Technological Innovations for Sustainability and Business Growth 1522599401, 9781522599401

Citation preview

Technological Innovations for Sustainability and Business Growth Geetika Jain UP Technical University, Lucknow, India Harjit Singh Amity University, Noida, India Shahriar Akter University of Wollongong, Australia Alka Munjal Amity University, Noida, India Harpal S. Grewal Claflin University, USA

A volume in the Practice, Progress, and Proficiency in Sustainability (PPPS) Book Series

Published in the United States of America by IGI Global Business Science Reference (an imprint of IGI Global) 701 E. Chocolate Avenue Hershey PA, USA 17033 Tel: 717-533-8845 Fax: 717-533-8661 E-mail: [email protected] Web site: http://www.igi-global.com Copyright © 2020 by IGI Global. All rights reserved. No part of this publication may be reproduced, stored or distributed in any form or by any means, electronic or mechanical, including photocopying, without written permission from the publisher. Product or company names used in this set are for identification purposes only. Inclusion of the names of the products or companies does not indicate a claim of ownership by IGI Global of the trademark or registered trademark.

Library of Congress Cataloging-in-Publication Data

Names: Jain, Geetika, 1983- editor. Title: Technological innovations for sustainability and business growth / Geetika Jain [and four others], editors. Description: Hershey, PA : Business Science Reference, [2020] | Includes bibliographical references. Identifiers: LCCN 2019012883| ISBN 9781522599401 (hardcover) | ISBN 9781799823056 (softcover) | ISBN 9781522599418 (ebook) Subjects: LCSH: Sustainable development--Developing countries. | Technological innovations--Environmental aspects--Developing countries. Classification: LCC HC59.72.E5 H35 2020 | DDC 338.9/27091724--dc23 LC record available at https://lccn.loc.gov/2019012883 This book is published in the IGI Global book series Practice, Progress, and Proficiency in Sustainability (PPPS) (ISSN: 2330-3271; eISSN: 2330-328X) British Cataloguing in Publication Data A Cataloguing in Publication record for this book is available from the British Library. All work contributed to this book is new, previously-unpublished material. The views expressed in this book are those of the authors, but not necessarily of the publisher. For electronic access to this publication, please contact: [email protected].

Practice, Progress, and Proficiency in Sustainability (PPPS) Book Series Ayman Batisha International Sustainability Institute, Egypt

ISSN:2330-3271 EISSN:2330-328X Mission

In a world where traditional business practices are reconsidered and economic activity is performed in a global context, new areas of economic developments are recognized as the key enablers of wealth and income production. This knowledge of information technologies provides infrastructures, systems, and services towards sustainable development. The Practices, Progress, and Proficiency in Sustainability (PPPS) Book Series focuses on the local and global challenges, business opportunities, and societal needs surrounding international collaboration and sustainable development of technology. This series brings together academics, researchers, entrepreneurs, policy makers and government officers aiming to contribute to the progress and proficiency in sustainability. Coverage • Global Content and Knowledge Repositories • Sustainable Development • Knowledge clusters • Technological learning • ICT and knowledge for development • Innovation Networks • Socio-Economic • Strategic Management of IT • Eco-Innovation • Outsourcing

IGI Global is currently accepting manuscripts for publication within this series. To submit a proposal for a volume in this series, please contact our Acquisition Editors at [email protected] or visit: http://www.igi-global.com/publish/.

The Practice, Progress, and Proficiency in Sustainability (PPPS) Book Series (ISSN 2330-3271) is published by IGI Global, 701 E. Chocolate Avenue, Hershey, PA 17033-1240, USA, www.igi-global.com. This series is composed of titles available for purchase individually; each title is edited to be contextually exclusive from any other title within the series. For pricing and ordering information please visit http://www.igi-global.com/book-series/practice-progress-proficiencysustainability/73810. Postmaster: Send all address changes to above address. Copyright © 2020 IGI Global. All rights, including translation in other languages reserved by the publisher. No part of this series may be reproduced or used in any form or by any means – graphics, electronic, or mechanical, including photocopying, recording, taping, or information and retrieval systems – without written permission from the publisher, except for non commercial, educational use, including classroom teaching purposes. The views expressed in this series are those of the authors, but not necessarily of IGI Global.

