
Based on the above five indicators, indicators of empathy is the worst because it has an average value is the smallest
is 2.83, while the best indicator is the tangiblesbecause it has an average value most.
Tabel-3 Descriptive Count Results Expected and Perceived of Services Quality

Expected of Services Perceived of Services
Item Quality Quality
Descriptions
Statement
Mean Std. Dev Mean Std. Dev
Tangibles
X1 Technology services and information systems
3.786 .836 3.748 .913
have modern equipment
X2 The physical facilities are visually appealing and
3.626 .702 3.524 .791
comfortable
X3 Employees of the service of technology and
3.682 .796 3.573 .761
information systems department looks neat.
X4 Equipment associated with the service, visually
3.894 .806 3.752 .739
appealing
X5 Service technology and information systems are
3.711 .829 3.508 .855
equipped with a computerized database system
The average value 3.72 3.62
Reliability
X6 Service technology and information systems are
equipped with a cooling system (air-con) are 3.630 .850 3.406 .841
adequate.
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Factor Analysis
Tabel- 4 Calculation Results of Factor Analysis Table-5 Calculation Results of FactorAnalysis
Expected of Services Quality Perceived of Services Quality
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In table 4 shows that the factor analysis fit for use in the data indicators have value because the tangibles KMO> 0.5
with Bartlett's significance <0.05. In indicator of tangibles there is only one factor that can explain the variance of
63.760%. The reliability indicator has a value of KMO> 0.5 with Bartlett's significance <0.05, and the indicator there is
only one factor that can explain the variance of 60.252%. The same also for responsiveness which the variance is
69.665%. Analysis of assurance indicators have value KMO greater than 0.5 and Bartlett's significance <0.05, and the
indicator assurance is only one factor that can explain the variance of 51.020%. It is also fit for the empathy variables
because KMO> 0.5 with Bartlett's significance <0.05. In the empathy, also same, one factor that can explain the
variance of 50.049%.
For the table 5 shows that the factor analysis fit for use in the data indicators have value because the tangibles
KMO> 0.5 with Bartlett's significance <0.05; same to reliability, responsiveness, assurance and empathy. In indicator of
tangibles, the variance of 61.724%., for the reliability explains the variance 57.631%, the responsiveness, variance of
67.271%. The assurance indicators’ the variance explained 53.467%. The factor analysis also fit for use in the data
indicator has a value of empathy because KMO> 0.5 with Bartlett's significance <0.05. In indicator of empathy there is
one factor that can explain the variance 42.693. Research paradigm as shown figure 1, it is done proving the hypothesis.
The calculation and the analysis have proved the hypothesis, so it can be concluded the hypothesis as below:
H1: There are significant differences between the tangibles of the quality of service expected (Expected Services
Quality) with the tangibles of the quality of services received (Perceived Services Quality).
H2: There are significant differences between the reliability of the quality of service expected (Expected Quality of
Services) with the reliability of the quality of services received (Perceived Services Quality).
H3: There are significant differences between the responsiveness of the service quality expected (Expected Services
Quality) with the responsiveness of the quality of services received (Perceived Services Quality).

Facing the global environment any institutions shall be able to change and adapt the requirements according to the
strategic requirements. As this research conducted in Higher Education Institution (Bengkulu University), the
hypothesis already proved that there are very significant of tangible, reliability, responsiveness between expected and
perceived value of Service Quality. This institution needs to evaluate and review the existing management systems of
overall the management, hardware, software application that can giving and providing the better service. As through
ICT support the management being capable to control the outcomes' services in strategically, effectively and efficiently.
Similar in the business conditions, the higher education sector shall conduct the appropriate application methods for
the sake strategic perspectives. The strategic service management model by using ICT needs to review gradually for
continuous changes improvement. The ICT service management model is required, based on the findings and
discussions that can be shared across the institution by involving teamwork and hopingly resulting the strategic
planning to drive the future innovation management in education. This can be transformed entirely the organization and
become the one of the enablers for improvements for the quality of education in the nation, and will have good
institution recognitions from the government and the society in terms of service quality.
References
Bryman, Alan (2006) Samhällsvetenskapliga metoder. Upplaga 1:3. Printed in Sweden by Daleke Grafiska AB, Malmö.
Medina, Maria J. L and Encomienda, Francisco J. B. (2013). Strategic Management as Key to Improve the Quality of
Education. Presented in 1st World Congress of Administrative & Political Sciences (ADPOL-2012). Procedia -
Social and Behavioral Sciences 81, 270 – 274.
Midkiff, Scott F. (2013). Virginia Tech Information Technology, Strategic Plan for 2012-2018. Retrieved from
www.lib.vt.edu/about/strategicplan/2012-2018.pdf.
Mizikaci, F. (2003). Quality systems and accreditation in higher education: an overview of Turkish higher education.
Quality in Higher Education, Vol. 9 No. 1, pp. 95-106.
Mosadeghard, A.M. (2006). The impact of organizational culture on the successful implementation of total quality
management. The TQM Magazine, Vol. 18, No. 6, pp. 606-25.
Parasuraman, A., Berry, L. L., & Zeihaml, V. A. (1988). SERVQUAL: A Multiple Item Scale For Measureing
Consumer Perceptions of Service Quality. Journal of Retailing, 64 (1), 12-40.
Purba, J.T and Rorim, P. (2014). Purba, J.T. & Rorim, P. (2015). Innovation Strategy Services Delivery: An Empirical
Case Study of Academic Information Systems in Higher Education Institution. Retrieved from
http://link.springer.com/ chapter/ 10.1007%2F978-3-662-46742-8_47. Heidelberg, Berlin.
Purba, J.T (2002). Purba, J.T. (2002) Proposed Strategic Plan for Faculty Development for Atmajaya Catholic
University, Jakarta. [Doctoral Dissertation]. De La Salle University Press. Manila Philippines.
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Sekaran, U. & Bourgie, R. (2013). Research methods for business: A skill-building approach. Chichester, West Sussex:
Wiley Publisher.
Dr. John Tampil Purba, born in Medan North Sumatera, August, 20th 1962, he completed his Doctoral Degree [S3]
Majoring Management in 2002 from De La Salle University Manila, Philippines. He holds also international
certification of competencies such as: MCP, MCSA, MCSE, MCT, MCDL, MCSES from Microsoft Corp. USA and
CSE from Cisco Systems, USA.
Prof. Kamaludin, born in Apur, Bengkulu, in 04 March 1966, he graduated Doctoral Degree from Padjajaran
University, Bandung Indonesia, majoring Management with specialized Financial Management. He is now the
Chairman/Coordinator of program Doctoral in Management, School of Business and Economics Bengkulu University,
in Bengkulu Sumatera.
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DETERMINANT OF FUNDAMENTAL MICRO ECONOMIC ON THE

ORGANIZATIONAL PERFORMANCE OF THE RETAIL COMPANY LISTED IN
INDONESIA STOCK EXCHANGE
Tita Deitiana1), Niken Purbasari2)
Trisakti School Of Management, Jakarta, Indonesia

1)
tita@stietrisakti.ac.id, 2)npurbasari@stietrisakti.ac.id
Abstract
The purpose of this research to examine the effect of micro-economic fundamentals, namely profitability, EPS and DER
forward the organization's productivity performance, quality of service, responsiveness and responsibility.
The main problem in this research is how to model the effect of micro-economic fundamental factors can influence the
performance of the organization. To answer the main problem in this study developed the problem following question:
Is the fundamental macroeconomic variables affect the organization's performance in the retail company in Indonesia?
The basic theory used in this study is the agency theory and the theory of performance. The population in this study
were 42 respondents from retail companies in the period 2010-2014 are listed in the Indonesia Stock Exchange.
Analysis tool used Partial least Square which is a method for estimating models using latent constructs with multiple
indicators, where the variable is the performance of the organization as exogenous variable and endogenous variable is
variable micro-economic fundamentals. The organization's performance using the primary data by questioners to 42
managers or assistant of manager in retail companies, and for micro-economic fundamentals do with secondary data
from company financial reports.
The results of this research shows that the micro-economic variables fundamental factors affect the performance of the
organization at the retail company in Indonesia.
Keywords: Fundamentals of Micro Economics, Organizational Performance, Corporate Retail
Introduction
In the contemporary business environment, characterized by rapid changes, performance improvement becomes a
significant challenge for each enterprise, which can not be addressed by a single activity, nor a project, but rather by a
series of continuous activities at all organizational levels. The bottom-up, or top-down approach to the implementation
of such activities does not meet the requirements of involving all the employees, which leads to the conclusion that their
combination is needed, depending on the situation and the objectives to be achieved. Namely, although organizational
performance is perceived through the measures of efficiency, effectiveness and adaptability, its improvement begins at
the lowest level of elements comprised by these measures. Therefore, it is important to analyze individual performance
measures in order to initiate the process of performance improvement. The issues to be addressed in this process include
(Armstrong, 1994).
Internal factors in the analysis of the stock market is often referred to the company's fundamentals, these factors are
controllable so that it can be controlled company. Internal factors can be grouped within a factor of corporate policy and
corporate performance factor.In this study only examined factor of the company's performance, because while
performance factors companies focused on aspects of financial performance that is proxide by the Earning Per Share
(EPS) to measure the level of liquidity, Return on Equity (ROE) to measure the level of profitability, as well as, Debt to
Equity Ratio (DER) to measure the level of leverage of the company. Anwar & Masodah (2011) found that financial
performance significantly influence the value of the company. In line with this, Sudiyatno (2010) mentions that the
performance of the company and significant positive effect on firm value. Value companies are closely associated with
the company's performance would also undergo changes with increasing or decreasing performance of the company.
However the competition changed and not easy for the company to maintain a competitive advantage in the long run
because of the dynamics of competition environments involving external and internal behavior change (Lai and Chang,
2010). The fact is generally recognized that what is important for employees and managers is to achieve organizational
performance. Each individual in the organization should carry out their roles and strive to achieve organizational goals.
The manager runs a leadership role to achieve competitive advantage by placing the organization's performance as a
measure of a company's success. Decisions and policy managers in financial companies in the business process to
management internal behavior of the human resources devoted to managing the performance of employees, either
through compensation and employee training and development programs designed to increase the productivity of the
company as a form of motivation to improve profit. However the external environment has put pressure on
organizations through policies and decisions aimed at improving the core competencies and internal expertise through
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the exploration of the external environment and keep up with the internal expertise to drive organizational performance
(Lai and Chang, 2010).
Conceptual Theoretical
Corporate motivation and employee

performance 3)
DER The impact of business process

orientation on financial and non
financial performance10)
PROFIT responsiveness responsibility
Financial control and
organizational performance. 1)
Organizational
Fundamental Micro
Performance
The Impact Earning per share Factors Affecting
targets in executives
remuneration.2) the Financial productivity
quality of
Performance. 7) performance
service
EPS
Source: data processed from IDX and Questionnaire
Hypotesis : there is effect micro fundamental economic on organizational performance in retail companies

Fundamental Micro (Micro of Fundamental)
It is difficult to infer organizational performance from one or two simple numbers. Nevertheless, in practice a num-
ber of different ratios are often calculated in strategic planning endeavors and, taken as a whole and with some caution,
these ratios do provide some information about the relative performance of an organization. In particular, a careful
analysis of a combination of these ratios may help you to distinguish between firms that will eventually fail and those
that will continue to survive. Evidence suggests that, as early as five years before a firm fails, one may be able to detect
trouble from the value of these financial ratios. There is 3 ratio that used as fundamental micro in this research:
(Ajornhadi, et all 2014; Grey 2010; Setiabudy 2012 and Omundi,2013):
Profitability
There are two measures of profitability common in the financial community, return on assets (ROA) and return on
equity (ROE). In this research use ROE, = net income / total stockholders equity. Equity, is used in these two
common indexes, are both measured in terms of book value. Thus, if assets were acquired some time ago at a low price,
the current performance of the organization may be overstated by the use of historically valued denominators. As a
result, the accounting returns for any investment generally do not correlate well with the true economic internal rate of
return for that investment. Soumadi & Hayazneh 2011, investigated the effect of capital structure on the performance of
the public Jordanian firms listed in Amman stock market. Study results revealed that capital structure is associated
negatively put statistically with firm performance.
Earning Per Share (EPS)

Earning Per Share is calculated not from the income statements and balance sheets of organizations, but from data
associated with their stock market performance. EPS= (net income - preferred dividends) /common shares
outstanding. EPS is one of the most widely used statistics. Indeed, it is required to be given in the income statements of
publicly traded firms. As we can see, the ratio tells us how much the firm has earned per share of stock outstanding. As
it turns out, this is not generally a very helpful statistic. It says nothing about how many assets a firm used to generate
those earnings, and hence nothing about profitability. Nor does it tell us how much the individual stockholder has paid
per share for the rights over that annual earning. Further, accounting practices in the calculation of earnings may distort
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these ratios. And finally, the treatment of inventories is again problematic. According to Yu Fun Hui et al 2011,
between 5-25%, the significant variables is ROE, EPS influence the corporate performance.
Debt to Equity Ratio

Firms are financed by some combination of debt and equity. The right capital structure will depend on tax policy—
high corporate rates favor debt, high personal tax rates favor equity—on bankruptcy costs, and on overall corporate
risk. In particular, if we are concerned about bankruptcy possibilities, the long-run solvency or leverage of the firm
may be important. There are two commonly used measures of leverage, the debt-to-assets ratio and the debt-equity
ratio; and this research uses:Debt-equity ratio = long-term debt / shareholder's equity, as with liquidity measures,
problems in measurement and interpretation also occur in leverage measures. There is positive and negative relationship
between capital structure and firm performance (soumadi, 2012), Chang et al 2014.
The central problem is that assets and equity are typically measured in terms of the carrying (book) value in the
firm's financial statements. This figure, however, often has very little to do with the market value of the firm, or the
value that creditors could receive were the firm liquidated. Debt-to-equity ratios vary considerably across industries, in
large measure due to other characteristics of the industry and its environment. A utility, for example, which is a stable
business, can comfortably operate with a relatively high debt-equity ratio. Often, analysts look at the debt-equity ratio to
determine the ability of an organization to generate new funds from the capital market. An organization with
considerable debt is often thought to have little new-financing capacity. Of course, the overall financing capacity of an
organization probably has as much to do with the quality of the new product the organization wishes to pursue as with
its financial structure. Nevertheless, given the threat of bankruptcy and the attendant costs, a very high debt-equity ratio
may make future financing difficult.
Purposive sampling was used to select sample in this study and based on judgement sampling with the criteria as
follow:
1. Retail companies with financial report from 2010-2014
2. Registered in Indonesian stock exchange from 2010-2014
Organizational Performance
The organization is successful because of its ability to achieve performance. Various studies in empirical research to
interpret the performance of labor as outcome measures. Sunnentage supports the theory of performance suggested by
experts that when a performance conceptualized one should distinguish that between one aspect of action (behavior)
and one aspect of the outcome of the performance and not all behaviors are classified into the performance, only the
behavior that are relevant to the organization's goals can be classified into the concept of performance (Sunnateg, 2002).
Campbell suggest performance is what the organization is set to be reached, do and do well (Sunnetage, 2002). It is
clear that the performance is not defined as the act itself but through the process of evaluation and assessment
(Sunnetage, 2002). Performance refers to the results of the evaluation of the effectiveness of individuals, groups or
organizations (Tseng and Lee, 2014). Organizational performance is the performance of the economy related to produce
something of value, and is expressed as the financial benefits that depend on multifactor such as employees, customers
and communities and the environment (Nienaber and Svensson, 2013). Organizational performance is also defined as
the ability to achieve and process the different organizational resources (HR, financial and physical) to achieve the
goals and objectives of the organization (Ramezan et al, 2013). The organization's performance can be evaluated using
univariate approach that focuses on profit or productivity and multivariate models. The researchers suggest the
multivariate models. The multivariate models assessing the performance of the organization that focuses on how well
the organization can achieve its objectives within the limited resources available and without putting pressure on
members of his organization (Martz, 2013; Masa'deh et al, 2016). Organizational performance measurement can be
done by measuring the performance of financial and non-financial. Many experts in the literature that suggest the use of
financial and non-financial measurements. Generally perceived as organizational performance measurement that refers
to the measurement of multiple performance indicators of financial, social and environmental. Financial measurements
including profitability, revenue, net income, ROI, shareholder return. Social measurements including service quality,
responsiveness, community vitality, user satisfaction, productivity. Skrinjar (2008) in his study also included qualitative
indicators include customer service and satisfaction, product quality, learning and innovation. As for environmental
measurements include responsibility, environment survival, the ability to influence natural resource viability. (Nienaber
and Svensson, 2013; Masa'deh et al, 2016). The multi-model of performance framework (MMPF) according Weerakoon
stated that there are four dimensions include employee motivation, market performance, productivity, performance and
society impact (Skrinjar et al, 2008).
The construct of organizational performance is measured with 5 Likert scale consisting of no good until very good.
Using a questionnaire developed by four items or instruments adapted from organizational performance measurement
instruments non financial according to Skrinjar and Lai & Chang, namely responsiveness (business processes within
organizations exist undefined and documented using the input and output to and from the customer's company),
responsibility (business process sufficiently defined so that the majority of employees in the organization understand
how to do a task or job), service quality (level of customer satisfaction with the product and services) and productivity
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performance (resources allocated based on the process and the outcomes measured). 55 questionnaires distributed by
email and partly delivered through the HRD, get back and can be used 42 respondent data.
Hypothesis result
0.347 0.737 0.335
DER EPS PROFIT
RESPONSIVENESS
2.812 6.505 1.817
10.217
0.714
0.749
7.496 0.137 RESPONSIBILITY
10.412
Micro Fundamental Organizational Performance
The results show that there is a significant positive influence between DER, EPS and profit to organizational
performance retail companies. A significant positive effect between DER, EPS and profit to organizational performance
can be explained by the performance of which is measured by the responsiveness and responsibility of company
provides. Where is responsiveness that how well the speed of the company respond to customer needs, employees',
debtors and investors, whereas responsibility that how well the company's managers were able to perform their duties
and responsibilities towards customers, employees, debtors and investors. These results are consistent with the findings
in the study of stakeholder management and financial performance do Berman et al that when a positive relationship
between the key stakeholders (customers and employees) develops the company's profits can be improved (Skrinjar et
al, 2008). This result raises a presumption that the retailer is able to provide a good responsiveness that allows the
establishment of good relations between employees and customers, so that when responsiveness of manager increase
will improve responsibility and so increase profit and EPS and decrease DER on retail companies.
References
Ajonhadi, A Hakeet et al, 2014, Financial control and organizational performance of the Nigerian, Journal of Business,
Economica and Management, 135-143 1)
Grey, Collete,2010, The Impact of Earning per share targets in executive remuneration contract on company accounting
choices, A thesis submitted university of Manchester for degree of Doctor of philosophy. 2)
Lai, Wen, Hsiang dan Pao Long Chang. (2010). Corporate motivation and performance in R&D alliances. Business
Research, 63, 490-496. 3)
Chang et al. (2014), Capital Structure decisions and firm performance of Vietnamese Soes, Asian Economic and
Financial Reviews, 4(11):1545-1563
Martz, W. (2013). Evaluating organizational performance: rational, natural, and open system models. Evaluation, 34(3),
385-401. 4)
Masa’deh, Raed, Bader Yousef Obeidat, Ali Tarhini. (2016). A Jourdania empirical study of the associations among
transformational leadership, transactional leadership, knowledge sharing, job performance, and firm performance: a
structural equation modelling approach. Management Development, 35(5), 121-184. 5)
Nienaber, Hester dan Goran Svenssons. (2013). An analysis of the contribution of leadership to organizational
performance using complexity science. Management Development, 32(8), 836-851. 6)
Omondi, M Maleya et al, 2013, Factor affecting the financial performance of listed companies at Nairobi securities
exchange in Kenya, research journal of finance and Accounting, ISSN 2222-1697 Vol 4 No.15 7)
Ramezan, M., Sanjaghi, M. E. dan Baly, H. R. (2013). Organizational change capacity and organizational performance.
Knowledge-Based Innovation, 5(3), 188-212. 8)
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Setiabudy, Andy & Agustin Dian, 2012, Fundamental Factor of firm due to the firm value, journal of Basic & Applied
Scientific Research ISSN 2090-4304. 9)
Skrinjar, Rok, Vesna Bosilj Vuksic dan Mojca Indihar Stemberger. (2008). The impact of business process orientation
on financial and non financial performance. Business Process Management, 14(5), 738-754. 10)
Sonnentag, Sabine. (2002). Psychological Management on Individual Performance A Handbook in the Psychology of
Management in Organzations. Wiley. Fifth Edition. Australia. 11)
Soumadi.M Mustafa & Hayajneh S Psama, 2012 Capital Structure and Corporate Performance Empirical Study on the
Public Jordanian Shareholdings firms listed in the Amman Stock market, European Scientific Journal,Vol 8 Oktober
no 22 ISSN 1857-7881
Tseng, S.M. dan Lee, P.S. (2014). The effect of knowledge management capability and dynamic capability on
organizational performance. Enterprise Information Management, 27(2), 158-179.
Twairesh M E Abdullah, 2014, The Impact of Capital Structure on firm’s performance evidence from Saudi Arabia,
Journal of applied finance and banking, vol 4 no 2 183-193 issn 1792-6580
Yu fu hui, Liang hui Jung, 2011, Management ownership and corporate performance, African journal of business
management Vol 4 pp 14410 -1453, issn 1999-8233
Dr.Tita Deitiana was born in Sukabumi, January, 12, 1968, majoring in finance, field research interest is financial
management, financial research method.
Niken Purbasari was born in Jakarta, September, 13, 1969, majoring in management, Niken Purbasari is studying
Doctoral Programme in Management at Brawijaya University, field research interest in human research management.
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EFFECT OF COMPENSATION AND WORK DISCIPLINE ON EMPLOYEE

PRODUCTIVITY
Rr.W.Rachmawati
STIE Ekuitas, Bandung Indonesia
watieroro@yahoo.com
Abstract
This study aimed to analyze further on the discipline of work, compensation and productivity at a state-owned
company in West Java, Indonesia. The study involved 150 respondents using descriptive and verification methods.
Based on the research results obtained value of average respondents to the company's compensation for 4.291 is
included in the category quite well. As for respondents' perceptions of the numbers of work discipline is for 4.233
included in the category quite well. digit average rate of productivity amounted to .3989 in the category enough. labor
discipline and compensation positive effect on the productivity of 43%. based on these studies, the company must review
the compensation policy and work discipline, proven effect on productivity.
Keywords: Compensation, Discipline of Work, Labor Productivity
Introduction
The use of optimal human resources greatly affect the achievement of the company's strategy, so any company
trying to get employees involved in organizational effectiveness can always provide achievements in high productivity
levels. To increase the productivity of employees, many factors need to be considered by the company such as
compensation and working discipline.
The study was conducted in a state-owned enterprises or state-owned enterprises in West Java, Indonesia, which is
engaged in mail delivery services, packages and other deposit, in this study is called XYZ. Based on observations and
interviews conducted in the company there are some problems related to the discipline of work, compensation and
productivity, which are: (1) The performance benefits provided to employees felt less fair and not right on target, (2) the
company often once seen some employees leave their work activities before time runs out working hours. In this case
the employee does not comply with company policy that reflected the still low level of discipline in the company. (3)
employees to come to work an hour slow. In the activity of work, employees often do not leave on time so much work
is neglected. (4) the employee does defaulters means employees do not attend work without any information to the
employer or the company. So the discipline of employees do not meet optimal standards expected of the company,
which is ultimately the standard value of the company's productivity will decline.
Based on the above descriptions, researchers interested in conducting a study entitled "The Effect of Compensation
and Work Discipline of the Employee Productivity PT. XYZ.
Literature Review
Compensation Theory
Compensation is the entire remuneration received by employees for the work of the employee in the organization
(Luis R Gomez Issue 5). Gaol (2014: 310) compensation is received by employees, either in the form of money or not
money as remuneration given to the efforts of employees (employee contributions) are given for the organization. Based
on the above understanding can be concluded that the compensation is the income received by employees as
remuneration for his contribution to the achievement of corporate goals.
According Hasibuan (2013: 118) Compensation divided into two direct compensation (direct com¬pensation) in the
form of wages, salary and incentive pay; indirect compensation (indi¬rect employee compensation or welfare or the
welfare of employees). Rival & Sagala (2013: 744), explaining kompenen-compensation components as follows: (1).
Salary is the remuneration in the form of money received by employees (2) Wages are direct financial rewards paid to
employees based on hours of work, (3) Incentives is a direct remuneration paid to employees for exceeding
performance standards specified. (4) Compensation Indirect (Fringe Benefit) an additional compensation granted under
the company's policy to all employees in an effort to improve the welfare of employees.
Work Discipline Theory

Hasibuan (2013: 193) "Discipline is the most important function of HRM operative for the better discipline of
employees, the higher the performance that can be achieved". According to Mondy (2008: 162) "Discipline is the
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condition of self-control employees and orderly behavior that shows the level of real teamwork in an organization".
Based on the above opinion can be concluded that Discipline is a form of activity carried out by the management of
both government agencies and private so that employees can work in accordance with applicable regulations and their
performance as expected and could reach the goals of the company.
Rival (2005: 444) indicators that affect the discipline of employees of an organization, including: (1) Presence
(Presence) either: (a) The level present on time, (b) the level of awareness of the importance of attendance, level of the
company's attention to the presence, (2 ) Compliance with labor regulations such as: the level of understanding of the
rules of work, level of consciousness following the guidelines of work, level of completion in accordance with the rules
of work (3) the level of vigilance in the form of: Level of understanding of the use of work equipment, attendance in
using work equipment, work safety level
Work Productivity Theory

Fandy Tjiptono (2009: 54) states "Productivity in the technical sense refers to the degree of effectiveness, efficiency
in resource use, while understanding the behavior of productivity is a mental attitude that is constantly trying to keep
growing". Sedarmayanti (2009: 57) "Work Productivity is a mental attitude (attitude of mind) that have a passion for
doing greater improvement". Based on the notion of productivity above, it can be concluded that productivity is a
mental attitude that always strives to continue to develop upgrading improvement.
Labor or employee is a man who is a dynamic production factors have the ability to think and work motivation, if
the management company is able to increase their motivation, then labor productivity will increase. Sedarmayanti
(2009: 71) there are also a variety of factors that affect the productivity of labor are: Attitude, Education, Skills,
Management, Industrial Relations Pancasila (HIP), level of income, nutrition and health, guarantee social, environment
and climate work, Means of production , Technology, opportunity Achievement. Meanwhile, according to Fandy
Tjiptono (2009: 73) that affect employee productivity are as follows (1) Input: Factor input in the form of work, hours
of work, skill, knowledge, physical employees, operational systems (2) Output: Factor output in the form the amount of
output that was done in such work, work performance and employee performance.
Research Metodology
The method used in this research is descriptive and verification methods. By involving variables that will be used in
this study, is a component of compensation and working discipline as independent variables and labor productivity as
the dependent variable.
Compensation (
X1)
Productivity (Y)
Work discipline
(X2)
Fig 1: Framework of Research
Compensation Profil
Table 1. Recapitulation for variable compensation

Current sc Ideal Sco
No Indicator % Catagory
ore re
1 Salary 1544 2250 68,6% Good
2 Wage 495 750 66,0% Enoug
3 Incentive 924 1500 61,6% Enoug
4 Fringe benefit 1328 2250 59,0% Enoug
Total 4291 6750 63,5% Enoug
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By calculating the average it can be concluded that the respondent response to the XYZ company's compensation
included in the category enough with an average value of 4291. There is a gap between the actual and ideal values of
2459.
Work Discipline
Table 2. Recapitulation for variable Work Disciplin
Current Sc Ideal Sco
No Indicator % Category
ore re
1 Presence 1551 2250 68,9% Good
2 Strict adherence to regulations 1380 2250 61,3% Enoug
3 Levels Vigilance 1302 2250 57,8% Enoug
Total 4233 6750 62,7% Enoug
Based on the above data shows the total of all disciplines working of three dimensions is divided into nine questions,
the final result amounted to 62.7%, meaning that the total score based on the percentage of respondents can be
concluded Work discipline on company XYZ scale category quite well.
Productivity
Table 3. Recapitulation for variable Work Disciplin
Current Sc Ideal Sco
No Indikator % Catagory
ore re
1 Input 3042 4500 67,6% Enoug
2 Output 947 1500 63,1% Enoug
Total 3989 6000 66,4 Enoug
Based on these data shows the total productivity of the work of two dimensions divided into eight questions, the
final result amounted to 66.4%, meaning that the total score based on the percentage of respondents can be concluded
labor productivity at PT XYZ scale category quite well.
Effect of Productivity and Work Discipline for Compenssation

Based on the results of data processing using SPSS 20 obtained the following results:
Table 4. Regresion AnalysisCoefficientsa

Model Unstandardized Coefficients Standardized Coefficients t Sig.
B Std. Error Beta
(Constant) 2,805 2,848 ,985 ,326
Compenssat
1 ,500 ,105 ,441 4,741 ,000
ion
Disciplline ,247 ,123 ,187 2,013 ,046
Constant value (a) is 2,805. This means that if the compensation, working discipline is 0 then the level of labor
productivity is positive, namely 2,805, and if the value of the variable compensation regression coefficient (), is
positive, ie 0.500. This means that any increase in compensation of around 1%, the labor productivity increased by
0.500, then to the regression coefficient of labor discipline () worth positive, namely 0.247 means that any increase in
labor discipline by 1%, the labor productivity will be increased by 0.247 assuming other independent variables value
permanent.
Correlation Analysis and Determination

Correlation analysis aims to measure the strength of association (correlation) between two linear variabel.
Correlation also showed no functional relationship. In other words, correlation analysis does not distinguish between the
dependent variable and independent variables. In regression analysis, correlation analysis used also shows the direction
of the relationship between the dependent variable and independent variables in addition to measuring the strength of
the association (relationship).
Analysis of coefficient of determination is used to see how much the independent variable (X) effect on the
dependent variable (Y) expressed as a percentage.
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Here is a table calculation and determination correlation analysis using SPSS Software 20:
Table 6. Coefficient of determination

Model R R Square Adjusted R Squar Std. Error of the Durbin-Watson
e Estimate
1 ,587a ,344 ,335 4,64958 1,757
From the above table is obtained correlation coefficient (r) of 0.587, which means there is a relationship being
between the influence of compensation and working discipline on work productivity. This means that there is a positive
correlation but not significant between the influence of compensation and working discipline on employee productivity
PT. XYZ. Then for the coefficient of determination of compensation and the level of influence on work productivity of
labor discipline shown by the coefficient of determination with the following formula:
Coefficien Determination = × 100%

= (0,587 X 100%
= 34,4 %

Based on the results of research and discussion that has been described in previous chapters, the authors conclude.
First, compensation at XYZ Company is quite good. Where they do not meet the expectations and needs of employees
who expect the company will give better compensation as expected. Second, Work Discipline pretty good, but not
maximized so that the discipline of employees do not meet optimal standards expected of the company. Third, Work
Productivity is good enough. but have not yet reached the maximum and objectives of the company that expects
employees produce high labor productivity. Fourth, According to the research there is a correlation coefficient that
shows the correlation between compensation and working discipline on work productivity is postitif effect by 34%.
Advised the compensation should be increased so as to stimulate employees to better leverage in completing the
work and increase employee loyalty to the company. Labor discipline should be improved so that employees can get the
job done better by providing strict regulations to employees, impose sanctions against an employee who violated
company regulations, and provide guidelines that can provide awareness of the importance of labor discipline so that
employees can get the job done better. Companies should provide higher compensation and application of more
stringent labor discipline. In addition, the company must provide more training and development to employees in
completing the work.
Reference
Akdon & Riduwan, (2007), Rumus dan Data Dalam Analisis Statistika. Cet 2, Alfabeta, Bandung.
Gibson, James. (2006), Organisasi Perlaku, Struktur dan Proses. Jakarta: Bumi Aksara.
Hasibuan, Malayu.S.P. (2013), Manajemen Sumber Daya Manusia. Jakarta: PT. Bumi Aksara.
Gaol, 2014. A to Z Human Capital: Manajemen Sumber Daya Manusia. Grasindo, Jakarta.
http://ejournal.unsrat.ac.id/index.php/emba/article/view/1372/1083 upload 28 September 2014.
http://ejournal-s1.undip.ac.id/index.php/jiab/article/view/3483/3412 upload 28 September 2014.
http://manajemenppm.wordpress.com/2013/06/21/mendisiplinkan-karyawan-bermasalah/ diunduh pada tanggal 21
Oktober 2014.
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http://samryaazza.blogspot.com/ diunduh pada tanggal 30 September 2014.
http://soloraya.net/membangun-kedisiplinan-dalam-organisasi.html upload 21 Oktober 2014.
http://www.academia.edu/3883649/PERBAIKAN_PRODUKTIVITAS di upload 28 september 2014.
http://www.e-jurnal.com/2013/09/pengertian-disiplin-kerja.html diunduh pada tanggal 21 Oktober 2014.
Kriyantono, R. (2010), Teknik Praktis Riset Komunikasi. Jakarta: Kencana.
Labudo, Y. (2013), Disiplin Kerja dan Kompensasi Pengaruhnya terhadap Produktivitas Karyawan. Jurnal
EMBA,Vol.1 No.3, hlm 55-62.
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Mohammad Nazir. (2005), Metode Penelitian. Jakarta: Ghalia.

Mondy, R.W. (2008), Manajemen Sumber Daya Manusia, Jakarta : Erlangga.
Pryatno, D.(2012), Cara kilat belajar analisis data dengan SPSS 20. PenerbitAndi publisher, Yogyakarta.
Rivai, V. dan Ahmad Fawzi Mohd Basri. (2005), Performace Appraisal . Jakarta: Rajagrafindo Persada.
Rivai, V. & Sagala, E.J. (2013), Manajemen sumber daya manusia untuk perusahaan: Dari teori ke praktik. Jakarta: ed,
2-cet 4.: Rajawali Pers.
Sedarmayanti. (2009), Manajemen Sumber Daya Manusia. Bandung: PT. Refika Aditama.
Sihotang, A. (2007), Manajemen Sumber Daya Manusia. Jakarta: PT Pradnya Paramita.
Sinungan, M. (2003). Produktivitas Apa Dan Bagaimana. Jakarta : Bumi Aksara.
Sugiyono. (2014), Metode Penelitian Kuantitatif Kualitatif & RND. Bandung: Alfabeta.
Supangat, A. (2007), Statistik dalam Kajian Deskriftif, Inferensidan Non parametrik. Jakarta: Kencana Prenada Grup.
Tjiptono, F. (2009), Strategi Pemasaran Jasa. CV. Andi:Yogyakarta.
Tjutju, Y. & Suwatno. (2009), Manajemen Sumber Daya Manusia. Bandung : Alfabeta.
Wibowo, A.E. (2012), Aplikasi praktis SPSS dalam penelitian. Penerbit gava media, Yogyakarta.
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EFFICIENCY ANALYSIS OF OPERATIONAL PERFORMANCE USING OPERATING

EFFICIENCY RATIO (OER) IN INDONESIA STATE-OWNED BANKS
Hanifah
STIE EKUITAS Bandung Indonesia
hanifahoney@gmail.com
Abstract
Operating Efficiency Ratio (OER)is a measure of bank’s efficiency level in managing its operations.Indonesia
State-Owned Banks are said to be efficient because its Operating Efficiency Ratio is at a minimum level according
to the standard set by Bank Indonesia, but the banks are still less efficient about 40%-60% compared to other
Association of South East Asian Nations (ASEAN) countries.In fact, efficiency is one powerful weapon in order to
be able to compete in the era of the ASEAN Economic Community (AEC).This study aims to determine the
development and the level of efficiency of the banks’ operational performance by using Operating Efficiency Ratio
(OER) in Indonesia State-Owned Banks. The ratio for these banks which are BNI, BRI and Bank Mandiri have an
efficiency level of 1 which is very efficient. While the ratio for BTN bank is still 2which is considered to be efficient.
The lower the value of OER is, the more efficient the bank becomes. Thus, these banks will always aim for low
value ofOperating Efficiency Ratio.
Keywords: Operating Expenses, Operating Revenue, Operational Efficiency Ratio (OER), State-Qwned Banks
Introduction
Bank is an institution or a company whose activities are to raise funds in the form of demand deposits, saving
deposits and other deposits from the surplus spending units and then put it back to the people who need funds
(deficit spending units) through the financial services that they provide, so it can improve the welfare of the
common people (Taswan; 2010). One of many ways of measuring the health of banks is through the Operating
Efficiency Ratio (OER). This ratio is used to measure the level of bank efficiency in managing its operations. The
operating expenses include personnel costs, investments, networking, promotion and fundin g. The formula is, the
lower OER is, the more efficient the bank becomes.
As in the reports on the performance of state-owned banks according to vibiznews.com, in the first semester of
2014, BNI has decreased its efficiency slightly. This is the evident from the OER, which rose by 1.88% from
66.69% in the first semester of last year. Judging from that OER, then it appears the efficiency of BNI is good
enough because it is still below the maximum limit set by Bank Indonesia that is 75%. BRI also experieced a slight
decrease in efficiency. This is evident from the OER, which rose by 2.67% from the previous 60.91% in the first
semester of last year. The increase of OER was due to the increase in the exchange rate fluctuations thereby
increasing operating expenses. This is evident from the OER, which rose by 2.45% from 62.32% in the first
semester of last year. Lastly, bank BTN efficiency decreased quite a lot. This is evident from the OER, which rose
by 5.86% from 83.31% in the first semester of last year to 89.71% in the first semester of this year. Although OER
is lower, the state-owned banks in Indonesia are among the least efficient in the world.
In this regard, although the national banks are still said to be efficient because the value of OER is below the
maximum limit specified by Bank Indonesia, but the banksare still less efficient about 40 -60% compared to the
value of OER of other banks in ASEAN countries. In fact, efficiency is one powerful weapon to be able to compete
in the era of the ASEAN Economic Community (AEC). Seeing these conditions, it is important to improve the
efficiency of banking operations to be more resilient in facing the changing economic environment.
Based on the description above, the researcher is interested to analyze the efficienc y of the banks’ operational
performance by using Operating Efficiency Ratio of Indonesia state -owned banks. The Purpose of the research is (1)
To find out the development of Operating Efficiency Ratio (OER) using the growth ratio in Indonesia state-owned banks. (2) To find
out the level of performance efficiency of the banks’ operations by using the Operating Efficiency Ratio (OER) in Indonesia state-
owned banks. This paper is useful for banks especially for the Indonesia state-owned banks in terms of operational cost efficiency
and increasing the banks’ profit. Secondly, this paper also gives the strategy recommendation for the state-owned banks.
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Literature Review
Efficiency
Efficiency is the process of producing an output, the process can be said to be efficient if it can produce something
good. According to Endri (2008; 123) efficiency is one of the performance parameters that are theoretically underlies
the whole performance of a company with reference to the philosophy (the ability to produce the optimum output with
existing input, is a measure of expected performance).Meanwhile, according to Atmawardhana in Ivan Gumilar and Siti
Komariah (2011; 101) there are three factors that lead to efficiency: (1) when the same input can produce greater
output; (2) a smaller input can produce the same output; and (3) a greater input can produce a greater output.
From the above explication, it can be concluded that efficiency is a company's ability to execute its activities to
obtain certain results by using the least amount of inputs to produce an output, and also the ability to complete a job
properly.According to Berger and Master in Endri (2008; 123) Efficiency of the banking industry can be evaluated from
the micro and macro perspectives.
Operational Efficiency Ratio (OER)

Every company both banks and non-banks at a given period of time will report all financial activities. The banks’
financial statements show the financial condition of the banks as a whole. From the financial statements, it can be
analyzed how the actual condition of the banks, including the weaknesses and strengths. The financial statements also
show the banks’ management performance during the period. The advantage of reading the financial statements is that
the management can improve the existing weaknesses and maintain its strengths (Kashmir, 2012).
Operational Efficiency Ratio (OER) is one of the elements of assessment of the profitability ratio. OER is the ratio
between Operating Expenses to Operating Revenues, the lower the OER, the better the performance of the banks’
management, because the company use its existing resources efficiently (Riyadi, 2006).According to Lukman (2005;
119): Operational Efficiency Ratio (OER) is the ratio between operating expenses and operating revenues. This ratio is
used to measure the efficiency and ability of banks to carry out the operationals. Given the banks’ main activities is to
act as an intermediary, that is to collect and distribute funds, the costs and the operational revenue of the banks are
dominated by interest expense and interest revenues.
Thinking Framework
Efficiency is a performance parameter that is measured by the results of the input or the input variables and the
output variable. An efficient performance results is when there is optimum output with very minimum input variables.
Efficiency for a bank is considered the most important aspect to realize a healthy financial performance.Operation
efficiency is performed to determine whether the bank in its operations related to the bank's main business, comply with
the rules according to the expected management shareholders. Operating efficiency also affects the performance of the
bank which indicates whether a bank has to use all the appropriate factors of production so that it can be more efficient,
so in return, the bank will have the opportunity to generate greater profits (Edward; 2007).
In the study conducted by Abidin (2007), three state-owned banks, namely BRI, Bank Mandiri and BNI always
achieve the level of efficiency of 100 percent. As for BTN, for 2 (two) years in a row only reached 89 percent and 97
percent compared to the other banks. This can be seen from the results that 2 out of 4 state-owned banks that are also
listed as the largest banks achieve good efficiency. This is in-line with the theory of Bos and Kolari (2005) and Rezitis
(2006) that the larger banks will be more efficient because of the economics of scale.
Banking efficiency levels can be affected by several factors such as: variable size, CAR, and LDR. Each of these
factors can significantly and positively affect banking efficiency levels, while the NPL does not affect the efficiency of
the banking system and Go Public variable individually and significantly affects negatively on the efficiency of the
banking industry (Meina ; 2011).OER efficiency will affect operating profit of banking, such as the results by Surya
(2015) which stated that the OER variables have a significant effect on ROA, and they have a negative relatonship,
which means when OER variables increase, ROA variables will decrease and vice versa.
Measurement of performance efficiency can be done by calculating the OER by dividing Operating Expenses to
Operating Revenues. Based on the regulation set by Bank of Indonesia,banks can be categorized as inefficient if OER
reaches a value of 80% or more. The smaller the OER, the more efficient the bank becomes because it is considered to
have higher operational performanceefficiencies. Low OER means that the bank can cover its operatingexpenses by the
operating revenues. Financial performance of a bank can be increased by improving the financial operations of the
bank. If the bank operations are inefficient, meaning that revenue or inputs that obtained by banks is not large enough to
cover the expenses or the costs of expenses required banks (Septiani, Dwi; 2013)
The object of this research is the efficiency of the banks’ operational performance. Banks whichare used as the
research object are the state-owned banks listed on the Indonesia Stock Exchange (IDX).The method used is descriptive
method. Descriptive method describes the condition of the ratio of operating expenses compared with operating
revenues in state-owned banks listed on theIDX. The variables in this study are the operating expenses which will be
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compared with the operating revenues. The concept is put forward by Lukman (2005; 119) that the OER is the ratio
between operating expenses and operating revenuesas follows.OER = Operating Expenses / Operating revenes x 100%.
The population in this study are all state-owned banks in Indonesia which are listed on the Indonesia Stock Exchange
(IDX) as many as four banks..

The result of efficiency of operational performance analysis by using the ratio of operating expenses and the
operatingrevenues (OER)in the state-owned banks in Indonesia are as follows:
Tabel 4.1. Data of operating expenses in Indonesia state-owned banks(in millions of Rupiah)
2010 2011 2012 2013 2014
BNI 20,372,466 21,050,688 22,509,305 24,672,809 30,734,007
BRI 35,766,009 36,614,557 35,317,615 41,683,466 56,062,197
Bank 26,960,408 35,257,172 37,434,301 43,786,138 55,563,586
Mandiri
BTN 6,599,910 5,722,925 7,519,104 9,410,951 12,155,936
Source: Processed from financial statements
60,000,000
50,000,000
40,000,000 BNI
30,000,000 BRI
Mandiri
20,000,000
BTN
10,000,000
-
2010 2011 2012 2013 2014
Graph 4.1. Data of operating expenses in Indonesia state-owned banks (in millions of Rupiah)
It can be seen in the table and graphs above thatoperating expenses in state-owned banks in general has increased in
each period. This shows the bank is competing to provide a superior product and services from other banks.Data of
operating revenues in Indonesia state-owned banks are as follows:
Tabel 4.2. Data of operating revenues in Indonesia state-owned banks(in millions of Rupiah)
2010 2011 2012 2013 2014
BNI 25,881,484 28,293,271 31,150,328 35,891,612 43,543,298
BRI 50,168,010 54,198,787 58,000,153 67,811,043 84,424,074
Bank 43,389,773 54,304,457 60,112,759 71,341,628 86,690,044
Mandiri
BTN 8,125,659 6,986,642 9,390,073 11,546,860 13,578,494
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100,000,000
90,000,000
80,000,000
70,000,000
BNI
60,000,000
50,000,000 BRI
40,000,000 Mandiri
30,000,000
BTN
20,000,000
10,000,000
-
2010 2011 2012 2013 2014
Graph4.2. Data of operating revenue in Indonesia state-owned banks(in million of Rupiah)

Source: Processed financial statements
In the graph and the table above, it can be seen that in general, operating revenues for each of the bank has increased
in each period. This indicates the product services provided by bankshave increased so that the interest revenues and
other operating revenuescould increase.
Tabel 4.1. Percentage of operating expenses compared with operating revenues (OER)
2010 2011 2012 2013 2014
BNI 79% 74% 72% 69% 71%
BRI 71% 68% 61% 61% 66%
Bank Mandiri 62% 65% 62% 61% 64%
BTN 81% 82% 80% 82% 81%
90%
80%
70%
60% BNI
50% BRI
40%
Mandiri
30%
20% BTN
10%
0%
2010 2011 2012 2013 2014
Graph 4.1. Percentage of operating expenses compared with operating revenues (OER)
Based on the above table, it can be inferred that the development of Operating Efficiency Ratio (OER) in state-
owned banks in Indonesia are as follows: for (1) BNI, OER in 2011 decreased compared to the previous period as well
as in 2012 and 2013. This occurred due to a decrease in the allowance for impairment losses although other operating
expenses increased, but followed also by an increase in operating revenues while the OER in 2014 increased compared
with the previous period. This was due to the high cost of funds and reserves and it was influenced by the aggressive
growth in the interest expense. For (2) BRI ,OER in 2011 decreased compared to the previous period, as well as in
2012. This was due to the increased quality of the credits which is characterized by an increase in the interest revenues
and other operating revenues, and accompanied by increased in the operating expenses while the OER at the end of
2014 increased compared with the previous period. This is because the increase in the interest expense and other
operational expenses and increase in provision for impairment losses. For (3) Mandiri Bank, OER in 2011 and 2014 has
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increased compared to the previous period. This is because the increase in interest expense and other operating expenses
and provision for impairment losses while OER in 2012 and 2013 decreased compared to the previous period. This is
due to the increase in operating revenuesthat is not accompanied by an increase in interest expense and an increase in
operating expenses. For (4) BTN, OER in 2011 and 2013 has increased compared to the previous period. This is
because the increase in operating revenues and a decrease in the provision for impairment losses while OER in 2012
and 2014 decreased compared to the previous period. This is because the increase in operating revenues followed by an
increase in interest expense and other operating expenses.
Based on Bank of Indonesia Circular LetterNo. 6/23/DPNP dated May 31, 2004, rating categories that will be
obtained from the bank based on the value of operational efficiency ratio is as follows: Very Efficient (50-75%),
Efficient (76-93%), 50-775% Efficient Enough (94%-96%), Least Efficient (96-100%) and inefficient > 1100%.
Overall, the state-owned banks in Indonesia are quite efficient, being ranked number 1 except for BTN which is still in
the percentage of 80%, in rankednumber 2 category – the least efficient. Each bank wants a high degree of efficiency so
they are competing to press the bank operational efficiency represented by OERlevel. Banks with the lowest OER is the
most efficient bank so the state-owned banks should set the OER low. Thus, they can be more efficient and are able to
compete with one another.

From the results and discussion above, it can be concluded that the operational efficiency using OER in state-owned
banks in Indonesia, for BNI, BRI andMandiri Bank has an efficiency level which is ranked number 1, which means that
they are all very efficient. As for BTN which still ranks in number 2, is perceived as efficient. Although being
considered efficient is a good indicator, nonetheless, banks with the lowest level of the ratio is said to be the most
efficient so that state-owned banks will continue to target for low OER.
From the above results, the researcher can provide recommendation for BTN which is still ranked in number 2 and it
have the highest level of efficiency compared with other state-owned banks.The solution to reduceOERis by increasing
the bank's operating revenues without spending too much operational expenses. For other state-owned banks, it is
expected that they reduce the OERso they become more efficient.
References
Atmawardhana, Angga(2006),Analisis EfisiensiBankUmum SyariahdanBankKonvensionalyang MemilikiUnit Usaha
SyariahdiIndonesia,setelahpemberlakuanUndang-UndangNo.10 Tahun 1998.
Berger and Mester, (1997), Efficiency andProductivity ChangeintheU.S.Commercial Banking Industry: AComparison
ofthe 1980sand 1990s."FederalReserveBankofPhiladelphia, WorkingPaperNo.97-5.
Bos, Jaap W. and Kolari, James (2005), Large Bank Efficiency In Europe And The United States: Are There Economics
Motivations For Geographic Expansion In Financial Service?, The Journal of Business;
Endri.(2011).EvaluasiTeknisPerbankanSyariahdiIndonesia:AplikasiTwo-StageDataEnvelopmentAnalysis.STEITazkia.
Hasibuan, (2005),Dasar-dasarPerbankan. Jakarta: Penerbit PTBumi Aksara.
Ivan Gumilar., &Siti Komariah. (2011). PengukuranEfisiensi Kinerja Dengan Metode
StochasticFrontierApproachPadaPerbankanSyariah.Bisnis&Manajemen.
Kasmir, 2012, Manajemen Perbankan, Jakarta: PT RajaGrafindo Persada.
Lukman, 2005, Manajemen Perbankan, Bogor: Ghalia Indonesia
Meina, (2011), Analisis Efisiensi Industry Perbankan Di Indonesia Dengan Pendekatan Data Envelopment Analysis
(Dead An Factor-Faktor Yang Mempengaruhinya. Jurnal Manajemen & Bisnis Vol 1 No. 2, Universitas lambung
Mangkurat.
Sinkey JR, Joseph F, (1998), Commercial Bank Financial Management In The Financial – Service Industry, Macmillan
Publishing Company, Second Edition.
Slamet Riyadi. (2003). BankingAssets and Liability Management. Jakarta: FEiUniversitasIndonesia.
Sugiyono. (2011).Metode Penelitian Kuantitatif, Kualitatif dan R &D. Bandung: Alfabeta.
SuratEdaranBankIndonesiaNo.6/23/DPNPtanggal31Mei 2004 tentang Sistem Penilaian Tingkat Kesehatan Bank
Umum.
Surya, (2015), Analisis Pengaruh Permodalan, Likuiditas, Efisiensi, Dan Kualitas Aktiva Terhadap Profitabilitas Bank,
Jurnal Ilmiah Universitas Brawijaya Malang.
Sri Susilo. dkk, (2000), Bank Dan Lembaga Keuangan Lainnya,Edisi Satu, Jakarta : Salemba Empat.
Taswan, 2010, Manajemen Perbankan Konsep, Teknik, dan Aplikasi, Yogyakarta: UPP STIM YKPN.
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WOMEN EMPOWERMENT MODEL THROUGH OPTIMIZING

SOLID WASTE MANAGEMENT IN MALANG
Sri Budi Cantika Yuli1), Nazaruddin Malik2), Muhammad Sri Wahyudi Suliswanto3)
Faculty of Economics and Business, University of Muhammadiyah Malang, East Java - Indonesia
1)
cantikayuli@gmail.com;2)nazarmf.malik@gmail.com; 3)al.ayudie@gmail.com
Abstract
This study aimed to investigate the analysis of women empowerment on waste management in household level to
design a strategy in optimizing waste management trough women empowerment. The method used in this study was
survey method in order to identify basic problems in household and industry level. In addition, in-depth interview and
group discussion were also used to get focus on finding action strategies and practices regarding to apply waste
management partnership-based to reduce poverty in cities. The result showed that women/housewife has an important
role in waste management in family level. Simultaneous waste management needed to do up to the lowest
institutions/levels in society that was women social gathering organization (PKK) since women/housewife have an
important role in the success of waste management. Therefore, donation obtained from the waste management
optimization could be used as a capital for poor families in Malang City.
Keywords: Women's Empowerment, Waste Management, City of Malang
Introduction
Waste management is efficiently and effectively becoming one of the important challenges for government
especially in many developing countries around the world. The increasing of urbanization and economic growth results
a raising infrastructure needed to support human activities in it. Research in 1999 showed, cities in Asia produced
more than 2.7 million m3 of waste per day and predicted increase in 2025 by almost 2 times (Pargal. et.al, 1999). The
data from Ministry of Environment in 2003 stated that in 1995 the average waste per person in urban areas was about
0.8 kg per day and in 2000 it increased to 1 kg per person per day. It can be predicted that by 2020 the waste per
person per day is 2.1 kg (Malik, 2008).
Waste problem needs to get serious attention from various sides, not only the city government, especially for a
large number of landfill waste and pollution would be caused by piles of garbage cannot be taken by garbage worker.
Currently, the city government still plays an important role in the regulation and practice of handling of urban waste.
However, the city government has difficulties in funding and facilitating urban waste management services like the
problem happened in Malang.
Research of Yuli, Malik and Suliswanto (2015) showed that when all ofwaste potential were processed, then
organic waste potential in Malang will increase to 461,791.48 kg in one (1) year with the economic value of organic
waste also increased by Rp. 277 074 888 per year. In addition, theinorganic waste potential in Malang increased to
253,749.10 kg witheconomical value of wasteRp. 318 775 300 per year.
Thus, to maximize the potential, it needs support from household and general public about the importance and
awareness of waste management fromthe classification until disposal method. Solving the waste problem will certainly
not be able to run properly without the support of other stakeholders such as community or household, woman or
housewife who has a big role in it.
Based on the above description, the purpose of this study is to identify the profile of women in waste management
in Malang and build a model of the women empowerment through a policy of partnership in the implementation of
solid waste management and action programs of solid waste management at the level of households and industries.
Literature Review
Boeni, et. al. (2008) described Latin American model for the integration of small-scale garbage collection with
a formal garbage collection system as an example of this practice of collecting/transporting waste were quite good.
These systems were developed in the Andean countries and increasingly imitated by several countries in Central
America.
These companies are paid by the municipality or by community organizations to provide services by using
human power carts and semi motors. They served the hills and suburbs whichwere not served directly by the
trucks.
Due to the low costs of the equipment needed, it costs about 2/3 of a method using a vehicle. Low
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administrative costs, particularly for the members of the company to be part of the administration and operations.
In addition, operations and maintenance of the equipment were very simple and cheap,and could be operated by
the members of company.
The thing made this model became very good was because the widescope will be gotten if it was seen from the
benefits that can be produced. Many advantages would be gotten by the communities from the waste disposal
services. City government also got benefit as it could save up to 65% from the normal costs and meet the demands
for maintaining general cleanliness of local individuals and also benefit through the creation of jobs for
themselves.
Henry et.al. (2006) described in Kenya, some local governments such as Nairobi, Eldoret, and Mombasa has
done solid waste management services through training and recruiting qualified staffs. In order to improve
management of transportation and waste disposal, the local government has already approved the involvement of
private sector through the privatization some services. Transportation and disposal solid waste services have been
successfully done in the central business districts and an upscale residential area in Nairobi. Moreover, in Nairobi,
institutions such as the Kenya Refuse Handlers Limited (KRHL), Domestic Refuse Disposal Services Limited
(DRDSL), and Bins (Kenya) Limited have been authorized to fix the CDB and several other residential areas; and
the result was efficiency improvement.
Besides, in Argentin, the management of solid waste involved all social components as one of the National
SWM, so that it would be integrated and worked together from collecting until separatingthe solid waste.
Research Methods
This study took place in Malang city. This area was selected because in East Java, Malang is the second major
city after Surabaya which has the second largest population after Surabaya and also rapidly growth so that various
things can be found here especially waste produced.
The method used was a survey method. It was to identify fundamental problems in household level. This study
also used in-depth interview and group discussions focused on identifying women’s role in waste management.
Moreover, the next stage was themodel of women empowermentthrough a policy of partnership in the
implementation of solid waste management and action programs of integrated solid waste management in households
and industries level. The analysis of the data was conducted using the Gender Framework Analysis (GPA) from
Harvard.

The initial steps for women empowerment in waste management used Harvard method. Harvard Model was based
on efficiency WID approach that was gender analysing and earliest gender framework planning. Harvard analysis model
was more suitable for project planning, concluding the data basic or data base. Based on the results of the analysis, it
could be identified that woman or housewife has a major role in waste management in family level, as shown in Table 1,
2 and 3.
Table 1. Profile Activities

A. Production Activity Doer
Husband Wife Together
- Sorting Waste 10% 50% 40%
- Solid Waste Processing 30% 35% 35%
- Garbage at home 30% 40% 30%
- Waste disposal
20% 30% 50%
B. Activities Reproduction
- Washing clothes 25% 40% 35%
- Taking water 55% 15% 30%
- Washing the dishes 15% 55% 30%
- Bathing children 20% 35% 45%
- Cooking 20% 40% 40%
- Preparing food 10% 45% 45%
- Parenting 30% 35% 35%
- Cleaning the bed 25% 40% 35%
- Sweeping the yard 20% 35% 45%
- Sweeping the room 20% 35% 45%
- Pregnancy 100%
- Breast-feed 100%
- Carrying baby 25% 30% 45%
- Taking the child for treatment 20% 30% 50%
- Accompanying children learn 25% 25% 50%
- Shopping at the market 15% 45% 40%
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C. Social activity
- Women Social Gathering Organization (PKK) 100%
- Housewife organization in a community (Dasawisma) 100%
The results showed that all activities relating the processing of household waste from the waste disposal sorting was
dominated by women. Asmuch as 50% sorting activities of waste was done by women and only 10% committed by
males. Furthermore, 40% of respondents said that waste sorting was done together. Similarly to other activities that have
the same pattern, dominated by the role of women.
The dominance of women in all "production" activities related to waste management was due to its basic nature that
were meticulous and painstaking, whose nature was rarely possessed by men. Women were also needed to manage all
activities in her house. Besides, male still have a frame think that the work related to the cleanliness of the house was
women responsibility.
However, there were many respondents who did their household together between male and female. It showedthat
respondents were already thought that household was not only women responsibility but also male and other family
members (Abdullah, 2012).
Table 2. Access Profile

Resource Doer
- Soil 30% 50% 20%
- Equipment 30% 50% 20%
- Cash 25% 45% 30%
- Education / training 25% 40% 35%
The results also showed that women/ wives dominated all access of available resources. The husband preferred to
trust women in relation to access to existing resources. This implicitly stated thatall family members agreed the 'power'
of women / wives took over all things and involved in the waste processing of household so that there was an
awkwardness in using it. The example was waste processing equipment.
Table 3. Profile Benefits

benefit Doer
- Income of waste processing 10% 20% 70%
- Income from outside 10% 15% 75%
- Ownership of wealth 10% 15% 75%
- Primary needs 5% 5% 90%
- Education 5% 5% 90%
The greatest benefit income from waste processing was perceived by the wife (20%), then 70% was felt by the entire
family (husband, children, and other family members). Incomewas very important for families since their income from
waste treatment could help the family economics. In addition, the benefits of income for the family could also be seen in
the ownership of wealth (eg. waste treatment income used to buy electronic goods or other household items) and
primary needs (income used to meet the needs of clothing / food / board). Ownership of wealth and primary necessities
could be felt by the entire family with a percentage of 75% and 90%. Furthermore, for education, the impact and
benefits shared by all family members by 90%.
Based on these explanations, then model of women empowerment through a policy of partnership in the
implementation of solid waste management and action programs of solid waste management at the level of households
and industries could be seen in Figure 1.
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Figure 1. Hipotetyc Model: Strategy to Increase Income of Poor Households

Through the Women's Role in Optimizing Waste Management
Information:
a. The government provided training and mentoring to increase ability / skill for poor families, so that poor families
can run a business better than capital assistance has been given by the Bank Waste.
b. The business group of women (housewives creativity) handed over voluntarily to the bank waste bins to be
managed and could also borrow to run business development.
c. Sanitation Department handed junk has collected the waste banks to be managed and used as capital assistance for
poor families and groups of women's businesses.
d. Bank garbage run activities, funds collected (after deducting in costs operating) can be used as capital for poor
families and business groups of women (women social gathering activity/PKK). The profits derived from waste
banks were not distributed to customers (households), but it managed again as financial aid given to poor families
to run their business.
e. A poor family run the business after receiving training and assistance from the government. Poor families paid
enough with capital support from the Bank using waste bins worth of capital assistance given.
f. Universities elements, NGOs, and community leaders worked together to provide support and advice to hipotetyc
this model can run well and fit for purpose.
Based on these results, the development of waste management could also be managed as a social business as well as
the concept of social business conducted by Muhammad Yunus. Yunus (2010) suggested a social business was different
from the usual business, where all profits were given back to the company to create more social benefits, rather than paid
out as dividends to investors or corporate owners. Yunus social business compareed with some organizations that were
directed for social activities such as non-governmental organizations, charities, corporate social responsibility, and
various forms of similar social organization. The main difference was the social business seekself-sufficient and not
dependent on government or private donations to survive. A social business need also meet the criteria that was not to
improve individuals welfareor investors. Unlike charities, social businesses was financially independent, so as it did not
have to deploy human resources to obtain donations. Thus, the social business could also be interpreted as a non-loss,
non-dividend company, which was dedicated entirely to achieve a social mission.
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Conclusion
The results in this study shows that women or housewives have a major role in waste management at the family
level. Therefore, in optimizing waste potential, it must be done simultaneouslyby several sides who have
responsibility in management waste such as the Department of Sanitation and Waste Bank city of Malang. Waste
simultaneous management must be carried out to the lowest possible sides like housewives, since the role of
housewife is very important in supporting waste management. Thus, the funds collected from the optimization of
waste management can be used to help in providing capital for poor families as well as the women empowerment in
Malang.
Acknowledgment
This work was partially supported by research funding from the Directorate General of Higher Education
(DIKTI) of Indonesia and the University of Muhammadiyah Malang (UMM). Any opinions, findings, and
conclusions or recommendations expressed in this material are those of the authors and do not necessarily reflect the
views of the DIKTI and UMM.
References
Abdullah, I. (2012). Penelitian Berwawasan Gender dalam Ilmu Sosial. Jurnal Humaniora, 15(3).
Boeni, H., Silva, U., & Ott, D. (2008). E-waste recycling in Latin America: overview, challenges and potential.
In Proceedings of the 2008 Global Symposium on Recycling, Waste Treatment and Clean Technology, REWAS(pp.
665-673).
Henry, R. K., Yongsheng, Z., & Jun, D. (2006). Municipal solid waste management challenges in developing countries–
Kenyan case study. Waste management, 26(1), 92-100.
Malik, Nazaruddin. (2008). Payment Scheme and Total Goverment Expenditure for SWM at the City of Malang.
UNESCO – IHE – CEERD UMM
Pargal, S., Huq, M., & Gilligan, D. (1999). Social capital in solid waste management: Evidence from Dhaka,
Bangladesh. World Bank, Social Development Family, Environmentally and Socially Sustainable Development
Network.
Yunus, Muhammad. (2010). Building Social Business, The New Kind of Capitalism That Serves Humanity’s Most
Pressing Needs. United States: PublicAffairs
Yuli, Malik and Suliswanto (2015). Social Business Development Through Optimization of Waste Management in
Malang, East Java, Indonesia. In Proceedings International Conference on Entrepreneurship and Business
Management, ICEBM 2015 (pp. 141-144)
Authors' Bibliography
Sri Budi Cantika Yuli was born in Bojonegoro September 14, 1973. She completed her bachelor degree in 1995 in
Management field of study, then she continued her master education in the same field and graduated in 1999 at the
University of Brawijaya. She is currently completing doctoral studies in the field of Islamic Economics at the
University of Airlangga. She is listed as a lecturer at the Faculty of Economics and Business, University of
Muhammadiyah Malang since 2002 and currently serves as Head of the Business Economics and Entrepreneurship
Development Center (PPEBK).
Nazaruddin Malik was born in Magelang June 24, 1964. He completed his bachelor degree in 1988 in management
with a concentration in Banking & Financial Management, and in 1995 he finished his master education at the
University of Gajah Mada in Jogyakarta in Population Studies Program with a specialization in Economics of
Human Resources and Labors study. In 2007, he completed his Doctoral Program in Economics with a specialty
field of Management at University of Brawijaya. He was active as a manager of BMT Bina Mentari Muhammadiyah
in the District of Jatimulyo, Lowokwaru, Malang city. He had served as Vice Chairman of the Economic Council of
PWM in East Java and now he serves as Vice Rector at University of Muhammadiyah Malang (2016 -2020).
Muhammad Sri Wahyudi Suliswanto. Born on July 31, 1987 in one of villages in Gresik. In 2009, he finished his
bachelor program at University of Muhammadiyah Malang and his master program finished in 2012 at University of
Brawijaya Malang. The writer is an active writer and presenter in either local forum or national forum. Now, he is
listed as young lecturer in Faculty of Economics and Business, University of Muhammadiyah Malang.
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STRATEGIES IN ORDER TO INCREASE FOOD SECURITY SYSTEMS IN EAST JAVA
Sudarti1), Eris Tri Kurniawati2)
University of Muhammadiyah Malang, Indonesia

1)
sudarti_68@yahoo.co.id
Abstract
The purposes of this research are to analyze of the role of infrastructure of food production, analyze infrastructure
needed by farmers, also a complete strategy to increase food security in East Java. This research was conducted in East
Java, the data used are primary data and secondary data. Data collection techniques using questionnaires and
documentation. The analytical tool used is multiple linear regression analysis and analytical hierarchy process.
The results showed that irrigation condition (X1), the availability of irrigation (X2), fertility (X3), irrigation Central
Government (X4), irrigation Provincial Government (X5), irrigation district government (X6), the irrigation community
independently (X7) not effecting simultaneously towards food production, to the District Rural road conditions (X1), the
condition of the road to the village market (X2), transportation costs (X3) simultaneously has not effecting on food
production. The results of the analysis of the needs of farmers to show that repair irrigation infrastructure has the
highest degree of needs of 87.5% while build new irrigation only have the highest degree of needs of 12.5%. The degree
of interest of institutional strengthening at the central government has a value of 60.0%, followed by institutions at
provincial and district / city. Soft loan and easily has the highest degree of interest by 87%, while direct cash assistance
has only the degree of interest of 13%.
Policies related to agricultural infrastructure aspect is the development of the agricultural land in the area of food
crops, horticulture, plantation, and farms. Policies related to achievement of increased agricultural area in the area of
food crops, horticulture, plantations and farms, and policies related to the achievement of the realization of
optimization efforts, conservation, rehabilitation and reclamation of agricultural land.
Keywords: Development Strategy, Food Security, Infrastructure, East Java
Introduction
The occurrence of food shortages in Indonesia caused by the unfulfillment of food target availability for all citizen.
Staple food (rice, soybeans, corn, cassava, etc.) in Indonesia, not necessarily provided by the government through the
National Logistics Agency. However, farmers (nearly 60 % of the population) who works hard to provide the food.
Ironically as food producers, farmers are the victims of food insecurity. The importance of a strong commitment to
build food security of the nation is very reasonable, because the development of food security is basically not only how
food availability can be met, but the food itself must be distributed to the various regions and affordable purchasing
power by the people, so that all people can access the food.
The government needs to prepare a food insecurity map of Indonesia in cooperation with the Ministry of Agriculture
Food Security Agency along with the World Food Programmed United Nation in addition establish an early warning
system on vulnerability and food security that is comprehensive and precise accuracy.This system will detect and
manage information about the food situation, which runs continuously. The resulting information will be the basis for
planning, policy making, coordination of programs and activities of prevention of food insecurity. For that we need the
design of strategies for improving food security in East Java.
Conceptual Framework
Based on the definition of food security of the Food and Agricultural Organization ( FAO ) (1996) and the Law of
the Republic of Indonesia No. 7 in 1996, which adopted the definition of the FAO, there are four components that must
be met in order to achieve food security conditions, namely : 1 ) the adequacy of food availability ; 2 ) the stability of
food supply without fluctuations from season to season or from year to year ; 3 ) accessibility / affordability of food ;
and 4 ) the quality / food safety.
Thus, the national food security is an aggregate of household food security. The development strategy of future food
prepared based on such understanding. We need to note here is that the concept of food security is not necessarily
synonymous with the concept of self-sufficiency. For countries such as Taiwan and Singapore, which have a relatively
small level of consumption of food self-sufficiency is not necessary to achieve food security conditions are tough. The
food needs of these countries can be met from trade with the world.
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Some experts agree that food security contains at least two basic elements, namely food availability and accessibility
of foodstuffs to the public. If one of these elements are not met, then a country cannot be said to have a good food
security. Although enough food stocks available in the national and regional level, but if the access of individuals to
meet the food needs is uneven, it said fragile food security. History has proven, successful countries did the
independence of its development, to some extent determined by the success in the field of food security, genuinely in
the process of democratization both socio-economic and political, as well as poverty alleviation.
Empowerment means enabling communities and local governments in the aspects of material, intellectual, moral
and managerial. Empowerment in the food security program also means the process of systematic, continuous and
integrated in the system of food security rooted power of the people as well as local cultural wisdom to face the
challenges and needs of food nationally and globally.
Community empowerment as a strategy of development rooted in running society. Community empowerment is a
concept that summarizes the development of social values.The empowerment means " People - centered, participatory,
empowering and sustainable " (Chambers, 1995).The results of the assessment the International Fund for Agricultural
Development (IFAD) indicates that support for production resulting in lower layers of society have contributed to a
greater growth than the same investment in sectors bigger scale.In solving the problems of poverty and economic
inequality, in addition to efforts to increase economic growth, it is also necessary social renewal. Efforts are made to be
aimed directly at the root of the problem, which is to increase the ability of the people, by way of enhanced capabilities,
as well as to develop and dynamic potential (dignity - confidence and self-esteem).
Methods or Material and Methods

This research was conducted in East Java, the data used are primary data and secondary data. The technique of
collecting data using questionnaires and documentation techniques. The respondents in this study was a farmer in 8
Districts in East Java, namely Jember, Bondowoso, Situbondo, Probolinggo, Bangkalan, Sampang, Pamekasan, and
Sumenep by taking 15 respondents in each district.
Analysis of data using multiple linear regression analysis and analytical hierarchy process. The variables used in this
study consisted of irrigation conditions, availability of irrigation, soil fertility, irrigation central government, provincial
government irrigation, irrigation district government, the irrigation community independently, sub-district to the village
road conditions, road conditions Village to the market, the cost of transportation.

The conclusion of this study are:
1. Based on the analysis process herarki shows there are three variables that infrastructure should be improved to
increase the income of farmers, among others, market infrastructure, irrigation and capital.
a. Shows that aspects of commodity market infrastructure is absolutely necessary, especially at the village level.
b. about irrigation infrastructure, improvement of irrigation is more efficient and more cost effective in order to
increase agricultural production compared to the construction of new irrigation.
c. From the aspect of capital, a very dominant factor influencing or desirable is a form of aid or loan capital that is
soft in other words, capital loans or financial aid more significant effect in increasing agricultural production
and earnings compared to the direct cash assistance.
2. Irrigation condition ( X1 ), the availability of irrigation ( X2 ), fertility ( X3 ), irrigation Central Government ( X4 ),
irrigation Provincial Government ( X5 ), irrigation district government ( X6 ), the irrigation community
independently ( X7 ) has no effect simultaneous to production crops, to the District Rural road conditions ( X1 ), the
condition of the road to the village market ( X2 ), transportation costs (X3) simultaneously has no effect on crop.
3. Needs of farmers against infrastructure indicates that the repair of irrigation has the degree of interest of 54.4%
whereas the new development has only the value of the degree of interest of 12.5%. The degree of institutional
strengthening in the interests of the central level has a value of 37.3%, then followed by institutional provincially
and the county or city. Soft and easy loan has a value of 87% interest degree while direct cash assistance has only
the value of the degree of interest of 13%.
Some policies that can be implemented:

1. Policies related to agricultural infrastructure aspect is the development of the agricultural land in the area of food
crops, horticulture, plantation and farms.
2. Policies related to achievement of increased agricultural area in the area of food crops, horticulture, plantations and
farms.
3. Policies related to the achievement of the realization of optimization efforts, conservation, rehabilitation and
reclamation of agricultural land.
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Reference
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Author’ Bibliography
Dra. Sudarti M.sc. Place and date of birth in Ngawi, September 10, 1968. The educational background among other S-
1 Economics and Development Studies at the University of Brawijaya, Malang, Indonesia. S-2 of Rural Sociology at
the University of Muhammadiyah Malang, Malang, Indonesia. She is listed as a lecturer at the Faculty of Economics
and Business, University of Muhammadiyah Malang since 1993 and currenctly server as Head of Investment Indonesia
Stock Exchange University of Muhamadiyah Malang.
Eris Tri Kurniawati., SE., MM., Ak. Place and date of birth in Malang, February 11, 1981. Background of education,
among other S-1 Accounting at the University of Brawijaya, Malang, Indonesia. S-2 Financial Management Brawijaya
University, Malang, Indonesia. She is listed as a lecturer at the Faculty of Economics and Business, University of
Muhammadiyah Malang since 2006 and currenctly server as Head of Sharia Banking Laboratory University of
Muhammadiyah Malang.
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IMPLEMENTING DEVELOPMENT STRATEGY OF TOURISM PRODUCTS IN BALI:

FROM CULTURAL TO WELLNESS TOURISM
Ni Wayan Sri Suprapti1), I Komang Gde Bendesa2), Putu Yudi Setiawan3)
Faculty of Economics & Business, Udayana University, Bali, Indonesia

1)
sri_suprapti@unud.ac.id
Abstract
Bali is well-known as one of world’s tourism destination that is most chosen by domestic and foreign tourists.
During the last five years, tourists’ arrivals have increased in number, but the growth rate had been decreasing. To
optimize foreign tourist visits and to provide new alternatives to domestic tourists, Bali needs to implement growth
strategies. One of them is product development strategy, which offers health tourism services to support cultural
tourism that has long been the primary driver of Bali’s economic growth.
All this time, health tourism industries, such as wellness, enhancement, and illness, have been introduced, but they
have not been the main icons. Based on resources availability, the most possible product to develop would be wellness
tourism, including spa, yoga, acupuncture, spiritual experience, and herbal medicine. In this industry, interaction
between customers and service provider is more personal, compared to other tourism service providers. This kind of
relationship and other high quality service of specific offering would satisfy the customers and thus drive them to show
better post purchase behavior, like positively recommending the services to their relatives, revisiting the services, or
having high intention to revisit.
Keywords: Product Development Strategy, Cultural Tourism, Wellness Tourism
Introduction
Up to present, Bali remains as one of the world best tourism references. In the last five years (2010-2014), the
proportion of tourists visit to Bali had been increasing compared to Indonesia, from 35.6 percent in year 2010 to 39.92
percent in 2014. During 2010 to 2013, the number of visits had kept increasing, but it decreased a little in 2014. The
decline was contributed by the lower number of domestics tourist visits, which contributed to the growth rate of -1.1
percent (Publication of Government Tourism Office of Bali, 2015).
One factor causing the decrease of tourists’ visits is the competitors. The increase of purchasing power, together
with the ease and affordable transportation access would drive people to widen their choice of tourism destination,
specifically in ASEAN regions. While relying on cultural tourism, Bali could also develop a new offer, called health
tourism, as a product development strategy. The potential market segment would be people in productive ages,
approaching retirement or elderly persons (Adioetomo, 2013). .
In Indonesia, study about these topics has not been as many as cultural tourism. The previous study by Suprapti et
al. (2015) show that the potential market demands is predicted to be as much as Rp2.05 trillion in year 2016 and keep
increasing to become Rp2.63 trillion in 2020. Although it is promising from the economics side, the development of
health tourism faces serious challenges, such as: (1) accreditation of international standard hospitals; (2) the needs of
infrastructure development to attract foreign investments in health and pharmacy; (3) the readiness and availability of
health service front-liner components, especially in improving technical and functional skills, language capability and
ethics; (4) government role as a regulator, facilitator, and partner of private sector to establish health service industry;
and (5) ability to determine accurate and transparent cost of service to be able to compete with other service providers
in other countries (Shara, 2013; Maung & Walsh, 2014).
Suprapti et al. (2015) conclude that in short-term (1-3 years ahead) tourism providers in Bali would potentially
target wellness tourism, like spa, yoga, acupuncture, spiritual experience, and herbal medicine. A survey conducted on
foreign tourists shows that if health industry would be developed in Bali, then it should be in a specific field that has not
been developed in other countries.
Wellness tourism is a relatively new concept and field of study. The definition is still being debated, because
stakeholders come with different definitions and often overlap. Although, the search to formulate the definition is
ongoing, because this field has a growing market and become an interesting topic to study. The terms wellness tourism
is often used interchangeably with medical tourism, and furthermore the two are stated as parts of health tourism
(Anvekar, 2012; Hofer et al., 2012; Eissler & Casken, 2013).
A thoroughly study in 12 countries by Johnston et al. (2011) states that definitions for medical tourism and wellness
tourism should focus on the traveler characteristics and motivations alone, and not the destination characteristics.
Medical tourism involves people who travel to a different place to receive treatment for a disease, an ailment, or
condition, or to undergo a cosmetic procedure, and who are seeking lower cost of care, higher quality of care, better
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access to care of different care than what they could receive at home. Medical tourist is generally ill or seeking
cosmetic/dental surgical procedures or enhancement. Meanwhile, wellness tourism involves people who travel to a
different place to proactively pursue activities that maintain or enhance their personal health and wellbeing, and who are
seeking unique, authentic or location-based experience therapies not available at home. Wellness tourist is generally
seeking integrated wellness and prevention approaches to improve their health/quality of life.
Wellness tourism and its products could become the alternative of product development strategy for the existing
market. This strategy is one of the four alternative strategies that belong to intensive growth strategy, including market
penetration strategy, market development strategy, product development strategy, and diversification strategy (Kotler &
Keller, 2012:65). The aims of this study are (1) to explore various products of wellness tourism in Bali, and (2) to
describe the travelers’ behavior enjoying that offering.
Research Method
This study is conducted in Bali Province, Indonesia. Qualitative data are collected from wellness tourism industry
players, such as owners or managing directors of the business as well as the travelers. Owners or managing directors
that are interviewed include the owner of Elderly Healthy Home “Sada Jiwa”, owner of wellness tourism “Bagus Agro
Wisata”, and managing director of “Ubud Sari Health Resort”. Fourteen travelers are asked to fill in questionnaire and
interviewed to gather direct data from customers. Respondents are chosen from those staying and enjoying wellness
products provided by Ubud Sari Health Resort. Interview is conducted to gain information about the reasons of
choosing wellness tourism. To answer the research purposes, data are analyzed qualitatively to gain insights about the
implementation of tourism product development strategy in Bali, from cultural to wellness tourism.
Results
Elderly Healthy Home “Sada Jiwa”
In Sanskrit, Sada Jiwa means long life. The concept says that to achieve a long life, one should stay healthy.
Therefore, the main issue that becomes the core of providing this service would be that elderly people should follow the
healthy programs.
Sada Jiwa is a residence with spacious garden dedicated for elderly people who need health services in accordance
with their ages. According to the owner, a doctor and also director of a famous private hospital in Denpasar, the place
was built in 2014 with some considerations, including: (1) Bali is a tourism destination that is well-known as the island
of a thousand temples; (2) people come to Bali because of its culture uniqueness; (3) more than 3000 foreign elderly
people have stayed in Bali; and (4) Bali is an aging province. Additionally, the intention to establish the construction is
motivated by these following facts: (1) Bali is lack of elderly facilities, even when it is available, it carries negative
images; (2) elderly people do not have a media to gather, so they form their own community; and (3) parents are
responsibility of the children.
Considering the condition of Bali Island, primarily natural environment and culture, as well as the improved human
resources in health field, then the healthy home for elderly which is called “Sada Jiwa: Bali Healthy Aging Facility”
was established. Those who reside and are taken care include local people from outside Bali, expatriates from Japan and
the Netherland who ever worked in Bali, foreigners from England, USA, Australia, and France, who come to Bali in
purpose to be taken care in Sada Jiwa.
Facilities and programs offered include: (1) health facilities, that is a clinic with a very good services for elderly
people, stroke rehabilitation, and cancer recovery; (2) comprehensive program of prevention, rehabilitation, and
recovery, both physically, psychologically, socially, and spiritually; (3) combine of health and cultural programs to
provide the elderly more healthy and happiness situation.
Various programs are offered to potential consumers according to their ability to pay. The programs range from
half-day, full day, two days one night (silver program), four days three nights (gold program), seven days six nights
(diamond program), to monthly program. Healthy Home Sada Jiwa also provide services for local people holding
government health insurance program, called BPJS.
Currently, Sada Jiwa is targeting healthy or recovering elderly persons. They also can stay while their family cannot
take care of them temporarily, for example because of going vacation outside the town. For those in recovery period,
generally they have recovered from illness but still need some time to take a rest. There are also people staying there
because having so serious illness that very little chance to recover.
After staying and following various health programs, especially combined with psychological and spiritual
programs, they feel their healthy are improving. Programs provided to accelerate health improvement include
interaction with other occupants, or interaction with other generation involving children, painting and origami making
to activate muscle and nerve, walking around, involvement in religious and cultural activities with surrounding society,
cross-cultural, predilection development programs, and so on. Thus, the principle of long life for elderly is actually
carried out. In the future, more programs would be provided. Target market will be widened to reach general society
and the holders of BPJS.
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Bagus Agro Plaga

Bagus Agro Plaga is a business unit under Bali Bagus Discovery. It is situated in plateau area, with cool, quiet, and
comfortable atmosphere. According to the owner, tourism players in Bali are enjoying a “taken for granted” condition,
from agricultural move to tourism. So they do not do much to attract visitors to come. However, it is not the same
situation today, because people have neglected to preserve Bali nature and culture to keep visitors comes to Bali.
Based on his experiences in tourism, the owner of Bagus Agro Plaga states that there are four principles that must be
offered by a tourist destination, namely clean, green, hospitality, and sustainability. Clean does not only mean
physically, but also concerning clean mind, clean attitude, and clean behavior. Green has a wide meaning as well. Green
circumstance is expected by everyone. Green means fresh, clean oxygen, clean water, and thus driving a green life.
Hospitality is the primary factor to attract people to have willingness to communicate with us. Friendly manner would
be the entrance to comfort people and feel happy to stay. Last but not least is sustainability. When the three factors
mentioned above exist, then sustainability would be achieved. If a place provides clean and green circumstance added
by friendly attitude and behavior, people would come and stay for longer time.
The ability to maintain clean and green condition, and hospitality would drive the potential to sustain the whole
economy. The concept of sustainability has attached to Hindu concept of Tri Hita Karana, that is the balance
relationship between human and God, human and human, and human and environment. If the relationships could be
kept balanced then sustainability is not difficult to materialize.
The target of Bali Bagus Discovery includes people who are trying to search identity, not only to pleasure
themselves, but to get peaceful mind, self-rebalance, and experience to control emotion in life. Based on those criteria,
most visitors coming to Bagus Agro Plaga are foreigners. Despite village natural atmosphere, the guests are also offered
various programs, such as cooking class, or tracking around the home stay. Some ingredients for cooking class are
available from the home stay own garden, like tomatoes, eggplants, sweet potatoes, cassava, corns, chilies, oranges,
bananas, and other local fruits and vegetables. In this way, the management has preserved various local foods and, at the
same time, introduced local food to foreigners. The decision to use more local ingredients in preparing main course or
snack is an effort to preserve local values of Bali. It starts with simple thought that visitors would like to try different
things compared to what they have in their origin. With new experiences they would get good impression and would
return and stay again in the future.
In spite of preserving local values of Bali, the decision also does well for the surrounding society. Management
could hire local farmers to produce high quality fruits and vegetables. Before planting, they are trained by professional
and experts invited by the management. This kind of commitment has been able to add value for both parties, and it is
in fact a form of corporate social responsibility to the society.
Ubud Sari Health Resort

Ubud Sari Health Resort is situated in one corner of Ubud area. This resort offers different tourism products that
would restore emotional balance, spirit, and reduce fatigue and stress through physical, emotional, and spiritual
treatments.
Unlike other accommodation facilities with magnificent building and modern facilities, this resort is arranged with
natural shades, in which planting and gardening are not based on modern landscaping but more like home at earlier
times. The building and its surrounding show family atmosphere between the guests and employees, and among the
guests themselves.
The resort setting prioritizes inner peace and thick of spiritual atmosphere that is able to provide comfortable and
relax aura. This place is suitable for those who are willing to free themselves from daily routine and after chasing job
target. The treatment provided is able to drive customers to return their good mood, free them from stresses, and think
positively. This is possible because of combined program of physical and non-physical treatment. Physical treatment
includes spa, followed by physical training to explore resort environment surrounded by rice field and small rivers. The
guests could directly observe the farmers working, and if they like, they could involve in the process and get the feeling
of being the farmers. Spa treatment is done by highly trained staff, with detoxification as the main service. Treatment
non-physical includes meditation, yoga, or rituals conducted around the resort.
Specifically, programs provided consist of Healing Week in Bali Program; Body, Mind Spirit Rejuvenation
Program; the Special Tissue Cleansing Program; and the Total Tissue Cleansing Program. To gain maximum result,
the programs are supported by providing healthy meals and drinks that are made from raw leaves and fruits, and served
to the guests after having spa treatment. It is so refreshing.
Rooms provided in Ubud Sari are very simple, some of them even do not have television and air conditioner. Air
ventilation enables the sun light shine down the rooms, thus reducing electricity use. Guests are costumed to get close to
the nature, respect the environment, and aware of saving electricity use.
More customers of Ubud Sari come from abroad than domestic. They are from Europe, America, Australia, and
Asia. Most of the guests are loyal, which is indicated from their intention to return in the future. Some of them also
reserve well before coming to Bali. This customers’ behavior push room occupancy rate up to the first semester of year
2016. Therefore Ubud Sari does not need cooperate with travel agents because it is afraid not to meet the order.
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Behavior of Wellness Tourist

As many as 14 foreign tourists are surveyed and interviewed, consisting of 6 Australian, 4 British, 3 French, and one
from Sweden. Eight of them visit Bali for the second time or more. Six persons came for the first time. Eight persons
age more than 40 and the rest are between 12-37 years old.
Based on the interview, it reveals that the reasons stated by respondents to choose the places and products of
wellness include: (1) want to do a detox program; (2) to do a health retreat; (3) joint yoga and meditation; (4) joint the
raw food course; and (5) to do a lot of activities (sport and culture). There are different experiences of staying at
wellness home stay compared to common tourist resorts or hotels; those are: (1) not so many tourists; (2) not too big
like Kuta; (3) very cultural and discovered Hindu’s culture; (4) swimming pool near the rice filed; (5) more natural food
and surrounding; (6) different breakfast every day; (7) more quiet and healthy; (8) peaceful, beautiful, and tranquil; (9)
more clean and more quiet atmosphere; and (10) close to downtown.
All respondents state that they are satisfied to these tourism products. As many as 28.5 percent state that they are
willing to come again in 6 months, 21.4 percent would come next year, and 43 percent would come but do not state a
specific time. Only one person (7.1 percent) would not come again because he would like to visit other places. The
reasons of coming back to Bali include: (1) health benefit; (2) really enjoyed, very relax, and good for body; (3) for
wellbeing and continuing good health; (4) people are friendly and lovely; (5) lots to see in Bali; (6) love culture and
landscaping; and (7) living cost is more affordable.
Discussion
The three business units described above have different characteristics products. If related to Johnson et al. (2011)
definition, the products of Healthy Home Sada Jiwa is more suitable to be categorized as medical tourism, while those
offered by Bagus Agro and Ubud Sari are belong to wellness tourism. At the moment, the targeted consumers of
Healthy Home Sada Jiwa are the unhealthy elderly people, physically and non-physically. On the other hand, targeted
consumers of Bagus Agro and Ubud Sari are healthy travelers seeking to improve their health through programs like
detoxification, or balancing physical and non-physical health by joining meditation, yoga, or retreat. However, both of
them serve the same market that has been targeted by tourism industry. This is shown by the fact that 57 percent of
respondents come to Bali for the second time or more, which means that they are indeed the target market of tourism
industry, and now they are enjoying different tourism products. They come and enjoy wellness products with different
motives compared to other tourists in general. Although at present targeted consumers of Healthy Home Sada Jiwa are
more the elderly people with health problems, in the future, by targeting BPJS holders, target market would be wider
because it would include healthy consumers. This offer, together with directly watching programs of Healthy Home
Sada Jiwa, would be an effective education media for sthrengthening “a brand” that would be one consideration in
obtaining health services during the future elderly (Lovelock & Wirtz, 2007). This method is also a step to establish
loyalty for BPJS holders. The proportion of respondents stating that they would return to Bali in specific time (almost
50 percent) plus 43 percent in unspecified time, show that target market for this product is prospective. However,
motives for coming back are combination between wellness tourism and cultural tourism. If wellness tourism motives
could be mediated by business players by offering more specific wellness tourism products or services, then it would be
clear that the offerings would be a product development strategy of cultural tourism in Bali. This result is accordance
with the empirical evidence in Jordan that tourist motivation is closely associated with destination’s competitive
advantage and image (Mohammad & Some, 2010).
Limitation and Future Research

Sample of this research is limited, both business players and the tourists, so the result cannot be generalized.
Therefore, future research should be done more comprehensively with larger sample size and also should target
domestic guests.
References
Adioetomo, S.M. (2013). “Memanfaatkan jendela peluang memetik bonus demografi”. Makalah disampaikan dalam
seminar IPADI yang diselenggarakan BKKBN. Jakarta, 17 Oktober 2013.
Anvekar, S. R. (2012). “Medical Tourism in India: A Strategic Approach Towards Effective Branding for Health Care
Service Marketing”. American Journal of Management. Vol. 12. Pp: 108-116.
Eissler, L.A and J. Casken. (2013). “Seeking Health Care Through International Medical Tourism” Journal of Nursing
Scholarship” Vol. 45. No. 2.pp 177-184.
Hofer, S., F. Honegger, and J. Hubeli. (2012). “Health tourism: definition focused on the Swiss market and
conceptualization of health(i)ness”. Journal of Health Organization and Management.Vol. 26.No. 1. pp. 60-80.
James, P.T.J. (2012). “The Impact of Medical Tourism on Thai Private Hospital Management: Informing Hospital
Policy”. Global Journal of Health Science.Vol. 4. No. 1.pp. 127-139.
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Jonston, K., L. Puszkỏ, M. Smith, and S. Ellis (2011). Wellness Tourism and Medical Tourism: Where Do Spas Fit?
Reserah Report: Global SPA Summit 2011.
Kotler, P. and K.L. Keller (2012). Marketing Management, 14th Edition. New York: Prentice Hall.
Lovelock, C.& Wirtz, J. (2007).Service Marketing. 6th. Edition. New York: Prentice Hall.
Liu, L.C. (2012). “The Research of Medical Tourism Policy Network in Taiwan”. Sociology Mind. Vol. 2. No. 4. Pp.
457-463. Published online in SciRes (http://www.SciRP.org/journal/sm)
Maung, N.L.Y. and J. Walsh. (2014). “Decision Factors in Medical Tourism: Evidence from Burmese Visitors to a
Hospital in Bangkok”. Journal of Economics and Behavioural Studies.Vol. 6.No. 2. Pp. 84-94.
Mohammad, B.A.M.A.H. & A.P.P. Som. (2010). An analysis pf Push and Pull Travel Motivations of Foreign Tourist to
Jordan. International Journal of Business and Management. Vol. 5. No. 12. Pp. 41-50.
Moller, C., K. Weiermair, and E. Wintersberger. (2007). “The Changing Travel Behaviour of Austria’s Ageing
Population and its Impact on Tourism”. Tourism Review.Vol. 62.No. 3+4. pp. 15-20.
Schiffman, L.G. and L.L. Kanuk. (2007). Consumer Behavior. Ninth Edition. New Jersey: Prentice Hall International.
Sharma, A. (2013). “Medical Torism: Opportunity and Challenges for Health Care and Tourim Industry”.
Productivity.Vol. 53 No. 4. pp. 338-350.
Suprapti, N. W. S., I.K.G. Bendesa, and I M.S. Utama. (2015). “Pengembangan Pariwisata Kesehatan dalam
Mendukung Keunggulan Kompetitif Pariwisata Budaya di Bali”. Laporan Penelitian Hibah Pascasarjana Dikti.
________Publication of Government Tourism Office of Bali, 2015
http://www.imapac.com/wp-content/uploads/2015/06/Gede-Patra-How-will-seniors-pay.pdf
1 Name : Ni Wayan Sri Suprapti

Place and date of birth : Klungkung, June 1, 1961
Educational : Graduated in Management Studies from Udayana University, Indonesia
brackground Magister of Science in Management Studies from Gadjah Mada
University, Indonesia
Ph. D. in Management Studies from Gadjah Mada University, Indonesia
Fields of research : Consumer behavior in tourism and local’s values.
2 Name : I Komang Gde Bendesa

Place and date of birth : Klungkung, May 11, 1949
Educational : Drs. in development economics from Udayana University, Indonesia
brackground M.A.D.E. from Australian National University
Ph. D. in economics from Australian National University
Fields of research : Demography and Tourism
3 Name : Putu Yudi Setiawan

Place and date of birth : Denpasar, January 29, 1972
Educational : Graduated in Industrial Management from Surabaya Technological
brackground Institute, Indonesia
Magister Management in Management Studies from Udayana
University, Indonesia
Ph. D. in Management Studies from Brawijaya University, Indonesia
Fields of research : Tourism Marketing
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MANAGERIAL BEHAVIOR PERSPECTIVE ON AGENCY FEES AND IMPLICATIONS

ON DIVIDEND POLICY
(Study on Consumer Goods companies listed on the Indonesia Stock Exchange)
Tita Deitiana1), Stella Sumantri2)
1)
Trisakti School Of Management, Jakarta, Indonesia
1)
tita@stietrisakti.ac.id, stella@stietrisakti.ac.id
Abstract
The purpose of the research to examine the perspective of managerial behavior is illustrated by the indicator earnings
per share, company size, growth and return on equity of the agency fee is the cost incurred by the agent, both from the
company owner and manager, where the indicator for the cost of the agent is Selling & General Administration, proxy
operating expense (OPEX) and asset utilization are the implications for dividend policy with a dividend payout ratio
indicators (DPR) on consumer goods companies listed on stock exchanges in Indonesia.
The object of this study is a consumer goods company listed in Indonesia Stock Exchange 2011-2014 period. The
sampling method is purposive sampling that included a list of companies that meet the criteria for a sample of this
research, the company selected 10 samples. The method of analysis is using PLS (Partial Least Square).
The results of this study indicate that variable of managerial behavior is effect on dividend policy variables while the
variable cost otherwise agency does not affect dividend policy, and managerial behavioral variable also affect to
agency fees.
Keywords: Managerial Behavior Perspective, Agency Fees, Dividend Policy
Introduction
The manager works on behalf of the shareholders, meaning that they should adhere to the policies that will enhance
shareholder value. (Brigham & Houston, 2013). Furthermore, the manager and owner of an agreement (contract) work
to achieve the benefits (utility) is expected. The benefits received by both parties based on the company's performance,
reported by the manager in the form of financial statement presentation.
Economists and researchers replace the theory of the firm based on the classic entrepreneurial model with the theory
of the firm that is based on the "behavior" and "managerial," which is more focused on the motivation of non-owner
managers in control of the company. Jensen & Meckiling (1976), Shleifer and Vishny (1986), Eisenhardt (1989), La
Porta (1999), Ang (2000). When the management company is no longer done by the owner (principal), but directed to
another party (the agent), then a potential conflict in the relationship between the owner with this manager is often
called the agency problem. (Jensen & Meckling, 1976). The existence of asymmetric information between managers
and shareholders continue in connection with the separation between owners and managers, this condition is based on
the assumption that managers may behave opportunistic shown with activities that meet only their own interests are not
always so beneficial to shareholders, (Jensen & Meckling, 1976).
There are three ways to reduce agency costs of equity (Crutchley and Hansen, 1989): The first is the manager
improve their common stock ownership in the company so better align their interests with the interests of shareholders
(Jensen and Meckling, 1976). The second is to increase the dividend payout (Rozeeff, 1982) and (Easterbrook, 1984).
Larger dividend payment will increase the likelihood that the company should seek external equity capital through.
When companies seek new capital through external equity, then the manager will get the supervision of stock
exchanges, and securities and exchange commission, investment bankers, and the parties providing the new capital.
With the existence of this monitoring, the managers are trying to keep their jobs will undertake actions more in tune
with the interests of shareholders.
The third is to increase the amount of funding obtained from debt (Jensen & Meckling 1976). By expanding the
debt, the total funding through equity will decline, which in turn will reduce the range of conflict between managers and
shareholders. But funding through debt pose a conflict of interest between shareholders with creditors that will cause
the agency costs of debt.
Dividend policy relating to selection of the company to pay shareholders dividends (cash), or not. What are the
consequences if the dividends paid or not? How large a dividend to be paid? Many questions arising in connection with
this dividend policy, and the company manager and shareholders and debt holders also decision dividend companies are
often confused with the financing and investment decisions (Cooley, 1996).
In large companies, the potential agency conflict is important because managers large companies usually only have a
small percentage of shares. In situations like these, maximizing shareholder value can be in the order of nth number of
other managerial purposes, giving rise to the conflict. The agency problem will be even greater when the ownership of
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the company is too spread out for the pattern as an incentive owner to control manager will be low. One way to reduce
the agency problem because of the spread of ownership of the company is to make the payment of dividends.
Material and Methods

Managerial behavior in the use of funds can be expressed by Ammihud and Lev (1981), Jensen and Murphy (1990)
which states that the welfare of the manager is highly dependent on the size of the company and the risk of bankruptcy,
and managers have an incentive to expand the diversification, although it does not add value the enterprise market. As a
result, managers are interested to invest in order to increase growth and decrease the risk that will increase shareholder
wealth through dividend payments. Thus the behavior of managers in the use of funds can be expressed in a number of
indicators such as:
Earning per Share (EPS)

Earnings per share (EPS) is the ratio between profit attributable to ordinary shareholders (owners) of the parent by
the number of shares. EPS shows how much profit earned per share. The larger the EPS ratio, the greater Profit that
common stock attributable to equity holders of the parent entity. (Gitman, 2014)
Company Size
Generally is measuring company (firm size) can use various indicators, such as level of sales and the number of
personnel involved work, the research firm size refers to the opinion of Scott, 1994, which uses total asset as a measure
of company size. Total assets (size) are the larger will increase of the efficiency of the company and Gives the
company's growth prospects in the future. Size = ln Total Asset
Growth
The growth rate is measured in terms of the growth in total assets or the growth in sales and determined by the
percentage change between two period. (Lee et al, 2009). Growth rate is the increase in a company value of sales total
assets or market capitalization. (Higgins, 2011).
Return On Equity (ROE)

In this study used profitability ratio is the ratio of net profit after tax to common stock equity, which measures the
rate of return on equity (return on equity), or the rate of return on investment of ordinary shareholders. (Brigham 2014).
The formula for ROE (Gitman, 2014): ROE = Profit after tax / Equity.
Agency Fees
According to Anthony and Govindarajan (2007), agency theory is the relationship or contract between principal and
agent. The main principle of this theory assert their working relationship between the parties authorizing (the principal)
is investor and a party receiving authority (agency) is the manager, in the form
sama. Teori employment contract agency has the assumption that each individual is solely motivated by self-interest,
giving rise to a conflict of interest between principal and agent. This happens because of the separation of ownership
and control of companies (Jensen and Meckling, 1976).
Agency fees became a topic of study and research object of interest for agency cost the company a significant effect
on the performance of the company (Wu and Tu, 2007). Previous research has verification determinants of agency
costs, such as the gender of top management (Jurkus et al., 2011), ownership structure and dividend policy (Fatma,
2011), Financial leverage (Khan et al., 2012), the capital structure (Li and Cui, 2003), compensation management
(Zhang, 2009) and governance mechanism (McKnight, 2009). The study also mengverifikasi determinant of agency
fees by using:
Asset Utilization (ATO)

Is the ratio between the total sales by total assets. Used to measure the efficiency of use of assets by the manager
(Faisal, 2004). This variable measures the agency fee based on the turnover rate as a proxy of assets and asset
utilization. The higher this ratio means that the productive assets are used to create value for shareholders. This ratio is a
positive ratio means that the greater the value the more effective asset turn over management of the company, which
also means the higher the performance of the company.
Selling & General Administration proxy Operating Expense (OPEX)

Is the ratio between operating expense incurred by the company denagn amount of sales generated. This ratio is a
proxy of operating expense. Operating expenses reflects managerial discretion in spending the resources of the
company. The higher the load the discretion of the higher managerial agency costs occur (Florackis, 2004).
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Dividend Policy (DPR)

Dividend policy determines the apportionment between payments to shareholders and the investment return of the
company. Retained earnings is one of the most important sources of funds to finance the company's growth, but the
dividend is set aside cash flow to shareholders (Copeland, T.E, 1997: 125). Dividend policy is a decision distribute
profits to owners company. This policy is associated with relationship managers and shareholders (Winarni 2006)
Dividends distributed may include cash dividends (Kieso, et al.2011). Companies that decide to obtain funding from
new debt issuance should already take into account the source of interest payments. When using retained earnings to
pay interest on the debt it will affect to the amount of profit to be distributed to shareholders as devidends.
The purpose of this study was to determine and analyze:

How does the behavior of Managerial influence on the company's Agency fees?, How does influence in Dividend
Policy on agency fee ?, how does the behavior of Managerial influence on dividend policy?
The framework of this study can be described as follows:
Principals Agents
Shareholders, Typically The people who
equity owner Agency Problem Administrative control
Flow of Flow of corporate resources
management 0.692 (s) managerial
services
remuneration
H1
Manageriall transaction
Agency Fees Dividend Policy

SELLING & Gadm, DPR
Managerial Behaviour UTILIZATION
EPS,SIZE,GROWTH, ROE
such as asymmetric information and r

risk aversion CONSUMER GOODS COMPANIES LISTED IN IDX
Behavioral conditions
Opportunism
C Bounded rationality
Risk aversion
Figure 1. Research Model
Based on the conceptual framework, hypothesis can be formulated as follows:

Hypothesis 1:
Managerial behavior influence on Agency fees in consumer goods company's period 2011-2014 are listed in Indonesia
stock exchange.
Hypothesis 2:
Agency fees effect on dividend policy in consumer goods Companies period 2011-2014 are listed on the Indonesia
stock exchange
Hypothesis 3
Managerial behavior influence on dividend policy in the consumer goods company's period 2011-2014 are listed on the
Indonesia stock exchange.
Methods
The methods used based on the research objectives are to be achieved then the kind of research that used are
descriptive and analytical verificative. In modeling and engineering solutions that will be used as a tool of analysis in
this article is the Partial Least Square. The source of the data used in this research is secondary data that comes from a
summary financial report of issuers listed on the Indonesia stock exchange (Income Statement, Balance Sheet and
others). The sample of consumer goods company are 10 samples and this study uses annual data in the form of financial
reporting issuers for 4 years, from 2011 up to 2014. Source data obtained from Indonesia, Indonesia stock exchange
Capital Market Directory (ICMD), and Intern, and the sampling technique is purposive sampling.
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Analysis of the results of research conduct by the formulation of the problem and the hypothesis processed with PLS
to determine the magnitude of the coefficient on the variable effect of variable cause and effect, as well as the
coefficient of influence of one variable causes the variable to variable due to other causes through path analysis. With
the path structure as shown in the following figure 2:
Hypothesis Result:
0.478 0.965 -0.740 0.097
GROWTH ROE SIZE

EPS
0.110
3.714 8.300 7.615 0.774 ATO

23.206 0.684
0.970 0.559
0.748 10.761
Sell&
Managerial Behavior Perspective Agency Fees GA
5.454 0.111
0.703 0.645
0.390
DPR
8.5196 Dividend Policy
Source: data was proceed from idx
Hypothesis H1 accepted meaning there is a very strong influence on managerial behavior with dimensions Earning Per
share, growth, return on equity and the size of the company with the agency fee dimensions asset turnover and selling
and general administration (OPEX). This line of research results Fleming (2005); Li et al. (2003). It disebabkab because
of financial ratios of the company based on the results of operations and the manager's decision affect the magnitude of
agency costs incurred by the shareholders.
Hypothesis H2 is rejected means no influence agency costs with dimensions of asset turnover and selling and general
administration (OPEX) on dividend policy with dimensions dividend payout ratio decision about whether corporate
profits will be distributed to shareholders as dividends or retained to raise capital was not affected by the cost of the
agency, this is because the dividend policy associated with relationship managers and owners of companies.
Hypothesis H3 as they arrive means no influence with the dimensions of managerial behavior is earnings per share,
growth, return on equity and the size of the company dividend policy with a dividend payout ratio dimensions. Provide
additional empirical evidence findings Crutchley & Hansen (1989), Wahidahwati (2002), Putu Anom (2003), Marachi
(2001), that the dimensions Earning per share, growth, return on equity and company size affect the dividend. Using the
dividend is one way to reduce the agency fee (Rozeff, 1982, Easterbrook, 1984). The manager will not raise the
dividend if they are not confident that earnings will increase permanently to support a high payout ratio. Similarly, if
would reduce the level of payout, then the manager will as far as possible to avoid a drastic reduction (DeAngelo
(1990). The reaction of negative stock price to the elimination of the dividend is greater than the positive reaction of the
dividend announcement (Michaely, Thaler and Womack,1995).
Based on the value of R2 variations in the value of agency costs due to managerial behavior amounted to 55.9% and
the variation of the dividend policy resulting managerial behavior by 39% to the value of predictive relevance of 73
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099%, meaning that the diversity of data that can be explained by the model of 73 099% while the remaining 26.9%
explained by other variables that are not contained in the research model.
Conclusion
Based on the analysis described in the previous chapter, that in a study of consumer goods companies in the
Indonesia Stock Exchange 2011-2014 period some of the conclusions that can be drawn from the results of this study
are as follows:
First, There is the influence managerial behavior towards the cost of the agent, Second No agents fees influence the
dividend policy and the three have influence managerial behavior on dividend policy.
References
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LV, No.1: pp. 81-106.
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DrydenPress.
Crutchley, C.E dan R. Hansen (1989), “A Test of Agency Theory of Managerial Ownership, Corporate Leverage,
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DeAngelo, H. dan L. DeAngelo (1990), “Dividend policy and financial distress: An empirical investigation of troubled
NYSE firms”. Journal of Finance, Vol. 45: pp. 1415-1431.
Eiscenhardt, K. (1989), “Agency Theory: An Assessment and Review”. Academy of Management Journal, Vol. 14:
pp. 57-74.
Easterbrook F,1984Two Agency Cost Explanation Dividend, American Economic Review,Vol 74 pp 650-659
Fleming, Grant., Heaney, Richard., McCosker, Rochelle. 2005. Agency cost and ownership structure in Australia.
Pasific Basin Finance Journal. 13, 29-52
Florackis, C. & Ozkan, A. 2004. Agency Cost and Corporate Governance Mechanisms: Evidence for UK Firms.
University of York. United Kingdom
Gitman, L. J, 2015, “Principle of Management Finance,” 16th d,Addison Wasler, Massachussets.
Hair, Joseph F., R.E. Anderson, R.L. Tathan, dan W.C. Black (2010), “Multivariate Data Analysis with Reading”.
Twelve Edition. New Jersey: Prentice –Hall International, Inc.
Jensen, M. dan W. Meckling (1976), “Theory of the Firm: Managerial Behavior, Agency, and Ownership Structure”.
Journal of Financial Economics. Vol. 3. (October): pp. 305-360.
Jurkus, Anthony F., Park, Jung Chul., Woodard, Lorraine S. 2011. Women in top management and agency cost. Journal
of Business Research. 64, 180-186
Khan et al. 2012. Financial Ratio and Stock Return Predictability (Evidence from Pakistan). Journal of finance
and Accounting Vol.3 No 10
La Porta, R., F. Lopez - De Silanes, A. Shleifer dan R. W. Vishny. 2000. Agency Problems and Dividend Policies
Around The World. The Journal of Finance, Vol. 55, No. 1, p. 1-33
Lie. Kai dan Xinlei. Zhao (2008) Atmmetric Information and Dividend Policy: Financial Management, Thomson Vol
37 Issue 4 673-694.
Mahadwartha, Anom Putu. (2003), “Predictability Power of Devidend Policy and Leverage Policy to Managerial
Ownership: An Agency Theory Perspective”. Jurnal Ekonomi dan Bisnis Indonesia, Vol 18, No. 3: pp. 288-297.
Marrachi S., Chtourou. Corporate Governance and Earning Management . 2001. Social Science Research Network
(SSRN). http://paper.ssrn.com/abstract=275053
Michaely, Roni, Richard H. Thaler, and Kent L. Womack, 1995, Price reactions to dividend initiations and
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Management. Vol. 2, No. 1, pp. 24-39.
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Rozeff, M. S. (1982), "Growth, Beta, and Agency Costs as Determinants of Dividend Payout Ratios". Journal of
Financial Research, Vol. 5: pp. 249-259.
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94: pp. 461-488.
Wahidahwati (2002), Kepemilikan Manajerial dan Agency Conflict: Analysis Persamaan Simultan Non Linier
dari Kepemilikan Manajerial, Penerimaan Risiko (Risk Taking), Kebijakan Utang dan Kebijakan Dividen”.
Simposium Nasional Akuntansi V. Ikatan Akuntansi Indonesia.
Wu, Jianfeng, Tu Rungting. 2007. CEO stock option pay and R&D spending: a behavioral agency explanation. Journal
of Business Research, 60(5): 482–492.
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Financial Management, 38(3), 507-541
Dr.Tita Deitiana, majoring in finance, field research interest is financial management, financial research method.
Stella Sumantri majoring in Finance, field research unterest in financial management, financial research and statistics
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FACTORS INFLUENCING THE QUALITY CULTURE

(Study at the Education Institution Context in Indonesia)
Lena Ellitan, Teodora Winda Mulia
Widya Mandala Catholic University Surabaya
Abstract
The new paradigm focuses on the role of higher education institutions as a service industry or industry knowledge
which the higher education institutions to compete based on quality. Educational paradigm dynamic and flexible to
changes that there is indispensable in responding to competitive conditions was very competitive today. Application of
Total Quality Management (TQM) in higher education in Indonesia requires commitment and consistency. TQM
approach provides benefits for the organization to carry out continuous improvements so as to anticipate the changes
that occur in response to changes in external factors and guarantee the success of higher education in its operations in
the competitive environment that is increasingly competitive.
Keywords: TQM, Continuous Improvement, Service Industry, Education
1. Introduction
The rapid development of competition in the world of higher education requires the education to think of the right
competitive strategy to provide superior service to customers and prospective customers are students and prospective
students. become more rational in the choice, as well as having higher demands on the quality of college education and
services that will be their choice. In this condition the image as a major university and a long operating life is no longer
seen as a sufficient competitive advantage from another perspective so that the necessary strategic policies are
indispensable to exist in competition.
Higher education in Indonesia can not be separated from the influence of external factors such as demographic
trends, technological, economic change, and competition between higher education institutions in Indonesia. Faced with
these conditions, higher education in Indonesia should be at the forefront in the face of environmental change that is
through formal education that educate someone to be a professional and have a certain competence. Efforts should be
made in this case is to make changes that higher education is able to play an active role as a provider of intellectual
asset for the real sector in order to compete in the global market. University role in providing graduate students at
various levels.
This study focuses on the integration of TQM in higher education in Indonesia that has been overshadowed by the
condition of education in Indonesia has not been able to respond quickly to changes in the external environment of
education that is caused by a model of education that are less dynamic because it is not flexible to change nothing in
fact indispensable in responding to changes in conditions change and competition is very competitive today. Through
the TQM approach as a management approach as higher education policy is expected stretegis able to overcome the
existing problems by integrating TQM into higher education in Indonesia. To integrate TQM in higher education and
meet the needs of industry will be college graduates who are competent needed the collaboration of both parties to
discuss implementation of TQM and its integration in education.
2. Theoritical Background
Conceptually, Total Quality Management (TQM is a philosophy that is always trying to improve output, including
the performance of financial, organizational management systems and guarantee long-term survival in a way or primary
purpose of providing satisfaction to customers without leaving the entire interest of stakeholders (customers, owners,
shareholders, and suppliers). TQM) is a way of improving the performance of the company is consistently at every level
of operations or processes in every functional area of an organization using all human and capital resources available
(Gazpers, 2001). Hover (quoted from Corigan, 1995) added the need for the involvement of employees at all processes
and use of technical equipment of appropriate quality. From the definition of TQM, there are four essential elements,
namely:
1. Continuous improvement (continuous improvement), which emphasizes the semantic perspective, a unified,
consistent, and includes the operation of the entire organization.
2. People Orientation (orientation on human resources), carried out by forming a sound HR customer satisfaction
internal and external customers. The definition of external consumer is any person user of the product or
services produced by the company, while the internal consumer is any person involved in the operation of the
company.
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3. Quality Methods, covers all businesses to achieve optimal economies of scale, and maintain quality as an extra
at the beginning of the operation or process, so that the product design and the design process becomes the
focus of the company to run its operational strategy.
4. Customer Focus is giving special attention to the consumer either to the complaints, satisfaction, prices,
product defects, and time of delivery of goods, and cooperation with customers.
TQM is a philosophy that should be applied throughout the period. The head of the organization is required to
always adopt the best ways to achieve the goals and should strive to create the formation of a learning organization.
TQM applications require the role of quantitative methods and human resources to improve the quality of materials and
services, all processes within the company and the quality to meet customer needs both for today and in the future
(Watkins, 2006). TQM principles are also known as the Five Pillars of TQM consisting of product, process,
organization, leadership, and commitment (Creech, 1996) suggests that the product is the main target and achievements
of the organization. Creech also confirmed that TQM must have four criteria for successes are: 1) Implementation of
TQM based on awareness of the quality and oriented towards quality in all activities, including in the process and the
product. 2) Implementation of TQM must have strong humanitarian nature to bring quality to the way employees are
treated, enrolled and given inspiration. 3) Implementation of TQM must be based on a decentralized approach that gives
authority at all levels, 4) Implementation of TQM must be fully implemented so that all the principles, policies, and
practices reach every nook and cranny of the organization.
Increasing competition in higher education resulted in a paradigm shift in higher education institutions. Traditional
paradigm focused on imaging of higher education institutions as a social institution that provides higher education
opportunities for the community. Institutions of higher education are responsible for the provision and funding of higher
education is based on the sources of funds derived from religious bodies and philanthropists both domestic and
international, and foundations established by businesses to fund higher education operations.
The new paradigm focuses on the role of higher education institutions as a service industry or industry knowledge
which the higher education institutions to compete based on quality. In this condition, the process of higher education is
seen as a continuous improvement cycle that starts from a series of their ideas to produce graduates (output) quality up
to the responsibilities of higher education to give satisfaction for users of the higher education graduates. Through the
feedback given by the user (users) of the graduates of higher education, we can develop specific ideas for redesigning
the educational model, improve teaching and learning in higher education Lewis and Smith (1994) describes efforts to
improve continuous quality in higher education.
The successful implementation of TQM in the business world provide inspiration for higher education to adopt
TQM in education, than the level of competition among universities are sharp and pressure of global competition poses
a challenge for higher education in Indonesia. To give added value to the competitiveness of higher education is
required mastery of competitive advantage in terms of quality courses that are owned. This is because the courses that
will be in value through a system of accreditation by the National Accreditation Board, Agency for International
Quality Standards and Professional Standards. Ilahu et al. (1998) describe the various pressures facing higher education
in improving the competitive advantage of courses as described in Figure 3. The figure explains that in the vision and
mission of higher education contained desire and hope to produce a high-quality education explicitly to make the
program competitive strength studies. Also required positioning focused on higher education to enhance the competitive
advantage of courses.
3. Method
Quantitative research studies the factors that shape the perception of quality in higher education. Using
questionnaires with management of higher education in Indonesia as respondents.
4. Analysis and Discussion
Table 1. Recapitulation Application of the Principles of TQM (in percentage)

No Dimension Internal Customers Criteria External Customers Criteria
1 Customer Satisfaction 79 Good 74 Good
2 Respect to each other 62 Average 63 Average
3 Management by Fact 72 Good 79 Good
4 Continuous Improvement 84 Very Good 78 Good
The above table shows a comparison of scores obtained from the questionnaire between faculty and employees as
internal customers’ institution with students as external customers based institutions TQM principles that have been
applied by the higher education institution. TQM implementation process performed by the higher education institution
starting with TQM principles in running the educational activity. To further ease the extent to which the principles of
TQM applied higher education institution.
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TQM principles that must be applied to institutions among others are focusing on customer satisfaction to provide
educational services in accordance with the wishes and expectations of customers, has adopted a respect for everyone
both in the environment of the organization and outside the organization to achieve the success of the institution,
empowering management concept based on the fact that the management of the institution can be managed in a
transparent manner, and seeking continuous improvement to improve the quality of the institution. The above table is
used to analyze the extent to which higher education institution in applying the principles of TQM will be explained as
follows:
In terms of customer satisfaction, the efforts of higher education institutions in applying the principles focus on
customer satisfaction in managing the educational activity has been perceived both by faculty and employees as internal
customers’ institution and by students as institution external customers. Based on the results of questionnaires, faculty
and employee satisfaction rate reached 79% institutions and students’ satisfaction level reached 74%. This means that
the level of internal customer satisfaction institution 5% higher than the level of external customer satisfaction
institution. Less than optimal level of student satisfaction due to the efforts of institutions to analyze the needs of the
students is not optimal. Total infrastructure is inadequate to be one of the determining factors is not optimal customer
satisfaction from the students. Meanwhile, according to faculty and staff, institutional efforts in analyzing the needs of
internal customers has been very good of them to improve IT-based tool to manage data and information needed
institution. In terms of service, based on the results of the questionnaire stated that the institution is still considered not
entirely focused on customer satisfaction in providing excellent service to internal customers as well as external
customers. Yet the implementation of the system of recognition / awards and bonuses are not in accordance with the
expectations of customers is the reason not optimal satisfaction of faculty and staff the service of the institution. While
the student dissatisfaction due to a few employees who are less competent and seem less friendly in serving students. In
other words, to improve customer satisfaction, institutions must improve the service provided, especially in financial
terms to the customers internal and focus more on external customer satisfaction to seek to increase the quantity and
quality of the infrastructure that is owned and improving the competence of employees through training programs and
coaching employees.
In terms of respect for each person, based on the results of the questionnaire showed that the higher education
institutions have not applied this principle optimally both in terms of internal customers and external customers of the
institution. The results of the percentage of faculty and staff at 62% and the student reaches 63%, this means that the
principle of respect for each person have not been fully implemented by the institution. This means that the commitment
of the institution to adopt the attitude of the faithful people total and work has not been executed well by all the
residents of the institution. So far, the actions taken in the institution adopted the attitude of respect for everyone is to
increase employee involvement in the management of educational activities, increasing the authority of lecturers in its
assessment, the establishment of working groups (working group), and their employees' contribution in the preparation
of the work program of the institution. For the future, the institution should further improve the application of great
respect for every person to achieve total customer satisfaction, which in turn can improve the quality of the institution
optimally.
In terms of management based on fact, the percentage of faculty and staff of higher education institutions as internal
institutional customers reached 72%, while the percentage of students who achieved as an institution external customers
reached 79%. This means, fact-based management principles have not been applied optimally manage educational
activities by teachers and staff. This happens because there is still the intervention of the Foundation in the decision-
making institutions, many decisions are made only based on the opinions of faculty and staff amounted to 72% while
from the student reaches 79%. There is a difference sebesar7% in terms of management based on facts, which means
that the majority of faculty and staff feel institutions do not apply the principles of management based on opinions that
are not accompanied by supporting evidence, and management of institutions that are less transparent. In terms of
students, management principles based on facts already applied particularly well in terms of ratings for the
implementation of the concept team teaching so that an assessment carried out by the deal team group. This means,
management principles based on facts already applied well to the students, but deemed not optimal for faculty and
employees, especially in decision-making institutions.
In terms of continuous improvement, based on the results of the questionnaire showed that the percentage of faculty
and staff towards continuous improvement efforts reached 84% while the percentage of students reaching 78%. This
means that continuous improvement efforts conducted institution was considered excellent according to faculty and
employees but was not considered optimum by the student. Improvement efforts undertaken among other institutions
against established standards to improve the quality of institutions based on the standards set by government; the quality
of education by improving the quality of its human resources; against infrastructure by empowering the IT-based
facilities; and the services provided to customers by implementing a computerized system and draw up SOP. This
means that continuous improvement efforts made to achieve the improvement of the quality of institutions in supporting
the effectiveness of the educational process has been very well by teachers and staff. In terms of students, continuous
improvement efforts made to improve the quality of learning programs for students, infrastructure to support teaching
and learning, and the services provided to the students of the institution. But efforts to redress for perceived lack of
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institutional infrastructure optimally according to the students, especially in terms of infrastructure. To that end, the
institution should be more attentive to the needs of students, especially in terms of infrastructure.
5. Conclusion
TQM implementation process is carried out in order to improve the performance of the institution consists of three
stages, namely: (1) preparation, which in this stage of the school began to establish a total commitment to quality in
running the educational process. (2) the planning stage, where schools began to adopt elements of TQM in developing
educational activities. (3) the implementation phase, in which the school began carrying out the work program has been
prepared with quality oriented and make improvements on an ongoing basis to achieve quality improvement using
PDCA cycle. 2. Impact of TQM implementation efforts taken by the institution in order to improve the school's
performance can be viewed in terms of input, process and output the resulting school education. In terms of inputs,
efforts to implement TQM impact on improving the quality of human resources, increase productivity and employee
performance, and increase the absorption capacity.
6. Reference
Ariani, D. W., 2003, Manajemen Kualitas Pendekatan Sisi Kualitatif. Jakarta: Penerbit Ghalia Indonesia.
Bonser, C.F. (1992). Total Quality Education? Public Administrative Review, September / Oktober, Vol . 52(5), 504 -
512.
Deming, W.E (1986). Out of Crisis . Cambridge, M.A : Massachusetts Institute of Tecnology, Center for Advanced
Engineering Study.
Departemen Pendidikan Nasional, 2005, Kinerja Sekolah, disampaikan oleh Direktorat Jendral Pendidikan, Jakarta.
Dewi, I.R., 2008, Pengaruh Penerapan Total Quality Management (TQM), Sistem Pengukuran Kinerja dan Sistem
Fadli, A.Z., 2010, Implementasi Manajemen Berbasis Sekolah dalam Meningkatkan Mutu Pendidikan. FITK UIN
Jakarta.
Gasperz, V. (1997) Aplikasi Manajemen Kualitas Total (TQM) dalam Industri Jasa (Contoh Penerapan Pada Perguruan
Tinggi di Indonesia), dalam salah satu diskusi di ITB.
Gibson, Ivancevich, Donnelly. (1995) Organizations, 8 Ed, Richard D. Irwin, Inc.
Goetsch,D.L.& Davis, S. (1994). Introductoin to Total Quality: Quality, Productivity, Competitivesness.Engewood,
Cliffs, N.J.: Prentice Hall International,Inc.
Hanafiah., 2011, Penerapan Manajemen Berbasis Sekolah dalam Peningkatan Mutu. Kultura Volume: 12,No. 1,
September 2011.
Hebert,J.F.,Dellang,S.A., Bass.,E.B. (Autumn, 1995). Total Quality Management in the Business School : The Faculty
Viewpoint, SAM Advanced Management Journal, 20.
Ihalau, J.J & Sunarto, H (1998) Manajemen Mutu Perguruan Tinggi “Analisis TQM pada Perguruan Tinggi di
Indonesia” Penataran dan Lokakarya Paradigma Baru Manajemen Pendidikan Tinggi–KPPT JP III Tahun 1996–
2005, 7–9 & 14–16 Juni.
Kementrian Pendidikan dan Kebudayaan, 2012, Potret Pendidikan di Indonesia, Jakarta.
Kendrick,J.J. (1993, January). Universitas, Corporation Report Progress in Integrating Total Quality into Curriculum,
Quality, 13.
Lewis,R.G. & Smith, D.H. (1994). Total Quality in Higher Education. Delry Beach, FA : St. Lucie Press.
Nasution, M. N., 2005,Manajemen Mutu Terpadu (TQM). Bogor: Penerbit Ghalia Indonesia.
Rasto., 2012, Faktor Determinan Mutu Kinerja Sekolah,Prodi Pendidikan Manajemen Perkantoran Universitas
Pendidikan Indonesia.
Robinson, J.D., Poling, H.A., Akers, J.F., Galvin, R.W., Artzt,E.L., & Allaire, P.A. (1991, November/December). An
Open Letter : TQM on Campus, Harvard Business Review, 94 – 95.
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SUSTAINABILITY COLLABORATION MODEL FOR DEVELOPMENT OF DIGITAL

CREATIVE INDUSTRY IN CENTRAL JAVA
Mutamimah1), Suryani Alifah2), Mustafa3)
Sultan Agung Islamic University, Semarang, Indonesia

1)
mutamimah@unissula.ac.id,2)suryani@unissula.ac.id,3)mustafa@unissula.ac.id
Abstract
Digital creative industries have a great potential in Indonesia, where in 2015 has a significant growth, which
amounted to 8.81 percent (BEKRAF). Central Java Province as part of Indonesian government programme in ICT
sector has also a huge potential in that field. Based on the results of previous studies, there are five areas of priority
development of digital creative industry in Central Java, namely animations, games, software applications, multimedia
and comics. In order to this development goes well and can produce products that can compete globally, it would
require sustainable collaboration among stakeholders.
This article proposes a sustainable collaboration model between major stakeholders in the digital creative
industries, consist of the industrial players, the educational institutionals, business, government, investors, and
communities. For sustainability, identification of the collaboration is determined by the social, economic and
environmental aspects. The social aspects are indicated by trust, fairness, commitment, and openess; the economic
aspects are indicated by the economic benefits and the environmental aspects are indicated by environmentally
friendly.
The model have been tested by focus group discussions with several stakeholders of digital creative industry in
Central Java. The analysis uses qualitative and collaborative analysis. The results show that all stakeholder agree to
the sustainable collaboration model for the development of digital creative industry in Central Java when considering
the social aspects (trust, fairness, commitment, openess), economic aspects (mutual inter-stakeholder) and
environmental aspects (environmentally friendly).
Keywords: Collaborative Model, Digital Creative Industry, Stakeholders, Sustainability
Introduction
Creative industries had contributed to the Gross Domestic Product in 2015 amount are Rp 642 trillion, or 7.05
percent, and able to provide employment nationally are 10.7 percent, or 11.8 million people. Based on data from the
Central Bureau of Statistics, the number of unemployed nationally in 2015 increased by 300 thousand people, bringing
the total of unemployed people reached 7.45 million people. The open unemployment rate was dominated Vocational
High School educated population amounted to 9.05%, 8.17% High School and Diploma I / II / III of 7.49%, whereas
they have the potential to contributed to creative industries.
Digital creative industry is a creative activity related to business creation, production and packaging of television
programs (such as games, quizzes, reality shows, infotainment, and others), broadcasting and transmission of content
television and radio programs, including the activities of the station relay (transmitter back) radio and television
broadcasts. Creative activities related to the development of information technologies including services computer
services, data processing, database development, software development, systems integration, systems analysis and
design, architectural design software, design of infrastructure software and hardware, as well as portal design including
maintenance.
According to the creative economy in 2016, from the existing sub-sector, there are at least three areas that
experienced significant growth, which amounted to 8.81 percent digital, advertising 8.05 percent, 7.53 percent and
architecture. But among stakeholders of the digital industry has been largely running their own, so it can not develop
properly, the program is not on target, and the resulting product can not be marketed properly and also not able to
compete globally. Mutamimah, Mustaghfirin, and Mustafa (2015) found that digital creative industry became one of the
priority development of creative industries in Central Java in addition to crafts and fashion. Digital creative industry
business fields that have potential and priorities to be developed based on the calculation of the weighting in Central
Java, the order is as follows: Animation (24.85%), Game (24.78%), application software (22%), Multimedia (14.88%)
and Comics (13:48%). Through collaboration among stakeholders, consisting of: digital creative industries:
governments, communities, educational institutions, financial institutions and the public, it will be mutually beneficial
one to another, there is knowledge sharing and information sharing. But such collaborations only run incidental and in
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the short term. Wehbe M.B, RA Seiler, AM Vianco, MA Mendoza, AM and AJ Tonolli Baronio (2015) apply a model
of collaboration between science and the government to improve the resilience and sustainability of collaboration in the
local production system. The purpose of sustainability according Bagheri and Hjorth (Rota Cosimo, at al, 2013)
improve the management system through understanding and knowledge sharing. Therefore encourage researchers to
propose collaborative model that is sustainable in the long term so as to benefit for all parties and digital creative
industry can grow and compete nationally and internationally.
Methods
The data used in this study are primary data and secondary data. The primary data obtained through Focus Group
Discussion. The population in this study are all stakeholders in the digital creative industry in Central Java. Secondary
data were obtained from the BPS, Ministry of Commerce, Ministry of Research and Technology, and other data related
to this study. Focus Group Discussion conducted with some stakeholders are directly related to the digital creative
industry in Central Java, consisting of: digital creative industries, community, government, educational institutions,
financial institutions, industry, and society. Analysis of data using qualitative analysis and collaboration analysis ..
Results and Discussions,
Collaboration Model Analysis

Results of research Mutamimah at al (2015) after a test model from the focus group discussion, which were attended
by stakeholders from various components, such as: digital creative industries, community, government, educational
institutions, financial institutions, industry, and public, the results show that the model development of digital creative
industry in Central Java with a model of collaboration between stakeholders can improve the performance of digital
creative industry in Central Java and can compete both on a local and national. In detail, the results of the analysis of
collaboration among stakeholders, the results were as follows:
a. Collaboration of Educational Institution with Community

Collaboration between educational institutions with the community so far has been done well, in the form of
curriculum subjects relating to technologi information and digital creative industry. In addition, some support from
higher education institutions as well as: human resources who are competent in the field of digital creative industry, the
opening of the digital creative industry study programs, studies and research and laboratory facilities for the
development of digital creative industry. The goal is that graduates of higher education institutions to meet the
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manpower needs of the creative industries, both in quality and quantity. But according to a digital community of
creative industries, that the graduates produced by higher education institutions have been unable to meet the needs of
the digital creative industries both in quality and quantity. Most higher education graduates are not ready to work and
still have an intensive training in order to meet the standards of competence in the digital creative industry. In addition,
the support of educational institutions during the development of the digital creative industries can not be felt by the
alumni as agents of digital creative industry. Besides high quality graduate pendisikan institutions can not be
accommodated fully by major industries such as Telkom and Indosat, so the government will need to bridge it.
b. Collaboration of Government With Community

The government is already providing support for the development of the digital creative industries such as: training,
funding, and organization of the exhibition program. But such support can not be fully felt by the community of digital
creative industry in Central Java. According to the community, the training is incidental and not intensively, not
equitable, and not fully in accordance with the needs of the community of digital creative industry. The marketing
program still experiencing problems, so that should make local application store. In addition, the digital creative
industries are having trouble logging into a huge industry, so the government will need to bridge it.
c. Collaboration of Financial Institution With Community

Financial institutions so far has been providing financial support to the community for the development of digital
creative industry in Central Java. Support for this can be felt in helping the development of digital creative industry in
Central Java. Constraints faced in a collaboration between the financial institution with the community is the lack of
collateral owned by start-ups, because they generally only have the knowledge and skills acquired cash flow is
uncertain, financial laporann also not been standardized. This phenomenon has become an obstacle for financial
institutions to provide loans in large jumalh. The community of digital creative industries proposed policies related
software with a loan for the development of digital creative industry in Central Java.
d. Collaboration of Public With Community

The public has been giving advice to community support for the development of digital creative industry in Central
Java. Support for this can be felt in helping the development of digital creative industry in Central Java. Constraints
faced in doing collaboration between public and community is the quality of the products produced by the digital
creative industry not meet quality standards.
e. Collaboration of Industry With Community

Large industry so far has been providing assistance for the development of digital creative industry in Central Java.
Support for this can be felt in helping the development of digital creative industry in Central Java. The obstacles
encountered in doing collaborations among large industries with the community is the quality of the products produced
by the digital creative industry do not meet the quality standards required by major industries.
f. Collaboration of Digital Creative Industry With Community

The digital creative industries so far most have not been included in the community. With the advent of the
community are expected to knowledge sharing and information sharing so as to motivate merka for the development of
the digital creative industry.
Sustainability Collaboration Model

Collaboration between stakeholders digital creative industries, community, government, educational institutions,
financial institutions, industry, and society during this time is merely a concept, is incidental and short term. Thus, in
order that collaboration can be sustainable (sustainability collaboration), if one considers the three (3) aspects, namely:
economic, social, and environmental (Rota Casino, at al, 2013). 1). Social Aspects, which includes: trust, fairness,
commitment, and openess. Rota, Cosimo (2013) states that that collaboration among partners in the supply chain is
based on intangible assets such as trust, commitment, and satisfaction. 2). Economic aspects, namely the mutually
beneficial collaboration with one another economically and low transaction cost economy, This is reasonable, since the
purpose of the business in the digital creative industry is to gain economic advantage. 3). Environmental aspects,
namely collaboration between stakeholders does not pollute the environment. Sustainability collaboration will directly
affect the performance of stakeholders as well as the digital creative industry in the long term.
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The figure are as follows:
1. Social Aspects
a. Trust
Namely mutual trust among stakeholders. When trust among stakeholders appear, then between stakeholders will
help each other to solve problems / difficulties experienced by other stakeholders. Stakeholders who trust one another,
will be mutually reinforcing for collaboration in the long term.
b. Commitment
Commitment among stakeholders is necessary to maintain long-term collaboration. Long-term relationship requires
a commitment on the part of the parties involved. Commitment among stakeholders will enhance and facilitate
cooperation activities to share information and knowledge.
c. openess
Mutual open between stakeholders is indispensable for knowledge sharing and information sharing related to the
production process to marketing for the digital creative industry development .. Collaboration in the digital creative
industry activity requires openness as the heart needs oxygen, particularly the delivery of clear information,
transparency of each individual in a collaboration that aims to achieve a common goal. Open attitude is the attitude to
be willing to tell and the attitude to be willing to accept the knowledge or information from other parties as the key to
successful innovation.
2. Economic Aspects
Collaboration between stakeholders will be lasting in the long term if each party to benefit economically, and no one
pihakpun harmed. The economic value of a major goal in the development of digital creative industry in Central Java.
Each party involved must each make a positive contribution and collaboration to achieve "win-win benefit".
3. Environmental Aspects
Environmental factors will determine the sustainability of synergy among stakeholders. Environmental factors
influence the quality and quantity of production results in the digital creative industry.
Result
The results showed that the model of development of digital creative industry in Central Java: collaboration model
can be used for the development of digital creative industry in Central Java. But the model of collaboration among
stakeholders will be sustainable (sustainability collaboration) when considering the three aspects, namely social (trust,
fairness, commitment, openess), economic aspects (mutual economic inter stakeholders) and environmental aspects
(such collaboration environment friendly) , Testing the model can be followed by the preparation of the information
system so that the model can really be applied to develop the digital creative industry in Central Java.
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Acknowledgement
We thank to the Ministry of Research Technology and Higher Education of the Republic Indonesia that has been
financing research in this article.
Reference
Creech, Heather, Michelle Laurie, Leslie Paas, and Jo-Ellen Parry (2012),”Performance Improvement and assessment
of Collaboration: Starting Points for Networks and Communities of Practice”, International Institute for Sustainable
Development
Creative Economy and the Role of Higher Education in In Development, delivered dlm Rakor, Dit. Research and
Community Service Kemendikbud January 21, 2012
Felix Kusmanto (2012), "The Role of Corporate Social Responsibility in the Development of Creative Economy In
Indonesia National Seminar on Entrepreneurship and Business Innovation”, Jakarta
Howkins, J. (2001), "The Creative Economy, How People Make Money from Ideas," Penguin Books.
Ministry of Trade of the Republic of Indonesia (2009),"Indonesian Creative Economy Development in 2025:
Indonesian Creative Economy Development Plan 2009-2025," Deperindag RI.
Mohammad Adam Jerusalem (2009), "Designing Creative Industries Sector Benchmarking Fashion Approach on
Queensland's Creative Industry", Proceedings of the National Seminar Clothing Engineering Program, University
Tarumanegara
Mutamimah, Mustaghfirin, and Mustafa (2015),”ICT Creatif Industry: Sinergized Approach”, Asean International
Conference on Islamic Finance, November, 18-19
Mustafa and Mutamimah (2103), "Mapping the character and competence of creative ICT industry in Central Java",
Ikitas, Semarang
Puguh Setyo Nugroho and Malik Cahyadin (2009), "Analysis of Development of Creative Industry in Indonesia”,
www.google.com
Rota Cosimo, Nikolai Reynolds, and Cesare Zanasi (2013),” Sustainable Food Supply Chains: The Role of
Collaboration and Sustanable Relationship,International Journal of Business and Social Science, Vol.4, No.4, April
Wehbe M.B, RA Seiler, AM Vianco,MA Mendoza, AM Baronio and AJ Tonolli (2015),”Assesing Sustainability of
Local Production Systems: A Proposal Based on Socio-ecological Resilience and Collaboration” National Inter
University Council, Argentina
Authors,s Bibliography
Mutamimah, Pacitan, September 13, 1967, graduate of the doctoral program in Economics at Gadjah Mada University,
Yogyakarta, Semarang Unissula Faculty of Economics.
Suryani Alifah, Kendal, March 25, 1969, the doctoral graduate of Electrical Engineering, University Technology
Malaysia, Faculty of Industrial Technology, Unissula Semarang.
Mustafa, Jember, 23 November 1977, graduate Master of Industrial Engineering, Diponegoro University, Semarang,
Faculty of Industrial Technology, Unissula Semarang.
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INNOVATIVENESS OF BATIK SMES AND MARKET ORIENTATION: A

CONCEPTUAL MODEL
Rahab1), Nurul Anwar2), Darmanto Sahat Setyawan3)

1)
Management Department, Faculty of Economics and Business, Jenderal Soedirman University
HR Boenyamin Street 708, Purwokerto, Central Java, Indonesia
2)
Economic Science, Faculty of Economics and Business, Jenderal Soedirman University
3)
Faculty of Social and Political Sciences, Jenderal Soedirman University
1)
rahab_inc@yahoo.co.id
Abstract
One of the key components for the success of firms is the extent of their innovativeness. This paper aims to develop
aninnovativeness model based on market orientation to increase sustainable competitive advantages for Small Medium
Enterprises (SMEs). Market orientation have three behavioural components: customer orientation, competitor
orientation, inter-functional coordination. The authors expect market orientation culture as driver of SMEs toinnovate
continuesly in order to achieve competitive advantage. Based on our proposed innovativeness model based on market
orientation, we propose that customer orientation, competitor orientation, inter-functional coordination contribute on
firm’s innovativenessFirms uses several strategies: creating customer value, understanding needs of consumers, create
customer satisfaction, provide post- sales services, trying to search up information from customers about their
competitors, respond quickly to competitor actions, cross- functional coordination within the company to incerase their
innovation performance.
Keywords: Market Orientation, Innovativeness, SMEs, Batik
Introduction
In the current competitive environment, firms are pressured to develop new products and services to response needs
of customers changing and competitor action. Peters (1984) suggested that a commercial firm is characterised by total
customer satisfaction, continuous innovation and the integrated efforts of all its members of organization. Market
orientation and innovation have been corelated to performance firms (Deshpandeánd Farley, 1999). Although the
relationship between market orientation (MO) and economic performance has been widely studied, the effect of MO on
product innovation’s success has not received so much attention (Ramaseshan et al., 2002). Indeed, it has been
suggested that market orientation may rely on constructs such as innovation or innovativeness to influence and explain
market performance (Menguc and Auh, 2006). Some studies have contended that market- oriented firms create new
products and services that transform customers’ needs (Jaworski and Kohli, 1993). Deshpandeét al., (1993) argue that a
strong MO leads to superior performance in innovation and success with new products.
The previous literature provideevidence for the basic propositions that marketorientation influences firm
innovativeness. Within marketing, there hasbeen great interest in market orientation as anintangible factor that has an
effect on organizationalperformance Homburg et al (2003).Market orientation is the business culture thatproduces
performance by creating superiorvalue to customers (Slater and Narver, 2000).Organizations must constantly innovate
in everyaspect of theirbusiness operations in order tocompete and survive in thecompetitive marketplace. Kohli &
Jaworski (1990) provided a usefulinterpretation of the marketingconcept and amarket orientation from a behavioral
process. Matsuno et al., (2003) defined marketorientation as the organization wide generationof market intelligence
pertaining to current andfuture customer needs, dissemination of intelligenceacross departments and organizationwide
responsiveness to it.
Slater and Narver(2001) focuses the value and beliefs marketorientation approach encourages (1) continuouscross
functional learning about customers’expressed and latent needs and aboutcompetitors’ capabilities and strategies
(2)cross functionally coordinated action to createand exploit the learning. The culture includingsuch values and beliefs
results in collectionanduse of market information, developmentof market oriented strategy and implementationof
market oriented strategy (Gima, 1995).Matsuno et al., (2003) said that commitment to superiorvalue for customers
market oriented behaviorsmanifest organizational culture.
Market orientation is considered as one of themost progressive theories (Houston 1986, Dalgic 1998,Webster 1988).
Application of this theory can result in abetter performance of a company (Narver, Slater 1990,Ruekert 1992, Jaworski,
Kohli 1993, Kohli, Jaworski,Kumar 1993, Slater, Narver 1994, Deng, Dart 1994,Deshpande, Farley, Webster 1993,
Han, Kim, Srivastava1998, Slater, Narver 2000). The implementation of market orientation can bereflected by business
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orientation for innovation. Business orientation on customer will motivate organizations’member to improve their
innovativeness. Relation between market orientation and firm innovativeness will be explored to develop
innovativeness model for SMEs. According to Indonesian Trade Ministry, the batik industry constitute of one of 14
classified creative industries in Indonesia featuring world famous specific Indonesian nation. As a part of creative
industry, batik design and the batik product is possible continuously develop, the consequence is innovation should be
seriously considered to appreciate batik craftsmanship. Developing innovativeness of Indonesian SMEs need changing
business orientation. Marketorientation is relevan forbatik craftsmanship to create their innovation. This paper focuses
to answer research question, are there relationship between dimensions of market orientation and SME's innovativeness.
The aims of this paper to develop conceptual model of the relationship between dimensions of market orientation and
SME's innovativeness.
Underlying Theory
Resource-Advantage Theory of Competition (R-A Theory) is chosen as the underlying theory for this
study.Generally based on R-A Theory, the consumers’ tastes and preferences always change. For that reason, Hunt and
Morgan (1995) suggested that the firms which look for superior financial performance, they need to engage major
innovations as a new resource to become competitive advantage as compare to the competitors. Within the R-A theory
framework, market orientation serves as the intangible resources offered value for market segments to the firm to
produce efficiently and/or effectively (Remli et al., 2013). The application of this theory will lay the organization to
observe and take up market orientation as one of the important strategy in performing their marketing strategy to
achieve superior performance.
Market orientation has been characterized as aculture of the organization that requires customersatisfaction be put at
the center of businessoperations and thereforeproducessuperior value for customers andoutstanding performance for the
firm (Day, 1994;Narver & Slater, 1990). Customer needs andexpectations evolve over time and deliveringconsistently
high quality products and servicesand responsiveness to changing market needsoften calls for the introduction of new
productsand services together with innovation capacityfor a firm. Market orientation has also beendescribed as the
implementation of marketingactivities designed to satisfy customer needsbetter than competitors are able to satisfy
customerneeds (Martin & Grbac, 2003). While thereis some variability in conceptualizations ofmarket orientation, it
typically focuses on threecomponents; (1) customer focus, (2) competitorfocus and (3) interfunctional coordination
(Celuchet al, 2002).
Deshpande and Farley (1999, 2000) state a firm must be innovative to gain a competitive advantage in order to
survive and grow. They found that, for a representative sample of Shanghai firms competing in business-to-business
markets, success was related to innovativeness, a high level of market orientation, and outward-oriented organisational
cultures and climates (Deshpande and Farley 2002).
According to Auh and Menguc (2005), organisational culture captures the spirit of innovativeness. However, there is
no real consensus on the meaning of innovativeness, because it is a multidimensional, composite variable made up of
perceptual measures such as 'radicalness', and 'relative advantage', or operational measures like 'number of innovations
adopted' (Roehrich 2004, Nystrom, Ramamurthya and Wilson, 2002). The concept of irmovativeness depends on the
standpoint the research takes. Some authors define it as the uniqueness or novelty of the product (Ali, Krapfel and
LaBahn 1995); or whether individuals are early adopters of innovation (Rogers 1995).
Proposed Conceptual Model

Based on the conclusions previous studies, in this investigation, we intend to goa step further by analysing the
relationship between a firm’s market orientation and thenumber of innovations that are effectively developed and
commercialized rather than adoptedwithin the organization. We believe that market-oriented firms are not only
morewilling to adopt innovations but also to develop and commercialize them. Market orientationthrough intelligence
generation is a source of ideas for new products and services; this fact togetherwith the focus on providing superior
value to the customers by means of fulfilling their needs andthe evolution of their preferences should positively affect
the degree of innovation in companies.In order to test this reasoning, the role of a firm’sinnovativeness will be also
taken into account asan element of a firm’s culture thatpredisposes companiesfavourably to innovation.Innovation, for
its part, has been proven toenable the firm toachieve better outcomes andimprove its competitive position. However, the
fact should notbe overlooked that some studies havedemonstrated that market orientation also exercises adirect positive
influence on entrepreneurialresults (Slater and Narver, 1994; Langerak and Commandeur, 1998). Therefore, it is
necessary tocompare the direct influence of market orientation on organizational outcomes with the influenceexercised
through variables relatedto innovations.
By taking the aforementioned investigations into account, the hypotheses proposed in thisinvestigation aim to
confirm the empirical evidence that has been collected to date, as well ascontrast the postulated relationships. Therefore,
the idea is put forward that market innovationis related to companies’ willingness to innovate. In turn, this variable
generates a higher rate ofinnovation. However, the possibility of a direct effect of market orientation on the quantity
ofinnovations to be developed is also accepted. Therefore, we believe that a greater disposition toinnovate is coherent
with companies which commercialize products offering a higher degree ofinnovation, apart from the direct effect of the
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firm’s market orientationlevel on the latter variable,as demonstrated by Slater and Narver (1996). Both variables ± the
innovation rate and productinnovativeness should lead to the achievement of superiorperformance. Thus, more
innovativeproducts involve more potential risks associated withtheir market success (Urban and Hauser,1993), as well
as more potential benefits for the firm (Kleinschmidt and Cooper, 1991). However,due to their primary focus on
providing superior customer value, market-oriented firms are wellpositioned for adapting innovations to customers’
actual and emerging needs.The following prepositions are formulated based on the review of literatures.
Preposition 1: Higher levels of customer orientation are associated with higher levels of innovativeness.
Preposition 2: Higher levels of competition orientation are associated with higher levels of innovativeness.
Preposition 3: Higher levels of interfunctional coordination are associated with higher levels of innovativeness.
Proposed conceptual model is shown in (Figure 1).
Customer
Orientation
P1
Competition Innovativeness
Orientation P2
P3
Inter-Functional
Coordination
Figure 1. Proposed Conceptual Model
Practical Implications and Conclusions

Customers today are highly informed and more demanding than before. Responsiveness to customer needs and
changing market conditions become important for the success of firms and calls for the introduction of new products
and services together with innovation capacity for a firm. Given the consistent interactions between the dimensions of
market orientation and firm innovativeness, we would argue that efforts of firms to enhance the collection and use of
market information and implementation of market oriented strategy is especially important to companies that want to
gain competitive advantage. The findings suggest that market orientation can lead to firm innovativeness and
competitive advantages as consistent with the findings of Baker and Sinkula (1999), such that market orientation can
lead to successful new product development activity.
Therefore, our results suggest that market orientation as a driver of organizational market information processing
activity should be incorporated into conceptualizations of innovation process, since it exists on a continuum
characterized by the degree to which firms acquire, disseminate and respond to information obtainedfrom customers,
channels and competitors (Jaworski and Kohli, 1993; Baker and Sinkula, 1999; Celuch et al., 2000). Reacting to market
feedback may allow firms to adapt successfully in the external environment which may be characterized both as
dynamic or stable. Market orientation is a source of new ideas and motivation to respond to the environment and
promotes innovativeness (Hurley and Hult, 1998).
Because of its external focus, market orientation is well positioned to appreciate the benefits of market driven
learning and entrepreneurial values (Slater and Narver, 1998). Cultvating a market-oriented strategy may indeed,
become one of the primary means to maintain competitive advantage. Environmental dynamism and competition is an
emerging economy force organizations to be innovative in their business development and to develop learning behavior.
Managers in organizations will have to be willing to take risks, be proactive entrepreneurs and be market-oriented.
Our study explore the effects of market orientation components on firm innovativeness. Collection and use of
market information, development and implementaion of market-oriented strategy are found to be related to firm
innovativeness. Collection and use of market information and development of market-oriented strategy are found to be
associated with innovation performance. The results suggest that a firm with a market – orientation is likely to improve
its innovation capacity. The three dimensions of marrket orientation, market intelligence generation, development of
market oriented strategy and implementation of market oriented strategy areimportant for innovation performance.
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Evidence from this study also points to the importance of a managerial emphasis on the creation of an internal
business environment conducive to innovative activities. Specifically, a market orientation was found to have a
significant and positive effect on innovativeness in the long term.
References
Auh, S. and Menguc, B. 2004. Top Management Team Diversity and Innovativeness: The Moderating Role of
Interfunctional Coordination, Industrial Marketing Management, Vol. 34, pp. 249-261
Baker, W. and Sinkula, J. 1999. The Synergistic Effect of Market Orientation and Learning Orientation on
Organisational Performance, Academy of Marketing Science Journal, Vol. 27, No. Fall, pp. 411-427.
Celuch, K. G., Kasouf, C. J., & Strieter, J. C. 2000. The influence of organizational market orientation on
individual‐level market‐oriented cognitions. Psychology & Marketing, 17(11), 935-954.
Dalgic, T. 1998. Dissemination of market orientation in Europe: a conceptual and historical evaluation. International
Marketing Review, 15(1), 45-60.
Deng, S. and Dart, J. 1994). Measuring Market Orientation: a Multi-Factor, Multi-item Approach, Journal of Marketing
Management, Vol. 10, No. 8, pp.725-742.
Deshpande, R. Farley, J. U. and Webster, F.1993. Corporate Culture, Customer Orientation, and Innovativeness in
Japanese Firms: A Quadrad Analysis, Journal of Marketing, Vol. 57, No. 1, pp. 23-37.
Day, G. S. and Nedungadi, P. 1994. Managerial Representations of Competitive Advantage." Journal of Marketing,
Vol. 58, No. April, pp. 31- 44.
Atuahene‐Gima, K., Slater, S. F., & Olson, E. M. 2005. The contingent value of responsive and proactive market
orientations for new product program performance. Journal of product innovation management, 22(6), 464-482.
Han J. K. Kim, N. and Sirvastava R. K.1998. Market Orientation and Organisational Performance: Is Innovation a
Missing, Journal ofMarketing, Vol. 62, No.4, pp. 30-45.
Himt, S. D. and Morgan, R. M. .1996. The Resource-Advantage Theory of Competition: Dynamics, Path Dependencies,
and Evolutionary Dimensions, Journal of Marketing, Vol. 60, No. October, pp. 107-114.
Hurley, R. F. and Hult, G. T. M. 1998. Innovation, Market Orientation, and Organisational Learning: An Integration
and Empirical Examination, Journal of Marketing, Vol. 62, No. 7, pp. 42-54.
Jaworski, B. J. and Kohli, A. K. 1993. Market Orientation: Antecedents and Consequences, Journal of Marketing, Vol.
57, No.7, pp. 53-70.
Kleinschmidt, E. J., & Cooper, R. G. 1991. The impact of product innovativeness on performance. Journal of product
innovation management, 8(4), 240-251.
Kohli, A. K. and Jaworski, B. J. 1990. Market Orientation: The Construct, Research Propositions, and Managerial
Implications". Journal ofMarketing, Vol. 54, No. 4, pp. 1-18.
Kohli, A. K., Jaworski, B. J. and Kumar, A.1993. MARKOR: A Measure of Market Orientation. Journal of Marketing
Research, Vol. 30, No, November, pp. 467-477.
Langerak, F., & Commandeur, H. R. 1998. The influence of market orientation on positional advantage and
performance of industrial businesses. In American Marketing Association. Conference Proceedings (Vol. 9, p. 61).
American Marketing Association.
Martins, E. C. and Terblanche, F. 2003. Building Organisational Culture that Stimulates Creativity and Innovation.
European Journal of InnovationManagement, Vol. 6, pp. 64-74.
Matsuno, K. Mentzer, J. T. and Ozsomer, A. 2002. The Effects of Entrepreneurial Proclivity and Market Orientation on
Business Performance, Journal of Marketing, Vol. 66, No. 7, pp. 18-32.
Menguc, B., & Auh, S. 2006. Creating a firm-level dynamic capability through capitalizing on market orientation and
innovativeness. Journal of the academy of marketing science, 34(1), 63-73.
Narver, J. C. and Slater, S. F.1990. The Effect of a Market Orientation on Business Profitability, Journal of Marketing,
Vol. 54, pp. 20-35.
Nysfrom, P. C. Ramamurthy, K., and Wilson, A.L. 2002. "Organisational Context, Climate and Innovativeness:
Adoption of Imaging Technology". Journal of Engineering and Technological Management, Vol. 19, pp. 221-247.
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(1984): 111-125.
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Roehrich, G. 2004. Consumer Innovativeness: Concepts and Measurements". Journal of Business Research, Vol. 52,
pp. 621-677.
Rogers, E. M. 1995. Diffusion of innovations. New York: The New Press.
Slater, S. F. and Narver, J. C. 1994. Does Competitive Environment Moderate the Market Orientation- Performance
Relationship?, Journal ofMarketing, Vol. 58, pp. 46-54.
Authors birth on Kebumen, Central Java Province, August, 24. He get undergraduate (SE) on Management Department,
Faculty of Economics and Business, Jenderal Soedirman University. His master (MSc) get from Master and Doctorate
Program, Faculty of Economics and Business, Gadjah Mada University. Now, he studying on PhD program on Faculty
of Economics and Business, Gadjah Mada University. His research interest on service marketing, online marketing and
customers behaviour.
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BUILD LEGAL BASIS CONTROL MODEL TRADITIONAL MARKETS IN

CONDITIONS MODERN MARKET
Retno Mawarini Sukmariningsih1), Agus Nurudin 2), Rahab3)

1) 2)
Faculty of Law, University of 17 Agustus 1945 (UNTAG), Semarang, Indonesia
3)
Management Department, Faculty of Economics and Business, Jenderal Soedirman University
1)
retnomawarinisukmariningsih@gmail.com
Abstract
This research is motivated phenomenon is still weak legal protection for traditional markets in the era of free
market that is also applied in Indonesia, the general objective of this study is to establish the legal basis regulation
model of traditional markets amid the crush of the modern market, while the specific goal is to identify issues and
concerns about the profile venture traditional markets and modern markets, identify trends in the absence of a legal
basis setting the model of traditional markets as well as an inventory of their factor strengthening the opportunities and
challenges in the traditional markets.
This research has great significance because it has contributed to the discovery of the roots of the problems
associated with legal protection for traditional market which is regarded as the weaker party, where the embodiment of
partisanship local governments to establish Draf tLocal Regulation became Regional Design Regulations that
incorporate the norms regulating the ideal distance setting quotas and zoning. Akar problems relating to the legal
protection for traditional market which is regarded as the weaker party, where the embodiment of partisan ship local
governments to establish a local Regulation Draft later became the regional design Regulations that incorporate the
norms regulating the distance ideal setting, quotas and zoning.
The approach is multidisciplinary design is the science of law, especially the law, civil law and economics. The
method used is a normative empirical qualitative analysis. The research location in the City Semarang. Teknik data
collection will be done by observation, focus group discussions, in-depth interviews, dialogues and interactive
discussions. Analysis of data using qualitative analysis
Keywords: Legal Basis, Model Arrangement, Traditional, Market, Modern
Introduction
Indonesia as a State of Law (Article 1 paragraph 3 ofthe State Constitution RI 1945) the consequence is that the
stateis obliged to implement the legal development is done in a planned, integrated and sustainable in ensuring legal
protection for the people, to meet the public need for the legislation as a legal base in the every activity including the
activities of marketing. The activities of marketing that micro, small, medium and large form part of the trade that can
boost economic growth in the region, because its role is strategic in encouraging the growth of production, distribution,
fulfillment of basic needs and job creation, it would require the configuration settings for its existence does not cause
polemic in society.
Trading activity, actually originated from the philosophy of the interaction between sellers and buyers. The
interaction that occurs is an exchange of property in this case money for goods and services, transfer ownership of the
property and the goods / services of one person to another, the acquisition benefits both parties, as well as the lack of
regulation or legislation relating to the legality of buying and selling. Such interactions needed space to accommodate
the activities of buying and selling there. The market is a space to facilitate the activities of buying and selling goods to
the seller more than one number. Today the term market is categorized into traditional markets and modern markets.
The basic thing that distinguishes them is the process of interaction and pattern control or management between the two.
In the traditional markets which are generally owned by the government, there was a direct interaction between the
seller and the buyer, with the bidding process. While the modern market, in general, buyers conduct a self-service basis,
or there is a saleswoman, and the system is done with a purchase price that has been set, there is a price tag. Modern
markets including the store, mall, plaza, minimarket, supermarkets and hypermarkets.
Market presence, especially traditional ones, is one of the most obvious indicators of economic activities in a region.
Traditional market actually has a natural competitive advantage that is not directly owned by the modern market. The
strategic location, extensive sales area, complete diversity of goods, lower prices, the bargaining system which shows
familiarity between the seller and the buyer an advantage possessed by the traditional market. However, in addition to
bearing the natural advantages, the traditional market has many advantages that have become the basic character very
difficult to change. Factor market design and appearance, atmosphere, layout, layout, diversity and quality of the goods,
sales promotion, market limited operating hours, as well as optimizing selling space utilization is the biggest drawback
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of traditional markets in the face of competition from modern market. The changing times and changing lifestyles have
made the existence of traditional markets become a little disturbed. It is inevitable, that the existence of modern market
today has become a demand and a consequence of modern lifestyles that thrive in the community. With all the
weaknesses that exist in the traditional market must be protected to indicate the presence of Indonesian economic
growth by creating a community-based legal basis in the form Local regulation.
The objective of this study was to descript and explain about Build Legal Basis Control Model Traditional markets
in conditions modern market . The setting of the distance Ideal, quotas and zoning of modern market must be set by the
regional regulation is not the Mayor Regulation, so that the traditional market with modern market can coexist, for
quota each district is different in accordance with the formulation of the density of population, the development of new
settlements , accessibility of the region, and the existence of traditional markets and stalls or shops in the surrounding
area.
Methods
Method, Data collected through interviews and discussions with stakeholders and policy makers. This study uses
normative legal research as well as the nature of the descriptive and qualitative analysis.In addition, statute or regulation
and historical approach were also used.
Result And Discussion

Modernization is a process that can affect people's activity patterns of urban design changes that can be seen with
the growth and development of modern markets is rapidly increasing. Consumer behavior has begun to shift from
traditional outlets to buy the modern market. Not only found in the metropolis but has come to small towns. It's easy to
get minimarket, supermarkets and even hypermarkets are not far away from residential areas, even modern markets
such as minimarkets it ignores the market building. The results of surveys (Year 2015-2016 found that there are two (2)
minimarket who already have big names with the type of goods sold are not too many differences can coexist in one
village and both carry out activities approximately 50 m the building standing traditional markets and stalls or grocery
stores, this condition if left unchecked will cause gaps and incompatible with populist economic base. Furthermore,
from the year 2001-2007, the growth of modern market in Indonesia increased by 11.8% (the Department of Industry
and Trade of the City of Semarang Year 2008).
The phenomenon of modernization and globalization is the case in almost all urban areas in Indonesia, including
Semarang has a fairly competitive trade development. In 2010, the number of markets that is owned by the Government
of Semarang city is known as the traditional market is the number of 44 markets scattered around the city of Semarang
(Semarang City Market Agency, 2010). Meanwhile, the number of modern shops, to 2010 recorded a total of 56 units,
not including the many minimarkets scattered neighborhoods (Department of Industry and Trade of Semarang, 2010).
The number of modern stores is expected to continue to grow in line with the opening of investment opportunities in the
city of Semarang and the era of free trade market.
Conclusion
The results showed that the existence of traditional markets do not rule out further marginalized if a number of
factors such as: the rapid growth of the business market / modern retail, the condition of traditional markets, market
governance and finance are not fixed / arranged according to spatial Semarang city that has become a legal basis in
laying Semarang more organized again.
A form of protection against traditional Pasar is arranged ideal distance, quotas and zonase into legal products such
as Local Regulation (Perda) not just the Mayor Regulation (Perwal). Distance to traditional markets and modern
markets which is 500 meters accordance Semarang Mayor Regulation No. 5 of 2013 concerning Settlement Modern
Shop Mini Market.Not only a short distance, the regulation also establishes a quota minimarket that as many as 529
pieces scattered in the District 16 area Semarang, If seen maximum quota of, their respective districts for example
Mijen 17 modern stores, Gunungpati (19), Banyumanik (52), Gajahmungkur (27), South Semarang (35), Candisari (24),
Tembalang (53), Pedurungan (58 ), Genuk (25), Gayamsari (24), East Semarang (27), North Semarang (27) Semarang,
Central (32), West Semarang (54), Monument (16), and Ngaliyan (33). The setting of the quota of each district should
be different according to the population density, the development of new settlements, the accessibility of the region, and
the existence of traditional markets and stalls or shops in the surrounding area.
Until now, researchers conducted this study the number of modern market in Semarang No 436, while there are 529
pieces quota so there is still potential for the establishment of minimarket. To zonase or type of goods that are sold must
be the concern not to turn off the traders who are in the traditional market. From the description above shows that the
spacing of the traditional and modern market, quotas minimarket and zonase only be regulated by the Mayor. which in
its formation Mayor Regulation (Perwal) be the prerogative of the Mayor, it is becoming very dominant subjectivity of
Perwal.Ideally protection for traditional market is building a base shaped Legal Regional Regulation (Perda) by
incorporating the norms regulating the physical presence of the distance Traditional Market Modern Market, Market
quota modern and zonase. It becomes mandatory for inclusion in the draft local regulation.Why local regulation? since
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its formation involves community participation that will truly understand the needs of sustainability of traditional
markets in the midst of a modern market.
From the description above gives an understanding that the existence of traditional markets and modern markets
need to be regulated and supervised for the continuation and improvement of people's livelihoods. which shall refer to
the Spatial Plan of Semarang and Detail Spatial Plan City including regulation zoning, hence the importance of legal
basis at the local level to empower traditional markets in order to grow and develop in harmony, mutual need,
strengthen and profitably with the passage of the development of modern market.
References
Awan Dantosa & Puthut Indroyono, TraditionalMarket TradersThreatened, Jurnal Ekonomi Rakyat, No. 108/13,
Jakarta, 2001.
Harry Alexander, DesignFreeLocal RegulationinIndonesia, PT. XSYS Solusindo, Jakarta, 2004.
Indonesian State Constittion of 1945
Istiningtyas, Dyah Arum, Policy AnalysisandDevelopmentStrategiesof Traditional Markets, Bogor,Faculty of
Agriculture , ITB, Bandung,2008
Sony Maulana S., DesignRulesForBeingContributionsOptRegionalLocal GovernmentSocialDemocraticChangein the
Region,Harmonizationof Technical AssistanceRegulationFrontierRegionsin the Perspective ofHuman Rights,
Samarinda, 2005
Authors birth on Yogyakarta city, Yogyakarta Province, August, 24. He get undergraduate (SH) on Law Department,
Faculty of Law, Gadjah Mada University. His master (MH) get from Master and Doctorate Program, Faculty of Law,
Gadjah Mada University. Now, he finished PhD program on Faculty of Law, Gadjah Mada University. His research
interest on state law.
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EXPLORING ANTECEDENTS AND CONSEQUENCE OF INDONESIAN MUSLIM

YOUTHS' ATTITUDE TOWARDS HALAL COSMETICS PRODUCT
Vita Briliana1) Nurwanti2)
Trisakti School of Management, West Jakarta, Indonesia.
1)
vita@stietrisakti.ac.id
Abstract
Religion is an important cultural factor to study because it is one of the most universal and influential social institutions
that has significant influence on people’s attitudes, values and behaviors’ at both the individual and societal levels.
Indonesian Muslims live in multi-religious societies are considered more conscious about the permissibility (Halal) of
products and thus the importance of the Halal cosmetic market for both producers and consumers, the existing
literature focuses on Halal food products, and only a limited number of studies exist about Halal cosmetic products.
The purpose of this paper is to provide an improved understanding of the influential factors on attitude toward halal
cosmetics product. Empirical evidence from both depth interviews and data garnered from 350 surveys were integrated
into a conceptual model. The model was tested using structural equation modeling. The causal model was validated
using SmartPLS 2.0. The results indicated that attitude towards halal cosmetics product were important antecedents of
intention to purchase halal cosmetics product and mediated the influence of Knowledge, Religiosity andSubjective
Norm. This study is expected to provide insight on strategies to encourage marketer to adopt cosmetics halal product in
the future. This study further contributes by providing a comprehensive framework of the antecedents and consequence
of attitude towards halal cosmetics product on intention to purchase.
Keywords: Knowledge, Religiosity, Subjective Norm, Attitude Towards Halal Cosmetics Product, Intention To
Purchase
Introduction
Religion affects consumers’ lifestyles, which in turn affect consumer decision behavior (Delener, 1994). Religion
either enhances or weakens a particular choice. Several studies reflect that religion influences consumer attitude and
behavior (Pettinger et al., 2004). Furthermore, El-Bassiouny (2014) proposed that Muslim consumers described as
religious and high in religiosity will have different consumption patterns and will tend to consume Halal products and
services. Halal is a Muslim religious certification that is used to endorse a product or service as being religiously
compliant with the requirements and pillars of Islam (Haytham Siala,2013). Even though the market for halal cosmetics
is great, most of these cosmetics and other personal care products made by manufacturers of non-Muslims countries of
non-Muslims, which can lead to disputes on the basis of material relating to halal raw materials. As a result, the
cosmetic and pharmaceutical sectors have been the subject of greater study by Muslim scholars because of the suspicion
that many international brands using enzymes extracted from pork or alcohol as a preservative, generate a lot of
cynicism about this brand among Muslim consumers are seeking for Halal products. Studied by Ireland and Rajabzadeh
(2011) found that people who use Halal products have high loyalty to the brand of Halal products. In addition to these
exciting findings are non-Muslim consumers also buy halal products due to the perception that they are safer to use than
non-halal products because consumers consider non-Muslim Halal logo to give recognition and guarantees regarding
food products (Abdul Aziz and Chok, 2013).
Recently there has been 760 cosmetics company spread all over Indonesia. The high number of players in the
cosmetics industry is not separated from the value of the business is very promising. According to data from the
Ministry of Industry, cosmetic product export value in 2015 to reach US $ 818 million or IDR 11 trillion. Meanwhile,
the value of imports was less than half, is US $ 441 million (http://mix.co.id/news-trend, accessed on Sept 9, 2016).
Cosmetics Wardah a local cosmetic product Indonesia, which is the first brand in the cosmetics industry that claims of
halal products from the target market for the modern female consumer using hijab marketed since 1995. Many
Indonesian women, not only the Moslem ones, have chosen Wardah. It creates a context where Wardah always
innovates and stays creative to meet every need are made with only premium all natural, halal and safe ingredients
(http://www.wardahbeauty.com, accessed on Sept 9, 2016).
In Jakarta, the capital of Indonesia with an area of 664.01 km2, a population of 9,998,495 peoples
(http://www.kemendagri.go.id, accessed 2 April 2016), with a Muslim population as many as 8,200,796 people is a
potential market for Halal cosmetics products such as Wardah (production PT Paragon Technology)
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(http://www.bps.go.id, access on April 14, 2016). With the number of women as a potential market of cosmetic
products at the age 18-50 years urban approximately ± 35 million for urban. Every woman wants to look unique and
distinct from one another and it holds more importance to teenagers. In addition, earlier studies have frequently
investigated the effects of knowledge and religiosity on attitude towards halal food or fashion.The purpose of this
research is to provide an improved understanding of the nature of the relationship between knowledge and the different
religiosity dimensions focusing on Islam and the attitude towards halal cosmetics product, particularly amongst the
Muslim youth segment.
Literature Review
Azmawani et al., (2015) Knowledge (KN) refers to the facts, feelings or experiences known by a person or a group
of people; it can also be defined as awareness, consciousness or familiarity gained by experience or learning.KN has an
influence on intention through attitude; hence, increasingKN will be likely to influence intention (Bang et al.,2000).
Previous research by Hamdan et al., (2013) findings show that there is a weak relationship between KN of Halal foods
and purchasing decision.
Religiosity (RT) is defined as the extent to which an individual is committed to his religion and to which that religion is
reflected in the individual’s attitudes and behavior. Moreover, religiosity is the degree to which one is religious.
Religion plays one of the most influential roles in shaping food choice in many societies; its impact on food
consumption depends on the religion itself and on the extent to which individuals interpret and follow its teachings
(Bonne et al., 2009). For instance, findings Swimberghe et al., (2009) showed that there is a significant relationship
between a consumer’s religious affiliation and a number of consumption-related variables. The model used to
operationalized religiosity in this research was that in accordance with that proposed by Glock (1972), in which
religiosity has been operationally defined as having five dimensions: ideological(ID), ritualistic(RT), intellectual(IN),
consequential(CO)and experimental(EX). The ideological dimensions include the overall beliefs associated with
areligion. For example, beliefs about God, Prophet, fate. Ritualistic dimensions includethe actions prescribed by
religion such as: prayer, fasting, pilgrimage. Intellectualdimensions refer to an individual’s knowledge about religion.
Consequential dimensionsrefer to the importance of religion, while experimental dimensions describe thepracticality of
the religion. (Hanzaee et al., 2011).
Subjective Norms (SN) also referred to as normative norms, are a function of beliefs that specify an individual’s
thinking about the acceptability of a particular behaviour by related groups, for example consuming Halal products
(Lada et al., 2009). The role of Subjective Norm, i.e. the social influences on the person’s behaviour, which may include
friends, peers and other family member expectations (Lutz, 1991).
Findings Madden et al., (1992) showed that in Theory of Reasoned Action (TRA), consumers’ attitudes have a
positive impact on their intentions to buy a product. Among the studies that have assessed this relationship for Halal
products are that of Lada et al. (2009), who found that there is a positive relationship between attitude and intention to
choose Halal products. Intentions are “the person’s motivation in the sense of his or her conscious plan to exert effort to
carry out a behavior” (Azmawani et al., 2015)
The existing research model was based on the postulates of Theory of Reasoned Action (TRA) to investigate
Muslim attitude towards Halal products and their intention to choose such products. This study proposed research
objective to be achieved using a two stage model. Knowledge (KN), Ideological dimension of religiosity (ID),
Ritualistic dimension of religiosity (RT), Intellectual dimension of religiosity (IN), Consequential dimension of
religiosity (CO), Experimental dimension of religiosity (EX) and Subjective Norm (SN) are proposed as antecedents of
Attitude towards halal cosmetics product (ATH) in1st stage of the model. In the second stage of the model the influence
of Attitude Towards Halal cosmetics product (ATH) on Intention to Purchase (IP). To examine the relationships
between predictors and response construct, Structural Equation Modeling with the Partial Least Squares (PLS) version
2.0. Briliana (2014) was applied to evaluate the measurement model and structural model PLS analysis was selected
because it can assess all paths simultaneously for model prediction and does not need a large sample size (Hair,
2017:22). Furthermore, in most social studies, data tend to be distributed non normally and PLS does not require any
normality assumptions. The research framework will be presented in Figure 1.
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Stage One
KN
H10.7
83 Stage Two
ID H2
H3 H8
RT ATH IP
H4
IN
H5
CO H6
H7
EX
SN
Figure 1 Research Framework
This study used a self-administrated questionnaire with closed-ended questions. The questionnaire was distributed
using non-probability purposive sampling. While purposive sampling was used, the breakdown of most of the
demographic characteristics of the respondents was representative of the real population of Indonesia. Cross-sectional
data were collected by means of a structured survey in Jakarta over multiple days in August 2016. Conducting a
consumer perception survey among Muslims is easy as the number of Muslims is the majority in Jakarta. The survey
was based on an area sampling technique conducted at a Muslim school and in mosques, universities and shopping
areas in Jakarta. Respondents for the study qualified according to pre-set criteria, i.e., they are Muslims, members of
Muslim societies, routinely use cosmetics, but have never bought or used Wardah cosmetics.