Titles in this Series

For a list of additional titles in this series, please visit: https://www.igi-global.com/book-series/practice-progress-proficiency-sustainability/73810

Innovative Waste Management Technologies for Sustainable Development Rouf Ahmad Bhat (Sri Pratap College, India) Humaira Qadri (Sri Pratap College, India & Cluster University Srinagar, India) Khursheed Ahmad Wani (Government Degree College Bijbehara, India) Gowhar Hamid Dar (Sri Pratap College, India & Cluster University Srinagar, India) and Mohammad Aneesul Mehmood (Sri Pratap College, India & Cluster University Srinagar, India) Engineering Science Reference • ©2020 • 373pp • H/C (ISBN: 9781799800316) • US $195.00 Global Approaches to Sustainability Through Learning and Education Abdalmuttaleb M.A. Musleh Al-Sartawi (Ahlia University, Bahrain) Khaled Hussainey (University of Portsmouth, UK) Azzam Hannoon (American University in the Emirates, UAE) and Allam Hamdan (Ahlia University, Bahrain) Information Science Reference •© 2020 • 350pp • H/C (ISBN: 9781799800620) • US $195.00 Cases on Green Energy and Sustainable Development Peter Yang (Case Western Reserve University, USA) Engineering Science Reference •© 2020 • 583pp • H/C (ISBN: 9781522585596) • US $215.00 Intellectual, Scientific, and Educational Influences on Sustainability Research Rosario Adapon Turvey (Lakehead University, Canada) and Sreekumari Kurissery (Lakehead University, Canada) Engineering Science Reference •© 2019 • 358pp • H/C (ISBN: 9781522573029) • US $195.00 Driving the Development, Management, and Sustainability of Cognitive Cities Kiran Ahuja (DAV Institute of Engineering and Technology, India) and Arun Khosla (Dr. B.R. Ambedkar National Institute of Technology, India) Engineering Science Reference •© 2019 • 337pp • H/C (ISBN: 9781522580850) • US $225.00

701 East Chocolate Avenue, Hershey, PA 17033, USA Tel: 717-533-8845 x100 • Fax: 717-533-8661 E-Mail: [email protected] • www.igi-global.com

Editorial Advisory Board Mandeep Gupta, EVC Ventures, India Nishant Kumar, Amity University, India Naman Sharma, EDII, Ahmedabad, India Archana Shrivastava, Amity University, India Hardeep Singh, Guru Nanak Dev University, India

Table of Contents

Foreword............................................................................................................ xvii Preface................................................................................................................. xix Chapter 1 Customer Analytics Capabilities in the Big Data Spectrum: A Systematic Approach to Achieve Sustainable Firm Performance.............................................1 Md Afnan Hossain, University of Wollongong, Australia Shahriar Akter, University of Wollongong, Australia Venkata Yanamandram, University of Wollongong, Australia Chapter 2 Enhancing the Sustainability of OER Through Context-Aware and Intelligent E-Learning Systems Specific to India...................................................................18 Shruti Tripathi, Amity University, Noida, India Archana Thakran, Amity University, Noida, India Monika Sharma, Amity University, Noida, India Chapter 3 Role of Entrepreneurs in Promoting Sustainability in India.................................30 Manish Nangia, National Institute of Fashion Technology, Delhi, India Sonali Roshan Saldanha, National Institute of Fashion Technology, Mumbai, India Chapter 4 Technological Innovation and Regulation as Determinants of Business Growth: An Institutional FDI Fitness Theoretical Framework.............................39 Nisha Goel, Amity University, Delhi, India Hima Bindu Kota, Amity University, Noida, India Gurinder Singh, Amity University, Noida, India Monir Mir, University of Canberra, Australia Bhawna Kumar, Amity University, Noida, India