The distribution of 400 questionnaires managed to have a return of 370 questionnaires, of which 350 (or 87.5%)
were usable ones for further analysis. Table 1 describes the characteristics of the sample.
Table 1 Characteristic Sample

Frequency %
Age <18 70 20.00
18-20 145 41.43
21-23 135 38.57
Educational level Senior High School 196 56.00
Diploma 73 20.86
Bachelor 81 23.14
Income per Month < IDR 3,100,000 91 26.00
IDR 3,100,001 - 4,100,000 159 45.43
IDR 4,100,001 - 5,100,000 66 18.86
> IDR 5,100,001 34 9.71
Occupation Student 36 10.29
Employee 109 31.14
student also employee 147 42.00
Entrepreneur 56 16.00
Other 2 0.57
Formal Islamic Elementary school 284 81.14
education level Junior high school 61 17.43
for the first time Senior high school 1 0.29
Other 4 1.14
From the respondent’s profile, the study found majority (41.43%) were in the 18 to 20 years of age group, holders of
Senior High School (56%), and earned monthly income of IDR 3,100,001 to 4,100,000 (45.43%). Most of them
(81.1%) admitted that they learned the lesson Islam when Elementary School.
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Table 2 shows the composite reliability (CR) and Cronbach Alpha (α) which exceeded the 0.70 recommended
values by Hair et al (2017). The assessment of the structural model involves an estimation of the path loadings and the
R2 values (Table 2).Path loadings indicate the strengths of the relationships between the independent variables and
dependent variable, while R2 values measure the predictive power of the structural models.Interpreted as multiple
regression results, the R2 indicates the amount of variance explained by the exogenous variables. Here, correlation
between constructs that exceed the square roots of their AVE indicates that they may not be sufficiently discriminable.
Using a bootstrapping technique, we calculated path loadings and t-statistics for hypothesized relationships. The PLS
analysis results shown in Table 3. In marketing, researchers usually assume a significance level of 5%. Hypotheses with
t-value above 1.96 will be accepted and a hypothesis will be rejected when its t-value is found to be less than 1.96 for
significance level = 5% and for significance level = 1% Hypotheses with t-value above 2.326 will be accepted and a
hypothesis will be rejected when its t-value is found to be less than 2.326 (Hair et al., 2017).
Table 2 summarizes the results of the measurement model. The item reliability, construct reliability (CR), and AVE
(Hair et al., 2017) support the convergent validity of the Confirmatory Factor Analysis(CFA) results. The CR, which
shows the degree to which construct indicators demonstrate the latent construct, ranged from 0.619 to 0.934, which was
above the cutoff value of 0.7. The AVE ranged from 0.543 to 0.884,which was greater than 0.50, justifying the use of
the construct.
Tabel 2 – Summary result of the measurement model and convergent validity

Adapted from Item Loading AVE R Square Composite Reliability
Knowledge Azmawani et al., KN1 0.879 0.781 0.747
(KN) (2015) KN2 0.729
KN3 0.903
KN4 0.671
KN5 0.855
Ideological Dalia et al., ID1 0.797 0.881 0.769
(ID) (2015) ID2 0.738
ID3 0.843
ID4 0.756
Ritualistic Dalia et al., RT1 0.822 0.543 0.619
(RT) (2015) RT2 0.652
RT3 0.802
RT4 0.601
RT5 0.681
Intellectual Dalia et al., IN1 0.619 0.657 0,628
(IN) (2015) IN2 0.888
IN3 0.911
IN4 0.751
Consequential Dalia et al., CO1 0.707 0.758 0.811
(CO) (2015) CO2 0.765
CO3 0.811
CO4 0.700
CO5 0.857
Experimental Dalia et al., EX1 0.686 0.838 0.824
(EX) (2015) EX2 0.805
EX3 0.780
EX4 0.701
EX5 0.766
Subjective Norm Arshia et al., SN1 0.846 0.718 0.934
(SN) (2012) SN2 0.878
SN3 0.705
Attitude Towards Azmawani et al., ATH1 0.812 0.706 0.735 0.822
Halal Cosmetics (2015) ATH2 0.674
Product (ATH) ATH3 0.844
ATH4 0.815
ATH5 0.674
Intention to Azmawani et al., IP1 0.959 0.844 0.765 0.831
Purchase (IP) (2015) IP2 0.735
IP3 0.749
IP4 0.802
IP5 0.566
Overall, these results indicate that the measurement model has good convergent validity. To examine the
discriminant validity, the study followed the Fornell-Larcker criterion. The square root of the AVE for each construct
was compared; if they are greater than the correlation coefficients of the corresponding inter constructs, discriminant
validity is achieved (Table. 3).
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Table 3Discriminant Validity

1 2 3 4 5 6 7 8 9
ID 0.938
IP 0.871 0.919
EX 0.807 0.888 0.915
KN 0.771 0.831 0.895 0.883
CO 0.730 0.756 0.717 0.851 0.870
SN 0.725 0.703 0.649 0.820 0.756 0.847
ATH 0.715 0.701 0.619 0.720 0.723 0.819 0.840
IN 0.680 0.679 0.607 0.713 0.668 0.802 0.819 0.810
RT 0.675 0.666 0.601 0.689 0.608 0.781 0.769 0.762 0.737
Note: Diagonal (in bold) represent the square root of average variance extracted (AVE) while the other entries represent the squared
correlations
All the Cronbach's alpha values were greater than 0.70 indicating the good reliability of all measures. The construct
with the highest Cronbach's alpha was IP (0.765), which indicates a good internal consistency of the items in this
construct; the lowest Cronbach's alpha was ATH (0.735), which indicates low inter-item correlations (Table. 2).
Structural model was used to test the hypothesis proposed in this study. Figure 2 shows the results of the test of the
hypothesized structural model from the SmartPLS output. The t-values are generated using bootstrapping with re-
samples of 500. This permits us to measure the statistical significance of the path coefficients.
KN2 KN3 KN4 KN5 SN1 SN2 SN3 EX1 EX2 EX3
0.87 0.855 0.805

0.729 0.903 0.671 0.846 0.878 0.705 0.686
9
ID1 0.780 EX4
0.797 KN SN EX 0.701
ID2
0.738 0.766 EX5
ID3
0.843
ID4 ID
0.756 ATH1
0.879 0.332 0.213 0.342
RT1 0.812 ATH2
0.822
RT2 0.674
0.652 ATH3
RT3K 0.802 RTBT 0.045 0.844
N1 0.729 0.815 ATH4

RT4
0.601
0.760 ATH
0.681 0.674
RT5 0.735 ATH5
0.619 0.781
IN1
0.423
0.888
IN2 IN
0.672
0.911
IN3
0.751
IP
IN4
0.765
0.707 CO
CO1 0.765 0.959 0.735 0.749 0.802 0.566
0.700 0.857
CO2 0.811
CO3 CO4 CO5 IP1 IP2 IP3 IP4 IP5
Figure 2. Structural Model
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H1 examines the effects of KN on ATH. KN is significantly related to ATH (ß = 0.332; t-value 4.189), thus
providing acceptance for H.The findings in this study about KN align with Hamdan et al., (2013). Meanwhile, the
finding from Azmawani et al., (2015) found that the relationship between KN and attitude is insignificant. Both
previous researches conducted on food products, not on cosmetic products. ID was also found to be a predictor of ATH
(ß = 0.879; t-value 2.207) which is consistent with H2. These findings are consistent with previous studies about the
relationship between ID and ATH (Dalia et al., 2015). H3 examines the effects of RT on ATH. RT is insignificantly
related to ATH (ß = 0.045; t-value 1.454).A significant negative relationship was revealed between RT and ATH, which
supports H3. This finding is similar to the results of the Dalia et al., (2015) studies, who found that RT has a negative
influence on ATH.
A positive and significant link between IN and ATH was found (ß=0.781; t-value 4.056), which is consistent with
H4. These findings are inconsistent with previous studies about the relationship between IN and ATH. Previous
research about IN found that IN about halal cosmetics has no influence in relation to attitudes (Dalia et al., 2015). In
support of H5, a positive and significant link between CO and ATH was found (ß=0.672; t-value 2.242). The findings of
this study is consistent with previous research (Dalia et al., 2015). A significant positive relationship was revealed
between EX and ATH (ß=0.342; t-value 1.734), which supports H6. H7 examines the effects of SN in ATH. SN is
significantly related toATH (ß=0.213; t-value 3.435). Their attitudes are heavily influenced by SN. Thus, it indicates the
role of Muslim societies in dictating such attitudes.The possible presence of SN in influencing such attitudes and
intention to choose Halal products can help in explaining the role of reference groups in particular and society in
general in forming such attitudes. These findings are aligning with previous studies about the relationship between SN
and ATH (Arshia et al., 2012). In support of H8, a positive and significant link between ATH and IP was found
(ß=0.423; t-value 4.342). The results of this research indicate that Muslims in these countries are conscious and have a
very positive attitude towards Halal products that positively influences their intention to purchase those products. These
results are consistent with the findings of Arshia et al. (2012) and Azmawani et al., (2015).Table 4 summarizes our
hypothesis testing results.
Table 4 Summary of Structural Model

Path Coefficient Standard Error t-value Supported
H1 KN ATH 0.332 0.098 4.189** Yes
H2 ID ATH 0.879 0.029 2.207** Yes
H3 RT ATH 0.045 0.197 1.454 No
H4 IN ATH 0.781 0.081 4.056** Yes
H5 CO ATH 0.672 0.104 2.242** Yes
H6 EX ATH 0.342 0.085 1.734* Yes
H7 SN ATH 0.213 0.093 3.435** Yes
H8 ATH IP 0.423 0.089 4.342** Yes
Note: significance at *p<0.05,**p<0.01(One –Tailed)
Thus, this research highlights several interesting results.All the antecedents ofATH studied directly influence the
seventhhypotheseswhich had been proposed; six hypotheses with t value > 1.96are accepted, while one hypothesis with
t value < 1.96 is rejected. The results indicate that KN, ID, IN, CO, EX and SN are important antecedents of Indonesian
Muslims ATH to IP cosmetics halal products.Therefore, market researchers in general and international brands in
particular should design their marketing campaigns focusing on creating awareness regarding their compliance with
Halal products.
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Vita Briliana is a Senior Lecturer in Marketing at Trisakti School of Management. She received the Master’s degree in
Marketing from PPM School of Management, Indonesia and the Doctoral degree (DBA) in Marketing from the
Universiti Sains Malaysia (USM) Penang, Malaysia. Her present research interests include Electronic Commerce,
Social Media, Brand Strategy and Consumer Behavior. Vita Briliana is corresponding author and can be contacted at
vita@stietrisakti.ac.id.
Nurwanti is a Senior Lecturer in Human Resources Management at Trisakti School of Management. She has awarded
her Master‘s degree in Human Resources Management from Trisakti University, Indonesia and the Doctoral degree in
Human Resources Management from Padjadjaran University (UNPAD)Bandung, Indonesia. Her present research
interests include Knowledge Management and Organization Culture.Nurwanti is corresponding author and can be
contacted at nurwanti@stietrisakti.ac.id
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THE IMPLEMENTATION OF INVESTMENT MODEL TO INCREASE

HOTEL’S CUSTOMERS COMMITMENT IN JAKARTA
Keni1), Ary Satria Pamungkas2)
Tarumanagara University, Jakarta, Indonesia

1)
keni@fe.untar.ac.id
Abstract
Hospitality industry in Indonesia offers huge opportunities. The occupancy rate continues to increase due to the
increase in both domestic and foreign tourists. One of the critical factors for hotels to remain competitive is to retain
existing customers. However, customer retention requires significant amount of efforts and resources as the market
becomes more prominent. As customer retention becomes an important success factor, industry players need to have
deep understanding of the drivers that influence customer retention/ commitment.The investment model is proposed to
determine the factors that affect the level of customers’commitment. This model consists of three variables -
satisfaction, quality of alternative and the investment size. This study examines the three variables in the investment
model and their relation to increase customer commitment. This is a descriptive research that using a questionnaire to
collect the data. The data analysis technique is a multiple regression analysis. The results evidenced that satisfaction
and investment size positively affect customer’s commitment, while the quality of alternative does not affect customer’s
commitment. Hence, the implementation of investment model to improve customer commitment can be implemented by
increasing the satisfaction and the investment size.
Keywords: Investment Model, Customer Commitment, Hospitality, Jakarta, Indonesia
Introduction
Tourism has an important role for economic development of a region. The existence of hotel gives the opportunity
to the local residents to get a job and an income. “The Travel & Tourism Economic Impact Indonesia 2015" issued by
the World Travel & Tourism Council revealed that in 2014, the field of tourism in Indonesia created 3,326,000 jobs
employment (2.9% of total employment). This number is expected to grow by 2.3% in 2015 and will grow by 1.4% per
year over the next ten years. In 2025, the tourism sector is expected to produce 3,905,000 jobs employment.
In addition, hotel increases the value of land and encourages businesses of hotels’ surrounding. Hospitality also
contributes to the development of tourism in the local area. Tourist area in a region will be progressed and visited by
many tourists that are supported by a hotel lodging accommodations that is good and adequate.
The hospitality industry in Indonesia has huge potential and will always be alive because of the natural resources of
tourism in Indonesia are so numerous and interesting as well as its diversity and cultural uniqueness. The occupancy
rate of hotels in various major cities in Indonesia is never low. The hotel occupancy rate in Indonesia has increased due
to an increasing number of foreign and local tourists visit.
The increasing number of tourists will certainly increase the occupancy rate of the hotel that invites more hotel
business players. This result will raisethe competition among hotels. To be ready for competition, the management of a
hotel needs to think about what efforts should be made so that tourists remained back to stay in the same hotel. In other
words, what a hotel management should do to create loyal customers? Basically, hotel management needs to build
strong relationships with its customers to keep customers’ satisfaction. Given the importance of customer commitment
for a company, especially the hospitality, the knowledge and understanding are factors that affect customer commitment
is needed.
Some previous studies in the field of marketing show that there are many factors that can explain the customer
commitment. However, few studies that implement the investment model to explain customer commitment to a
company. Investment model had originally developed by Rusbult in psychological literature to examine the relationship
between individuals (Rusbult, 1980a, 1980b, 1983; Rusbult et al., 1986). According to the investment model,
commitment between individuals can be explained by three factors, among others: first, satisfaction with the
relationship, meaning that the higher the level of satisfaction with the relationship, the commitment will be stronger;
second, quality of alternative, referring to the perceived relationship quality comparison. This means that the individual
has a high level of commitment if the alternative perceived quality worse; Third, the investment size, refers to the
individual investment in a relationship, which means that if an individual has invested time and resources in a
relationship, the commitment to the individual will be higher (Rusbult, 1980a; Rusbult et al., 1986; Rusbult et al.,
1998).
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Further study showed that the investment model is not only implemented in relationship between individuals, but
also the relationship between the company and its customers (Ping, 2007; Sung & Campbell, 2009; Bugel et al., 2010;
Sung & Choi, 2010; Boakye et al., 2012). Research Bugel et al. (2010) implement the investment model for the banking
sector, health insurance, supermarkets, telecommunications and automotive. Results of research Bugel et al. (2010)
showed that the investment model can be implemented to these five sectors, with the largest contribution in explaining
customer commitment is in the banking sector and the smallest is the automotive sector and supermarket. However, to
the best of our knowledge, there is no research hastested the implementation of the investment model to customer
commitment in the hospitality sector.Therefore, this study examines the applicability of the investment model to
customer commitment of hotels in Jakarta, Indonesia.
Theoretical Background
Customer Commitment
Customer commitment is a major factor in the relationship marketing (Fullerton, 2003; Morgan & Hunt, 1994).
According to Morgan and Hunt (1994: 23) explains that the commitment is “an exchange partner believing that an
ongoing relationship with another is so important as to warrant maximum efforts at maintaining it.” Align with that
definition, Moorman, Zaltman and Deshpande (1992: 316) reveal the commitment as “enduring desire to maintain a
valued relationship.”
In the marketing research, some researchers regard commitments as uni-dimensional concept (Morgan & Hunt,
1994; Prithcard et al., 1999), while other researchers regard commitment as a multi-dimensional concept (Bansal, Irving
& Taylor, 2004). Meyer and Allen initially proposed commitments differentiated into affective commitment and
continuance commitment. Affective commitment shows emotional, identification and involvement of employees in an
organization, whereas continuance commitment refers to the employee's perception of the cost to be borne if leaving the
organization (Meyer & Allen, 1984). Furthermore, Allen and Meyer suggest a third commitment, namely the normative
commitment which refers to the feelings of employees of the obligations that must be given to the organization (Allen
& Meyer, 1990).
Investment Model
Investment model originally was developed by Rusbult in the psychology literature with the aim to examine the
relationship between individuals (Rusbult, 1980a, 1980b, 1983; Rusbult et al., 1986). This model was built based on
several principles contained in interdependence theory (theory of dependency) and assume that the individual in general
are encouraged to maximize results and minimize costs (Kelley & Thibaut, 1978 in Rusbult, 1980a). There are two
main factors in the theory of dependency (Rusbult et al., 1998). First, the dependence of an individual will increase if
the increase satisfaction in the relations between individuals. Second, the dependence of an individual is not only
influenced by the level of satisfaction, but is influenced by the quality of one of the alternatives available. Quality of
alternative refers to the desire of the best alternative available. It is based on the extent to which the most important
needs of an individual can be effectively fulfilled from existing relationships. Investment models, further expanding the
theory of dependency and reveal a commitment among individuals affected not only by the satisfaction, quality of
alternative available today, but also by the investment size (Rusbult, 1980a; Rusbult et al., 1998).
Further study showed that the investment model is not only implemented in relations between individuals, but also
in the relationship between the company and its customers (Ping, 2007; Sung & Campbell, 2009; Bugel et al., 2010;
Sung & Choi, 2010; Boakye et al., 2012). For example, research conducted by Bugel et al. (2010) implement the
investment model for the banking sector, health insurance, supermarkets, telecommunications and automotive. Results
of research Bugel et al. (2010) showed that the investment model can be implemented to these five sectors, with the
largest contribution in explaining customer commitment is in the banking sector and the smallest is the automotive
sector and supermarket.
Satisfaction
According to Kotler and Keller (2016: 153), “satisfaction is a person's feelings of pleasure or disappointment the
resulting from comparing a product's perceived performance (or outcome) in relation to his or her expectations.” Further
Kotler and Keller (2016) explain a customer will be very satisfied or satisfied if the perceived performance exceeds or
in accordance with customer expectations and vice versa. Oliver (1997) explained that the satisfaction of an assessment
of the features of the product or service, or a product or service itself, which can provide the level of fulfillment of
customers’ wants. The customer is satisfied when products or services meet their needs and desires.
In general, there are two approaches to conceptualize satisfaction, that is the cumulative approach and the approach
of the transaction (Boulding, 1993). In the cumulative approach, customer satisfaction can be defined as the overall
evaluation of a customer after consuming a product or service, while the transaction approaches explain that customer
satisfaction as a function of expectation before consuming a product or service and the perceived performance after
consuming the product or service. In this study, customer satisfaction is defined using the cumulative approach, where
satisfaction is a total evaluation of a customer on the quality of services provided by the hotel. Top quality hospitality
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services using the seven dimensions of scale SERQUAL, developed by Lai and Hitchcock (2016), among others:
tangibles, reliability, assurance, empathy, environment, technology and entertainment.
Quality of Alternatives
Rusbult and Buunk (1993: 182) explained that “the quality of alternatives refers to an individual's judgment of the
attractiveness of available alternatives - another relationship, dating around or the option of non-involvement.”
Meanwhile, according to Impett et al. (2001: 313), “alternatives refer to an individual's subjective assessment of the
rewards and costs that could be obtained outside the current relationship, including specific other partners, spending
time with friends and family, or spending time alone.”
In relationships between customers and brands, Sung and Choi (2010: 1056), “the quality of alternatives refers to a
consumer's judgment or evaluation of the attractiveness of available alternative brand choices or option, for example:
number of competing brands or quality of competing brands.” Based on the above definition, quality of alternative to be
a consumer assessment or evaluation of the appeal of the selection of alternatives brands available. For example a
number of competing brands or the quality of the competing brands.
Investment Size
In relation to interpersonal relationships, investment size includes resources such as time effort and money spent on
establishing relationships between individuals (Rusbult & Buunk, 1993). While in relation in the field of marketing,
investment size related to the concept of switching cost and termination cost (Boakye et al., 2012; Bugel et al., 2010;
Sung & Choi, 2010), which refers to the technical factors, financial and psychological make the customer is difficult
and expensive to move to another brand (Beerli et al., 2004). Investing in the relationship between companies and
customers will increase the switching cost, so the impact is difficult for customers to switch to another company. Thus,
investing in customer relationships becomes significant in terms of customer commitment (Bugel et al., 2010).
According to Sung and Choi (2010), there are two perspectives in explaining investment size. First, from the
perspective in which the customers are showing their loyalty to the company because the company has invested
resources in a relationship with the customer. In contrast, the second perspective, the customer shows his loyalty to the
company caused by the customers themselves who have invested resources in a relationship with the company. In the
study, investment size refers to the perspective or viewpoint of the customer, which means that the customer has
invested time, money and effort (resources) to establish relationships with the company (hotel).
Effect of the investment model on customer commitment

There are several studies that describe relationships between three variables in the investment model and customer
commitment. Bugel et al. (2010) explain the relationship between investment model and customers commitment on five
sectors and the results showed that the banking sector has the highest application rate in the investment model and tend
to be low in supermarkets and automotive sectors. Three variables used in this model to predict customer commitment
is satisfaction, quality of alternative and investment size. Results from this study is the satisfaction is the main factor
that affect customer commitment in the service sector. Furthermore, Rusbult and Buunk (1993) concluded that high
commitment can be achieved if customers feel that they are satisfied with the relationship involving appreciation and
without incur huge costs. It is explain that when a person is satisfied with the relationship, then that person will be more
committed to the relationship.
Sung and Campbell (2009) and Sung and Choi (2010) emphasized that higher satisfaction will drive customer
towards better commitment, where this is in line with research conducted by Liang et al. (2009), which suggests that
customer satisfaction should be the key to improving relations and a major factor to gain customer commitment to the
brand. Customer commitment is based on the customer's desire to get a good relationship (Morgan & Hunt, 1994). Chen
(2012) and Garbiano and Johnson (1999) identified that customer commitment is positively influenced by customer
satisfaction. Therefore, the first hypothesis which can be developed as follow:
H1: Satisfactionhas a positive effect to commitment
Quality of alternatives is perceived as another substantial factor to predict commitment in the investment model.
Stronger commitment exists if the number of alternatives are lower or not attractive. On the other hand, if high quality
alternatives are there, commitment would be weaker (Rusbult, 1980a). Impett et al. (2001) defined the quality of
alternative as individual force that pulls someone from a relationship. When this factor is weak, people become more
committed. Inline with this, Sung and Campbell (2009) and Sung and Choi (2010) also mentioned that higher customer
commitment would be achieved if the quality of alternative is weak, while Bugel et al.(2010) found out that alternative
is the highest in supermarket and automotive sectors and the lowest in the banking industry. Thus, the second
hypothesis can be developed as follow:
H2: Quality of alternativeshas a negative effect to commitment
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Bugel et al. (2010), from previous studies found that there is a positive correlation between the investment size in
the relationship with the customer commitment. The investment size has the highest correlation with the commitments
in the banking and automotive sectors, while the telecommunications sector has the lowest correlation. Furthermore, the
higher investment size will move in a better commitment to the brand (Sung & Campbell, 2009; Sung & Choi, 2010).
Hence, we posit the following hypothesis:
H3: Investment sizehas a positive effect to commitment
Methods
This research tried to explain the linkages of variables in the investment model to commitment. Therefore, the
design of the research is descriptive research design. The approach used in the descriptive research is cross-
sectional.Methods of sample selection used in this research is a non-probability sampling method. Sample selection
techniques used is the technique of convenience with the number of samples obtained as many as 249 customers. The
questionnaire is developed based on the literature study. They are 14 items to measure all variables, which are adapted
from previous study (see Table I). Multiple regression analysis is used to test the hypotheses.
Table I. Measurement
Variable Measurement Source

I was fully satisfied with the services offered by this hotel. Lai &
Satisfaction The services offered by this hotel met my expectations. Hitchcock
I am satisfied with my experience in this hotel. (2016)
Other hotel has more modern looking equipment.
Other hotel provides more reliable services. Parasuraman,
Quality of
Employees of other hotel provide more prompt service. Zeithaml &
Alternatives
Employees of other hotel are consistently courteous with me. Berry (1991)
Employees of other hotel understand my specific needs.
I have invested a great deal of time in the relationship with
Rusbult,
this hotel.
Martz &
Investment Size I have invested a great deal of money in this hotel.
Agnew
All things considered, I have put a lot into the relationship
(1998)
with this hotel.
I would be very happy to remain as a customer of this hotel.
Allen &
Commitment I enjoy discussing about this hotel with people outside it.
Meyer (1990)
This hotel has a great deal of personal meaning to me.
Goodness of measures
Factor analysis is used to measure the fitness of data. Validity test is done to determine how well an instrument
developed can measure a particular concept that is intended to measure. As shown in Table II, the factor loadings of
each of the items are within the acceptable range. The factor loadings all of the items are above 0.70. Meanwhile, the
reliability test is conducted by calculating Cronbach’s Alpha. According to Hair et al. (2010) Cronbach’s Alpha of 0.7
or higher is a good rule of thumb for reliability. All constructs in this study have met the requirements for validity and
reliability test.
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Table II. Validity and reliability test results

Factor Cronbach’
Variable Measurement
loadings s Alpha
I was fully satisfied with the services offered by this hotel. 0.919 0.912
Satisfaction The services offered by this hotel met my expectations. 0.934
I am satisfied with my experience in this hotel. 0.914
Other hotel has more modern looking equipment. 0.765 0.913
Other hotel provides more reliable services. 0.914
Quality of
Employees of other hotel provide more prompt service. 0.899
Alternatives
Employees of other hotel are consistently courteous with me. 0.863
Employees of other hotel understand my specific needs. 0.877
I have invested a great deal of time in the relationship with this 0.825 0.781
hotel.
Investment
I have invested a great deal of money in this hotel. 0.795
Size
All things considered, I have put a lot into the relationship with
0.883
this hotel.
I would be very happy to remain as a customer of this hotel. 0.771 0.753
Commitment I enjoy discussing about this hotel with people outside it. 0.882
This hotel has a great deal of personal meaning to me. 0.814
Hypotheses testing results

Table III shows relationship, t-value, each path variable coefficient and significancy of this model.
Table III. Results of hypotheses testing

Hypothesis Relationships Estimate t-value
H1 Satisfaction  commitment 0.273 4.912**
H2 Quality of alternatives  commitment -0.023 -0.424
H3 Investment size  commitment 0.411 7.359**
*
<0.05; <0.01;
**
The findings support H1, which satisfaction has a positive effect customer commitment (coefficient = 0.273;
t=4.912; <0.01). Greater satisfaction means higher commitment. The result of the study consistence to the prior studies
(Rusbult & Buunk, 1993; Garbarino & Johnson, 1999; Sung & Campbell, 2009; Bugelet al., 2010; Sung & Choi, 2010;
Chen, 2012). It is concluded that commitment is significantly influenced by service satisfaction. Customer commitment
is positively associated with customer satisfaction based on the studies conducted by Sung and Campbell (2009). Sung
and Choi (2010) found out that the greater satisfaction of individuals, the higher their commitment to the brand.
Similarly, if personal relationship with one’s partner is positive and enjoyable, the satisfaction with the relationship will
be higher(Rusbult & Buunk, 1993). A study conducted by Bugel et al. (2010) showed that satisfaction is an important
factor that will lead to customer commitment in the service sector. Finally, Chen (2012) and Garbarino and Johnson
(1999) found that customer commitment is positively influenced by customer satisfaction. Results of this study and
supported by prior studies. This study concludes that satisfaction has a positive effect on customer commitment,
specifically in thehospitality industry.
H2 states that quality of alternatives has a negative effect to commitment; the result do not support this hypothesis
(coefficient = -0.023; t=-0.424; >0.05). Although the direction is as expected, greater quality of alternatives does not
lead to lower commitment. The previous studies do not evidence in this study.
H3 states that investment size has a positive effect to commitment; the result support this hypothesis (coefficient =
0.411; t=7.359; <0.01).The result of this study is in line with prior studies. Higher commitment is more likely to be
achieved if an individual has put a great deal of investment in the current relationship (Rusbult, 1980a; Rusbult &
Buunk, 1993; Sung & Campbell, 2009; Bugel et al., 2010 and Sung & Choi, 2010). In the study conducted by Le and
Agnew (2003), it can be observed that there is a significant correlation between investment size and commitment in
their interpersonal relationship. In summary, investment size has a significant impact and is positively correlated to the
customer commitment. It is also supported by results from the study and findings from past researches.
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Conclusion
After analysis and discussions, the conclusions are as follows: 1) Indicators to measure all the variables in the
investment model are already qualified in both the validity and the reliability analysis, 2) Results of hypothesis testing
showed satisfaction and investment size positively affect customer commitment, while the quality of alternative does
not affect customer commitment, 3) Implementation of investment models to increase customer’s commitment can be
made by increasing the satisfaction and investment size.
The results from this research suggest customer satisfaction should be the main focus in long-term relationships of
hotel customers. It will increase the effectiveness of hotel marketing program. To improve satisfaction, hotel
management should strive to provide good services. The investment size plays a significant role in improving customer
commitment and research describes that among the three variables of the investment model, the investment size is the
most powerful predictor to predict customer commitment. To increase the investment size, management create a loyalty
program where customers can earn points for every stay at a five-star hotel and from points earned; customers can trade
them for shopping vouchers or other attractive prizes. This loyalty program is expected to increase both of customer
commitment and increase customer loyalty.
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THEORY OF PLANNED BEHAVIOR IN ENTREPRENEURSHIP EDUCATION: THE

PRACTICE, THE FLAWS, THE FUTURE
Azura Omar1), Ainon Jauhariah Abu Samah2), Suhaimi Mhd Sarif3)

1) 3)
Department of Business Administration, Kulliyyah of Economics and Management Sciences, International Islamic University Malaysia, Malaysia
2)
Faculty of Business Technology & Accounting, UNITAR International University, Malaysia
1)
azura_omar@iium.edu.my
Abstract
The high regard for entrepreneurship in generating economic growth has driven governments to encourage its
inclusion in their countries education system. It is expected that as more students are exposed to entrepreneurship and
equipped with the basic skills to become entrepreneurs, more entrepreneurs will be created. The Theory of Planned
Behavior has often been used to model the relationship between entrepreneurship education and entrepreneurship. As
suggested by the theory (which stresses on intention as a precursor of behavior), entrepreneurial intention is widely
used as the measurement of the effectiveness of entrepreneurship education in creating entrepreneurs. This conceptual
paper however argues that the applicability of the Theory of Planned Behavior and the usage of intention as a
measurement for the effectiveness of entrepreneurship education are perhaps given more credit than they are due. The
paper traces entrepreneurship to Schumpeter’s creative destruction and analyzes the tenets of its two main schools of
thoughts i.e. the trait and behavioral approaches. The analysis highlights the flaws in the usage of this theory in
entrepreneurship education and the error in taking entrepreneurial intention as an indicator for entrepreneurship as
commonly presented in the extant literature. The paper also suggests a modified version of the theory to model graduate
entrepreneurship
.
Keywords: Theory of Planned Behavior, Entrepreneurship Education, Entrepreneurial Intention
Introduction
The list of economic benefits of entrepreneurship is long, ranging from generator of national prosperity and
competitiveness (Bell and Bell, 2016; Chartered Institute of Personal Development (CIPD), 2015) to job creation (Arc,
Astebro, Audretsch and Robinson, 2016; Organization for Economic Co-operation and Development (OECD), 2014) as
well as innovation (Anderson, 2011). As such, it is not surprising that developing entrepreneurs has become a national
agenda in many countries (Li and Liu, 2011; Bridge, Hegarthy and Porter, 2010; Matlay, 2006), with many nations
initiating entrepreneurship education, including at the tertiary level (Gurol and Atsan, 2006). Malaysia too has answered
this calling, with the aim to raise the economic contribution from small and medium size industries (SMEs) from 32%
of GDP to about 42% by 2020 (Economic Planning Unit, 2015). To help in this endeavor, in September 2014, the
Malaysian Ministry of Education outlines the Malaysian Education Blueprint for Higher Education (MEBHE) in which
holistic, entrepreneurial and balanced graduate is listed as a key outcome to be established between 2015 and 2025.
Vesper and McMullan (1988) and Solomon (2007) broadly describe entrepreneurship education as the classes in
which students are taught the skills to draw a path for a new business venture by combining knowledge from functional
disciplines and the dynamic external environment. For Mojab, Zaefarian and Azizi (2011), many attitude, skills, values,
beliefs, expertise and tendencies are makeup the components of “entrepreneurial competency”, suggesting that
entrepreneurs rely on and require multiple skills. In that case, entrepreneurship education at higher learning institutions
is likely meant to prepare graduates to become entrepreneurs (?). With that in mind, ultimately there is an urgent need to
study the impact of these programs as so many resources have been poured into entrepreneurship development. In
Malaysia’s 2013 budget for instance, 21% (or MYR52.5 billion or USD13 billion at the exchange rate of USD 1 for
MYR 4.00) was allocated to entrepreneurship training and development (Hamidon, 2013). So, the immediate question
that comes to mind: is entrepreneurs born from these programs? Why or why not? It should be noted that studying the
impact of entrepreneurship education is complex, in that it should (in theory) covers issues like pedagogical
engineering, delivery and program effectiveness (it is meeting the objective?), its efficiency (it is meeting the objective
and optimizing resources?) and so on (Fayalle and Gailly, 2015).
The extant literature shows that the theory of planned behaviour (TPB) has been a popular choice in explaining the
impact of education in general and entrepreneurship education in particular on entrepreneurship (see Murugesan and
Jayavelu, 2015; Engle et. al., 2010). However, we propose the theory may fall short as TPB is an intention model,
whereby entrepreneurial intention is used as a proxy to assume the occurrence of entrepreneurship behaviour.
Consequently, as Kautonen, Van Gelderen and Tornikoski (2011) iterated, TPB is useful as a predictor to
entrepreneurship behavior. Whether entrepreneurship behavior materializes or not, is the lingering question. Studies in
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various nations have indicated that entrepreneurship development may not go hand in hand with entrepreneurship
education. As Matlay and Carey (2007) indicated while entrepreneurship education is likely to enhance entrepreneurial
intention, only a meagre one percent of all graduates in the UK become entrepreneurs. Mwasalwiba, Dahles and
Wakkee (2012) documented a similar upsetting trend in Tanzania, Hamidon (2013) in Malaysia and Zhou (2011) in
China. This conceptual paper argues that the applicability of TBP in explaining the influence of entrepreneurship
education on entrepreneurship may have been more popularized instead of rigorously and theoretically grounded. To
clarify our rather antithesis view of the current trend, we will review TPB, discuss the “alternative” viewpoint to
entrepreneurship and then highlight a modified framework to study the impact of entrepreneurship education on
graduates.
Theory of Planned Behavior: The “Popular” Practice of Predicting Enterpreneurial Bahaviour

Originating from social psychology, TPB postulates that intention encapsulates the motivation to perform a behavior
(Ajzen, 1991). In entrepreneurial research the proposition is entrepreneurship behavior is preceded by entrepreneurial
intention, defined by Thompson (2009, p. 676) as “a self-acknowledged conviction by a person that they intend to set-
up a new business venture.” Tkachev and Kolvereid (1999) and Foyalle and Gailly (2015) posited that entrepreneurial
intentions are determined by factors that may be altered, by “courses in entrepreneurship, education in small business
management…aimed at changing values, attitude and norms” (Tkachev and Kolvereid, 1999: p. 279). Since
entrepreneurship behavior is premeditated, according to Ajzen (1991) it likely to be composed of three inter-related pre-
requisite of entrepreneurial intention, namely attitude towards behavior, subjective norm and perceived behavioral
control.
Attitude towards behavior suggest that one will act according one’s favorable or unfavorable evaluation on the
behavior (Kautonen, Van Gelderen, and Tornikoski, 2013). For Lunnan, Nybakk and Vennesland (2006), two elements
determine entrepreneurial attitudes: ability to identify and act on business opportunity and ability to take calculated risk
in pursuing business opportunity. According to Schwarzt, Wdowiak, Almer-Jarz and Breitnecker (2009), educators and
practitioners may influence one’s attitude towards entrepreneurship. This proposition is supported by the findings of
Souitaris, Zerbinati and Al-laham (2007). Their study was conducted on science and engineering students in a
university in London and another major European university in Grenoble. Respondents who took a course in
entrepreneurship were found to have a better attitude towards self-employment compared to students in the control
group who were never exposed to entrepreneurship course.
Subjective norm relates to the effect of the perception of others, especially those important to an individual, on that
individual. Thus, it is expected that a would-be-entrepreneur to be effected by what others think about him/her
becoming self-employed, weighted by the strength of the motivation to comply with them (Krueger et al., 2000). In
Indonesia, Ummu Hani, Rachmania, Seryaningsih and Putri, (2012) found that family members, friends, teachers and
leaders as influential figures in the respondents’ decision to become entrepreneurs. Mohamed, Rezai, Shamsudin and
Mahmud (2012) who studied 410 final year Malay university students in Malaysia documented a relationship between
subjective norm and students’ entrepreneurial intention. Subjective norm in their study was operationalized as having
family members with entrepreneurial background and being a native of certain regions of the Malaysian peninsular; the
residents of the east coast of Peninsular Malaysia have historically been involved in entrepreneurship while the west
coasters tended to give more priority in education and being involved in salaried employment. In a more comprehensive
inter-regional studies involving 867 students in five developing (including Brazil, Mexico, Romania, Russia and
Ukraine) and 1358 students from eight developed countries (Australia, Canada, Czech Republic, France, Germany,
Norway, Spain and the Netherlands), Iakovleva, Kolvereid and Stephan (2011) found that subjective norm is directly
related to entrepreneurial intention.
Similar to Bandura’s self-efficacy, perceived behavioral control is concerned with the extent to which a person
believes that he/she is able to execute an action (Ajzen, 1991). In entrepreneurial research, entrepreneurial self-efficacy
(the measurement tool for perceived behavioral control) involves the belief of capability to achieve success, to manage
the challenging business start-up process and the subsequent growth of the business (Drnovsek, Wincent and Cardon,
2010). Since the tasks required of entrepreneurs vary according to its life phase, entrepreneurial self-efficacy is multi-
faceted.
Education, entrepreneurship and TPB

The above glance into TPB and entrepreneurship hints towards education’s role in molding entrepreneurship
behavior in students. Krueger and Carsrud (1993) had tried to assimilate education into TPB by considering it to be part
of external triggers. Their model is depicted in Figure 1 below, whereby it suggests that entrepreneurship education will
likely affect the three inter-related pre-requisites of entrepreneurial intention. According to Krueger and Carsrud (1993),
the model is open to the influence of exogenous variables that may play a role in the development of beliefs and
attitudes. It also uses some of the conceptual contributions of Shapero and Sokol (1982), including the “external
trigger”, to explain the shift from intention to behavior. Turker and Selcuk (2009) and Franke and Luthje (2004) for
instance found a positive relationship between students’ perception of the entrepreneurial support provided by their
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university and their intention to establish a new venture. Cheng, Chan and Mahmood (2009) similarly reported that
students who have taken entrepreneurship major are most interested to pursue a career as entrepreneur.
Figure 1: Analyzing Intentions Toward Entrepreneurial Behavior Using The Theory of Planned Behavior – Krueger &
Carsrud (1993, p.323).
The Trait Approach: An “Alternative” Viewpoint to Entrepreneurship

Despite the popularity of this extended model of entrepreneurship behavior above, it should be noted that the very
premise of TPB that is decision makers are rational is debatable. As Rideout (2011) iterated bounded rationality and
heuristics are common to entrepreneurs since they operate in an environment of uncertainties. Under such
circumstances, personality traits like self-confidence, need for achievement, locus of control and so on may replace,
intervene or influence one’s cognition. These elements were thoroughly discussed by trait theorists but they are not part
of the equation suggested by the original TPB nor are they present in Krueger and Carsrud’s extended model of TPB.
Whether it is intentional or accidental, a review of the literature shows that entrepreneurship studies adopting TPB have
consistently omitted personality from their framework (see for example Iakovleva, Kolvereid and Stephen, 2011;
Franco, Haase and Lautenschlager, 2010; Yusof, Mohd Nor, Tasnim and Samah, 2009). This practice essentially
undermines the role of personality in the cognitive process of new business creation and over emphasizes the ability of
rationality in determining behavior.
Although the term entrepreneur was coined by Richard Cantillon in 1755 (Bull and Willard, 1993) in his article
‘Essai sur la nature de commerce’ (Ebner, 2005), the interest on entrepreneurship probably gained its limelight from
Schumpeter’s 1934 landmark work (see Schumpeter, 1934). Schumpeter equates entrepreneurship with innovation in
order to create competitive edge in the market (Roininen and Ylinenpaa, 2009). This would either entails creation of
new product or services, entrance into new market or at least a new niche is opened. In short, entrepreneurship behavior
is complicated and not easy. Schumpeter hence contends that only those who are “highly driven”, “creative” and
“innovative” can be entrepreneurial (Hamidon, 2009). In short, an entrepreneur has certain inner traits which are non-
existent in non-entrepreneurs. Espíritu-Olmos and Sastre-Castillo (2015) for example identified risk taking propensity
and tolerance to ambiguity as important traits to affecting entrepreneurial intention. Figure 2 below lists other studies
that have look into entrepreneurial traits, which among others include locus of control, need for achievement,
innovativeness and self-confidence. In the extant literature, there are more than twenty traits that have been linked to
entrepreneurs (Ertuna and Gurel, 2011).
Table 1: Entrepreneurial traits

Traits Authors
Risk taking propensity Espíritu-Olmos and Sastre-Castillo (2015); Gurol and Atsan (2006); Louw et. al.
(2003); Malach-Pines and Schwardz (2008); Koh (1996)
Tolerance to ambiguity Espíritu-Olmos and Sastre-Castillo (2015); Gurol and Atsan (2006); Koh, (1996)
Locus of control Frank, Leuger and Korunkas, (2007); Gurol and Atsan, (2006)
Need for achievement Tyszka, Cleslik, Domurat and Macko (2011); McCelland (1965)
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Innovativeness Gurol and Atsan (2006); Koh (1996)

Self confidence Koh (1996)
However, using personality traits alone to determine entrepreneurship behavior may be superficial and simplistic. As
Danziger, Rachman-Moore and Valency (2008) stated, personality-job fit will be fully operational only after a person
has gained a significant life and work experience. In other words, it may not be applicable for new entrants into the job
market (including fresh graduates from universities) who are still green and short of experience. Secondly, trait theory is
founded on the belief that personality is stable (Bozionelos, 2003) particularly over adulthood (Soldz and Vaillant,
1999). Nonetheless, Savickas et. al. (2009) and Fuller and Marler (2009) stressed that personality is not as stable, as it
can be influenced by one’s environment and life trajectories. According to Zibarrasa, Cousans and Patterson (2016; p.
2) traits are “dynamic.” Indeed, Hansemark (1998), Harun and Salamuddin (2010) and Deniz, Yoncalik, Aslan and Sofi
(2012) reported that certain personality traits can be changed by education. On the same line of argument, Zainal et. al.
(2011) argued that innovativeness among school children can be enhanced by using a proper hands-on education and
training. In other words, personality may not be a reliable tool to forecast one’s behavior.
The Flaws (?)

Research on entrepreneurship with the exception of limited few like Joensuu-Salo, Varamaki and Viljamaa (2015),
Prabhu, McGuire, Drost and Kwong (2012),), Samah and Alhaddar (2010) and Zampetakis (2008), tends to be in one of
opposite extremes i.e. they will either side with the trait theorist or with the behaviourists. The former will emphasize
on the entrepreneur as a person and ignore the possibilities of the person being influenced by his environment. The
latter on the other hand rejects the notion of personal characteristics altogether. Strangely, the proponent of TPB himself
(Ajzen) whose idea has never failed to be quoted as the basis of behaviourists’ framework does not completely reject
the idea of personal dispositions. Given the inconclusive findings of both the trait and behavioural approaches, perhaps
the answers lie in the road less travelled. As Home (2011) iterated personal characteristics can be a promising start in
understanding entrepreneurship behaviour but the traits should not be seen independently of the subject’s environment.
Apart from that researches that used TPB except for very few like Joensuu-Salo, Varamaki and Viljamaa (2015) and
Verheul et. al. (2011) tended to test only the intention to start a business particularly when the sample involves students.
Moreover, researches on the relationship between personality and entrepreneurship also used intention as the proxy to
entrepreneurship (see for example Luthje and Franke, 2003; De Pillis and Reardon, 2007). Nonetheless there is no
guarantee that entrepreneurial intention will actually be acted upon (Turker and Selcuk, 2009) In the context of
developing economies, it is a rather ‘dangerous’ to simply assume that one who claims to have the intention to become
an entrepreneur will indeed become one as the countries need the actual new ventures immediately to boost their
progress. As Krueger, Reilly and Carsrud (2000) summarized, what truly counts is the behaviour and what matters most
is the specificity (the when and what) of the action (Zampetakis, 2008).
The Proposal: For Future Research

We propose that future research in entrepreneurship should combine multiple theoretical perspectives (Walter and
Heinrichs, 2015) to reflect the dynamism of the world of entrepreneurs. As discussed earlier, no one perspective, either
the behavioral approach using TPB or the traits approach, alone adequately explain when entrepreneurship behavior
appears. Thus far, entrepreneurial intention is used to predict occurrence of entrepreneurship behavior. In reality as
nations continue pour resources into entrepreneurship education, the outcome is not as expected (as mentioned earlier),
unless entrepreneurship education is an education about entrepreneurs and not entrepreneurship behavior in form of
new business start-ups. If the latter is the focus these education, the question that must be asked is do entrepreneurial
intention leads to actual entrepreneurship behavior?
The proposed model uses multiple theoretical lenses as recommended by Walter and Heinrichs (2015). The model
combines both the behavioral approach as informed by TBP (Ajzen, 1991) and traits approach, in which to test the
possible mediation and/or moderating effect across perspective (Walter and Heinrichs, 2015). Figure 2 below depicts a
model that is essentially divided into two key components: (1) the proposed link between entrepreneurship education
and entrepreneurial intention (developed based on TPB) and (2) the proposed link between entrepreneurship education,
entrepreneurial intention and entrepreneurship behavior. To address the argument that TPB often undermines the role
of personality in the cognitive process of entrepreneurs, the model looks at the mediating effect of proactive personality
on entrepreneurial intention. Although they are other personality traits that are linked to entrepreneurial intention (see
Table 1 above), proactive personality is largely ignored by entrepreneurship researchers. A proactive individual is one
that self-motivate, industrious and quick to initiate things and according to Rideout (2011), proactiveness is a
personality trait that is susceptible to education and incentive. A much earlier work by Crant (1996) suggests that this
personality trait is positively related to entrepreneurial intention. Finally, we propose a measurement of entrepreneurial
behavior, in addition to entrepreneurial intention, the see the actual impact of entrepreneurship. We suggest including
that observation of business start-up (or the lack of it) to represent entrepreneurship behavior. To operationalize this
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model in research, we believe it would be better for future research to employ a longitudinal approach and use mixed-
methodology.
Figure 2: Proposed Model of Graduate Entrepreneurship

Legend: EE=entrepreneurship education; SN=subjective norm; ATE=attitude towards entrepreneurship; PEC-Perceived
entrepreneurial control; EI=Entrepreneurial intention; EB=Entrepreneurship behavior
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Authors’ Biography
Azura Omar works at International Islamic University Malaysia. She holds an accounting degree from Lancaster
University (UK), Master of Business Admintsration from Boston University (USA) and PhD in Management Sciences
form Manchester University (UK). Her research interest includes woman in management, knowledge management and
entrepreneurship education.
Ainon Jauhariah Abu Samah holds Bachelor of Economics (Hons) from International Islamic University Malaysia
(Malaysia) and Master of Business Administration from Universiti Tun Abdul Razak (Malaysia) Her research interest is
in entrepreneurship and human resources related issues.
Suhaimi Mhd Sarif is an Associate Professor at International Islamic University Malaysia. He holds Bachelor of
Business Administration from International Islamic University Malaysia, Master of Business Administration from
Universiti Kebangsaan Malaysia (Malaysia) and Doctor of Philosophy in commerce (knowledge transfer) from
Murdoch University (Australia). His current research includes the theory of the firm from Tawhidic paradigm, a
contemporary theory of social entrepreneurship from Tawhidic paradigm, entrepreneurship curriculum from Tawhidic
paradigm, and graduate entrepreneurship.
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LIQUIDITY CHARACTERISTICS OF GOVERNMENT BOND

MARKETS: A COMPARATIVE STUDY
Sugeng Wahyudi1) Rio Dhani Laksana2), Hersugondo3), Hardjum Muharam4), Robiyanto5)
1-4)
Faculty of Economics and Business, Diponegoro University, Semarang, Indonesia.
5)
Faculty of Economics and Business, Satya Wacana Cristian University, Salatiga, Indonesia
2)
riodhani@undip.ac.id
Abstract
This study explores the potential information on the government bond market in several countries such as China, South
Korea, Singapore, Malaysia, Japan, India, Canada, Germany, South Africa, and the United States. Countries
experiences of this study differ with respect to the success achieved in enhancing trading of government bonds. The
liquidity has several dimensions some important characteristics, carries an important information for the investor and
government macro policies that have implications for liquidity in their government bond market. The benefits of
developing a liquid bond market beyond financing government deficits at lower costs. The liquid government bond
market will facilitate pricing of other and riskier financial assets and the yield curve in a liquid bond market carries
important information for the investor. In addition, this paper discusses the dimensions of market liquidity and
examines whether the size of a country influences its choice.
Keywords: Liquidity, Volatility, Government Bonds
Introduction
Nevertheless, as the experience of the countries reviewed in this paper show, lack of liquidity remains a major
obstacle to their development in practically all countries. The benefits of developing a liquid bond market beyond
financing government deficits at lower costs. The liquid government bond market will facilitate pricing of other and
riskier financial assets and the yield curve in a liquid bond market carries important information for the investor. This
paper looks at what governments do to promote liquidity in government bond markets. This paper is divided into three
Sections. First Section discusses dimensions of market liquidity and examines whether the size of a country influences
its choice. The second section deals with some of the macro policies that have implications for liquidity in the
government bond market. While Third Section addresses some countries in enhancing best performances liquidity and
policy on government bond which can be adopted in Indonesia.
Dimensions of Government Bonds Market Liquidity

1.1 Market Liquidity Government Bond markets
Market liquidity has several dimensions some of the important characteristics by which a market could be judged
liquid are its relative tightness, depth and resilience. Tightness, measured by the bid- ask spread, yield, which expecting
by the investor. It provides an idea about the costs incurred by market participants in executing transactions; the
lower the spread, the higher is the market liquidity. The following table describes the indicators of liquidity in
government bond markets.
Table 1.1 Indicators of liquidity in government bond markets
Typical bid-ask spread Ratio of turnover to
Gov bonds most active
ountries
2016 “On the run” “Off the run” maturity
average outstanding
bonds bonds Gov bond in 2016
Malaysia 86 3 5 3, 5 years 0.52
Singapore 21 5 10 1, 2, 5, 15 years 0.5
Republic Korea 46 1 1 3 years 0.89
Japan 369 7 7 2, 4, 5, 6, 10, 20 years 1.31
India 83 1 1 10 years 1.23
China 225 5 10 1,3, 5,7,10 years 0.33
Germany 278 4 5 1, 2, 5, 10, 30 years 0.72
Canada 69 2 5 1, 3, 5, 10 years 1.08
South Africa 28 2 3 1, 5, 10 years 2
USA 446 3 7 1, 2, 5,10, 30 years 1.01
2
In basis points, 4 In percentages & currently matures in may 2016
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From the table 1.1American and Japanese government bonds had the highest at the 2016; USA (446), japan (369),
China (225) and German (278). First, spreads for “on-the-run” bonds vary from a low of 1-2 basis points in India,
Korea,Canada, for “off the run” bonds highest country was Singapore, China and US. Very low spreads in some
countries may not provide an accurate picture of liquidity if the volume traded is also low. In a majority of
economies, however, spreads seem to be much higher than those observed in mature markets. Second, for a few
economies (notably, ASEAN) the depth of secondary market as measured by the ratio turnover to average outstanding
goverment. bonds appears to be low. The typical EMES is between 1% - 2% compared see in USA, India and Japan.
1.2 Volatily short term rate

The broader policy framework to improve liquidity in the government bond market, leaving the specific role of
central banks and governments in boosting primary and secondary market liquidity to later sections. The role of policy
could be critical in several directions such as the extent to which the bond market is allowed to function according to
market-clearing principles and the nature of policy coordination between the government and the central bank. The
overall financial sector policy affecting the investor base and the conduct of monetary policy also has significant
implications for the depth and maturity of the goverment bond market
A well developed money market reduces liquidity risks for bondholders by providing access to the immediate
cash market. It also facilitates the emergence of a sovereign yield curve, as money market benchmarks lead to the
development of long-term yield curves. When the money market is not well developed and the overnight rate is
volatile, investors face heightened liquidity risks that limit their ability to undertake maturity transformation. A simple
indicator of the development of money markets is given by the volatility of the daily interbank rate, since illiquid
markets often witness high volatility of interest rates. As Table 1.2 shows, the standard deviation of overnight
rates in EMEs declined substantially in 2015 compared to the levels in 2005. In many countries, however, the
volatility of short-term rates is still high.
Table 1.2. Volatility of short-term interest rate1

Mean Standard deviation
Countries 2005 2015 2005 2015
Malaysia 2.7 3.2 0.14 0.21
Singapore 2 0.44 1.15 0.04
South Korea 3.2 1.25 1.99 0.62
Japan 1 -0.1 0.64 0.14
India 6.3 6.75 0.14 0.18
China 5.6 4.6 0.07 0.64
Germany 2 0 0.71 0.71
Canada 2.7 0.5 1.38 0.18
South Africa 7.5 7 1.41 1.06
USA 0.25 0.5 0.00 0.18
1
Based on daily interbank or call money rates
The volatility of short-term rates is still high in several countries such as south Africa, India,and China. The lowest
volatility interest rate country is Japan (-0.1) on 2015 and German in year 2015. They are important in many financial
economic models, such as models on the term structure of interest rates, and bond pricing models models. They are
also important in the development of tools for effective risk management and in many empirical studies analyzing term
premiums and yield curves where risk free short-term rates are taken as reference rate for other interest rates. Besides,
they are also a crucial feature of the monetary transmission mechanism. Duguay (2014) describes the monetary
transmission mechanism as starting with a monetary authority’s actions influencing short-term rates and the exchange
rate, which then go on to ultimately affect aggregate demand of inflation.
The term structure of interest rates concerns the relationship among the yields of default free zero coupon bonds that
differ only with respect to maturity. These are expectation, liquidity preference, hedging pressure of preferred habitat
and segmentation theories of the term structure of interest. According to the expectation theory, the shape of the yield
can be explained by investors’ expectations about future interest rates. The liquidity preference theory argues that short
term bonds are more desirable than long term bonds because former are more liquid. Market segmentation theory
assumes that there are two distinct markets for the short and long term bonds. The demand and supply in the long term
bond market determines the long term yield and the demand and supply in the short term bond Market determines the
short rate. This means that the expected future rates have little to do with the shape of the yield curve. In general, a
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central bank’s purchases of government bonds are considered to lower long-term interest rates through three channels:
the signaling channel, the scarcity channel, and the duration channel.
1.3 Average remaining maturity of outstanding government bonds

Developing certain benchmark securities with high liquidity characteristics has been considered important in
improving liquidity in bond markets. Benchmarks are important not only for developing a risk-free yield curve but
also for reducing the servicing costs to government. Savings to government from selling benchmark issues are
estimated to be in the order of 5-15 basis points in developed countries; (Folkerts-Landau, 2009). Moreover, the
availability of benchmark securities with different maturities (regarded as “on-the-run” issues) helps develop hedging
markets and improve trading since the prices of these securities trade close to par and are thus better able to capture the
market interest rate. Despite recent progress in issuing longer-maturity papers, The average maturity has on table 3
where most investor “buy” and “hold”, the scope for developing benchmark issues could be limited. The large stock of
non-marketable debts, mainly saving bonds and special purpose government bonds, also reduces the availability of
benchmark instruments. Japan and German has the lowest average maturity outstanding of government bonds.
Table 3.Average maturity of outstanding government bonds (years)

Country 2000 2005 2010 2015
Malaysia 4.7 5.2 6 7
Singapore 4.1 3.4 4.1 5
South Korea 5.2 6 5.2 5
Japan 0.7 1 1.5 2
India 7.1 5.2 4.8 5
China 2 2 2.4 2.6
Germany 0.5 1 1 1
Canada 10 5 5 5
South Africa 2 2 5 5
USA 5 5 10 10
1
Distribution by original maturity Sources:Central bank & IMF database
1.4 Average Yield government bonds

Anecdotal and empirical evidence has motivated the hypothesis that non-resident demand reduces yields while
inducing volatility in response to changes in fundamentals and market sentiment (Beltran et al., 2012;). In contrast, the
presence of a stable domestic investor base that includes institutional investors is thought to contain yields and foster
stability in bond prices and yields. Institutional investors could be induced to increase their holdings by tightening
prudential regulations. These mandated purchases, comparable to statutory purchases by central banks as part of
quantitative easing programs, could have a similar effect on yields (Joyce et al., 2010). In Japan, a large domestic
investor base has been associated with the low and stable yields despite very high debt (Tukuoka, 2010). This large
domestic investor base is mostly a result of the accumulation of pension savings through deposits and investment funds,
coupled with a strong home bias. In the euro area, equal regulatory treatment and the perception of homogenous credit
risk has fostered investors’ desire to diversify, thereby increasing the share of cross-holdings by non-residents (De
Santis and Gerard, 2006). Japan average yield is lowest for since 2000 to 2015.
Table 4. Average Yield Government Bonds (10 year tenor)

Country 2000 2005 2010 2015
Malaysia 3.59 4.24 3.62 3.66
Singapore 4.33 2.89 1.35 1.77
South Korea 7.47 4.40 4.98 2.37
Japan 1.69 1.46 0.44 0.03
India 11.07 6.84 7.55 7.85
China 3.11 3.79 3.29 3.12
Germany 5.16 3.47 2.13 -0.02
Canada 5.87 4.14 2.59 1.03
South Africa 13.20 7.80 7.92 8.41
USA 69.65 83.71 215.87 141.27
Sources: Bloomberg datastream
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2 Policies of Government Bonds
2.1 Settlement System of Government Bonds

Way to boosting bond market liquidity is developing a dynamic primary market. Because the government
bond market is characterised by a special type of market imperfection, where a monopoly seller meets oligopoly
buyers, the government should credibly precommit to a set of issuing policies that encourage investors to bid in a
desirable way. While precommitment would help establish transparency, given the informational asymmetries
between the seller and the buyers, it is no guarantee that the government would obtain the most competitive sale price.
Choosing an auction technique that improves the price discovery process is, therefore,important to maxisng
revenue for government and maxiising market efficiency. Many countries have set up primary dealers (PDs) to
promote bond while others (for Indonesia ) do not have dedicated government securities dealers but typically rely
upon banks and institutional investors for creating a market for government bonds
In most countries, the clearing and settlement system in government bonds is centralised at the central bank Most
economies seem to follow a book entry system of clearing and have introduced a delivery versus payment system
(DvP). Some countries ( China and Singapore) have considerably reduced settlement risks by adopting electronic
settlement systems with same or next-day clearing of funds and securities. A settlement system based on gross
principles requires market participants to be able to access intraday or overnight credit facilities from the central bank.
This raises the issue whether central banks should be responsible for providing a credit facility to the participants for
clearing and settlement in government securities and what consequences this might have for their liquidity
management operations.(Maria 2014). Another concern may arise from the transaction costs of the clearing and
settlement system. Bond trading could be adversely affected when transaction costs are high.
Table 5. Settlement System of Government bond

Malaysia Settlement system centred at the CB (RTGS), Fixed Delivery and Settlement System (FDSS). Settlement
is on T+3. The financial settlement of securities is done on a net rather than a gross basis
Singapore Book entry system at the CB (settlement dateT+1; DvP; no physical transfer of bonds is necessary)
Republic of Book entry system for government bonds at the CB, for other bonds at the Korea Securities
Korea Depository (settlement date T+0) Bonds traded through the over-the-counter (OTC) market are
settled either on a delivery-versus-payment or on a free-of-payment delivery basis.
Japan Book entry system at the CB (settlement date T+0; DvP; RTGS) Real-time gross settlement (RTGS) is
used for transfers through BOJ’s current accounts on BOJ-NET.
India Book entry system at the CB (settlement date T+0; DvP; RTGS)
China Book entry system at the CB (settlement date T+0; DvP; RTGS), over-the-counter (OTC)
Germany Settlement system centred at the central bank and the national treasury(RTGS and settlement date T+0)
Canada Book entry system at the CB (settlement dateT+0; DvP; RTGS Real-time gross settlement (RTGS).
Government of Canada bonds or treasury bills are handled within CDSX using a process called DetNet.
CDSX has been designated under the Payment Clearing and Settlement Act (PCSA) (backgrounder) as
being subject to statutory oversight by the Bank of Canada.
Book entry system at the CB (settlement date T+0; DvP; RTGS) Real-time gross settlement (RTGS) ,
South Africa using CSD systems
US Book entry system at the CB (settlement date T+0; DvP; RTGS), Central counter parties (CCPs) and
clearing systems. the National Settlement Service (NSS); and the electronic transfer of federal
government securities via the Fedwire Securities Service.
Result
Developing certain benchmark securities with high liquidity characteristics has been considered important in
improving liquidity in bond markets. Benchmarks are important not only for developing a risk-free yield curve but
also for reducing the servicing costs to government. In most Asia Countries, trading in government bonds is
through dealer-based OTC markets. There are, however, important exceptions. In China all trading in government
bonds take place through stock exchanges. Country experiences differ with respect to the success achieved in
enhancing trading of government bonds in organised stock exchanges. For example, while the national stock
exchange in India provides facilities for wholesale trading of government bonds under transparent market
conditions, the volume traded is significantly lower than that in the OTC market. One of the reasons why electronic
trading in Korean stock exchanges has not picked up is the prevalence of broking through personal networks between
dealers and institutional investors. In many countries, trading has been relatively low although government bonds are
listed on the stock exchange. Possible reasons include high transaction costs due to thinness of markets, a low degree
of market transparency and high settlement risks
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References
Bartolini, L and C Cottarelli.(1997).: “Designing effective auctions for treasury securities”, Current Issues in
Economics and Finance, vol 3, Federal Reserve Bank of New York
Beltran, D., M. Kretchmer, J. Marquez, and C. Thomas, (2012), ”Foreign Holdings of U.S. Treasuries and U.S.
Treasury Yields,“ Federal Reserve Board, Washington D.C
Bloomberg datastream, FEB UNDIP (2016)
Campbell JY, Shiller R, Viceira L.(2009) "Understanding Inflation-Indexed Bond Markets". Brookings Papers on
Economic Activity.
De Santis, R., and B. Gerard, (2006), “Financial Integration, International Portfolio Choice, and the European Monetary
Union,” ECB Working Paper 626.
Hoshi, T., and T. Ito, (2011), “Defying Gravity: How Long Will Japanese Government Bond Prices Remain High?”
Presentation at the IMF Research Department
Michael Dooley & David Folkerts-Landau & Peter Garber, (2009). "Bretton Woods Ii Still Defines The International
Monetary System," Pacific Economic Review, Blackwell Publishing, vol. 14(3), pages 297-311
Joyce, M., A. Lasaosa, I. Stevens, and M. Tong, (2010), “The Financial Market Impact of Quantitative Easing in the
United Kingdom,” Bank of England Working Paper 393.
Tokuoka, K., (2010), “The Outlook for Financing Japan’s Public Debt,” IMF Working Paper 10/19
Timeea.Maria, (2014). Considering on assessment of payment and settlement system, Journal of Public Administration,
Finance and Law.
Vittas, D (1998), “Institutional investors and securities markets: which comes first?”, Banks and Capital Markets:
Sound Financial System for the 21st Century, annual World Bank conference on development in Latin
America and the Caribbean, World Bank, Washington DC
World Bank and International Monetary Fund (2015): Developing Government Bond Markets
Author bibliography
Sugeng Wahyudi. Born in Klaten, Indonesia, Sept 2, 1951. Senior Lecturer in Finance Department Management,
Faculty of Economics and Business, at Diponegoro University.
Rio Dhani Laksana. Born in Yogyakarta, Indonesia, November 14th ,1982. Lecturer in Department Management,
Faculty of Economics and Business, Jenderal Soedirman University. Presently a Ph.D (cand) at Diponegoro
University
Hersugondo. Born in Tegal, March 27th, 1965. Lecturer in Department Management, Faculty of Economics and
Business, Unisbank. Presently a Ph.D (cand) at Diponegoro University
Harjum Muharam. Born in Bengkulu, February 18th, 1972. Lecturer in Finance Department Management, Faculty of
Economics and Business, at Diponegoro University.
Robiyanto. Born in Semarang, August 15, 1976. Born in Tegal, March 27th, 1965. Lecturer in Department
Management, Faculty of Economics and Business, Satya Wacana Cristian University
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MEANING OF CAREER AND WELL BEING THE KEY OF CAREER PERFORMANCE

STUDY OF THE CONCEPT OF A CAREER PERFORMANCE
Sumaryono1), Suryana Sumantri2), Diana Harding3), Marina Sulastiana4)

1)
Universitas Gadjah Mada, Yogyakarta, Indonesia
2) 3) 4)
Universitas Padjadjaran, Bandung, Indonesia
1)
sumaryono24@gmail.com
Abstract
This research developed the concept of career performance for self-employment, and investigated influence of meaning
of career and well-being to the career performance of self-employee. A number of 162 subjects, who works as a self-
employed participated in this study. Variety of professional self-employment involved in this research, such as
psychology assessor, trainers, designers, financial consultants, and professional careers that associated with business
institution like insurance agent and freelance marketer who live in Yogyakarta, Greater Jakarta, and several cities
outside Java. Using exploratory sequential method with the quantitative study, questioner of career performance,
questioner of career meaning and questioner of well-being were distributed by snowball sampling technique. Survey
was uploaded in google.doc, shared to respondents and they delivered it to other self-employed in their community.
Based on SEM analysis, it is proven that the design of models on the career performance on self-employed influenced
by the career meaning and well being are acceptable. Both variables have a relatively high correlation towards career
performance. In conclusion, meaning of career and well being have influence to the career performance in self-
employment.
Keywords: Career Performance, Career Meaning, Well Being, Self-employed
Introduction
Studies on the construct of the performance to be interesting to be deepened, because there is a development of
theoretical understanding and dynamics of conformity when confronted with the phenomenon in the field. Performance
is defined as optimizing the potential of individuals in their role as workers or members of the organization. In essence,
more focused performance management as a process that ensures the achievement of organizational goals through
improved individual performance (Bernardin & Russell, 2010). As a concept, the performance of the position or job
performance is defined as a function of the individual's ability, motivation and opportunity (Gibson, Ivancevich, and
Donnelly, 2002). The problem is, how exactly the definition of performance for individuals who do not work within the
scope of the organization? This question becomes important with the phenomenon of career choices young people who
began to move toward non organizational career choice.
With the understanding and development of the performance of his career in the actors career independently, it will
be easier to drive the strength of what to do on the perpetrators career independently in building professionalism, a
model of self-development should be done, and how to resolve the issue if there are problems associated with the
development of performance. Interests of thumb is, the development of a career performance on the perpetrators
independent career is how to prepare this group to establish themselves as a force professional business and ready to
enter the era of the organization that are networking. Therefore, the study of performance in the group of independent
career needs to be done to answer the question how the shape of the design concept of a career performance as
appropriate for independent self-employed?
Career Performance associated with career meanings and well-being, the expected performance of his career in
essence self employed offender be missed. On the basis of these considerations, this study has the freshness and
originality. The research associated with the performance of his career in self employed has not been studied more
specifically in Indonesia. Nevertheless, the most important thing is not the problem of freshness or uniqueness, but the
topic is expected to be led to the concept of performance that can explain the true essence of the performance and would
probably bring a new concept.
The purpose of this study is intended to test and get answers to the suitability of the influence of the meaning of
career and well-being aspects of the performance of his career in the career offender independently.
Literature review
Career Performance is a design concept that is constructed based on theoretical concepts that already existed before
the concept of performance and the concept of a career. The construction process of this theory begins with the stage
building a theory which examines the logical truths and empirical truth. Logical truth is assessed through a systematic
study of the theory and empirical truth is assessed through research that is intended to verify the hypotheses developed.
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In career choices independently, a career is considered a success if there is an increase in an individual's competency
related to the occupied areas (Hochwarter, Kiewitz, Gundlach, Stoner, 2004), there was an increase in the dimensions of
harmony between work and family (Stumpf, 2007) and the development of the freedom to express themselves for
individual (Chatman, Caldwell & Reilly, 1999). The focus of attention is a challenge for any problems that must be
addressed with the new competencies and further improved. In this case there is no demand from the organization,
because there is no scope of the organization. The scope is more on the expertise in dealing with problems or increase
capacity in the profession is practiced. The achievement of a more independent career lead to the development and
growth of competence, while others such as financial results, commissions, and other forms merely logical consequence
of returns services performed.
Assertions about careers and career choices independently is in line with the statements that have been revealed by
Feldman and Arnold (1986) as subjective career. On the basis of it, the researchers concluded that the concept of career
performance is a development capability that is synonymous with the development of internal factors within the
individual. From the definition, the researchers summarize the concept of a career performance as an individual's
success in carrying out his career by basing ourselves on developing competencies themselves to overcome the existing
problems and generate a feeling of satisfaction and happiness.
Within the framework of performance independent career, when the career choice is seen as something that is
important for concerned, the individual will have a special meaning to the career she lived. By placing in position by the
significance, the optimization becomes more impactful. Meanwhile, the profit factor which can be obtained by an
individual on the individual's career choice, the psychological impact that leads to psychological wellbeing components
or so-called well-being. The framework can be explained more clearly in Figure 1.
Figure 1. Research Framework Thinking
The development concept is based on the career performance of conformity between themselves and the chosen
career as well as the usefulness of career. From these findings the suitability of self and career called career meaning
and usefulness are able to serve and provide productive provide a vehicle for others in line with the concept of well-
being. According to the researcher's career is a manifestation of meaning on the importance of work for the
organization. While it's well-being is more directed at career satisfaction, happiness, and a form of optimization of the
entire function of the individual who makes the achievement of psychological well-being. Two of these factors,
meaning career and well-being simultaneously expected to affect the performance of her career. Understanding
simultaneously, both factors together support each occurrence career performance. When both these variables
perpengaruh and have significant value to the career performance, then the theoretical concepts proposed qualifies as a
model of a relationship or a theoretical model of a career performance.
Thus the hypothesis of the study was composed of career performance is there is a significance influence career and
well-being of the performance of his career in independent career actors simultaneously. Testing this hypothesis will
hopefully be the basis of a decision whether the model influence the career of meaning and well-being of the
performance of his career in independent career offender is fit model.
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Methods
This study is a continuation of the initial research that uses qualitative. A qualitative approach was used to develop
the initial concept maturation of the career performance. With the initial concept development through qualitative
approach, it can be expected to strengthen the basic construction theory with regard to the performance of her career.
The process of quantitative and qualitative research conducted through previous research conducted by the researchers
is research on Self employement & Career Performance (Sumaryono, 2014) and the Quality of Work Life, Happiness,
and meaningfull in The Self Employment or Professional (Sumaryono, 2015). In the process of this research, the focus
of career performance concept testing conducted on an independent career offender with a quantitative approach. With
this quantitative approach meaning variable career and well-being variable as a predictor variable to variable acting
career performance as the criterion variable. A second influence predictor variables will be tested so that it will answer
the hypothesis.
Collecting data in this study is based on quantitative, so that the data collection process will use performance-scale
Career, Career Meaning scale and scale of Well-Being. Based on the process, data collection is done by stages as
follows: a) Determination of criteria for the research subjects, b) Determination of the main subject being informants
community groups independent career, c) Delivery scale research on-line to the subject target
The research was done by taking the subject of research by the snowball sampling technique. Certainty that the filler
is a subject done in several ways, among others, researchers identified correctly by the respondents and the community
that has the capacity of an independent career workers, eg assessors freelancer community, coordinator of insurance
agents, and several associates in labor activity independent career. In accordance with the initial plan, the study done by
taking the subject of research by the snowball sampling technique. Scale deployment focused on subjects included in
the characteristics that have been determined in this study is an independent career actors with independent
specifications and membership. Location data retrieval in Central Java, Yogyakarta, Jakarta, West Java and its
surroundings. This study was designed using research subject amounts to 100-200 people while considering variation
with time research career choices take place starting from the date of March 27, 2016 to April 11, 2016. Based on the
collection of data obtained as much as 162 research subjects.
Research result
Tests for these models can be regarded as a test of the influence of the model simultaneously. First, it should be seen
first on the suitability models. If in view of the value of CFI = 0990 and above 0.90, so that the goodness of fit model
accepted influences.
Figure 2. Career Meaning and Well being to Career Performance
With the acceptance of the model, then it means that when together the meaning of career and well-being affects the
performance of his career in the career offender independently. However, the most influential predictor is the meaning
of a career since 0589 with a value of r = p <0.01, respectively. while the predictors of well-being has a value of r =
0217 and p = 0:23 or p> 0:01, so it was not significant. Taken together, the hypothesis is accepted. The results of the
overall model analysis shows that the significance of career significantly affect Career Performance (b = 0589, p <0:01).
While it's well-being does not significantly affect the performance of a career (b = 0217, p = 0:23). When examined in
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more detail, it turns out contributors of each factor in the model dominated by the influence of the personal aspects of
each variable
Discussion of Results
Interesting things happen when both the predictor variables correlated with the performance of his career and well
being jointly From the model is accepted because it is based on the value of CFI of 0990, eligible goodness fit dg CFI
0.90. This means that both variables is a predictor for career performance. In this model shows that the meaning of
career and well-being affect the optimal performance of his career in a career offender standalone or independent career
performance. When people feel that the means chosen career or important and well-being of high perceived
psychological or welfare of the careers more optimal performance.
Why is this so? In findings can be understood that the independent careers are able to provide traction for the
perpetrators. Some haulage relatively prominent among others, relating to the flexibility or keleuasaan in some cases
include time management, opportunity management, which means the independence of the individual control work
activities, and the freedom to determine the development of self-competence. Strength allure of independent career
choice making individuals feel has the significance of the personal side. It could be said that the role of the controller
work activities freely or flexible is the greatest force in independent career, this is the central point of the influence of
the meaning of career to career performance. Logically, it is unacceptable, especially supported by the contribution of
the meaning of career to career performance with a value of r = 0.589. This means that based on the results of the
analysis, meaning career contributed about 34.7% of the performance of her career. That means, when a career positive
meaning and in accordance with the characteristics present in the individual then the performance will be optimal
career.
Optimizing the performance of a career that occur as a result of feeling more responsible and self-motivated
individual. This is the impact of the awareness of the career options that are tailored to the individual conditions.
Existing traction on independent careers capable to provide solutions to the problems facing individuals such as
freedom, independence, the desire to optimize themselves without having to be limited by the corridors of the
organization, and the desire to be happy as it can organize themselves and work. Advantages of this independent career
that makes people feel more get the chance to develop their potential to be maximal.
The findings result in a performance model career and well-being of the career performance is contributing to the
performance of a career well being of r = 0.217. This means that the contribution in the context of the effect of 4.7%.
Compared with the contribution of the meaning of a career, the contribution is small and well being based on the results
of the statistical calculation is not significant. It is the position of well being will contribute more significantly when it
comes to the meaning of a career. Logically, well being within the individual offender independent career led to a
situation happy and comfortable socially. It just happened if the individual is able to interpret the chosen career
significantly. With a career interpret in full, then the individual will be responsible in total. Feeling responsible for it
automatically implies a lack of compatibility between the self and career. When this happens, then the happiness and
comfort aspect of the work is already being felt. This is what causes the condition of the effect is greater than the career
of meaning well being.
Seeing his contribution, meaning variable careers are more variables than the variable control of well being. This
means that the variable meanings dominated careers and well-being not too stand out. Researchers try to look at this
phenomenon by looking at the correlation between the meaning of career and well-being. Based on the value of r that
looks at the relationship model, it turns out the r value of both is .818, meaning they have a correlation. This correlation
does illustrate that both variables simultaneously contribute to the performance of her career. In this sense, it could be
interpreted that the well being becomes meaningful when together with the meaning of a career.
The next question is why is this so? Researchers conducted a study of the essence of each construct, meaning both
career and well-being. Based on the analysis performed, there are some things that allow the relationships between
them, for example, studied the content of the elements that make up the two constructs is no possibility that the same
interpretation as understanding about the usefulness, pride and prestige, value and meaningful use.
The results need to be discussed in depth is why the meaning of career in dominate models. According to
investigators, meaning well-deserved career dominate the performance of career, because the position of the meaning of
career will determinant how much significance the career for the individual. Thinking about how important that these
things are related to the consideration and career benefits that must be endured by the individual. When a career is
important, any good reason for the need, appeal, or solving a problem, then the individual will live with totality. If it is
deemed important, then automatically the people will live with enthusiasm, passion, and courage to face the problems
that exist when in the field. The next impact is a feeling not easily give up and have an attachment between the self
chosen career. Logically it is this which strengthens the position of the meaning of a career as a predictor for the
performance of her career.
When the meaning of the applicable career in self employed, the effect becomes stronger because when deciding to
choose a career independently, the individual is already doing the consideration. There is a difference between the
perpetrator reasons independent career that started from scratch and independent actors who started his career having
never pursue careers as employees of the organization. For offenders early career independent of the basic choice is put
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on the charms of an independent career. One of the considerations that often arises is a matter of time flexibility and
independence. Flexibility matter of time that makes the actors feel independent career can manage themselves based on
its priorities and interests. This mindset prevails in many among the younger generation, which enjoys the work without
having to leave the hobby has. Conditions in the field indicate that many young people who feel the independent career,
life becomes more fun and run the job in a more satisfying career. Such consciousness is already there in an
independent career offender deliberately chose this career since the beginning.
Meanwhile, the reasons actors independent career that originally came from employees of an organization are usually
associated with the solution to the problems that arise when working as an employee time-bound eg, conflicts of interest
work and family, feeling depressed because all must be governed by others. When that recognition comes, the need for
new things appear. Career options independently be an option although in some cases making it must manage risk
themselves. After undergoing an independent career, 84% of people feel their lives to be more enjoyable and life was
felt to be better. When this is the case, then those individuals that chosen career is meaningful to life as a whole.
Conclusions
Based on the results of research and discussion can be concluded as follows:
1. Simultaneously meaning of career and well-being affects the performance of a career, meaning that models the
effect of the meaning of career and well-being of the performance of his career in independent career offender
received. Variables significantly affect the career of meaning, while the well-being does not affect the performance
of a career when together. When well-being is correlated with the meaning of a career, then it will affect the
performance of his career in the career offender independently.
2. Meaning careers affect the performance of your career, so that models the effect of the meaning of a career on the
performance of his career in independent career offender received.
3. Well-being affects the performance of your career, so that models the effect of well-being on the performance of
his career in independent career offender received.
In the model the effect, because all three are fit. This indicates that the meaning of career and career performance is
a predictor for performance career, with a record of this model applies to perpetrators of independent career. Rests
overall results, discussion, and limitation of the study is based on the career of meaning, well-being and performance of
a career on an independent career offender, it may be advisable to multiple parties.
Reference
Bernardin, H. John and Russel, E.A. (2010). Human Resource Management; An Experiential Approach. Mc. Graw Hill
International Edition, Singapore: Mac Graw Hill Book Co
Chatman, J., Caldwell, D. and O’Reilly, C.A. (1999). “Managerial personality and performance: A semi-idiographic
approach.” Journal of Research in Personality: 33: 514-545.
Feldman. D.C & Arnold. H.J. (1986). Organizational Behavior. New York: Mc.Grow Hill.
Gibson, James L.; Ivancevich, John M.; Donnelly, James H., Jr. (2002). Organization: Behaviour, Structure, and
Proccess. New York: McGraw Hills
Hochwarter, W.A, Kiewitz. C, Gundlach. M.J, Stoner. J, (2004). The Impact of Vocational and Social Efficacy on Job
Performance and Career Satisfaction. Journal of Leadership and Organizational Studies. 10, 4.
Sumaryono. (2014). QWL, Kebahagiaan, dan Kebermaknaan Hidup pada Pekerja Karir Mandiri (Self-Employed) –
Kajian Kualitatif. Laporan Penelitian. Yogyakarta: Fakultas Psikologi Universitas Gadjah Mada
Sumaryono (2015). Makna Kesuksesan Kerja pada Pekerja Muda – Kajian Kualitatif. Laporan Penelitian. Yogyakarta:
Fakultas Psikologi Universitas Gadjah Mada
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CORPORATE FRAUD AND VALUE OF FIRM:

EMPIRICAL EVIDENCE FROM INDONESIA CAPITAL MARKET
Hermeindito1), J.E.Sutanto2)
Graduate School of Business Universitas Ciputra, Surabaya, Indonesia

1)
hermeindito@hermeindito@ciputra.ac.id
Abstract
Insider ownership and leverage has inter-substitute function to reduce negative effect of agency problem on value of
firm. In the present of corporate fraud, the substitute function mechanism is neither sufficient nor efficient to copes the
agency problem. Agency cost and good corporate governance might effective to reduce negative effect of corporate
fraud on value of firm. This study aims to develop substitute hypothesis, agency cost, and good corporate governance
that related to value of firm.
Empirical research results show there is substitute relationship between insider institutional ownership and leverage as
theory expected. In the present of corporate fraud, leverage could reduce negative effect of corporate fraud on value of
firm; while higher insider institutional ownership leads less value of firm. Independent commissioners play role
important in implementing good corporate governance that lead more value of firm. Firm without independent
commissioners less effective to prevents negative effect of corporate fraud on value of firm.
Keywords: Fraud, Ownership, Leverage, Firm Value, Governance
Introduction
Corporate frauds have being aroused around the world. The giant corporate fraud in United State by Enron Inc. has
motivated US government to release Sarbanes Oxley. The act provides protection for everyone, who report and or
prevent financial corporate fraud. However, the trend of corporate fraud has being increased significantly during 1997
to 2011 (Gee & Button, 2013; Kroll, 2015). Corporate fraud is the highest unobserved cost in business which many
investors have not realized that it might be happened in their business. ACFE (2014) have documented 1,483 corporate
fraud cases in more 100 countries that lead firms suffer on average 5% losses annually. They estimated that gross world
product suffer losses approximately of US$3 trillion annually. In addition, PricewaterhouseCoopers (PwC) presented ---
global economic survey in 2016 indicates that more than on in three organization experienced economic crime (PwC,
2016).
Corporate frauds are also founded in Indonesia. Indonesia financial service authority (OJK, formerly as Capital
Market and Financial Institution Supervisory Board, BAPEPAM-LK) annually reports corporate fraud in variety cases
such as violation of the Law, insider trading, over or under stated financial data reported, etc. In 2014, OJK conducted
33 capital market formal investigations that consist of issuers, public companies, and capital market support
professionals.
Empirical evidences on the impact of corporate fraud on value of firm provide mix results. Some studies support
corporate fraud decrease cumulative abnormal return (Kurant, 2014). Empirical evidences from Indonesia indicate there
is no financial performance difference between fraud and non fraud firms (Subroto, 2012); fraud triangle provides
inconsistent result to differentiate fraud and non fraud firm (Daniel et al., 2013; Diany & Ratmono, 2014); expert
commissioner in implementing good corporate governance reduces corporate fraud (Zainal et al. 2013); corporate fraud
and stock liquidity (Kuvvet, 2015); fraud and damage of federal securities (Chen and Crumbley, 2016); financial
development reduces the frequency of tunneling and insider trading (Li et al., 2016).
Corporate fraud could be happened --- in the existence of information asymmetry --- in many cases of business
scandal due to conflict of interest between different parties of stakeholders. Jensen and Meckling (1976) suggest that
separation between principal (owners) and agent (management) leads conflict of individual interests. The conflict will
increase potential loss that be borne by owner and management. Hence, they suggest that convergence the interest
between the two will reduce agency cost. Empirical evidences support the convergence hypothesis (Cho, 1998; Cole &
Mehran 1998; Davies et al., 2005). In Indonesia, the conflict of of interests is not between principal-agent but between
principal-principal, more spesifically between insider institutional ownership and public ownership (Hermeindito,
2016).
Jensen and Meckling (1976) argue that conflict of interest between debt holder and equity holder also has an impact
on value of firm. Furthermore, Jensen et al, (1992) find that there is negative relationship between leverage and insider
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ownership. This finding indicates that there is substitute control mechanism between the leverage and insider
ownership.
Two main objectives of this study are to examine substitute relationship between institutional ownership and
leverage as agency control mechanism and to analyze whether institutional ownership and leverage could reduce
negative impact of corporate fraud on value of firm. The relationship will be controlled by agency cost and good
corporate governance.
Rest of this paper is organized as follows. Section 2 discusses literature review and hypothesis development. Section
3 presents the research method, including sample, data, variable and technique. Section 4 discusses the empirical data
analysis. Final section concludes the research result.
Literature Review and Hypothesis Development
Internal institutional ownerships are part of firm founders which restrain their shares, when they decided to go
public. They play important role in managing the firm called insider institutional ownership. Hermeindito (2016)
describes relationship between insider institutional ownership and managerial ownership that managerial ownership
does not explicitly reported as firm owner. The position of insider institutional ownership leads potential conflict of
interest between insider institutional ownership and other type of ownerships. Insider institutional ownership may have
incentive to expropriate firm assets to maximize their owned interest that lead negative impact on value of firm.
Statement of this hypothesis is contrary to convergence hypothesis (Jensen & Meckling, 1976) that states insider
ownership will reduce conflict of interest between principal and agent.
From agency perspective, negative effect of leverage on value of firm will be interpreted that there is over-invest
problem, while positive effect of leverage on value of firm will be inferred as under-invest problem. Florackis and
Ozkan (2009) state that managers attempt to avoid high leverage in order to minimize the disciplined by debt and to
reduce bankruptcy risk.
Jensen et al. (1992) suggest that both insider ownership and leverage are tools of agency control mechanism. In
order to minimize the agency cost, firms might choose leverage to substitute insider institutional ownership, or vice
versa, as a control agency mechanism. Jensen et al. (1992) provide empirical evidence that there is negative relationship
between insider ownership and leverage. Substitute hypothesis can be stated that there is negative relationship between
leverage and insider institutional ownership.
Agency control mechanism attempts to reduce agency cost through insider ownership or leverage based on
substitute function. In normal situation, the mechanism is sufficient and efficient to prevent conflict of interests between
parties inside and outside of firm. Hence agency cost is trivial and has no significant effect on value of firm. In the
present of corporate fraud --- that indicated existence of severe conflict of interest problem --- the mechanism might
neither sufficient nor efficient to copes the agency problem. Agency cost will significantly reduce the value of firm.
Furthermore, good corporate governance play important role to prevent the negative impact of corporate fraud on value
of firm. (Zainal et al. 2013) provide evidences that higher independent board of directors and board of commissioners
reduce the existence of corporate fraud.
Figure 1 summarizes the flow of hypothesis development. The figure shows inter-relationship between two tools of
agency control mechanism --- leverage and insider ownership --- and its impact on investment decision (H1); while
effect of three endogenous constructs on value of firm (H2a, H2b, &2c) provides further validation test of sufficiency and
efficiency of agency control mechanism. Second validation test is to control effect of agency cost and good corporate
governance on value of firm (H3a& H3b). Third validation test is to control effect of corporate fraud on value of firm
(H4a, H4b, & H4c).
Leverage
H2a H4a
Agency cost
H3a
H2b
H1 Invest. decision Value of firm Corporate fraud
H3b
Good governance
H2c H4b
Inst. ownership
Figure 1: Relationship between agency control mechanism, corporate fraud and value of firm
Research Method
Sample and data
Samples of this study are 40 non financial firms from period of 2000 – 2012 which have been reported by OJK
(BAPEPAM LK) in the annual report as firms which have perpetrated corporate fraud. Other 40 comparable non
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financial firms based on assets size are used to control the samples based on 15 type of industries. Financial statement
and stock price data are obtained from annual financial report of sample firms and Indonesia Stock Exchange. Three
consecutive years of data --- one year before, during, and after perpetrated fraud --- were taken from each firm sample
and control sample with period of analysis from 2000 until 2012. There are total 240 observations of firm years of data
with two missing data. Finally, there are 238 observations of firm years of data used in this study.
Endogenous, exogenous and instrumental variables

There are four endogenous variables in this study. Those are value of firm, leverage, insider ownership, and
investment decision. Natural logarithm of market capitalization is used as a proxy of value of firm (VF). While debt to
equity ratio (DER), shares number of the largest insider institutional ownership divided by total shares number (IIO),
and investment cash flow to total asset (ICTA) are used as proxies of leverage, insider ownership, and investment
decision, respectively.
Exogenous variables for value of firm equation are business operating expenses to sales (BOS), dummy variable is 1
for firm with independent commissioners and 0 for others (DIC), and dummy variable is 1 for fraud firm and 0 for
others (DFRAUD) as proxies of agency cost, good corporate governance, and corporate fraud respectively. This study
also used market to book value of equity (MBVE) as instrument variable. Instrument variables for DER equation are
market to book value of asset (MBVA) and net income to total assets that is commonly called return on assets (ROA).
Instrument variables for IIO equation are operating cash flow to total assets (OCTA) and sales to total assets (STA).
While instrument variables for ICTA are net profit to sales called net profit margin (NPM), market to book value of
asset (MBVA) and operating cash flow to total assets (OCTA).
Empirical Model
Based on the flow of hypothesis development in figure 1, this study develops empirical simultaneous equation
model in the system equation that can be expressed as:
VF = 10 + 11DER + 12IIO + 13ICTA + 14BOS + 15MBVE + 1 (1)
DER = 20 + 21IIO + 22ICTA + 23MBVA + 24ROA + 2 (2)
IIO = 30 + 31DER + 32ICTA + 33OCTA + 34STA + 3 (3)
ICTA = 40 + 41DER + 42IIO + 43NPM + 44MBVA + 45OCTA + 4 (4)
The basic model in the system equation 1-4 will be expanded by moderating effect of simultaneous equation model
for fraud firm and non fraud firm. The model will be run in the equation system using generalized method of moments
(GMM) due to the existence of heteroscedasticity in the equation.
Research results
Summary statistics
Table 1 reports descriptive statistics of all variables, except two dummy variables of DIC and DFRAUD. The table
also provides independent t test for compare mean difference of variables between non fraud firm and fraud firm. All
variables, except STA, have no significant differences between fraud and non fraud firm. The results indicate that
control non fraud firm sample have similar characteristic to fraud firm.
Table 1. Group statistics and t test for two independent mean differences
Non Fraud Firm Fraud Firm
Variable t statistic
Mean Std. Deviation Mean Std. Deviation
VF 26.47 2.42 26.29 2.16 0.60
DER 1.87 12.75 0.98 2.67 0.74
IIO 0.40 0.27 0.42 0.24 -0.77
ICTA -0.03 0.11 -0.03 0.21 0.26
BOS 0.73 0.31 0.80 0.34 -1.73
MBVE 2.38 7.35 1.18 1.69 1.73
MBVA 1.47 1.26 1.39 1.19 0.54
ROA 0.06 0.24 0.03 0.83 0.39
OCTA 0.08 0.13 0.07 0.17 0.33
STA 1.57 3.02 0.87 1.01 2.39 **
NPM 0.00 0.65 -0.12 0.67 1.43
** significant at 5%
Simultaneous equation estimation using generalized method of moments

Results of the generalized method of moment (GMM) estimation are presented in Table 3 Panel A, B, C, and D with
two models: excluding and including DFRAUD. Value of firm (VF) equation results show debt to equity ratio (DER)
has negative effect on VF. It indicates that firms address overinvestment problem. The result confirms hypothesis H 2a.
In the present of corporate fraud (DER*DFRAUD), DER reduces the negative effect of corporate fraud on VF. The
result confirms the hypothesis 4a that leverage is sufficient to prevent worsening VF due to corporate fraud.
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Table 3. GMM estimation for Value of firm, Leverage, Insider Ownership, and Investment
Model 1: Excluding fraud Model 2 Including fraud
Variables
Coef. t stat Coef. t stat
Panel A: VF
Intercept 18.774 4.237 *** 16.902 5.37 ***
DER -0.618 -5.906 *** -0.697 -5.82 ***
IIO 18.052 2.131 ** 19.175 3.75 ***
ICTA 7.389 3.026 *** 5.618 3.22 ***
BOS 0.145 0.138 1.335 0.97
DFRAUD 11.004 3.27 ***
DER*DFRAUD 0.643 6.04 ***
IIO*DFRAUD -20.886 -3.98 ***
DIC 0.994 1.823 * 1.566 2.33 **
DIC*DFRAUD -1.809 -2.47 **
MBVE 0.541 5.293 *** 0.817 8.27 ***
BOS*DFRAUD -3.163 -2.03 **
Panel B: DER
Intercept 9.214 2.164 ** 4.765 6.45 ***
IIO -14.968 -1.469 -3.883 -3.16 ***
ICTA 11.738 0.607 30.887 5.91 ***
MBVA -0.503 -1.457 -0.577 -3.33 ***
ROA -1.829 -0.750 -3.828 -5.19 ***
Panel C: IIO
Intercept 0.411 23.533 *** 0.429 24.44 ***
DER -0.002 -1.391 -0.004 -3.16 ***
ICTA -0.394 -4.256 *** -0.056 -0.58
OCTA 0.070 0.802 -0.049 -0.52
STA -0.008 -3.256 *** -0.011 -3.64 ***
Panel D: ICTA
Intercept 0.428 5.628 *** -0.042 -2.15 **
DER -0.003 -1.757 * 0.003 6.59 ***
IIO -1.108 -6.407 *** -0.018 -0.48
NPM 0.066 2.862 *** 0.049 3.83 ***
MBVA 0.004 0.739 0.019 3.10 ***
OCTA -0.005 -0.043 -0.142 -2.41 **
***, **, * significant at 1%, 5%, 10% respectively
Investment cash flow to total asset (ICTA) as proxy of investment decision has positive effect on VF as expected in
hypothesis H2b. Insider institutional ownership (IIO) has positive effect on VF as expected in hypothesis H 2c. However,
in the present of corporate fraud (IIO*DFRAUD), IIO has negative effect on value of fraud firm. The results confirm
hypothesis 4b that more power of IIO for fraud firm will more facilitate insider to expropriate the asset that will
decrease VF.
Business operation to sales (BOS) --- as a proxy of agency cost --- has no impact on VF. In the present of corporate
fraud (BOS*DFRAUD), BOS has negative effect on VF. The result indicates fraud firms need additional tool (cost) to
solve agency problem that lead decreasing value of firm as predicted in hypothesis H 3a, while the cost is not needed for
non fraud firms. The existence of independent commissioner (DIC) leads positive effect on VF. In the present of
corporate fraud (DIC*DFRAUD), however, fraud firm has no independent commissioner leads negative effect on VF. It
suggests that DIC is effective to reduce negative impact of corporate fraud on VF as expected in hypothesis H 3b.
The DER equation result indicates IIO lead less DER. The IIO equation result also provides negative effect of DER
to IIO. The negative effect of both IIO on DER and DER on IIO are consistent with substitution hypothesis H1. This
result conforms to the previous claim of Jensen et al. (1992) that there is negative inter-relationship between debt and
insider ownership. Panel B and D show that there are positive inter-relationships between DER and ICTA. While Panel
C and D show that relationship between IIO and ICTA is relatively weak and sensitive to the existence of corporate
fraud and the effect of agency cost (BOS) on value of firm (compare the results in model 1 and model 2).
Conclusion
This study develops agency model to explain different behavior of two tools of agency control mechanism ---
insider ownership and leverage --- in the absent and present of corporate fraud. Research results show that substitute
tool between insider institutional ownership and leverage is sufficient and efficient to control agency problem. In the
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present of corporate fraud, the higher insider institutional ownership leads less value of fraud firm, while leverage
reduces negative effect of corporate fraud on value of firm. Fraud firm need more tool (cost) to control agency problem
that lead less value of firm. In addition, good corporate governance --- represented by the existence of independent
commissioner --- prevents negative effect corporate fraud on value of firm.
Acknowledgement
Authors would like to thank Indonesia Research and Technology and Higher Education Ministry for financial support to
this research (fundamental (basic) research scheme 2016-2017).
Reference
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Davies, J.R., Hillier D., & McColgan P. (2005). Ownership Structure, Managerial Behavior and Corporate Value.
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Diponegoro Journal of Accounting 3 (2), 1-9.
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Accounting and Finance 49, September, 531–553.
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Working paper, Center for Counter Fraud Studies, BDO, University of Portsmouth
Hermeindito. (2016). Entrenchment Hypothesis and Insider Institutional Ownership. Working paper, 2nd Indonesian
Finance Association conference, August 10-11. Yogyakarta.
Jensen, G.R., Solberg, D.P., & Zorn, T.S. (1992). Simultaneous determination of insider ownership, debt, and dividend
policies. Journal of Financial and Quantitative Analysis 27, 247-263.
Jensen, M.C., & W. H. Meckling, (1976). Theory of the firm: Managerial behavior, agency cost, and ownership
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Porto, Portugal.
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10.3905/jot.2015.10.3.065
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working paper. http://www.cuhk.edu.hk/fin/event/symposium/SEFM_2016_paper_101.pdf
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Preparation brings opportunity back in focus, https://www.pwc.com/gx/en/economic-crime-
survey/pdf/GlobalEconomicCrimeSurvey2016.pdf
Subroto, V.K. (2012). Pengaruh Karakteristik Perusahaan dan Karakteristik Auditor Eksternal terhadap Kecurangan
Pelaporan Keuangan. Aset 14 (1), 83-95.
Zainal A, Rahmadana M.F., & Zain K.N.M. (2013). Power and Likelihood of Financial Statement Fraud: Evidence
from Indonesia, Journal of Advanced Management Science 1 (4), 410-415
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FREE CASH FLOW AND EARNINGS MANAGEMENT: BOARD OF COMMISSIONER,

BOARD INDEPENDENCE AND AUDIT QUALITY AS MODERATING
Yulius Kurnia Susanto1), Arya Pradipta2), Indra Arifin Djashan3)
Trisakti School of Management, Jakarta, Indonesia

1)
yulius@tsm.ac.id
Abstract
The purpose of the research is to provide empirical evidence about the effect of board of commissioner, board
independence and audit quality on relationship between freecash flow and earnings management.This research
used 290 data from manufacturing companies listed in Indonesia Stock Exchange, selected using purposive
sampling method, during 2012 until 2014. Data for the research were analyzed using multiple regression analysis.
The results of the research showed that the effect of board of commissioner, board independence and audit quality
on relationship between freecash flow and earnings management is negative and significant. Board of
commissioner, board independence and audit quality reduce the relationship between free cash flow and earnings
management.
Keywords: Earnings Management, Free Cash Flow, Board of Commissioner, Board Independence, Audit Quality
Introduction
Earnings information is used by investors or other interested parties as an indicator of the efficient use of funds
that are embedded in the company are realized in the rate of return and an indicator for the increase in prosperity
(Ghozali and Chariri 2007). Earnings information is sometimes used as a basis for measuring the success or failure
of the business in achieving operational goals. This will encourage management to manipulate earnings information
to make financial statements look good. These actions are called earnings management.
Earnings management is the activity of manipulating reported earnings, so the company did not indicate
accurately the economic income in certain periods (Goel and Thakor 2003). Earnings management is the selection of
accounting policies specified by the management company to achieve certain goals. Earnings management is a
manager intervention against the financial reporting process in order to gain advantage, both for managers and
companies (Scott 2012). If the free cash flow is not used to maximize shareholder earnings in the form of a
profitable investment, then investors will find that the management is not able to provide benefits to the owner of the
company. In the end, the company will be in a position of low growth (Jensen 1986).
Agustia (2013), Amertha et al. (2014), Yogi and Damayanthi (2016) showed that the effect of free cash flow on
earnings management is negative and significant. Kangarluei et al. (2011) and Cardoso et al. (2014) showed that free
cash flow does not have a significant effect on earnings management. Bukit and Iskandar (2009), Chalak and
Mohammadnezhad (2012) showed that the effect of free cash flow on earnings management is positive and
significant. The existence of differences in results inconsistencies relationship between free cash flow and earnings
management indicates contingency factor. The contingency factors, namely the board of commissioner, board
independence and audit quality. The research is the first paper to systematically test the effect of board of
commissioner, board independence and audit quality on relationship between free cash flow and earnings
management practices in the Indonesia context. The research objective was to obtain empirical evidence that board
of commissioner, board independence and audit quality can reduce the positive effect of free cash flow on earnings
management.
Agency Theory
Agency theory is one of the theories underlying the company's business practices that have been used for this.
This theory began to evolve through the writings of Jensen and Meckling (1976) Theory of the firm: managerial
behavior, agency costs and ownership structure. Agency theory is a theory that emerged through the development of
accounting research. This theory is a modified form of the development of financial accounting model by adding
aspects of human behavior into economic models. Jensen and Meckling (1976) describes an agency relationship in
agency theory is that the company is a collection of a contract between the owner of the resource costs (principal)
and the manager (agent) who took care of the use and control of these resources.
According to the agency theory, the relationship between owners and managers difficult to create due to their
conflicting interests. The existence of a conflict of interest between principal and agent can cause problems known
as asymmetric information is condition imbalance information for the agent in a position to have more information
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about the company than the principal. The presence of asymmetric information has led to the possibility of conflict
between the principal and agent.
Board of Commissioner on Relationship between Free Cash Flow and Earnings Management
Free cash flow likely will make managers to behave opportunistically if it does not take maximum advantage when
the company was growing. It can make earnings management. The existence of commissioners oversees the behavior of
the manager who did the earnings management. The Board of Commissioners has the responsibility for overseeing the
management tasks carried out by the board of directors. Commissioners can play an important role in the control agency
problems (Meca and Ballesta 2009). Abed et al. (2012), Prastiti and Meiranto (2013) and Sumanto et al. (2014) showed
that the commissioners a significant negative effect on earnings management. Commissioners can reduce earnings
management problems arising from free cash flow. Board of commissioners reduces the effect of free cash flow on
earnings management. The hypothesis is:
H1 Board of commissioners negatively effects on the relationship between free cash flow and earnings management.
Board Independence on Relationship between Free Cash Flow and Earnings Management
The Board of Commissioners has the responsibility for overseeing the management tasks, but the commissioners
should not be involved in management duties and may not represent the company in dealings with third parties. The
existence of board independence is effective in monitoring management. However, it will be effective only if the board
independence as independent within one company (Forum for Corporate Governance in Indonesia 2006).
Commissioners who come from outside the company or outside director can influence the actions of earnings
management (Klein et al. 2005). The more the number of board independence, the supervisory increased so as to reduce
earnings management.
Susanto (2013), Nabila and Daljono (2013) and Adıgüzel (2013) found a negative and significant effect of board
independence on earnings management. The more commissioners who come from outside or independent diminishing
earnings management arising from free cash flow problem. Board independence reduces the effect of free cash flow on
earnings management. The hypothesis is:
H2 Board independence negatively effects on the relationship between free cash flow and earnings management.
Audit Quality on Relationship between Free Cash Flow and Earnings Management
Auditors working in KAP big four are considered higher quality because the auditor is supplied by a series of
training and procedures and have the audit program is considered more accurate and effective than the auditor of KAP
non big four. Earnings management practices is increasing, while the examination of financial statements conducted by
the auditor have the qualities vary therefore the auditor must have a very good audit quality in detecting earnings
management practices in order to prevent the occurrence of earnings management. The rate of occurrence of earnings
management in companies audited by the big four accounting firm lower than companies audited by KAP non big four
(Nini and Trisnawati 2009). Gerayli et al. (2011) and Swastika (2013) states the audit quality has a significant negative
effect on earnings management. Audit quality can reduce earnings management arises from a problem of free cash flow
(Nekhili et al. 2015). Audit quality reduces the effect of free cash flow on earnings management. The hypothesis is:
H3 Audit quality negatively effects on the relationship between free cash flow and earnings management.
Methods
The sample used in the study is listed manufacturing companies in Indonesia Stock Exchange. The sample selection
in the study using purposive sampling method (Sekaran and Bougie 2013). The data used in hypothesis testing as many
as 294 data drawn from public manufacturing company from 2012 to 2014. The sample selection procedure can be seen
in table 1.
Tabel 1 Sample Selection Procedure

Sample Criteria Company Data
Manufacturing companies in Indonesia Stock Exchange during 127 381
the period 2012-2014
Companies that do not report any financial statements as of (2) (6)
December 31
Companies that do not use Rupiah (27) (81)
The number of companies and data used 98 294
Outlier (4)
The number of companies and data used in the study 290
Earnings management is the activity of manipulating reported earnings, so the company did not indicate accurately
the economic income in certain periods (Goel and Thakor 2003). Earnings management in this study using the scale
ratio is measured by discretionary accrual Modified Jones Model include ROA from Kothari et al. (2005) Discretionary
accruals were calculated using the following formula:
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TAi,t 1 ΔREVi,t -ΔRECi,t PPEi,t

=α1 (A ) +α2 ( ) +α3 ( A ) +α4 ROAi,t-1 +εi,t (1)
Ai,t-1 i,t-1
Ai,t-1 i,t-1
Where 𝑇𝐴𝑖,𝑡 total accruals (Net income – cash flow from operating), 𝐴𝑖,𝑡−1 prior total asset, 𝛥𝑅𝐸𝑉𝑖,𝑡 change of
revenue, 𝛥𝑅𝐸𝐶𝑖,𝑡 change of receivable, PPEi,t property plant and equipment, ROAi,t-1 return on assets,
εi,t discretionary accruals. The measurement of variables is summarized in Table 2.
Table 2 Measurement of Variable
Variable Measurement
DA Discretionary accruals, calculated using Modified Jones Model include ROA from
Kothari et al. (2005) as presented in equation (1)
FCF Free Cash Flow = NOPAT – net investment on operating capital
Commissioner The number of board of commissioner
Independent Independent commissioners, the proportion of commissioners who come from
outside the company in commissioners
Audit Quality Dummy variable, which value of 1 if company is audited KAP big four and 0
otherwise.

Test results of descriptive statistics and hypothesis testing can be seen in the following table 3 and 4:
Table 3: Descriptive Statistics

Variable Minimum Maximum Mean Std. Deviasi
EM -0,43799 0,58780 -0,0128318 0,15281302
FCF -0,44384 5,64684 1,0626815 0,69390122
Commissioner 2 11 4,07 1,759
Independent 0,2 1 0,4019906 0,11988561
Audit Quality 0 1 0.37 0.482
Table 4 Hypothesis Testing

Hypothesis Variable B T
H1 Constant -0.11210 -2.28616**
FCF 0.15222 3.11926***
Commissioner 0.02101 1.75536*
FCF* Commissioner -0.03387 -2.81950***
H2 Constant -0.12008 -1.66854*
FCF 0.14043 2.54983**
Independent 0.18769 1.10722
FCF* Independent -0.26557 -2.19338**
H3 Constant -0.02026 -1.12816
FCF 0.04070 2.88615***
Audit Quality -0.01725 -0.47910
FCF* Audit Quality -0.07173 -2.51681**
Results of hypothesis testing showed that interaction effect of FCF and Commissioner has a coefficient value of -
0.03387 and significant, H1 is accepted, which means that board of commissioners can reduce earnings management
problems arising from free cash flow. Board of commissioners oversees the opportunistic behavior of managers that
arises from free cash flow problem. Opportunistic behavior in the form of earnings management. Results of hypothesis
testing showed that interaction effect of FCF and Independent has a coefficient value of -0.26557 and significant, H2 is
accepted, which means that board independence can reduce earnings management problems arising from free cash flow.
The more independent commissioner tighter supervision of a manager opportunistic behavior that arises from free cash
flow problem. Results of hypothesis testing showed that interaction effect of FCF and Audit Quality has a coefficient
value of -0.07173 and significant, H3 is accepted, which means that Audit quality can reduce earnings management
problems arising from free cash flow (Nekhili et al. 2015). KAP big 4 can prevent opportunistic behavior of managers
that arises from free cash flow problem.
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Board of commissioners, board independence and audit quality can reduce earnings management problems arising
from free cash flow. Board of commissioners, board independence and audit quality oversee the opportunistic behavior
of managers that arises from free cash flow problem. Opportunistic behavior in the form of earnings management. This
study has several limitations of the first, the study period is relatively short, ie from year 2012 to 2014 so that earnings
management is observed less describe actual conditions. For further research to extend the period of study, a minimum
of 5 years so that the data obtained can better describe the actual condition of earnings management. Second, the sample
of companies used in this study is only limited to the manufacturing companies listed in Indonesia Stock Exchange, so
the lack of research results can be generalized. To further expand the study sample into non-financial companies listed
on the Indonesia Stock Exchange. Third, the study only uses three moderating variables while there are many other
variables that can affect relationship between free cash flow and earnings management, as independent directors and
audit committee. Fourth, board of commissioner, board independence and audit quality of each country is different
because the culture of each country is different. The different of board of commissioner, board independence and audit
quality can be used as development of future research for other country.
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1
Yulius Kurnia Susantowas born in Pati, July 16, 1982 Yulius Kurnia Susanto studying Doctoral Program in
Accounting at Trisakti University, Jakarta, Indonesia. Field of research interest is financial accounting, management
accounting and auditing.
2
Arya Pradipta was born in Bali, August 22, 1967. Field of research interest is financial accounting and taxation.
3
Indra Arifin Djashan was born in Jakarta, April 8, 1969. Field of research interest is financial accounting and
accounting information system.
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INFORMATION SYSTEMS ADOPTION AMONG SMES

IN SURABAYA GREATER AREA
Trianggoro Wiradinata1), Tony Antonio2)
Ciputra University, Surabaya, Indonesia
1)
twiradinata@ciputra.ac.id
Abstract
The rapid growth of Internet Technology (IT) in Indonesia proposes many new improvement opportunities for small
and medium enterprises (SMEs) particularly in business process automation. Observing the cost of acquisitioning IT
has become more affordable now compared to ten years ago, more and more SMEs are implementing it. Various
studies in the field of SMEs have been done, but not much focusing on how SMEs adopting Integrated Information
Systems. Specifically, in Surabaya greater area, most of SMEs are trying to automate their business processes, however
not many realize that in terms of IT adoption context, SMEs are not just merely a simple scaled-down model of large
firms, hence many project implementations in SMEs were failing. This study focuses on examining four important
antecedents of technology adoption using Technology Acceptance Model framework. The perceived efficiency benefit
and perceived service benefit were proposed as the antecedents of Perceived Usefulness. Familiarity and Owner's ICT
Knowledge were proposed as antecedents of Perceived Ease of Use. The collected data of 264 SME owners or
managers were tabulated and analyzed using path analysis to measure the causal effects. Result findings from final
model confirmed the significance of Perceived Ease of Use as the largest predictor of Intention to Use IT for business
process automation. Despite solid theoretical contribution of the findings, this study offers practical means of
increasing the success rate of IT adoption by SMEs.
Keywords: Small Medium Enterprise, Surabaya, Integrated Information Systems, TAM
Introduction
Small and Medium Enterprises (SMEs) now have the challenge of an increasingly complex and competitive
industry, including the challenges of exploiting information technology in which, the needs are more and more akin to
the needs of information technology in large business enterprises. SMEs also often do not have access to human
resources in the field of information technology to ease the adoption of information technology, even though most
SMEs agree that information technology is needed to compete in a growing and increasingly global market.
Information systems continue to play as an important role in the success of any business despite the size of the
SMEs. Computer network installation even in the smallest of small businesses will boost overall office efficiency by
allowing employees to quickly access and share information and network resources such as high-speed internet
connection, integrated information systems, collaboration systems, office productivity and cloud based data backup
system. Information systems and organizations influence one another. Information systems are built by managers to
serve the interests of the business firm. At the same time, the organization must be aware of and open to the influences
of information systems to benefit from new technologies (Laudon & Laudon, 2015). Previous studies note that most big
enterprises are using Integrated Information Systems software packages and nowadays more SMEs are on the route of
adopting them gradually from one module to another, however the bulk benefits of Integrated Information Systems
software packages remain hidden (Dillard and Yuthas as cited in Maditinos, Chatzoudes, & Tsairidis, 2012). Prior to
this study, an Information System implementation was done at an SME in Surabaya which engages in the field of
leather goods, the result confirms the limitation of SMEs in terms of their readiness to adopt Information System
(Wiradinata & Antonio, 2015).
Specifically, in Indonesia, SMEs are the key to success in the reduction of unemployment and boosting economic
growth in Indonesia. SMEs have contributed a great deal in the resilience of the Indonesian economy, especially in a
period of economic stagnation and financial crisis during 2008-2009. Support to SMEs should be encouraged to support
Indonesia becoming 10 most influential economic powers in the world by 2025 according a study from the OECD
(2012). Therefore, research on how SMEs adopt Information Technology as their sustainability strategy is considered
very important for academics and business practitioners in Indonesia. This study will try to open more horizon on how
SMEs particularly in Surabaya greater area which are dominated by family managed business perceive their intention to
adopt Integrated Information Systems.
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Related Literature
Small and Medium Enterprises (SMEs)

The term Small and Medium sized Enterprise (SME) varies in one country to another. Due of the diversity of SMEs,
every simple definition is subject to criticism. The Indonesian Ministry of micro, small and medium enterprise under the
Statute number 20 year 2008 defined SMEs according to 3 categories based on the company assets and revenue (1)
Micro, (2) Small, and (3) Medium business as listed in table 1 below:
Table 1. Criteria for Micro, Small and Medium Business

Micro Business Small Business Medium Business
Assets (land and Rp. 50,000,000 or less above Rp. 50,000,000 above Rp. 500,000,000
building not included) until Rp. 500,000,000 until Rp. 10,000,000,000
Annual Revenue Rp. 300,000,000 or less above Rp. 300,000,000 above Rp. 2,500,000,000
until Rp. 2,500,000,000 until Rp. 50,000,000,000
Contributions of SMEs are also significant to reduce unemployment, both in the developed and developing
countries, including Indonesia. In today's era of global economy, SMEs are required to make changes in order to
increase their competitiveness. One important factor that will determine the competitiveness of SMEs in Indonesia is
the use of information technology (IT) (Rahmana, 2009). The use of IT can improve business transformation through
speed, accuracy and efficiency of information exchange in large numbers. Case studies around the world show more
than 50% productivity is achieved through investments in IT. SMEs may increase their global competitiveness if they
able to run to take advantage of IT to make their business operations reliable, balanced, and standardized.
Integrated Information Systems

There are many types of business firms, and there are many ways in which the IT function is organized within the
firm. A very small company will not have a formal information systems group. It might have one employee who is
responsible for keeping its networks and applications running, or it might use consultants for these services. Larger
companies will have a separate information systems department, which may be organized along several different lines,
depending on the nature and interests of the firm. The question of how the information systems department should be
organized is part of the larger issue of IT governance which not the main interest of this study.
SMEs have long been found to be different from larger firms in terms of ICT adoption context. They are not just
merely a simple scaled-down model of large firms (Thong et al. as cited in Kuan & Chau, 2001). In many cases, SMEs
face substantially bigger risks in ICT adoption compared to larger firms do because of inadequate resources and limited
knowledge about ICT (Cragg & King; Ein-Dor & Segev as cited in Kuan & Chau, 2001).
Technology Adoption
The broadly used Technology Acceptance Model (TAM) is suitable for task-oriented information systems such as
management information systems and the model focuses on finding determinants of the acceptance of such systems
(Dishaw & Strong, 1999; Wang, Lo, & Fang, 2008; Wu, 2012). Therefore, the TAM is not tailored to the explanation
of human-relationship development which occurs with SME ICT adoption therefore, the TAM model needs to be
modified or extended to be an adequate theoretical model for ICT adoption. In recognition of this most of the recent
studies based on a theoretical causal model will try to add social and psychological constructs into existing as proposed
in recent studies by Alalwan et al. (2016). The TAM has been considered as one of the most prevalent and satisfactory
models within the Information Systems field. According to a Google scholar, the original study of Davis (1989) has
been cited by 30,925 other articles by the end of September 2016.
The development and testing of a causal model has not been the purpose of many previous studies (Gefen, 2003;
Ghobakhloo, Arias-Aranda, & Benitez-Amado, 2011; Ghobakhloo & Tang, 2015; Moon & Kim, 2001). Instead, these
studies have examined hypotheses derived from existing theories as to the importance of factors such as efficiency,
service quality , familiarity (Kim, Ferrin, & Rao, 2008) and owner ICT knowledge (Ghobakhloo et al., 2011) in the
context of SME ICT adoption and usage.
Research Design and Methodology

A review of existing theory and previous studies the main variables that are related to the intention to use a ICT are
identified as well as the causal relationships among them. This leads to a proposed theoretical model which is presented
in figure 1 below where the operationalization and measurement of the variables is discussed as well as the research
hypotheses represented by the theoretical model and the structure of the questionnaire used in the study.
Proposed Theoretical Model

The proposed theoretical model is based on existing theories and previous studies presented in the literature review.
The proposed theoretical model is illustrated in Figure 1 which has been notated to identify the research hypotheses
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associated with the causal relationships among the variables.

The proposed theoretical model is strongly influenced by the models developed and tested in previous studies. It is
not claimed that all possible variables or causes and effects are included in the proposed theoretical model but as shown
in the literature review there is strong theoretical support for the variables and cause and effect relationships that are
included in the model.
Figure 1 Proposed Theoretical Model
In Figure 1 there are 7 variables including 4 exogenous variables, for which no causes are proposed, and 3
endogenous variables, which have at least one variable as a proposed cause. The endogenous variable Intention to Use
(ITU) is the dependent variable. The model has 7 Hypotheses as listed in Table 2. Each of the 7 variables is a latent
variable (itemized in Table 3) measured with more than one indicator as described in Table 4. These 7 variables may be
categorized into one of 2 groups which reflect the nature of the constructs based on TAM framework represented by the
variables. The first group was the antecedents of Perceived Usefulness (PU) which consists of Perceived Efficiency
Benefit (EFI) and Perceived Service Benefit (SERV). The next group was the antecedents of Perceived Ease of Use
(PEOU) which involves Familiarity (FAM) and Owner ICT Knowledge (OIK). Both TAM constructs then predicted to
influence Intention to Use Information Systems by SME owners or managers.
Table 2. Hypotheses
Hypothesis Variable Relationship
H1 Perceived Efficiency Benefit (EFI) significantly affect Perceived Usefulness (PU)
H2 Perceived Service Benefit (SERV) significantly affect Perceived Usefulness (PU)
H3 Familiarity (FAM) significantly affect Perceived Ease of Use (PEOU)
H4 Owner ICT Knowledge (OIK) significantly affect Perceived Ease of Use (PEOU)
H5 Perceived Ease of Use (PEOU) significantly affect Perceived Usefulness (PU)
H6 Perceived Usefulness (PU) significantly affect Intention to Use (ITU)
H7 Perceived Ease of Use (PEOU) significantly affect Intention to Use (ITU)
Table 3. Definitions and symbols for model variables

Variable (Symbol) Operational Definition Reference
Perceived Efficiency The degree to which technology will provide efficiency to
(Kuan & Chau, 2001)
Benefit (EFI) company operational activities
Perceived Service The degree to which technology will provide satisfaction to
(Lin, Wu, & Tsai, 2005)
Benefit (SERV) company’s service
The degree of CEO's acquaintance with vendor providing (Kim et al., 2008)
Familiarity (FAM)
information systems implementation service
OwnerICT Knowledge The degree to where a CEO have knowledge of IT and (Premkumar, 2003)
(OIK) Innovativeness traits
Perceived Ease of Use The degree to which a CEO believes that using information (Davis as cited in Pearson &
(PEOU) systems would be free of effort Grandon, 2005)
Perceived Usefulness The degree to which a CEO believes that using information (Davis as cited in Pearson &
(PU) systems would enhance his or her company performance Grandon, 2005)
The degree to which a CEO intent to use information systems (Davis as cited in Pearson &
Intention to Use (ITU)
in his or her company Grandon, 2005)
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In Table 3 each of the 7 variables is operationalized as a latent variable measured with a set of at least two
indicators. Table 4 shows the symbol used for each indicator and a reference to a previous study discussed in previous
section which is used as the source of an existing measuring instrument for the indicators.
Table 4. Proposed indicators and measuring instruments for latent variables

Variable (Symbol) Indicators Measuring Instrument
Perceived Efficiency Benefit (EFI) 4 indicators: efi1, efi2, efi3, efi4 (Kuan & Chau, 2001)
6 indicators: serv1, serv2, serv3, serv4, serv5,
Perceived Service Benefit (SERV) (Lin et al., 2005)
serv6
Familiarity (FAM) 4 indicators: fam1, fam2, fam3, fam4 (Kim et al., 2008)
OwnerICT Knowledge (OIK) 4 indicators: oik1, oik2, oik3, oik4 (Premkumar, 2003)
5 indicators: peou1, peou2, peou3, peou4, (Davis as cited in Pearson &
Perceived Ease of Use (PEOU)
peou5 Grandon, 2005)
(Davis as cited in Pearson &
Perceived Usefulness (PU) 5 indicators: pu1, pu2, pu3, pu4, pu5
Grandon, 2005)
(Davis as cited in Pearson &
Intention to Use (ITU) 3 indicators: itu1, itu2, itu3
Grandon, 2005)
Total Number of Indicators: 31 indicators
In Table 4 each of the indicators is measured on a 5-point Likert scale and the measures are treated as interval scale
measures in the analyses. Existing measuring instruments are used in order to improve the reliability and validity of the
measures.
A self-administered structured questionnaire designed to measure the variables in the proposed theoretical model
was prepared in both English and Indonesian. The questionnaire uses measuring instruments used in previous studies in
order to improve the validity and reliability of measures. Section 1 of the questionnaire is used to collect information
about respondents in the sample and is used to prepare a profile of those respondents.
Both language versions of the questionnaire were reviewed by a focus group of 5 experienced ICT users and
suggested modifications were included in the next versions of the questionnaire. The Indonesian version was then
administered in a pilot study with a sample of 10 respondents. Their responses and comments were noted and any
additional necessary modifications were incorporated into the final English and Indonesian versions of the
questionnaire. The Indonesian version was then used in the full study.
Data Preparation and Preliminary Analyses

The collected data of 264 SME owners or managers were done using purposive (judgmental) sampling method due
to difficulties in setting up sampling frame and this method was appropriate in situations where individuals with certain
experience are compulsory. The data was then tabulated into SPSS worksheet for further analysis. Among them there
were 21 questionnaires removed due to various errors, hence the final sample size was recalculated as 243 samples.
This number of samples was considered satisfactory for Path Analysis (Kline, 2011). The principal component analysis
method was used to test the construct validity and each latent variable was measured with factor loading of 0.4 or
above. The factor loading result suggests the elimination of an indicators from Perceived Efficiency Benefit (EFI),
namely EFI4 because it has significant cross-loadings on other factors and was not measuring only Perceived Efficiency
Benefit.
The reliability of each variable was measured using Cronbach alpha technique and the result showed all coefficient
are all good (above 0.7) except Perceived Usefulness (PU) the coefficient was slightly below 0.7 but still can be used
for further analysis.
Among all respondents there were 130 males (53%) and 113 females (47%), majority respondents were residing in
Surabaya (39%), Sidoarjo (23%), and Gresik (19%). Around 82% of respondents have experience using information
technology for at least a year. Almost 63% of respondents are actively selling in online environments.
Descriptive statistics results for all indicators associated with each latent variables shows acceptable skewness and
kurtosis values. Correlation among model and profile variables can be seen in appendix 2 which shows all hypotheses
proposed in the theoretical model were significantly correlated at 0.05 or less.
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Figure 2 below shows the results of the Path Analysis of the theoretical model using IBM AMOS 21 software
package.
Figure 2. Path Analysis of proposed theoretical model
Table 5. Fit statistics for proposed theoretical model

Model N NC (χ /df) 2
RMR GFI AGFI NFI IFI CFI RMSEA
Theoretical 243 5.884 0.029 0.951 0.829 0.941 0.951 0.95 0.142
Model R2:Perceived Usefulness (0.173), Perceived Ease of Use (0.146), Intention to Use (0.879)
In table 5 some of the fit statistics already have acceptable values and some are close to meet the acceptable values,
an approach to enhance fit statistics value can be done by considering to add plausible causal effects as listed in
correlation table in appendix 2 and removing insignificant relationship. This were done by adding direct effect from
both EFI and SERV to PEOU. Removal of relationship from both EFI and SERV to PU as well as PU to ITU which
showed no significant causal effect has also proven to enhance the fit statistics. The hierarchy was then analyzed using
the specification search facility provided by IBM AMOS 21 software package and comprehending the advice from
Kline (2011) to select model with smallest Normed Chi-square (NC) value as illustrated in Figure 3 below.
Figure 3. Direct effects in the final model
Table 6. Fit statistics for the final model

Model N NC (χ /df)
2
RMR GFI AGFI NFI IFI CFI RMSEA
Final 243 1.347 0.003 0.993 0.962 0.993 0.998 0.998 0.038
Model 2
R :Perceived Ease of Use (0.28), Intention to Use (0.879)
This research finding proposed a model of IS adoption in SMEs through examining Perceived benefit, familiarity
and CEO ICT knowledge. The findings from hypotheses testing indicate that the determinants of information systems
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adoption in the context of SMEs are not limited only to the technological factors, but also determined by organizational
readiness. Findings suggest that Perceived Ease of Use is a very important determinant of information systems adoption
in SMEs, which supports many other past studies. Surprisingly, Perceived Usefulness was identified as insignificant
predictor to Intention to Use which need a further elaboration, this could be triggered by characteristics differences of
SMEs in Surabaya greater area where most of SMEs were not fully aware of the benefits of adopting Information
Systems, however many of them were started to use due to environmental pressure which refers to the influence from
the internal and external environment that compels SMEs to adopt Information Technology. Environmental pressure
can occur from a customer, supplier, government policy, market pressure, or changes in external environments (Kurnia,
Choudrie, Mahbubur, & Alzagooul, 2013; Zhu & Kraemer, 2005).
In summary, all interested parties to boost the adoption of Information Systems in SMEs such as IT vendors and
service providers as well as government bureau need to understand that the result findings of this study shows that
formulating policy regarding Perceived Ease of Use and its antecedent Perceived Service Benefit are very influential for
Information Systems adoption in SMEs. Some of the policy related to the dominant variable are (1) demonstrate the
benefits of partner or customer satisfaction due to business process automation in SMEs. Other than that (2) the various
parties involved need to instill the perception of convenience for the majority of the owners / managers of SMEs who
are not from among the IT literate.
Conclusion
SMEs need to utilize Integrated Information Systems to improve the competitiveness of the company in order to be
able to compete in the globalization and strive for the competition in ASEAN economic community, however it is very
important to understand that Information Systems adoption in SMEs have several different characteristics compared to
large enterprise with plenty talent and resources. The implementation of better strategy for Integrated Information
Systems is necessary to improve the competitiveness of enterprises.
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Acknowledgement
This article publication was made possible by research grant program from Indonesian Ministry of Research,
Technology, and Higher Education.
Trianggoro Wiradinata, Ph.D. is the Vice Dean of School of Management and Business at Ciputra University. He
received a bachelor degree in Electrical Engineering (major in Computing) from Petra Christian University, Indonesia
and a master degree in Computer Science from University of New South Wales, Australia and completed his Ph.D.
program in Information Technology from Assumption University of Thailand. His main research interests are software
engineering, technology adoption, and technology based entrepreneurship.
Assoc. Prof. Tony Antonio is the rector of Ciputra University, Indonesia. He received his bachelor degree from
Pancasila University, Indonesia in Electrical Engineering and master degree also in Electrical Engineering from
University of Southern Australia. His strong background in both Electrical Engineering and education leads him to
pursue research interest in physics and technology based entrepreneurship.
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Appendix 1 Descriptive Analyses

N Mean Std. Deviation Skewness Kurtosis Cronbach Alpha
PERCEIVED EFFICIENCY BENEFIT (EFI)
EFI1 243 4.03 .667 -.037 -.737
EFI2 243 4.19 .605 -.109 -.426
0.83
EFI3 243 4.10 .657 -.110 -.685
EFI4 243 4.24 .584 -.098 -.443
PERCEIVED SERVICE BENEFIT (SERV)
SERV1 243 4.26 .593 -.154 -.522
SERV2 243 4.20 .638 -.197 -.629
SERV3 243 4.14 .649 -.149 -.655
0.88
SERV4 243 4.16 .658 -.182 -.717
SERV5 243 4.24 .568 -.029 -.369
SERV6 243 4.21 .626 -.192 -.582
FAMILIARITY (FAM)
FAM1 243 3.96 .598 .012 -.185
FAM2 243 3.84 .623 .121 -.501
0.817
FAM3 243 3.83 .617 .120 -.473
FAM4 243 3.89 .653 .111 -.661
OWNER ICT KNOWLEDGE (OIK)
OIK1 243 3.73 .596 .177 -.548
OIK2 243 3.98 .589 .003 -.084
0.71
OIK3 243 3.72 .697 -.141 -.128
OIK4 243 3.72 .641 .146 -.431
PERCEIVED USEFULNESS
PU1 243 3.99 .643 .007 -.557
PU2 243 3.95 .570 -.007 .101
PU3 243 4.03 .501 .058 1.022 0.67
PU4 243 4.02 .534 .020 .556
PU5 243 3.86 .579 .016 -.151
PERCEIVED EASE OF USE
PEOU1 243 4.16 .630 -.133 -.544
PEOU2 243 4.07 .599 -.024 -.213
PEOU3 243 3.94 .586 .009 -.083 0.81
PEOU4 243 3.98 .620 .013 -.369
PEOU5 243 4.03 .588 -.006 -.084
INTENTION TO USE
ITU1 243 4.18 .608 -.108 -0.427
ITU2 243 4.06 .596 -.020 -0.182 0.75
ITU3 243 3.98 .616 .014 -.340
Appendix 2 Correlations among model and profile variables

AGE ITE EDU EFI SERV FAM OIK PU PEOU
AGE 1
ITE -.111 1
EDU -.054 .273** 1
EFI -.091 .077 .147* 1
SERV -.054 .151* .149* .612** 1
FAM .056 -.025 -.025 .230** .184** 1
OIK -.007 .003 -.088 .194** .218** .250** 1
PU -.093 .201** .157* .401** .374** .110 .163* 1
PEOU -.014 .111 .081 .410** .419** .298** .307** .314** 1
ITU -.017 .069 .068 .414** .402** .316** .310** .308** .938**
**. Correlation is significant at the 0.01 level (2-tailed). *. Correlation is significant at the 0.05 level (2-tailed).
Shaded cells indicate significant correlation associated with hypothesized causal effect in the theoretical model.
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THE PERSPECTIVE OF ETHICS IN THE CONSCIOUS MIND OF

ACCOUNTING STUDENTS
Deasy Ariyanti Rahayuningsih
Trisakti School of Management

Kyai Tapa No 20, Grogol, Jakarta 11440, Indonesia
deasy@stietrisakti.a.c.id
Abstract
The purpose of current study is to awake the accounting students mind in ethical perspective and the criteria of ethical
person. There is no perfect human, because human being cannot be separated with the wrongdoing. The wrongdoing’s
type can be classified as one of the unethical conducts because the degree of wrongdoing can affect the human’s life.
This is an experimental study which use three open ended questions as an instrument. The seventeen accounting
students as informants answer three questions in the written form (short story). The paper attempts to describe the
reflection of accounting students about ethical and unethical behavior as they did before and the criteria of ethical
person should be. The information was collected by reading the students stories. The written form was implemented to
obtain the students responses honestly rather than face to face interview. The expected result can give understanding
about the meaning of ethical and unethical behavior and the criteria of ethical person should be based on the students
mind. Finally, the paper can fully support their fairness and idealism in thought as a basis in ethical judgement.
Keyword: Conscious Mind, Ethical and Unethical Behavior, Ethical Judgement
Introduction
Ethical conduct and education are critical to modern society, business world and accounting profession. The lack of
clarity in defining the function of ethics in accounting lead to confusion, particularly for education and practitioners.
Mostly, the great effort is expended in teaching technical aspect of accounting but the development of ethical values
generally seem to be left. Due to the fact, that the universities cannot be relied upon to teach accounting ethics
principally to prospective professional accountants, the professional bodies pay only lip service to ethics education in
the syllabi and the inadequacy of ethics treatment in both quantitatively and qualitatively then as a result the
accountants are consequently ill prepared to face ethical dilemmas (Kerr & Smith 1995; Fleming 1996).
In the past few years ago, the ethical decisions of public accountants have received increasing criticism. The survey
results reveal that students consider a lack of ethics can damage the accountant profession and society (Kerr & Smith
1995). The fact that the wave of accounting scandals following the Enron collapse has led to numerous unethical
conducts on the part of accountants and auditors (Herron and Gilbertson 2004). Afterwards, the popular image of
accountants merely as “scorekeeper”, an image that accountants have often been content to accept because practices in
accounting are mostly shaped by political and institutional forces. Acting “ethically” is a matter of negotiation about
what counts as ethical and how this meaning is practically enacted. It can be argued that professional ethical position is
compromised as a result of the educational process and the socialization experiences of successive generations of
accountants who are not encouraged to reflect upon the profession’s social obligation. The education of accountant is
not only a matter of becoming technically competent, but it also a process of induction into the accepted mores of
professional conduct through preparing the accountants to qualify examinations and getting the work experience and a
role model to show what it means to be ethical. (Puxty, Sikka and Wilmott 1994).
Mostly business want to hire ethical employees. The companies seek graduates with advanced ethical conduct
proficiency because the ethical behavior in high school undergraduate and graduate programs are cause for concern. In
a survey of 25,000 high school students stated that 62% of students admitted cheating on a exam at least one; 35%
admitted shoplifting; 25% cheating to win in sports (Ferrel et al 2008). But another results showed that 75% of business
students acknowledged that they cheated in order to improve their odds of getting into graduate school and also for a
career. It appeared that the business students may be more unethical than students in other disciplines (Covey 2006).
But how about Indonesia accounting students in determining their behaviors… as ethical or unethical ?
The accountants expect to employ high ethical standards, although empirical evidences (Putka 1992; Cohen and
Plant 1992; Huss and Patterson 1993) showed that individual accountant no more ethically aware than average. As a
result, there is a gap between expectation and reality. From this case, the accounting students necessarily learn the
ethical knowledge which enable them to identify and analyze ethical dilemmas. Weber (1990) stated that the function of
experience and capability of students are important in ethical development, ethical awareness and analyzing the ethical
problems. Educators have responsibility to take a part in learning process through creating contexts that facilitate
growth in moral reasoning so the students be able to develop their capacities of moral reasoning not only from
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theoretical perspective but also from contextual features of learning environment. The important role of environment
can play in exposing individuals to new and unfamiliar stimuli (Mayhew and Engberg 2010). The individual always
invent or construct the new responses to each situation encountered (Colby and Kohlberg 1987). That is the preliminary
step that they have to do before they start their career as professional accountants.
People actually were motivated to change their own thoughts and behaviors remain the source of many scholarly
discussion within the social sciences not limited to the psychology of motivation (Gollwitzer 1990 as stated in Higgins
and Sorrentino); impression management (Schelenker 1980); and self-affirmation (Steele 1998 as stated in Berkowitz).
The way of thinking or paradigm can determine the success or deterioration of people. There is an interrelationship
between paradigm through mind into feeling or expression and appeared on the behavior. The paradigm will generate
the content of the same mind (Paulus 2010) and as our mind is filled with the positive thoughts, it will produce good
behavior nor vice versa. At that time, the self-affirmation with the good ones is working. To affirm is to state that it is
so. As you maintain this attitude of mind as true, regardless of all evidence to the contrary, you will receive an answer
to your prayer. Repeating the affirmation leads the mind to consciousness where it accepts that you state as true. Keep
on affirming the truths of life will react the subconscious satisfied (Murphy, 1988)
The current study is getting to know the perception of accounting students about ethical and unethical behavior and
framing the criteria of ethical person. The aim of current study is to explore the conscious mind of accounting students
in ethical and unethical behavior as they have done before and define the criteria of ethical person. The information
gathering enable them to do some corrective actions related their unethical conducts.
The number of academic studies about moral and ethical development are still growing. Many prior studies in the
last decade have addressed this issue related other behavioral aspects. From the previous literatures (see Victor and
Cullen 1988; Neck & Milliman 1994; Furnham 1995; Jackson 1999; Gibbons 2000; Gunther 2001; Velasquez 2002;
McKee 2003; Giacalone & Jurkiewicz 2003) showed that the degree of individual spirituality can determine whether
an individual perceives a questionable business practice as ethical or unethical. The spirituality of people play the
important role in the ethical judgement because the spirituality refers to individual’s drive to experience transcendence
or a deeper meaning to life through the way in which they live and work. The increasing intention is being placed upon
assessments of individual character, personality and belief systems that may related to ethical cognition as precursors to
behavior (Forsyth 1992; Verbeke et al 1996; Chang 1998; Low et al 2000).) The existence of unspoken codes of
behavior be able to guide individual conduct in resolving ethical dilemmas (Jurkiewicz (2002). Previous researchers
also found that education in general can increase moral reasoning scores
The paper can contribute to the habitual thinking of accounting students and policy maker to make the ethical
decisions. The educators also gain understanding in developing effective teaching tools and methods for ethical
development whereas the public bodies and universities can insert the spiritual values in curriculum of ethics in the
earlier stage of preliminary education. It is therefore to accustom accounting students mind with ethical or morality
thought so it can create the ethical people. The paper be able to help the companies to increase their odds of hiring
ethical business people in determining which candidates once hired will exhibit the behaviors needed to establish and
maintain an ethical organizational culture.
The structure of the paper will be as follows. The first section is introduction. It discusses about the function of
ethics in accounting education and practitioners, the classical issue of ethics in accounting education and the function
mind in controlling the people’s behavior. The next section is literature review of the conscious and subconscious mind
in human being; ethical and unethical behavior (ethical violation). Then it is followed by the methods and results. The
final section is a conclusion
Literature Review and Conceptualization

Our mind is the precious possession and most people in the world only have one mind. That mind possess two
distinct and characteristic functional parts which are essentially different from each other. This is what we called the
duality of mind. The name of the two functions are objective (the conscious) and the subjective mind (the
subconscious). The media of the conscious mind is five physical senses which can be learned through observation,
experience and also education. Once our conscious mind accepts the thought completely, it is transmitted to the older
parts of the brain, where it becomes flesh and made manifest in our experience. In this term, the greatest function of the
objective mind is reasoning.
The perception is the way to perceive something in conscious mind which is a cognitive process. The conscious
mind is like the navigator at the bridge of the ship, because it directs the ship and sends orders to the people who work
in the ship to do what they should do. The conscious mind and habitually think sink down into our subconscious mind
then create according to the nature of thoughts. When the habitual thinking is harmonious and constructive, we will get
the perfect, health, success and prosperity and when the deterioration begin to control our thought processes, we can
apply the power of our subconscious to any problem. The subconscious mind is the builder of our body and maintain its
vital function. It takes twenty four hours a day and never sleeps. The subconscious mind speaks to us in intuition,
intimation, impulse and idea which always move toward harmony, health and peace. This process moves in a silent
form (Murphy, 1988). Our business mostly related with our conscious mind not subconscious mind. Hence, we have to
keep our conscious mind busy with the good ones, expecting the best and make sure that our thoughts are full of love,
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true, peace and harmonious. Treating our conscious mind will impact our subconscious mind to be more expressive and
productive (Paulus 2010). In this case, ethical behavior as a perfect picture should be recorded in the consciousness
mind of accounting students, because their future job as an accountant or auditor are mostly dominated by the numbers
and the disclosure of numbers figure 7 which can be related with the professional judgement are more susceptible with
intrinsic factors. It means that accounting and auditing urgently need ethical behavior not only as a watchdog but also
embedded in their heart forever. The ethical behavior claims what people necessarily do or not allowed in their life
(unethical conduct). Moral development involves thoughts, behaviors, feelings and actions about what is right and
wrong.
Moral development has an intrapersonal dimension (person’s basic values and sense of self) and an interpersonal
dimension (interaction with other people). This kind of development can be categorized as a cognitive process
(Santrock 2007). Indonesian Accountants Association Code of Ethics that have been approved in Congress IAI in the 8 th
in 1998 which consist of eight principles were the responsibility of the profession, the public interest, integrity,
objectivity, competence and a prudent professional, confidentiality, professional behavior and technical standards
(Agoes & Ardana 2009).
Methodology
The informants are seventeen of accounting students at the seventh and the ninth of semester (nearly the last
semester) from one of the private universities in West Jakarta, Indonesia. The selection of criteria will be based on their
capabilities as a part of accounting people which mostly advance in understanding of accounting, auditing and ethics
comprehensively.
The research is an experiment study which offer three open ended questions (three tasks) that require to be answered
by students in the written form (short story). This is a qualitative positive study. The story contains the reflection of
accounting students in ethical and unethical behavior and the criteria of being an ethical person. The reflection of
accounting students in ethical perspective based on reality as they have experienced in before. The reflection are
described in the written form to prevent the reluctance of accounting students to be honest. They reveal their activities
in ethical and unethical behavior; their solutions to lessen the degree of unethical conduct as they did and defining “the
criteria of ethical person should be”. Their reflections are written in a short story form during half an hour in class.
Results
There are eight women and nine men as informants in this research. The range of their ages is 20- 23 years old.
There are fourteen students in the 7th semester and three student in the 9th semester. Total informants are seventeen
students. The two students has taken the ethical subject and the others have not taken the subject yet. The informants list
their experiences as many as they can ( some activities category ) in task 1 and 2 and define the criteria of ethical person
in task 3. The lists are ranked from the most favored until the least (rating scale)
1) Task 1: ethical behavior; 2) Task 2: unethical conduct and also 3) Task 3: the criteria of ethical person.
Here are the table of ranking of activities in each of tasks and total score responses given:
Table 1: The Ranking of Activities

Task 1: Ethical Behaviour Task 2: Unethical Behavior Task 3: Ethical Person Criteria
1. Responsible = 9 1. Nosy/ Fad = 10 1. Courtesy =9
2. Honesty = 8 2. Dispute = 10 2. Responsible =7
3. Integrity = 6 3. Irresponsible = 7 3. Helpful =6
4. Efficient = 5 4. lying = 6 4. Positive thinking = 6
5. Obedient = 5 5. Money stealing = 6 5. Balance in life =5
6. Religious = 5 6. Cheating on exam = 4 6. Think before action = 5
7. Smart / Busy = 2 7. Not worship =1 7. Religious =5
Total = 40 Total = 44 Total = 43
Table 1 showed that the ranking of religious is at the lowest level in all tasks. It means that informants have not yet
considered that religious, spirituality, worship as the main part of ethics. The reflections mostly state that ethics and
religious are separately each other whereas the ethics were mostly generated from religion (Quran ethics, protestant
ethics etc). They value that ethical behavior as they did are mostly about 1) the responsibility toward parents/ family,
colleague/ friend, job/college and environment; 2) telling the truth or fairness/ honesty; 3) integrity related moral
conflict in professional environment; 456) Efficient, Obedient and Religious and 7) people who are smart and busy can
be categorized as ethical behavior. The capitalism as an ideology has asked them to be smart in work and always busy
to fulfill their needs no matter what. They will never think that nowadays, some people deceive other by using their
“brains” (power full, authoritarian). They also concern that nosy or fad is the most favored action in unethical behavior
than not doing the worship. Some people with the young ages mostly determine that worship is not a serious matter in
7
There is “the meaning and some motives” behind the numbers figure stated in financial reporting, such as political interest, income smoothing and
company needs
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ethics or even in their life, because this action do not hurt other people or environment than nosy, dispute, irresponsible,
lying, money stealing and cheating on the exam. They think that the matter between “they” and the “God” is in a
privacy area. The other people do not have the right to value the level of one’s faith. They think it is not a serious matter
as long as they behave nicely (good manner) with other people and their environments.
Regarding the prior activities (actions) in ethical and unethical behavior as they did, they attempt to define the
criteria of ethical person should be. They state that courtesy is the most indicator (highest level of ethical person) that
represent the criteria of ethical person followed by responsible, helpful and positive thinking. Furthermore, the balance
in life, think before action and religious have the same number of responses in which those categories are the least
favored. It means that religious is not essential element to develop an ethical person
Conclusion
Ethical is a critical issue in accounting education and consequently in practice (business world). The students
indicated that they are looking for and need ethical and moral direction in education process. From the perspective of
accounting students, the results showed that religious is not essential element in ethical behavior and not to do worship
is not a big mistake even it can be categorized as one of unethical conduct. The activities of accounting students which
can be categorized as ethical behavior (from the highest ranking into the lowest ranking) are responsible, honesty,
integrity, efficient, obedient, religious, the lastly is smart and busy. The activities of accounting students which can be
categorized as unethical behavior (from the highest ranking into the lowest ranking) are nosy/fad, dispute, irresponsible,
lying, money stealing, cheating on exam and lastly no to do worship. The criteria of ethical person should be courtesy,
responsible, helpful, positive thinking, balance in life, think before action and the lastly is religious
The scope of research is not comprehensive because it only focused on the seventeen students perspectives in the
class room. The lack of ethical knowledge lead them unable to understand the meaning of ethical and unethical
behavior. This paper can give an area rich in potential for continued study, experimentation and assessment. Research
driven practice is essential for business school faculty striving to better educate students for life in the world of
business. Research in the area of assessment could be used to establish appropriate objectives and tools to evaluate the
ethics education outcomes which is beneficial to programs and instructors striving to prepare students for the changing
work environment.
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ON THE IMPACT OF MARKET ORIENTATION TOWARDS MARKETING

PERFORMANCE WITH ENTREPRENEURIAL MARKETING AS INTERVENING
AT THE FOOTWEAR INDUSTRY IN EAST JAVA INDONESIA
J.E.Sutanto1), Musriha2)
1)
Graduate School, Universitas Ciputra Surabaya, Indonesia
2)
School of Management, Bhayangkara University of Surabaya, Indonesia
1)
je.sutanto@ciputra.ac.id, 2)ning_musriha@yahoo.com
Abstract
Purpose – Marketing performance in medium sized enterprises industry of the footwear. The purpose of this paper is to
present research evidence on the impact of market orientation towards marketing performance with entrepreneurial
marketing as intervening of the footwear industry in East Java, Indonesia.
Design/ approach - This research used a quantitative research of approaches and also called explanatory research.
The research design used in this research is the method of survey with research instruments. The number of sample is
89 respondents, which led to communication with company owner only.
Findings – This research result have shown that market orientation no correlation towards marketing performance in
this case market orientation to direct relationship. However, this research result there is a correlation between
orientation market towards marketing performance if the relationship through entrepreneurial marketing and also
make the medium business to be successful.
Research limitations - This research limitations that can not provide quite in-depth explanation and difficult to get a
journal of entrepreneurial marketing topic, particularly relevant to empirical research.
Originality/value – This research is the first to use content analysis of footwear B2B industry and all footwear industry
have largely been doing business based on job orders.
Keywords: Medium Sized Enterprises, Market Orientation, Marketing Performance, Entrepreneurial Marketing,
Footwear Industry
Introduction
"The challenges and anticipate the industry to face the ASEAN Economic Community 2015" particularly Indonesia
should already have a strategy and that the strategy should be capable in the face of the ASEAN free trade: first
offensive strategy is the strategy of attacking in order to expand industrial market abroad, while the strategy is valid for
31% of national industrial products competitive in the ASEAN market. This industrial sector, among others, the rubber
industry, textile, food and beverage and automotive. Industries that today can be expected to expand and be able to seize
the overseas market; second defensive strategy is a strategy of maintaining the domestic industrial market applies to 69
% of the industry struggling to compete with ASEAN. This industry group is garments, footwear, cement and ceramics.
Defensive industry groups are groups of industry are relied upon to survive in the domestic market.
Fashion Indonesia has a huge potential to be developed and become a fashion center in the region, as well as playing
an important role at the global level. Based on data of BPS (Badan Pusat Statistik) doped Ministry of Trade, the export
value of Indonesian fashion products in 2013 reached USD 11.78 billion export value in January 2014 period amounted
to USD 1.08 billion, an increase of 1.1% over the period January 2013 the export value. Growth in exports of fashion
products during the period 2009-2013 experienced a trend of positive growth of 10.59% per year.
Fashion Indonesian export products, according to the product groups, the most in 2013 are apparel products
amounted to USD 7.71 billion (65.52%), footwear US $ 3.86 billion (32.76%), jewelers USD 200 million (1.7%),
and watches USD 2 million (0.06%).
The flagship product of Indonesia to ASEAN in particular leather products from the daily source of “Bisnis &
Investasi Kontan” (2014), among others: Singapura, Kamboja, Myanmar, Laos, Malaysia and Philipines.
Growth of Indonesia shoes export to persist in 2016 by Newsletter of Indonesia Investment (2016), while the
domestic market remained sluggish, exports of Indonesia's footwear show a more positive development. The Indonesian
Footwear Association (Aprisindo) estimates that the nation's footwear exports raised 6.8 % (y/y) to USD $4.7 billion in
2015. Based on the latest data from Indonesia's Trade Ministry, Indonesian footwear/shoe exports reached USD $3.66
billion in the January-October 2015 period, up 10 % from exports in the same period one year earlier. Eddy Widjanarko
of Chairman of the Aprisindo, added that exports have risen both in terms of value and volume.
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Table 1. Indonesian Footwear/Shoe Exports in 2010-2015

Year Shoe Export ($, billion) YoY Growth (%)
2015 4.7 +7
2014 4.4 + 13
2013 3.9 + 11
2012 3.5 +6
2011 3.3 + 32
2010 2.5 -
Source: Indonesian Trade Ministry (2016)
Indonesian footwear exports have performed well in 2015 to the weakening rupiah rate. During 2015 the Indonesian
rupiah depreciated about 10 % against the greenback, implying that Indonesian exports become more attractive on the
global market. Moreover, local shoes manufacturers also raised prices of their output as production costs have raised
due to higher minimum wages and more costly imports of raw materials (mainly leather and rubber) due to the fragile
rupiah.
According to Widjanarko as Aprisindo Chairman who expects Indonesia's footwear exports to accelerate further in
2016. "About 10 % point growth (year-on-year) in shoes exports should be possible provided that the rupiah remains
stable."
Literature Review
Market Orientation
Market orientation is a central component of the more general notion of the marketing concept, the pillar upon
which the modern study of marketing is based. Market orientation mainly represents a response of firms to current
market demand (Narver and Slater, 1990) and is defined as an “organizational culture that most effectively and
efficiently created the necessary behaviors for the creation of superior value for buyers and thus superior performance
for the business”.
According to Li et al. (2006) that market orientation is defined “by three behavioral components: customer
orientation, competitor orientation and interventional coordination and two decision criteria: long - term focus and
profitability”. For small firms market orientation can help to improve performance. The study of Kara et al. (2005)
suggests that “in small sized business market orientation is positively correlated with performance”. And also “some
empirical studies by Jaworski and Kohli (1993) have found “a positive relation between market orientation and overall
firm performance”.
Entrepreneurial Marketing
“The term of entrepreneurial marketing has been used in various researches” (Stokes, 2000). Entrepreneurial
marketing is an interface of two research fields: entrepreneurship and marketing. Hill and Hultman (2006), due to
“increase of awareness about the influence of entrepreneurship and innovation on marketing, and role in the success of
entrepreneurial activity, the two fields between combined and the concept of “entrepreneurial marketing” has emerged”.
Hills et al. (2010:6), entrepreneurial marketing is “a spirit, an orientation as well as a process of passionately
pursuing opportunities and growing ventures and launching that create perceived customer value through relationships
by employing innovativeness, market immersion, selling, networking, creativity and flexibility”. Kraus et al. (2012)
entrepreneurial marketing is “an emerging field of research that is establishing itself as a substantial school of thought”.
Marketing Performance
Marketing performance is multidimensional which included a variety of objectives and types of organizations. Hart
and Banbury (1994) and Slater and Narver (1994: 47) in his study reveals “marketing performance indicators include:
customer growth, profit growth and return on investment”.
Slater and Narver (1995: 61) “describe the results of the implementation of corporate strategies including in the
form of customer satisfaction, the success of new products, increased sales and profitability”. Marketing performance
can also be seen as a concept used to measure the extent to which the market performance that has been achieved by a
product produced by the company. According to Ferdinand (2000: 116) in Samtim, 2003) stated “marketing
performance is a factor that is often used to measure the impact of the strategy applied by the company”.
“The companies’ strategy has always aimed to produce marketing performance, namely sales volume, market share
and growth in sales and marketing as a business performance measurement of the level of performance includes sales
turnover, the number of buyers, profit and sales growth” (Voss & Voss, 2000; Ferdinand, 2006).
Then Voss and Voss (2000) “consist of marketing performance indicators on the fulfillment of targets sales, number
of customers, sales growth from year to year, the marketing range, and the profit growth”.
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Conceptual Frame Work
Fig. 1. Research Frame Work
Research Methods
The research design will be “a descriptive research design attempt to describe such things as possible behavior,
attitude, value and characteristic” by Mugenda and Mugenda 2003 in (Mwangi and Henry, 2013). In “this method,
objectives of the study were formulated, method of data collection designed, the number of the sample was selected and
the data collected was analyzed” (Mwangi and Henry, 2013).
Study Population
The study focused of the footwear industry in East Java, Indonesia. All categories of the footwear industry in East Java,
Indonesia. In this case the total of population used is 115 respondents.
Sampling technique to take sample was used simple random sampling. In simple random sampling every member of the
population has an equal chance of being selected and the number of sample is 89 respondents

Result
Hypothesis testing is done by calculating of resampling of bootstrapping to evaluate the association between
variables indicated by path coefficient and significant levels. He result of the calculation using the bootstrapping
SmartPLS can be seen in Table 2.
Table 2. Path Coefficient Analysis
Original Standard T Statistics

Sample Error (O/STERR) Remarks
(O) (STERR)
Entrepreneurial Marketing  Positive and
0.872 0.041 21.201
Marketing Performance Significant
Market Orientation  Marketing Negative and
- 0.353 0.027 13.228
Performance Significant
Market Orientation  Positive and
0.781 0.099 7.883
Entrepreneurial Marketing Significant
Source: Significant value is 0.05, t table = 1.96
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Fig. 2. Path Diagram
Discussion
Based on the results of the analysis of the effect of market orientation on marketing performance is supported by the
empirical fact that the results of path coefficient analysis of Table 2 shows the negative effect but significant. Thus
empirically stated that the market orientation of a significant negative effect on the marketing performance of footwear
industry in East Java to medium-scale enterprises. The negative effect shows that with increasing market orientation
will degrade the performance of marketing and otherwise declining market orientation will improve marketing
performance.
Based on the findings of this study is quite interesting to discuss because these results are not consistent with the
opinion of most of the previous investigators who expressed their positive and significant relationship between market
orientation and performance marketing.
Maslucha and Sanaji (2013) showed that market orientation has a negative correlation to marketing performance,
where the study was conducted at IKM of footwear in Mojokerto city who prefers creativeness entrepreneurs in making
models of different shoes between companies from one another. While the price of footwear products turned out to be
less competitive compared to products from China that could be produced in large quantity at relatively cheap prices.
Conclution and Suggestion

Conclusion
1. Entrepreneurial marketing positive and significant effect on marketing performance. First hypothesis states that
affect the performance of entrepreneurial marketing. This means shows that the stronger the entrepreneurial
marketing, the more it will increase marketing performance, so that the growth of the business or their business is
increasing.
2. Market orientation positive and significant effect on entrepreneurial marketing. Second hypothesis states that market
orientation influence the entrepreneurial marketing. This means shows that the higher their market orientation, it
will increase the entrepreneurial marketing
3. The market orientation of a significant negative effect on the marketing performance. Third hypothesis which states
that the better market orientation, the marketing performance is increasing. But in fact, it shows that the market
orientation of a significant negative effect. The negative influence has shown that increasing market orientation will
degrade the marketing performance and vice versa decreasing marketing orientation will improve marketing
4. The role of entrepreneurial marketing has an important role which shows the indirect effect of market orientation on
marketing performance are positively and significantly.
Suggestion
1. It is expected that for any employers must maintain their entrepreneurial marketing by creating added value for
consumers that have an impact on sales growth and sales growth increases, this would automatically have an impact
on profit growth.
2. Expected by the market orientation that has been done in order to be maintained so that the company should be
responding to the actions focused on opportunities and also their efforts to increase the intensity of the consumer.
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3. Based on the findings that the market orientation of a significant negative effect on marketing performance. For
researchers are expected to try to do research within the enterprise as a large scale of footwear industry by using the
same variable, so it calls for an outcome of publications related to these variables.
References
Bisnis dan Investasi Kontan. (2014). Kementerian Perindustrian, Industri RI Belum Siap Menghadapi MEA 2015,
Harian Bisnis dan Investasi Kontan, Senin 7 Juli 2014.
Ferdinand, A. (2000). Manajemen Pemasaran: Sebuah Pendekatan Stratejik, Research Paper Series, BP. Undip
Ferdinand, A (2006). Metode Penelitian Manajemen: Pedoman Penelitian untuk Skripsi, Tesis dan Disertai Ilmu
Manajemen. Semarang: Universitas Diponegoro.
Hart, S., and Banbury, C. (1994). How Strategy Making Processes Can Make a Difference. Strategic Management
Journal.15, 251-269.
Hills, G.E., and Hultman .C.M., (2006). “Marketing, Entrepreneurship and SMES: Knowledge and Education Revisite”.
Paper Presents at the Academy of Marketing Special Interest Group on Entrepreneurial and SME Marketing,
Southampton, UK,
Hills, G.E., Kraus, S and Shulte, R. (2010). History, Theory and Evidence of Entrepreneurial Marketing – an Overview.
International Journal of Entrepneurship and Innovation Management, Vol. 11. No. 1: 3 -18
Jaworski,B.J., and Kohli., A.K. (1993). Market Orientation: Antecedents and Consequences, Journal of Marketing, Vol.
57, pp. 53 – 70
Kara, A.J, Spillan, E. and Oscar W. D., Jr. (2005). An Empirical Investigation of the Effect of A Market Orientation on
Business Performance: A Study of Small-Sized Service Retailers Using Markor Scale, Journal of Small Business
Management, Vol. 43. pp. 105-118
Kraus S., Matthias F., Fabian E, Gerald E.H. and Claes M. H. (2012). The Entrepreneurial Marketing Domain: a
Citation and Co- Citation Analysis. Journal of Research in Marketing and Entrepreneurship. Vol.14. No.2.pp. 6 -26
Li, Y., Liu,Y., and Zhao,Y.B. (2006). The Role of Market and Entrepneurship Orientation and Internal Control in The
New Product Development Activities of Chinese Firms. Industrial Marketing Management: 336 – 347.
Maslucha N. dan Sanaji. (2013). Pengaruh Orientasi Pasar terhadap Kinerja Pemasaran Melalui Inovasi. Jurnal Ilmu
Manajemen. Volume 1 Nomor 4. 1 – 12.
Mwangi H.W.and Henry B. (2013). The Effects of Entrepreneurial Marketing Practices on the Growth of Hair Salons:
A Case Study of Hair Salons in Kiambu Township. International Journal of Academic Research in Business and
Social Sciences. Vol. 3, No. 5.pp. 467 - 479
Narver, J.C., Slater, S. F. 1990. The Effect of Market Orientation on Business Profitability. Journal of Marketing. 20-
35
Newsletter of Indonesia Investment (2016). Published newsletters Newsletter Section Contains a Database of all Our
Published Newsletters
Samtim E.P. (2003), “Studi Mengenai Orientasi Strategi dan Kinerja Pemasaran”. Jurnal Sains Pemasaran Indonesia,
Vol. II, No. 1, Mei, 93-110.
Slater, S. and Narver, J. 1995, ‘Market Orientation and the Learning Organization’, Journal of Marketing, Vol.59, no.3,
pp.63–74.
Slater, S. F. & Narver, J. C. 1994, “Market Orientation, Customer Value, and Superior Performance”, Business
Horizons, Vol. 37, no. 2, pp. 22-28
Stokes D.(2000). "Entrepreneurial Marketing: a Conceptualization from Qualitative Research", Qualitative Market
Research: An International Journal, Vol. 3 Iss: 1, pp.47 – 54.
Voss, G.B., and Voos, Z.G. 2000. Strategi Orientation and Firm Performance in an Artistic Environment. Journal of
Marketing, Vol. 64, pp. 67-83.
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ENTREPRENEURSHIP ECOSYSTEM BASICS AND INSIGHTS FROM INDIAN AUTO

COMPONENT MANUFACTURING SECTOR
Premkumar Balaraman1), Kalpana Kosalram2), Sungkrityayan Khan3), Arvind Balakrishnan4)

1)
Adigrat University, Adigrat, Ethiopia
2) 3) 4)
SRM University, Chennai, India
bpkind@gmail.com
Abstract
Aim: The main objective of the paper is to assess the Entrepreneurship Ecosystem in changing global scenario, identify
the major Entrepreneurship hurdles and also gain insights from success stories of sector specific cases.
Research Methodology: The paper is descriptive and qualitative in nature, discussing some of the major insights on the
evolution of Entrepreneurship, Entrepreneurial models and success factors of Entrepreneurial Eco-System from
secondary sources of data and Entrepreneurial literature. Also, Entrepreneurial insights are drawn from primary
sources of data from sector specific example of Auto Component manufacturing sector in India. The case-study
methodology has been utilized to summarize the various interviews conducted with open-ended questions focused on
Entrepreneurship. The study has been conducted in Chennai, INDIA and sampling units were taken from the list of
automobile component manufacturers in Chennai supplying to the Automobile manufacturing cluster in Chennai.
Findings: The necessity for the amelioration of entrepreneurial capacities of small and medium-sized enterprise (SME)
sector is earning a substantial value in emerging economies. In spite of the fact that there are numerous studies on
SMEs in emerging economies, yet no meticulous evaluation has been done on the various aspects of hindrances to
SMEs, specific successful Ecosystem factors of Entrepreneurship and future vision for Globally sustainable
Entrepreneurial policies. Based on the primary data, the secondary data insights of the paper on Entrepreneurship
developmental trends, hurdles, and ecosystem advantages could be validated and augments in the deduction of the
results. The results precisely demonstrate that numerous key hindrances pertain to Governmental policies and support
structure and are more normal at the earlier stages of industrial growth while additionally hindrances associated to
skill development and human resources incorporates the later stages.
Novelty: The findings throw light on the entrepreneurship ecosystem existing in the globalized world, favorable factors
that aid Entrepreneurship, the way forward for the Governments on Entrepreneurial Policymaking. The paper gives
valuable literature on Entrepreneurship for both academia and practitioners on the founding pillars of
Entrepreneurship, role of Government policies and institutions using a mixed research approach in intriguing hidden
facts from both primary and secondary data.
Keywords: Emerging Economies, Entrepreneurship Ecosystem, Entrepreneurship Hurdles, Entrepreneurial Policies
Introduction
The Global movement towards opening up of exchange fields in advancing towards simplicity of performing
commercial activities together throughout nations has seen numerous defining moments and additionally bottlenecks.
With the developing populace in arising economies throughout the Globe, particularly Asian nations the requirement for
pedagogy and financial gain propagation have put colossal weight on the Governments and the Industry. The effect of
innovation, new advancements and way of life transpositions have made new items and additionally new requirement
for items and amenities ensuing absolutely new plans of action and ideas. Aside from Government based and
commercial based salary engendering chances, Entrepreneurship is seen as the propitious approach for confronting the
difficulties of developing future requirements of developing populace and manageability over the long haul for rising
economies.
Need for Entrepreneurship

Globally all government began to realize that Entrepreneurship’s role is the core key for the economic development.
The Entrepreneurship not only provide good employment opportunities and increase the per capita income, which in
turn have the main impact on the GDP of a nation, that is why national policies play an important role in the
development of Entrepreneurship. However, the role and mechanism of Entrepreneurship and the ways and means for
its better performance towards the dreaming achievements is little known. The above discussion undoubtedly reflects
the relationship between the economic well-being of a society and the role of Entrepreneurship.
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Objective of the Study

 To assess the Entrepreneurship Ecosystem in changing global scenario.
 To identify hurdles faced by new age Entrepreneurs and additionally gain insights from success stories of
sector specific cases.
.
This study implements the utilization of contextual investigation approach (Eisenhardt 1989 ; Yin 1994) to
comprehend in details the coherent or causal drivers of circumstances (as opposed to factual speculation). The
propounded approach gets proof from an accumulation of surveys and narrative examination. The specimen size in this
study covers the contextual investigations of key subordinate manufacturing units/providers in the vicinity of
commercial factions, which incorporates car part producers and providers.
The Primary inspecting units were taken from the catalogue of automobile segment makers in Chennai who are
enrolled in Automotive Component Manufacturers Association of India - ACMA associateship (ACMA, 2016). The
contextual analyses of crucial organizations in automobile and IT fields throughout Chennai is incorporated into the
subjective study to analyze and distinguish issues relating to new companies, Governmental bolster, financing and
marketing hindrances. The probe through surveys was executed which were accompanied by crucial allies of
Entrepreneurship advancement process. Survey information was upheld by a thorough study of auxiliary information, in
order to render a cross inspection of intramural cogency.
Discussion
Definitions of Entrepreneurship
In the paper, the view about Entrepreneurship have evolved into three main categories namely, Behavioral
definitions, Occupational definitions and Synthesis definitions. Entrepreneurship is a purposeful activity to initiate,
maintain and develop a profit oriented business (Cole, 1968.p.65). Entrepreneurship is the set of behaviors that initiates
and manages the reallocation of economic resources and whose purpose is value creation through those means (Herron
and Robinson 1995.p.283). Entrepreneurship is a process that involves,” the discovery, evaluation and the exploitation
of opportunities to introduce new products, processes, services, ways of organizing or markets” (Shane and
Venkataramanan, 2000.p.219), So, Entrepreneurship is a human process which shifts the resources from one level of
productivity to another i.e., from lower productivity to higher productivity.
International Entrepreneurial Evolution

International entrepreneurial activity is a mix of ingenious, active, and endeavors through risk that crosses national
fringes and which aims to produce ethics in an association. (McDougall and Oviatt, 2000). Global Entrepreneurship is
the revelation, establishment, assessment, and utilization of chances – throughout national frontiers – to produce future
merchandise and amenities (McDougall, Oviatt, and Shrader, 2003). Global enterprise hypothesis concentrates on three
fundamental research hindrances, which are the business visionary or entrepreneur, the extrinsic business environs and
the entrepreneurial procedure. Internationalization or Globalization is an edification procedure of prime representatives
taking into account opportunity acknowledgment, chance seeking and taking (Zuccehalla and Scabini, 2007). The
Uppsala model in its effortlessness has ended up being an observationally perceptible internationalization model.
Fabrication of judicious resolution or contrived tactical endeavor is not the truth of SMEs (Huber, 2008). In disparity to
the intricate stratagem and planning suppositions of quintessential global administration conjecture, the Uppsala model
clarifies internationalization as an incremental procedure of repetitive edification and progressive proliferation of
business sector information and nexus.
Emergence of Social Entrepreneurship

Abu Saifan (2012) precisely differentiates the development of Social Entrepreneurship (Fig.1) and its scope from
customary Entrepreneurship. Dacin et. al., (2010), also confirm the distinctive aspects of social entrepreneurship and
it’s emergence in the literature on Entrepreneurship spectrum.
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Figure 1 – Entrepreneurship Spectrum
SOURCE: Abu-Saifan, S. (2012). Social Entrepreneurship: Definition and Boundaries. Technology Innovation
Management Review. February 2012: 22-27. Accessed (10th July 2016) from:
http://timreview.ca/sites/default/files/article_PDF/Saifan_TIMReview_February2012_2.pdf
Triple Helix Model of Entrepreneurship promotion

Etzkowitz and Leydesdorff (2000) propounded three modes through which numerous institutional dispositions of
university-industry-government can be perceived. These three modes are successively, Triple Helix I, Triple Helix II
and Triple Helix III, of which, Triple Helix I model is valid for the Indian scenario when the automobile component
manufacturing sector is considered. Triple Helix I is nothing but the nation state comprehends academe as well as the
commercial enterprises and administers the alliance between them. In India, there is a ceaseless endeavor to locomote
towards Triple Helix III and draw in private funding for analysis, advancement and development.
Entrepreneurship Ecosystem
Daniel Isenberg of Babson Global (2012) developed the Babson Entrepreneurship Ecosystem Project (BEEP)
paradigm by breaking down and assembling information from numerous entrepreneurial endeavors throughout the
globe. The Figure 2 on BEEP paradigm renders a preview of the complete venture which can be taken further for
Entrepreneurial endeavors in rising economies. As per the Research executed by Welter and Smallbone (2011), the
nature and nature of organizations in a nation figure out if people will continue to proceed after enterprise. In this way,
government aid for business is an essential stratagem for financial advancement.
The world economic forum (2010) has built up the Global Competitiveness Index (GCI) as an expedient of the
Global financial system on a smaller scale and in addition full-scale level intensity variables of specific nations. The
term 'Competitiveness' is characterized as the arrangement of establishments, strategies, and aspects that determine the
extent of profitability of a nation in this setting of GCI. The 12 stanchions of GCI are condensed in figure 3 and this
clustering of GCI stanchions has prompted classification of economies as Factor-driven, Efficiency-driven, and
Innovation driven financial systems or economies. Current financial system prevailing in India is marshaled as an
element-driven economy (Kshetri & Dholakia, 2011) and political and other national perspectives presume a critical
part in the achievement of Entrepreneurial endeavors.
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Figure 2 - Babson Entrepreneurship Ecosystem Project (BEEP) model
SOURCE: Babson Global (2012). Babson Entrepreneurship Ecosystem Project. [Online]. Accessed (14th July 2016) from:
http://www.grcc.com/App_Content/media/user_files/InterCity_Visit/2012/Presentations/LenSchlesinger_EcoSystem.pdf.
Fig. 3 – 12 Pillars of GCI Index and Categorization of Economies
SOURCE: World economic forum (2010). The Global Competitiveness Report 2010–2011. World Economic forum,
Geneva, Switzerland. [Online]. Accesed (14th July 2016) from:
http://www3.weforum.org/docs/WEF_GlobalCompetitivenessReport_2010-11.pdf.
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In the he nine standards of making a decent Entrepreneurial environment as per Isenberg (2010) recommended for
rising economies, it stresses on organic growth, favoring high potentials, shaping the eco system, reforming the
regulatory and government norms for easy ways of conducting business.
Major Hurdles in Entrepreneurship

If the reports in the past are considered, the World Economic Forum in the year 2013, in its exposition on
empowerment of women and Entrepreneurial elucidations, it exhorts that Entrepreneurial improvement can't be
accomplished in territories where such fundamentals as nourishment, physical security, wellbeing, and pedagogy are not
guaranteed (Goyal & Parkash, 2011). If private sector and public partnerships are accompanied by the government, then
it can prepare the organizations to devote monetary assets and abilities to physically give the essentials. Once these are
accomplished, then entrepreneurial advancement is conceivable. Mason and Brown (2014), suggest the general
principles to be followed to overcome the hurdles of Entrepreneurship, especially with respect to policy making by the
Governments (refer table 1).
Table 1 - General Principles of Government Policy in Entrepreneurial Ecosystems (Source: Mason and Brown (2014))
Sl. Principle Implication
No.
1. You cannot create Entrepreneurial ecosystems need to evolve from industries that are
something from nothing already existent within the region or country.
2. Policy approaches need to Entrepreneurial ecosystems are complex and dynamic in nature and
evolve over time need to grow and develop organically and their evolution cannot be
rushed by direct intervention.
3. No one size fits all Every entrepreneurial ecosystem is unique and its size and shape will
be determined by the local conditions at play within each of the
components that comprise it.
4. Government initiatives are There are no ‘magic bullets’ that can be used to stimulate growth in an
likely to be ineffective in entrepreneurial ecosystem. Each component is of equal importance and
isolation if any component is missing the system will fail or fail to grow.
5. Entrepreneurial ecosystems Both macro and micro-level policy settings need to be configured to
require a ‘top down’ and help stimulate and sustain the growth of an entrepreneurial ecosystem.
‘bottom up’ approach
6. Distinguish between small Most small businesses are not owned and operated by entrepreneurs.
business and Although the majority of businesses are SMEs, only a relatively small
entrepreneurship policies proportion is growth focused.
7. Policies for high growth High growth firms are not only found in high-tech sectors. Further,
enterprises should reflect their growth paths are seldom linear in nature, few high growth firms
the diversity of such firms are supported by venture capital and many grow through acquisition.
The significant fears of business visionaries in rising and evolving nations are considered as enormous red tapeism,
complicated and inefficient governmental systems, aggravated fixed expenses and Sunk cost dangers (Williams &
Williams, 2011). The requirement for Social Entrepreneurship is basically as a result of lack of effectiveness of
governments in evolving nations on reasonable infrastructure execution, imbalance in wage appropriation, rising
emolument and expenditure levels, uncurbed inflation on controllable items (basic grains, pulses, and vegetables) and
amenities (housing, drinking water), strict arrangements on monetary assets like fleeting and long haul advance
dispensing and recuperation, lesser time accommodated for incubation period, no aid for marketing, no immediate
acquisition prototypes by the legislature.
Success Story of Auto Component Industry in India: Chennai CASE study
Performance of Auto Industry during 2015-16:-

Production & Domestic Sales
The business delivered an aggregate 23,960,940 vehicles including traveler vehicles, industrial vehicles, three
wheelers, bikes and quadricycle in April-March 2016 as against 23,358,047 in April-March 2015, enrolling a minor
development of 2.58 percent over the same time frame a year ago.
The sales of Passenger Vehicles grew by 7.24 percent in April-March 2016 over the same period last year. Within
the Passenger Vehicles, Passenger Cars, Utility Vehicles, and Vans grew by 7.87 percent, 6.25 percent, and 3.58 percent
respectively during April-March 2016 over the same period last year. The Passenger Vehicles sales developed by 7.24
percent in April-March 2016 over the same timeframe a year ago. For instance, considering within the Passenger
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Vehicles, Passenger Cars, Utility Vehicles and Vans, developed by 7.87 percent, 6.25 percent, and 3.58 percent
individually amid April-March 2016 over the same timeframe a year ago.
Exports
In April-March 2016, in general, the total automobile exports developed by 1.91 percent. Traveler Vehicles,
Commercial Vehicles, Three Wheelers and Two Wheelers enrolled a development of 5.24 percent, 16.97 percent, (- )
0.78 percent and 0.97 percent separately in April-March 2016 over April-March 2015.
Fig. 4 – Industrial Clustering Advantage of Automobile Component Manufacturing Industry in Chennai
Location Advantage
From the above figure, it can be precisely inferred that the commercial clumping and natural development of vehicle
parts producers in Chennai auto clump locale precisely demonstrates how the advantages of certain locale such as ocean
port, ingress to adjacent suppliers of auto segment producers as Hub and Spoke model has prompted proficiency in
operations and substantial scale achievement of industry improvement. Small scale Entrepreneurial endeavors as small
segments, work has been made attainable as ingress to outsourced work action from the essential contract
holders/suppliers to auxiliary and tertiary level players in the auto clump zones in Chennai. From the data trend of
Indian auto component sector it can be easily inferred that, by the period 2020-21, that production of vehicles will touch
new heights creating huge demand for auto component industry.
Focus Areas & SWOT analysis of Indian auto component industry