Chapter 5 Role of Technology and Entrepreneurship in Economic Development: A South Asian Perspective.......................................................................................56 Amit Singh, Delhi School of Economics, India Sheetal Maurya, Delhi School of Economics, University of Delhi, India Chapter 6 Impact of Digitization on Commercial Banking Services....................................71 Preeti Garg, Amity University, Delhi, India Chapter 7 Innovations Through Mergers and Acquisitions in the Pharmaceutical Sector....91 Abdul Wajid, Amity University, Uttar Pradesh, India Kashif Hasan Khan, Ala-Too International University, Bishkek, Kyrgyzstan Harish Handa, Delhi University, India Chapter 8 A General Approach for Financial Quantification of Climate Change Risk for Enterprises..........................................................................................................105 Mahesh Gangaram Kanak, Indian Institute of Management (IIM), Lucknow, India Sunita Purushottam, Treeni, India Chapter 9 Sustainable Business Model in B2C Online Retailing: An Indian Consumer Perspective..........................................................................................................147 Suhail Ahmad Bhat, University of Kashmir, India Mushtaq Ahmad Darzi, University of Kashmir, India Sami Ullah Bhat, University of Kashmir, India Chapter 10 Managing Identity Through Attire: A Theoretical Framework..........................186 Kanchan Tolani, Shri Ramdeobaba College of Engineering and Management, India Sancheeta Pugalia, University of Technology Sydney, Australia Archana Shrivastava, Amity University, India



Chapter 11 Efficacious Study of Specific Co-Creation Policies in the Healthcare Ecosystem: The Synergy Between Healthcare Providers, Policymakers, and Seekers................................................................................................................199 Shagun Adlakha, Department of Commerce, St. Xavier’s PG College, India & Rajasthan University, Jaipur, India Deepak Chhabra, Maharshi Dayanand University, India Rajat Vashistha, Department of Science and Technology, Vigyan Prasar, India Chapter 12 Engaging Millennial in Corporate Governance: Indian Perspective..................221 Rahul Mohare, Shri Ramdeobaba College of Engineering and Management, India Chapter 13 Sustainable Development Goal 3 Strategies to Take a Leap..............................231 Dimpal Vij, MMH College, Ghaziabad, India Harjit Singh, Amity University, Noida, India Chapter 14 Cultural Influence on Employee Behavior Impacting Organizational Sustainability......................................................................................................253 Palaniappan Thiagarajan, Jackson State University, USA Manuel Garcia, Claflin University, USA Chapter 15 Risk Aversion in Management Decision Making...............................................270 Manuel Garcia, Claflin University, USA Palaniappan Thiagarajan, Jackson State University, USA Compilation of References............................................................................... 283 About the Contributors.................................................................................... 329 Index................................................................................................................... 336

Detailed Table of Contents

Foreword............................................................................................................ xvii Preface................................................................................................................. xix Chapter 1 Customer Analytics Capabilities in the Big Data Spectrum: A Systematic Approach to Achieve Sustainable Firm Performance.............................................1 Md Afnan Hossain, University of Wollongong, Australia Shahriar Akter, University of Wollongong, Australia Venkata Yanamandram, University of Wollongong, Australia Customer analytics plays a vital role in generating insights from big data to improve service innovation, product development, personalization, and managerial decisionmaking; yet, no academic study has investigated customer analytics capability through which it is possible to achieve sustainable business growth. To close this gap, this chapter explores the constructs of the customer analytics capability by drawing on a systematic review of the literature in the big data spectrum. The chapter’s interpretive framework portrays a definitional aspect of customer analytics, the importance of customer analytics, and customer analytics capability constructs. The study proposes a customer analytics capability model, which consists of four principal constructs and some important sub-constructs. The chapter briefly discusses the challenges and future research direction for developing the customer analytics capability model in the data rich competitive business environment. Chapter 2 Enhancing the Sustainability of OER Through Context-Aware and Intelligent E-Learning Systems Specific to India...................................................................18 Shruti Tripathi, Amity University, Noida, India Archana Thakran, Amity University, Noida, India Monika Sharma, Amity University, Noida, India