For instance, in one of the interviews conducted during the research process, it was expressed by one of the start-up
auto component business visionary that nowadays it is very tough to procure production orders for new entrants as well
as some kind of assistance from the big players of automobile producers or legislature can be made compulsory for new
vendor development and aid as a part of Corporate Social Responsibility. Studies in comparative economies like china
also support this argument of institutional or Governmental support with respect to financing, technology transfer and
vendor development (Tzeng, Beamish & Chen (2011).
In one of the other interview, the interviewee expressed that documentation for transnational business, funding for
participating in foreign exhibitions, rising wage cost, stringent labor laws, and the SEZ benefit Government policies
and import regulations are some of the major hindrances that one has to face while starting up a new business (Ribeiro-
Soriano & Galindo-Martín, (2012).One of the start-up auto component business visionaries expressed in the interview
that huge red tapeism and corruption in the government sector are the major hindrances faced by one in the start-up of
any business.
The focus areas in which the auto industry needs to concentrate in order to become globally competitive are:
 Quality certifications: Entry into the auto industry supply chain increasingly depends on upon certification. For
second-tier component manufacturers, ISO9000 certification and, increasingly, QS9000 certification are
essential. It is to be expected that greater emphasis will be placed in future on environmental standards, such as
ISO14000. While markets in both the certification process itself and the preparation of firms for certification
will tend to emerge, governments can play an important role in developing and ordering these markets.
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 Skilled labor: Firms at all points in the chain need skilled labor able to enhance process-engineering
capabilities. The education and training systems need to supply this labor. In some sectors, specialist skills in
the area of materials will also be required.
 Testing and measurement facilities: For small firms, in particular, the cost of testing and measurement facilities
can be high. Local and national governments can supply specialist laboratory services and create a sound
national framework for metrology.
 Market intelligence: Market intelligence services and support for participation in trade fairs can help domestic
firms to open up new markets. This is particularly important for firms catering for the aftermarket, although it
may also open up new markets for second-tier manufacturers.
Table 2 - SWOT Analysis

Strengths Weaknesses
 Low cost of R & D.  Industry Size is Small
 Product Liability.  Inferior Quality Products
 Insurance.  Low Labour Productivity
 Low Labour Cost.  Poor Technological Capability
 Numerous research centers available  High Cost of Finance
throughout Chennai for auto components and  No economies of Scale
parts testing.  High cost of Logistics
 Government support in forming and permitting  Taxation Confusion
land banks for automobile SEZ's and  GST Bill
SIPCOTS.  Corruption for Government clearances.
 Society aid and Cultural ecosystem for
entrepreneurial promotion.
Threats Opportunities
 Competitive threats from China  Huge Growth Potential
 Increasing FTA  Large Outsourcing Opportunities
 Learning from MNCs
Conclusion
The paper clearly highlights the major hurdles to Entrepreneurship promotion and growth, especially the need for
right policy making on funding entrepreneurship ventures, technology transfer, marketing support, nurturing during the
initial phases of Entrepreneurship incubation (Akçomak, 2011), has evolved as the key hurdles. In the detailed
discussion of the paper on Entrepreneurship ecosystem, it is concretely evident that emerging economies like India and
South East Asian countries, by and large are found to be factor driven (Government support in the form of funding,
subsidies and establishment of SEZs) in addition to labor market efficiencies. The SWOT analysis (Refer Table 2) also
makes it is clear that auto industry in India has huge growth prospects, the individual component manufacturers have to
gear up and evolve strategies to compete globally with the major factor being the Government in the evolution of the
successful auto cluster.
There are three areas in which locally-owned firms might prosper within the global auto components industry
according to the case study of Indian Auto Component industry. They are as second-tier component manufacturers
operating within value chains supplying assemblers in the domestic market; allied with trans-national companies and
supplying specialized products for global markets; as suppliers to both domestic and international after markets. The
ability of locally-owned firms to compete in each of these markets can be influenced by the support provided by local
and national institutions. The G20 SME Conference held at the Parliament of Victoria on 20 June 2014 issued an
outcome statement that made 12 recommendations for change in how G20 nations should support SMEs (Mazzarol,
(2014).
Hence, the paper has addressed the first objective by analyzing secondary data and entrepreneurship literature,
models to throw light on the global trends, as well as the secondary objective is accomplished by both secondary data
analysis and primary data gathered from the interviews conducted.
References
Abu-Saifan, S. (2012). Social Entrepreneurship: Definition and Boundaries. Technology Innovation Management
Review. February 2012: 22-27. Accessed (10th July 2016) Retrieved from:
http://timreview.ca/sites/default/files/article_PDF/Saifan_TIMReview_February2012_2.pdf
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MOTIVATIONAL POSTURES, KNOWLEDGE, AND PEER REPORTING BEHAVIOR

TO TAX COMPLIANCE DECISSION:
EXPERIMENTAL STUDIES ON STUDENT ENTREPRENEURS
Elen Puspitasari1) ,Yeye Susilowati2)
Faculty of Economics and Business, STIKUBANK University, Semarang, Indonesia

1)
elenmeiranto@yahoo.com
Abstract
Entrepreneurship is not out of the reach of students. Subjects of entrepreneurship in universities provided with a spirit
of togetherness and a high passion to encourage the emergence and development of modern Indonesian entrepreneurs
coming from the campus.The expected output of the process of teaching entrepreneurship is a real action of
entrepreneurship, which starting a business with the right principles. Therefore, it is important for student
entrepreneurs to understand the taxation. We examine and investigate how the postures motivation, knowledge of
taxation, and peer reporting behavior influences tax compliance decision in experimental studies. In our experiment,
the posture of motivation and knowledge of taxation are internal factors is placed as a covariate variable. While, peer
reporting behaviors are external factors as an experimental variable which are divided into two treatments. Therefore,
our research design called with Quasi Experimental Design Between-Subject with Covariate with random assignment
method. Subjects in these experiments were 98 student entrepreneurs who have selected as participants on business
expo. The analysis technique used was Analysis of Covariates. Our main results are twofold: First, we investigate that
the posture of motivation and tax knowledge as concomitant factors affect tax compliance decisions. Second, we find
that tax compliance decisions will be higher on subject experiment who obtained the compliant peer reporting behavior.
Keywords: Tax Compliance Decisions, Motivational Postures, Knowledge, Peer Reporting Behavior, Student
Entrepreneurs
Introduction
Tax is a terminology that invites diverse opinion, perception, and reasoning in most of big society (pajak.go.id).
Essentially, taxes are the means for the welfare of the people. Therefore, the state must bring about share of justice or
distributive for the community. Justice sharing can be realized by obedience or compliance of the people to the
government through payment of taxes. Therefore, the tax is a means of sharing of people who have excess financially
through government hands. A tax for the government of Indonesia is one of the largest sources of state revenue. In State
Budget 2016, the revenues targeted to reach 75% coming from tax revenue administered by the Directorate General of
Taxation. This figure has increased almost 30% from 2015 realization.
Studies on tax compliance decisions will continue to develop widely different approaches in terms of theory,
variables, and other research methods (Torgler, 2002). Alm et al. (2012) and Barbuta (2011) proved that the tax
compliance is influenced by various factors; it is based on theoretical testing and results of empirical study. This shows
that the development of research on tax compliance will always be interesting area for research, although some previous
researchers have tried to develop a tax compliance model (Alabede et al., 2011).
The obligation to pay taxes as mandated by law, which is the rule in life groups in a country. Each member of the
group should be involved in supporting a harmonious life, according to his ability. This is in accordance with the theory
of motivational postures that have been developed by Valerie Braithwaite in 1995. Motivational postures used by the
Australian Taxation Officer (ATO) for building a voluntary taxpaying culture into the pyramid of ATO Compliance
Model (Braithwaite, 2003).
Alm and McKee (1998) classifies tax compliance decisions in experimental research into internal and external
approach to the individual taxpayer behavior. The research proves that the moral behavior (internal) derived from the
individual taxpayer cannot be ignored in the decision of tax compliance. It supports the research that has been
conducted by Hanno and Violette (1996) showing that taxpayers who have a strong commitment to social norms tend to
behave more submissive.
The fundamental difficulties in empirical tax compliance studies are the availability of detailed and reliable
information, which relates to the choice of individual taxpayer compliance decisions. Compliance measurement in the
OECD Tax Guidance Series (2001) recommends using experimental design is considered as an ideal method of data
collection in the study of tax compliance (Togler, 2002; Fallan, 1999; Ghosh and Crain, 1995). Therefore, this study
uses an experimental design that will lead researchers to discover causal relationships that influence the behavior of
taxpayers in tax compliance decisions.
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The purpose of this study was to examine the influence of internal factors taxpayer that placed as covariates and
external factors taxpayers on tax compliance decisions in an experimental study. Motivational postures and tax
knowledge placed as covariance variable in this study, because both of variables are intrinsic factors from individual
taxpayer that cannot be controlled. Meanwhile, peer reporting behavior is external factor as experimental variables.
The interesting thing in this experimental study is to determine the student entrepreneurs as subjects of the
experiment. Previous experimental studies using the individual taxpayer who has his own business activities. The
results prove that their motivational posture has no influence on the tax compliance decisions (Puspitasari and Meiranto,
2014; Puspitasari et al., 2015a; 2015b). Finally, in these current studies with student entrepreneurs as subjects of the
experiment, we proved that the motivational postures have influence on the tax compliance decision. The result of this
study also finds that tax knowledge and peer reporting behavior affect entrepreneur students’ decision to determine their
tax compliance.
Theory and Hypotheses

Tax compliance decisions can be interpreted as a decision of the taxpayer to obey in reporting actual amount of
income and pay taxes in accordance with the rules set by the tax authorities. Decision of tax compliance is a complex
process (Chan et al., 2000). Tax compliance decisions are influenced by several factors, such as economic,
demographic, behavioral, and even cultural variables. These variables influence each other and interact in determining
how the level of tax compliance decisions to be made.
Posture motivation is the mental attitude (stances) of the individual taxpayer is expressly shown by the taxpayer to
the tax authorities on systems, structures, and procedures of tax applicable (Braithwaite, 2003: 16). Braithwaite (2003:
18) has identified five postures motivation is an important component in tax compliance, which is divided into two parts
orientations. Two postures of the first part reflects a positive orientation toward authority, namely the motivational
posture of commitment and capitulation. While three postures of the second part describe the resistance (defiance) of
the tax system, i.e. the motivational posture of resistance, disengagement, and game playing.
Posture commitment illustrates a level where an individual taxpayer consciously on his own desire to feel involved
with the mission assumed by the regulator as a tax collector of the society. Posture capitulation describes individuals
who accept the rules applied to him by the tax authorities without being involved with the mission of the tax authorities.
Posture resistance reflects a fight openly against the tax authorities in relation to how the tax authorities to exert its
authority. Postures disengagement and game playing depict a more serious resistance against the tax system. Posture
disengagement involves psychological dissociation from the tax authorities. Individuals with this posture characters
have built immunity in his of authority possessed by the tax authorities want to bring them into the system. Game
playing postures represent behavior that is more imaginative in order to avoid the provision by playing rules.
The book of Taxing Democrazy published by Braithwaite (2003) has introduced a number of empirical researches
on motivational posture. The results showed that the different motivational posture can influence the decision of tax
compliance. Posture motivation can be changed according to the circumstances of the relationship between taxpayers
and tax authorities. Therefore, it is necessary to do a study to test whether the posture of the commitment and
capitulation that has a positive orientation; and the posture of resistance, disengagement, and game playing with
defiance oriented will affect the level of tax compliance decision.
H1 : Student entrepreneur with positive (deviance) oriented motivational posture will have higher (lower) tax
compliance decision.
Tax Knowledge is divided into two aspects. First, the knowledge obtained directly. Secondly, the knowledge
acquired through formal education (Harris, 1989 in Palil and Mustapha, 2011). Hoffman et al. (2008) in literacy studies
suggests that an important factor affecting tax compliance is knowledge about the complexity of tax law and tax rules.
Most taxpayers do not understand tax law correctly. They have difficulty in understanding the tax laws, because it is
complex and complicated. Therefore, improving the knowledge of taxpayers about the tax rules, tax audit, and tax
penalties will be a positive influence on tax compliance.
The empirical findings of Singh (2003), Eriksen and Fallan (1996), Harris (1989) in Palil and Mustapha (2011) and
Palil (2010) provide evidence that knowledge of the tax increase tax compliance. Palil and Mustapha (2011) prove that
the tax knowledge plays an important role in the success of the self-assessment system (Palil 2010). Tax knowledge
includes the ability of taxpayers to understand the legal and tax regulations as well as their decisions in the tax
compliance (Palil, 2010 and Loo, 2006).
H2 : Student entrepreneur with higher (lower) tax knowledge will have higher (lower) tax compliance decision.
Reference will shape a person's behavior. Referent or peers who do not comply will lead noncompliance taxpayers
who always assume the existence of peer will very significant in every decision (Spicer and Lundstedt, 1976). Firstly,
the concept of referent group presented by Robert Merton in 1957 (Hite, 1988). Reference group is defined as a unit that
is used individually as a frame, benchmark for determining the formation of attitudes and intended to do an evaluation
of the individual self.
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Factors influence of peer (peer influence) or referents groups can be obtained from family, friends and colleagues
(friendly persuasion). Peer influence has been implicated in the decision of a taxpayer for tax evasion (Allingham and
Sandmo, 1972). Hanno and Violette (1996) in a study of tax compliance literacy states that some researchers have
provided important notes on the relationship between individual factors and social environment on taxpayer compliance
decision. If a taxpayer has a belief that the behavior exhibited by the social environment, namely people or social
groups that are considered important (referent) must be done, then the taxpayer will be motivated to do so.
Jackson and Milliron (1986) showed that peers are obedient (compliant peers) have a positive impact on the
behavior of tax compliance decisions. This shows that obedient peers (non-compliant) influence positive (negative)
impact on tax compliance behavior. So that non-compliant peers will result in an increase in cases of tax evasion.
H3 : Student entrepreneur with compliant (non-compliant) peer reporting behavior will have higher (lower) tax
compliance decision.
Fig. 1 Empirical Model
Methods
This study used an experimental method which is a method of active research. Researchers are actively manipulating
the independent variables and measure their impact on the dependent variable (Nahartyo, 2012). This study is a quasi-
experimental research, because researchers (experimenter) have limitations in doing randomization and manipulation to
control the overall research variables. Forms of experimental design were also influenced by the researchers' ability to
control the every cell that was built in answering research questions (Gould, 2002).
Quasi Experimental Design Between-Subject with Covariate with Random Assignment Method is an experimental
design used in this study. This method is carried out with the aim to increase the level of confidence that there is no
systematic difference between the participants' level of treatment. The independent variable (experimental variables)
peer reporting behavior has two levels of treatment divided into compliant and noncompliant peer scenarios. Each
participant (subjects experiment) gets one level treatment of experimental variables peer reporting behavior.
The participants for these experiments were 98 students entrepreneur who has been doing business expo. They are
students who have taken Entrepreneurship class, namely Being Entrepreneurs (second semester); Leading Enterprises
(third semester), and Enterprise Controlling (fourth semester). Students who participated in the business expo are their
elected through the selection of a business plan proposal, then running their business activities at the business expo
event.Implementation of the experiment in this research conducted in six rounds.
Table 1. Between Subjects Participants

Round Peer Posture Knowledge
(n) PEC PEN Positive Deviance High Low
1 (18) 9 9 15 3 15 3
2 (17) 8 9 7 10 7 10
3 (17) 8 9 12 5 12 5
4 (12) 6 6 9 3 9 3
5 (15) 7 8 10 5 10 5
6 (19) 11 8 13 6 12 7
Σ=6(98) 49 49 66 32 65 33
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The measurement of the research variables is described in detail below. Tax compliance decision is an ethical
decision made by the participants to declare the amount of income to be reported. Variable tax compliance decision on
this experimental research has measured with the response of participants on how much total income their reported of
each level of treatment or manipulation given (Trivedi et al., 2003; Gosh and Crain, 1995; Reckers et al., 1994; Alm et
al., 1992) of each experimental variables in percentage. Measurement of posture motivation and tax knowledge as
covariate variables conduct in the early stages of experiments. 29 instruments motivational postures statements and 31
instruments of tax knowledge on a 1 (strongly disagree) to 5 (strongly agree).
Table 2. Research Variables

Variable Research Measurement
Code (Level)
Function Variable
Tax
Depende Tax Compliance Decision
Compliance DECISSION
nt Scenario
Decision
PEER
Indepen
Peer (1) PEC-
dent Peer Reporting Behavior
Reporting Compliers
(Experim Scenario
Behavior (2) PEN- Non
ent)
compliers
POSTMTV 29 Statement
Motivationa
Motivational Postures
Indepen l Postures
(Braithwaite, 2003)
dent
KNOWL The General Tax
(Covaria
Tax Provisions and
te)
Knowledge Procedures Law
prevailing in Indonesia
Participants have the positive orientation of posture motivation, if the value of the average total score of posture
commitment and capitulation is greater than the value of the average total score of posture resistance, disengagement,
and game playing. As for the level of tax knowledge is measured from the average value of the total score of the
knowledge of all participants. If the total score of the knowledge of a participant is equal to the average or above
average value, then the participants had a high level of tax knowledge.
Peer reporting behavior is defined as external influences derived by the taxpayer from the decision of reporting
income from friends or colleagues or people nearby (referent group) that may influence the decision of tax compliance.
Manipulation is done by providing information to the participants about the situation overview peer behavior in
experimental media. Variable peer reporting behavior is non-metric variables, where measurement using two categories,
namely category 1 (PEC) for reporting behavior of peer-compliers, and category 2 (PEN) conduct peer reporting non-
compliance (non compliers).
Table 3. Motivational Postures and Tax Knowledge Measurement

Item Covariate Variables Item
Covariate Variables
s s
MOTIVATIONAL POSTURES TAX KNOWLEDGE
1 Commitment 8 1 General (Incumbency of 8
Taxpayers)
2 Capitulation 5 2 Self Assessment System 6
3 Resistance 6 3 Sanctions 4
4 Disengagement 5 4 Tax Audit 2
5 Game Playing 5 5 Income Tax 3
6 Tax Accounting 4
7 Tax Compliance Criteria 4
Motivational Postures 29 Tax Knowledge 31
Statement Statement
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The entire assignment to each treatment in a randomized experiment progresses, and supervised by the experimenter
during the process underway. Checks manipulation performed at the end of treatment. The whole series of experimental
stages completed in an average of thirty minutes.
The hypothesis was tested using ANCOVA (Analysis of Covariance). The models equations are used to test the
hypothesis are as follows:
𝐃𝐄𝐂𝐈𝐒𝐒𝐈𝐎𝐍𝒊𝒋𝒌 = 𝛍+∝ 𝐏𝐄𝐄𝐑 𝒊 + 𝛃𝐏𝐎𝐒𝐓𝐌𝐓𝐕𝒋 + 𝛃𝐊𝐍𝐎𝐖𝐋𝒌 + 𝛆𝒊𝒋𝒌
Where:
DECISSIONijk : Tax Compliance Decisions
μ : Mean general
αPEERi : The effect of level i of factor peer reporting behavior Compliers’ and non compliers’)
βPOSTMTVj : Regression coefficient (effect) of the value of the covariate Posture Motivation
βKNOWLk : Regression coefficient (effect) of the value of the covariate Tax Knowledge
ijk : random error
These studies also analyze the Pair wise Comparisons resulting from Estimated Marginal Means. The tests are to
determine the effect of differences in the treatment of dependent variables by eliminating the influence of covariates.
Tests to answer H1 and H2 followed by Independent-Samples t Test one-tailed, it was done because the posture
variables motivation and tax knowledge as a covariate in the ANCOVA required is metric.
Results
ANCOVA assumption test for homogeneity of the data obtained from the results of Levene's Test of Equality of
Error Variances that shows F value of 0.249 with probability 0.619 (p> 0.05), which means insignificant. This indicates
that the error variance of the decision variable tax compliance among the group is homogeneous; thus meeting the
assumption of ANCOVA. Corrected models are obtained from test Between-Subjects showed the significance of 0.000
is far below 0.05; then at the 95 percent confidence level can be concluded that simultaneous posture motivation,
knowledge of tax and peer reporting behavior have influence on tax compliance decisions.
Table 4. Tests of Between-Subjects Effects

Source F Sig.
Corrected Model 147.063 .000
PEER 88.768 .000
POSTMTV 5.384 .022
KNOWL 48.932 .000
R Squared = .824 (Adjusted R Squared = .819)
The results of testing the hypothesis by ANCOVA showed that the main effect of the variable POSTMTV with F
value 5.384 and p 0.022 was significant at 0.05. Variable KNOWL significantly affects to Tax Compliance Decision
with F value of 48.932 with a probability of 0.000 (being under 0.05). Peer reporting behavior also have a significant
effect on Decision Tax Compliance with F value of 88.768 and a probability of 0.000 (being under 0.05) The test results
indicate that there are differences significant tax compliance decisions at the level of treatment conduct peer reporting
and tax knowledge, but there is no difference in tax compliance decisions significant differences in motivation posture
taxpayer. The test results indicate that there are significant differences in tax compliance decisions at every level of
reporting behavior of peer treatment. This study proves that the posture of motivation and knowledge of taxation of the
student entrepreneurs have a significant effect on tax compliance decision.
Further testing on the H1 is using Independent-Samples t Test. In the statistics panel on Table 5 shows the average
tax compliance decisions for participants with positively oriented of posture motivation amounted to 92.88 percent,
while participants with defiance oriented has an average tax compliance decisions for 62.19 percent. This shows that
there are differences in the average tax compliance decisions between participants of student entrepreneurs who have
positively oriented with defiance oriented posture motivation.
T values shown in equal variance assumed was 9.225 with a probability of 0.000. The conclusion is the decision of
tax compliance among student entrepreneurs who have a positive oriented is different from the student entrepreneur
who has the defiance oriented posture motivation. Thus there is statistical data to support the hypothesis (H1).
Postures motivational theory approaches in research tax compliance decision which states that taxpayers who have a
positive oriented posture motivation (commitment and capitulation) describe taxpayers tend to be more obedient proven
in this study. Therefore, this study is line with Braithwaite (2003) which says that taxpayers have the defiance oriented
posture motivation (resistance, disengagement, and game playing) tend to behave not in compliance. The results of this
study are very interesting, because it has different results from Puspitasari and Meiranto (2014); Puspitasari et al.
(2015a; 2015b).
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Table 5. Decision Tax Compliance Viewed from Student Entrepreneur Motivational Posture
POSTMTV N Mean
DECISSION Positive 66 92.88
Defiance 32 62.19
Independent Samples Test
Levene's Test for
Equality of t-test for Equality
Variances of Means
F Sig. t Sig.
DECISSION Equal variances assumed 34.251 .000 9.225 .000
Equal variances not assumed 7.487 .000
The results of testing the main effect on the tax knowledge on tax compliance decisions are shown in Table 6 prove
statistically significant. The results of this study indicate that there are differences in tax compliance decisions at each
level of tax knowledge. Based on the H2 test (Table 6) we can conclude that the average tax compliance decisions in
participants who had high tax knowledge in contrast to the average tax compliance decisions of participants who have
low taxes knowledge. These results suggest that the taxpayer who has high tax knowledge having average value of
higher tax compliance decisions than the taxpayers who are low tax knowledge. Thus ANCOVA test results and
Independent Sample t-Test supports H2.
Table 6. Decision Tax Compliance Viewed from Student Entrepreneur Tax Knowledge
Knowledge N Mean
DECISSION High 65 92.77
Low 33 63.33
Independent Samples Test
Levene's Test for
Equality of t-test for Equality of
Variances Means
F Sig. t Sig.
DECISSION Equal variances assumed 40.650 .000 8.667 .000
Equal variances not assumed 7.085 .000
This experimental study using the method of random assignment with between subject designs, in which
participants in the study will undergo one treatment of each level of treatment peer reporting behavior variable. It is
intended to increase confidence that there is no systematic difference between the treatment group subjects. Results
obtained through techniques Analysis of Covariance on this study can be summarized as follows. Without the influence
of the posture of motivation and tax knowledge at 95 percent confidence level there are significant differences between
treatment levels reporting behavior peer (compliers and non compliers) against tax compliance decisions made by the
student entrepreneur as a participants.
Table 7. Decision Tax Compliance Viewed from Peer Reporting Behavior

Estimates
Pair wise Comparisons
PEER Mean (I) PEER (j) PEER Siga
compliers 92.423a compliers Non compliers 0.000
a
Non compliers 73.292 Non compliers Compliers 0.000
Estimates Marginal Means in Table 7 shows that the average of tax compliance decisions based on the effect of
peer reporting behavior. Student entrepreneur as a taxpayers who have been influenced by reporting behavior of peer
compliers has an average value of the decision is higher (μ = 92.423), compared with a taxpayer who gained influence
peer behavior reporting non-compliers with the average value average tax compliance decisions amounted to 73.292
percent and significant at p = 0.000.
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Results of statistical analysis in Table 7 supports H3 which states that there are differences in tax compliance
decisions between student entrepreneurs who has been given the influence of compliers peer reporting behavior with the
non compliers peer reporting behavior. Thus, it can be concluded that compliers will influence the tax compliance
decision of the participants to be more compliant, if compared with participants in the non-compliers peer influences.
Conclusion, Limitation, and Implications

Decision of tax compliance as the dependent variable in this experimental research is a complex ethical decisions.
Using student entrepreneurs as participants in this study provide interesting results. Student entrepreneurs who have
been conducting business expo are expected they will become a successful entrepreneur. Expectations of
entrepreneurial learning in a university is the student entrepreneur will start and run their business in accordance with
the right principles, including when they have earned income is required to pay taxes. Although in this case be a
drawback to generalize externally. However, it can be thought that the internal factors need to be strengthened from the
beginning before it becomes a real taxpayer.
Motivational postures and tax knowledge that exist within the individual taxpayer is believed to have influence or
confounding effect on the tax compliance decision. Thus, when they are faced with non-compliers peer, the internal
factors that they have still a strong influence. Therefore, the model of this experimental research by placing the posture
motivation and tax knowledge as a covariate in the tax compliance model is appropriate. This research obtained
additional analyzes, i.e. which is the student entrepreneurs who have positively oriented posture motivation, it tends
they have a level of tax knowledge are also high.
Subsequent findings of this study are student entrepreneur given treatment compliers peer reporting behavior, then
they will have the tax compliance decisions higher than the other student entrepreneur who has given the treatment non
compliers peer reporting behavior. Therefore, variable of peer reporting behavior also determine the tax compliance
decision. Research on tax compliance will always be attractive to develop. Posture motivation as a new approach in the
study of tax compliance in Indonesia still needs to be further investigated. Required placement of other covariates
variables in experimental research still needs to be considered, such as risk preferences and religiosity.
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Hoffman, E., Hoelzl, E. & Kirchler, E. (2008). Preconditions of Voluntary Tax Compliance: Knowledge and Evaluation
of Taxation, Norms, Fairness, and Motivation to Cooperate. Journal of Psychology. Vol. 216(4):209–217.
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Jackson, B.R. & V. C. Milliron. (1986). Tax Compliance Research: Findings, Problems, and Prospects. Journal of
Accounting Literature, Vol. 5, pp. 125-161.
Loo, Chen, E. (2006). The Influence of The Introduction of Self Assessment on Compliance Behaviour of Individual
Taxpayers in Malaysia. Thesis for PhD, Unpublished. The University of Sydney.
Nahartyo, E. (2012). Desain dan Implementasi Riset Eksperimen. UPP STIM YKPN, Yogyakarta.
OECD, Organization for Economic and Co-operation Development. (2001). Compliance Measurement – Practice Note:
1-23.
Palil. (2010). Tax Knowledge and Tax Compliance Determinants in Self Assessment System in Malaysia. Thesis for
PhD, Unpublished. Departement of Accounting and Finance, The University og Birmingham.
Palil, Rizal., & Mustapha, Fariq. (2011). Factors Affecting Tax Compliance Behaviour in Self Assessment System.
African Journal of Business Management, Vol. 5(33), pp. 12864-12872.
Puspitasari, Elen. & Meiranto, Wahyu. (2014). Motivational Postures in Tax Compliance Decisions: An Experimental
Study. International Journal of Business, Economics and Law, Vol. 5, Issue 1 (Dec), pp. 100-110.
Puspitasari, Elen., Nurhayati, Ida., & Meiranto, Wahyu. (2015a). Teori Postur Motivasi dalam Studi Eksperimen
Keputusan Kepatuhan Pajak di Indonesia. Proceeding1 NCBMA Universitas Pelita Harapan, Indonesia, pp. 34-55.
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Puspitasari, Elen., Susilowati, Yeye., & Meiranto, Wahyu. (2015b). The Role of Motivational Postures as a
Concomitant Factor and Peer Reporting Behavior on Taxpayer Compliance Decisions in Indonesia. Proceedings of
The International Congress on Economy, Finance, and Business, pp. 177-193.
Pajak.go.id
Reckers, Sanders & Roark. (1994). The Influence of ethical Attitudes on Taxpayer Compliance. National Tax Journal,
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Trivedi, V. U. & Shehata, M. (2005) Attitudes, Incentives, and Tax Compliance.
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Acknowledgement
The author wishes to acknowledge the help of Professor Arifin Sabeni from Diponegoro University. Special thanks
are also extended to student entrepreneurs as a participant from Stikubank University for their support of this project.
Statement of motivational posture and tax knowledge, treatment scenario and data are available on request.
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THE INFLUENCE OF SIZE, BUSINESS RISK, WORKING CAPITAL TURNOVER, AND

PROFITABILITY TO CAPITAL STRUCTURE
LISTED IN INDONESIAN STOCK EXCHANGE 2012 - 2014
Yeye Susilowati1), Elen Puspitasari2)
Economic and Business Faculty, Stikubank University, Semarang, Indonesia

1)
yeye.unisbank@gmail.com, 2)elenmeiranto@yahoo.com
Abstract
This study is aimed toanalyze the influence of size, business risk, working capital turnover and profitability to
capital structure of Manufacturers listed in Indonesian Stock Exchange.
The sample of this study is 180 companies listedinIndonesian Stock Exchange in 2012-2014. The sample in taken
using purposive sampling method with multiple linearregressionanalysis.
The result of analysis shows that business risk and working capital turnover significantly positively influence
capital structure.While size and profitability do not influence capital structure of manufacturerslisted in Indonesian
Stock Exchange.
Keywords: Capital Structure, Size, Business Risk, Working Capital Turnover, Profitability
Introduction
Every company established has particular goal in order to add activity and improve company’s value. In achieving
the goal, funding decision is one of important factors to conduct operational activities. In making decision on funding, it
is important to know exactlyhow much fund needed and the source. In addition, capital structure also holds an
important role in operational funding.
Capital structure policy includes funding decision consisting of internal or external source of fund. By considering
cost of capital in making decision, the company has to decide to choice internal or external source of fund.
According to Martialin (2012), size, profitability and working capital turnover do not influence capital
structure.While business risk positively significantly influences capital structure.
According to Kartika (2009), business risk does not influence capital structure, asset structure and size positively
significantly influence capital structure, and profitability negatively significantly influences capital structure.
According to Joni and Lina (2010) asset growth, asset structure influence capital structure. While business risk,
deviden does not influence capital structure, and profitability negatively significantly influence capital structure.
According to Elsa (2012) stated that profitability does not influence capital structure. While asset structure and size
positively significantly influence capital structure..
The previous studies mentioned above show inconsistent result inspiring this study to test about the influenceof
size, business risk, working capital turnover, and profitability to capita lstructure. The contribution of this study is
developing the study of martialin (2012) by adding one independent variable. It is expected that determinant coefficient
has greater percentage. The sample chosen by this study is manufacturing industries listed in Indonesian Stock
Exchange.
Hypothesis Development
The Influence of Size to Capital Structure
Size illustrates financial stage in particular period. Big size of company indicates high risk for investors, but its good
financial condition enables the company to fulfill its obligation and provide great amount of return. It is supported by
Putri et.al (2012) and Kartika(2009) that size positively significantly influences capital structure. Based on the
explanation above, hypothesis 1 is arranged :
H1 : Size positively influences capital structure
The Influence of Business Risk to Capital Structure

Brigham (2006) explained that risk is defined as probability for unexpected happening. Business Risk is uncertainty
in business activities. Business Risk consists of intrinsic business risk, financial leverage risk, and operating leverage
risk. Business risk is stimulated by great amount of loan. It also results in bankrupcy. It is supported by Martialini
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(2012) that business risk positively influences capital structure. Based on the explanation above, hypothesis 2 is
arranged :
H2 : Business Risk positively influences Capital Structure
The Influence of Working Capital Turnover to Capital Structure
Bambang (1997) stated that working capitalkeeps turning over as long as the company is operating. Working capital
turnover includes downpayment for basic material, account receivable,production process,quality control, and storage.
Longer working capital turnover makes greater amount of working capital. Based on the explanation above, hypothesis
3 is arranged:
H3 : Working Capital Turnover positively influences capital structure
The Influence of Profitability to Capital Structure

Profitability Ratio is to measure the ability of company in earning profit. Myers ( 1984) stated that profitability
negatively influencescapital structure. Based on the explanation above, hypothesis 4 is arranged:
H4 : Profitability negatively influences capital structure
Empiric Model
Penelitian ini menggunakan variabel dependen struktur modal dan variabel independen yaitu ukuran perusahaan,
resiko bisnis, perputaran modal kerja dan profitabilitas.
Size (X1)
H1 (+)
Business Risk (X2) H2 (+)
Capital Structure (Y)

Working Capital Turnover (X3) H3 (+)
H4 (-)
Profitability (X4)
Figure 1
Methods
Sample and Data
The sample chosen by this study is all manufacturing companies listed in Indonesian Stock Exchange 2012 – 2014
using purposive sampling with criteria : the company earned profit in 2012 – 2014 and published financial statement in
2012-2014 with completed data as needed by this study. There are 180 companies as the sample,
Operational definition
𝐿𝑜𝑛𝑔 𝑡𝑒𝑟𝑚 𝑙𝑜𝑎𝑛
Capital Structure = Debt Equity Ratio =
𝑇𝑜𝑡𝑎𝑙 𝐸𝑞𝑢𝑖𝑡𝑦
Size = ln (total asset)

𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝐶𝑜𝑠𝑡
Business Risk =
𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠
Sales
Working Capital Turnover =
WorkingCapital
EAT
Profitability = Total Equity X100%
Data Analysis Method

Hypothesis test in the study is conducted by using multiple linear regression. This method is to test the influence of
independent variable to dependent variable. Before doing this method, normality test and classic assumption test.
Classic assuption test consists of Multicolinearity, Heteroskedastisity, and Autocorellation Test.
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Normality Test
Based on the first normality test, it is shown that 180 companies are not distributed normally. The second normality
0.386 0.150
test conducted on 85 companies as the rest of outlier process shows zskewnes = = 1.46and zkurtosis = =
√6/85 √24/85
0.282. Skewness value is 1.46 < 1.96 and kurtosisvalue is 0.282 < 1.96. As the conclusion, regression model has been
normally distributed.
The next step of analysis is classic assumption test consisting of of Multicolinearity, Heteroskedastisity, and
Autocorellation Test which result is free from classic assumption problem.
Model Goodness of fit shows that Size, Business Risk, Working Capital Turnover and Profitability simultaneously
influences capital structure. While r2 test shows that Size, Business Risk, Working Capital Turnover and Profitability
are able to explain 73.8% of Capital Structure. The rest 26.2% is explained by other variables.
Regression Equation DER= 0.070 + 0.000SIZE + 0.286RISK + 7.998WCT + 0.031ROE + e
The Result of hypotheesis test is:

SIZE has and significancevalue 0.735 > 0.05. It means that SIZE does not influence capital structure,
therefore H1is rejected. Theoretically, size positively significantly influences capital structure. It implies that big
company needs more fund and one of funding sources is external source. It means that bigger companytends to have
greater amount of loan than the smaller one. On the other hand, big company also has greater capital. It makes the
company does not need external funding source. The result of this study is supported by Mertialin (2012) that size does
not influence capital structure.
Business Risk has and significance value 0.000 < 0.005. It means that Business Risk positively
significantly influences capital structure, thereforeH2 is accepted. This study suggests that investors prefer high
business risk due to high return. The result of this study is supported by Mertialin (2012) that business risk positively
significantly influences capital structure.
Working Capital Turnover hasand significance value 0.008 < 0.05. It means that Working Capital
Turnover positively significantly influences capital structure, thereforeH3 is accepted
Profitability hasand significance value 0,000 < 0,05. It means that profitability positively significantly
influences capital structure, therefore H4 is accepted. The company with high return on investment has smaller amount
of loan. High return enables the company to cover all kinds of operational expenses. High return provides great amount
of internal fund in form of retained earning.The result of this study is supported by Widodo (2014) that profitability
positively significantly influences capital structure.
Conclusion
This study analyzes whether size, business risk, working capital turnover, and profitability influence capital
structure. It is done on manufacturing company listed in Indonesian Stock Exchange in 2012 – 2014. It is concluded that
size does not influence capital structure. While business risk, working capital turnover, and profitability influence
capital structure of manufacturing companies.
Implication
For company management, it is suggested to pay more attention to business risk in making decision about capital
structure. It is expected to make optimal capital structure policy. For investor, it is also suggested to pay more attention
to business risk in making decision about investment by considering capital structure.
References
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Washington DC, EFMA 2002 London Meerings
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Brigham, Eugene F and Joel F Houston. 2006,Financial Management, Fifth edition

Elsa, Meidera, Dwi Putri. 2012. “ Pengaruh Profitabilitas, Struktur Aktiva dan Ukuran Perusahaan Terhadap Struktur
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yang Terdaftar di BEI 2006-2008”. Universitas Diponegoro, Semarang.
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Kartika, Andi. 2009. “Faktor – Faktor Yang Mempengaruhi Struktur Modal”.Jurnal Dinamika Keuangan dan
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Martialin, Indri. 2012. “Pengaruh Ukuran Perushaan, Resio Bisnis, Perputaran Modal Kerja dan Profitabilitas Terhadap
Struktur Modal”.
Mawardi, Wisnu, Dea Nurita. 2011. “Analisis Pengaruh Profitabilitas, Firm Size, Non Debt Tax Shield, Deviden
Payout Ratio dan Likuiditas Terhadap Struktur Modal”.
Moch. Wahyu Widodo, Moeljadi, Achmad Helmy Djawahir. 2014. “Pengaruh Tangibility, Profitabilitas,Pertumbuhan
Perusahaan, Non Debt Tax Shields, Cash Holding dan Ukuran Perusahaan terhadap Struktur Modal Perusahaan
(Studi pada Perusahaan Manufaktur yang Listing di BEI Tahun 2010-2012)”. Jurnal Aplikasi Manajemen, Vol.12,
No. 1, Maret 2014, Pascasajarna Fakultas Ekonomi dan Bisnis Universitas Brawijaya, Fakultas Ekonomi & Bisnis
Universitas Brawijaya
Resino, Merdianti dan Yancik Syafitri. 2013. “Pengaruh Likuiditas, Profitabilitas, Ukuran Perusahaan, dan
Pertumbuhan Penjualan Terhadap Struktur Modal”. Jurnal Manajemen, STIE MDP, Palembang.
Sambharakreshna, Yudhanta. 2010. “ Pengaruh Size Of Firm, Growth dan Profitabilitas Terhadap Struktur Modal
Perusahaan”.Jurnal Akuntansi, Manajemen Bisnis dan Sektor Publik. Universitas Trunojoyo.
Saputra, Lanang, Edy Sujana danNyoman Ari Surya Darmawan. 2014. “Analisis Pertumbuhan Asset, Risiko Binis Dan
Profitabilitas Yang Mempengaruhi Struktur Modal”.Jurnal Akuntansi, Universitas Pendidikan Ganesha.
Savvides, Savvakis C, 1994, Risk Analysis in Investment Appraisal, Project Appraisal Journal, Vol 9, No. 1, March
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Sudiyatno, Bambang. 1997. “ Manajemen Keuangan 1 “. Pusat Penerbitan STIE Stikubank. Semarang.
Sunarsih. 2004. “Analisis Simultanitas Kebijakan Hutang dan Kebijakan Maturitas Hutang serta Faktor-Faktor Yang
Mempengaruhinya”. Jurnal Siasat Bisnis, Vol .9, No. 1, h. 65-84
Yuniningsih. 2002. “Interpendensi antara Kebijakan Dividen Payout Ratio, Financial Leverage dan Investasi pada
Perusahaan Manufaktur yang Listed di BEI” Jurnal Bisnis dan Ekonomi, Vol.9, No.2, September, hal 164-182.
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THE DEVELOPMENT OF MICRO, SMALL AND MEDIUM ENTERPRISES (SMES),

AND COOPERATIVE BASED FOOD COMMODITIES IN EAST JAVA, INDONESIA
Wiyono1), Zainal Arifin2)
University of Muhammadiyah Malang, Indonesia

2)
azainala@yahoo.com
Abstract
The developments of SMEs-C-based food commodities are highly desirable in order to maintain food security in
East Java. In terms of economic development especially SMEs sector-C-based food commodities, thing needed to note
is the ability to analyze the potential of SMEs sector-C-based food commodities at what potential in the region.
The analytical tool used to determine the potential sectors of SMEs-C-based food commodities namely: Location
Quatient (LQ), Analysis of Typology Klassen, Analysis Hierarchy Process (AHP) and econometric analysis to
determine the effect of investment, employment, exports and imports to SMEs -C-based food commodity in East Java
Province. The research location was in 29 counties and nine cities in East Java Province.
The role of SMEs sector-C-based food commodities in the economy of East Java passed over other economy sectors
particularly in terms of creating additional value or the GDP. By Analytical Hierarchy Process (AHP), from the
operational aspects, a very dominant factor influence was welfare aspect. Moreover, a very influencing aspect from
capitalaspect was capital grants or soft loans.
SMEs-C has a significant role in economicsides in East Java since the economic actors were from local
communities. SMEs-C activities also used local raw material and local people took as the workerwith the producs
producedwere widely consumed by the public. In addition, the more SMEs-C products produced in export-orientedthe
better the result to improve regional economy.
Keywords: Development of SMEs-C, Commodity Food, Food Security
Introduction
The existence of SMEs is undoubtedly since it proves to be able to survive and become an economy cog, especially
after the economic crisis. On the other hand, SMEs also face a lot of problems, namely lack of working capital, low
human resources, and lack of mastery in science and technology (Sudaryanto and Hamm, 2002). Other obstacles of
SMEs are the relationship between the unclear prospect planning and unsteady vision and mission. It happens because
most of the characteristics of SMEs are income gathering, which is raising income by the point as follows: it is a family
owned business, use simple technology, lack of capital access (bankable), and no separation of business capital to
individual needs.
MSME, in the midst of globalization and high competition makes SMEs should be able encounter global challenges
such as improving product and service innovation, human resource development and technology as well as the expansion
of marketing area. This needs to be done to increase selling value of SMEs, mainly in order to compete with foreign
products that is increasingly meet the demand of industrial and manufacture centers in Indonesia, considering that SMEs
are the economic sectors can produce jobs in Indonesia (Sudaryanto, 2011)
Based on statistical data showed that the GDP of East Java for the last decade was dominated by the SME sector's
largest-K-based food commodities. However, in the same time SME sector-K-based food commodities showed no
significant development. Its development was still left behind other sectors such as transportations, trades, and services.
This needed special attention as the views of the role of SME sector-K-based food commodities were the dominantly
formed of GDP. On the other hand, it did not show a good development. There were probably some errors in planning
and SME sector-K-based food commodities setting strategy. Thus, it was needed more information about the
development of SME-K-based food commodities.
By identifying potential and developing needs of SMEs-C-based food commodities in their respective districts / cities
in East Java, then, it would be created a development planning strategic of SMEs-K-based food commodities in an effort
to face global competition and attract investment.
Review of Literature
According to Sudaryanto (2002), the weaknesses of Indonesia's economic fundamentals prompted the government to
build economic structure taking into account the existence of Micro, Small and Medium Enterprises (MSMEs). This
sector has proven to provide substantial employment and opportunities for SMEs to develop in society. MSME's
existence cannot be doubt since it proved to be able to survive and become an economical engine especially after the
economic crisis. On the other hand, SMEs also face many problems namely limited working capital, lower human
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resources, and less mastery of science and technology. Another obstacle faced by SMEs was the links of business
prospects which unclear prospect planning and unsteady vision and mission. Provision of market information and
networks, ease of access to find and capacity building assistance and information technology were a strategy to improve
the competitiveness of SMEs in Indonesia. Therefore, it was necessary to place simultaneously between all parties
especially the government and microfinance institutions.
SMEs and cooperative based on food commodities have a very important role and position for economic development
in long term. Regarding this role, Alexander argued: "SMEs and cooperative based on food commodities is one way out
to an accommodation of additional populations in agricultural sector. Reviews of these enterprises are expected to
provide a stimulant will increase the activity in other areas in public life. Directly or indirectly, it will boost the amount of
production and national income in general. Higher national income can be increased is the propensity in supporting the
availability of necessary funds for further investment (Iskandar, 1979: 1).
The achievement level of SMEs and cooperative based on food commodities in a country is reflected by the level of
the development itself, not only from SMEs and cooperative that based on primary food commodities, but also reviews
those roommates based on secondary food commodities in the country. It is not only measured by the percentage of
output growth or share of output in GDP and its contribution to the total export value, but also by the level of
diversification of products or variations of goods made, According to the type of usage (consumer goods, capital, semi-
finished goods, the meant of production or raw materials processed), or by technological content (low, medium or high).
However, a country that has satisfactory primary products (much variation, but weakness in secondary food commodities
cannot be said to have a high level of SMEs and cooperative. In fact, much literature on SMEs and cooperative give more
attention to food-based SMEs and cooperative (Tambunan, 1999: 251).
Rosenstein-Rodan (1943) in Widodo (1997) said that the establishing food-based SMEs and cooperative is very
important in less developed regions, and they suggested:
"Conducting food based SMEs and cooperative in less developed areas is a way to create more prevalent
revenue sharing in the world and to increase of revenue in a wealthier area. The implementation of the program
should be built simultaneously. The main objective of the strategy is to create various types of food-based
SMEs and cooperative that have a close relationship with each other, so that each food based SMEs and
cooperative will gain external economic as a result of various existence of food-based SMEs and cooperative.
Furthermore, the development of food based SMEs and cooperative on a large scale can create three kinds of
external economic caused by the expansion of the market for food Similar and cooperative based SMEs that
are adjacent, and the existence of other types of enterprises in economy Reviews those areas".
Research Methods
The research location was in 29 counties and nine cities in East Java Province. This study observed all sectors of
SME-K-based food commodities in East Java. The analytical method used to determine the potential of the SME sector-
K-based food commodities namely: Location Quatient (LQ), Analysis of Typology Klassen, Analysis Hierarchy Process
(AHP), and econometric analysis. In addition, it used to determine the effect of investment, employment, exports and
imports to SMEs -K-based food commodities in the province of East Java.

Based on calculations of LQ, showed that the districts that the most commodity crops of plantation were in Blitar,
Kediri, Malang, and Jember. The district has six commodities that could potentially be derived on the development of
food-based SMEs. The most districts which have potential food crops commodity was Pasuruan Regency and Sampang.
In addition, the most districts which have excellent fishery commodity were Blitar, Banyuwangi, Sidoarjo, Lamongan,
and Gresik. District with dairy commodity is Tulungagung, Blitar, Kediri, Malang, Lumajang, Pasuruan, and City Batu.
Whereas, the districts with poultry farms commodity were Tulungagung, Blitar, Kediri, Malang, and Jombang.
The results of calculations used to determine factor in the development of policy-C SMEs based food commodity
strategic in East Java by Hiraki Analysis Process (AHP) showed that from the aspect of market access necessary
required was infrastructure building, especially at the village level. Based on the results of the analysis showed, the
degree of institutional interests in the village level has value of 76%, followed by institutions at the district / city and
province. While the institutions in central level have the highest degree of interest about 0.3%. This illustrated the
institutional conditions at the local level was more effective in improving the welfare of the SME entrepreneurs-C-based
institutional food commodities than in the central level. Meanwhile, if the training was needed to improve the
capabilities and skills of small entrepreneurs, the analysis results indicated that the central government institutions was
more effective in creating programs and forms of training.
Based on the results of the analysis showed, the degree of institutional interests at the national level has value of
57%, followed by institutions at provincial and district / city. While the institutions in the village level have the highest
degree of interest about 0.2%. This condition illustrated institutions in the central level was considered better than the
local level institutions in terms of providing training to small and medium entrepreneurs. This was due to the reason that
training programs were often better in central level and the used to appropriate technologies of the needs in small and
medium entrepreneurs.
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From the aspect of capital, a very dominant factor influencing or chilling was in the form of grants or loans on soft
loan. In other words, capital loans or financial aid has more significant effect in increasing the role of the manager
towards improving the local economy than direct aid. Here was an overview of policy aspects of hierarchy strategy
access to capital, and easy soft loan has value with the degree of interest by 73%, while direct aid has only the degree of
interest of 27%. While the institutions which have more effective in order to provide a loan for the development of
SME-C-based food commodities were institutions in rural areas, through micro finance to another.
Based on the results of the analysis showed, the degree of institutional interests at the village level has value of 74%,
followed by institutions in the district / city and province. While the institutions in the central level have the highest
degree of interest about 0.2%. This condition illustrated financial institutions in the local level (primarily rural)
effectively in providing access to institutional capital intensive than at the central level.
In analyzing the effect of investment, employment, exports and imports to SMEs-K-based food commodities in East
Java province carried out by meant of multiplying linear regression, while the model could be interpreted in analytical
results as follows:
Log Y = β0 + β1 log X1 + β2 log X2 + β3 log X3 + β4 log X4
Where in (X1) investment, (X2) worker, (X3) and exports (X4) while imports (Y) production value-K SME-based
food commodities.
Based on the above results, it could be obtained by analyzing multiple regression equation with variable coefficients
respectively as follows:
Log Y = 4.6352 + 1.6723 log X1 + 0.1361 log X2 + 2.4632 log X3+ 0.7546 log X4
β0 = 4.6352 meant SMEs Production Value-K-based food commodities (Log Y) amounted to 4.6352% at the time
(X1) investment, (X2) workers, (X3) and exports (X4) imports equal to or considered zero (constant).
β1 = regression coefficient of investment (Log X1) of 1.6723 meant that there was a positive influence between an
investment towards SME-K Production Value-based food commodities amounted to 1.6723%. If investment of (Log
X1) rose by 1%, the SME-K production value-based food commodities (LogY) will increase by 1.6723%. Conversely,
if an investment (Log X1) fell by 1%, the SME-K Production Value-based food commodities (Log Y) will decrease by
1.6723%.
β2 = regression coefficient of workers (Log X2) of 0.1361 meant that there was a positive influence between
workers towards SME-K production value-based food commodities amounted to 0.1361%. If the workers force (Log
X2) rose by 1%, the SME-K Production Value-based food commodities (Log Y) will increase by 0.1361%. Conversely
if the workers (Log X2) fell by 1%, the SME-K Production Value-based food commodities (Log Y) will decrease by
0.1361%.
β3 = regression coefficient exports (Log X3) of 2.4632 meant that there was a positive effect of exports on SMEs
Production Value-K-based food commodities amounted to 2.4632%. If exports (Log X3) rose by 1%, the SME-K
Production Value-based food commodities (LogY) will increase by 2.4632%. Conversely, when exports (Log X3) fell
by 1%, the SME-K Production Value-based food commodities (Log Y) will decrease by 2.4632%.
Β4 = regression coefficient variable import (Log X4) of 0.7546 meant that there was a positive effect of imports on
the SME-K Production Value-based food commodities amounted to 0.7546%. If imports (Log X4) rose by 1%, the
SME-K Production Value-based food commodities (Log Y) will increase by 0.7546%. Conversely, if imports (Log X4)
fell by 1%, the SME-K Production Value-based food commodities (Log Y) will decrease by 0.7546%.
From the above results of multiple regression and T and F test showed significant results. It was explained by the
variable (X1) investment, (X2) workers, (X3) exports and (X4) imports affect the (Y) Value of Production MSMEs -K-
based food commodity in East Java.
Conclusion
Based on the results of the LQ calculation, this study revealed that poultry commodities are able to be well
developed in Tulungagung, Kediri, Blitar, Malang, and Jombang regencies. Pasuruan and Sampang regencies have
higher potential in food plants commodity than other regency, whereas Kediri, Blitar, Malang, and Jember regencies
possess superior potential in crop plantation. Meanwhile, Banyuwangi, Blitar, Sidoarjo, Gresik, and Lamongan still
occupy the top lists of potential areas for fisheries commodities enhancement.The calculations also revealed that dairy
commodities have finely growth in Batu city and some prospective regencies such as Tulungagung, Kediri, Blitar,
Malang, and Pasuruan.
In addition, Hierarchy analysis process showed that welfare is the most influential factor in term of operational
aspects. In other words, prosperity has significantly influenced the quality of service compare with training. The results
of the analysis indicated that the degree of institutional interests at the village level is 76% and the welfare factor has the
degree of interest of 75%.
From the results of multiple regression above and T and F test shows significant results. It is explained by the
variable (X1) investment, (X2) workers, (X3) exports and (X4) imports affect the (Y) Value of Production MSMEs -K-
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based food commodity in East Java. Log Y = 4.6352 + 1.6723 log X1 + 0.1361 log X2 + 2.4632 log X3+ 0.7546 log X4
MSME development-K-based food commodities are highly desirable in order to maintain food security in East Java.
In terms of economic development, especially the SME sector-C-based food commodities to note are the ability to
analyze the potential of the SME sector-K-based food commodities in a region potential.
Various attempts have been made East Java Provincial Government in order to encourage the development of micro,
small, and medium enterprises, including the People's Business Credit (KUR), entrepreneurship training, revitalization
of traditional markets, and others.
References
Central Bureau of Statistics. 2002 Census of MSMEs-C-based food commodities Large and Medium-K 2002. Statistics
based SMEs Large and Medium food commodity in East Java.
Bappeda Dati I Province of East Java and East Java provincial BPS. East Java in 1998. Figures. Bappeda and BPS, East
Java.
Daryanto, A. 2000. Growth and Structural Change in the Indonesian Economy: An Input-Output Perspective, Socio-
Economic pulpit, 13 (3): 1-22.
Daryanto, A. and J. Morison. 1992. Structural Interdependence in the Indonesian Economy, with Emphasis on the
Agricultural Sector, 1971-1985: An Input-Output Analysis. Socio-Economic pulpit, 6 (12): 74-99.
N, Iskandar. 1979. Masalah Penduduk dan Industrialisasi. Lembaga Demografi Fakultas Ekonomi UI, Jakarta.
Kuncoro, M., A. and P. Rimawan Artidiatun. 1997-K-based Economy MSMEs food commodities. Widya Sarana
Informatika, Yogyakarta.
.............................., 2007. Economics SME-K-based food commodities Indonesia. Towards SMEs State-K-based New
food commodities in 2030? Andi, Yogyakarta.
Lewis, W., Arthur. 1986. Perencanaan Pembangunan. Aksara Baru, Jakarta.
Mellor, J. 1986. Agriculture on the Road to SME-K-based commodity panganalization. In Development Strategies
Reconsidered. Edited by JP Lewis and V. Kallab. Transaction Books, New Jersey.
Miller, Ronald E., and Peter D. Blair. 1985. Input-Output Analysis: Foundations and Extensions. Prentice-Hall, Inc.,
Englewood Cliffs, New Jersey.
N, Iskandar. 1979. Population Issues and commodity-based SME-K panganalisasi. Demographic Institute at the Faculty
of Economics, University of Indonesia, Jakarta.
Riedel, James., Hollis Chenery., Et al. 1992. Achieving commodity-based SME-K panganalization in East Asia.
National Center for Development Studies at the Australian National University. Editor: Helen Hughes. PT.
Gramedia Pustaka Utama, Jakarta.
Rosenstein, P. and P. Rodan. 1943. Problems of SME-K-based commodity panganalisation of Eastern and South-
Eastern Europe. Economic Journal, June-September.
Singer, HW 1979. Two Concepts of External Economies. Journal of Political Economy, 62: 143-151.
Soehartodjo. 1982. Investment and commodity-based SME-K panganalisasi. Summary Seminar-K commodity-based
SMEs in the framework of the National Development panganalisasi. Proclamation Foundation, CSIS, Jakarta.
Sudaryanto and Hanim, Anifatul. 2002. Evaluation of the readiness of SMEs Toward the Asean Free Trade Area
(AFTA): Analysis and Perspectives Theoretical Perspectives. Journal of Economics and Management Accounting,
Vol 1 No. 2, December 2002
Widodo, Suseno Triyanto. 1991. Indikator Ekon omi. Das ar Perhit ungan Perekonomian Indonesia. Kanisius,
Yogyakarta.
Authors' Bibliography
Wiyono is a lecturer at Faculty of Economics and Business, University of Muhammadiyah Malang (UMM). He was
born in Surabaya on February 3, 1964. He received his Bachelor of Economics from the Department of Management,
Faculty of Economics and Business, UMM (1988), and his Master of Management degree was Obtained from UMM
(2004) as well. Active in Research and Community Service at the Economic Development Center, Business and
Entrepreneurship (P2EBK) FEB UMM, and also Research and Service at the Directorate of Research and Community
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Service (DP2M) UMM. He got a mandate to be the Expert staff in DP2M and Head of the Employees Cooperative of
UMM. He has been done some advantageous researches such as Cooperative Business Development Model-Based on
Agribusiness in East Java, Cooperative Development Model at Provincial level in Indonesia (2014), The Effect of
Equity, Capital Affairs, and Business Volume on Business Profits Cooperative at provincial level in Indonesia (2014),
Preliminary Study on E-Money Policy discoursed to Replace Raskin (Rice Subsidy for the Poor) Program for Poor
Households in East Java (2015)
Zainal Arifin is a lecturer at Faculty of Economics and Business, University of Muhammadiyah Malang (UMM). He
was born in Jombang on July 20, 1971. He got his Bachelor degree of Economics at the Department of Economics and
Development Studies, Faculty of Economics and Business, University of Muhammadiyah Malang (1994). Afterward,
he got his Master of Science degree (M.Si) at the University of Gajah Mada (2002). He is one of the lecturers actively
participating in Research and Community Service at the Economic Development Center, Business and Entrepreneurship
(P2EBK) FEB UMM, as well as Research and Service at the Directorate of Research and Community Service (DP2M)
UMM. Currently, he got a mandate as the Secretary of the Department of Economics and Development Studies, FEB
UMM. He has been beneficial Researches conducted some items, namely: Customer Satisfaction Survey of PDAM
(Regional Water Supply Company) Malang (2010); Spatial Concentration of Small and Medium Industries in East Nusa
Tenggara (2010); Spatial Analysis of Manpower Absorption Manufacture Large Industries (2011); Analysis of
Agricultural Products-Based Regional Potential of Situbondo and Medium in Java (2012); Cooperative Business
Development Model-Based on Agribusiness in East Java (I) (2012); Cooperative Business Development Model-Based
on Agribusiness in East Java (II) (2013); Regional Action Plan (RAD) model in Achieving Food Security in Jombang
(I) (2013); Regional Action Plan (RAD) model in Achieving Food Security in Jombang (II), (2014); Profile and
Strategy Identification of Cooperation and Development of SMEs in Sikka regency of East Nusa Tenggara (2014);
Spatial concentrations of Small and Micro Industries in East Java (2015).
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THE INFLUENCE OF SELF EFFICACY AND LOCUS OF CONTROL TO

PERFORMANCE MEDIATED BY PROFESSIONAL COMMITMENT
(Study in Five Favorite State Senior High Schools, Semarang, Central Jawa)
Basukiyanto1), Mohammad Fauzan2), Inawati3), Kis Indriyaningrum4)
Economic and BusinessFaculty, Stikubank University,Semarang, Indonesia

1)
basukianto@ymail.com, 2)mohammadfauzan60@gmail.com, 3)inaharyanto@gmail.com, 4)kis.indriyaningrum@yahoo.com
Abstract
This study is aimed to examine and analyze the influence of self- efficacy and locus of control on teacher performance
with professional commitment as mediating variable (Study on Teachers of Favorite State Senior High Schools in
Semarang).
By using proportional accidental sampling, 200 respondents were taken from the total population 402. Mechanical
testing of the data used in this study includes validity, reliability, normality, classic assumption, fit model, determination
coefficient and multiple linear regression.
Based on data analysis, it is found that self-efficacy and locus of control positively and significantly influence
professional commitment. Self-efficacy and locus of control positively and significantly influence teacher performance.
Professional commitment positively and significanly influence on teacher performance. However, but professional
commitment is not a mediating variable of the influence of self- efficacy and locus of control on teacher performance.
Keywords: Self-Efficacy, Locus Of Control, Professional Commitment, Teacher Performance
Introduction
Education is an important factor in life. The development of education strongly determines the dynamic of social
culture of society. It has to be improved according to the era. Therefore, education is not transfer of knowledge only
but also to create good personality. In order to achieve the target, teachers hold an important role. They are demanded
to improve themselves in serving the best to students. Teacher must be has a good performance.
There are many factors affecting the performance of teacher such as self- efficacy, locus of control and professional
commitment. Many researchers have examined the relations between self- efficacy and locus of control with employee
performance as dependent variable. The result of the researchs are varies. Some researchers found that self-efficacy has
positively and significantly influence on performance, while other researchers found a different result (Table: 1)
Table 1: Previous Study on the Effect of Self-Efficacy, Locus of Control on Performance

NO YEAR AUTHOR MESURES OF INDEPENDENT RELATION
PERFORMANCE VARIABLE
1 2006 Derin Employee perfotmance Self-efficacy Positive and
Locus of Control significant
2 2007 Adeyemo Academic Performance Self-efficacy Positive and significant
Locus of Control
3 2010 Akomalofe Self-efficacy Positive and significant
Locus of Control
4 TellaAdeyinka , Tella Adedeji , Academic Achievement Self-efficacy Positive and
2011 ADENIYI Sam Olufemi Locus of Control significant
5 2013 Abel Olufemi Ogunmakin Academic Performance Self-efficacy Positive and significant
And Moyosola Jude Akomolafe
6 2013 Zahra Razmefar Academic Achievement Self-efficacy Positive and
significant
7 2016 Gajendran, Y.K. Nagle Participants perform Self-efficacy Positive and significant
Locus of Control
8 1998 Jeffreys M.R Academic Achievement Self-efficacy No Impact
Locus of Control
9 2010 Reynolds, A. L., & Weigand, M. Academic Achievement Self-efficacy No Impact
J Locus of Control
10 2012 Dinçyürek, S, Güneyli, A. & Academic Success Self-efficacy No Impact
Çaglar, M Locus of Control
11 2013 Zahra Razmefar Academic Achievement Locus of Control Negative Significant
12 2013 Abel Olufemi Ogunmakin Academic Performance Locus of Control Negative Not significant
And Moyosola Jude Akomolafe
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The research results obtained in table1 1 show a research gap. Some researchers found that self-efficacy and locus of
control positively influence on performance (Number 1 - 7) whereas some others researchers found there are no relation
or negative relation (number 8 – 12). Why the research gap was occurred is an interesting phenomenon to be studied.
The occurrence of this research gap could be caused by others variable as a mediating variable. One of the variable
is professional Commitment. The variable that might mediate the influence of self-efficacy and locus of control on
performance is professional commitment. Because the quality of teaching depends a great deal on the level of teachers’
involvement in relation to the profession exerted, to the organization one is part of and the professional satisfaction that
one feels. On the one side, the relation one teacher establishes with one’s students, the nature of the teaching activity
and the work carried on in the professional community, the relation with peers, superiors, students’ parents leads to
professional achievement and, indirectly, it reflects into the achievements of one’s students.
The aim of this study is to obtain a new result about relation self-efficacy and locus of control on performance with
professional commitment as mediating variable. This research aim is to test the function of professional commitment as
a mediating variable of the relation between self-efficacy and locus of control on performance, and compare it with the
conclusions of previous studies.
Literature Review
The theoretical model relation between self-efficacy and locus of control determines quality of performance through
professional commitment as mediating variable reflected in figure 1.
Figure 1: Model Relation Between Self-efficacy and Locus of ControlWith Professional Commitment as
Mediating Variable
1. The Relationship between Self-efficacy and Performance.

Teacher performance is teacher’ executes their job duties and responsibilities well. The dimensions of teacher
performance are (a) Planning teaching process, (b) Executing and developing teaching process, (c) Evaluating
teaching process. Teacher performance is regarded goods after doing all of the three main duties well. The ability of
teacher in doing the duties depends on level of self-efficacy, locus of control, and professional commitment.
Self-efficacy defined as personal judgements of one’s capabilities to perform tasks at designated levels (Bandura
.1997). According to him people regulate their level and distribution of effort according to the effects they expect their
actions to have. Consequently their performance is better predicted from their beliefs than from the actual consequences
of their actions. Someone having high self-efficacy tends to like challenge. In other word, he sets high goals for himself
and even he self-select into difficult tasks. When he is facing a challenging task, he believes in his competency and
trusts that he is able to maximize his ability. As the result, it improves performance.
Self-efficacy consists of three dimensions such as (a) Active power is level of belief of someone in completing
work. It has three indicators such as power on work, response to work, responsibility on work. (b) Experience is self
confidence resulting in good performance. It has three indicators such as ability to predict work, ability to face
challenge, and supporting experience. (c) Persuasion has two indicators such as belief in completing work punctually
and belief in completing work according to procedure
There are many researchers conducted study on the influence of self-efficacy on performance. For Instance Derin
(2006), Adeyemo (2007), Akomalofe (2010), Tella Adeyinka and Tella Adedeji (2011), Abel Olufemi Ogunmakin and
Moyosola Jude Akomolafe (2013), Sahra Razmefar (2013), and Gajendran, Y.K. Nagle (2016), the finding of their
research revealed that self-efficacy significantly and positively influence on performance. However, contrary findings
have been reported by a few empirical studies: Loo and Choy (2013), Reynolds and Weigand (2010), Jeffreys (1998)
Self-efficacy did not predict performance.
2. The Relationship Betwwen Locus oc Control and Performance.

Locus of control is individual belief in his ability to control his own destiny (Rotter, 1966). The measurement on
locus of control is done by using the instrument developed by Rita Halpert and Russ Hill (2011). It is divided into
internal and external locus of control. Someone having locus of control is able to control his activity well. He handles
all challenging tasks carefully in order to improve performance. In other word locus of control influence positively and
significantly on performance. The statement supported by results of the research such as: Derin (2006), Adeyemo
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(2007), Akomalofe (2010), Tella Adeyinka and Tella Adedeji (2011), Y.K. Nagle (2016). The contrary results of
research have been reported by Jeffreys M.R
(1998), Reynolds, A. L., & Weigand, M. J (2010), Dinçyürek, S, Güneyli, A. & Çaglar, M (2012), Zahra Razmefar
(2013), Abel Olufemi Ogunmakin and Moyosola Jude Akomolafe (2013). Their research findings are locus of control
no/or negative impact on performance.
3. The Professinal Commitment as Mediating Variable.

The concept of professional commitment signifies an attitude reflecting the strength of the bound between an
employee and an organization. Most of the authors define this concept as “the strength of an individual’s identification
with and involvement in an organization (Stan Maria Magdalena, 2009). Professional commitment is defined as: (1)
Belief in existence of profession value, (2) Intention to struggle in working, (3) Intention to maintain membership.
(Jeffrey Bagraim, 2003).
There are three criteria for individual who have high commitment professional: (1)They work with the best of their
knowledge and never be complacent about it.(2)They Continuous training to improve knowledge base and skill set is
important to be able to honor the commitment made at work.(3) To take on tasks pro-actively and deliver the best
quality work (Herbert Ware & Anastasia Kitsantas, 2010). Based on this description can be concluded that professional
commitment has a positive impact on performance. This stetemant is supported by the research results such as: Herbert
Ware & Anastasia Kitsantas (2010), Theodore Coladarci (1992), Stan Maria Magdalena (2009)
Commitment professional is suspected as a mediating variable of the influence self-efficacy and locus of control on
performance. This idea based on a research gap on the influence of self-efficacy and locos of control on performance.
This phenomenon may be caused by the function of mediating variables. A variable can serve as a mediating if the
variable has significantly relation with mediated variable and main variable, and the relation of mediating variable with
main variable must be stronger than mediated variable.
Some researchers reported the result of his research that self-efficacy and locus of control were positively and
significantly influence on commitment professional (Nelia Hurter, 2008, Theodore Coladarci 1992). Another researcher
reported a that professional commitment has positively and significantly impact on performance (Herbert Ware &
Anastasia Kitsantas (2010), Theodore Coladarci (1992), Stan Maria Magdalena (2009))
Reseach Method
1. Population
The population in this study is 402 teachers working for 1,2,3,4, and 5 State Senior High School, Semarang, Central
Java, Indonesia.
2. Sample and Technique Sampling.
Two hundred respondents is the sample of this research. The sample was taken by proportional accidental Sampling.
3. Instrument
The instrument used to collect data was questionnaire with five measurement scale (strongly disagree(1) – strongly
agree(5)).
4. Validity and Reliability Test
Loading Factors and Keyser Meyer Okyn are used to test validity, while Cronbach Alpha is used to test Reliability.
Valid if Loading factor ≥ 0.4, KMO ≥ 0,50. Reliable if Cronbach Alpha ≥ 0.70
5. Data Analysis
Multiple linear regression analysis is used in this study.

1. Variables Discription
Tabel 2: Statistic Discription

No VARIABLE MEAN MEDIAN MODUS
1 Self -efficacy 4,16 4 4
2 Locus of Control 3,98 4 4
3 ProfessionalCommitment 4,19 4,01 4
4 Performance 3,74 4 4
Table 2 illustrates that self- efficacy, locus of control and Professional Commitment of the teacher is good but
Performance of the teacher not yet optimum.
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2. Validity and Reliability test
Tabel 3: KMOIndex
Variable KMO standard information
Self- efficacy(X1) 0.853 0.5 Sample fulfilled

Locus of Control (X2) 0.760 0.5 Sample fulfilled
Prifessional Commitment (Y1) 0.738 0.5 Sample fulfilled
Teachers Performance (Y2) 0.780 0.5 Sampel fulfilled
The loading factors of all indicators variables are greater than 0.4. It’s means all of the indicators are valid. Kmo of all
variables are greater than 0.5. It‘s means the adequacy of sample is fulfilled.
Table 4: Cronbach Alpha Coefficient
Name of Alpha
Variable Cronbach Alpha Reliability
Variable Standard
X1 Self -efficacy 0.883 0,7 Reliable
X2 Locus of control 0.901 0,7 Reliable
Y1 Professional Commitment 0.913 0,7 Reliable
Y2 Teachers Performance 0.904 0,7 Reliable
Table 4 shows that Cronbach Alpha indeks all of the variables are greater than 0.7. It’s mean all of the variables are
reliable in order to measure concept.
Based on instrument test, it is found that the variables used are valid and reliable. The data is normally distributed,
there is no heteroskedasticity and the model is fit.
3. Regreession Analysis
Table 5: Goodness of Fit Model

No R R2 Adjustted F Sig
1 0,667 0.438 72.455 0.00

2 0,740 0,547
(R2) value 0 ≤ R2 ≤ 1 74.417 0.000
The result of data processing acquired information:
Table 6. Regression Coefficient Professional Commitment as Dependent Variable

Standardized
Coefficients
Model Beta T Sig.
1 (Constant) 5.236 .000
Self -efficacy .288 3.788 .000
Locus Of
control .436 5.731 .000
a. Dependent Variable: Professional Commitment
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Table 5-6 shows the analysis of the combine effect self-efficacy and locus of control on professional commitment of
the teacher. The analysis yielded coefficient of multiple regression of 0.667 and multiple regression square (Adjusted)
of 0.438. This shows that self-efficacy and locus of control jointly predicted about 43.80% of the variation in the
professional commitment. Self-efficacy and locus of control when pulled together significantly predicted professional
commitment (F = 72.455; P < 0.05).
Table 7. Regression Coefficient with Teacher Performance as Dependent Variable

Standardize
d
Coefficients
Model Beta T Sig.
Self Efficacy .174 2.430 .016

Locus Of Control .340 4.551 .000
Professional
.331 4.920 .000
Commitment
Based on the result of the analysis ( table 5 and table 7) obtained the following information: Self Efficacy, Locus of
Control and Propessional Commitment jointly predicted abaut 54.70 % of the variation in the Teacher performance.
Self efficacy, Locus of Control and Propessional Commitment when pulled together significanly preddicted teacher
Performance (F= 72.4.17; P< 0.05). Locus of Control have greatest contribution.
Mediation Effek Test
Teacher
Self efficacy 3 = Performance
(X1) 0,1740. (Y2)
389 (s)
1 = 5 =
0,288 Professional 0,3310.
Commitment 318
(Y1)
(ns)/0.
587(s)
Figure 2. Mediation effect test on The Influence of Self Efficacy on Teacher Performance with Professional
Commitment as Mediating Variable
Direct Influence (3) = = 0,174

Indirect Influence (1.5) = (0,288 x 0,331) = 0,095
It’s means that professional commitment does not mediate the influence of self efficacy on teacher performance.
Locus of Teacher
4 = Performance
control(X2)
0,340
(Y2)
2 = 5 =
0,436 Professional 0,331
Commitment
(Y1)
Figure 3. Mediation effect test on the influence of locus of control to Teacher Performance with Professional
Commitment as Mediating Variable
Direct Influence (4) = 0,340

Indirect Influence (2.5) = (0,436 x 0,331) = 0,144
It means that professional commitment does not mediate the influence of locus of control to teacher performance.
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Discussion
This study examined the contribution of Self Efficacy and Locus of Control to predict Teacher performance with
professional Commitment as mediating variable. The study result revealed that the two independent variable jointly and
significant predicted Teacher performance. The magnitude of the effectiveness of the two independent variables was
shown in the value of R = 0.740 and R2 (adjusted) = 0.547. The result also showed that 54.70% of the variance in the
teacher performance was accounted for by the linear combination of the two variables. This research results support the
previous research such as: Derin, 2006;Adeyemo, 2007; Akomalofe, 2010; TellaAdeyinka, et all, 2010; Abel Olufemi
Ogunmakin, 2013; Zahra Razmefar, 2013 and Gajendran, Y.K. Nagle, 2016.
Professional Commitment is not mediating variable of the influence Self Efficacy and Locus of Control on teacher
performance. Professional Commitment is not mediating influence of Self Efficacy and Locus of Control on
performance because contribution of Locus of control as predicted of Performance is greatest than contribution of
Professional Commitment.
Conclusion
1. Based on the result of analysis and discussion, it is concluded that the quality of the teacher performance is
directly influenced by Self Efficacy and Locus of Control. Influence of Locus of Control on performance is
stronger than self efficacy
2. Professional commitment is not mediating variable for the influence of Self Efficacy and Locus of Control to
Teacher Performance.
Implication
1. Head Master and Head of Education Department can use the result of this study as information that attention to
self efficacy, locus of control, and professional commitment is able to improve teacher performance.
2. The continued research is needed to identify mediating variable of the influence self-rfficacu and locus of control
on performance
Reference
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achievement of university students. Psychology Developing Societies, 19(2), 199-213
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THE INFLUENCE OF INTELLECTUAL CAPITAL TO ORGANIZATIONAL

COMMITMENT WITH TEACHER EFFICACY AS MEDIATING VARIABLE
(TEACHERS OF 1 STATE JUNIOR HIGH SCHOOLS,
EAST BATANG, CENTRAL JAVA)
Mohammad Fauzan1), Basukiyanto2), Agustinus Suyatmo 3), Kis Indriyaningrum4)
Economic and BusinessFaculty, Stikubank University, Semarang, Indonesia

1)
mohammadfauzan60@gmail.com,2)basukianto@ymail.com, 3)austin_yamo@yahoo.co.id,4)kis.indriyaningrum@yahoo.com
Abstract
This paper is to examine the influence of Intellectual Capital to Organizational Commitment with Teacher Efficacy as
Mediating Variable at 1 State Junior High Schools, East Batang, Central Java. Multiple linear regression is used to
test seven hypotheses. The sample 170 respondents is taken from the teachers of 1 State Junior High Schools, East
Batang, Central Java.
This study has proven that Intellectual Capital positively significantly influences Organizational Commitment.
Human Capital, Social Capital and Organization Capital positively significantly influence Teacher Efficacy.Teacher
Efficacy does not mediate the influence of Human Capitaland organizational Capital to Organizational Commitment.
Meanwhile Teacher Efficacy mediate the influence of social capital to Organizational Commitment
Keyword: Human Capital, Social Capital, Organizational Commitment, Teacher Efficacy
Introduction
As education institution, Junior High School must have Intelectual capital. Intelectual capital (IC) has been
recognized as important resource that organizations need to develop to gain sustained competitive advantage.
Intellectual capital is intangible asset able to contribute to reach competitive advantage because they often are rare
socially complex there by making the difficulty to imitate. IC bundless kowledge resource like constellation of teacher,
processes, and tecnologies and work enabling a school to make difference (Choudhury,2010). IC as intangible assets
of a ‘school’ that includes human capital, organizational capital and social capital collectively(Choudhury,2010).
Human Capital is a set of explicit and tacit knowledge of school personnels (teachers, laborants, and assistants)
acquired through formal and informal educational and actualisation processes embodied in their activities. Human
capital refers to the skill/competences, training and education, and experience of school’s personnels . Human capital is
the main player for the improvement of school. Social capital is related with interaction among students, teachers,
students’ parents, school committee, and others. Organizational or structural capital refers to the knowledge embedded
in organizational structures and processes, which related to ability of school to provide the need of students, and hope
of students’, parents and society. Stuctural capital consists of informal or tacit routines, formal and explicit procedures
and rules, processes directed toward internal organization, processes directed toward external organization (Swart, J,
2005
The intelectual capital enables schools to improve quality of learning process.The high learning process demands
internal stakeholders has the commitment to organization, ability and confidence of teachers (teachers efficacy).
At the level of school organization, there has not been yet a lot of research findings, that discusss the IC influence
to organizational commitment. Whereas, IC. for a school is one of factors that builds competitive advantage.According
to Thompson, Strickland and Gamble ( 2010) A school achieves sustainables competitive advantage when an atractive
number of buyers prefer its product or services over the offerings of competitor and when the basis for this preference is
durable. Therefore, this study is inspired to test the influence of intelectualcapital (human capital, social capital, and
organizational capital) to organizational commitment with teacher efficacy as mediating variable.
This study is interested in answering the following questions:
1. How is the influence of human capital on teacher efficacy?
2. How is the influence of social capital on teacher efficacy?
3. How is the influence of organizational capital on teacher efficacy?
4. How is the influence of human capital on organizational commitment ?
5. How is the influence of social capital on organizational commitment ?
6. How is the influence of organizational capital on organizational commitment ?
7. What is the teacher efficacy mediates the influence of human capital on organizational commitment ?
8. What is the teacher efficacy mediates the influence of social capital on organizational commitment ?
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9. What is the teacher efficacy mediates the influence of organizational capital on organizational
commitment ?
Literature Review and Hypothesis Development

Intellectual Capital
The term “Intellectual capital” is used to cover all of the intangible, non-physical assets and resources of an
organization including its processes, innovation capacity, patents and the tacit knowledge of its members and their
network of collaborators and contacts. So, Intellectual capital is defined as the combination of intangible resources and
activities that allows an organization to transform a bundle of material, financial and human resources in a system
capable of creating stakeholder value (European Commission, 2006 in Corcoles, 2012).
According to Nahapiet & Goshal (1998) intellectual capital refers to knowledge and knowing capability of social
collectivity, such as an organization, intellectual community, or professional practice. Knowledge is our most
powerful engine of production. Intellectual capital as valuable resource facilitates productive and economic
activity.IC is knowledge that transform raw materials and makes them more valuable. IC includes the talents of staff,
the value of propriety knowledge and processes and value of relationship with customer (Stewart, 1998)
Intellectual capital is often represented as consisting of three dimensions such asHuman Capital, Structural Capital
and Relational Capital (Corcoles, 2012). Human Capital is a set of explicit and tacit knowledge of school personnels
(teachers, laborants, and assistants) acquired through formal and informal educational and actualisation processes
embodied in their activities. Human capital is the knowledge, skill, and capability of school personnelsused to produce
the expected outcome. Structural or organizational Capital is explicit knowledge related to internal learning process of
dissemination and communication and management of scientific and technical knowledge in the organization
(Corcoles, 2012). Structural or organizational Capital in school consists system data bases and files, internal network,
inventions, copy right, brands image, licences.
Relational Capital is a set of institutional relationships developed and maintained in organization.Relational capital
is also able to create added value for organization in making spesific relationships; giving access to gain complementary
capability; giving more access to knowledge and information; and making efficient and effectivemanagement
mechanismamong the involved organizations (Nahapiet & Ghoshal, 1998). Relational capital is particularly with
customer relation (pupils, alumni, parent and custodians) and relation to cooperation partners to organization include
collaborate the institution to compensate for infarastucture ristrictions (sharing/substituting laboratory space or sport
facilities or handle local events such as a organizing conference, cultural events or distinct projects outside their core
activities (Bornemaann and Wiedenhofer, 2014)
Organizational Commitment
Organizational commitment is the relative strength of individual’s identification with and involvement in a
particular organization (Mowday et al., 1979). Organizational commitment is a psychological state that binds the
individual to the organization (Allen and Meyer (1990). Clearly Meyer & Herscovitch, (2001) commitment is a force
that binds an individual to a course ofaction of relevance to one or more targets.
Dimensions of organizational commitment is a multidimensional construct encompassing different mind-
setssuch as affective, continuance, and normative commitment (Meyer & Allen, 2001).Affective Commitment is
defined as the extent to which a teacher’s emotional attachmentto, identification with, and involvement in the
organization. Normative commitment explains the degree to which an the teacher’s feeling of obligation to continue
organization. Continuance commitment describes the extent an awarnesss of the cost a associated with leaving the
organization
Teacher’s Efficacy
Tschannen-Moran, et al, 1998 in Dibapile (2012 ) defined teacher efficacy as a teacher’belief in his or her
ability to organize and execute cources of action required to successfully accomplish a specific teaching task in
particular contex. The conceptualization of teacher efficacy has been based on Bandura (1977) which described
perceived self efficacy people beliefs in their capabilities to produce given attainment.
According to Bandura (2006) Self efficacy is concerned with perceived capability. Perceived self efficacy is a
judgment of capability to execute given types of performance. Perceived self efficacy plays a key role in human
functioning because it affects behavior not only directly, but by its impact on other determinants such as goals and
aspiration, outcome expectation, affective proclivities, and perception of impediments and opportunities in social
environment. Efficacy belief influence wheather people think erratically or strategically, optimistically or
pessimistically. They also influence the cource of action people choose to pursue, the challenge and goals they set for
themselves and their commitment to them.
The Conceptual Research Model

Intelectual capital in an educational institution mainly Junior High School, has an important role to build competitve
advantage. IC in school consists of three dimentions: human capital, social capital and organizational capital:
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In this research model human capital variable (X1), social capital variable (X2) and organizational capital
Variable (X3) are as independent variable. Orgnizational commitment variable as dependent. Meanwhile teacher
efficacy as mediation variable . The pattern of inter variable relation in this research can be seen in figure 1
Human Capital
( X.1 )
H4
H1
Organizational
Commitment
Social Capital Teacher Efficacy H6 ( Y.2 )
( X2 ) H2 ( Y.1 )
H3
Organizational Capital (
X3 ) H5
Figure 1: Conceptual Research Model
Hypothesis Development
1. The Influence of Human Capital on Teacher Efficacy

Human capital is human resources that has knowledge, skill, competence and experience that are used to bring a
professional service. Human capital is a main asset of a school that is a resource to improve the quality of teaching,
learning and the quality of school it self. The higher IC of teachers the higher their confidence of their competence,
that includes cognitive capacity, self adaptation, and capability of making decision in implementary teaching
learning activity to help student to achieve the aim of education successfully.
Based on the above thought, we formulate a hypothesis
H1: Human capital positively and significantly influences teacher efficacy
2. The Influence of Social Capital on Teacher Efficacy
Social capital materialize into all relational models that are done by school stakeholders(student, parents, users,
society, government and school committee). Concern with their activities of school development teaching-
learning, and improving quality of learning evaluation and other activities . The higher social relation that is done
the higher teacher’s confidence about their competence to improve teaching- learning process to gain educational
aim/objective . Thus, it can be formulated a hypothesis as follow:
H2: Social capital positively and signicantly influences teacher efficacy
3. The Influence Organizasional Capital to Teacher Efficacy
Organizational capital refers to knowledge that embedded process and structure organization including file and
data bases system, internal network, inventions, copy right, brand, image licences. This related to the school
capability to fulfill the need of stakeholders (student, parents, users and society at large). The better organizational
capital that is had by a school the higher teacher’s confidence of their knowledge to improve learning process to
gain educational aim/objective.Thus, it can be formulated a hypothesis:
H3: organizational capital positively and signicantly influences teacher efficacy
4. The Influence Human Capital to Commitment Organizational
The more human resources of a school that have knowledge, skill, competence, and experience that are used to
bring professional services will have influence on the stronger level of identification strenght and involvement an a
school organization, seen by the side of emotional attachment, feelings of obligation awarness of association with
school organization. Therefore, it can be formulated a hyphotesis
H4: Human capital positively and signicantly influences organizational commitment.
5. The influence of Social Capital on Organizational Commitmet
The more models and inten sities of social relations with school stakeholders have more influences on the stronger
school teachers to perform identification and involvement, seen from the side of emotional attachment, feeling of
obligation, awareness of association with school organization. Therefore, it can be formulated a hypothesis
H5: Social capital positively and significantly Influences Organizational commitment.
6. The influence of Organizational Capital on Organizational Commitmet.
The higher quality and quantity of organizational capital had by a school (file and data bases system, internal
network, inventions, copy right, brand, image, licences) the stronger teachers to perform identification and
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involvement, seen from the side of emotional attachment, feeling of obligation, awareness of association with
school organization. Therefore, it can be formulated a hypothesis
H6: Organizasionalcapital positively and significantly influences organizational commitment.
7. The influence of Teacher Efficacy on Organizational Commitment
The higher confidence and capability of teachers about their competence to improve teaching- learning activity to
help student to achieve the aim of education successfully, the stronger teachers to perform identification and
involvement, seen from the side of emotional attachment, feeling of obligation, awareness of association with
school organization. Therefore, it can be formulated a hypothesis
H7: Teacher efficacy positively and significantly influences organizational commitment
.
Research Method
The population of this study is 170 teachers of 1 state junior high schools spreaded in eight schools, East Batang,
Batang Regency, Central Java. The variables in this study are (a). Independent variable such as human capital (X1),
social capital (X2) and organizationalcapital (X3 ); (b). Dependent variable is organizational commitment (Y2 ); and
(c) Mediating Variableis teacher efficacy (Y1).
Measurement on human capital, social capital, and organizational capital uses the instrument developed by
Choudury (2010).Measurement on organizational commitment uses the instrument developed by Meyer & Allen
(2007). Measurement on teacher efficacy uses the instrument developed byDibapile (2012).The measurement on the
items of instrument is ranged using likert scale 1 to 5 such as1. for strongly disagree ; 2. for disagree ; 3. for neutral ; 4.
for agree ; 5. for strongly agree.
The data collection method is likert scale questionnaire. Questionnaire is distributed to all respondents. Multiple
linear regression is used to analyze the data in this study.
Instrument Test
Validity and reliability test are conductedto test the instrument. Factor analysis is used for validity test. Loading
factor value of each item has to be over 0.4. Besides, sample adequacy of each variable uses KMO (Kaiser-Meyer-
Olkin) value. KMO value has to be over 0.5
After testing, all variables of KMO research variables are above 0.50 . So the samples are considered sufficient.
Loading factor value (matrix component) from each variables is over 0.4 . So all item is stated valid and worthy
to deeperly analyze. Reliability test is conducted on each variable using cronbach alpha value. Cronbach alpha value
has to be over 0.7. After testing, all variables values of Cronbach alpha are over 0.7. So that all variable are stated
reliable (Table 1)
Table 1 Results of Reliability Test

Decision
Nilai Alpha Alpha
No Variabel
Cronbach’s (α) Cronbach’s (α)>
07
1. Human Capital 0.833 0.833 > 0.7 Reliable
2. Social Capital 0.792 0.792 > 0.7 Reliable
3. Organizational Capital 0.789 0.789 > 0.7 Reliable
4. Teacher Efficacy 0.912 0.912 > 0.7 Reliable
Organizational 0.942 > 0.7 Reliable

5 0.942
Commitment
Data Normality Test

Normality test is aimed to test wether in regression model. Residual variables has normal distribution. Normality
test is done using Kolmogorov – Smirnov Test (K-S), Data normally distributed it asymp. sig. (2-tailed) on the KS
output shows/indicates over 0.05. After testing it shows that symp. sig. (2-tailed) is 0.056. It means that data are
normally distributed (0.056 > 0.05). Model 2 indicates that asymp. sig. (2-tailed) is 0.200. It means that data are
normally distributed (0.200 > 0.05).
Model TEST
a. F Test
After F test for model 1 F value= 71.430 and sig = 0.000 less than 0.05 and for model 2 F value =47.761 and
sig = 0.000 less than 0.05. So, regression model 1 and 2 can be stated meet requirement goodness of fit
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b. Determination Test
The result of model 1 of determination coefficient (Adjusted R Square) is 0.563. It means that 56.3 % teacher
efficacy variables alteration can be explained by human capital, social capital and organizational capital. Meanwhile,
the rest of 43.7 is explained by other factor outside the model.
The result of model 2, determination coefficient (Adjusted R Square) is 0.533. It means that 53.3 % alteration on
organizational commitment variable can be explained by variable human capital, social capital and organizational
capital and teacher efficacy. Meanwhile, the rest of 46.7 % is explained by other factor outside the model.
Table 2 The Regression Coefficients
Coefficients Coefficients
Std.
Model β Error Beta t Sig.
1(Constant) .878 .224 3.928 .000
Human Capital .195 .041 .276 4.742 .000
Social Capital .349 .062 .376 5.652 ,000
Organizasional
.246 .056 .284 4.421 .000
Capital
a. Dependent Variable: Teacher Effcacy
Table 3 The Regression Coefficients
Coefficients Coefficients
Std.
Model β Error Beta t Sig.
1(Constant) .781 .266 2.933 .004
Human Capital -.168 .050 -.217 -3.377 .001
Social Capital .160 .077 .156 2.073 .040
Organizasional
.213 .067 .223 3.171 .002
Capital
Teacher Efficacy .616 .090 .560 6.868 .000
a. Dependent Variable: Organizasional Commitment
Based on the result regression analysis test (table 2) shows:(1) human capital positively and significantly influences
teacher efficacy (β=0.276 andsig=0.000 < 0.05). Hypothesis 1 is accepted. (2) The result Regression analysis test shows
that social capital positively and significantly influences teacher efficacy ( β = 0.376 andsig = 0.000 < 0.05).
Hypothesis 2 is accepted. (3) Regression analysis test shows that organizational capital positively and significantly
influences teacher efficacy ( β = 0.284andsig = 0.000 < 0.05). Hypothesis 3 is accepted. Based on the result regression
analysis test (table 3) showsRegression analysis test shows that human capital negatively and significantly influences
organizational commitment ( β = -0.217andsig = 0.001< 0.05). Hypothesis 4 is rejected. Regression analysis test shows
that social capital positively and significantly influences organizational commitment (β = 0.156andsig = 0.040< 0.05).
Hypothesis 5 is accepted. Regression analysis test shows that organizational capital positively and significantly
influences organizational commitment (β= 0.223andsig = 0.002< 0.05). Hypothesis 6 is accepted. Regression analysis
test shows that teacher efficacy positively and significantly influences organizational commitment ( β = 0.560andsig =
0.000< 0.05). Hypothesis 7 is accepted.
Mediation Test
1. To analyze influence of teacher efficacy mediation of human capital on organizational commitment, result it
can be conclude that direct influence coefficient is more than indirect influence coefficient (0.217> 0.15456 ).It
means teacher efficacy variable does not mediate human capital influence on organizational commitment
2. To analyze influence of teacher efficacy mediation of social capital on organizational commitment, result it
can be conclude that indirect influence coefficient is more than direct influence coefficient (0.21056> 0.156).It means
teacher efficacy variable mediate social capital influence on organizational commitment
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3. To analyzeinfluence of teacher efficacy mediation of organizational capital on organizational commitment, result it

can be conclude that direct influence coefficient is more than indirect influence coefficient (0.21056> 0.156).It means
teacher efficacy variable does not mediate social capital influence on organizational commitment.
Discussion
Based on the result of regression test, it indicates that variables of human capital, social capital, and organizational
capital that are dimensions of IC have influence on teacher efficacy, Similarly , variables of human capital, social
capital and organizational capital that are dimension of IC have influence on organizational commitment. Further,
based on the result of mediation test, it indicates that teacher efficacy variable mediates organizational capital to
oerganizational commitment, while teacher efficacy variable does not mediated human capital and social capital to
organizational commitment.
The research finding indicate that building and holding school IC are ’a must deed ‘ that must be done by school
leader to support the development of teacher efficacy and continuing commitment of teachers that will affect
school performance entirely. Besides the research result indicates the important meaning of quantity development and
quality of organizational capital in the same aim with the improvement of teacher efficacy it self.
Conclusion and Implication

Based on data analysis it is concluded that:
1. Human capital positively and significantly influences on teacher efficacy.
2. Social capital positively and significantly influences on teacher efficacy.
3. Organizational capital positively and significantly influences on teacher efficacy.
4. Human capital negatively and significanly influence on organizational commitment.
5. Social capital positively and significantly influences on organizational commitment.
6. Organizational capital positively and significantly influences on organizational commitment.
7. Teacher efficacy does mediated the influence of intellectual capital (human capital and social capital) to
organizational commitment. But, teacher efficacy does not mediate the organizational capital) to organizational
commitment,
The implication of this study is that school management is suggested to develop and implement IC to grow teacher
efficacy and organizational commitment. Besides, it needs an increasing of fund amount in annual school planning
that is specifically used to develop IC.
References
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Teachers. PhD diss., University of Tennessee. http://trace. Tennessee,edu
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at Academy of Mangement Meetings
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Meyer, J.P &Hercovitch, L. 2001. Commitment in the Workplace.Towaord a general Model.Human Resources
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Meyer, J. &Allen, N.1997.Commitment in the Workplace.Sage.Thousand Oaks
Moran, M.T; Hoy, W., and Hoy,W.K, 1998. Techer Efficacy: its Meaning and Measure, Review of Educational
Research, Vol 68 ,No 2.
Mowday,R.T, Steers, R. and Porter , L.W. 1982. Organizational Linkage: The Psychology of Commitment ,
Absenteeism, and Turnover.San Diego, CA: Academic Press.
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Vocational Behaviour, 14,224-247
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Management Review , 23(2): 242-266
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Swart.J. 2005 . Identifying the sub component of Intellectual Capital: a Literature review and development of measures.
University of Bath School of Management, http//www.bath.ac.uk/management/ research /papers/htm
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THE EFFECT OF AUDIT COMMITTEE AND QUALITY OF AUDITORS

ON EARNINGS MANAGEMENT (STUDIES ON SOME MANUFACTURING
COMPANIES OF CONSUMER GOODS, LISTED IN THE INDONESIA STOCK
EXCHANGE 2012-2014)
Michelle Kristian
Universitas Tarumanagara
Abstract
The objective of this research is to examine the effect of Audit Committee and Auditor Quality on earnings management.
Auditor quality was also measured by dummy variable and earnings management was measured by discretionary
accruals with modified Jones model.
The samples in this study are 14 manufacturing companies of consumer goods that were listed in the Indonesia Stock
Exchange for the year 2012-2014. The samples in this study were determined based on purposive sampling. Data used
in this study were secondary data such as annual reports from the Indonesia Stock Exchange.
The results from this study are (1) Audit Committee has negative effect on earnings management (2) auditor quality has
positive effect on earnings management (3) audit committee and auditor have positive effect on earnings management.
Keywords: Audit Committee, Auditor Quality, Earnings Management
Earnings management is an activity to increase or to lower the earnings reported by the management without
resulting in an increase or decrease in the long-term probability. According to Iguna and Herath (2010) earnings
management is one way to do management in the process of preparing financial statements that may affect the level of
profit that is presented in the audit report. To prevent any harm, the Company’s Management must have good
managerial skills.
Managerial process is a characteristic that is in accordance with the norms and ethics in a company. Managerial
skills can help a company if they are applied properly by all employees in the company, especially by the manager.
According to Purwanti (2010),an expert manager has intelligence, experience, and high education. These are factors in
determining the skills of a manager. Capable Managers are capable of managing the company's performance very well
and can appropriately makedecisions on the company's operations to optimize profits without violating corporate ethics,
so as to minimize the possibility of earning management. Every decision will affect the condition of the company and
will reflect the manager’s level of skills.
Beside applying managerial skills, managers also need to have good corporate governance mechanism, so as to
reduce the likelihood of earnings management. One of the steps in the mechanism of good corporate governance is
having an Audit Committee. The audit committee is an independent committee formed by the board of commissioners
to conduct supervison over the company's improved performance. The task of the audit committee is examining the
accounting policies adopted by the company, assessing internal control, and examining the system of external reporting
and regulatory compliance (Kusumaningtyas, 2012). The existence of audit committee is helpful in improving the
quality of the reports, increasing the effectiveness of internal and external audits, providing justice for stakeholders, and
disclosing information by the Management (Effendi and Daljono, 2013). By this, the occurence of earnings
management within the company can be prevented.
Agency theory is used to understand the relationships between agents and principals. The agent represents the
principal in a particular business transaction and is expected to represent the best interests of the principal without
regard for self-interest. Agency theory is part of the bigger topic of corporate governance. It involves the problem of
directors in controlling a company whilst shareholders own the company. In the past, a problem was identified whereby
the directors might not act in the shareholders (or other stakeholders) best interests.
According to the Indonesia Financial Services Authoritynamely OJK (Otoritas Jasa Keuangan) (on KEP-643 / BL /
2012), Audit Committee has the following duties:
a. Accessing documents, data, and information about the Issuer’s or the Public Company’s employees, funds, assets
and resources.
b. Communicating directly with employees, including directors and parties that perform the function of internal audit,
risk management, and accounting related tasks and responsibilities.
c. Involving independent outside members of the Audit Committee to help the performance of its duties (if required).
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d. Performing other powers granted by the Board of Commissioners.

Reporting by the audit committee (OJK on KEP-643 / BL / 2012):
a. The Audit Committee shall make a report to the Board of Commissioners on each given assignment.
b. The Audit Committee shall make an annual report of the activities of the Audit Committee disclosed in the Annual
Report of the Public Company.
c. The Issuer or the Public Company must submit to the OJK the information on the appointment and dismissal of the
Audit Committee in the maximum period of 2 (two) business days after the appointment or dismissal.
d. Information on the appointment and dismissal referred at part c shall be published in the page (website) exchanges
and / or page (website) of the Issuer or the Public Company
Moreover, improving the quality of financial statements also requires good quality auditors to examine the financial
statements issued by the management. The auditor's independence can result in good audit and can detect the presence
or absence of earnings management behavior of the company's financial statements. Especially if such financial
statements are audited by an auditor from the big four accounting firms. The advantage derived from the big four KAP
auditors compared to the non-big four is a quality auditor. This is because the big four accounting firms provide
training, procedures and audit programs more effectively and efficiently which can assist the auditors in improving the
quality of work to become maximum and qualified.
Based on the problem that has been disclosed above, the formulation of the research problems are as follows:
1. Does the audit committee have positive or negative effect on earnings management?
2. Does the quality of the auditor's have positive or negative effect on earnings management?
3. Do the audit committee and auditor qualitysimultaneoulyhave positive or negative effect on earnings
management?
According to IAS 1 (2013) the objectives of financial statements are:

1. to provide information about the financial position, financial performance, and cash flows of an entity that is
useful for the majority of reports’ users in making economic decisions.
2. to show the results of management accountability in using the resources entrusted to them.
Earnings Management
According to Utami and Syafruddin (2013), the definition of earnings management contains severalaspects:
1. Intervention earnings management on financial reporting can be done with the use of judgment.
2. Interest earnings management can mislead the stakeholders about the economic performance of companies.
The Audit Committee

The audit committee, according to the OJK on KEP-643/BL/2012, is a committee established by and responsible to
the Board of Commissioners in helping carry out the duties and functions of the Board of Commissioners. The Audit
Committee consists of at least three (3) members led by an Independent Commissioner and two other members from
parties outside the issuer or the public company.
The purpose of the existence of an audit committee, as stated by Guna and Herath (2010), is to provide assurance
that the financial statements issued by the company management are in accordance with accounting principles, that the
company's internal controls are adequate, to monitor and follow up possible material deviations in the fields of finance,
to provide recommendations in deciding an external auditor to audit the company.
The audit committee of a company is likely to prevent the occurrence of earnings management. According to the
study by Joseph (2010), the background in accounting and finance owned by The Audit Committee havesignificant
effect on earnings management. From the research by Padmujdi and Trihartati (2010), the background of accounting
and Finance of the audit committees does not have significant effect on the level of earnings management. According to
research results by Herath (2012), the audit committee has no effect on earnings management. According to the research
by Kusumaningtyas (2012), the audit committee has a significant effect on earnings management. The hypothesis in this
study is:
Ha1: The audit committee has positive effect on earnings management.
Quality Auditor
Quality auditor is an auditor's ability to detect and report material errors in the financial statements. Therefore, the
quality of auditors is an important thing to be considered by the company in the process of auditing. The purpose of an
audit is to examine and gain the confidence of the company's financial statements that are audited if the data in the
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company's operations are in accordance with the criteria of the company or its audit findings contained therein. (Adrian,
2014):
An auditor has an important role in determining the quality of the financial statements to determine whether the
performance of the Company is good or poor.High quality audits can be seen from the large size of the KAP. Earnings
management that occurs in companies audited by auditors from the big four KAPs are lower than those from non-big
four KAPs (Meutia, 2004) in (Wiryadi and Sebrina, 2013). According to Effendi and Daljono (2013) auditors working
in Big Four KAPs are considered of higher quality because the auditors are supplied with a series of training and
procedures and have the audit program that is considered to be more accurate and effective. Quality auditor has a
significant negative effect on earnings management. The hypothesis in this study is:
Ha2: Quality auditorhas positive effect on earnings management.
The Audit Committee and Quality Auditor have simultaneous effect on earnings management.
Utami and Syafruddin research results (2013) state that the auditor's managerial skills and qualities simultaneously
affect the earnings management. Research results of Daljono Effendi (2013) show that good corporate governance and
quality of auditors have a simultaneous effect on earnings management. According to the research by Wardhani and
Joseph (2010) the audit committee has a positive effect on earnings management. Then the hypothesis in this study is:
Ha3: the audit committee and auditor quality simultaneously have positive effect on earnings management.
Data collection technique
The data used in this research are secondary data drawn from companies listed in the Indonesia Stock Exchange in
2012-2014. Data used in this research are financial statements and annual reports of some manufacturing companies of
consumer goods in the year 2012-2014 which have been audited by an independent auditor. Secondary data in this study
were obtained from www.idx.com.
Sampling technique
The criteria used for selecting the sample in this study are:
1. The manufacturing companies were listed in the Indonesia Stock Exchange during the period 2012-2014.
2. The manufacturing companies of consumer goods have published the complete financial reports.
3. The manufacturing companies have data audit committee.
4. The manufacturing companies enclose information about the audit firm size.
DISCUSSION AND ANALYSIS
Individual Parameter Significance Test (t test)

Individual Parameter Significance Test (t test)
Coefficients
Unstandardized
Unstandardized Coefficients Coefficients
Model B Std. Error Beta T Sig.
1 (Constant) .073 .070 1.051 .300
Audit Committee -.039 .034 -.168 -1.154 .256
Quality of auditor -.065 .024 -.431 -2.666 .011
a. Dependent Variable: Earning Management

𝐸𝑀𝑖𝑡= 0.073 −0.039 Committe Au𝑑𝑖𝑡 −0.065 Quality of Audit
Based on the results of the above table it can be seen that the regression coefficient for the audit committee amounts
to -0.039. The coefficient is negative, indicating a different relationship between the audit committee and the direction
of earnings management so that every increase of 1 audit committee will reduce earnings management by 0.039. Any
increase in audit committee shows good performance of the company, thus reducing the likelihood of earnings
management in companies. Statistic t test is at -1.154 with a significance level of 0.256 or greater than 0.05. These
results indicate that Ha1 is rejected, which means that the audit committee has no significant (negative) effect on
earnings management. The results of this study support the research by Guna and Herath (2012) which states that the
audit committee has no effect on earnings management. The results of this study contradict the research by Ward and
Joseph (2010) which states that with a background in accounting and finance audit committee has a positive significant
effect on earnings management.
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Based on the results of the above table it can be seen the regression coefficient for the quality of auditors amounts to
-0.065. The coefficient is negative, indicating a different relationship between the quality of auditors and the direction
of earnings management so that every increase of 1 quality auditor will reduce earnings management by 0.065. Any
increase in the quality of auditors shows there is a better audit quality, thus reducing the likelihood of earnings
management in companies. Statsistic t test is at -2.666 with a significance level of 0.011 or less than 0.05. These results
indicate that Ha2 is accepted, which means the quality of auditor has a positive significant effect on earnings
management. The results of this study support the research by Daljono and Effendi (2013) which states that the quality
of the auditor has a significant negative effect on earnings management.
ANOVAᵃ
Sum of Mean
Model Square df Square F Sig.
1
Regression .048 3 0.16 3.258 .032ᵇ
Residual .205 38 .005
Total .253 41
a. Predictors: (Constant) Quality of auditor, Audit Committee
b. Dependent Variable: Earning Management
The results of the above table show that f is 3,258 with a significance level of 0.032 or less than 0.05. Significance
values is below 0.05, indicating that regression model can be used to predict earnings management or it can be
concluded that the audit committee and auditor quality simultaneously have a positive significant effect on earnings
management.
CONCLUSIONS, LIMITATIONS, AND SUGGESTIONS
Conclusions:
1. Ha1 is rejected, which means that the audit committee as measured from their background in accounting and
finance hasnegative significant effect on earnings management.
2. Ha2 is received, which means that the quality of auditors as measured by the firm size has a positive significant
effect on earnings management.
3. Ha3 is received, which means that significant managerial skills of the audit committee and auditor quality
simultaneously have positive significant effect on earnings management.
Limitations:
1. The value of adjusted R-square is only 0.125, which means that the variable of managerial skills of audit
committee and auditor quality can explain the dependent variable of earnings management that amounts to 12.5%
and the remaining 87.5% can be explained by other variables.
2. The number of samples is limited, consisting of only 14 companies (42 data) from the manufacturing part of the
consumer sector.
3. The variable of audit committee uses a background in accounting and finance.
Suggestions:
1. Researchers can further investigate other variables that have a possible effect on earnings management such as
financial leverage, company size, and good corporate governance.
2. Researchers can further use the other manufacturing sectors (as the research sample).
3. The variable of audit committee can use other measurements such as the length of stay at the firm and wheter they
were once part of the company's management.
BIBLIOGRAPHY
Al-Mousawi, Reem J and Al-Thuneibat, Ali. 2011. "The Effect of Audit Quality On The Earnings Management
Activities". Dirasat, Administrative Sciences.
Christiani, Ingrid and Nugrahanti, Yeterina Widi. 2014. "Effect of Audit Quality Management Of Profit". Online ISSN.
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Effendi, Sofyan and Daljono. 2013. "The Effect of Corporate Governance and Earnings Management Of Quality
Auditor". Online ISSN.
Fitriyani, Dewi, Prasetyo, Andi, Mirdah, Eko, Son, Wirmie Eka, 2012. "Effect of Profit Management Performance
Against Company with Quality audits As moderating variables". Accounting National Symposium XVI.
Guna, Welvin and Herawaty, Arleen. 2010. "Effect Mechanism of Good Corporate Governance, Auditor Independence,
the Audit Committee and Other Factors Against Profit Management". www.stietrisakti.ac.id.
Indonesia Institute of Accountants (IAI). 2012. "Financial Accounting Standards". Jakarta: Salemba Empat.
SUPERVISORY BOARD CHAIRMAN OF CAPITAL MARKET AND FINANCIAL INSTITUTIONS. 2012.
"NUMBER: KEP-643 / BL / 2012". www.bapepam.go.idKusumaningtyas, Metta. 2012. "Effect of Audit Committee
Independence and Institutional Ownership Of Earnings Management". Online ISSN.
Melawati. 2011. "Effect of Managerial Skills and Owners Against Profit Management". http://repository.upi.edu.
Rohaeni, Dian and Aryati, point. 2012. "Effect of IFRS Convergence Against Income Smoothing with Quality Audit As
moderating variables". Accounting National Symposium XVI.
Simon, Febriyanti. 2011. "Effects of Good Corporate Governance Mechanism Against Profit Management (Studies in
Manufacturing Sector Companies Go Public in BEI Years 2008-2010)". Essay. Tangerang: Multimedia Nusantara
University.
Utami, Radityas and Syafruddin, Muchamad. 2013. "Effect of Managerial Skills Against Profit Management with
Quality Auditor As moderating variables". Online ISSN.
Wardhani, Dr. Charles and Joseph, Herunata S.E. 2010. "Personal characteristics of the Audit Committee and Earnings
Management Practices". Accounting National Symposium XIII.
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EXPLORING HIGHER RADICALITY OF PRODUCT INNOVATIONS AND HIGHER

FLEXIBILITY AND HIGHER AGILITY OF MANUFACTURING SYSTEM: HOW THE
AGILITY AND FLEXIBILITY AFFECT RESULTS?
Selma Regina Martins Oliveira
Federal University Fluminense, Volta Redonda, Brasil
selmaregina@webmail.uft.edu.br
Abstract
This research aims to verify the effect of the higher radicality in product innovation on the higher agility and flexibility
in manufacturing system. Furthermore, this research examines how the higher flexibility and agility affect the results
(Business Performance). A conceptual framework is drawn up based on the literature and confirmed with specialists.
The model was tested on plants different of manufaturing in industrial sectors different (Automotive, Chemicals,
Foods, Electronics) in Europe. Mailed structured questionnaires were employed for the collected 70 expert (Survey).
The data were extracted using an assessment matrix (a survey). To reduce subjectivity in the results achieved the
following methods are used complementarily and in combination: Law of Categorical Judgments psychometric scaling
method, and neurofuzzy technology. Finding of the study revealed that radicality in product innovation and agility and
flexibility have a strong relationship. Furthermore, the study also found the higher effect on the business performance.
Keywords:Radicality In Product Innovations, Agility And Flexibility In Manufacturing System, Business Performance,
European Companies
Introduction
Recently, relevant changes have made organizational boundaries more fluid and dynamic in response to the rapid
pace of knowledge diffusion (Woschke and Haase, 2016; Azaiez, et. al., 2016; Aziz and Samad, 2016), innovation and
international competition (Chesbrough and Rosenbloom, 2002). This helps to reconsider how to succeed with
innovation (Hayes and Wheelwhright, 1984). Therefore, the supply of innovative products is presented as a quality
standard in the race for pressing demands. It is feasible to offer innovative products as it enables companies to have
incremental gains and competitive advantage, in particular industries dealing with radical innovations. Radical
innovation is critical for many firms and for society (Baker and Sinkula, 2002). Although the importance of radical
innovations is widely recognized, developing them is still rather poorly understood (Sandberg, 2007). Greater radicality
hinders the ability of rivals to learn about the innovation. Radicality in products innovation requires the combined effort
of various innovative activities, a condition of limited resources. In this sense, the manufacturing system should not
only produce high-quality products at the lowest possible price; it should also be able to react quickly to market
changes, consumers preferences and a higher performance of manufacturing process agility and flexibility (Lafou, et.al.,
2016).
Deciding on an ideal balance regarding radicality of product innovation and agility and flexibility in manufacturing
system is a complicated issue. As the research related to the relationship between the radicality in product and agility
and flexibility in manufacturing system has never been done in the European manufacturing companies and research on
the effect of agility and flexibility on business performance is even rarer, therefore, this study attempts to fulfill the
research gaps. This research aims to verify the effect of the higher radicality in product innovation on the higher agility
and flexibility in manufacturing system. Furthermore, this research examines how the higher flexibility and agility
affect the results (Business Performance). The model was tested on plants different of manufaturing in industrial
sectors different: Automotive, Chemicals, Foods, and Electronics in sectors different in European Companies. To
achieve the research objectives, the remainder of this paper is structured as follows: The next section will provide an
overview of the relevant literature and concepts that will provide the theoretical lens through which the research is
being viewed. The subsequent section of the paper focuses on the research method, findings and ends with a discussion.
The implication significance, the limitations and recommendation for future research are then examined. The last
section of this paper presents the conclusions.
Background Theoretical
Although the importance of radical innovations is widely recognized, developing them is still rather poorly
understood (Leifer, et.al., 2000). As such, radical innovation is a priority for some though not all firms, with the hope
that radical innovativeness leads them to success (Baker and Sinkula, 2002; Lafou, et.al., 2016).Many factors can be
identified as being associated with the product innovation success as higher flexibility and agility in manufacturing
process (Barclay and Benson, 1990; Brix and Peters, 2015). Agile manufacturing is defined in this paper as a
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production model that integrates technology, human resources and organisation by creating an information and
communication infrastructure, granting flexibility, speed, quality, service and efficiency and making it possible to
respond deliberately, effectively and in a coordinated way to changes in the business environment. Most studies have
focused on analysing the individual influences of certain agile manufacturing practices on business performance.
Manufacturing agility is associated with a firm’s ability to survive and prosper in a competitive environment that
changes constantly and unpredictably (Cho, Jung, and Kim, 1996; Dove, 2001). This ability is not only a matter of
flexibility and responsiveness. It also means offering high-quality products at low cost, with better service and delivery
conditions. In summary, the integrated use of agile manufacturing practices promotes manufacturing competitive
strength, leading to better operational, market and financial performance. On the other hand, “traditionally flexibility is
interpreted as the ability of a system to change its behaviour without changing its configuration (Wiendahl, et. al.,
2007). Chryssolouris defines flexibility of a manufacturing system as its sensitivity to change and states: “The lower the
sensitivity, the higher the flexibility” (Chryssolouris, 2006). In Chryssolouris (2006), flexibility is defined as “the
sensitivity of a manufacturing system to changes. The more flexible a system, the less sensitive to changes occurring to
its environment it is”. Various types of flexibility are introduced in the literature. In Chryssolouris (2006), summarized
the flexibility in three main forms, which are Operation flexibility, Product flexibility and Capacity flexibility (Lafou,
et.al., (2016). Thus, greater efforts are required to understand the relationship between manufacturing agility,
manufacturing flexibility, product innovation, and their effect on business performance.
Research Framework
Conceptual Model: Constructs and hypotheses
On the basis of the above mentioned literature review, a research model is developed to examine the relationship
between radicality in product innovation and agility and flexibility in manufacturing system. Furthermore, the research
shows the effects of agility and flexibility on business performance. Figure 1 shows the conceptual framework for the
current study.
Independent Variables (IV) Dependent Variables (DV)

Higher frequency and radicality of Higher flexibility and agility in plants of
product innovations manufacturing of European companies
H1 H2
Higher Frequency and Business
Radicality of product Agility Flexibility Performance
innovations
Development Commercialization
Concept Generation
0.879 0.821
DEGREE OF UNCERTAINTY
Figure 1: Conceptual model

The current study proposes a conceptual framework for a specific model designed to explain the link between
radicality in product innovation and agility and flexibility in manufacturing system. The current research lays out a
conceptual framework designed to analyze the sectors different in manufacturing of European Companies: Automotive,
Chemical, Electronic, and Foods. This framework is then used to analyze how this variable may impact the business
performance. Figure 1, which illustrates the essential constructs included in this study, will serve to guide subsequent
discussions. Relying on the literature review, the current research proposes that agility and flexibility in manufacturing
system will improve the results of companies in context of higher product innovation among sectors different
manufacturing in Europe. From the conceptual model, the following independent variable, dependent variable and
hypotheses were made:
Independent Variables: The independent variables are extracted from the specialized literature and assessed by experts
for confirmation. The following independent variables are identified: higher radicality of product innovations in
manufacturing process in plants of European companies of sectors different.
Dependent Variables: The dependent variables are extracted from the specialized literature and assessed by experts for
confirmation. The following dependent variables are identified: High flexibility and agility in manufacturing process of
EU companies of sectors different.
Hypothese H1: The higher radicality of product innovations have effects to a greater or lesser degree on the high
flexibility and agility in manufacturing process in EU companies/sectors different.
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Hypothese H2: The higher agility and flexibility in manufacturing process have effects to a greater or lesser degree on
the business performance in EU companies/sectors; i.e., the effectiveness rate global performance of success (ERGPS)
of the product innovations depends on the combination and interaction of the high flexibility and agility in
manufacturing process of EU companies/sectors. Next, these procedures are detailed.
Sample and Data Collection

The population of this study was in manufacturing companies in Europe (Survey). The authors investigate the
influence of the radicality in product innovation on agility and flexibility in manufacturing process of sectors different:
Automotive, Chemical, Electronic, and Foods sectors. A questionnaire was used as a main instrument of this study (an
assessment matrix). The questionnaire incorporated sections dealing with: general information of company, innovation
information in the company, characteristics of radical product innovation of company, agility information, flexibility
information, assessment of degree of interacting between the frequency/radicality of product innovation and
agility/flexibility of process. The actual survey was carried out between April, May, June, and July, 2016 which
involved 118 specialists. The samples were selected by random sampling technique. Of the 86 specialists in our sample,
79 completed questionnaires were retuned. However, nine cases had to be excluded from further analysis due to
excessive missing data. Therefore, the present sample comprised of 70 specialists in manufacturing in Europe
companies/sectors resulting in a response rate of 81 percent. The number of respondents of this study is sufficient to
carry out the analysis. The questionnaire was sent to the respondents through registered mail. The self-administered
questionnaire was chosen as the mode for data collection. Respondents were given one month to complete the
questionnaire. After one month, emails were sent to remind the respondents that the questionnaire should be sent out to
the researchers. Respondents who do not yet complete the questionnaire were given another additional month to
complete it. The experts were issue their judgments through a scale questionnaire. The specialists have experience and
innovation, production, technology, technical knowledge on product development in companies investigated, and with
the following skills: Director Manufacturing Research & Advanced Engineering, Senior R&D Engineer, Director
Research & Innovation, Director New Technologies & Innovation, others. Next, these procedures are detailed.
Conceptual Model Verification: Results and Underlying Analyses
The results and underlying analyses are structured according to the following phases: Phase 1: Determination
of the Drivers of higher radicality of products innovations in plants of manufacturing of European Companies of sectors
different. Phase 2: Determination of the Drivers of higher agility and higher flexibility of products innovations in plants
of manufacturing of European Companies in sectors different. Phase 3: Evaluation of the effect of higher radicality
product innovation on the higher agility and high flexibility of manufacturing process in plants in EU companies in
sectors different; and Phase 4: Evaluation of the effect of the (degree) higher agility and (degree) higher flexibility on
the Business Performance in context of higher radicality of products innovations using neurofuzzy technology , i.e.,
evaluation of the effectiveness rate global performance (ERGP) of the business performance from combination and
integration of the drivers of agility and flexibility in manufacturing process. The procedures are detailed as it follows.
Phase 1: Determination of the Drivers of higher radicality (degree) of products innovations in plants of manufacturing
of European Companies: This phase has been subdivided as follows: Stage 1 - Identification of Radicality drivers in
product innovation; Stage 2 - Radicality drivers evaluation using the method of Categorical Judgments of Thurstone
(1927). The results reflect the experts’ preference probabilities in relation to stimuli (Radicality drivers - degree). Thus,
study was designed, based on the literature and confirmed by the assessment of experts. In this perspective, the data
were first extracted from the specialized literature (400 articles). The results can be observed in following: (i) Products
with new performance for the enterprise and market; (ii) New feature for company or industry; (iii) complex
management; unstructured process; (iv) triggered by new business in the market; (v) Degree of Uncertainty; (vi)
Discontinuity creation potential in the market, in technology and organization; and (vii) New set of engineering and
scientific principles that open that open new applications and new market segments, which may threaten the competitive
position of established companies. After their identification, the Radicality is evaluated in order to establish a ranking
by relevance (degree). Here the scale model of categorical judgments designed by Thurstone in 1927 has been adopted.
The results show that there is a predominance in radicalness in “Products with new performance for the enterprise and
market” and “New feature for company or industry; complex management; unstructured process; triggered by new
business in the market” in all sectors: Automotive sector, Chemical, Electronics, and Foods.
Phase 2: Determination of the Drivers of higher agility and higher flexibility in manufacturing process in plants in EU
companies/sectors: This phase has been subdivided as follows: Stage 1 - Identification of agility drivers and flexibility
drivers in manufacturing process; and Stage 2 - Agility drivers and flexibility drivers evaluation using the method of
Categorical Judgments of Thurstone (1927). After determining the radicality in product innovation (degree), the
determination of the agility and flexibility in manufacturing process ensues. The result has allowed defining ten groups
that represent the agility (five groups) and flexibility (five groups): first, Agile Strategy (AS), Agile Process (AP), Agile
Linkage (AL), Agile Technology (AT), and Agile People (Ape); Second, Flexible Mix (AM), Flexible Delivery (FD),
Flexible Volume (FV), Flexible New Products (FNP), and Flexible Generic (FG).
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Phase 3: Evaluation of the effect of (degree) higher radicality product innovation on the (degree) higher agility and
high flexibility of manufacturing process in plants in EU companies (sectors): This section evaluates the drivers of
radicaliy of products innovations on the agility and flexibility in manufacturing process in EU companies (sectors).
This procedure was developed using the multi-criteria analysis. The methods used are Compromise Programming,
Electre III and Promethee II. The results achieved in this phase confirm Hypothesis H 1: The higher radicality of
product innovation have effects to a greater or lesser degree on the higher flexibility and agility in manufacturing
process in Sectors: Automotive, Chemicals, Electronics, and Foods. The results produced by the methods demonstrate
the higher effect of radicality in product innovation on the agility and flexibility in companies / sectors; i.e., the effect
of higher radicality - "Products with new performance” and “consumer demand” as the most significant ones in the
higher agility and higher flexibility in manufacturing process in all sectors / company. The result global of
preferences/ranking (By way of demonstration, using the automotive sector) is then presented in increasing order of
importance/ intensity. There is a highly influence of radicalness “Products with new performance for enterprise and
market – PNEP” and “ higher Degree of Uncertainty (UCD) on all agility dimensions in Automotive sector.
Phase 4: Evaluation of the effect of the (degree) higher agility and (degree) higher flexibility on the Business
Performance in context of higher radicality of products innovations using neurofuzzy technology
This phase focuses the evaluation of the effect of the higher agility and higher flexibility on the business
performance in context of higher radicality of products innovations,using Neurofuzzymodeling (Figure 2). This model
combines the Neural Networks and Fuzzy Logic technology (neurofuzzy technology) (Cury, 1999; Von Altrock, 1997).
Here this model supports the degree (global) of effect of flexibility and agility on the business performance (results), as
it allows to evaluate the desirable rate toward the acceptable business performance in the sectors different in
manufacturing companies. The Neurofuzzy Model is described below.
Determination of Input Variables (IV): This section focuses on determining the qualitative and quantitative input
variables (IV). These variables are extracted from the independent variables (agility and flexibility drivers). The
linguistic terms assigned to each IV are: High, Medium and Low: These variables were extracted (10 variables – agility
dimensions and flexibility dimensions) from the independent variables (Phase 2): Agile strategy, Agile processes, Agile
linkages, Agile people, Agile technology, Flexible mix, Flexible delivery, Flexible volume, Flexible new products, and
Flexible generic. The IVs in the model, which are transformed into linguistic variables with their respective Degrees of
Conviction or Certainty (DoC), with the assistance of judges opining in the process. The degrees attributed by the
judges are converted into linguistic expressions with their respective DoCs, based on fuzzy sets and IT rules
(aggregation rules), next (composition rules).
Determination of Intermediate Variables and Linguistic Terms:Determination of Intermediate Variables and
Linguistic Terms: The qualitative input variables go through the inference fuzzy process, resulting in linguistic terms of
intermediate variables (IVar). Thus, thelinguistic terms assigned to IVar are:Low, Medium and High. The
intermediate variables were obtained from: Agile strategy Performance, Agile processes Performance, Agile linkages
Performance, Agile people Performance, Agile technology Performance, Flexible mix Performance, Flexible delivery
Performance, Flexible volume Performance, and Flexible new products Performance.
Determination of Output Variable (OV) – Effectiveness rate global performance of the business performance in the
companies/sectors: The output variable (OV) of the neurofuzzy model proposed was called effectiveness rate global
performance of the business performance in sector.
Fuzzy Inference: The fuzzy inference rule-base consists of IF-THEN rules, which are responsible for aggregating the
input variables and generating the output variables in linguistic terms, with their respective pertinence functions.
According to Von Altrock (1997), a weighting factor is assigned to each rule that reflects their importance in the rule-
base. This coefficient is called Certainty Factor (CF), and can vary in range [0,1] and is multiplied by the result of the
aggregation (IT part of inference). The fuzzy inference is structured by two components: (i) aggregation, i.e., computing
the IF rules part; and (ii) composition, the THEN part of the rules.
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Agile strategy
BI BI-9
Agile people BI-5
Agile performance
Agile technology (ERGP)
BI-2 Agility Benefit
Agile processes Estudo
Agile s
Agile linkages BI-8
performance0.951 Agregation - IF
Flexible mixFig 1 BI-3 Composition - THEN

Estudo
Research
Flexible Agile performance BI-6
s
Framework
delivery Stage
Flexible volume Flexibility Benefit
Two Estudo
BI-
Flexible new products
4FigureAgile performance s
Flexible generic 2.
Percepti Figure 2: Modelo Neurofuzzy
on of
Students
Defuzzification: For the applications involving qualitative variables, as is the case in question, a numerical value is
required as a result of the system, as called defuzzification. The output variable (OV) of the Neurofuzzy model
proposed was called EffectivenessStakehol
Rate Global Performance (ERGP) of business in sectors. By way of demonstration,
ders on
using assigned IT (average) (Sector Automtotive) enters-IT into the calculation expression of TPCITj with GdCi of the
Trimestr
following linguistic vector of the output variable, also hypothetical: LOW=0.30, MIDDLE=0.50, HIGH=0.20. The rate
is 0.8324. With this result (Rate: al0.8324) produced for a better combination and interaction of drivers (variables) of
System
agility and flexibility on business performance in context of higher radicality in product innovation, that converged
at De La to assert that this combination of drivers of agility and flexibility in Automotive
toward a single parameter, it is feasible
Salle the business performance desired by the Automotive sector at that time. It is
sector at this time, can at least ensure
plausible that the sector maintains at least this value (0.8324), which ensures the desired performance. The results
LipaSour
confirm the Hypothese H2: The higherce: agility and flexibility in manufacturing process have effects to a greater or
lesser degree on the business performance
Santos in EU companies/sectors; i.e., the effectiveness rate global performance of
success (ERGPS) of the product innovations depends on the combination and interaction of the high flexibility and
(2015)
agility in manufacturing process of EU companies/sectors. To illustrate this, assuming that the study-object sectors
demonstrate the following effectiveness rate global performance of the business performance – rates: Automotive –
0,89, Chemicals – 0,86, Foods – 0,76, and Electronics – 0,87. It is concluded that: Sectors Automotive Sector and
Electronics show efficiency in the combination of their of agility and flexibility strategies in context of higher radicality
in product innovation, based on the performance expectations (Business results). In the automotive industry, it is
thought that agile manufacturing systems will permit fast cost-effective responses to unpredictable and ever-changing
product demand, and support rapid product launches for previously unplanned products tailored to meet changing
customer desires (Elkins, Huang, and Alden (2004). The innovation might also be a recombination of existing processes
and technologies. According with the specialists, the automotive industry is reported as being trapped by cost and
innovation pressure by customers. As a matter of fact, factors such as globalization, technology fusion and technology
intensity seem to force companies to search for external sources of knowledge.
Final words
This research aims to verify the effect of the higher radicality in product innovation on the higher agility and
flexibility in manufacturing system. Furthermore, this research examines how the higher flexibility and agility affect the
results (Business Performance). Of the results analysed, by far the most important factor is the management style. A
clear need here is that management should provide strong support for products radical innovation needs and to be able
to create an atmosphere of trust, co-ordination and control. A survey was developed for European companies (Survey)
in a static context, which may represent a limiting factor. Therefore, it is recommended to reproduce and replicate the
model in companies from other countries in order to confirm the results. It is also recommended that the practices of
radical innovation dimensions should be extracted from the state of the art, but strongly confirmed by the state of
practice, by the judgment of other experts (from other countries), taking into account that values, beliefs, cultures and
experiences are determinants in the assessment, which can overturn the effects on the results.
Acknowledgements
This work is supported by "National Counsel of Technological and Scientific Development".
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AN EXPLORATORY STUDY OF BUSINESS EXIT PERCEPTIONS

AMONG SME OWNERS IN EAST JAVA-INDONESIA
Mohammad Iqbal1), Umar Nimran2), Ari Irawan3)
Universitas Brawijaya, Malang-Indonesia

1)
iqbal07@ub.ac.id
Abstract
In the context of Indonesia, empirical investigation on the topic of business exit is very limited. Most of the literature
available has been published in the context of Indonesian SMEs and entrepreneurship studies lay the emphasis on SME
development, macro environment perspectives and innovation in SMEs. Hence, this study aims to highlight the
perceptions of small medium-sized enterprise (SME) in Indonesia on the topic of business exits, specifically SME
owners’ in Malang and Kediri as two cities that contributed to the economy of East Java province. By utilizing
sequential8 steps in exploring the perceptions of SME owners, important information could be obtained. An initial
interview was conducted to twelve informants in order to gather their perceptions on the context of business exits. The
informants at this initial stage of the exploratory study consist digital start-ups community and SME owners. The initial
findings indicated that there were differences among perceptions of these informants in the context of business exits.
The most of the respondent had limited knowledge in the context of business exit concepts or options other than family
succession. Nevertheless, owners of digital start-ups were aware with regard to context of business exits.
Keyword: Business Exit, SME, Entrepreneurial Lifecycle, Harvest
1. Introduction
The concept of business exit had been talked about in the literature of entrepreneurship for more than two decades.
Nonetheless, limited attentions to this concept have necessitated scholars in the domain of entrepreneurship to raise the
awareness towards this topic by providing both strong conceptual ground (i.e. Rubenson & Gupta 1996; Petty 1997;
DeTienne 2010) and useful empirical findings (i.e. Justo & DeTienne 2008; DeTienne & Cardon 2010; Balcaen et al
2011; van Teefelen et al 2011). Furthermore, business exit had been expanded as an interesting topic to be discussed in
the entrepreneurship domain. It has been argued that entrepreneurship research has paid considerable attention to
reasons and methods people undertake to start their businesses but has paid minor attention to the methods people use to
exit (Wennberg et al. 2010). It is important note that business exit is not only understood as a process by which founders
of a business leaves his/her business but also as an important aspect in entrepreneurial activities (DeTienne 2010).
Understanding business exit not only as means of distributing wealth and forms of ownership, but also it provides a
clearer picture of how entrepreneurial lifecycle exist in the domain of entrepreneurship (DeTienne 2010). From what
had been focused upon in the last decade, it has demonstrated that the concept of business exit has triggered the
awareness of scholars in the domain of entrepreneurship. For instance, in the last ten years scholars have attempted to
expand the literature of business exit with human capital (DeTienne and Cardon 2006), the concept of intentional
behavior (Leroy et al 2007), founder of experience and exit intention (DeTienne and Cardon 2010), family situation and
threshold theory (Justo & DeTienne 2008) and, exit intention and interface of family-business linkages (Hsu, et al
2016).
The notion that eventually every business owner will experience an exit (DeTienne 2010) is not only considered as a
cliché but it becomes a fact for every business founder once they have reached to a certain lifecycle in their
entrepreneurial phase. In the business exit literature, business exit comes with various options ranging from initial
public offering (IPO), business buy-sell out, acquisition and harvesting. In the context of Indonesia, there is little to
know when it comes to topic of business exit. From the bulk of the extant literature of entrepreneurship, little has been
known in the topic of business exit. Most of the extant literature in entrepreneurship in Indonesia had been dominated
by topics on SME development (Tambunan 2005; 2007; 2008; 2011); macro environment perspectives (Hill 2001;
Berry, Rodriguez & Sandee 2001) innovation in SMEs (Kristiansen, Furuholt & Wahid 2003; Indarti & Langenberg
2004; Indarti & van Geenhuizen 2005). In the context of business exit, a previous study by Tirdasari and Dhewanto
(2012) explored business exit in the context of family business succession in the hospitality industry. Furthermore, a
survey conducted by Global Entrepreneurship Monitor (GEM) in 2013 on business exit was discussed. Nonetheless, the
exit was perceived as a discontinuance of the business rather than strategic aspect of a successful exit. Recently, a study
on business exit on Indonesian SMEs (Iqbal 2015) emphasizes on critical aspects that determines entrepreneurial
8
Survey is still being conducted at this moment based on some initial response that was gathered from the interview.
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behavior. It is evident that the discussion of business exit in the context of Indonesia is very sparse. Thus, this study
attempts to expand the study of business exit in the context of Indonesia with a different view in order to enrich the
literature of entrepreneurship.
2. Review of The Literature
2.1 Business Exit: An Important Stage in an Entrepreneurial Activity

In the extant literature, various definitions exist in the context of business exit. Holmes and Schmidt (1990) were
among few scholars that had started to discuss business exit and employed the term ‘business transfer’. These authors
(Holmes & Schmidt 1990) discusses business exit from the economic perspective in explaining mechanism that
represents important resource flow in facilitating specialization of labor as well as the sales of the firm. Also, Business
exit can be defined as the extent to which owner of an existing business realizes the potential to extract maximum
economic of the business through harvest (Petty 1997). Further, DeTienne (2010) defines it as ‘the process by which the
founders leave the firm they have created; thereby removing themselves, in varying degree, from the primary ownership
and decision making structure of the firm’ (p. 203). Based on these definitions, business exit can be viewed as an action
undertaken by business owners in order to remove themselves from an existing business through different options
viable for either the business owner or the firm. Further, business exit might be viewed as distribution of ownership
from the business founder in the quest of maximizing his/her wealth by transferring either partial or full responsibility
to other entities (i.e. business entities, family successors) to ensure the continuance of the business. On the contrary, a
part from both perspectives that views business exit as an individual’s option to let go of the business voluntarily,
business exit also exists in the form of involuntary conditions.
The involuntary nature of business exit was implicitly explained in a previous study of Wennberg et al (2010), who
highlighted different exit routes such as: (a) harvest sale, (b) distress sale, (c) harvest liquidation, and (d) distress
liquidation. With regard to the four exit routes examined by Wennberg et al (2010), harvest and distress sale are
typically transfer of ownerships that depends on performance of the firm whereas harvest and distress liquidation
associates to termination of the business and the transfer of value of the assets to the owner and creditors. While the
study did not explicitly mention the involuntary of exiting, nevertheless, to what has been argued by Wennberg et al
(2009), we could possibly corroborate distress liquidation as a route whereby the only option for business owners to exit
is through termination of an existing business due to distress performance which leads to a possible bankruptcy. Hence,
business exit should not only be perceived as a termination or discontinuance of a business but more than that, it is
rather a strategic approach when owner desires extracting the value of his/her business. As an example, a private sell out
to another entity might be an alternative to avoid businesses from bankruptcy or possibility to be liquidated;
particularly, the underperforming ones. Supporting Wennberg et al’s (2010) study, DeTienne (2010) argues that
businesses, especially those in the infancy stage are confronted with two involuntarily options, either to ‘accept’ (1)
failure or (2) to voluntarily ‘terminate’ in the event of the firm’s ‘poor’ performance’. Nevertheless, these options would
not be favorable for business owners and might not be the best resort to undertake due to economic loss and inability of
the firm to extract economic value from the business as well as losing accumulated wealth from the business. If a
business is starting to experience losses and the owner is unable to make the situation better, he or she has the option to
sell the business before it accumulates more losses (Wennberg et al. 2010). Moreover, reasons that necessitate a
business to be transferred (exit) other than financial or economic performance may consist of certain events: (a)
retirement of the founder;(b) family situation (i.e. divorce);(c) taking outside job (Wennberg et al 2010) and even (d)
attempting to start a new venture (DeTienne & Cardon 2010).
In the entrepreneurship literature understanding more about business exit topic is crucial since it is an important
stage in the entrepreneurial activities because sooner or later, eventually every business owner will exit from the
business that they have established (DeTienne 2010). Summarizing to what had been written by DeTienne and Cardon
(2010) who suggests that the importance of business exit derives from the fact that business exit results in a process of
entrepreneurial recycling in which to a certain period in the business lifecycle business will experience the necessity to
be transferred due to number of reasons. The term ‘entrepreneurial recycling’ explained by DeTienne (2010) was based
on Mason and Harrison’s study (2006) assuming that through exit, business owners will be able to provide portion of
their newly accumulated wealth, time and experience into other entrepreneurial opportunities which offers economic
benefits. The economic benefits would include: (a) investment to business start-ups; (b) reinvestment of knowledge and
resources to other firms; (c) creation of new venture; (d) strengthening local infrastructure or activities that associates
with philanthropic actions and community empowerment (DeTienne 2010). Hence, business exit that leads to other
investments that brings greater benefit would be able to generate to habitual entrepreneurs. Not only that business exit is
associated to factors that are inherently driven by strategic focus (i.e. harvesting, acquisition as well as IPO), but also
associated to other factors beyond the strategic approach that might influence an owners intended behavior or exit
typology to be executed (i.e. family interference, motivational consideration) (DeTienne et al 2015; Hsu et al 2016). To
the best interest of our knowledge in the entrepreneurship literature, themes on business exit must therefore be
expanded probing the extent to which this phenomenon can be considered important or trivial in the entrepreneurial
journey of the business and its entrepreneurs.
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2.2 Entrepreneurship and SMEs in Indonesia

As one of the contributors of the Southeast Asian economies, Indonesia’s role had overwhelmingly been viewed as
crucial for the region, not only due to its richness in natural resources but also its potential market for foreign enterprise
due to its large market size (Iqbal 2015). Nevertheless, the Asian economic crisis triggered negative impact the
country’s economic downturn during 1998. In the aftermath of the crisis, the Indonesian government has undertaken
significant transformation, and despite the problems remaining, the government has assisted the economy to survive the
global financial crisis very well (Tambunan 2010).
Entrepreneurial activities were considered as imperative in stimulating economic growth during the aftershock. The
Indonesian MCSME data indicated that there are approximately 49 million SMEs in Indonesia, which absorb 96.2 per
cent of employment from the total workforce in the country (Tambunan 2009). Based on our view, the statistical
numbers is considered overwhelming since from the large portion of SMEs in operation we could not conclude whether
or not: (a) micro enterprises are excluded from the statistics; (b) these businesses survive and grow; (c) these businesses
undertook various routes of exits/discontinuance. Regardless of what we perceived, there are in fact large numbers of
SMEs are scattered widely from major cities to rural areas, employing a wide range of the workforce from various ages
and educational backgrounds, suggesting that their role in running the country’s economy is significant (Tambunan
2009). It is important to note that the majority of Indonesian SMEs are scattered across rural areas and mainly self-
employed; these are generally traditional enterprises with low levels of productivity and quality, serving small and
localized markets (Tambunan 2007). Moreover, entrepreneurship and SMEs had been talked about in the Indonesian
context. For instance, several previous work had focused SME development and policy (Hill 2001; Tambunan 2005,
2007, 2009), SME dynamics (Berry et al. 2001) and entrepreneurial intention (Kristiansen & Indarti 2004). However,
lacked of studies which focuses on the context of business exit in Indonesia had been conducted. At present only few
studies had been undertaken in the theme of business exit (i.e. Tirdasari and Dhewanto 2012; Iqbal 2015). Due to that
evidence, it is important that the topic of business exit is explored more in the Indonesian context.
2.3 Is Business Exit a Common Practice for Indonesian SMEs?

In the GEM survey, the term ‘business discontinuance’ was employed to represent business exit, which determines
several exit reasons such as: (a) an incident, (b) personal reasons, (c) retirement, (d) planned exit, (e) other job/business
opportunities, (f) unprofitable business, (g) limited financial access, and (h) opportunity to sell (GEM 2014). In the
2014 report it was indicated that business discontinuance in Asia Pacific region was dominantly caused by personal
reasons and unprofitable business. In the Indonesian context, discontinuance of business had been dominantly caused by
difficulty to financial access and unprofitable business (GEM 2013). Nonetheless, we could not determine types of exit
that failed businesses undertake as to what had been written in the business exit literature (i.e. Wennberg et al 2010;
DeTienne & Cardon 2010). The prevalence of business exit concept and its application in Indonesia is yet to be
determined. This is due to the fact that markets to either sell or buy/trade sale of an existing business is undeniably hard
to discover.
Unlike in developed economies (for example, US & Australia) where exiting businesses/transfer of ownership are
administered by government agencies (for instance, US Small Business Agency; Australian Small Business
Commissioner), in Indonesia there is still no evidence of any market mechanism that administrates buy-sell out of an
existing business. Having a glimpse to the progress of entrepreneurial activities in Indonesia there is a possibility that a
viable route of business transfer/exit is through the acquisition of venture capital or private equity to potential SMEs.
Further, the venture capital/private equity industry in Indonesia is still underdeveloped which constitutes of small
segment of the financial sector (Mouroganne 2012). Further, a previous survey of business angel investing in Southeast
Asia (Scheela et al 2012), which suggests that limited number of venture capitalist exist in the market especially in
Indonesia that is mainly caused by lack of leadership and institutional support for private investing. Moreover, the lack
of trust among actors relevant (for example, investors, bankers, government officials, business owners) has hampered
the growth and existence of such industry (Scheela et al 2012). Due to that, it makes it more difficult for SMEs to
potentially be attractive; and thus, will not be sufficient enough to create the mechanism of exits/transfer of ownerships
in a strategic sense. Taking a glimpse to what DeTienne (2010) had summarized in her article following her review to
the fact that business exit is still understudied and thus, empirical evidence on business exit must be expanded to focus
more on the behavioral aspects of individual (i.e. business owners) as unit level of analysis. Nevertheless, to concur to
what DeTienne (2010) have contended, prior to expand the literature of business exit, an exploration on whether or not
business owners understand about the context of business exit is important. Hence, to explore some of the basics of
business exit in the Indonesian context this present study is important to be undertaken.
3. Research Method
This study is exploratory in nature. Having followed to previous work on small business (i.e. Bell et al 2004) and
family business studies (i.e. Chirico 2008) that utilizes qualitative approach, this study adopts a similar approach
undertaken by these scholars in order to explore the understanding of SME owners in the context of business exit. The
use of qualitative method in the domain of entrepreneurship is consistent to Bell et al (2004) justification, and argues
that this approach is a growing trend as an empirical enquiry. Since topics on business exit is relatively still young as
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compared to topics such as start-up and firm growth, a different method other than hypothesis testing or descriptive or
deductive approach is needed to depict what had not been answered in the extant literature (Wennberg & DeTienne
2014). Therefore, the objective of employing exploratory approach especially in the context of business exit is to
determine a preliminary perception of SME owners with the assumptions that business exit has yet being regarded as a
common practice for Indonesian SMEs. In this study, six interviewees have been selected to participate in the study.
The method in determining the key informants of this study was based on the snowballing approach through the
business communities in two East Java cities: Malang and Kediri. Also, database from the local government was useful
to identify types of business the SMEs are clustered to. We have selected six interviewees for this study that comprise
of traditional-based SMEs and digital business start-ups.
4. Results & Discussion

The present study provided a number of important findings especially in the context of how business exit is viewed
among SME owners in East Java, consisting of six business owners’. The description of the respondents are provided as
follows:
Tabel 4.1 Description of Interviewees

Business Tenure
Initial Gender Age Type of Business Product
(year)
AP Female 45 14 Handicraft and souvenir
AA Male 36 8 Online transportation
FA Male 34 10 Online fashion
KA Male 35 7 Food processing
FZ Male 23 2 Online service application
TA Male 21 1 Online fishery investment
4.1 Understanding Business Exit Concept and Terminology

Based on the several interviews it was found that not all of the informants understood the concept of business exit.
When they were asked about whether or not they understood about the definition of business exit, few owners
responded that literally business exit is type of bankruptcy or leaving the business.
AP1: “I don’t really know what it is meant by business exit”
FA1: “I have just heard of the term ‘business exit’ but in practice, I am already aware of exit types IPO or
merger/acquisition”
AA1: “In our start-up community we do understand about the terminology of business exit based on series of
discussions that we conduct”
KA1: “I’ve just heard about the term, and I don’t think that I’m interested to undertake it yet”
FZ1: “I understand the term business exits and what it comprise of from the entrepreneurial laboratory in my
University”
TA1: “Well, I understand a little about business exit because it’s one of the main aim for new start-ups like what I
am currently doing”
Based on the response from these informants, either business exit terminology or the concept is commonly
recognized even though, few business owners who are still active as University students have understood some of the
basics of ‘business exit’ concept due to the entrepreneurship curricula being taught in the University level. The fact that
these new business owners are still at the infancy stage had led them to the understanding to the knowledge of business
exit phenomenon. This aligns with DeTienne’s (2010) contention that business exit must be delivered at every
universities regardless of what ever the focus is on (i.e. technological, small business management, venture capital
funded enterprises). Furthermore, despite some confusion to the terminology of business exit—which has not been
clearly recognized by several business owners—it indicated that they had awareness to the concept in a practical sense.
For instance, few owners indicated that understand about the context IPO, mergers/acquisition as well as business
recapitalization via business angels/investors that means that theoretically these business owners have yet to recognize
that business exit existed as a concept but instead, they are much more aware of the types of exit mechanism that their
business are potentially exposed to. It is unsurprising why business exit is yet to be recognized by SME owners due to
the fact that these businesses are still at the growth stage. Nonetheless, understanding the importance what business exit
has for the founder, economy and industry as noted by DeTienne (2010), it is crucial that the process entrepreneurial
recycling is further examined to understand the nature of the process in creation and existence of habitual entrepreneurs.
4.2 Is Exiting (the Current Business) Being Thought About?

In this study, we also asked about whether or not the current business owners had thought about exiting. Our
interview indicated various responses. For instance, few owners indicated that they have never thought of exiting the
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business. Two informants stated this indication in the second answer: AP and KA.
AP2: “I have never thought of selling my business because what I’m currently doing is part of my hobby and I’m
passionate about it…if I sell this business I will loose what has been my hobby and interest for a long time”
KA2: “I never thought of exiting my business at present, because I still think that I’m able to provide growth for this
business”
Both responses pointed out that the business currently operating is part of the owners’ passion as well as potential to
grow in the future. Moreover, AP followed a statement “If I was to exit, I would prefer to pass on to my children, that is
why I’m starting to educate and trigger their curiosity in the business that I run now”. Business exit in the mind of these
business owners would probably mean sell-out to other business entity and hence, if this exit strategy is employed the
owner would no longer be involved in the business. Furthermore, exiting in the perception of these owners maybe
difficult to conduct because the current business represents identity, passion as well as family value. The finding
corroborates to stewardship exit strategies following recent study by DeTienne et al (2015), arguing that this approach
is pro-social and pro-organizational, allowing business founders to remain their influential role on the future and long-
term viability of the business (DeTienne et al 2015). Hence, the stewardship standpoint that business owners have
would be more likely to aim for strategies that allow them to prepare and choose their own successor (DeTienne et al
2015). On the contrary, other informants indicated that business exit is viewed as a growth mechanism. Regardless of
their status as the founder of the current business, they perceive that exit allows their business to accelerate to a higher
level by injected capital from either venture capital or private equity.
AA2: “From the time we started the business, our digital start-up community understands the necessity to transfer
the business’ ownership through venture capital financing as our first priority”
FA2: “I have thought about exiting since last year, when I started to establish networking and communication with
other business owners as well as trying to find investor to grow this business”
TA2: “I’m currently seeking for a possible investment by venture capital/business angels because I know that my
business will accelerate if I have sufficient funding”
FZ2: “At first, I never thought of selling my business but when I needed to start my business I was approached by a
start up accelerator and obtained funding”
Based on the interview, we started to grasp the phenomena that exiting the current business might or not be thought
about by SME owners. Business owners may think of exiting in the quest of possible growth in the future and benefit in
the long run as the business grow and sustain. In contrast, exit may not be thought due to reasons such as passionate in
running the business or feeling that the business has potential to grow under the founder’s control. For opportunistic
business owners exiting might be an option that they can precede to earn potential benefit in the future and as
opportunity to grow the business that triggers more potential revenue. Nevertheless, the type of exit that these business
owners undertake might/not be via trade sale but possibly acquisition or investment made by investors (venture
capital/private equity) in the form of spread of ownership. Moreover, the availability of capital in starting phase of a
business is perhaps cumbersome for early start-up business owner. Thus, business owner in the infancy stage will even
think exiting by distributing a part of the ownership for other entity to acquire as means to obtain capital for the
business to grow. Nevertheless, we could not generalize such case would be likely to be experienced by other business
owner in the similar range of age, types of business or educational background. Regardless of that, we perceive that
start-up business owners due to their knowledge and passion for growth would perhaps be more likely to think about
exit whereas personal aspect (i.e. personal identity, emotional ties) may be deserted to some point to achieve and
maximize the potential to a larger growth in the future.
4.3 The Strategic Context of Business Exit

Since business exit phenomenon is derived from the perspectives of strategic management, behavioral science as
well as economics, we asked informants of the current study to determine whether or not strategic context of business
exit is understood. In terms of the response to the third question, there are various perceptions in the context of business
exit as a strategic choice for business owners.
AP3:”What is strategic for me is how to manage the business and create ways to reduce miscommunication and risk
rather than exiting”
AA3: “In my opinion, I see business exit as a strategic way to create an entrepreneurial portfolio and being
considered experienced and attractive for investors to see”
FA: “What strategic for me is to open up any kinds of possibility to network with other business entities. We have
offered to private equity to take over partial ownership to sustain our production and we have developed plans
to exit as soon as I can obtain other entities to take over the business”
TA3: “I don’t think that we will exit in the future because we are still aiming to be ‘king’ for our own business or
might as well fail”
KA3: “What I’m currently focusing at the moment is product selling and keeping a market growth for my business.
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In my opinion the business is strategic enough if it can grow and sustain, not exiting”
FZ3: “I’m now only focusing on the business’ growth but exiting would not be a strategic option if I could not
expand the business”
Based on the interview only few business owners do understand the strategic context of business exit not only as a
mechanism to maximize their wealth but also as a mechanism that ensures the continuance of the business. For
example, AA consider exiting as a way in which he can create a business portfolio to attract investors to acquire the
business or to inject capital to the current business. Hence, it opens up the possibility for other entities (venture capital,
business angels) to take over and inject capital needed to accelerate the business’ growth. Nonetheless, as mentioned in
a previous study that the market of the venture capital industry is still underdeveloped in Indonesia. Regardless of the
ability of venture capital to finance SMEs with a strong potential for growth beyond the traditional channels
(Mourougane 2012), it is still questionable whether or not SME can potentially be acquired by venture capitalists. On
the contrary, the remaining interviewees views that being strategic means that they remain in the business to expand it.
Moreover, if the business is to expand to a larger size than at present, family succession would likely to be undertaken
rather than a private sell-out. Hence, it is unsurprising that only one interviewee conceives the strategic notion of
business exit since the only way to progress the business further is by transferring part of the ownership to other party
who is willing to inject capital into the business. Business exit can be a dilemmatic for business owners, especially in
SMEs. This is due to the fact that business may not only represent an identity but also idealistic notion that they are
passionate to keep the business. Furthermore, exiting often triggers an emotional process that may result in grief
especially for owners who are psychologically connected to the business although it may involve learning in the process
of exiting (Wennberg and DeTienne 2014; Jenkins et al 2014).
5. Acknowledgement
Specifically, the authors thank the LPPM UB and Kemristek-Dikti to support the funding of the current research
(under the scheme of PUPT 2016). Also, we are grateful for the institutional support provided by the Department of
Business-Faculty of Administrative Science and K2PU (Research Group for SME Development), Universitas Brawijaya
to support our participation at The Fifth International Conference on Entrepreneurship and Business Management
(ICEBM), Tainan-Taiwan, November 18-19, 2016.
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DOES ISO LABELLING MATTER IN CONSUMER’S CHOICE?
I Gede Mahatma Yuda Mahatma Bakti1), Harryadin Mahardika2), Arnold Japutra3), Sri Rahayu Hijrahhati4)
1)
Indonesian Institute of Science, Banten, Indonesia
2) 4)
Faculty of Economics and Business, Universitas Indonesia, Jakarta, Indonesia
3)
Faculty of Economics and Business, Universitas Tarumanagara, Jakarta, Indonesia
2)
harryadin.mahardika@ui.ac.id
Abstract
This paper aims to examine the effect of ISO labelling on consumers’ attitudes with brand familiarity and product
involvement as the moderating factors. We performed two experimental studies. The experiment was designed in a 2
(ISO 9001 label: presence vs absence) x 2 (brand familiarity: familiar vs. unfamiliar) between-subject design.
Participants of study 1 was 155 undergraduate students. The experiment design of study 2 adopted a 2 (ISO 9001 label:
presence vs absence) x 2 (product involvement: high vs low) between-subjects experiment. Participants of study 2 was
266 undergraduate students. The findings showed that the effect of ISO 9001 labelling on consumers’ attitudes (i.e.
product quality and purchase intention) depends on brand familiarity and product involvement. Finally, theoretical and
managerial implication of this study was discussed.
Keywords: Product Labelling, ISO 9001, Product Quality, Brand Familiarity, Product Involvement
Introduction
Before making any decision to purchase a product, consumers tend to consider several important cues. One of the
key cue in purchase decision is product quality (Chapman and Wahlers, 1999). Product quality provide signal to
consumers’ mind, in which it may consist processing product’s security, safety, health, convenience, locality, ethical
factors, etc. (Wandel & Bugge, 1997; Corcoran et al., 2001; Harrington, 1994; Issanchou, 1996; Bernues et al. 2003).
Despite quality is an important cue, consumers do not always have capability to evaluate quality product, either before
or after consuming it (Caswell, 2006).
Consumer behavior literature explained that to obtain a quality product, consumers may refer to product cues, either
to intrinsic and extrinsic cues (Olson and Jacoby, 1972). According to signaling theory, consumers are more likely to
consider extrinsic than intrinsic cues in product evaluation (Spence, 1974). It is since consumers and sellers have
asymmetric information in market interactions (Boulding and Kirmani, 1993). In other words, sellers have known
quality of their products, while consumers have not known it. Whereas, in product evaluation, consumers need
information that allows them to distinguish between a high and low quality product (Boulding and Kirmani, 1993).
Consequently, before consumers purchase a product, they will consider quality signal of the product. The quality signal
is usually in the form of cues (Boulding and Kirmani, 1993). A typical extrinsic cue is industry label, one of them is
International Standards Organization (ISO) label. Among various ISO label, one of the most relevant for marketers who
play ‘quality game’ is ISO 9001.
ISO 9001 is the most popular international standard that was implemented by many organizations/companies in
various countries, specifically to show the ability of the organization to perform quality management system in
producing their products (Lee et al., 2009). The coverage of ISO 9001 is very extensive, covering many product
categories. Even so, ISO 9001 is a voluntary standard, not an obligatory standard (Sampaio et al., 2009). As ISO 9001
requires organization/company to continuously deliver a product that meet customer, statutory and regulatory
requirements (ISO, 2008). Further, ISO 9001 is a generic standard that can be implemented to large and small; private
and public; industrial, commercial and service organizations (To et al., 2011). For ISO 9001 certified organizations,
they are permitted to communicate this achievement to their stakeholders. Further, they can enclose the ISO 9001 label
on product, packaging, or any form advertising, etc. Today ISO 9001 label become one of the trusted symbol for
product quality that has been widely accepted by consumers.
In the existing literature, the adoption of ISO 9001 labelling in products has been subject of interesting discussion.
Does ISO 9001 labelling matter in consumers’ purchase decision? Results from various studies provide a mix evident.
Several studies support the notion that quality assurance labelling influence consumers’ attitude (e.g. Walley et al.,
1999; Fotopoulos and Krystallis, 2003). Nair and Prajogo (2009) suggested that ISO 9001 certification positively
reflects on quality image. Likewise, Verbeke et al. (2012) contend that a product with quality standard label is believed
to deliver superior quality signal, and also indicates different character of the product (considered as a distinctive
product). Further, Carpenter and Larceneaux (2008) also agreed that quality standard label provides a positive
relationship with product quality and purchase intention. On the other hand, other studies found that quality standard
label, including ISO 9001, does not influence consumers’ perception during product evaluation (e.g. Verbeke, 2005;
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Grunert and Wills, 2007). According to Maggat and Viscusi (1992), the presence of quality standard label is not
considered as an important factor for consumers, when they have a variety of information (Dimara and Skuras, 2005).
Thøgersen (2002) also suggested that the presence of label may be unsuccessful to influence consumers’ perception,
since they have other relevant information from various sources (Larceneux et al., 2012).
Based on aforementioned discussion, a better explanation on the effects of ISO labeling toward consumers’ mental
judgment is still largely needed. There are various areas that should be clarified, including the efficacy of ISO labelling
in relation to purchase situation, pricing strategy, brand familiarity, product involvement, etc. Using this rationale in
mind, this study aims to examine the moderating effects of brand familiarity and product involvement when ISO label is
presented. Brand familiarity and product involvement play a key role in explaining whether consumers’ estimation
toward product quality with or without ISO label. The results could help marketers to identify the interplay between
their product characteristic and ISO label.
Literature Review
The main idea of this study is based on signaling theory (Spence, 1974). In product evaluation, extrinsic cues are
more considered by consumers rather than intrinsic cues (Spence, 1974). Extrinsic cues are the cues related to product
attributes, in which the amendment will not impact on physical nature of the product. Otherwise, intrinsic cues are the
product attributes that cannot be manipulated without changing the physical nature of the product. (Richardson et al.
1994). According to Spence (1974), the main reason why extrinsic cues are important is because asymmetric
information often occurred between consumers and sellers in market interactions (Boulding and Kirmani, 1993). The
gap emerges when sellers make an effort to signal the quality of their products, while consumers are making inaccurate
interpretation on the given signal. Consumers should beable to make an accurate interpretation on the information to
allow them to distinguish between a high and a low quality product (Boulding and Kirmani, 1993). In this sense, when
consumers are not fully able to process information about product quality, consumers will turn to extrinsic cues to make
a product evaluation. It is since extrinsic cues of the product are easily obtained by consumers. In most of the situation,
extrinsic cues will be able to provide a signal to determine product quality (Boulding and Kirmani, 1993). Putting it into
perspective, one type of the extrinsic cues is ISO 9001 label.
The effects of ISO 9001 labelling on consumers’ decision making can be explained by information processing
theory. The theory explained that consumers’ preference is highly dependent on the context and the individual
characteristics. Further, prior knowledge is one of the important factors that build consumers’ preference (Ha-
Brookshire and Yoon, 2012). Given this evident, prior knowledge is believed to facilitate the acquisition of new and
existing information (Rao and Monroe, 1988).
According to Rao and Monroe (1988), prior knowledge is defined as “the amount of accurate information held in
memory about product alternative as well as buyers’ self-perceptions of this product knowledge (i.e., what they believe
they know)”. Based on the definition, it can be explained that prior knowledge has two dimensions, i.e. familiarity and
expertise (Alba and Hutchinson, 1987). Familiarity is “the number of product-related experiences accumulated by a
consumer”, and expertise is “the ability to perform product related tasks successfully” (Rao and Monroe, 1988).
Further, impact of familiarity on consumers’ attitude in product evaluation has been studied by many researchers (Rao
and Monroe, 1988; Cambell and Keller, 2003; Lim and Olshavsky, 1988; DeCarlo et al., 2007; Hardesty et al., 2002).
Referring to familiarity perspective, consumers prefer to use ISO label when other product attributes are considered as
unfamiliar attributes to them. On the other hand, consumers are less likely to use ISO 9001 label, when they are already
familiar with the product attributes (Rao and Monroe, 1988).
Hypotheses
Considering the importance of familiarity and ISO labelling on consumer’s product evaluation, this study proposes
the following conceptual framework to understand the relationships between each of the variables:
Table 1. Conceptual Framework
Moderating Variables: Involvement Familiarity

(Low x High) Unfamiliar Brand Familiar Brand
µ1 µ2
ISO 9001 Labelling
DV1: Product Quality DV1: Product Quality
DV2: Purchase Intention DV2: Purchase Intention
Label
µ3 µ4
No Label
DV1: Product Quality DV1: Product Quality
DV2: Purchase Intention DV2: Purchase Intention
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One of the familiar attributes that is mostly considered by consumer is brand (Kent and Allen, 1994). Campbell and
Keller (2003) stated that brand familiarity is an important concept that may influence consumer buying process. Further,
brand familiarity describe the structure of brand knowledge, i.e. brand associations in the consumers’ memory
(Campbell and Keller, 2003). Based on the aforementioned explanation, this study hypothesize:
H1 : In the case of unfamiliar brand, the effect of ISO 9001 labelling on consumers’ attitudes, i.e. quality
product (H1a) and purchase intention (H1b), is greater than in the case of familiar brand.
Despite the effect of ISO 9001 labelling in the case of unfamiliar brand is greater than familiar brand. The authors
also suspected that when two brands are similar in unfamiliar condition, consumers still have a different perception on
ISO 9001 labelling. The authors considered that the differences of perception occurs because of consumers’ evaluation
toward product involvement. Further, involvement was defined as “an individual, internal state of arousal with intensity,
direction, and persistence properties” (Andrews et al., 1990). By using the framework of elaboration likelihood model
(ELM), Petty et al. (1983) explained that consumers tend to apply peripheral or central route to evaluate product based
on its level of involvement. The central route “requires a person's cognitive elaboration of the advertising message”,
while the peripheral route occurs “in the absence of cognitive elaboration for those persuasive arguments” (Torres and
Briggs, 2007). In relation to product labeling, ELM contend that when consumers are in a high involvement in product
evaluation, they tend to consider the presence of ISO 9001 label. On the other hand, consumers tend to less consider the
importance of ISO 9001 label when they are in a low involvement situation. Therefore, this study hypothesize:
H2 : When two brands are identical and consumers are not familiar with them, the effects of ISO 9001
labelling toward consumers’ attitudes i.e. quality product (H2a) and purchase intention (H2b) is greater
for low involvement product than high involvement product.
Experiment
Study 1
Overview. Study 1 aims to examine the effects of brand familiarity in determining the influence of ISO 9001
labelling toward consumers’ attitudes, both on product quality and purchase intention. To achieve this objective, the
experiment was designed in a 2 (ISO 9001 label: presence vs absence) x 2 (brand familiarity: familiar vs. unfamiliar)
between-subject design. The manipulation development for the experiment was referring to the guidelines from Leclerc
et al. (1994), which are calculator and detergent. A total of 155 undergraduate students (61% female) have been
voluntarily joined as participant for this study.
Stimuli. Based on Kent and Allen (1994) study, the stimuli for study 1 was created in the form of print ads. The print
ads contain images, brand, ISO 9001 labelling and promotional sentences. The manipulations were conducted by
delivering a familiar (vs. unfamiliar) real brand and the presence (vs the absence) of ISO 9001 label.
Procedure. The participants in each experimental group was selected with randomly assignment. In the experimental
testing, the participants was guided by instructors to ensure all process of the experiment could be performed accurately
by participants. The real objective of this study was not informed in the beginning of the assignment (before
manipulation). The real objective was informed, after the participants have finished the assignment (debriefing). During
the experiment testing, the instructors informed the general objective of this study, i.e. the survey is about marketing
communication, and the participants were asked to response to the questionnaire based on their knowledge. Thereafter,
the participants were tasked to evaluate the ads, both on detergent and calculator. During the evaluation of the ads,
participants were instructed to follow the guideline given by the instructor.
Measurement. The dependent variable of study 1 was product quality and purchase intention. Prior studies found
that these variables are latent variables, i.e. the variable cannot be measured directly, but it must use several
measurement indicators (Diamantopoulus et al., 2012). In this study, product quality was operationalized as perceived
quality, not objective quality. Given this arrangement, the measurement of product quality were using Srivastava and
Mitra’s (1998) guideline, i.e. overall impression of the product, product quality, and product performance. Meanwhile,
the measurement of purchase intention adopted three items from Zhang and Zinkhan (2006), i.e. likely, probable, and
possible to buying a product.
Results. The test on the main effect of ISO 9001 labelling (M ISO9001= 5.08 , Mno-ISO9001= 4.49; F (1,155) = 16.68,
p<0.05), and brand familiarity (Mfamiliar= 5.47 , Munfamiliar= 4.07; F (1,155)= 101.59, p< 0.05) on perceived quality of
calculator are significant. Consistent findings also shown on purchase intention, in which the main effect of ISO 9001
labelling (MISO9001= 4.83 , Mno-ISO9001= 4.15; F (1,155) = 15.84 , p< 0.05), and brand familiarity (Mfamiliar= 5.18,
Munfamiliar=3.76; F (1,155)= 75.28 , p< 0.05) are significant.
This study found significant interaction effect between ISO 9001 labelling and brand familiarity on perceived
quality of calculator (F (1,155) = 4.82 , p< 0.05). However, the authors found no evident of interaction effect between
ISO 9001 labelling and brand familiarity on intention to buy a calculator (F (1,155) = 1.87 , p> 0.10). Therefore, using
calculator as a context, H1a was supported and H1b was rejected.
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Furthermore, the test provide evident for a significant interaction effects between ISO 9001 labelling and brand
familiarity on perceived quality of detergent (F (1,155) = 3.45 , p< 0.10). Specifically, when the brand of detergent are
in unfamiliar condition, the presence of label has a higher perceived quality than the absence of label (MISO9001= 4.398 ,
Mno-ISO9001= 3.675 ; t = 3.314, p< 0.05). Meanwhile, when the brand of detergent are in familiar condition, the presence
of label does not increase perceived quality (MISO9001= 5.162 , Mno-ISO9001= 4.966 ; t = 1.083, p> 0.10). Based on the
aforementioned results of detergent testing, H1a and H1b was supported.
Study 2
Overview. It is interesting to see whether the effects of ISO 9001 labelling on consumers’ attitudes will be
significant for unfamiliar brand. Following the results from Study 1, the authors proposed that when the brands are in
unfamiliar condition, consumers should have differences of perception on ISO 9001 labelling.
Stimuli& Procedure. Following the guideline from Study 1, stimuli for Study 2 was conducted in the form of print
advertisement (Kent and Allen, 1994). The print advertisement show unfamiliar brands for electronics products with
high (vs. low) involvement. In addition, presence (vs. the absence) of ISO 9001 label was also added into the print
advertisement. The experiment procedure in Study 2 was similar to Study 1.
Measurement. Measurement items for dependent variables (product quality and purchase intention) were using the
guidelines from Study 1. For manipulation check, the measurement of product involvement adopted the items from
Zhang and Zinkhan (2006), i.e. the degree of attention, the level of concentration, the level of thought, and the level of
effort. In addition, the manipulation of ISO 9001 labelling was checked with similar items from Study 1.
Result. The result also showed the main effect of ISO 9001 labelling (MISO9001= 4.12, Mno-ISO9001= 3.47; F (1,266) =
20.15, p< 0.05), and product involvement (Mtinggi= 3.48, Mrendah= 4.10; F (1,266) = 18.07, p< 0.05) on perceived quality
is significant.
On the other hand, the authors also found a significant interaction effect between ISO 9001 labelling and product
involvement on purchase intention (F (1,266) = 8.89, p < 0.05). Specifically, the result showed since the unfamiliar
brands are in the low involvement, the presence of ISO 9001 label have a higher purchase intention than the absence of
ISO 9001 label (MISO9001= 4.156, Mno-ISO9001= 3.099; t = 4.822, p < 0.05). Meanwhile, since the unfamiliar
brands are in the high involvement group, the presence of ISO 9001 label does not increase purchase intention
(MISO9001= 3.246, Mno-ISO9001= 3.099; t = 0.690, p > 0.10). Based on the result of second testing, H2a and H2b
was also supported.
Discussion
The findings of this study provide an empirical support that in the case of unfamiliar brand, the effect of ISO 9001
labelling on product quality and purchase intention are greater than familiar brand. This result is supports prior studies,
such as Maggat and Viscusi (1992), Thøgersen (2000) and Johnson and Russo (1984). Further, Johnson and Russo
(1984) explained that familiarity refers to a superior knowledge toward a targeted product., in which it may decrease
one’s the effort to search for alternative. Relevant to this study, brand familiarity generates subjects’ tendency to ignore
additional information, such as ISO 9001 label. Furthermore, this study provides a solid ground to extend the
information process theory, in which subjects were showing tendency to prefer to use ISO 9001 label in the case of
unfamiliar brand. However, the authors found that the effects of ISO 9001 labelling on subject’ attitudes toward the
brand were not always significant for all products, for example intention to buy a calculator (see the result of study 1).
This implies that the type of product plays an important role in determining the effects of ISO 9001 labelling on
consumers’ attitudes the targeted brand.
Interestingly, the results show that although the brand is unfamiliar, in the low product involvement, the effects of
ISO 9001 labelling on product quality and purchase intention is greater than the high involvement product. Align with
this results, the authors support that elaboration likelihood model (ELM) theory can be implemented in product
labelling, including ISO 9001 label. On the other words, ISO 9001 label may influence consumers’ purchase judgment
if consumers choose to use peripheral route. Whereas, when they use central route, ISO 9001 label may induce no
effects in consumers purchase judgments.
The findings of this study provide some important ground for managerial implications. In particular, it provides a
basis for crafting marketing communication plan based around the using of ISO 9001 label. Managers should consider
the moderating factors that influence the relationship between ISO 9001 labelling and consumers’ attitudes in product
evaluation. These factors determine when ISO 9001 label is useful to support marketing communication. In this case,
the moderating factors are brand familiarity and product involvement.
In this regard, managers must consider whether the brand is widely known by market or not. Managers may conduct
surveys on their brand awareness and brand associations (see Aaker, 1996) or take the survey from external agencies, to
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determine whether ISO 9001 label should be used in the marketing communication of the targeted brand. When
consumers have a high brand awareness and strong brand association, ISO 9001 labelling should not be prioritized in
marketing communication strategy. ISO 9001 labelling could be prioritized when consumers have a low brand
awareness and a weak brand association.
In addition, manager should consider whether the type of the products has a high or low product involvement. When
the product is low involvement, it may be of the best interest of manager to use ISO 9001 label in marketing
communication. Conversely, managers should not use ISO 9001 label, when the product is high involvement.
Conclusion
Two experiments were conducted to test the effects of ISO 9001 labelling on consumers’ attitudes. Specifically, this
study employed brand familiarity and product involvement as moderating effects on the causal relationship between
ISO 9001 labelling and consumers’ attitudes. This study aims to contribute to fill the gap in the existing literature, in
which ISO 9001 labelling may induce different effects on consumers’ judgments. This study found that brand
familiarity and product involvement moderates the effects of ISO 9001 labelling on consumers’ attitudes in product
evaluation.
Similar to other studies of this nature, this study is not without limitations. First, the participants were only restricted
to the university undergraduate students, with age range between 17-23 years old. Consequently, this study may not be
able to be generalized into different context and purchase setting. Further research should replicate this study in various
conditions to check the consistency of its findings. Second, this study only tested two moderating factors, i.e. brand
familiarity and product involvement. Other key factors, such as price, features, etc., may have a more significant effects
toward consumers’ purchase judgments. Related to the information processing theory, the future research can test the
other key factor such as prior knowledge and expertise. Therefore, further research should consider to use other
moderating factors in order to enrich the findings around this area of research.
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LOCAL WISDOM FOR GREENPRENEURSHIP AS A SOLUTION TO BATIK

INDUSTRY IN INDONESIA
Juliuska Sahertian1), Denprahanto A. Krisprimandoyo2), Tina Melinda3), Fabio Ricardo Toreh4)

1)
Ciputra University, Surabaya, Indonesia
1)
juliuska0@ciputra.ac.id
Abstract
The escalation of hand-drawn batik production after receiving the highest reward of Masterpieces of the Oral and
Intangible Cultural Heritage of Humanity by UNESCO (United Nations Educational, Scientific and Cultural
Organisations) in 2009 is facing a major challenge, the unfriendly environment production. Therefore, it is important to
look into the process of making hand-drawn batik justly. Greenpreneurship should be the ultimate purpose for hand-
drawn batik industry and is needed to address the challenge. Hundreds of hand-drawn batik industries belong to SME
(Small Medium Enterprises) where the owner's motivation determines the industry's nature to produce an
environmentally friendly product. The significance to imbued greenpreneurship is emphasized. The role of the hand-
drawn batik stakeholders is studied in-depth by analyzing the motivation. To sharpen the investigation: visionary
championship, ethical mavericks, innovative opportunistic are advocated for discovering the motivations of the hand-
drawn batik stakeholders. Local wisdom is presented as a guideline for the hand-drawn batik industry. Finally, an
academics involvement is recommended for the development of greenpreneurship within the hand-drawn batik industry.
Keywords: Greenpreneurship, Local-Wisdom, Visionary Championship, Ethical Mavericks, Innovative Opportunistic
Introduction
The world's highest recognition to the wealth of Indonesian cultural heritage culminated in the award of
Masterpieces of the Oral and Intangible Cultural Heritage of Humanity by UNESCO (United Nations Educational,
Scientific and Cultural Organisations) in 2009 for Batik Tulis or hand-drawn batik. The international award is rewarded
only to the hand-drawn batik, excluding the printing ones. The process of making hand-drawn batik is using dyeing
technique that result in a threat to the environment (Bowman, 2011; Hamdouch & Depret, 2012; McEwen, 2013;
Vitasurya, 2015; Nurainun et al., 2008). Hand-drawn batik production escalades rapidly, especially when the
government sets the second of October as national batik day, to commemorate the date of international appreciation.
Today, an area can produce ten pieces of batik per week per-artisans, and need at least forty thousand meters of fabric a
month (Bisri, 2015). As most hand-drawn batik industry belongs to Small Medium Enterprises (SME), this situation
indicates an increasing number of batik entrepreneurs. The challenge is batik production practices the dyeing cloth
through a wax-resist method that produces liquid wastewater (Riyanto, 2013, 2016). It is necessary for the batik
entrepreneurs to adopt greenpreneurship in order to "move to a more sustainable economic and commercial system"
(Schaper, 2002). Why is it necessary?
As the receiver of the prestigious award, the ability to preserve hand-drawn batik and protect the intangible heritage
some steps are needed to change the style into a friendly environment business should be organised. Many researches
are dealing with the technique to face the problem. However, only several researches are dealing with greenpreneurship.
For example, Murni, et al. (2016) explained that greenpreneurship spirit is needed for batik industry as it improves the
business performance in the waste management of SME. However, the embodiment of greenpreneurship depending on
the common principle, belief and local culture and should be a character reference in the local society's daily life
(Vitasurya, 2015). Greenpreneurship should be a pivotal turning point to ensure the batik industry stakeholders could
improve their business by producing environmentally friendly hand-drawn batik products. Regardless of all the research
concerning batik liquid wastewater treatment, research on utilisation of local wisdom that characterises
greenpreneurship should take place. This paper begins the discussion.
The local wisdom begins with the initiative to seek for the entity that is vital for human dignity in the community
(Geertz, 1973). To obtain the local wisdom, the researcher is focusing onto Tanjung-Bumi village, in Madura,
Indonesia. This study aims to draw attention to the objective of this research, the importance of pervading
greenpreneurship for the batik industry in Indonesia through local wisdom with the instruments of visionary champion,
ethical maverick, innovative opportunist. Therefore, the rationale for this is that exploring the concept of batik industry
stakeholders where greenpreneur is defined by motivation. While motivation is a major factor in greenpreneurship, the
subject of this study is investigating batik industry that is managed by a local community.
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Theory Overview
Greenpreneurship
The terms green-entrepreneur, environmental entrepreneur, eco-entrepreneur and ecopreneur many times are used
interchangeably even though the emphasis differs. Green-entrepreneur refers to individuals who find innovative ways to
solve problems in an environmentally friendly approach. Some researchers define green entrepreneurship as the type of
profit and nature oriented business that solves ecological problems (Gevrenova, 2015); the effort to minimise
environmental impacts, the total environmental and social detriment as a result of human entrepreneurship activity (Hall
et al., 2010). Environmental entrepreneur signifies people who create new ventures that encounter environmental
challenges (Lenox & York, 2011). Many define ecopreneur as sustainability and entrepreneurship that is closely related
to environment entrepreneurship orientation (Schaltegger & Wagner, 2010); the abilities of an entrepreneur to validate
the economics benefit by becoming green; being environmental accountability in entrepreneurship (Volery, 2002);
visionary entrepreneur whose business is based on the sustainability standard (Walley & Taylor, 2002). Hence,
generally, all the terms describe that sustainability is the business foundation, and innovative solutions are needed
(Kirkwood & Walton, 2010) to face the environmental challenges. The benefits of administering greenpreneurship are
described as leading to innovative business (Martinson et al., 1996) establishing competitive advantages as it guarantees
continuing prosperous business results (Cerovic et al., 2014). Thus, the green concept becomes the spirit and becomes
the ultimate purpose in their business activities (Rao et.al., 2013; Murni, 2016) and it is the individual motivation to
care for the environments while becoming entrepreneurs is the main focus in sustainability that drives the successful
entrepreneur. For the purpose of this study individual interest or motivation become the basis of greenpreneurship to
practice business depicts the context of SME or even the Micro Small Medium Enterprises (MSME) (OECD, 2005).
In relation to waste water management the researcher understands that greenpreneurship spirit is crucial due to the
need of 1) creating awareness (let alone developing it) of greenpreneurship spirit in the hand-drawn batik artisans hence
it will motivate them in reaching the economic advantage, 2) cultivating wastewater management skills to a more
manageable and professional way, 3) improving the artisan's skill to compete in international market as an
environmental friendly product. This study intends to seek the importance of placing local wisdom as the instrument to
greenpreneurship. Therefore the justification for this is that discovering the concept of batik industry participants where
greenpreneur is defined by motivation. While motivation is a prime issue in greenpreneurship, the focus of this study is
exploring batik industry that is handled by a local community.
Local Wisdom or Local Knowledge

The long interaction between humans and the surroundings can generate the growth of local wisdom. The extensive
and internal processes create a value system that manifested in the form of common law, belief and local culture
(Vitasurya, 2016; Cheng, 2002) stated that local knowledge is valid based "on the local context and accumulated by the
local community" (p.9). Further, Cheng explains that the knowledge system of a local community depends on the social
setting, traditional assets and past background that differ from other local communities, therefore it cannot be
generalised.
However, greenpreneurship is a global knowledge. Many countries and or areas accept the greenpreneurship as a
global knowledge. Yet, some local wisdom/community of the world may not accept the concept, as it may only be valid
in certain local context. The characteristics of greenpreneurship, personal motivation or entrepreneur's personal
motivation should be the prime reason to start the business. Regarding batik, Smend (2004) stated that the presence of
batik in the country is based on the social, cultural and political background not only the economics reasons. The
significance of green-entrepreneur in the evolution concerning a environmental society Walley and Taylor (2002) create
four ideal types of green entrepreneur: innovative opportunist (financially concerned entrepreneur), visionary champion
(comprises sustainability initiation), ethical maverick (sustainability initiation and soft organizational inspirations), ad
hoc entrepreneur to investigate motivation of green-entrepreneur which in this research is considered as
greenpreneurship.
Batik Industry and The Environment

Generally, the process of making batik consists of the following these three big stages: designing the pattern with
pencil followed by waxing or dyeing the motif, colouring and uncovering the wax, and washing repetitively to get the
colour needed.
German-Indonesian Chamber of Industry and Commerce (EKONID, 2013) is an organisation that works to promote
bilateral trade and investment between Germany and Indonesia, inside is the CBI (Clean Batik Initiative) organisation
that encourages sustainable manner batik production to appreciate the environment in their three years programs. They
aim to manufacture a "cleaner" national dress (p.32). In relation to the environment EKONID (2013), recorded 48000
SME companies involved in batik production in Indonesia. According to them, the batik SMEs have a high demand for
kerosene and electricity and they also overuse water resources. Therefore, the batik industries throw away unprocessed
wastewater -with the highest amount of annual CO2 emissions (p.32)- increasing pollution that brings in health and
social problems. The CBI serious intention to ensure the improvement of sustainable growth and reducing
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environmental impact is supported by EU SWITCH-Asia, European Commission. Thus they support CBI program -
focusing on the importance to shift the batik industry to sustainable batik production.
Regarding the process of making batik, it is simple but since batik has meaningful and advanced pattern, it requires
several colours to express them. In another word the more artistic and colourful the design, the longer the process is
(Batikguild.org.uk). A large amount of water is needed within the process and the water discharge from its process is
carrying toxic liquid waste from the waxing and dyeing that is in it. In the old days, batik factories were built alongside
the river hence the batik wastewater is directly sent to the river (Tulistyantoro, 2015). Nowadays researchers discover
that batik waste is released into the drainage system but mostly untreated when discharged into the river or into the sea
(Nurainun et al., 2008; Yulianto et al, 2009; Riyanto, 2016). Batik wastewater in detail contains heavy metals such as
suspended solids, BOD (Biochemical Oxygen Demand), pollution, COD (Chemical Oxygen Demand), Phenol, pH also
toxic from color - synthetic ingredients (Kurniawan et al., 2013; Riyanto, 2014; Sasongko & Tresna, 2010, Suprihatin,
2014; Syuhadah et al., 2015). Continuous disposal of batik toxic waste will cause serious environmental destruction as
well as health destruction (Riyanto, 2016). Basically, coloured wastewater disposal spoils the aesthetic of the receiving
water body and poisoned the water biota in the receiving water bodies (Riyanto, 2016). As batik industry belongs to the
Small Medium Enterprise such environmental precautions can be a big obstacle as it is "difficult, costly and time-
consuming" (Lau and Ismail, 2015). Riyanto (2016) further explains generally to treat batik waste there are four
methods: adsorption, distillation, coagulation and electrolysis. The lowest cost to treat batik waste according to Riyanto
(2016) and Lilin (2016) is adsorption, however, according to them as well as the batik manufacturer, the process
requires patience.
Methods
The researcher uses qualitative approach. Qualitative approach lets us become a more of an insider and uncover the
mind-set of the batik artisans (Cooper & Schindler, 2006), it also gathers a deeper interpretation of specific issues by
listening and by being sensitive to what is being observed and revealed (Denzin & Lincoln, 2011). This research drew
samples from the hand-drawn batik community in Tanjung Bumi, Madura, Indonesia. The informants consist of batik
entrepreneurs who own the batik business and hand-drawn batik artisans. Data collection and interviews were collected
in 2016, April to July.
Questionnaire is set based on Visionary champions, Ethical Maverick, Innovative opportunist. Thus The questions
are about the sustainable intention in a radical fashion, environment awareness, entrepreneuship, values driven. The
questionnaire is confirmed with the interview.
Interviews were conducted with batik experts and the owner of a batik business, Zulpah Batik, and they were conducted
for 45 minutes to an hour. All interviews were audiotaped with the consent of the interviewee and transferred to record
into word.