The chapter discusses the essence of “Openness” in the education sector and how it is transforming the landscape worldwide, along with the opportunities for educators and learners moving towards Industry 4.0. E-learning applications need to be dynamically adjusted not only according to the learner’s knowledge but also depending on a relevant context which is imperative for a diverse country like India. The general aspects of OER, its meaning, and different CC licenses are discussed. The authors also deliberate upon the licensing issues in the use and reuse of OER. In a fast-developing economy, it is important to not only adopt the new techniques in education but also assess the strengths and weaknesses of OER usage. Chapter 3 Role of Entrepreneurs in Promoting Sustainability in India.................................30 Manish Nangia, National Institute of Fashion Technology, Delhi, India Sonali Roshan Saldanha, National Institute of Fashion Technology, Mumbai, India The concept of sustainable development arises from a global perspective of seeing survival, progress, and the continued, improved life of human beings and their society. Sustainable development entails all processes of fundamental change in the social system and institutions. All businesses need to grow and be profitable. Companies in the public and government sectors are developing sustainable methods of manufacturing process and market development strategies. Corporate Social Responsibility, or Corporate Sustainability, has a crucial social component as companies think of profiting and ways and means to protect the environment. Sustainable innovators create new products and services designed to solve the problems created by the impact of economic growth, increasing population, and diminishing natural resources. The new awareness of global warming is set and there are efforts from the entire earth to address this challenge. Chapter 4 Technological Innovation and Regulation as Determinants of Business Growth: An Institutional FDI Fitness Theoretical Framework.............................39 Nisha Goel, Amity University, Delhi, India Hima Bindu Kota, Amity University, Noida, India Gurinder Singh, Amity University, Noida, India Monir Mir, University of Canberra, Australia Bhawna Kumar, Amity University, Noida, India For growth and survival of the business, technological innovations and regulatory reforms in business are absolutely necessary. Over the years, it has become evident that businesses cannot sustain without innovation and since technology is the major facilitator of innovation, it is imperative to sustain and grow businesses. An easy and encouraging regulatory environment is icing on the cake. Technology in



business caused tremendous growth in trade & commerce and business concepts & models were revolutionized as a result of the introduction of technology. This chapter studies the role of technological innovations and regulations in the growth of foreign direct investment in an emerging economy, India. Using data for a 10year period (2008-2017), the sophisticated tools, namely augmented Dickey-Fuller test, Johansen Co-integration test, and Linear Regression analysis are applied. The results show that technological innovations and regulations have a positive impact on attracting foreign direct investment into India and in turn, helping the business in India to grow. Chapter 5 Role of Technology and Entrepreneurship in Economic Development: A South Asian Perspective.......................................................................................56 Amit Singh, Delhi School of Economics, India Sheetal Maurya, Delhi School of Economics, University of Delhi, India This chapter examines the role technological readiness and level of entrepreneurial activities has on economic development of select South Asian countries viz; India, Pakistan, Bhutan, and Nepal. As per comparative analysis, India outranks its neighbour countries in term of technological readiness and innovation. The role of entrepreneurial activities in economic development and its statistical significance is studied using Least Square Panel Data Regression using GDP at Current Prices as dependent variable and total number of newly registered LLC, total natural resource rents, government final consumption expenditure, and gross secondary enrollment rate as independent variables. The data on these variables was collected for the period of 2006-2017. The present study reports statistically significant (at 1%) positive impact of government final expenditure and entrepreneurial activities on economic development in select developing countries. Chapter 6 Impact of Digitization on Commercial Banking Services....................................71 Preeti Garg, Amity University, Delhi, India The chapter gives us an overview and defines digitization and financial services and how both of the verticals can be incorporated into each other. It aims to determine factors that influenced consumer attitude towards online banking, discrepancies faced by the consumers in online banking, the degree of satisfaction among the consumers and their background of the Indian banking system. How the banking system in India is categorized is included. The chapter defines the various functions of commercial banks and the myriad services they provide. In order to conduct the research, a questionnaire was prepared. It is attached below. Descriptive analysis has been done.



Chapter 7 Innovations Through Mergers and Acquisitions in the Pharmaceutical Sector....91 Abdul Wajid, Amity University, Uttar Pradesh, India Kashif Hasan Khan, Ala-Too International University, Bishkek, Kyrgyzstan Harish Handa, Delhi University, India Pharmaceutical firms have a noteworthy contribution in SDGs (Sustainable development goals). Their unceasing innovation of low-cost medicines and discovery of lifesaving drugs can assist in achieving the SDG 3 (good health and well-being). Having gone through the M&A scenario in the global pharmaceutical industry and the amount disbursed on R&D, the authors tried to find answers to a few important questions to understand whether these activities are in line to achieve global goals i.e. first, does Merger and Acquisition M&A in pharmaceutical sector increase innovations? Second, how can companies fully utilize M&A activities to increase innovation in the pharmaceutical sector? Third, is there any association between R&D expenditures and innovation outcome? We theoretically analyze and consolidate academic research on how M&A activities support innovation in the pharmaceutical industry. The present chapter also tried to unveil the association between R&D expenditures and the firm innovation as measured by the number of patent applications by selected Indian pharmaceutical firms. Chapter 8 A General Approach for Financial Quantification of Climate Change Risk for Enterprises..........................................................................................................105 Mahesh Gangaram Kanak, Indian Institute of Management (IIM), Lucknow, India Sunita Purushottam, Treeni, India Climate change is a major risk for the global economy. Increased frequency of climatic events coupled with unsustainable economic development without considering environmental & social aspects has resulted in runaway climatic impacts. It became evident for all stakeholders to work in unison; which led to formation of Task force on climate-related financial disclosures (TCFD). Financial quantification of climate risk is a new area to be explored & could be an effective measure to tackle climate change. This chapter provides a general approach for financial quantification of climate change risk for businesses to understand & prioritize climate action. Though the approach is limited to the manufacturing sector, it can be used with some modifications for other sectors. It will help find impacts that climate change could pose to supply chain using various tools & evaluation of its usefulness. As ‘Climate Action’ is part of Sustainable Development Goals; it will be useful to understand how integrating TCFD could help enterprises tackle climate change by localizing SDG-13 into their businesses.



Chapter 9 Sustainable Business Model in B2C Online Retailing: An Indian Consumer Perspective..........................................................................................................147 Suhail Ahmad Bhat, University of Kashmir, India Mushtaq Ahmad Darzi, University of Kashmir, India Sami Ullah Bhat, University of Kashmir, India The main purpose of the chapter is to empirically analyze the impact of trust, innovation, usefulness, concentrated product category, and customer support service on commitment which in turn influences eWOM and sustainable consumption. Sustainable consumption ultimately influences sustainable competitive advantage. The study has adopted SEM approach, where an instrument was developed in the form of structured questionnaire (using both EFA and CFA) regarding the abovementioned variables. A survey has been conducted via online and offline mode in the state of Jammu and Kashmir (India) and a sample of 589 respondents has been drawn randomly from the population of e-shoppers. The results of the study have revealed that sustainable online shopping dimensions have a significantly positive impact on the commitment which in turn has a significantly positive influence on eWOM and sustainable consumption. The study has unique contribution in the online retail industry, which is continuously incurring huge losses in the online marketplace by incorporating sustainability dimensions in B2C business models. Chapter 10 Managing Identity Through Attire: A Theoretical Framework..........................186 Kanchan Tolani, Shri Ramdeobaba College of Engineering and Management, India Sancheeta Pugalia, University of Technology Sydney, Australia Archana Shrivastava, Amity University, India Women experience gender stereotyping at the workplace not only by men but also by other women. Despite an increase in diversity and equality at the workplace, women in India still face gender bias and are represented less at boardroom level. According to an annual survey by Grant Thornton (2017), India ranks third lowest in the proportion of business leadership roles held by women. Though gender roles in India are changing, women in top positions are still facing various hindrances. The higher the position a woman holds in an organization, harsher are the judgments made if her clothing is perceived as inappropriate (Pine, 2014). Thus this chapter sheds light on how women managers on a daily basis use attire to manage their identities.