Batik Making
Generally, the process of making batik consists of the following these three big stages: designing the pattern with
pencil followed by waxing or dyeing the motif, colouring and uncovering the wax, and washing repetitively to get the
colour needed
Batik in Tanjung Bumi. To make a piece of batik as that consists of three colours, the detail the stages of batik
making is ngemplong, pengloyoran, nyorek/waxing, medel, ngerok, nggirahi, mbironi, nglorod (Haake, 1987)
The unfriendly environment process in making the hand-made batik lies on the medel, ngerok, nggirahi and nglorod
stages where the dyeing process is held. If the solid waste-water is released into the gutter or the sea without treatment
the colour in the gutter will be dark and produce unpleasant smell (Wijayanti et al., 2014) that will spoil the
environment.
Batik Industry in Tanjung Bumi –Madura – Indonesia

Batik industries in Tanjung Bumi as well as in other provinces in the country belongs to the SME and have a
significant contribution to national economics (KADIN (2008); Kina, 2004; Nurainun et al., 2008).
Today, the investment in batik industry in Bangkalan district, where Tanjung Bumi lies consists of three divisions: large
- with the record of 30.000 US$ to 37500 US$ investment per year, medium - investment is of 7500-15000 US$ per
year, and small investments have 3750-7500 US$ per year. However, the numbers of batik artisans in the small level is
2907, a lot more compared to the large and medium ones, they are 690 and 176 (Biro Pusat Statistik, Bangkalan, 2015).
The hand-made batik artisans in one batik central are able to produce 300 to 400 pieces of hand-made batik per month
with the price of US$5 to US$12 each piece; in a matter of dozens of pieces per month the price is more than US$200.
In Tanjung Bumi the total numbers of handmade batik artisans are more than 1000 with 530 batik entrepreneurs (Biro
Pusat Statistik, Bangkalan, 2015).
The establishment of Paseseh Village in Tanjung Bumi as a batik village reveals the local government involvement
in creating entrepreneurial spirit to support the development of creative and productive economies in the villages
(Mortono, 2016). Thus hand-made batik industry should be able to improve the economics and social wellbeing of rural
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areas such as Tanjung Bumi.
Local Wisdom
According to Vitasurya (2015), Javanese philosophy, "hamemayu hayuning bawana" meaning "creating a beautiful
world" is related to eco-friendly development as it accentuates "conservation of natural and cultural assets."(p.99). Such
philosophy has been recognised in Central Java for generations since the Mataram kingdom and has been imbued onto
the various ways of local communities way of life. In Madura, the entrepreneurial spirit believed in "aekhteyar" and "se
adhagang adhaging"(Rifai, 2007; p.225) that means people should do their best to earn a living because everyone who
works hard will succeed. Referring to the entrepreneurial spirit such philosophy depicts their ability to innovate in order
to achieve success and has been superbly embedded within the Madura society. Thus, as stated by Smend (2004) social,
cultural and political background is the generator of the economic growth of the local community.
Innovative opportunist signifies a financially oriented entrepreneur who recognises a green niche or opportunity.
Visionary champion refers to the entrepreneur who accepts a transformative, sustainability orientation to change the
world, and has the foresight ability toward sustainable future that envisions hard structural change. Ethical maverick
describes a sustainability orientation characteristic entrepreneur and has a soft structural orientation. For the purpose of
this research, the first three types will be used.
Visionary Championship
This study based on initial mapping aims to draw attention to the objective of this research, the importance of
pervading greenpreneurship for the batik industry in Indonesia through local wisdom. The existence and the need of
greenpreneurship have never been fully understood by the batik craftsmen. The motivation for doing batik is based on
their leisure time and done because they are waiting for their husbands to come home from sailing. Therefore, the
knowledge about greenpreneurship is something very new to them. However, they are aware of the impact of chemical
dyeing to their beauty. Many of the batik artisans' refuse to do the colouring stage because the chemical dyes stay in the
hands of the assigned workers. Most workers choose to wax the pattern into the cloth than dyeing. Their understanding
about the danger of liquid waste water to their health, except on beauty. The visionary champion is supposed to make
societies and economies more sustainable in a radical fashion. Therefore, finding the real motivation from the batik
artisans are crucial. The batik artisans are asked to answer the questionnaire regarding the relationship of batik to their
culture; their understanding about the negative impact on discharging unprocessed wastewater; their understanding
whether batik wastewater can dispose of anywhere; their understanding about the need of a disposal site to discharge
batik waste water. The very low percentage is for the negative impact on discharging unprocessed wastewater, 41% but
very high for other subjects whilst the highest is their understanding of cultural values to batik. When confronted about
this, their reaction is surprising because they would like to protect their cultural values the hand-drawn batik as it has
been their legacy for hundred of years. Visionary champion refers to the entrepreneur who accepts a transformative
"sustainability orientation to change the world..."(Walley & Taylor, 2002; p.40). It is through the pride of the hand-
drawn batik artisans' toward the value of their product the champion of sustainability to set out to change the world of
the present hand-drawn batik artisans can be achieved. Batik industries in Tanjung Bumi as well as in other provinces in
the country belong to the SME (Kina, 2004; Nurainun et al., 2008).
Ethical Maverick
Ethical maverick describes sustainability orientation entrepreneur characteristics and has a soft structural
orientation. The result of testing on innovative opportunist reveals that the highest percentage is at the negative level.
This result indicates that greenpreneur from the innovative opportunist perspective is never influenced by hard
structural drives such as regulations. This may also shows that regulation or policy by the government may not have
reached them and therefore the hand-drawn batik artisans' motivation is mostly influenced only the people around them,
such as families and friends who are fellow batik craftsmen. This is coherent to the condition, of how little their
understanding toward the dangerous effect of the liquid wastewater to the environment, health, cost of producing batik.
The vision to change the "world" in the industry is only "influenced by their friends, networks and past experience"
(Taylor & Walley, 2003). As Taylor and Walley (2003) stated that the motivation to apprehend greenpreneurship is
likely a large family involvement into the concept. Most of the batik artisans are families related or friends who are
close to the families.
Innovative Opportunist
The analysis from the hand-drawn batik entrepreneurs percentage is mediocre, 66%, means that the artisans are
insufficient to recognising a green niche or opportunity. Simply said, the present situations to meeting greenpreneurship
are inadequate. Greenpreneuship concept as the impetus for innovation is very weak so innovation as "creative
destruction" reaching to a new way of facing problems (Schumpeter, 2013) is inadequate. The reason is the hand-drawn
batik artisan mostly have almost zero knowledge about chemical and natural dyeing. Therefore, they have problems to
differentiate chemical batik dye or natural batik dye and its relation to the product. On the contrary, the independent
characteristics from the batik artisans showing a 70 percentage level on some factors such as their independency in
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using the technique to waxing the batik pattern, in determining the wage as artisans, therefore they are free to choose
which central batik they are willing to work for, in allocating a number of hours to wax the batik pattern which is only
during their leisure hour. These factors according to Lennox and York (2011) indicate the motivation for
entrepreneurship characteristics: independence preference, a strong desire for achievement, and high desired for
independence, 2) high need for achievement, and 3) enthusiastic love for work. The condition is relevant to the
innovative model and it is similar to the financially oriented entrepreneur.

In facing up the challenges of embedding greenpreneurship to batik industry in Indonesia, there is a deeper demand
for a paradigm shift from the traditional paradigm of producing hand-drawn batik to the environmentally friendly
product. This research is able to capture the motivation of the hand-drawn batik artisans. The visionary championship,
ethical maverick and innovative opportunist enable the study to discover motivations within the local hand-drawn batik
artisans in Tanjung Bumi, Indonesia. The three alternative orientations of green entrepreneur up to this level identify the
local wisdom such as the cultural values appreciation, the very close family ties within the society, the local
entrepreneurial characteristics. Given the fact that entrepreneurs manage to re-invent, the evolution of hand-drawn batik
might move from the present to the greenpreneurship business orientation in the future.
However to integrate greenpreneurship to the local business it is necessary to make further research on structure
action framework: collecting data regarding initiatives that arises from the local people and the social structure, how the
motivations discovered are adopted at the practical level that can be beneficially categorised into different levels of cost
motivated environmentalism or to foster greenpreneurship.
To support the growth of greenpreneurship for the batik industry, universities should be called to play a leader.
Campuses
have been living side-by-side with many economically depressed communities. Hence their leadership role on the local
level in a more and more globalized world is un-avoided.
To the batik communities, universities participation may contribute to the preservation of valuable local culture. The
implementation of the international knowledge can be the interconnection of the following subjects: how to run a
greenpreneurial business and profitable, handling or managing wastewater, sharing knowledge about the principals of
using chemical and natural colouring to stay healthy, and how to keep and preserve the traditional design - but also to
develop the new batik motif or patterns.
Handling wastewater from batik requires patience and a long process. The participation of universities to support the
long treatment can be a powerful vehicle for understanding and addressing issues of wastewater management.
Consequently, the local batik communities will be able to produce an environment-friendly product. For this purpose,
there is a need for an interdisciplinary manner or collaboration across disciplines and division on campus.
Acknowledgement: The researchers would like to thank Directorate General for Higher Education for their Grant in
supporting this research. It is under the scheme of Hibah Unggulan Perguruan Tinggi with the Agenda:
007/SP2H/LT/DRPM/II/2016, dated 17th February 2016 No.218/SP2H/LT/DRPM/III/2016, on the 10th of March 2016.
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DETERMINANTS OF FINANCIAL RISK ATTITUDE AMONG THE HANDLOOM

MICRO-ENTREPRENEURS IN NORTH EAST INDIA
Kishor Goswami1), Kalpana Handique2), Bhabesh Hazarika3)

1) 2)
Indian Institute of Technology Kharagpur, Kharagpur, India
3)
National Institute of Public Finance and Policy (NIPFP), New Delhi, India
1)
kishor@hss.iitkgp.ernet.in
Abstract
The rural non-farm micro-entrepreneurial activities in the informal sector hold significance in generating employment,
removing poverty and income inequality. The handloom industry in India holds a distinctive place in the Indian
economy as the second largest provider of rural employment after agriculture. The North Eastern (NE) states of India
accounts for more than 65 percent of the total handloom households in India. However, with only 4.26 percent of the
total working looms utilized fully for commercial purposes, the industry is beset with manifold problems such as
obsolete technologies, unorganized production system, low productivity, inadequate working capital, conventional
product range, weak market linkages, and competition from the power loom and mill sectors. Undertaking financial risk
plays here a defining role in determining the success of entrepreneurial pursuits. Based on the primary data collected
from 344 respondents, the present study analyzes and estimates the various determinants influencing the financial risk
attitude of the handloom micro-entrepreneurs across three NE states of India using the Ordinal Probit model.
Education, access to credit, access to training, and individual’s income play a crucial role in influencing the risk
aversion of the micro-entrepreneurs. These determinants are found to have a more dominant influence in lowering the
risk aversion of female micro-entrepreneurs as compared to the male micro-entrepreneurs. The study suggests for
providing vocational education and training programs that focus on entrepreneurship education to the rural female
micro-entrepreneurs. Besides, it suggests for the provision and implementation of various financial inclusion programs
for easy access to credit with proper follow up programs to ensure the effective utilization of credit, with a major focus
on the female micro-entrepreneurs.
Keywords: Micro-Entrepreneurs, Rural And Non-Farm, Handloom, Financial Risk Attitude, Gender
Introduction
The micro-entrepreneurial activities in the informal sector hold significance in generating employment, removing
poverty, and income inequality. Risk bearing capacity distinguishes an entrepreneur from other individuals that appears
crucial in entrepreneurial success (Bardasi, Sabarwal, & Terrell, 2011; Ivanova & Ivanova, 2011). For an entrepreneur,
every step that is undertaken in conducting the business can be turned into an opportunity which depends on how
efficiently an entrepreneur undertakes and manages the associated business and financial risks. In the face of growing
market competition, the informal sector micro-entrepreneurs are less able to take the advantages of market opportunities
compared to the larger firms (Carr, Chen & Tate, 2000). The rural non-farm micro-entrepreneurs need to invest more to
be more innovative and to produce high-quality products, thus increasing one’s financial risk. Hence, it becomes
important to study how one’s attitude towards financial risk influences the investment, earnings, and overall business
performance. From gendered perspective, existing data reveal a higher participation rate of women in micro-
entrepreneurial activities in the informal sector especially in the developing countries (Carr et al., 2000). However,
women are often outperformed by their male counterpart, and thus it is also crucial to study the risk attitude of the
micro-entrepreneurs across gender.
The handloom industry in North East India (known as the handloom reservoir) faces manifold problems such as
obsolete technologies, unorganized production system, low productivity, inadequate working capital, conventional
product range, weak market linkages, etc. Considering the situation, new approaches to entrepreneurial activities which
include modern technology adoption, scaling up of different production activities, employment of skilled personals, etc.,
become crucial to cope up with the increased market challenges. In order to undertake such activities, a significant
amount of financial capital is required and thus, the entrepreneurs need to bear financial risk. There exists heterogeneity
in entrepreneurial performance due to the variation in risk attitude at individual level. Thus, there is a need to study how
individual’s attitude towards financial risk is shaped and what are the responsible factors. From gendered perspective,
though the female dominates the handloom workforce, the female has a lower participation rate in entrepreneurial
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activities in the handloom industry in North East India (Bortamuly, Goswami, & Hazarika, 2013; Hazarika, Bezbaruah,
& Goswami, 2016).
Given the above perspective, the present study attempts to analyze the determinants of attitude towards financial risk
of the micro-entrepreneurs in the context of the rural, non-farm, and informal sector. For the operational purpose, the
study focuses on an under-researched area of handloom micro-entrepreneurship of North East India, a geographically
and economically peripheral but strategically significant region of India.
Overview of handloom industry in North East India

With 3.5 million looms, the handloom sector provides employment to about 4.23 million people in India. North East
India accounts for more than 65 percent of the total handloom households in India. Assam alone accounts for 1.24
million (44.59%) handloom households followed by Manipur (6.43%)) and Tripura 0.12 (4.35%). The region has a
congenial climate for the healthy growth and development of the sericulture industry holding the unique distinction of
being the only region producing all the four varieties of silk viz., Mulberry, Tassar, Eri, and Muga. The region
contributes 15 percent of the India’s total silk production and produces100 percent of Muga, 99 percent of Eri, 60
percent of Tassar, and 1 percent of Mulberry silk (Central Silk Board, 2015).
The handloom micro-entrepreneurial activities in the region are at an early stage characterized by informality,
unorganized, and less commercialized. Despite being the handloom reservoir of India, North East India accounts for the
lowest percentage (4.26%) of commercial looms in 2009-10 (MCAER, 2010). While, the traditional silk producing
countries like Japan, Korea, Brazil, and Russia have drastically cut down their production due to different socio-
economic reasons, the North East India with its close proximity to the South East Asian markets has the potential to
transform herself into a major marketing hub. With technology up-gradation, improvement in design capability,
diversification of product lines and value addition, improvement in labor productivity, better access to domestic and
export markets, the handloom industry of the region can compete and make a place for itself in the world market.
Review of Literature
In the domain of entrepreneurial decision making, risk is considered to be a vital element. Entrepreneurs often make
business and financial decisions under risk and uncertainty. Literature suggests that the attitude towards risk is an
important predictor of entrepreneurial success (Ivanova & Ivanova, 2011). The entrepreneurial risk and uncertainty are
often found in the form of market fluctuations, lack of financial and business knowledge and access, inability in
evaluating the costs associated with inputs, and resource limitations.The difference in the risk perception leads to
heterogeneity in the risk attitude across individuals that further leads to heterogeneity in entrepreneurial involvement
and performance.
Literature suggests that a host of socio-economic and personal determinants such as age, gender, occupation, marital
status, income, and expectations shape one’s inclination towards taking financial risks (Grable, 2000; Lévesque &
Minniti, 2006; Adhikary, Pradhan, & Saharia, 2011; Brauw & Eozenou, 2014). While a few studies suggest a positive
relation between age and risk attitude, a few others have found a negative relation between the two. Adhikary et al.
(2011) found that young entrepreneurs are more ambitious and well aware of the importance of modern technologies
that motivate them to bear more risk. In contrast, the accumulated experiences enable one to deal with business
issues/challenges under uncertainty (Lévesque & Minniti, 2006). Studies established that an individual with a higher
level of educational attainments is less likely to be risk-averse (Brauw & Eozenou, 2014). An entrepreneur’s
asymmetric information about future outcomes may lead to subjective risk aversion. Hence, education, by directly
improving an individual’s ability to receive and process information, lowers one’s subjective risk aversion. Likewise,
through indirect effects via wealth and access to credit, education tends to lower the risk aversion. Likewise, the
contextual factors such as family background of self-employment/micro-entrepreneurship positively influence the risk
bearing capacity of an entrepreneur (Humbert & Brindley, 2015).
Micro-entrepreneur’s family size acts as an important determinant in undertaking risky decisions. Having bigger
families with more adult members enables one to take more risks in general (Gong & Yang, 2012). Moreover,
individuals whose spouse is ready to undertake financial risk are more willing to undertake risk than those whose
spouse is risk adverse (Grazier & Sloane, 2008).
In the context of handloom industry, the financial risk of micro-entrepreneurs lies in investment in raw materials and
weaving machinery required to efficiently undertake different handloom activities (Hazarika et al., 2016). Besides, a
very high rate of interest charged on the credit obtained from the informal financial sources also appears as another
source of financial risk for the handloom micro-entrepreneurs (Hazarika et al., 2016). Inaccessibility to finance is one of
the primary constraints faced by the handloom micro-entrepreneurs in the rural areas of the region. Hence, the micro-
entrepreneurs rely mostly on their internal sources of finance like personal savings, family income, and other informal
sources like money lenders than the formal sector such as banks to finance their micro-entrepreneurial activities
(Hazarika et al., 2016). The attitude of the micro-entrepreneurs towards financial risk play an important role in
influencing their borrowing decisions from various sources of finance. Hence, it becomes important to analyze the
financial risk attitude of the handloom micro-entrepreneurs and what are the roles it plays in determining the
entrepreneurial performance.
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Data and Methodology

The present study is based on primary data collected from 332 handloom micro-entrepreneurs from three North East
Indian states namely Assam, Arunachal Pradesh, and Meghalaya. Respondents are selected following a simple random
sampling from the village level list of handloom micro-entrepreneurs. Data are collected from the micro-entrepreneurs
through a face-to-face interview that used a semi-structured interview schedule. Following the approach of Holt and
Laury (2002), the present study uses expected utility theorem characterized by constant relative risk aversion (CRRA)
to link the experimental results with economic theory. Based on the expected utility model, the form of the CRRA
utility function is given as follows.
U(y) = y − ; x > 0
1 r
where y is the choice of winning money, and r is the coefficient of risk aversion. The specification implies the risk
preference for r < 0, risk neutral for r = 0, and risk aversion for r > 0. The natural logarithm is used when r = 1, and
divided by (1 – r) for increasing the utility when r > 1.
The dependent variable is derived using the approach of Holt and Laury (2002) involving a discrete category
response with ordered alternatives (10 categories from extreme risk-lover to extreme risk-averse). In order to assess the
impact of socio-economic, demographic, and other determinants on risk preference of the handloom micro-
entrepreneurs, the present study uses an ordered probit model as given below.
Z*im = Xi β + ui
Or, Z*im = β0 + β1 Female + β2 Caste + β3 Age + β4 Education + β5 Past business + β6 Access to training
+ β7 Financial inclusion + β8 ln Annual income + β9 Family size + β10 Marital status + β11 Bookkeeping + ui
*
where Zim is a latent variable measuring the risk attitude of the respondent and X i is the vector of explanatory variables.
The error term (ui) is assumed to be normally distributed.
Driven by subjective expected utility theory (Savage, 1954) and the prospect theory (Kahneman & Tversky, 1979)
and the literature review, a host of personal and contextual determinants are identified to analyze the risk behavior of
the handloom micro-entrepreneurs in North East India (Table 1). Within the personal determinants, the present model
includes gender, caste, marital status, age, and education (Grable, 2000; Lévesque & Minniti, 2006; Brauw & Eozenou,
2014). Within the contextual determinants, it includes family size, family business background, access to training,
financial inclusion, bookkeeping maintenance, and income (Grazier & Sloane, 2008; Humbert & Brindley, 2015). Table
1 presents the description of the determinants of attitude towards financial risk in the context of handloom micro-
entrepreneurship in North East India.

In line with the previous studies (Hazarika et al., 2016), the female handloom micro-entrepreneurs appear to be more
risk-averse compared to their male counterpart. Compared to the ST category, the micro-entrepreneurs belong to SC,
OBC, and others appear to be more risk-averse in making any financial decision in handloom activities. While most of
the studies reveal a significant relationship between age/experience and risk attitude, the present study fails to generate
enough evidence for significant association between the two (Table 1).
Results suggest that education tends to reduce the inherent risks in handloom entrepreneurial activities by reducing
the uncertainty because of an enhanced ability to receive, decode, and understand the related information. While its
influence is negligible for the males, it significantly and negatively influences the risk aversion attitude of the females.
However, while the distribution of educational attainments for the males is somewhat similar across the risk groups, it
appears heterogeneous for the females. Those who attended a higher level of schooling enhanced their ability to receive,
decode, and understand information which in turn decrease their risk aversion attitude. Therefore, the existing programs
for promoting girl’s education should be supported. Similarly, the handloom related training programs found to enhance
the adoption modern handloom practices. However, it appears more influential for the females compared to the males.
Therefore, the provisions for vocational education and training programs should be enhanced that focus on
entrepreneurship education to the rural female micro-entrepreneurs. Financial inclusion appears important in shaping
one's attitude towards risk. Provision of credit facilities enhances one’s capability in mobilizing and allocating the non-
financial productive resources. Therefore, the provision and implementation of various financial inclusion programs for
easy access to credit with proper follow-up programs should be enhanced.
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Table 1: Descriptive statistics and the ordinal probit estimates of the determinants of attitude towards financial risk
Description of the Measurement Mean values Ordinal probit results
Determinant
determinant unit All Male Female All Male Female
Gender of the Binary: Male =
Female 0.587 -- -- 0.529*** -- --
respondent 1, Female = 2
Caste: ST 0.572 0.376 0.680 Base category
SC 0.114 0.190 0.062 0.965** 7.240 7.240
OBC 0.078 0.088 0.072 1.260** 7.480 7.480
General 0.235 0.336 0.164 1.191*** 7.805 7.805
State: Assam 0.461 0.645 0.365 Base category
Arunachal Pradesh 0.253 0.197 0.292 0.827* 8.459 −0.174
Meghalaya 0.286 0.168 0.369 1.712 9.137 0.854*
39.18
Age Age of the respondent In year 39.876 38.703 −0.005*** 0.031* −0.013
7
Square term of age 91.39
Age2 In number 92.553 90.582 0.001 −0.001 0.001
centering at mean 5
Education Years spent in school In year 7.217 8.964 5.990 −0.077*** −0.039 −0.095***
Square term of
14.83
Education2 education centering at In number 14.736 14.896 −0.009** −0.017** −0.007
0
mean
Family background of Binary: Yes =
Past business 0.482 0.584 0.410 −0.183 0.002 −0.357*
handloom business 1, No = 0
Access to Access to institutional Binary: Yes =
0.142 0.153 0.133 −1.209*** −0.880*** −1.434***
training training 1, No = 0
Financial Binary: Yes =
Having a bank account 0.720 0.708 0.728 −0.344** 0.163 −0.561***
inclusion 1, No = 0
Natural logarithm of
Annual
annual income of the In number 9.921 10.525 9.498 −0.282** 0.343 −0.687***
income
respondent
Total number of
Family size In number 5.229 4.985 5.400 0.032 −0.053 0.056
household members
Marital status of the Binary: Married
Married 0.913 0.898 0.923 −0.166 −0.442 −0.431
respondent = 1, Others = 0
Maintenance of Binary: Yes =
Bookkeeping 0.268 0.416 0.164 −0.141 −0.576** 0.069
bookkeeping 1, No = 0
Sample 332 137 195 332 137 195
LR Chi2 245.190 105.820 150.780
Log likelihood −604.152 −208.097 −353.402
Note: ***, **, and * represent significant at 1 percent, 5 percent, and 10 percent respectively.
The influence of individuals' income is found to be negative and significant on risk aversion attitude of the
handloom micro-entrepreneurs. Results also suggest that financially sound females are less risk averse compared to
others. Apart from investment opportunities, higher income provides a safeguard for unwanted business failure.
Contrary, the male micro-entrepreneurs are more organized and often keep the business records. As expected, such
entrepreneurs are found to be less risk averse. Turning to locational effects, micro-entrepreneurs in Arunachal Pradesh
(in overall) and Meghalaya (among females) are more risk-averse compared to Assam. Such difference can be attributed
to the state-level macro differences on educational attainments, infrastructure, and financial provision.
Conclusion
With no exception to the literature, the female handloom micro-entrepreneurs are more risk-averse compared to their
male counterpart. Education has a direct effect on reducing the risk aversion attitude through the changes in subjective
perception about associated risk and uncertainty. The study also establishes locational effects on risk aversion that the
micro-entrepreneurs in Assam are less risk-averse than those in Arunachal Pradesh and Meghalaya. Such differences
can be attributed to the differences in aspects at macro-level. Nevertheless, the study suggests for the provisions for
vocational education and training programs that focus on entrepreneurship education towards pro-risk attitude. Besides,
the provision and implementation of various financial inclusion programs, follow-up programs are also important from
the policy perspective to ensure the effective utilization of credit, with a major focus on the female micro-entrepreneurs.
Acknowledgement
Authors are thankful to the Indian Council of Social Science Research (ICSSR), New Delhi, India for providing
financial support to this work.
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References
Adhikary, M. M., Pradhan, K., & Saharia, R. (2011). Analysing the risk orientation of cane and bamboo handicraft
entrepreneurs with respect to their socio-economic correlates in Assam. Journal of Crop and Weed, 7(2), 217-219.
Bardasi, E., Sabarwal, S., & Terrell, K. (2011). How do female entrepreneurs perform? Evidence from three
developing regions. Small Business Economics, 37(4), 417-441.
Bortamuly, A. B., & Goswami, K. (2012). Factors influencing wage structure of handloom workers in Assam. Journal
of Rural Development, 31(1), 139-150.
Bortamuly, A. B., Goswami, K., & Hazarika, B. (2013). Determinants of occupational choice of workers in the
handloom industry in Assam. International Journal of Social Economics, 40(12), 1041-1057.
Brauw, A., & Eozenou, P. (2014). Measuring risk attitudes among Mozambican farmers. Journal of Development
Economics, 111, 61-74.
Carr, M., Chen, M. A., & Tate, J. (2000). Globalization and home-based workers. Feminist Economics, 6(3), 123-142.
Central Silk Board. (2015). Annual Report 2014-15. Bangalore: Central Silk Board.
Gong, B., & Yang, C. L. (2012). Gender differences in risk attitudes: field experiments on the matrilineal Mosuo and
the patriarchal Yi. Journal of Economic Behavior & Organization, 83(1), 59-65.
Grable, J. E. (2000). Financial risk tolerance and additional factors that affect risk taking in everyday money matters.
Journal of Business and Psychology, 14(4), 625-630.
Grazier, S., & Sloane, P. J. (2008). Accident risk, gender, family status and occupational choice in the UK. Labour
Economics, 15(5), 938-957.
Hazarika, B., Bezbaruah, M. P., & Goswami, K. (2016). Adoption of modern weaving technology in the handloom
micro-enterprises in Assam: a double hurdle approach. Technological Forecasting and Social Change, 102, 344-
356.
Holt, C. A., & Laury, S. K. (2002). Risk aversion and incentive effects. American Economic Review, 92(5), 1644-
1655.
Humbert, A. L., & Brindley, C. (2015). Challenging the concept of risk in relation to women’s entrepreneurship.
Gender in Management: An International Journal, 30(1), 2-25.
Ivanova, Y. D., & Ivanova, A. M. (2011). Gender effects on risk-taking of entrepreneurs: evidence from Bulgaria.
International Journal of Entrepreneurial Behavior & Research, 17(3), 272-295.
Kahneman, D., & Tversky, A. (1979). Prospect theory: an analysis of decision under risk. Econometrica, 47(2), 263-
291.
Lévesque, M., & Minniti, M. (2006). The effect of aging on entrepreneurial behavior. Journal of Business Venturing,
21(2), 177-194.
Ministry of Textile (2016). Annual Report 2015-16. New Delhi: Government of India.
NCAER (2010). Handloom Census of India 2009-10. New Delhi: Government of India.
Dr. Kishor Goswami is an Associate Professor of Economics in the Department of Humanities & Social Sciences,
Indian Institute of Technology Kharagpur, India. He received his doctoral degree in Economics from Indian Institute of
Technology Kharagpur, Kharagpur, India. His research focuses on Development Economics (micro-entrepreneurship,
credit risk, technology adoption, gender and trade, women empowerment, and poverty), Agricultural Economics, and
Economics of Biofuels.
Ms. Kalpana Handique is a Research Scholar of Economics in the Department of Humanities & Social Sciences,
Indian Institute of Technology Kharagpur, Kharagpur, India. Her research focuses on micro-entrepreneurship, financial
risk attitude, and women empowerment.
Dr. Bhabesh Hazarika is an Economist at National Institute of Public Finance and Policy, New Delhi, India. He
received his doctoral degree in Economics from Indian Institute of Technology Kharagpur, Kharagpur, India. His
research interests are in the areas of economics of choice, entrepreneurship, public finance, public expenditure
management, and gender and income inequality.
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ANTECEDENTS AND CONSEQUENCES OF PERCEIVED DECEPTION:

A STUDY OF GLOBAL LUXURY SKIN CARE BRANDS IN INDONESIA
Evi Rinawati Simanjuntak1), Irwin Saputra2)

1
Binus Business School, Bina Nusantara University, Jakarta, Indonesia
1)
esimanjuntak@binus.edu
Abstract
The authors performed research to investigate the influence that consumers’ traits and beliefs have on perceived
deception from global luxury skin-care brands, as well as to examine the impact of perceived deception on brand trust,
purchase intention and word of mouth. The context of this study is global luxury skin care brands in Indonesia.
We deployed a cross-sectional survey on 180 luxury skin-care consumers in Indonesia. Appropriate measures were
developed based on previous studies, and tested across reliability and validity aspects. Multiple regression is used to
test the hypothesis.
The results of the empirical analysis showed that Internet-based information searches, perceived Internet usefulness,
risk aversion, and skepticism as antecedents positively affected perceived deception. Findings confirm the three
consequences of perceived deception: purchase intention, negative word of mouth, and brand trust. Comparing the
results between genders suggests that perceived deception is stronger in females than males. The findings are robust
across types of retail channels (online vs. in-store).
The value of this study is to give understanding on how perceived deception can be formed using a holistic perspective
of cognitive, psychographic and belief traits. The study helps marketers to avoid and reduce consumers’ perceptions of
deceptive product information and the negative impact towards their business. Some managerial implications to lessen
perceived deception are provided.
Keywords:Perceived Deception, Cognitive Traits, Psychological Traits, Belief Traits, Luxury Skin Care
Introduction
Deceptive marketing is a condition where a company tries to hold back the truth and act as if the company is trying
to help the consumer, while the purpose was to profit from customer spending (Boush, Friestad & Wright 2009). There
are many examples of deceptive marketing such as misleading advertising, considered as false presentations done
publicly, which later influenced the consumers to commit certain actions in response to the advertising. Past researchers
stated that customers were experiencing mistrust (Darke & Ritchie, 2007) and this led to self-protective actions in
traditional transactions as well as in Internet transactions because it could undermine the customer’s confidence to
purchase (Chen & Huang, 2011).
Prior studies separately suggested that cognitive, psychographic (Riquelme & Román, 2014), as well as belief traits
(Ingram, Skinner, & Taylor, 2005) affected perceived deception and played an important role in how consumers
evaluated their decision prior to purchase, considering both platforms of online and traditional retail. In their study,
Riquelme (2014) also noted that studying the consumer characteristics was important to understand potential sources of
consumers’ deceptive evaluation. The authors were aware of the analysis regarding antecedents of perceived deception;
however there had been no further study towards the consequences of perceived deception. This gap is to be filled in
this study.

This study focused on the product-related deceptive practice, not on the common or actual deceptive practice. It was
adapted from the common perceptions that deception did not only emanate from the lies given by one subject to
another, but also from: information that was insufficiently transferred; the degree of truthfulness in the information; the
relevancy and; the intention of the information (Román, 2010).
Internet Based Information Search (IBIS)

IBIS is defined as the process where consumers gather information from the internet rather than collecting
information from traditional retailers, salespersons, or peers for example (Jepsen, 2007). The higher the level of IBIS,
the lower the perceived deception felt in the consumers’ decision-making process.
H1: Internet-based information search (IBIS) has a negative relationship with perceived deception.
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Perceived Internet Usefulness (PIU)

Perceived Internet Usefulness is the individuals’ perceived utility in using the internet to solve specific tasks and
problem-solving (Davis, 1989). In the context of online consumer behavior, PIU would affect numerous attitudes,
including how they looked at persuasive and perceived deception (Bruner II & Kumar, 2005).
H2: Perceived Internet Usefulness (PIU) has a negative relationship towards perceived deception.
Shopping Enjoyment
Shopping enjoyment is a hedonic utility that was felt by the shoppers from purchasing products (Konus, Verhoef, &
Neslin, 2008) and represents emotional qualifications and satisfaction (Kirgiz, 2014). Shopping enjoyment allows
consumers to understand more about deception and identify it, and thus would dampen the formation of perceive
deception.
H3: Shopping enjoyment has a negative relationship with perceived deception.
Materialism
Materialism is a belief where the importance of possessions determines the individuals’ life (Richins & Downson,
1992). Materialistic consumers were more likely to demand cognitive closure (Rindfleisch, Burroughs, & Wong, 2007)
hence were more prone to being deceived.
H4: Materialism has a positive relationship with perceived deception.
Risk Aversion
Risk Aversion is a state where consumers respect the amount of risk that they are willing to incur in a situation, in
order to avoid its negative impact (Matzler, Bidman, & Kraüter, 2008). When consumers feel threatened by situations
that were not comprehensible, they responded by avoiding such situations.
H5: Risk aversion has a positive relationship with perceived deception.
Skepticism
Skepticism is a trait that influences individual doubt about elements appearing in many kinds of marketing (Fransen,
Smit, & Verlegh, 2015). Skeptical individuals tend to critically process advertisements, due to their higher concern
about being misinformed (Obermiller & Spangenberg, 1998).
H6: Skepticism has a positive relationship with perceived deception.
Commitment towards brand (CTB)

The commitment to a brand is the result of attachment in the cognitive and emotional connection of consumers
(Chaplin & John, 2005). Customers who exhibited commitment toward certain brands would be resistant to acquisition
of the negative or conflicting information, from online and traditional sources about the brand.
H7: Commitment to the brand (CTB) has a negative relationship with perceived deception.
Purchase Intention
Purchase intention is the likelihood that customers would buy a particular product or service (Chien & Han, 2014).
Darke and Ritchie (2007) argued that perceived deception led to a negative effect on purchase intention, as well as
various negative attitudes of the consumers, such as decreasing trust.
H8: Perceived deception has a negative relationship with purchase intention.
Word of Mouth
Products that have positive WOM would be much more favored by consumers. Martin and Camarero (2009) suggest
that perceived deception by the consumers triggered negative WOM, which will deviate the consumers away from the
brand.
H9: Perceived deception has a positive impact on negative WOM.
Brand Trust
Brand trust is a positive association that takes place related to sincerity, reliability and honesty that comes from
forming trust (Kumar & Advani, 2005). Deceptive tactics strongly reduce brand trust, as it is the claim that deception
misguides consumers and caused them to make a wrong decision (Zhou, Wu, & Zhang, 2014).
H10: Perceived deception has a negative relationship with brand trust.
From the ten hypotheses, the following model is proposed:
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Figure 1. Theoretical Framework
Method
We use a cross-sectional study to survey individual consumers who had purchased and experienced the effect of
luxury skin care brands for at least one year, using judgmental sampling that allowed the researcher to apply
professional judgment to select the sample. Measures are taken from previous research to provide face validity of the
measurement. Reliability analysis was done using Cronbach’s Alpha with 0.6 as the marginal cut off, while validity is
tested using confirmatory factor analysis, with 0.7 as minimum loading factor. All variables passed the cut off values;
hence reliability and validity are confirmed. We used two separate regression analysis; the first regression tests the
impact of antecedents and the second regression tests the consequences of perceived deception.

Multiple regression is conducted to test all seven hypotheses towards perceived deception with the result provided in
Table 1. The result shows that IBIS, PIU, risk aversion, and skepticism have an impact on perceived deception, with
skepticism as the strongest predictor and risk aversion as the weakest one.
Table 1. Hypothesis testing result (Antecedents)

Dependent Independent R
Constant β ANOVA Sig. Conclusion
Variable Variable Square
IBIS -0.237 0.000 H1 supported
PIU -0.185 0.000 H2 supported
Shopping
-0.085 0.064 H3 not supported
Perceived Enjoyment
0.948 4.596 0.000
Deception Materialism 0.025 0.579 H4 not supported
Risk Aversion 0.123 0.016 H5 supported
Skepticism 0.264 0.001 H6 supported
CTB -0.053 0.339 H7 not supported
Bi-variate regression is conducted to all the remaining three hypotheses of perceived deception towards purchase
intention, brand trust, and negative word of mouth, with the results provided in Table 2. Perceived deception has a
strong impact on all three consequences, with the strongest impact on negative WoM.
Table 2. Hypothesis testing result (Consequences)

Dependent Independent R
Constant β ANOVA Sig. Conclusion
Variable Variable Square
Purchase Perceived
0.872 7.712 -0.947 0.000 0.000 H8 supported
Intention Deception
Negative Perceived
0.879 -0.215 1.039 0.000 0.000 H9 supported
WoM Deception
Perceived
Brand Trust 0.922 8.016 -0.999 0.000 0.000 H10 supported
Deception
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In the context of the study, consumers of luxury skin-care brand who enjoys the shopping activity would be biased
by the enjoyment itself; therefore their cognitive process may not be highly effective to detect perceived deception.
Luxury consumers may also develop different consumption attitudes, provided the basis of their purchase decision is
biased from cognitive evaluation and more a hedonic evaluation. When cognitive evaluation is hindered, perceived
deception is not developed. The findings also show that the commitment towards brand does not impact on the
perceived deception. Consumers might re-evaluate their past experience (belief trait) about the information source that
is actually able to help them make a better decision.
Independent t-test (online vs. in-store retailers) reveals that there is no difference between channels (p=0.253, p>
0.05), while across gender there is difference (p<0.05) with females showing higher levels of perceived deception
(M=5.4) than male (M=2.6). Female consumers are more likely to develop perceived deception attitudes compared to
male consumers and are affected more by emotional factors than cognitive reasoning (Kray, 2014).
Managerial Implication
While the internet may still be seen as a dubious channel for luxury brands to sell luxury skin care products, to use it
as communication media is considered necessary. High quality content is viable in delivering factual, scientific, and
logical information that makes the brand trustful.
Marketers need to have not only a communication strategy but also a listening strategy to counter any negative
WoM effect. The deployment of social media analytic tools is one of the ways to proactively monitor conversation
about the brand on social media.
Research Limitation
Some limitations are identified in this study; firstly, the sample may not representative enough. Secondly, there are
differences in previous experience that cause them to question the marketing practice. Lastly, skin care products are
complicated offerings in the market to the extent that the effect might differ from one individual to another, depending
on their skin type and usage pattern and this aspect is difficult to control in this study. Further research to cover the
above unexplored parameters and to overcome those limitations is required.
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Konus, U., Verhoef, P. C. & Neslin, S. A. (2008). Multichannel shopper segments and their covariates. Journal of
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THE EFFECT OF LEADERSHIP STYLE TOWARDS CORPORATE CULTURE AND

THE IMPLEMENTATION OF GREEN MANAGEMENT AND ITS IMPACT ON
COMPANY PERFORMANCE
Kusdi Raharjo1), Destiana2), Arik Prasetya3)
Dept. of Business, Fac. of Administration Science, Brawijaya University, Malang – Indonesia

1)kusdi_sbu@yahoo.com
Abstract
Environmental degradation is a serious problem that should be properly addressed. Green management is an
alternative solution for the issue. Previous studies have shown the important role of leadership and corporate culture in
designing company’s business process. The purpose of this study are to explain the relationship between leadership
styles, corporate culture, green management and company performance. This study included data on the
implementation of green management in 54 SMEs. Findings show that leadership style impacted corporate culture,
adoption of green process, and company performance.
Keywords: Leadership Style, Corporate Culture, Green Management, SME, Organizational Performance
Introduction
Since the establishment of the Kyoto Protocol in 1998, environmental damage has become a global issue. Everyone
realized how severe environmental damage had been and began to be aware of the importance of environmental
sustainability. Environmental degradation may be caused by natural disasters such as volcanic eruptions, earthquakes,
and floods or caused by humans through processes like deforestation, carbon monoxide emission and excessive use of
chemical substance. The industrial sector is currently the largest contributor for environmental degradation.
SMEs are a unique phenomenon. On one hand, the industry can provide job opportunities and contribute up to 23%
towards the National Gross Domestic Product (Ministry of Cooperatives and Small and Medium Enterprises, 2012). On
the other hand, SMEs have also caused major damage to the environment due to the limited human resource, financing,
and technological devices they are privy to. Various evidence supports the claim, 60-70% of environmental damage
cases in Europe can be traced back to SMEs (European Commission, 2010 in Hoogendoorn et al, 2014). In the UK,
SMEs produced up to 60% of the country’s carbon dioxide (CO2) emissions. Similar conditions occur in France where
SMEs resulted in air pollution, excessive water and energy consumption (40 - 45%) and contributed to 60-70% of the
total industrial waste in the country (Daddi et al 2010; Iraldo et al 2010). Indonesian SMEs, particularly the tapioca,
tofu, batik, and livestock industries have produced 2.3 million tons of water pollutant and 0.96 million tons of methane
that is equal to 24 million tons of CO2 (Ministry of Environment, 2014).
Implementation of green management, particularly in SMEs, may prevent further damage to the environment. The
implementation of green management, also known as environmental process, refers to any effort, behavior, application
or practice that involve management system to eliminate amount of pollutant during business activities (Agan et
al.,2013). The implementation of green management in SMEs will reduce production cost, environmental degradation
and energy consumption (Andish Technological Institute, 2010). Other studies have shown that environmental-friendly
business activities minimizes energy consumption up to 56%, pollutants up to 53%, raw materials up to 46%, water
42%, increase recycling up to 49% and also enabled the industry to sell raw materials up to 23% to other factories
(European Commission, 2012).
On the other hand, the implementation of green management has positive impact towards financial performance of a
company (Azorin, et al., 2009). Environmental process creates opportunities for an eco market and enhances a
company’s position in the market (Constantinos et al, 2010). Not only does the implementation of green management
prevent or eliminate environmental degradation, it also improves performance and image of a company in front of the
stakeholders.
The culture of an organization is a process to develop its members’ mentality (Hofstede, 1983) where similar values
will determine how members take actions with the purpose overcoming internal integration and external adaptation
issues the organization encounters (Schein, 1982). Based on the concept, the implementation of green management in a
company depends on particular culture developed by the company. In recently developed companies, the culture of an
organization heavily depends on owner’s (founding fathers’) and CEO’s values, where the latter will decide how the
culture affects the members in transactions (transactional leadership style) or transformations (transformational
leadership style).
There are limited studies that discuss the advantage of green management for SMEs and certain factors that
encourage the implementation of enviromental processes. Such condition creates doubts for small and medium scale
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entrepreneurs to apply environmentally friendly processes. The authorities do not have a strong reason to force SMEs to
apply environmental friendly technology due to lack of empirical evidence.
The purpose of the study is to provide empirical evidence about the correlation between leadership style, culture of
organization, implementation of green management and company performance. It is obtained based on the survey
towards SMEs in the industry batik that have applied environmental friendly processes.
Literature Review and Hypotheses

Literature review is important especially in explanatory research that tests particular theories because the literature is
the basis for developing hypotheses. The literature review in the study focuses on theories that support the correlation
among the following variables: leadership, corporate culture, implementation of green management and corporate
performance.
Leadership – Corporate Culture
Leadership studies have become the focus of researchers whose interest is organization since they believe the aspect
heavily influence effectiveness of an organization. Its focus has shifted from time to time. Leadership studies formerly
focused on the comparison between successful and unsuccessful leadership traits (Argyris, 1955 cited by Ogbonna and
Harris, 2000). The findings show that successful and unsuccessful leaders have different leadership traits. These traits
are innate and therefore successful leaders are born instead of made. The theory involves universal correlation between
leadership and effectiveness of organization. Successor mechanism, based on monarchy, seemed to use this theory as
the reference.
The leadership theories have received harsh criticism. The opponents argued that leadership is influenced by attitude
and behavior. Different successes achieved by different leaders of the monarchy was the evidence about how weak the
theories were. Success of an organization is determined by how much influence leaders have towards employees so that
their behaviors meet not only the leader’s expectation but also the goals of the organization. It is the correct method of
leadership that counts. Employees will voluntarily follow the leader’s direction as long as it is a suitable one. These
result in the leadership style theory. There are various leadership styles, namely otocratic, democratic, bureaucratic,
task-oriented, people-oriented, charismatic, laizez faire, transactional and transformational. The transformational
leadership style has attracted the attention of practitioners and researchers since 1990s. Most of the time, it is compared
to the transactional leadership style. Transactional leadership uses exchange principle to influence members. The leader
will give rewards based on the member’s behavior. On the other hand, the transformational leader is a visionary,
enthusiastic and keeps motivating employees (Bass and Avolio, 1993). Contrary to the leadership trait theory,
leadership style theories emphasizes universality.
The Batik craft industry has unique characteristics. The relationship between owners and workers are very close. It
happens because the workers are usually neighbors and even members of the owner’s extended family. Previous
research have shown that leadership style has a significant impact on organizational performance (Iscana, et al., 2014;
Yildiz, et al., 2014; Erdogan, et al., 2012; Ejere and Abasilim, 2013). Taking into consideration the uniqueness of batik
and the development of leadership theory, the author would like to investigate which leadership style is more effective
for this industry. Hypotheses to answer this question are:
Hypothesis 1: Transformational leadership influences firm performance
Hypothesis 2: Transactional leadership influences firm performance
Cultural concept abundantly depends upon the number of experts trying to define the concept. Culture is collective
mental programming (Hofstede, 1983). Another concept considered culture as a fundamental assumption found and
developed by particular group that has been proven to overcome internal integration and external adaptation problems,
the assumption is taught to new members as methods to perceive and take action related to the issues (Schein, 1992).
Based on the last concept, it can be concluded that individuals have the most significant role in developing corporate
culture; when a company is recently established, the founder and owner or CEO become the ones who develop the
corporate culture. Certain values that the founder and owner believed in were taught to the members so that they use
them to carry out business activities. Previous studies on the relationship between leadership style and organizational
culture show the results that leadership style influences on organizational culture (Tipu, et al., 2012; Acar, 2012;
Graves, et al., 2013; and Siwatiningsih, 2015). In the batik industries, the role of owners who also become CEOs is very
dominant. Therefore, the hypotheses for the study are as follow:
Hypothesis 3: Transformational leadership influences corporate culture
Hypothesis 4: Transactional leadership influences corporate culture
Organizational Culture – Corporate Performance

Studies about the culture of organization became the major interest for researchers and practitioners when Peter and
Waterman launched a book entitled “Insearch of Excellence” in 1982. After that, culture of organization popularity
keeps on increasing particularly to analyze organization and strategy. Furthermore, value is perceived as the core of
culture (Schein, 1982) and when it is adopted by all members of organization, it will improve corporate performance
(Peter and Waterman, 1982; Kotter and Heskett, 1992). The correlation between the culture of organization (values) and
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corporate performance is not universal. The environment where a company is located and business characteristics
require relevant and specific values. A company may have competitive advantage and high performance when it can
develop culture of organization that is suitable with the characteristics of the environment (Lee and Yu, 2004).
The culture of organization (shared values) is the core element and affects other elements in McKinsey’s 7-S
framework (Peter and Waterman, 1980). The elements in the model are strategy, structure and system which later are
categorized into hard components while shared values, skills, leadership style and staff are categorized as soft
components. All of the aspects influence one another and corporate performance is determined in harmony between the
elements and the shared values become the core. Therefore, the competitive advantage of a company depends upon the
match between culture of organization and selected strategies (Peter and Waterman, 1980). The culture of organization
will become a source of competitive advantage as long as it is valuable, unique and cannot be adopted by anyone
(Barney, 1986).
For market penetration, a company will use one or a combination of generic strategies: efficiency, differentiation,
and focus (Porter, 1982). Selected strategies will dictate which culture of organization will be developed. The
implementation of green management becomes business strategy that creates unique goods and service to fulfill the
demand of specific markets. Developing values suitable with the strategy is key to the successful implementation of
green management. In the context of the relationship among culture of organization – strategy – performance,
environmental process is the strategy to develop competitive advantage. While previous studies emphasized the
correlation between the culture of organization – corporate performance (Kotter and Heskett, 1992; Asree, et al., 2010;
Zehira, et al, 2011) and green management – corporate performance (Green, et al., 2012; Choi, 2012; Chuang, et al.,
2014; Alhadid, et al., 2014, Heriyanto, 2008), green management is a mediating variable on the influence of culture of
organization and corporate performance. Based on the phenomena in the batik industry, the following hypotheses are:
5. Company culture influences corporate performance,
6. Company culture influences implementation of green management,
7. Implementation of green management influences corporate performance.
Based on the hypotheses above, the relationship model among variables is depicted at figure 1 as follows.
H1
Transformational
Leadership
H3
H6 Implementation H7
Corporate’s Organizational
Culture of Green Performance
Management
Transaktional
Leadership H4
H5
H2
Figure 1: Relationship model of variables
Methodology
The study used a quantitative research method since the purpose is to explain the correlation among variables,
leadership style, culture of organization, implementation of green management, and corporate performance. The settings
of the study were batik factories located in Laweyan, Solo, Rungkut, Surabaya, Giriloyo, a village in Bantul, Yogakarta
and Bogoharjo, and a village in Ngadirojo, Pacitan that has applied environmental process. Based on the survey, 54
SMEs met the criteria of the study. The data collection method was a structured interview using questionnaire as the
interview guides. The respondents were the owners who were also the CEOs of the business.
Transformational leadership was measured using model of Bass dan Avalio (1990) cited by Hickman (1998), that is
idealized influence, inspirational motivation, intellectual stimulation and individualized consideration as the indicators.
On the other hand, transactional leadership used concepts proposed by Antonakis, et. al. (2003) cited by Zagorsek
(2009) that is contingent rewards, active management by exception, and passive management by exception as the
indicators. Culture of organization was measured using the following indicators: innovation, ability to take risks,
attention to detail, human orientation, result orientation, team orientation, aggressiveness, and stability (Robbins and
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Judge, 2011). Implementation of green management was measured using the following indicators, namely production,
environmental management, safety at work and company management (The Regulation of the Agency for the
Assessment of Climate Policy and Industrial Quality). Corporate performance was measured using financial,
environmental and operating performance as the indicators (Moullin (2007) cited by Alhadid, et. al (2014). The
indicators are then brokendown into items.
Having collected all the data, the following procedures are validity and reliability tests. The validity test was
conducted by measuring convergent validity and discriminant validity with 0.50 as the minimum range. The reliability
test was conducted by measuring composite reliability where 0.60 became the minimum range. The two tests showed
valid and reliable findings.

Processing data using Smart pls 3.0 and a significance level of p-value of 0.05 results as shown in Table 1.
Table 1: Correlation between Variables

Independent Variable Dependent Variable Coefficient P-Value Notes
Transformational leadership Firm performance 0,245 0,058 Not Significant
Transactional leadership Firm performance -0,079 0,579 Not Significant
Transformational leadership Organization Culture 0.581 0.000 Significant
Transactional leadership Organization Culture 0.182 0.075 Not Significant
Organization Culture Firm performance 0.293 0.048 Significant
Organization Culture Green Management 0.136 0.543 Not Significant
Green Management Firm performance 0.478 0.000 Significant
The research found that:

a. Influence of Leadership styles towards Corporate Culture.
The research found that, both of transformational and transactional leadership styles do not determine the company's
performance. Transformational leadership has a positive but non significant effect on the performance of the
organization with the path coefficient value of 0.245 and p-value of 0.058 (p-value> 0.05). While the transactional
style has a negative effect (path coefficient -0.079) and is not significant (p-
to previous research that found that a transformational leadership style has a positive effect on organizational
performance (Iscana, et al., 2014; Erdogan, et al., 2012; Yildiz, et al., 2014; and Ejere and Abasilim, 2013). The
uniqueness of the batik craft industry seems to be able to explain these results. Batik craft companies act like a big
family (clan). This characteristic is thought to have a major influence on organizational effectiveness. The finding is
in line with the theory Z of William Ouchi (1980). The employees of Batik craft industry have good relation because
they come from around the company and there are even members of owner’s extended family.
b. The impact of leadership tyle on organizational culture
The result of the research shows that both transformational and transactional leadership styles have a positive
influence on the organizational culture. However, in terms of the significance of influence, transformational style
earns p-value = 0.000 (significant, p-value <0.05) whereas transactional leadership earns p-value = 0.75 (not
significant, p-value 0.05). This shows that the better the transformational leadership style, the stronger the culture
of the organization will be. The results of this study supports previous researches findings that the transformational
leadership style has a positive effect on the organizational culture (Graves, et al., 2013; Tipu, et al., 2012; and
Siswatiningsih, 2015). The most important thing that must be done by a leader is to create and influence the culture
of the organization (Daft, 2007: 125). In developing organization culture involves a learning process. Leaders and
employees of SMEs teach one another about shared values, beliefs, expectations, and behaviors. Leaders, as owners
are decision makers at the top level who have the authority to create rules and systems adopted by the company. The
transformational leadership style is also able to improve intrinsic motivation, trust, commitment, and loyalty of
employees (Kreitner and Kinicki, 2014).
The transactional leadership style, on the other hand, has no significant impact on organizational culture. The results
are in contrast against previous studies which revealed that the transactional style has a positive and significant
influence on organizational culture (Acar, 2012 and Siswatiningsih, 2015). The operation of SMEs that hire
employees coming from surrounding companies and even members of the leader’s extended family allegedly has the
effect of creating leadership styles that are more tolerant to employees’ mistakes. The written procedures and rules
don’t work well in the companies. Direct supervision is more appropriate to control the behavior of organization
members. The transactional leadership style does not provide encouragement, change, empower or inspire
employees to focus on the interests of the group or organization, (Bateman and Snell: 2009)
c. Influence of Corporate Culture towards Corporate Performance
The findings show that corporate culture has a positive and significant influence towards corporate performance
where the coefficient is 0.293 and p-value is 0.048 (p-value < 0.05). It is in line with the studies conducted by
Miladi (2014), Zehira, et al (2011), Asree, et al. (2010), Lee (2004), Tseng (2010), Rashid and Johari (2003) that
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strong corporate culture results in high corporate performance. Corporate culture as the foundation of an
organization should be internalized by the entire employees. Miladi (2014) reveals that every company should
develop a particular corporate culture because it is the key to carry out business activities effeciently and make
social group work well in order to acheive predetermined goals.
The shared values created and developed by SMEs seems to be commensurate with the demands of the batik
industry itself because previous studies showed that organizational culture has positive impact on the performance
of companies only if there is congcruence between the environment in which the firm operates its value systems.
Accordingly, the force of the organizational culture is not only seen on the homogeneity and experience but also
their alignment.
d. Influence of Corporate Culture towards Green Management
Based on the findings, corporate culture has positive but non-significant influence towards green management where
the coefficient is 0.136 and p-value is 0.543 (p-value > 0.05). It shows that stronger corporate culture does not
improve green management. When we look at the implementation of green management as a strategy, the existing
theories say that organizational culture influences the strategic choice (Peter and Waterman, 1982; Kotter and
Heskett, 1992; Jean and Yu, 2004). The difference in these results may be caused by the fact that the will of
implementation of green management doesn’t come from the leadership (the owner) but because of appeals and
government regulations that demand for it. Besides that, the reward from the government for implementing
environmentally friendly processes might explain this phenomenon.
e. Influence of Green Management towards Corporate Performance
The findings show that green management has a positive and significant influence towards corporate performance
where the coefficient is 0.478 and p-value is 0.000 (p-value < 0.05). It means that better implementation of green
management will get better corporate performance. It is in line with the studies conducted by Green, et al (2012),
Choi (2012), Heriyanto (2008), Chuang, et al (2014), Alhadid, et al (2014), and Yu and Jiem al (2014). The
implementation of green management put more emphasis on production efficiency because it will reduce cost and
consequently the price of batik. More affordable batik will increase sales for the batik enterprises since their
competitors sell batik with lower prices. Production efficiency is carried out using the following methods, namely
use natural dye for coloring and less amount of water, using the sun to dry the batik, using open space and natural
light during production as well as using environmental procedures. These procedures have significant impacts
towards corporate performance. It can be concluded that green management has a positive and significant impact
towards corporate performance. Incorporating green management in business activities will enhance corporate
performance that involves financial, environmental and operating performance. The entire process of green
management begins with production using natural dye that later creates high quality products followed by
management and responsibility to the environment where SMEs are located.
Conclusions
The results of the study show that leadership is the key to running a firm. Leaders with the appropriate leadership
style can shape corporate culture and impact a firm’s performance. This research has shown that the transformational
leadership style can significantly impact corporate culture, as opposed to the transactional leadership style. How much
each style plays a role on the firm depends on the conditions of the firm, and one leadership style will tend to be more
dominant than the other. Another finding is that corporate culture significantly impacts a firm’s performance. It shows
that corporate culture plays an important role in firms, whether they are large scale or small scale firms (SMEs), in that
they make sure members of an organization have the same perspective and values and are able to ensure optimum
corporate performance. Despite that, the relationship between transactional and transformational leadership styles has
shown no significant impact on corporate performance. This is because the familial relationships between employees
which hinders the leaders’ role. The implementation of green management that begins from the production process up
to the natural waste management significantly impacts corporate performance (financials, environment, operations).
This means that SMEs that have implemented green management are not only pursuing profits, but are invested in
maintaining the stability of the environment in the long run.
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Author’s bibliography
Kusdi Raharjo, born in Magetan, January 27, 1957, graduated Bachelor of Business Administration from department
of Busines, Universitas Brawijaya Malang in 1983, pursued a Master of Management degree in 1992 and Doctoral of
Management in 1996 at the University of Nice Sophia – Antipolis, France. He is currently teaching Organization
Theory, Organizational Behaviour, Intrduction to Business, and Business Analysis at Universitas Brawijaya. At the
same institution, he holds office as head of Master of Business Administration program. On top of that, he is president
of Indonesian Asociation of Business Administration. His research interests include entreprenership, human resource,
and organization.
Destiana, born in Bandar Lampung, May 8, 1988, graduated bachelor of Business Admnistration from Universitas
Lampung. She is currently pursuing a Master of Business Administration at Universitas Brawijaya.
Arik Prasetya, born in Blitar, 09 February 1976, graduated (Bachelor) from the Faculty of Administrative Science,
Brawijaya University in 1998, graduated as a Master of Business Administration at the Graduate Program of UB 2001,
and graduated from the Doctoral Program at Ritsmueikan Asia Pacific University, Japan in 2012. He currently teaches
Organizational and Administrative Theory, Introduction to Business, Business Philosophy, and Human Resource
Management. He is a lecturer at the faculty of administrative science and is a Secretary of the Master of Business
Administration program – Universitas Brawijaya. As a lecturer, he is active in various research, seminars, and
conferences both nationally and internationally.
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THE IMPACT OF TACIT KNOWLEDGE MANAGEMENT ON ORGANIZATIONAL

PERFORMANCE
Narendran Shanmugam, Rajendran Muthuveloo
Universiti Sains Malaysia (Graduate School of Business), 11800 Penang, Malaysia
Abstract
This research paper intends to explore and determine if organizations have strategies for tacit knowledge management
which is expected to influence their organizational performance both tangibly and intangibly. The tacit knowledge
management is derived from the fundamental knowledge creation dimensions namely socialization, externalization,
combination and internalization (SECI model). A quantitative empirical research via survey questionnaires was
conducted to fulfil the purpose of this research - the feedback from the respondents were statistically analysed for
profile of respondents, goodness of data measured and the hypotheses testing in determining the relationships. The
statistical analysis showed that only two dimensions namely socialization and internalization influences organization
performance but the other two dimensions namely externalization and combination did not support the relationship.
However, overall tacit knowledge management strongly supported the hypothesis that tacit knowledge management
influences organizational performance. This research finding could be generally be an eye opener for readers
especially those from top management of any organization, who are seeking to prosper and enhance their
organizational performance via explaining the importance of knowledge creation and management, especially those of
tacit knowledge for a better business function operations.
Keywords: Tacit Knowledge Management, SECI Model (Socialization, Externalization, Combination And
Internalization), Organizational Performance, Explicit Knowledge, Competitive Edge
1. Introduction
In current dynamic business environment, organizational performance had been key focus in implementing
measures to ensure competitiveness and sustainability. Performance is at the core of all activities in organizations as it
determines the organizations’ survival (Wang, Bhanugopan, & Lockhart, 2015). Thus, to sustain organizational
performance, it needs to embark in formulating and implementing measures that lead to sustainability focusing on how
it generates value for customers, how the value supports economic model and how the company’s people deliver on the
value of economic (Kruger & Johnson, 2011). One critical area that cannot be overlooked in formulating strategies for
organizational performance is the knowledge management especially the tacit knowledge which is recognized as the
main sources of competitive advantage of firms. Fundamentally, people operates at all related functions in an
organization and without them, business is basically a null. Hence, emphasis should be placed on knowledge
management of employees as a key business strategy for organizational performance.
OECD (Organization for Economic Co-operation and Development) (2013) indicated that Malaysia is suffering
from the shortage of skilled workers and weak productivity growth due to lack of employee creativity and innovation. It
has been noted recently that customers tend to shy away from doing business with the organization upon hearing
employee turn-over especially those in critical position such as from quality, engineering, program management and
design. The fundamentals lying behind this customer fear is that, if the organization would still have the required
knowledge for business continuity and performance despite the turnovers of key employees. This would eventually lead
the mentioned key customers being lost to competitors.
Therefore, in order to achieve superior organization performance, organizations need to focus on employee
knowledge management. Specifically, tacit knowledge management is crucial in executing day-to-day job functions
effectively and efficiently. This in return, will enhance the performance of organizations. However, the link between
knowledge management or specifically the tacit knowledge management within the organization and its impact on
organizational performance is still vague with limited causal relationship studies previously. This research examined the
impact of tacit knowledge management on organizational performance. The exploration of the measures and strategies
would look into tapping the tacit knowledge following the SECI Model i.e. socialization, externalization, combination,
and internalization.
2. Literature Review
2.1 Organizational Performance
Fundamentally, for continuous organizational survival in the current business competitive environment, the
performance of the organization cannot be overlooked in formulating corporate strategies. The organizational
performance includes both financial and non-financial performances; which the former refers to tangible or the
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monetary benefits such as the return of investment, revenue, and profit margins, while the latter refers to the customer
satisfaction, growth and other intangible benefits. Wang et al. (2015) cited that performance is at the core of all
activities in organization as it determines the organizations’ survival as organizational performance is a reflection of the
way an organization exploits its tangible and intangible resources to achieve its goals.
In order to achieve a highly performing organization with strong financial results, satisfied customers and high
employee morale, an organization should focus on strategies to achieve sustained growth and financial performance;
ability to adapt quickly to changes; and spends much effort on developing its workforce (Waal, 2007). Strategic
performance capabilities which offer path towards competitive advantage, can be classified into three value disciplines
namely product leadership focusing on product-based competition and service innovation; customer intimacy mainly
satisfying customers and retaining them; and finally the operational excellence targeting in improving the efficiency of
internal operations (Zack, McKeen, & Singh, 2009).
Enhancing organizational performance should be the key focus of every manager in every enterprise and need to
establish a comprehensive measurement index that provides managers and staff with clear directions and goals set by
the organization (Tseng & Lee, 2014). The ability to achieve these organizational goals, the firm should have the
“wisdom” of continuous creation of new knowledge transfer and interpreting of this knowledge within existing
knowledge contexts of other parts of the organization (Rhodes, Hung, Lok, Lien, & Wu, 2008) – this fundamentally
support the main aim of this research in knowledge creation or rather specifically tacit knowledge management, for
organizational performance and success. One of the key performance indexes in the strategies would be the employees’
capability and competencies (Wang et al., 2015), which is referred to knowledge – it is referred to tacit knowledge
management, in this case.
.
2.2 Tacit Knowledge Management
Tacit knowledge can be regarded as the key resource for companies, which plays a significant role on the shop floor,
where workers develop and use this tacit knowledge in daily duties and activities; these duties are fundamental aspects
of efficient manufacturing operations (Nakano, Muniz, & Batista, 2013). From the Resource-Based View theory,
mainly by Barney (1991); Drucker (2000); Grant (1996) and Penrose (1959), knowledge is recognized as the one and
only distinct resource and the key differentiator and crucial for any organization to maintain its’ competitive advantage
(Suppiah & Sandhu, 2011). These citations explain the need to understand and focus on the importance of knowledge
management, especially tacit knowledge for enhanced organizational performance. Harlow, 2008, further quoted, the
late Peter Drucker saying that knowledge had become the key for economic resource and dominant and perhaps the
only source of competitive advantage. Knowledge basically plays a vital role for efficiency and effectiveness in
organizational operations; yet the most suitable method for this knowledge management remains as a tough question to
address, especially with the challenging task to retain related knowledge especially that of tacit knowledge.
Knowledge management is defined as the formal process of determining what internally held information could be
used to benefit a company and ensuring that this information is easily made available to those who need it; in other
words, the effective use of systems to collect, use and reuse the knowledge within the firm (Harlow, 2008). Tacit
knowledge as internal in nature and relatively hard to code and extract – not only does tacit knowledge need to be
discovered, extracted and captured; it also has to be creatively disseminated so that this shared knowledge can be
efficiently used to extend the knowledge management base (Harlow, 2008). In a related literature, tacit knowledge is
also referred to as knowing “more than we can tell”, and described it as unconscious and subjective insights, intuitions,
and hunches including both technical know-how and know-why (Peet, 2012). When comparison arises between explicit
and tacit knowledge, explicit knowledge is that can be codified into something that is formal, structured and systematic,
and can be shared, communicated with ease and be accessible to other people (Joia & Lemos, 2010). However, tacit
knowledge which is highly personal and difficult to formalize, is based on actions and experiences of an individual, that
is to say, “created here and now in a specific context” (Joia & Lemos, 2010).
Employees are often unaware of the knowledge they possess or are incapable of expressing something that for them
in natural and obvious, irrespective of their qualifications – given these difficulties, organizations are increasingly
intensifying their search for ways to learn how to share and transfer tacit knowledge among their employees and teams
and prevent the loss of this knowledge through employee turnover; because these individuals are fundamental source of
tacit knowledge and they are the key to the success of any knowledge management initiatives (Gubbins, 2012). Thus,
organizations need to have an appropriate system for effective tacit knowledge transfer and management system, in
ensuring these know-how knowledge remain within organization though related employees leave the organization. The
importance of such tacit knowledge management becomes critical for some key positions, who manage daily activities,
especially when it requires critical decision makings with their know-how experiences. Besides that, these employees
also create a good communication platform with customers, supplier, and other stakeholders, which are crucial for
business continuity. Thus, it becomes very critical for organizations to implement strategies for tacit knowledge
management in sustaining organizational performance.
In tacit knowledge management process or rather the knowledge creation process, the main model of interest
frequently used was the Nonaka and Takuechi (N&T) Model (1997). This cognitive model mainly focuses on both
implicit (tacit) and explicit knowledge exchange and how to convert this knowledge to each other, and also how to
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make this knowledge at all level of organization, such as individual, groups, and organizational (Oskouei, 2013). Four
different modes of knowledge conversion were identified in this model, namely tacit knowledge to tacit knowledge;
tacit knowledge to explicit knowledge; explicit knowledge to explicit knowledge; and explicit knowledge to tacit
knowledge (Karim, 2012). These modes of knowledge transfer are further referred to the abbreviation of SECI process
(Nonaka et.al., 1994), which stands for Socialization, Externalization, Combination, and Internalization. This SECI’s
knowledge transfer and creation model shall be the foundation of this research in formulating the effectiveness of tacit
knowledge management, within the organizations. Knowledge is recognized as an important weapon for sustaining
competitive advantage as it plays a significant role and foundation in organizational performance and advantage (Lee &
Choi, 2003).
Socialization – refers to a process to convert tacit knowledge into tacit knowledge through social interactions, such
as spending time together while sharing experiences and know-hows, in the same living environments (Karim, 2012).
Externalization – refers to the process of converting tacit knowledge into explicit knowledge through a codifying
process such as concepts, visual, metaphors, analogies, and others (Karim, 2012). Combination – refers to the process of
converting explicit knowledge into explicit knowledge through systematic exchange mechanisms, where individuals
exchange and combines knowledge via communication and integration (Karim, 2012). Internalization – refers to the
process of converting explicit knowledge into tacit knowledge when employees start using the knowledge gained in
routine practical work which becomes a base for new routines (Karim, 2012).
3. Theoretical Framework and Hypotheses

In order to examine the impact of tacit knowledge management via its’ dimensions following SECI model
(socialization, externalization, combination and internalization) on organizational performance, a theoretical framework
was developed as shown in Figure 1. The dependent variable is organizational performance while the independent
variables were the socialization, externalization, combination and internalization. These dimensions eventually form
tacit knowledge management which will be tested on organizational performance.
Tacit Knowledge Management H1 Organization Performance0.781

0.87
7
a) Socialization H1a
b) Externalization H1b
c) Combination H1c
Figure 1: Theoretical Framework
d) Internalization H1d
Tacit knowledge which is referred to as work-related practical knowledge learned informally on the job that can be
the know-how, (Harlow, 2008); is organization’s strength in day-to-day business activities and decision-makings.
Having skilled and experienced personnel will enhance the effectiveness and efficiencies of business dealing.
H1: Tacit Knowledge Management has a positive significant influence on Organizational Performance.
Socialization, which refers to the process of converting tacit knowledge into new tacit knowledge through social
interactions, which aids knowledge creating and sharing based on experience people socializing within the organization
(Karim, 2012); is expected to equip employees with necessary know-how skills, in executing jobs effectively.
H1a: Socialization has positive significant influence on organizational performance.
Externalization refers to the process of converting tacit knowledge into explicit knowledge through a codifying
processes such as visual, metaphors, procedures, and other physical based learning tools (Karim, 2012). This will be
able to enhance their knowledge, especially strengthen their know-how in business job execution.
H1b: Externalization has positive significant influence on organizational performance.
Combination, refers to converting explicit knowledge into new explicit knowledge through systematic exchange
mechanisms such as communication, training, and databases for an effective knowledge transfer within the organization
(Karim, 2012). Thus, employees will be able to learn more systematically the explicit knowledge, and enhance their
skills with learned information, for a better execution of day-to-day business activities and decision makings.
H1c: Combination has positive significant influence on organizational performance.
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Internalization is the process that converts explicit knowledge into tacit knowledge when physically learned
knowledge, are applied and used in practical situations and becomes a base for routines. This knowledge eventually
becomes the knowledge of one’s own (Karim, 2012).
H1d: Internalization has a positive significant influence on organizational performance.
4. Methodology
The unit of analysis of this research is organization instead of individuals, based on the nature of the variables
namely tacit knowledge management and organizational performance which refers to system based organizational
indicators. The research site selected for this study was the manufacturing sectors within the context of Malaysia, with
companies listed in FMM (Federation of Malaysian Manufacturers) directory, both local and multinational based
manufacturing organizations. From this sample selection, a total of 108 valid questionnaires were received which is
sufficient for further statistical data analysis. The target respondents were Manager, Senior Manager or Director of the
organization.
Data gathering for this research was done based on self-administered survey questionnaire. The questionnaire was
designed to measure if organization provides platform for knowledge sharing namely through the dimensions of SECI
(socialization, externalization, combination and internalization), organizational performance, and also demographic
information of the respondents. Descriptive statistical analysis was performed using SPSS software version 21. Data
gathered from questionnaires feedback were analysed in terms goodness of measure namely convergent validity,
discriminant validity, loading and cross-loading, and composite reliability; and test on the developed hypotheses using
software PLS-SEM (Partial Least Squares – Structural Equation Modelling).
5. Results
Majority of respondents were from electronic based industry (37.0%), followed by Medical and Other industries
(25.9%), and least from Pharmaceutical industry (11.1%). Most of the responded organizations were multi-national
based (89.8%), while the local based organization was only at 9.3%. 63.9% of the organization exists for more than 20
years. Interestingly, 44.4% of the responded organizations were having exempt staff over 20%, while 29.6% for exempt
staff between 11~20%. However, the turnover rate of the exempt staffs were rather lower, with 55.6% below 3%
turnover rate, while 40.7% between 3~10% turnover rate; only 4% of the organization were having turnover rate
exceeding 10%. The majority of the respondents were holding Managerial position.
The goodness of measure was generally satisfactory and fulfils PLS-SEM requirements. On convergent validity, the
AVE was above 0.5 for all the constructs; thus, the convergent validity is confirmed. For discriminant validity, the
square of AVE values were higher for each constructs when compared to other constructs AVE across to other
constructs and the loading were higher than other construct loadings, hence discriminant validity was established. The
composite reliability fulfils the minimum requirements of data reliability which was above 0.70. For the tacit
knowledge management constructs (socialization, externalization, combination, and internalization) and organizational
performance, the descriptive statistics showed respondents basically slightly agrees to agree with the questions, with
mean at 4~5.
The relationship between tacit knowledge dimensions and organizational performance, the PLS-SEM analysis
showed that the overall R-squared value was 0.513; which means 51.3% variances were having an explainable
relationship between the four tacit knowledge management dimensions against organizational performance. However,
only two dimensions gives significant influence on organizational performance namely Socialization (H1a) and
Internalization (H1d). The other two constructs namely Externalization (H1b) and Combination (H1c) did not support
the hypotheses. Nevertheless, the relationship between tacit knowledge management and organizational performance
showed that the overall explainable relationship was 53.8% (R-squared was 0.538). On PLS-SEM path coefficient t-
value, Tacit Knowledge Management had strong relationship to organization performance and hypothesis (H1) was
supported. The summary of the hypotheses testing can be illustrated as in below Table 5.1.
Table 5.1: Summary of Hypotheses Test Results

Hypothesis Relationship Standard
Beta-value t-value Decision
Error
H1a Socialization  OP 0.414 0.136 3.040** Supported
b1H Externalization  OP -0.058 0.143 0.407 Not Supported
b1H Combination  OP 0.154 0.140 1.100 Not Supported
b1H Internalization  OP 0.273 0.154 1.773* Supported
H1 TKM  OP 0.501 0.086 5.851*** Supported
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6. Discussions
6.1 Dimensions of Tacit Knowledge Management
Socialization and Internalization supported the hypotheses developed. The rationale could be firstly due to the
questionnaire design itself for these dimensions; it mainly focuses on information sharing from all perspective, from
both internal and external environments. The ownership structure of most of the respondents were multinationals
(MNCs) at 89.8%; besides the respondents are companies operating in the Malaysian context. Typically, MNC top
management makes critical decisions in their corporate level, which usually situated in United States, Europe or other
countries than Malaysia. These business decisions mainly involve strategic action plans in enhancing business with
reference to lean activities, competitors’ comparison, customer expectations and needful information for decision
making. This information is typically shared with all employees in all subsidiaries operating plants in ensuring
employees are aware of the course of actions for business sustainability. The media for such information sharing could
be by newsletters, town-hall meeting, managers meeting, operational meetings, and/or memorandums. The main
respondents in this research were the Managers (48.1%) and Senior Managers (28.7%), who are aware on the
criticalness of information sharing and they are the first information receiver from corporate management in
disseminating such information to people in shop floor, and they do understand the importance of sharing this
information to all employees. Secondly could be due to employees and middle management always emphasize on
activities namely teamwork and information sharing for continual organizational performance and sustainability.
Moreover, employees would also seek to explore, understand and digest this information during their routine operations
to equip them with necessary and required skills in order to perform better in their work – which eventually subject
them to appraisal and job security, besides career advancement.
Externalization and Combination did not support the developed hypotheses. This could be firstly due to these
dimensions are informal in nature and sharing of information takes place in routine communication; this externalization
is a more formal information sharing structure via proper codifying processes such as preparing visuals, documentations
and other formal media. Such work or process need a coordinated effort in ensuring it takes place and hence may not be
a popular decision and information sharing method. As 89.8% respondents were MNCs whom mainly runs high volume
manufacturing in Malaysia’s plant with minimal involvement in research, design and development activities. Thus,
there will be lesser opportunities for critical, logical and evident thinking because most of the meeting and other
communication platforms will be focused on resolving routine operational issues. Besides, this could be the nature of
industry type itself whereby a total 37% respondent represents medical and pharmaceuticals; these industries are
basically highly regulated and controlled by international regulatory bodies and standard, such as ISO13485, besides
special control of individual countries such as MDD (Medical Device Directives) in Europe and FDA (Food & Drug
Authority) in the USA. These requirements do not give flexibilities in logical thinking and exchange of ideas; instead
jobs or tasks are executed based on required procedures and system.
6.2 Tacit Knowledge Management to Organizational Performance

Though the tacit knowledge dimensions showed mixed results yet overall tacit knowledge management supported
this hypothesis. This could well due to the mean response distribution, which basically shows that respondents agree
that their organization does have the best practices in knowledge sharing of all the four tacit knowledge dimensions
(socialization, externalization, combination, and internalization). However, with minimally scoring between agree to
slightly agree to agree. This agreeing tendency supported the relationship developed when most respondents agreed that
they are typically better than the competitions. The majority of the respondents were from MNCs. As we are aware
knowledge sharing and creation especially of that know-how or rather tacit knowledge had been a focused point for top
management in creating excellences in operations while sustaining the competitive edge. MNCs focuses more on this
since they believe the overseas operating plants such as in Malaysia should be equipped with sufficient knowledge
sharing and creation in running high volume business environment for a better organizational performance.
Another point to ponder is the industries which are highly controlled by regulatory such medical and
pharmaceutical. These industries operate with stringent regulatory requirements besides highly skilled workers. From
the respondents’ profile, a total of 37% of respondents were from these regulated industries i.e. 25.9% and 11.1%
respectively for medical and pharmaceutical. These organizations in general, emphasizes in knowledge workers; hence
placing plenty of efforts in creating, sharing and sustaining this valuable information for the business environment. In
fact, key talent retention programs are also highly focused in these industries, in order to retain the skills and knowledge
within the plant for continual enhanced organizational performance.
7. Implications of the Study