Chapter 11 Efficacious Study of Specific Co-Creation Policies in the Healthcare Ecosystem: The Synergy Between Healthcare Providers, Policymakers, and Seekers................................................................................................................199 Shagun Adlakha, Department of Commerce, St. Xavier’s PG College, India & Rajasthan University, Jaipur, India Deepak Chhabra, Maharshi Dayanand University, India Rajat Vashistha, Department of Science and Technology, Vigyan Prasar, India Co-creation involves amalgamation of essential layers of an ecosystem to work together for enhancing whole sum effectiveness. In context of healthcare ecosystem, co-creation is vital as it synergizes dependency of providers, policymakers, and seekers. Also, for assessing patient centric approaches where priority is patient prerequisites, the term specific promotes co-creation in a refined manner. Therefore, this chapter reviews the influence of specific co-creation practices in health care ecosystems by analyzing development and empirical validation along with quantitative and qualitative measures for interactions between actors. Furthermore, proximity between different actors is outlined in terms of physical space, psychological space, and symbolic space. The relationships between actors in the ecosystem using different models of bonding, bridging, and linking are also investigated in lieu of merits and demerits of environmental jolts. It is revealed how adopting a patient-centric care approach changes the co-creation practices with different case studies of patients. Chapter 12 Engaging Millennial in Corporate Governance: Indian Perspective..................221 Rahul Mohare, Shri Ramdeobaba College of Engineering and Management, India Millennials, born starting from the 1980s, who are also called Nexters, the Net Generation, and Generation Y represent a new workforce in a global market and have high aspiration. Because of their digital, liquid, and collective mindset, they are adapting the way people generate the future. But now we have three generations representing the workforce at the same time . Before them, the world had two other generation groups: Generation X, born between 1965 and 1980, and the Baby Boomers who were born between 1946 and 1964 . Following the Strauss-Howe generation theory, each type of generation falls on a certain cycle of social and economic development, namely high, awakening, unraveling, and crisis. As a result, the Baby Boomers were born during the high, Generation X during the awakening, and millennials entered the unraveling period.



Chapter 13 Sustainable Development Goal 3 Strategies to Take a Leap..............................231 Dimpal Vij, MMH College, Ghaziabad, India Harjit Singh, Amity University, Noida, India Third of the Sustainable Development Goals (SDGs) set by United Nations to be achieved by 2030 is health and well-being for all which is the first requisite for the progress of a nation. The countdown to the date sets for the achievement of SDGs has already begun and during these years our government has tried a lot to achieve these targets. This chapter analyses India’s preparation for achieving Sustainable Development Goal 3. It begins with India’s current status on key health indicators as set by SDG 3 and what progress India has already made at nation and state levels. The chapter includes government initiatives taken to achieve goals before the target dates. Finally, it analyses the weaknesses of India’s healthcare system and suggests strategies that can help India achieve goals much before the target dates. Chapter 14 Cultural Influence on Employee Behavior Impacting Organizational Sustainability......................................................................................................253 Palaniappan Thiagarajan, Jackson State University, USA Manuel Garcia, Claflin University, USA This chapter expands the understanding of subculture cultural intelligence by testing the psychometric properties of the Cultural Intelligence Scale, which will hopefully lead to a shift away from international culture focus and encourage a better understanding of intra-national subcultures. To avoid variations in results obtained from any scale, an examination of the measurement properties of the scale is needed. For this study, the sample consists of 243 African American graduates from Historically Black Colleges and Universities (HBCUs) who work at an organization in which they are part of a minority culture. The results of the factor analysis, factor loadings over .50 and no cross loadings, reflect a very strong underlying factor structure. The average variance extracted of 0.578 means that more variance is explained than error remaining in the latent construct and the Cronbach’s alpha of .933 reflects strong reliability. Implications from this research as well as limitations and future research directions are also discussed. Chapter 15 Risk Aversion in Management Decision Making...............................................270 Manuel Garcia, Claflin University, USA Palaniappan Thiagarajan, Jackson State University, USA With the shrinking of the globe through globalization it is important to understand global business and culture. A considerable number of people rely upon Hofstede’s



1980’s findings. This chapter looks at the validity of those findings in general, his cultural dimensions, and uncertainty avoidance. This study tests the hypothesis that position level within an organization has an impact on the employee’s level of uncertainty avoidance. The result of the linear regression model, R2 value of .019 and a significance level of .057, reflect that position level is not a predictor of uncertainty avoidance. However, a single sample t-test reflects that based on position level the employees had significantly different responses to the uncertainty avoidance questionnaire, p less than .001. These findings suggest that a difference does exist based on position level, but that there are other factors that have a greater impact on the level of uncertainty avoidance. Implications from this research as well as limitations and future research directions are also discussed. Compilation of References............................................................................... 283 About the Contributors.................................................................................... 329 Index................................................................................................................... 336

xvii

Foreword

With digital reshaping the way business work, every brand is striving to stay ahead of consumer trends and evolve their offerings accordingly. The last few years have been exceptionally demanding for business professionals including CEOs and MDs to review and remodel their existing business models to be in line with latest tech breakthroughs and innovations. The role of business leaders is ever expanding in the digital society and they are expected to be well informed on advances in the areas of technology, risk management, compliance, cyber security, digital transformation, big data and analytics, and on and on. Increasingly, finance executives too are stepping into the strategic roles, working closely with top management in strategizing and exploiting growth opportunities, implementing and assessing them. Ask any CEO nowadays, and she/he will acknowledge that engaging with digital transformation enables them to differentiate and stay ahead of the competition. The significance of innovation in gaining competitive advantage, advancing business growth and sustainability cannot be ignored. It is beneficial to develop a thorough understanding of the dynamics of technological innovation to lay the foundation for sustainable business growth. Consequently, management domains such as marketing, information technology, finance, production and operations, or international business, research and development, are actively engaged in embracing technology. This book focuses on research on technological innovations for sustainability and business growth. Contributing authors strongly believe that technology is not only the future, but will also drive the future business and growth. I hope the chapters in this volume have given readers a representative sample of the latest thinking in positive organisation behaviors, knowledge creation, and organizational well-being. We have shown technological developments contribute to the important task of talent management and human capital development, both of which work parallel to the organizational level processes of inquiry to enhance sustainability and business growth.

Foreword

The various emerging views on Technological Innovations for Sustainability and Business Growth are reflected in the collection of chapters contributed by researchers, academicians, and practitioners from all over the world. This volume presents a total of 16 research studies as chapters. I hope that the chapters in this volume have given the readers critical perspectives regarding the latest developments in the area of technological innovations. There are sufficient indications that the field of technological innovations is thriving and continuing to serve sustainability and business growth. By creating a healthy balance between research and practice, the scholars and practitioners continue to push ahead with creating new knowledge that would enhance business growth, employee engagement, creativity, empowerment, and sustainability. The book truthfully presents a global perspective and commendably addresses the requirements of an international audience. Therefore, I am delighted to write the foreword for the book entitled Technological Innovations for Sustainability and Business Growth. I am also thankful to IGI Global for giving an opportunity to bring best minds at one place. I firmly believe that this book will undoubtedly serve as one of the valuable resource for academicians, researchers, and management graduates. These peer-reviewed chapters are lucid and easy to understand and apply in real life situations. Without hesitation, I endorse the ‘Handbook of Research on Technological Innovations for Sustainability and Business Growth’ for all-time learning and recommend it to all libraries. Kudos to the editors, contributors, and the publisher for disseminating such a unique book! Vinay Dutta Fore School of Management, New Delhi, India