This research finding could be generally an eye opener for readers especially those from management or top
management of any organization, who are seeking to prosper and enhance their organizational performance. It explains
the importance of knowledge creation and management, especially those of tacit knowledge for better business
operations. Among the key benefits that an organizational could gain from knowledgeable workers is the decision-
making ability, whereby decision-making process requires an in-depth understanding of the situation and consider all
the related advantages and disadvantages prior to making a decision. Hence, only those with adequate knowledge and
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experience could make such decision, which implies the importance to have knowledgeable employees. Besides that,
these experienced and knowledgeable employees typically tend to have an excellent relationship with both suppliers and
customers. The management should create a platform to facilitate knowledge creation and in this case, it is based on
SECI model (socialization, externalization, combination, and internalization). From academic perspective, the findings
from this paper would be an added advantage in understanding better the fundamentals of knowledge management
which is least explored in enhancing organizational performance; perhaps focusing on niche industries such as medical,
automotive and pharmaceutical.
9. Conclusions
This research initiated to determine the impact of tacit knowledge management via its SECI based dimensions
(socialization, externalization, combination and internalization) on organizational performance. Out of four dimensions
only two dimensions namely socialization and internalization showed positive results, while the other two dimensions
namely externalization and combination did not support the hypotheses. Among the main reasons identified generally
are fundamental managerial understanding on the importance of knowledge and information sharing both formal and
informal; focus on retaining knowledge; operating in developing countries which mainly focus on volume and profit
instead of quality and knowledge; responses from descriptive especially length of operation in Malaysia, regulated
industries; and other associated factors that contributes and bottlenecks the knowledge creation process via these four
tacit knowledge management dimensions. Nevertheless, the overall tacit knowledge constructs supports organizational
performance which indicates that generally the importance of knowledge creation and retention are given priority.
References
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THE FACTORS AFFECTING BALANCE SHEET TO CAPITAL STRUCTURE

DURING FINANCIAL CRISIS 2008-2011 (THE CASE ON COMPANIES IN
ASEAN COUNTRIES)
Hendro Lukman
Faculty of Economics, University of Tarumanagara. Jakarta, Indonesia
hendrolukman@gmail.com
Abstract
The global economic crisis that happened in USA and Europe had influenced othercountriesincluding ASEAN
countries. Economic or financial crisis that occurred in 2008 and 2011 did not carry the same impact on ASEAN
countries. There werea few countries that were still showing growth. The crisis had also affacted to micro-economic
sectors, such as companies. One of the effects of the crisis for the companies was the balance sheet effect, an impact on
their capital structure. This study was conducted to see how the economic and financial crisis influenced the capital
structure of large-capitalizedpublic companies in 2008-2011 in all members of ASEAN. The companies' capital
structure was influenced by internal factors and external factors. This study used Simultaneous Regression. The results
were: firm size factor was dominant in all ASEAN countries; inflation rate was dominant in five countries; company
growth was dominant in four countries; asset structure was dominant in three countries;non-debt tax shield; interest
rates and economy growth (GDP) were dominant in two countries; menwhile the exchange rate was dominant in one
country.
Keywords: Balance Sheet Effect, Capital Structure, ASEAN
Introduction
The economic crisises in 2008 in The United States of America and in 2011 in Europe had caused a domino effect.
The crisises had resulted in an increase in inflation rate and a decline in economic growth. These effects had notonly
occured in America and Europe but also in ASEAN countries. However, phenomenons of the effects were not the same
for each member of the ASEAN countries. In 2008, many ASEAN countries experienced economic growth such as
Singapore (4.0%), Malaysia (4.5%), Thailand (5.8%), Philippines (1.8%) and Indonesia (5.4%). Capital markets in 2011
in many ASEAN countries showed positive growth such as Indonesia (0.31%) and Philippines (0.24%) although
ASEAN capital market hada minus growth of 7.15%.
The domino effect of financial and economic crisis can be explained through common macroeconomic conditions.
The macroeconomic factors are: GDP, Inflation and Interest rate. GDP shows the prosperity and development rate in a
country. Inflation shows the consumption rate, liquidity and distribution channel (Barro, 2008). Interest Rate is
determined by supply and demand of money (Budiono, 1995) and higher interest rate will leadto a reduction in
investment (Sugeng, 2012).
How does the economy of a country affect a corporate? Modigliani-Miller Model says there is irrelevant financial
relationship between financial corporate with economic fluctuation. The crisis in 1970’s was caused by mismanagement
of macroeconomic policy by the government. In 1980’s, the crisis appeared because of the panic level of liquidity
holders. The year 1999 showed the relationship among corporate sector and banking with macroeconomics. The
phenomenon is called balance sheet effect in which a crisis may cause effects of bad corporate’s balance sheet
condition.
The financial structure in developing countries has become the source of weakness and crisis (allen et.al). Factors in
financial structure comprise of composition of assets and liabilities, currency mismatch, capital structure problems and
solvency problems. On the other side, uncontrolable factors like macro-economic policy, social, culture, demography
and environment, politics, government and law can influence the degree of crisis.
The reason of this study was to see whether the global financial crisis will effect the capital structure of public
companies with large-capitalizedbecause they will be driving the rise and fall of stock price index. With the continued
presence of economic growth in ASEAN countries, but the share price index has declined and it is difficult to
Rise
The scope of this study is interest rate, inflation and economic growth as external factors because they have much
impact on capital market; and foreign exchange rate. The scope in microeconomic factors are financial policy,
including funding, investment and dividend policies (Copeland and Weston,1997), firm size, company growth, assets
structure and non-debt tax shield.
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Literature Review
Capital Structure
The capital structure is a combination of a venture capital contained in the company's balance sheet. There are two
sources of capital which form the structure of capital, namely equity and long-term debt. The composition of these two
elements will form the leverage position of a company and leverge position will cause the cost of capital. Therefore, this
combination should be evaluated to get a low capital cost or or identical financial gearing ratios as they attempt to
maximize the tax savings. (Julius, 2012). Shahar (2015) cited from Chen (2011) that stated among the theories are Static
Trade off theory which derived by Modigliani and Miller (1963) was the earliest and most recognized which explains
the formulation of capital structure, then Trade Off Theory which assumed that there are optimal capital structures by
trading off the benefits and cost of debt and equity. The decision on the capital structure can theoretically be evaluated
from an economic standpoint and behavior by using Trade-Off Theory and Pecking Order Theory. The trade-off
models have dominated the capital structure literature. The tax benefit-bankruptcy cost trade-off models (DeAngelo and
Masulis (1980) predict that firms will seek to maintain an optimal capital structure by balancing the benefits and the
costs of debt. The benefits include the tax shield whereas the costs include expected financial distress costs. (Carment &
Farhat, 2009). On the other side, The pecking order theory of capital structure a little more weight on tax considerations,
and predicts the company will make a choice in accordance with available cash and external financing constraints level
either endogenous or exogenous in raising capital for company expansion (Julius, 2012). Although there are corporate
capital structure theories explaining firms financing decisions, little is know about how macroeconomic conditions
affect firms leverage (Cook and Tang, 2006) (Mhutama 2013). According to Korajaczyk and Levy (2002), studied
capital structure choice macro economic conditions and financial macroeconomic conditions and financial constraints
(Muthama, 2013).
Trade-off theory of capital structure

Effective financial management and characters affect the capital structure is an important thing for a company to
obtain a better operating performance. A wrong decision on capital structure can lead to financial difficulties and even
bankruptcy. There are many theories developed to analyze alternative capital structure. One theory is the trade off
theory gained Modigliani and Miller (1963). Trade-Off theory is the oldest theories of capital structure that emphasizes
the optimal capital structure. The trade-off theory MM suggested that emphasis on the modification of the tax shield
benefits combined with the company's costs on the financial difficulties and agency fee (Shahar 2015). Therefore, the
optimal capital structure that maximizes the value of the company in balancing costs and benefits of an additional unit
of debt. (Ghazouani, 2013) and companies increase leverage to achieve the target debt ratio (Jibran, 2012)
Pecking Order Theory

This theory explains the cost of financing with asymmetric information. Financing in a company comes from three
sources: internal funds, debt and equity. Company will choose the sources according to preference of priority which
bear the lowest risk, among retained earnings or internal fund, debt issue and stock issue (Myers, 1984). This theory
states that the company complies with the hierarchy of sources of financing with prefference used internal financing
when available, debt and equity(Jibran, 2012).Helwege and Liang (1996) in Tjusi, (2011) investigated the pecking order
model of capital structure by examining the financing of public companies in the United States in 1983 showed that the
probability of external funds not associated with a lack of internal funds, even though the company with surplus cash to
avoid external funding , In conclusion companies in the United States which able to access the capital markets did not
follow the pecking order theory when choosing the type of security offered. Furthermore, Fama and French (2002)
reported that, of the empirical analysis, they concluded that many of the predictions together on the trade-off theory and
the pecking order theory tends to do well, however, when the prediction together confirmed, attributes this theory
becomes unclear ,
Variables used in this study consist of internal factors and external factors that influence large-capitalizedcompanies
in six member countries of ASEAN, including Indonesia, Malaysia, Philipine, Singapore, Thailand and Vietnam.
Internal factors were firm size, company growth, financial ratio, assets structure, and non-debt tax shield. External
factors were interest rate, exchange rate, inflation rate, and economy growth (GDP). The samples were 50 large-
capitalized companies which are listed in capital market during 2008-2011.
The operational variables are :
Firm Size
The size of the company plays an important role in the capital structure. Companies with smaller sizes where the
operating company is controlled by the owner or less of management will be more easily manage their capital structure.
Instead, the company will be much of an issue size instrusi in making decisions on capital structure.
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H1: Firm size will possitivly affect to capital structure.
Company Growth
Companies that grow tend to require a funding increase. Capacity in demand depends on internal financial funds. If the
company as a whole rely on internal finance, is likely to interfere with growth. Companies that have the potential to
grow with little capital structure will undergo risk. The high growth requires high external funds to enable the
compatibility with growth.
H2: Company growth will positively affect to capital structure
Financial risk
Financial risk is the risk for companies is the increased variability in net income or an additional risk caused by the use
of financial leverage (debt).
H3: Financial risk will positively affect to capital structure
Assets structure
Asset structure is an important determinant of capital decision. Assets which consists of tangible assets have more
liquidation value can be used as collateral. Pecking order theory predicts that companies with more itangible assets be
less vulnerable to the problem of asymmetric information and reduce agency costs. the agency costs of debt which is
secured than unsecured debt.
H4: Assets structure will positively affect to capital structure.
Non Tax shield

Non-debt tax shield (NDTS) or the tax savings that is not sourced from debt is not tax savings derived from loan interest
paid. Non-debt tax shield in the form of depreciation of fixed assets. The higher the depreciation of a company, the
higher the fixed assets owned by the company, so the company will be easier to obtain a loan from outsiders by
pledging assets of the company. Lim (2012), found that the variable non-debt tax shield (tax savings) positive and
significant effect on the capital structure (leverage).
H5: Non-debt Tas Shield will positively affect to capital structure.
Interest rate
Interest rates represent the cost of borrowing capital for a given period borrowing capital for a given period of time
(muthama 2013). An interest rate is the rate at which interest is paid by a borrower for the use of money that they
borrow from a lender.
H6: Interest Rate will positively affect to capital structure.
Inflation
Inflation is a rise in the general level of prices of goods and services in an economy over a period of time. When the
general price level rises, each unit of currency buys fewer goods and services. Inflation affects sales revenue and
borrowing of a firm through changes in nominal cash flows and the discount rate (Günsel and Çukur, 2007). Inflation
affects the interest rate as well as the general economic confidence in a country. High inflation tends to force the interest
rate higher to enable investors to still achieve a sufficient return on their investments. It consequently increases the cost
of debt financing to firms. High interest rates, due to high inflation, normally reduces the domestic demand and
consequently has an adverse effect on economic growth (Brigham and Daves, 2004). Dammon (1988) in muthama
(2013) stated that inflation affects capital structure and firm value thus higher inflation forces investors to sell bonds in
exchange for stocks and hence firms capital structure measured as debt-equity ratio, tends to drop
H7: Inflation will positively affect to capital structure.
Exchange rate
Exchange rate regarded as the value of one country’s currency in terms of another currency (O'Sullivan and Sheffrin,
2003). A country's exchange rate is determined by the demand and supply of its currency relative to the demand and
supply of a foreign currency. The demand for a currency is mainly driven by foreign investments and the desire for
foreign products and services. Exchange rate depreciation is the decrease in the price of the domestic currency in terms
of a foreign currency, while exchange rate appreciation is an increase in the price of the domestic currency relative to
the foreign currency. An exchange rate appreciation is often accompanied by an increase in capital inflows into the
country.
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Economic growth (GDP)

GDP or gross domestic product, is the market value of all final goods and services produced in a country in a given time
period. Gross Domestic Product (GDP) growth rate was related to leverage ratio and economic growth tends to cause
firms to use more debt consistent Booth et al (2001) in Muthama (2013).
The hyphotesis model is as follows :
Internal Factors External Factors
Firm Size Interest Rate
Company
Growth
Exchange Rate
Capital
Financial Risk
Structure
Inflation Rate
Assets
Structure
Non-Debt Tax Economy

Shield Growth (GDP)
This study used the verification analysis by interpreting a conclusion on the problem to be solved which would be
followed by a hypothesis through data processing. It also used the descriptive analytical method, a method that
interprets the data obtained with the facts that appear at the time of investigation in order to obtain a clear picture of the
objects studied the internal and external factors of the company, capital structure and corporate value. The study began
with a particular theory as the starting point of the thought. The data obtained during the study would be processed,
analyzed on the basis of existing theories and studied.
Assumption of regression testing was performed using regression models and simultaneous panels which in the data
regression approach consists of three kinds of approach of least squares (pooled least squares), fixed effects approach
(fixed effect), and the random effects approach (random effect). The data was processed by using Eviews 6 version.
Model pooled least square (PLS) is a model obtained by combining or collecting all cross section data and time
series data. This data model is then estimated using ordinary least squares, as follows:
where, i shows the cross-section unit (i = 1, ...., n) and t shows the time series (t = 1, ...., t). From the equation will be
obtained parameters α and β are constant and efficient involving as many as n x t observations
While the fixed effect model (FEM) is used to overcome the problem of assuming the intercept and the slope of the
regression equation is assumed to be constant in the PLS model. In this method a dummy variable (dummy variable) is
used to generate parameter values vary both cross-unit and cross section over time (time series), and then the model
estimated by OLS as follows:
where, α is the intercept model of arbitrary cross section between the units and D is a dummy variable. From the
equation above, have added about N-1 dummy variables into the model, so that the magnitude of degrees of freedom is
reduced to NT-N-K. The decision to enter a dummy variable in the fixed effect model will have consequences of its
own, which can reduce the number of degrees of freedom, which in turn will reduce the efficiency of parameter
estimates. To overcome these problems, it can be used a random effects model (REM). In this model, different
parameters between individuals and between time put into error, because this is what this model is often referred to as
error component models. Random effect model shape can be described by the following equation:
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The assumptions used in the method of error individually REM are not correlated with each other, as well as the
error combination. The use of REM approach can save degrees of freedom and does not diminish in number as the FEM
approach.

We divided limitations in this study into two categories. The first category was the point of view of corporates
which are listed in capital market. The companies were not in the same industry, and the characteristic of their capital
market were different, also the insufficient knowledge of the nature oftheir companies. The second category was
macroeconomic factors such as politics, government financial fundamentals, economic policy, and exchange rate policy
that were different one to another.
The result of the test in the confirmity factor analysis of overall modelis:
Table 1 : t Test and R2

Indonesia Malaysia Philipine Singpore Thailand Vietname
Varibles
Coef t Test Coef t Test Coef t Test Coef t Test Coef t Test Coef t Test
Firm Size (X1) 0.316407 0.0045* 0.333792 0.003* -0.32571 0.004* 0.323709 0.0043* 0.323884 0.0043* -2.12 0.0000
Company Growth (X2) -0.125 0.6543 -0.14822 0.0595** -0.1609 0.05691** -0.16238 0.5551 -0.16253 0.05536** -3.1 0.9347
Financial Risk (X3) -0.04106 0.8146 -0.04944 0.7912 -0.03534 0.8462 -0.04889 0.7955 -0.04815 0.7977 -2.36 0.3597
Assets Structure (X4) 0.57419 0.3466 0.456634 0.0179* 7.518043 0.04113* 4.014335 0.03808* 2.829397 0.355 2.2 0.8652
Non-Debt Tax Shield (X5) -4.08048 0.0768** -0.5245 0.0456* -28.209 0.4404 -14.1986 0.4373 -9.45863 0.4376 -9.49 0.8549
Interest rate (X6) -0.12174 0.2031 0.41166 0.8280 -0.29191 0.7894 0.22931 0.7735 0.06987 0.06529** -1.05 0.0000
Exchange Rate (X7) -3288.64 0.8641 -4.86819 0.9525 401.8768 0.7706 1.959042 0.7984 -71.6212 0.5937 2.27 0.0000
Inflation Rate (X8) -0.01804 0.0506** 0.154888 0.08051** -0.04997 0.8433 0.00373 0.09292** 0.00956 0.07362** -3.86 0.0000
Economy Growth (GDP)(X9) -0.00027 0.0397* 0.00028 0.8879 0.00268 0.7638 2.6505 0.06282** 0.0000 0.08639** -8.292 0.5661
2
Adjusted R 0.567 0.457 0.488 0.574 0.426 0.409
Note : * Significant level 5%, ** Significant level 10%
Table 2 : Result of Significants

Variables Indonesia Malaysia Philipines Singapore Thailand Vietnam
Firm Size-X1 Positive Positive Negative Positive Positive Negative
significant significant significant Significant significant Significaant
Company Growth-X2 Negative Negative Negative Negative Negative Negative
Unsignificant significant Significant unsignificant significant unsignificant
Financial Risk-X3 Negative Negtive Negative Negative Negative un Negative
unsignificant unsignificant Unsignificant Significant significant unsignificant
Assets Structure-X4 Postivie Positive Positive Positive Positive Positive
unsignificant significant significant significant unsignificant unsignificant
Non Debt Tax Shield- Negative Negative Negative Negative Negative Negative
X5 significant significant unsignificant unsignificant unsignificant unsignificant
Interest Rate-X6 Negative Positive Negtive Positive Positive Negative
unsignificant unsignificant unsignificant unsignificant significant significant
Exchange Rate-X7 Negative Negative Positive Negative Negative Postiive
unsignificant unsignificant unsignificant unsignificant unsignificant significant
Inflation Rate-X8 Negative Positive Negative Positive Positve Negative
significant significant unsignificant significant significant Significant
GDP- X9 Negative Positive Positive Positive Positive Negative
significant unsignificant significant significant significant unsignificant
From the table above, the balance sheet effect may occur in :
Indonesia
The table above showed the difference in the results for the firm size to the influence of internal factors on capital
structure. Positive insignificant becomes significant. This indicates that the balance sheet effect of macroeconomy
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factors would affect the microeconomic factors causing firm size to have a significant positive effect on capital
structure, so that large companies tend to diversify utilizing high debt capacity and have the ability to repay it, so the
debts would earn the trust of creditors to issue large amounts of debt according to Baskin (1989) and Ozkan (2001).
Malaysia
There were differences between internal factors and external factors to capital structure.It means all factors could
influence balance sheet effect. Macro-economic policy did not influence micro-economic factors, because interest rate,
inflation rate, foreign exhcange rate, and average economy growthwere stable during 2008-2011. According to Ting and
Lean (2011), the evidence suggests that firm size, tangible assets, and profitability are the main factors determining a
firm's capital structure in Malaysia.
Phillipines
The difference in the firm size changed from a significant positive influence of internal factors on the capital structure
to a significant negative influence of internal and external factors on capital structure. This showed that the firm size is a
factor to be considered in determining capital structure in the Philippines. Negative direction indicated that the study
was in line with Kwok & Reeb (2000) and Frank and Goyal (2003).
Singapore
The research indicated that the economy growth and non-debt tax shield had changed from the negative influence of
internal factors on capital structure to a negative and insignificant influence of internal and external factors on capital
structure. These results indicated that the growth of the company was not the determining factor of capital structure.
This study is in line with Kallapur & Trombley (1999), while the risk of significant negative did not become
significantly negative. This was because the risk of the company became a decisive factor in capital structure. Hence,
the company with high risk would be hard to get loans.
Thailand
The research showed that there are differences of the structure of assets and non-debt tax shield of significant to become
insignificant. It indicated that the structure of assets and non-debt tax shield was not considered a factor in the
determination of capital structure, although in the same time the direction was negative
Vietnam
The study showed a difference in the firm size to become a significant negative. This explained that the firm size
became a considered factor in determining capital structure in Vietnam. Negative direction indicated that the study was
in line with Kwok & Reeb (2000) and Frank and Goyal (2003).
Conclusion and Implication

Firm size factor is dominat in all ASEAN countries. Inflation rate is dominant in five countries. Company growth is
dominant in four countries. The asset structure is dominant in three countries. Non-debt tax shield, interest rates and
economy growth (GDP) are dominant in two countries, meanwhile the exchange rate is dominant in one country. The
summary of the conclusion is as follows:
Table 2 : Dominat Variables on Capital Structure
Variables Indonesia Malaysia Philipines Singapore Thailand Vietnam

Firm Size X X X X X X
Company Growth X X X X
Financial Risk X
Assets Structure X X X
Non-Debt Tax Shield X X
Interest Rate X X
Exchange Rate X
Inflation Rate X X X X X
GDP X X
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The implication of this research to the companies is that companies should consider macroeconomy in setting their
capital structure to avoid negative balance sheet effect. Implication to the international investors is that they should
consider significant variables on capital structure of each country.
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THE ANTECEDENTS OF THE PASSENGER SATISFACTION: THE ROLE OF

RAILQUAL
Kenji Bisma Wibawa Junardy1), Sri Rahayu Hijrah Hati2, Arnold Japutra3), Harryadin Mahardika4), Andreina Fara5)
1) 2) 4) 5)
Faculty of Economics and Business Universitas Indonesia, Depok, Indonesia
3)
2)
hijrahhati@yahoo.com
Abstract
The study examines the impact of service quality on passenger’s satisfaction. Service quality is measured by using
“Railqual”, a special measurement of service quality in the railway industry. The data were collected from 240
customers of Indonesian Railway Company (PT KAI), the one and only railway provider in the country. Convenience
sampling was used and four types of train passengers were taken as the samples of this research. The hypotheses are
tested by utilizing multiple regressions. The results show that all Railqual elements which comprise of platform
services, in-train services, punctuality, employee services and security significantly influence passenger customer
satisfaction. However, based on the regression analysis, ticketing, in-train services and platform service are considered
as the most important factors to the customers. The study provides an empirical evidence on the Railqual scale in the
different context and the service quality factors which are important to the train customers.
Keywords: Railqual, Customer Satisfaction
Introduction
Public transportation is regarded as one of the essential elements in a country (Pucher 2004; Zeng et al. 2014). It is
one of the basic foundations in building sustainable cities with easy accessibility (Ieda et al. 2001). Furthermore, now
countries around the world are competing to create a modern, sophisticated public transportation with an
environmentally friendly system and minimum energy consumption. Now, in what so-called the “matured society‟,
public transportation become the fundamental part in life. It is still the only instrument that provides the efficient means
in moving people and logistics (Eboli and Mazzulla 2012). Therefore, demands are highly increased in term of
punctuality, reliability, and frequency (Ieda et al. 2001).
In the Indonesian context, the unsatisfactory train services remain high, at least in many years past. Only very
recently, the government recognized the importance of mass transportations in order to satisfy the increasing demand in
a growing economy. New leadership was appointed; the company has been going through a radical transformation to
improve the operations. The management team is being reinstated, human resource development is being focused, and
passenger services have become the priority along with the improvement of the infrastructure to support the operation,
and the service-oriented culture is introduced (Djuraid 2013)
With the increase of services, PT. KAI has become a new choice, even preferable, as intercity by wider market
segments. With this encouraging environment, the writer is interested in studying on how an intercity passenger train
product is being offered, services being rendered, and how the needs and wants of the market segments are being
fulfilled in PT. KAI. Intercity passenger train provides several services such as economy class, business class, and
executive class. There are trains full with executive and business classes, there is also a mixed train between economy
class up to the executive. These various options of services will be provided to satisfy various market segments.
Therefore, deep analysis and observation are needed to find the effect of service quality on customer satisfaction among
all classes.
Based on the above discussion, the current study will examine the influence of service quality delivered by the
Indonesian Railways Company on customer’s satisfaction of intercity passenger train. An intercity passenger train is
chosen as it is regarded as one of the most important transportation facilities in modern society due to its capability to
transport a large amount of passengers and a high potentiality to reduce energy consumptions and pollution (Djuraid
2013).
Literature Review
Intercity train refers to high-quality trains which are usually faster than the average train which links large cities
(Pena 1996). Maruvada and Bellamkonda (2012) suggested that reservation experiences are affecting the customers‟
overall satisfaction. Moreover, Eurobarometer (2011), which did a survey of up to 25 countries in Europe for
passenger‟s satisfaction in Rail services, stated that rail passengers are most likely to be satisfied with 3 aspects, which
one of them is the reservation. Reservation dimension includes the procedure, accuracy, and promptness of the
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reservation. Another researcher (Agarwal, 2008) also support the positive influence of reservation on passenger
satisfaction. Hence, the following hypothesis can be proposed:
H1: Reservation (RESE) has a significance positive influence towards overall customer satisfaction (CS).
Maruvada and Bellamkonda (2012) and Agarwal (2008) stated that ticketing has a significant influence towards
customer satisfaction. Ticketing dimension will test in a scope of the ticket price, train price variations, price
regulations, and the flexibility of cancellation and scheduling. Moreover, Markplus (2013) also indicated that ticketing
is one of the biggest factors that affecting customer satisfaction. Hence, the following hypothesis can be proposed:
H2: Ticketing (Tick) has a significant positive influence towards overall customer satisfaction. (CS)
The platform services in rail station positively influence overall customer satisfaction (Maruvada and Bellamkonda
2012; Agarwal, 2008). Platform Services includes the facilities, provision of information, maintenance, access
flexibility, condition, cleanliness, security, and convenience of the station and waiting room. Choocharukul and
Sriroongvikrai (2013) also stated that service and information of platform is one of the six important factors that
affecting the overall customer satisfaction. Hence, the following hypothesis can be proposed:
H3: Platform Services (PFSER) has a significance positive influence towards overall customer satisfaction (CS).
Maruvada and Bellamkonda (2012) suggested that In-Train Services has a significant positive influence towards
overall customer satisfaction. Agarwal (2008) also suggest that in train services considered as one of the most important
factors that affect the overall customer satisfaction. The previous study from MarkPlus (2013) focused the questions
regarding in train services mainly about the convenience of travel from the beginning place to the arriving point,
facilities, maintenance, and cleanliness. Those questions were created in a reflection to the situations and basic
facilities from PT. KAI standards. In addition, in-train services consist of cleanliness, toilet facilities, catering quality
and price, and comforts inside the train. Moreover, the indicators also already confirmed by PT. KAI. Therefore, in this
research context, In-Train Services are expected to have a significant positive influence towards overall customer
satisfaction. Hence, the following hypothesis can be proposed:
H4: In Train Services (INTRS) has a significance positive influence towards overall customer satisfaction (CS)
Time is one of the most influential variables toward overall customer satisfaction for train services (Maruvada &
Belamkonda, 2012; Thomson & Schofield, 2007; Ollson (2004). Time or punctuality is used as a distinct measurement,
related to a predefined degree of accepted deviance (Olsson, 2004). Cavana and Corbett (2007) stated that in the
transportation context passengers measured reliability of the services based on punctuality. Moreover, passengers tend
to have a strict judgment on departing and arrival time (Markplus, 2013). In fact, based on the annual report of PT. KAI
(2013) claimed that punctuality is one of the four main pillars of performance. Hence, the following hypothesis can be
proposed:
H5: Punctuality (PUNC) has a significance positive influence towards overall Customer Satisfaction (CS)
When it comes to the railway, Employee services is one of the key factor affecting overall customer satisfaction
(Maruvada and Bellamkonda, 2012). Employee services consist of staff handling, attitudes, and clarity of information
by the staffs in the station and inside the train.
H6: Employee Services has a significance positive influence towards overall Customer Satisfaction (CS)
Security is one of the key categories of public transport quality indicators. One of the study on Hellenic Railway in
Europe shows that security becomes the most important factor for the customers (Nathanail. 2007). Maruvada and
Bellamkonda (2012) stated that security is one of the six factors that has an influence towards overall customer
satisfaction. Therefore, the following hypothesis can be proposed:
H7: Security has a significance positive influence towards overall Customer Satisfaction (CS)
Methods
The data was collected by using structured questionnaire distributed to 240 passengers of 4 intercity trains which
connects the city in Jakarta province to the cities in East Java provinces. It is worth noting that intercity train in
Indonesia can be classified into the economy and commercial passenger classes (Hata 2003). The commercial passenger
classes are also divided into business and executive class (Hata 2003). The research took place inside the train of Bima,
Sembrani, Gumarang, and Gajayana. Bima and Sembrani which operated back to back from Gambir Station (Jakarta) to
Surabaya Station (Surabaya). Sixty questionnaires were distributed in each type of executive only trains except for
Gumarang which also has economy class.
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Based on the multiple regressions analysis, it is found the all the Railqual dimensions influence passenger
satisfaction. The breaks down is as follow:
Table 1. Multiple Regression Result

Independent Variable Unstandardized
t value Significance Conclusion
coefficient B
R Square=0.533
Constant 0.0
Reservation 21 2.127 0.034 Significant
0.092
Ticketing 0.270 4.779 0.000 Significant
Platform Services Significant
0.141 2.520 0.012
In-train services 0.177 2.938 0.008 Significant
Punctuality 0.105 2.074 0.039 Significant

Employee Services Significant
0.078 2.044 0.042
Security 0.127 2.288 0.023 Significant
Source: SPSS output conducted by researcher
Apparently, all seven variables namely: reservation, ticketing, platform services, in-train services, punctuality,
employee services, and security are all had a significant influence towards customer satisfaction. However, based on the
beta coefficient result, ticketing, in-train services and platform service are considered as the most important factors to
the customers.
Based on this study, ticketing became one of the biggest roles in order to gain customer satisfaction. The study
supported the study conducted by Maruvada and Bellamkonda (2012) and Agarwal (2008). Therefore, ticket price
movement should be alerted early and transparently. Rescheduling and ticket cancellation should also be taken as a
consideration. Charging cost should be implemented in a minimum and reasonable percentage, as well as a high
flexibility of rescheduling.
Logically, passengers spent most of the journey time inside the train. As the result shows significant influence, in-
train services must at least match with customers‟ expectation to fulfill their satisfaction. All the facilities that promised
to the customers must be fulfilled in a good way and good quality.
Platform Services consist of several different factors. Amenities, shops, restaurants, and restrooms should be there to
facilitate passengers‟ waiting time. Those factors should be maintained in terms of clarity and cleanliness.
Maruvada and Bellamkonda (2012) suggested that these specific variables can be implemented by the railway
company in order to measure the customer satisfaction. In fact, Markplus (2013) as the official partner of PT.KAI
already implemented the variables and indicators in measuring customer satisfaction in the last two years. Thus, PT.
KAI already did an effective measurement of their passengers‟ satisfaction.
Based on the above descriptive results, the majority of the independent variables showed a “nearly satisfied‟ state of
satisfaction to the train services. In fact, the overall customer satisfaction also indicates “nearly satisfied‟ feeling. As in
implication, it is now can be suggested that the railway company should focus on creating a maximum service towards
those seven variables. For example, since this research was conducted, PT. KAI had created several ways of reservation
such as committing with official partners, creating a sensible website for reservation, and special smartphone
application called “KAI Access”. These innovations are no less than to add higher easiness and options for passengers
to have ticket reservation. In fact, reservation is the only variable that can be categorized as a satisfying service.
However, satisfying reservation itself did not enough to make passengers feel satisfied in overall journey.
The management of Indonesian railway should also take maximum consideration in punctuality. For example, in an
international standard judgment of public transport, punctuality is considered as one of the most influential performance
(Eurobarometer, 201). Therefore, the management should maintain a strong system to create a punctual schedule
towards all inter-city train. In fact, there is still different judgment among passengers from different types of train about
punctuality.
The study provides an empirical evidence on the Railqual scale in the different context and the service quality
factors which are important to the train customers.
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References
Agarwal, R. (2008). Public Transportation and Customer Satisfaction: The Case of Indian Railways. Global Business
Review, 9(2), 257-272.
Cavana, R. Y., Corbett, L. M., & Lo, Y. L. (2007). Developing zones of tolerance for managing passenger rail service
quality. International Journal of Quality & Reliability Management, 24(1), 7-31.
Djuraid, Hadi M. 2013. Jonan dan Evolusi Kereta Api Indonesia: BUMN Track.
Eboli, Laura and Gabriella Mazzulla. 2012. "Structural equation modelling for analyzing passengers perceptions about
railway services." Procedia-Social and Behavioral Sciences 54:96-106.
Ieda, Hitoshi, Yoichi Kanayama, Masafumi Ota, Takashi Yamazaki and Toshiyuki Okamura. 2001. "How can the
quality of rail services in Tokyo be further improved?" Transport Policy 8(2):97-106.
Maruvada, Devi Prasad and Raja Shekhar Bellamkonda. 2012. "The Effects of Individual Dimensions of Railway
ServiceQuality: Findings from Indian Railway PassengerServices through Developing RAILQUAL." International
Journal of Innovation, Management and Technology 3(1):42.
Nandan, S. (2010). Determinants of customer satisfaction on service quality: A study of railway platforms in India.
Journal of public transportation, 13(1), 6.
Nathanail, E. (2008). Measuring the quality of service for passengers on the Hellenic railways. Transportation Research
Part A: Policy and Practice, 42(1), 48-66.
Olsson, N. O., & Haugland, H. (2004). Influencing factors on train punctuality—results from some Norwegian studies.
Transport policy, 11(4), 387-397.3.3.
Pena, Daniel. 1996. "Measuring service quality by linear indicators."
Pucher, John. 2004. "Public transportation."
Thompson, K., & Schofield, P. (2007). An investigation of the relationship between public transport performance and
destination satisfaction. Journal of Transport Geography, 15(2), 136-144
Zeng, Wei, Chi-Wing Fu, Stefan Muller Arisona, Alexander Erath and Huamin Qu. 2014. "Visualizing mobility of
public transportation system." IEEE transactions on visualization and computer graphics 20(12):1833-1842.
Biography:
Kenji Bisma Wibawa Junardy obtained his Bachelor of Economics from Universitas Indonesia. He is currently a
student of IHS Institute for Housing & Urban Development Studies, Erasmus University.
Sri Rahayu Hijrah Hati earned her PhD in Business Strategy and Policy in 2015. She has coauthored several
publications on social entrepreneurship and marketing. She is currently the director of Islamic Business undergraduate
program and the Vice Editor of ASEAN Marketing Journal at Universitas Indonesia.
Arnold Japutra is a lecturer at Universitas Tarumanegara and an adjunct lecturer at Universitas Indonesia. He worked
for more than 3 years as a research associate and associate lecturer at Oxford Brookes University
Harryadin Mahardika is the director of Master of Management and Chief editor of ASEAN Marketing Journal at
Universitas Indonesia. He earned his doctoral degree from Monash University.
Andreina Fara obtained her Bachelor of Economics degree from Universitas Indonesia. Currently she serves as the
managing editor of ASEAN Marketing Journal
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THE IMPACT COUNTRY IMAGE AND SUBJECTIVE KNOWLEDGE ON CONSUMER

ATTITUDES AND BEHAVIORS: COMPARISON OF KOREAN AND JAPANESE
RESTAURANTS
Alwin Adityo1), Sri Rahayu Hijrah Hati2, Arnold Japutra3), Harryadin Mahardika4)
1) 2) 4)
Faculty of Economics and Business Universitas Indonesia, Depok, Indonesia
3)
2)
hijrahhati@yahoo.com
Abstract
The purpose of this study is to recognize how the cognitive and affective components of the country image as well as
subjective knowledge impact the attitude towards consuming foreign foods, which impacts the intention to try foreign
foods. Convenience sampling was used and residents of the Greater Jakarta (Jabodetabek) are used as the samples for
this research. The hypotheses are tested using structural equation modeling (SEM) using LISREL 8.50. This research
used Korean and Japanese food as the research object, as South Korea and Japan have been actively promoting its
culture, including food in the overseas market. The results show that a cognitive country image positively affects
affective country image; affective country image positively influences attitude to consume foreign foods; subjective
knowledge positively influences attitude to consume foreign foods and attitude to consume foreign foods positively
influences the intention to try foreign foods. The findings in this research are useful for further research on this topic
and also benefit food companies selling Korean or Japanese food that uses country image association as a marketing
tool for their food products.
Keywords: Cognitive Country Image, Affective Country Image, Subjective Knowledge, Attitude, Behavior, Food
Products
Introduction
Globalization has led to the promotion of foreign goods and services to introduce a country’s culture in the overseas
market. South Korea and Japan are not an exception to this trend and in recent years, Korean and Japanese foods have
been actively promoted to a global audience by their respective governments and businesses. Companies in the food
industry from both countries have been looking to expand beyond their home market for better growth opportunities and
as food is often promoted with other cultural aspects which make up the country’s image, both countries are believed to
try to boost their country image in Indonesia in order to stimulate demand for their goods and services.
In addition to the country image, attitude has also been widely used in predicting consumer behavior, as attitude
positively influences purchasing behavior. (Phillips, Asperin, & Wolfe, 2013). Prior research has found that consumers
shape their attitude and purchase intention toward foreign products based on the country of origin or product-country
image. In addition, subjective knowledge, defined by Park et al. (1994) and Brucks (1985) as how much a person thinks
they know about a product is instrumental in consumer product evaluation and decision-making. Thus, it is believed
subjective knowledge will have an impact on the attitudes and behaviors of consumers. Moreover, thecountry image is
split into two components in this research, which are cognitive and affective country image. Traditionally, country of
origin or country image studies targeted consumer products such as automobiles, electronics and fashion products,
however not many studies target the issue of food, especially the cuisine of the country itself. However, previous studies
have been done and confirmed that a relationship between product knowledge and purchases related to food, beverages,
and foodservice exists (Boccaletti & Moro, 2000).
Moreover, the study by Phillips et al. (2013) only used South Korea as a study case, while this research aims to see
whether the model proposed by Phillips et al. (2013) can be slightly modified and is robust to be used with other foreign
foods aside from Korean food. Therefore, based on this information, the research questions are as follows:
1. Does cognitive country image (CCI) positively influences affective country image (ACI)?
2. Does affective country image (ACI) positively influences attitude towards consuming foreign foods?
3. Does subjective knowledge of foreign food positively influence attitude (ATT) towards consuming foreign
foods?
4. Does attitude (ATT) towards consuming foreign food positively influences intention to try foreign foods?
There are managerial and academic contributions expected from this research. Managerial contributions include
knowing the potential consumer behavior of Indonesian customers and whether companies could take the benefit of
using South Korean and Japanese country image in their marketing efforts to promote their food products if the image
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of these countries are found to be favorable and prove to have positive effect on consumer’s attitude and intention to try
the food. Meanwhile, academic contributions expected include helping other researchers in the future as an additional
reference for further study on this topic and give information on the issue of country of origin image and purchasing
behavior of food items, particularly regarding foreign cuisine.
Literature Review
Country image refers to “the sum of beliefs and impressions people hold about places (Kotler & Gertner, 2002).
Liefield (1993) came to a conclusion that country image appears to influence consumer evaluation of product quality,
risk, the likelihood of purchase, and other mediating variables. Papadopoulos et al. (2003) proposed that consumers’
perception of the country of origin image be comprised of several main categories, two of which are cognitive country
image and affective country image. The cognitive component includes consumers’ beliefs about the country’s industrial
development and technological advancement. On the other hand, the affective component describes the consumers’
affective response to the country’s people. Han (1990) Martinez and Alvarez (2010) and Wang et al. (2012) stated what
factors can be incorporated into cognitive and affective country image. Factors that can be incorporated as a part of the
cognitive country image can include factors such as the level of economic development, living standards,
industrialization and technological advancement. On the other hand, affective country image seeks to ask people their
feelings of a country or their affective evaluations.
Orbaiz and Papadopoulos (2003) suggested that the country image is constructed hierarchically from cognitive to
affective. The cognitive cues of the country are first evaluated and then the emotion or the affective cues for the country
is created. Moreover, Bertoli and Rescinitti (2012) stated that a causal relationship exists between the cognitive and
affective components of the country image and concluded that the relationship between these two components is a
positive one. Hence the following hypothesis can be proposed:
H1: Cognitive Country Image (CCI) positively influences Affective Country Image (ACI)
The affective country image is thought to give a positive effect on the attitude towards consuming foreign foods.
Verlegh and Steenkamp (1999) suggest that direct and indirect experiences a consumer has will invoke emotion and
feelings, which are parts of the affective component, and gives a strong impact on the consumers’ product attributes and
expectations. In their studies of the attitude of an Arab consumer towards Israeli products, Verlegh and Steenkamp
(1999) found out that a poor perception of the country of origin would lead to a strongly negative attitude towards
products from the country of origin. Hence, the correlation between affective country image and attitude towards
consuming foreign foods is positive. Hence the following hypothesis can be proposed:
H2: Affective Country Image (ACI) positively influences attitude towards consuming foreign foods
Subjective knowledge according to Park (1994) can be defined as how much one thinks he/she knows about a
specific product and plays a significant role in product evaluation and decision-making. Subjective knowledge, along
with objective knowledge and experience, is one of the distinct constructs of consumer knowledge (Alba and
Hutchinson, 1987). Consumer knowledge includes two major components, which are familiarity and expertise.
Familiarity is an experience with a product and may include factors such as choice and decision-making, purchasing,
and product usage in various situations. On the other hand, an example of consumer expertise is the beliefs the
consumer has about the product attributes.
Subjective knowledge, in comparison with objective knowledge, was found in the research by Raju et al. (1995) to
be significantly related to decisions. Therefore, it should not be strange that subjective knowledge is considered to be a
stronger predictor of purchase intentions (Flynn & Goldsmith, 1999). In the context of food, Boccaletti and Moro
(2000) have shown how product knowledge can have the effect on purchases by consumers related to food, beverage
and foodservice. According to Peter and Olson (2010) a person’s affective and cognitive systems will interpret the
consequences of product use and then form knowledge and beliefs about these functional and psychological
consequences in their memory. Therefore, for example for this research, it can be implied that consumers who think
they will have positive feelings as a result of the consumption of a particular foreign food may can happen due to some
factors. Therefore:
H3: Subjective Knowledge (SK) of foreign foods positively influences attitude towards consuming foreign foods
Attitude has been one of the most widely studied subjects in predicting consumer behaviors (Ajzen and Driver,
1991). In its relation with food, the attitude was found in previous studies to have an important influence on a person’s
food choice and food-related behavior. Food attitude has been found as one of the key influences on food choice and
consumption behaviors (Arvola et al., 2008). Therefore, it is found out that the attitude towards consuming a new
international cuisine would be a major factor for measuring the intention of trying it. Moreover, the purchase of food
items, according to Knight et al. (2007) the influences of food choice are mediated by individual beliefs and attitudes.
Therefore, it is believed that the correlation between attitude towards consuming foreign food and intention to try
foreign foods is also positive. Hence, the following hypothesis can be proposed:
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H4: Attitude towards consuming foreign foods positively influences intention to try foreign foods
The research framework model is as follows:
Figure 1: Research Framework
Methods
The total sample size consisted of 320 people, with 160 people responding to the survey for Korean Food and 160
people responding to the survey for Japanese food. . The sample size was determined based on the theory of Hair,
Sarstedt, Ringle, & Mena(2012) that states the minimum number of samples required for an analysis using Structural
Equation Modeling (SEM) is the number of items in a questionnaire multiplied by 5.The sampling method used in this
research was non-probability sampling. Primary data was collected using an online survey through Google Docs that
was distributed to the respondents via online forums, social media networks, and email. Anyone who lived in Indonesia
and who were over 18 years old during the data collection period. The online forums chosen in the study were the
online forum that specifically discusses culinary issues. In the questionnaire, all scale items will use the six-point Likert
scale. The questionnaire consist of 3 items cognitive country image scale; 3 items affectice country image scale; 5 items
subjective knowledge scale; 3 items attitude to consume Korean/Japanese Foods; and 3 items intention to consume
Korean/Japanese Foods.
Table 1. Respondent Demography

Category Results
Gender 189 respondents (40.94%) were male and 131
(59.06%) were female.
Age The majority of respondents were aged 18-24 years old
(58.75%) and 25-34 years old (30.31%).
Education The majority of respondents (52.19%) obtained a
bachelor’s degree and 37.50% reported finished high
school.
City of Residence The majority of respondents (70.31%) lived in Jakarta
while only 3.13% lived in Bekasi.
Monthly Income The majority of respondents had an income ranging
from Rp 1,000,000-Rp 4,999,999 (57.19%) while
22.19% earned between Rp 5,000,000-Rp 8,999,999
Monthly Expenditure The majority of respondents (68.75%) spent between
Rp 1,000,000-Rp 4,999,000 per month and 15.31%
spent between Rp 5,000,000-Rp 8,999,999 per month
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Based on the structural model obtained from the LISREL output, the cognitive country image had a significant
effect towards affective country image as the values were 10.05 and 7.30, for Korean and Japanese food, respectively.
Affective country image had a significant effect on the attitude to consume foreign foods as the values were 4.88 and
5.34 for Korean and Japanese food, respectively. Subjective knowledge had a significant effect towards the attitude to
consume foreign foods as the values were 6.11 and 6.92 for Korean and Japanese food, respectively. In addition, the
attitude to consume foreign foods had a significant effect to the intention to try foreign foods as the values were 3.63
and 11.04, for Korean and Japanese food, respectively. The SLF was used to compare which independent variable
showed a more significant relationship towards the dependent variable. In this research, it was found out that subjective
knowledge was more significant in influencing the attitude to consume foreign foods for both Korean food and Japanese
food.
For the structural model, the results showed the following:
Figure 2: Path Diagram and t-value for the Structural Model (Korean Food)
Figure 3:Path Diagram and t-value for the Structural Model (Japanese Food)
Based on the results of the processing and analysis of the data several conclusions were made to answer the research
questions. Firstly, Cognitive Country Image (CCI) has a significant positive effect towards Affective Country Image
(ACI), consistent with the findings by Phillips et al. (2013), Orbaiz (2003) and Bertoli (2012). Therefore, in the context
of this research, South Korea, and Japan enjoy positive perceptions by the respondents that then turn into a positive
feeling for affective components of the country. Secondly, Affective Country Image (ACI) has a significant positive
effect towards Attitude to Consume Foreign Foods (ATT). The results of this research thus suggest an experience by the
consumer towards South Korea and Japan, whether direct or indirect, will invoke emotion and feelings and those
emotions and feelings give a strong impact on the consumers’ product attributes and expectations. For marketers, when
the country image is strength from both the cognitive and affective perspective, the attitude in the form of a high
willingness to buy or consume will be evident. This result is consistent with the findings by Phillips et al. (2013),
Verlegh (1999), Clarke, et al. (2000) and Maher (2011). Thirdly, Subjective Knowledge of Foreign Foods (SK) has a
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significant positive effect towards the Attitude to Consume Foreign Foods (ATT). The result of this research has shown
that subjective knowledge influences usage and a higher subjective knowledge is an indication of the increasing usage
of country image to determine behavior. This result is consistent with the findings by Phillips et al. (2013) and Raju, et
al. (1995). Fourthly, Attitude to Consume Foreign Foods (ATT) has a significant positive effect towards the Intention to
Try Foreign Foods (INT). Attitude thus can be used as an important predictor in its relation to food in a way that it
could influence a consumers’ food choice and food-related behavior. Regarding the academic implications, as all of the
proposed hypotheses were accepted, it shows that the research framework model proposed by Phillips et al. (2013) can
be used in the context of foreign foods outside of Korean food, as Japanese food was also used as a study case.
References.
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179-211.
Alba, J. W., & Hutchinson, J. W. (1987). Dimensions Of Consumer Expertise. Journal of Consumer Research, 13(4),
411.
Arvola, A., Vassallo, M., Dean, M., Lampila, P., Saba, A., LÃ¤hteenmÃ¤ki, L., et al. (2008). Predicting intentions to
purchase organic food: The role of affective and moral attitudes in the Theory of Planned Behaviour. Appetite, 50(2-
3), 443-454.
Bertoli, G. (2012). International marketing and the country of origin effect: the global impact of 'made in Italy'.
Cheltenham: Edward Elgar.
Boccaletti, S., & Moro, D. (2000). Consumer willingness-to-pay for GM food products in Italy.Brucks, M. (1985). The
Effects of Product Class Knowledge on Information Search Behavior. Journal of Consumer Research, 12(1), 1.
Flynn, L. R., & Goldsmith, R. E. (1999). A Short, Reliable Measure of Subjective Knowledge. Journal of Business
Research, 46(1), 57-66.
Hair, J. F., Sarstedt, M., Ringle, C. M., & Mena, J. A. (2012). An assessment of the use of partial least squares structural
equation modeling in marketing research. Journal of the academy of marketing science, 40(3), 414-433.
Han, C. M. (1990). Testing the Role of Country Image in Consumer ChoiceBehaviour. European Journal of Marketing,
24(6), 24-40.
Knight, G. A., & Calantone, R. J. (2000). A flexible model of consumer country-of-origin perceptions: A cross-cultural
investigation. International Marketing Review, 17(2), 127
Kotler, P., & Gertner, D. (2002). Country as brand, product, and beyond: A place marketing and brand management
perspective. Journal of brand management, 9(4), 249-261.
Liefeld, J.P. (1993), “Experiments on country-of-origin effects: review and meta- analysis”, in Papadopoulos, N. and
Heslop, L. (Eds), Product Country Images: Impact and Role in International Marketing, International Business
Press, New York,NY
Martinez, S. C., & Alvarez, M. D. (2010). Country Versus Destination Image in a Developing Country. Journal of
Travel & Tourism Marketing, 27(7), 748-764.
Papadopoulos, N. G., & Heslop, L. (1993). Product-country images: impact and role in international marketing. New
York: International Business Press.
Park, S. (n.d.). Korean food and restaurants going global. The Korea Times . Retrieved February 8, 2014, from
http://www.koreatimes.co.kr/www/news/culture/2013/04/386_132973.html
Peter, J. P., & Olson, J. C. (2010). Consumer behavior and marketing strategy (9th ed.). Homewood, IL: Irwin.
Phillips, W. J., Asperin, A., & Wolfe, K. (2013). Investigating the effect of country image and subjective knowledge on
attitudes and behaviors: US Upper Midwesternersâ€™ intentions to consume Korean Food and visit Korea.
International journal of hospitality management, 32, 49-58.
Raju, P., Lonial, S. C., & Mangold, W. G. (1995). Differential Effects of Subjective Knowledge, Objective Knowledge,
and Usage Experience on Decision Making: An Exploratory Investigation. Journal of Consumer Psychology, 4(2),
153-180.
Verlegh, P. W., & Steenkamp, J. E. (1999). A review and meta-analysis of country-of-origin research. Journal of
Economic Psychology, 20(5), 521-546.
Wang, C. L., Li, D., Barnes, B. R., & Ahn, J. (2012). Country image, product image and consumer purchase intention:
Evidence from an emerging economy. International Business Review, 21(6), 1041-1051.
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Biography:
Alwin Adityo obtained his Bachelor of Economics from Universitas Indonesia. He is currently work in Indonesia
Financial Services Authority.
Sri Rahayu Hijrah Hati earned her PhD in Business Strategy and Policy in 2015. She has coauthored several
publications on social entrepreneurship and marketing. She is currently the director of Islamic Business undergraduate
program and the Vice Editor of ASEAN Marketing Journal at Universitas Indonesia.
Arnold Japutra is a lecturer at Universitas Tarumanegara and an adjunct lecturer at Universitas Indonesia. He worked
for more than 3 years as a research associate and associate lecturer at Oxford Brookes University
Harryadin Mahardika is the director of Master of Management and Chief editor of ASEAN Marketing Journal at
Universitas Indonesia. He earned his doctoral degree from Monash University.
Andreina Fara obtained her Bachelor of Economics degree from Universitas Indonesia. Currently she serves as the
managing editor of ASEAN Marketing Journal.
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THE EFFECT OF ADVERSITY INTELLIGENCE, SOCIAL RELATIONS

AND RISK TAKING PROPENSITY TOWARDS ENTREPRENEURSHIP INTENTION OF
STUDENTS OF FACULTY OF ECONOMICS AND BUSINESS (FEB)
AT UNIVERSITAS MUHAMMADIYAH PURWOKERTO (UMP), INDONESIA
Hermin Endratno1), Purnadi2)
Universitas Muhammadiyah Purwokerto, Central Java,Indonesia
1)
herminendratno@gmail.com
Abstract
This research was conducted on students at FEB UMP. The aspects studied emphasize on the influence of Adversity
Intelligence, social relations and risk taking propensity towards entrepreneurship intentions of Faculty of Economics
and Business of UMP.
This research is important because of the beneficial research findings both academically and in its applications. The
method of this research is multiple regression analysis.
The respondents involved in this study were the students of FEB UMP. 191 students are chosen as the samples of this
research. Accidental sampling technique is used to take the samples.
Based on the results of F test, it can be concluded that the adversity intelligence, social relations and risk taking
propensity variable simultaneously have a significant effect on entrepreneurship intentions. Based on t test results, it is
known that: partially, adversity intelligence, social relations and risk taking propensity significantly affects the
entrepreneurship intention. The risk taking propensity is the most significant and influencingvariable to the
entrepreneurship intentions since it has the highest t score.
Keywords: Adversity Intelligence, Social Relationships, Risk-Taking Propensity, Entrepreneurship Intentions
Introduction
The research on the aspects of someone’sentrepreneurship intentions has received much attention from researchers.
Katz and Gartner (1988) in Indarti 2008 defines the intentions of entrepreneurship as a process of finding information
that can be used to achieve the goal of establishing a business. Thus, someone who has entrepreneurship intentions will
have better readiness and progress in the business than someone who does not (Indarti and Rostiani 2008).Indarti and
Rostiani (2008) outlines that the research on entrepreneurship intentions are carried out by considering these three
factors differently, namely: demographic characteristics (gender, age, educational background, and work experience),
personality characteristics (need for achievement and self efficacy), and environmental characteristics (readiness of
instrument).
The findings from Indarti and Rostiani (2008) also states that the higher the confidence of a student on her ability to
do business, the greater the desire to become an entrepreneur. Other studies have demonstrated entrepreneurial
characteristics affect a person's desire to become an entrepreneur (Koh 1996 in Chairy 2011). Entrepreneurial
characteristics consist of innovativeness, need for achievement, locus of control, risk taking propensity, and self
confidence. These characteristics are seen as key factors effecting the possibility of the personsto be an entrepreneur.
The higher these characteristics are, the more likely an individual wishes to be an entrepreneur. Other factors allegedly
influencing a person to become an entrepreneur are entrepreneurial characteristics, family background, ethnic factors
and environmental factors (Indarti and Rosiani 2008).
According to the findings by Endratno (2014), it is known that there is no difference between the profession of
parents towards the entrepreneurship intention of Non Faculty of Economics student with the respondent from the
Faculty of Economics (FE) and non Faculty of Economics of UMP. The varied entrepreneurship intentions are
influenced by thechange variation of risk taking propensity.Moreover, some other percent is influenced by other
variables that are not studied. Partially Risk taking propensity does not affect the entrepreneurship intentions of FE
students.
The findings by Widhiandono (2014) indicate that the risk taking affect the entrepreneurship intentions of the students.
The factors of environmental access do not affect entrepreneurship intentions of the students. The research findings by
Tony Wijaya (2007) show that there is a positive and significant correlation between adversity intelligence and
entrepreneurship intention.
Based on the above explanation, the researcher is interested in conducting the research entitled The Effect of
Adversity Intelligence, Social Relations and Risk Taking Intention propensity towards the Entrepreneurship Intentions
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of the Students of Faculty of Economics and Business UMP. This research differs from the previous ones in terms of
additions or changes of the variablesand object of the research. The research is important since there have not been
many studies on it.
Methods
The method used in this research is a survey done by directly studying and reviewing the field, and the objects of the
research are students in Purwokerto, Central Java, Indonesia, particularly all FE students UMP as the population in this
research. The samples are chosen through accidental sampling technique, in which the sample is taken from anyone
accidentally met and appropriate to be the sample (suitable as a data source)(Sugiyono, 2003). The respondents are the
active students in their study (not taking time-off) in Faculty of Economic and Business of UMP.
To find out the influence of adversity intelligence (X1), social relations (X2) , risk-taking propensity (X3) towards
the entrepreneurship intentions of students, multiple regression analysis is used. (J.Supranto, 1998).
Y = b0 + b1X1 + b2X2 + b3X3+ e
Findings and Discussions

201 pieces of questionnaires were distributed. There are 10 broken / incomplete pieces of the questionnaire. The
data from 191 pieces of questionnaires are able to be analyzed. All items in this research question are valid and reliable.
All data also have passed the test of classic assumptions. The respondents’ characteristics based on gender are: male
(76 persons) and female (115 persons); educational background are accounting students (62 persons) and management
students (129 person).
a.The Description of Respondents’ Answer on The Research Variables

The assessment of the research variables consisting of adversity intelligence, social relations, risk taking propensity,
and entrepreneurship intentions uses the Likert scale with a range of score from one to five. The answer of score one
represents a strong disagreement, and score five reflects the strong agreement. The description of respondents’ answer
on the adversity intelligence variable can be seen in Table 1.
Table 1. Description of respondents’ answersonthe adversity intelligence variable

Statements Answer
1 2 3 4 5 Total
I compete for the fair achievement 0 0 13 92 86 191
I try to remain calm when facing problems 0 1 21 116 53 191
I choose the task suitable to my ability 0 8 50 79 54 191
I try to do a task at my best although it is difficult 0 4 29 105 53 191
I’d better avoid problems rather than face it 33 97 35 14 12 191
I admit that the failures I’ve ever done is because of 1 9 64 72 45 191
my carelessness
I am sure that all actions taken have the consequences 1 1 12 102 75 191
The past mistake is a part of learning process for the 0 1 12 64 114 191
betterment
I always think of consequences that might happen on 0 0 24 121 46 191
the chosen decisions
I am confident that the step I have chosen is the most 0 2 56 101 32 191
appropriate way to finish the task
I find out the cause of the failure I’ve ever experienced 0 1 39 113 38 191
I study a problem before determining how to solve 0 2 48 106 35 191
I only do the work that is my responsibility 8 34 89 36 24 191
I often doubt my own ability 5 28 83 42 33 191
I always focus on the problem I am facing 1 14 62 89 25 191
I’m not going to give up before I try to solve the 0 1 26 113 51 191
problem
I do not like worsening the problem 0 1 34 93 60 191
I believe that success takes a long time and process 1 21 48 85 36 191
I do not easily get trapped in a trouble 4 9 84 81 13 191
I am optimistic about the results of my work 0 2 42 83 64 191
Total Score 54 239 871 1707 949 3820
Percentage 1,41 6,26 22,80 44,69 24,84 100,00
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Based on Table 1, it can be seen that most respondents give the answers of agreement to the items on the statements
of adversity intelligence variable of 44.69 percent. This shows that consumers’ perception towards adversity
intelligence is good. It is supported by the respondents who state that they want to compete for the fair achievement,
always try to stay calm when facing problems and select the task suitable to their ability. In addition, the respondents
also tell that they would always try to do a task at their best although it is difficult, to solve the problem and to admit
that the failure experienced is caused by their own carelessness. The respondents also give answers that they believe
that the actions taken have the consequences, understand that every mistake is a part of the learning process to be better,
always think of the consequences that might occur on the chosen decisions, are sure that the chosen step is the most
appropriate way to do the tasks, are willing to find out the causes of failures that have been experienced, are willing to
study a problem before determining how to solve it, always do their responsible job, never doubt their own ability,
always focus on the problem being faced, will not give up before trying solve the problem, do not like worsening the
problem, are sure that to achieve success takes a long time and process, do not easily get trapped in a trouble and are
always optimistic about the result of their work.
Furthermore, the description of the respondent’s answer to the social relations variable can be seen in Table 2.
Table 2. Description of respondents’ asnwer to the social relationsvariable

Statements Answer
1 2 3 4 5 Total
In friendship, I do not show favoritism to a 0 3 23 80 85 191
particular friend
I talk to a close friend when facing problems 0 5 48 89 49 191
I always friendly to all friends, 0 1 47 65 78 191
I actively get engaged in a positive activity 0 2 59 81 49 191
I give advices to friends when asked for help to 0 0 34 88 69 191
solve the problem
I am able to adapt well in the new environment 0 2 82 37 70 191
Total score 0 13 293 440 400 1146
Percentage 0 1,13 25,57 38,39 34,90 100,00
According to the table 2, it is known that most respondents show the agreement to the statements on the social
relations variable of 38.39 percent, and strong agreement of 34.90 percent. It shows that the social relation of the
respondents is good. The high response is supported by the statements that the respondents never show favoritism to
particular friends, talk to close friends when facing a problem, are always friendly to all friends, actively get engaged in
a positive activity, are able to give advices to friends when asked for help to solve a problem and are able to adapt well
in the new environment.Furthermore, the description of the respondent’s answer to the risk taking propensity variable
can be seen in Table 3.
Table 3. The description of the respondents’ answer to the risk taking propensityvariable.
Statement Answer
1 2 3 4 5 Total
I will anticipate future occurence 0 3 69 64 55 191
I will take a moderate risk 0 3 69 64 55 191
Total 0 6 172 102 102 382
Percentage 0 1,57 45,03 26,72 26,70 100,00
Based on Table 3, it can be seen that most respondents rather agree, agree and strongly agree to the statements in the
risk taking propensity variable of respectively 45.03 percent, 26.70 percent and 26.70 percent. The quite high responses
indicate that the risk-taking propensity of the respondents is already quite good. It is supported by the respondents’
answers stating that they are able to anticipate future occurrence and are willing to take moderate risks.
The description of respondents’ answers to entrepreneurship intentions variable can be seen in Table 4.
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Table 4 . The description of respondents’ answers to entrepreneurship intentions variable

Statement Answer Total
1 2 3 4 5
I will choose a career as an entrepreneur 0 8 45 77 61 191
I will choose a career as an employee in a 3 24 83 38 43 191
company / organization
I prefer to be an entrepreneur rather than an 0 7 60 52 72 191
employee in a company / organization
Total 3 39 188 167 176 573
Percentase 0,52 6,81 32,81 29,14 30,72 100,00
Based on the table 4 it can be seen that most respondents rather agree and strongly agree to the statements on
entrepreneurship intentions variable of 32.81 percent and 30.72 percent respectively. The answer shows that the
entrepreneurship intention of the respondents is fairly good. It is supported by the respondents’ answers to the
statements stating that most respondents will choose a career as an entrepreneur, do not choose to be an employee in a
company and prefer to become entrepreneur.
b.Regression Equation
Based on the data analysis, a regression equation can be created as follows:
Y = -4.6141 + 0,0931X1+ 0,2147X2 + 0,4858X3 + e
The above multiple linear regression equation can be explained as follows:
a = -4.6141. The negative constant score means that if there is no policy change in adversity intelligence, social
relationships and facilities, the entrepreneurship intention will be -4.6141.
b1 = 0,0931. The positive regression coefficients score shows that the increase of adversity intelligence of the
respondents will be able to improve the entrepreneurship intentions, with the assumptionthat other variables remain.
b2 = 0.2147. The regression coefficient score of the social relations variable is positive.It means that social relations
have a positive influence on entrepreneurship intentions. The better the social relations of the respondents are, the
higher the owned entrepreneurship intentions will be, with the assumption that other variables remain.
b3 = 0.4858. The positive coefficient regression score of risk taking propensity variable shows that it has a positive
influence on entrepreneurship intentions. It means that the better the risk-taking propensity of the respondents is, the
better the entrepreneurship intention will be, with the assumption that other variables remain.
c. Determination coefficient
Based on the regression equation, it is obtained by the determination coefficient (R ²) of 0.6181. This means that
the variation change of entrepreneurship intentions is influenced by the changes in the variation of adversity
intelligence, social relations and risk taking propensity of 61.81 percent, and 28.19 percent is influenced by other
variables that are not discussed.
d. Simultaneous Effect Test (Test F)

The F test is used to know the simultaneous effect of adversity intelligence, social relations and risk taking
propensity variables towards entrepreneurship intention. Based on the test results, it is obtained F score of 100.7951. =
0.05) with significan -1 = 3) and df2 = (n - k = 187); It is
obtained F table of 2.6529. Thus, F obtained of (100.7951) > F table of (2.6529) means that Ho is rejected.In
conclusion, the adversity intelligence, social relations and risk taking propensity variable simultanously have a
significant effect on entrepreneurship intentions.
e. Partial Effect test (t test)

- k); ( df = (187) it is obtained t table of
1.9727, and the t obtained of the adversity intelligence variable (TX1) is 6,7468. Because thescore of t obtained is
higher than t table (6.7468> 1.986), it can be concluded that partially the adversity intelligence variable has a significant
effect on entrepreneurship intentions.The tscore of social relations variable (TX2) is 6.6796. Because thescore of
tobtained is higher than t table (6.6796> 1.986), it can be concluded that partially social relations have a significant
effect on entrepreneurship intentions.The t score ofrisk taking propensityvariable (TX3) is 8.3551. Because thescore of t
obtained is higher than t table (8.3551> 1.986), it can be concluded that partially risk taking propensity variablehas a
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significant effect on entrepreneurship intentions. It is in contrast to the findings by Endratno (2013) stating that the risk-
taking propensity does not affect entrepreneurship intentions
The Limitation of the Research

This research is limited in terms of the number of the respondents that are only the students of Faculty of Economics
and Business of UMP. The findings will possibly be different depending on the objects and the country in which the
research is conducted.
Conclusion And Implications

a. Conclusion
Based on the computations using multiple linear regression analysis, it can be drawn the following conclusions:
1. Based on the result of F test, it can be concluded that the adversity intelligence, social relations and risk
taking propensity variable simultaneously have a significant effect on entrepreneurship intentions.
2. Based on the result of ttest, it is known that partially adversity intelligence, social relations and risk taking
propensity have significant influence on entrepreneurship intentions.
3. The risk taking propensity is the most significant and influencingvariable towards the entrepreneurship
intentions due to the highest t-score.
b. Implications
1. The academic affairs office of Faculty of Economics and Business is suggested to retain and always improve
the outcomes of entrepreneurship project subjectas according to the entrepreneurship intentions, most
respondents choose to become entrepreneurs.
2. The academic affairs office of Faculty of Economics and Business is advised to train and motivate the students
to take risk through the course of entrepreneurship projects. It is clearly seen from the respondents' answers
on risk taking propensity variable which is the most significant and influencing variable towards the
entrepreneurship intentions.
References
Chairy (2011)The Effect of Entrepreneurial Characteristics, Types of Ethnicity, Gender and
The Profession of Parents towards The Entrepreneurship intention of Students in the Journal of Business Management
Vol 1 No 2March, 2011 UMY
Endratno, H (2013).Factors affecting Entrepreneurship Intention of Students of FE UMP (unpublished)
Endratno, H.(2014).Entrepreneurship intention of Students (A Comparative Study Between
FE Students of UNSOED and UMP), Sustainable Competitive Advantage 4 ,Purwokerto,UNSOED
Endratno, H.(2014).Entrepreneurship intention of Students (A Comparative Study Between FE and NON FE Students
of UMP) (Book 1 On Economics dan Agricultural Science of National Seminar on Research Findings dan
Community Service of LPPM UMP 2014,Purwokerto,UMP)
Indarti and Rostiani (2008): Entrepreneurship Intention of Students: A Comparative Study Between Indonesia, Japan
and Norway in the journal of Economics and Business Vol. 23 Number 4 2008
Lestari,R and Trisnadi B.W,(2012) The Effect of Entrepreneurship Education on Entrepreneurship Interests of Students
in STIE MDP, STMIK MDP, and STIEMUSI in the journal of Business and Entrepreneurship Forum of STIE
MDPScientific Journal–p. 112 Vol. 1 Num. 2 March, 2012
Sarwoko,E (2011)Empirical Study of Entrepreneurship Intention of Student in the Journal of Business Economics, year.
16, Num. 2, July 2011
Sugiyono (2003), Statistik Untuk Penelitian, Alfabeta, Bandung
Supranto,J(1998).Statistik Induktif, Erlangga, Jakarta
Widhiandono H, (2014), The Effects of Factors of Entrepreneurial Characteristics, Job
Characteristics of Entrepreneur and Environmental Access towards Entrepreneurship intention of the Students in Project
6 at the Faculty of Economics, Universitas Muhammadiyah Purwokerto.
Wijaya, T (2007) The Correlation between Adversity Intelligence and the intention of Entrepreneurship
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(Empirical Study on Students of SMKN 7 Yogyakarta) in the journal of Economics Management Department, Faculty
of Economics - Universitas Kristen Petra
Author’s Bibliography
Hermin Endratno,SE,M.Si, is a lecturer of Faculty of Economics and Business at Universitas Muhammadiyah
Purwokerto, Central Java, Indonesia. He was born in Kulon Progo, February 1977. He got his bachelor degree (SE) and
master degree (M.Si) in Faculty of Economics and Business at University of Jenderal Soedirman, Central Java,
Indonesia. His interest is in Human Resources Management and Entrepreneurship. Some of his major research are
1)Talent Management in Improving Performance of Organization (2011), 2) the Role of Corporate Culture In
Improving the Competitiveness of Companies In Multicultural Era (2012), 3) The Effect of Technology, Personal
Knowledge and Motivation to get Achievement towards the Learning Performance of Students in Faculty of Economics
(2012), 4) Entrepreneurship Intention of Students (Comparative Study Between Students of Faculty of Economics of
UMP and Unsoed) (2014), 5) Evaluating the Job Characteristics Model towards the Result of Students’ Works in the
Entrepreneurship project (KWU 3) (2016).
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THE EFFECTS OF SERVICE QUALITY, PRICE AND PROMOTION ON CUSTOMERS’

PURCHASE DECISION OF TRAVELOKA ONLINE AIRLINE TICKETS IN JAKARTA,
INDONESIA
Rani Idawati1), Carunia Mulya Firdausy2)
1)
Chubb Insurance Company, Jakarta, Indonesia
2)
Tarumanagara University, Jakarta, Indonesia
Abstract
This study aims to analyze the effects of service quality, airline ticket price and promotion on customers’ purchase
decision of online airline ticket provided by Traveloka company in Jakarta, Indonesia. The model used in the study was
a multiple linear regression model. The model has one dependent variable that is customers’ purchase decision and
three independent variables, namely, service quality, airline ticket price and promotion. Data were collected by using
questionnaires distributed to 166 respondents. The unit analysis of this study was the customers of Traveloka online
airline tickets. The statistical program to estimate and analyze the model is by using SPSS version 20. The study found
that online airline tickets services by Traveloka have been widely known by the respondents. They also know the way
of how Traveloka sell the airline tickets to them. The study also found that Service quality and airline ticket price have
positive and significant influence on purchase decision made by the Traveloka costumers. However, promotion has no
significant effect on costumers’ purchase decision. Therefore, it is a must for Traveloka company to give great attention
to improve the service quality and price in making the customers decided to buy the online airline tickets. Otherwise,
the Traveloka customers will find other online airline tickets services and hence this condition will further mitigate
the business profit of Traveloka company. For further research, it is suggested to add other variables which are not
examined in this study. These variables include competitor’s tickets price, customers’ income, incentives scheme, and
time delivery services to name a few. Thus, much remain to be done by the Traveloka company.
Keywords: Service Quality, Airline Ticket Price, Promotion, Purchase Decision, Online Airline Tickets Services,
Traveloka Company
Introduction
In recent years, business activities on online airline tickets services grow rapidly in Indonesia. Of the many
companies that provided the online airline tickets services is Traveloka company. The reason why the online airline
tickets services growing is partly because these kind of services are relative cheap, quick, and easy to be obtained by the
consumers. Amir (2015), for instance, from his previous study based on 612 respondents confirmed that the online
airline ticket services provided by Traveloka company has been dominant compared to other online tickets services
companies such as Tiket.com and Agoda to name just two.
However, the study to examine determinant factors that caused the customers’ purchase decision on the online
airline tickets provided by Traveloka company has not been available yet. For this reason, this study is considered
significant to be undertaken as it can partly contribute to the growing entrepreneurs in this particular business activity in
Indonesia. Of the many independent variables advanced in the literature that affected the costumers’ purchase decision
are service quality, price and promotion (see, for instance, Kotler, 2009; Lovelock and Right, 2002 and Zeithaml and
Bitner, 2009).
This paper is organized in five sections. Section 2 deals with literature review of the definition and concepts of the
variables examined in the study as the background analysis. Section 3 highlights the source of the data, the unit
analysis, method used and hypotheses of the study. Section 4, then, discussed the results of the study. Finally,
concluding notes were drawn in section 5.
Literature Review
Kotler (2009) among others stated that purchase decision made by the costumers was influenced by many factors.
Of the many factors influenced purchase decision is service quality, price and promotion. Kotler (2009) indicates five
stages leading to costumers’ purchase decision. These five stages are introduction to a problem, the search of
information, alternative assessment, purchase decision, and post-purchase behavior (see Kotler, 2009, for details).
In terms of service, Kotler (2009, p.386) defines service as follows:
"A Service is any act or of performance that one party can offer to another that is essentially intangible and does not
result in the ownership of anything. Its production may or may not be tied to a physical product”.
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Furthermore, Kotler (2009, p.389-392) indicates four (4) core characteristics that distinguish services with products.
The fourth characteristic is that intangibility, inseparability, variability, and perishability. Intangibility means a service
has an intangible nature, cannot be seen, touched, smell, felt or enjoyed before it was purchased by the customer, while
inseparability means services of products produced and perceived at the same time, but it cannot be separated.
Variability, however, means services that are highly variable because it is non-standardized output, which has a huge
variation, the quality and type, depending on who, when, and where the services are produced. Perishability means that
services are commodities which do not last long and cannot be stored for later usage.
One approach to calculate the quality of services is SERVQUAL. According to Lovelock and Right (2002, p.266-
267) and Zeithaml and Bitner (2009, p.111), there are five (5) dimensions of quality of service that is included in this
SERVQUAL. These are reliability, responsiveness, assurance, empathy, and tangibles. These five dimensions of quality
of services are briefly described as follows:
a. Reliability is the company ability to provide services in accordance with the already promised
b. Responsiveness is the willingness of employees to help customers and provide services immediately.
c. Assurance is knowledge, skills, and courtesy of employees of companies to be able to give confidence to the
customer
d. Empathy is the concern and attention of employees or business owners to all customers.
e. Tangibles (Physical Evidence) encompass all the physical facilities owned by the company. Examples include office
equipment, rooms in which transactions take place, parking lot and communication infrastructures. The existence of
adequate tangibles is needed to attract the attention of consumers so they would be willing to come to the location to
look around, ask questions, and make a purchase or consume certain goods offered by the company.
In terms of price factor, Peter and Olson (2002), and Lovelock and Wright (2002) define price as an expenditure of
money, time, and effort that customers incur in purchasing and consuming services. This suggests that the price is a
certain value for money, including the time and effort that is offered to consume goods and services. At the time a
customer buys a product, the customer exchanged a number of value (money) with a number of other value (benefits of
having or using the product). Customer-oriented price was expecting a benefit from the product received is proportional
to the money spent. Benefits can include real benefits (actual benefits) as well as the perceived benefit. Note that, the
prices are not just a nominal or numbers on a product, but may be a perception or commonly known as price perception.
In terms of promotion, Kotler and Armstrong (2001) suggest five variables that so called promotional mix, as
follows.
a. Advertising. Everything costs a company to perform non-personal presentation and promotion in the form of ideas,
goods, or services.
b. Personal Selling
Personal presentations by sales of the companies as successor to build relationships with customers.
c. Sales Promotion. Short-term incentives to encourage the purchase or sale of a product or service.
d. Public Relations (PR). Building a good relationship with the public related to support, establish a good corporate
image and dissipate act of gossip, stories, and events that can be harmful.
e. Direct Marketing. Direct communication with customers that were targeted specifically to obtain an immediate
response.
Based on the above literature review, the framework of this study is as follows.
The Framework of the study
Service
Quality H1
(X1)
H2 PurchasingDecision
H4 (X1)
Price
H3 (Y)
(X2)
Promotion
(X3)
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Research Method
Method used to collect the data is by distributing questionnaires to the respondents. The respondents are those
customers who used to purchase Traveloka online airline tickets. The respondents were selected using convenience
sampling method. The number of sample customers selected was 166. Note that the statement written in the
questionnaires was calculated using ordinary number so called Likert scale ranging from "Strongly Disagree" to
"Strongly Agree". More specifically Likert scale consists of numbers 1 that shows strongly disagree to the number 5 to
represent strongly agree.
The method to analyze the effect of service quality, price and promotion on costumers’ purchase decision is by
using the multiple regression analysis. This multiple regression can be written statistically as:
Y = a + b1 X1 + b2 X2 + b3 X3 + e
Where : Y = Purchase decision
X1 = Service Quality
X2 = Price of airline ticket
X3 = Promotion
e = Error terms.
Table 1 below shows the detail of indicators of each variable under study. The indicators showed in the Table were
taken from the concept advanced in the literature. These indicators were question in the questionnaires using Likert
scale as discussed above.
Table 1. Operational Definitions and Variables’ Indicators

No Variable Indicator Scale
a. Attitude
Service Quality
b. Behavior
c. Expertise
How far along are the differences d. Ambient condition
1. between the realities of and e. Design Likert
expectations of the consumers toward f. Social factors
the services that they received (see, g. Waiting time
Parasuraman et al.,1990) h. Physical evidence
i. Valence
Price 1. Offers
Price is a sum of money charged over 2. The price impact
certain products or services, or a sum 3. Products / services more on
2. of values traded by consumers to desire than Price Likert
obtain the benefits of owning or using 4. Price plays an important
certain products or services (Kotler position (vital)
and Amstrong, 2008) 5. Affordable
Promotion
Gamliel, Eyal., Herstein, Ram.,
(quoting from Totten and Block
1. Area of promotion
(1994) stated that the concept of
3. 2. The quantity of views Likert
‘Promotion’ refers to the various types
3. Quality messaging
of selling techniques, provision of
incentives, and other techniques meant
to generate short-term selling effects
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Purchase Decision
According to Kotler (2002), purchase
decision is an act by the consumers to
want to buy or not buy certain
1. The need for the product
products. Out of all the factors that
2. The desire to try
4. may influence consumers to make or
3. Consistency will be the
not make a purchase of a certain Likert
quality
product or service, consumers usually
4. Decide to buy
most consider the quality and price of
the goods, as well as prefer goods that
are already well known by the public.
Source : collected from the textbooks shown in the Table.
Hyphothesis
The hypothesis of this study are as follows:
H1. Is there any effect of the quality of the service on the customers’ purchase decisions of online airline tickets in
Traveloka.
H2. Is there any influence of the price on the customers’ purchase decisions of online airline tickets in Traveloka.
H3. Is there any influence of the Promotional on the customers’ purchase decisions of on line airline tickets in
Traveloka.
H4. Are there any effects of the quality of service, price and promotion jointly on the customers’ purchase decisions of
airline tickets in Traveloka.

Before the results of the model examined are presented, the assumptions of OLS were examined first. There are
three assumptions that should not be violated, namely, normality assumption, multicollinearity assumption, and
heteroscedasticity assumption.
The normality test results can be seen in Graph 1. It shows the normal graph plots that consist of dots spread around
the diagonal line, and its distribution follows the direction of the diagonal line. That means regression models were used
for the regression equation of quality of service, pricing and promotions on purchase decisions have a normal data and
found eligible in the test data normality test classic assumptions of the regression equation used in the study.
Graph 1. Normality Test Results
In terms of multicollinearity assumption, it was found that a good regression model should not have correlation
between independent variables. Method to detect the presence of multicollinearity is to look at Tolerance or Variance
Inflation Factor (VIF). Table 2 gives multicollinearity test results. The results show that the VIF obtained is smaller
than 10, thus it can be concluded that the regression model used in this study had no symptoms multicollinearity.
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Table 2. The results of Multicollinearity test
Source: compiled from questionnaire data.
In terms of heteroscedasticity test, by using Spearman's rho correlation it was found that the correlation between the
independent variables with the residual obtained was greater than 0.05. This means that there is no problem of
heteroscedasticity in regression models (Table 3).
Table 3. Results of Heteroscedasticity test
Source: compiled from questionnaire data
The results of the multiple regression analysis are shown at Table 4. As can be seen in this Table, the estimated
model was as follows: Y = - 0.591 + 0,300X1 - 0,215X2 + 0,102X3
From this medel it can be said that only two independent variables have positive contribution to the purchase
decision made by the Traveloka customers, while the airline tickets has negative effect on the purchase decision. This
finding is in line with the previous studies (see Kotler, 2009, Pasuraman and Zeitmal, 1990).
However, in terms of the t test or p sig, the study found that only two independent variables were found significant.
These two significant variables are service quality (PLY) and Price (HRG), while promotion (PRM) was found
insignificant (Table 4). This suggests that promotion has not been as a critical factor influencing the customers’
purchase decision on Traveloka online airline tickets. This finding was not so surprising as the online airline tikets
service has been demanding by the customers.
Table 4 The results of multiple linear regression
Source : Calculated using SPSS vers. 20.
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Unlike the above t-test findings, the results of ANOVA (F-test) has been different in that it can be seen that all
independent variables has significant influenced on the dependent variable. This suggests that at least one of the
independent variables have significant influenced on the dependent variables. These three independent variables are
Service quality, Price, and Promotion. Details of the results of ANOVA were exhibited at Table 5.
Table 5. The Results of ANOVA
Source : calculated using SPSS ver. 20.
Furthermore, to examine the proportion of variance explained by the regression model, the study found that the
Coefficient Determination (R2) was only 62.1 percent. This figure suggests that 62.1 percent of the customers’
purchase decision was affected or explained by the three independent variables of service quality, price, and, promotion,
while the rest of 37.9 percent was explained by other variables that was not examined in the study (Table 6).
Table 6. The coefficient of determination (R2)
To sum up: this study found that both the quality of services and the airline ticket price affect the customers’
purchase decision of Traveloka online airline tickets, while promotion has no effect on the purchase decision. The
proportion of the effect of the quality services, airline ticket price and promotion on the Traveloka customers’
purchase decision was only 62.1 percent, whilst the rest of 37.9 percent was explained by other variables that were not
examined in the study.
Concluding Notes
Based on the above analysis, this study concludes as follows. First, there is a positive and significant influence of the
service quality on the customers’ purchase decision on online airline tickets established by Traveloka . Second, the
price of airline ticket has an inverse effect on the customers’ purchasing decisions. Third, the promotion has no
significant effect on the purchase decision made by the online Traveloka customers. Fourth, the proportion of the
three independent variables in influencing the customers’ purchase decision was only 62.1 percent. This means that the
remaining 37.9% was caused by other variables which are not examine in this study.
This study suggests the Traveloka company needs to give greater attention to the quality of the services as well as
the price of airline tickets. These two variables are important in order to realize the purchase decision made by the
customers of Traveloka. The promotion factor, however, was not suggested to be improved by the Traveloka
company. It is simply because this factor has no significant influence on customers’ purchase decision. For further
research, it is suggested to accommodate other variables that were not examined in this study. These variables include
the price of other online airline ticket services, customers’ income, incentives scheme, and time delivery services to
name a few.
References
Amir Kamiruddin (2015). dailysocial.id/post/Traveloka -populer-survei-nusaresearch. January 2016.
Gamliel, Eyal., Herstein, Ram., (2011). “To save or to lose: does framing price promotion affect consumers’ purchase
intentions”. Journal of Consumer Marketing
Kotler Philip dan Amstrong, (2001), Principles of Management, USA.
Kotler, Philip; Armstrong, Garry, (2008). Marketing Principles, USA.
Kotler, Philip & Kevin Lane Keller (2009). Marketing Management. (13 th Ed). New Jersey. Pearson Education,Inc
Kotler, Philip (2002). Marketing Management,Milenium Edition. New Jersey: Pearson CustomPublishing
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ISBN : 978-979-9234-59-9
Lovelock, Christopher H. And Lauren K. Wright. (2002). Services Marketing Management, USA.
Malhotra, Naresh K.,( 2004). Marketing Research an applied Orientation (4 th Ed). New Jersey: Pearson Education,Inc
Parasuraman, Berry and Zeithaml, (1990) "Guidelines for Conducting Service Quality Research," Marketing Research.
Peter,J.P.,& Olson,J.C (2002). Consumer behavior and Marketing Strategy. (7 th Ed.). New York: McGraw Hill
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The Fifth International Conference on Entrepreneurship and Business Management

OPENING SPEECH FROM THE RECTOR OF TARUMANAGARA UNIVERSITY

Distinguished guests, ladies and gentlemen:

Distinguished guests, ladies, and gentlemen:

Prof. Dr. Agustinus Purna Irawan

OPENING SPEECH FROM THE PRESIDENT OF KUN SHAN UNIVERSITY

Mr. Steven Hsu

Prof. Chaidir Anwar Makarim

Ir. Dr. Rajendran Muthuveloo

Dr. Teoh Ai Ping

Mr. Tony Antonio

Prof. Vesa Routamaa University of Vaasa, Finland

Patron : Rector of Tarumanagara University

Board of Advisor : 1. Vice Rector of Academic

Committee Director : Dr. Sawidji Widoatmodjo

Kun Shan University

ENTREPRENEURSHIP EDUCATION IN THE CONTEXT OF TECHNOLOGY

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INFORMAL SECTOR IN INDONESIA:

Chaidir Anwar Makarim

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The Low-Class Entrepreneur

Table.1. Characteristic of informal and formal sector

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Rajendran Muthuveloo1), Ai Ping Teoh2)

Graduate School of Business, Universiti Sains Malaysia

Keywords: Theory, Entrepreneurship, Emergence, Contemplation, Creativity

Figure 1: RACE- Theory of Emergence for Strategic Entrepreneurship

Figure 2: Conscious Diagram

How RACE assists business scholars and practitioners to be a entrepreneur

Figure 3: RATS to STAR

ARE BUSINESSES INTELLIGENT ENOUGH TO ENDURE VOLATILITY

Ai Ping Teoh1), Rajendran Muthuveloo2)

Graduate School of Business, Universiti Sains Malaysia

3.0 Conceptual Framework

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AN ANALYSIS OF INNOVATION STRATEGIES OF TAIWANESE CONVENIENCE

Tain-Fung Wu1), Hsiao-Ching Yang2), Thuy Thi Thanh Nguyen3)

Department of Business Administration, Asia University, Taiwan, R.O.C.

Keywords: Innovation, Value Chain, Convenience Chain Stores, Taiwan

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Wan-I Lee1), Yu-Ta Shih2), Shan-Yin Cheng3)

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KNOWLEDGE MANAGEMENT AND VALUE CREATION FOR TAIWAN CHILDREN’S

Cheng-Lung Li1), Hsiu-Chen Tsai2)

Kun Shan University Taiwan, R.O.C.

Keywords: Knowledge Management, Clothing Industry, Expert Interviews, Case Study

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Knowledge Classification and Definitions

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Research Methods and Design

Case Company Profile