xviii

xix

Preface

The last decade has brought about drastic changes in the global environment, and hence new requirements were set out in terms of technological innovation. Liberalization, globalization of the economic environment, technical-technological revolution, condensed product life cycle, flexible organizational structures, global recession and development of various forms of catastrophes are just some of the key fundamentals that describe the modern, dynamic business environment. Consequently, modern business world is undergoing a profound transformation, driven by radical technological changes and an augmented globalization process. With technology changing the way organisation work, every company, every brand has to keep ahead of fast changing consumers’ perceptions, their likings and disliking and should devise their product line and set of offerings accordingly. Apart from these challenges, society needs to adapt in order to provide the wealth that an increasing part of the world population is getting used to. Changeovers for sustainable development are normally difficult, as the new structures have to compete with fully developed and augmented systems that have far innovative at the learning curve, i.e., are optimized by various systems and incremental innovations. Consequently, every now and then, organisations confront situations that warrant radical changes, which call for out-of-the-box thinking. It is only through innovation that we can bring about such avant-garde transformation. Innovation is a critical component in improving individual and institutional performance. Real innovation is not easy to come by. Innovation is more radical and transformational than an improvement. Innovation is content-oriented, whereas improvement is process-oriented. Inspiration for innovation usually stems from a combination of three factors: an urgent and pressing need to bring about a change; how people perceive and pursue that change till the end; and a congenial environment to accomplish that change. Innovation is always driven by self-induced passion, pressure of compelling circumstances and undying perseverance for achievement. The diligent application of technological improvement in manufacturing, supply chain and information communication technology (ICT) has created an unprecedented growth in global connectivity and transmission of information. Globalization itself is a product of

Preface

innovation. The pace of economic and industrial progress is directly proportional to the efforts made towards research and development (R&D), which acts as a reliable measure of innovative capacity. R&D spend around the globe has been increasing at an exceptional rate but the fact is that over three fourth expenditure and investment is done by only one fourth of the countries of the world. And these countries are either the developed nations such as USA, France, Australia and Canada or developing nations such as South Korea, China, India, and Japan. Changing ethos and disruptive innovation will require new technologies, procedures and resources, nurturing new knowledge, innovation, education and a digital society, fetching forward newfangled business opportunities and innovative solutions to key societal challenges. Technological Innovation will give effective chance to create technological innovative product and services, helping in development and capacity building in India and developing countries. Therefore, the successful exploitation of innovative thoughts is crucial to a business being able to improve its processes, introduce new and better-quality products and services to market, increase its efficiency and, most importantly, improve its profitability.

THE CHALLENGES Each technology originates with its own unique set of challenges to its stakeholders. It would be extremely idealistic to think that implementing new technology, even if it positively innovates, comes without any disadvantages. The trick is making certain that the merits offset the demerits. Some of the demerits might comprise an initial drop in productivity or push back from users. It is imperative to comprehend the possible obstructions of those who will be impacted by the implementation. Without this understanding, there will be no way to effectively address those obstructions. Whether you are trying to persuade your employer to implement new technology, or you are the employer who is championing the implementation, it will be advantageous to talk with people concerned who will be affected by the change. It is also essential to appreciate that no single technology is panacea for all problems. Following are some of the handy instructions for governments, policy makers and managers responsible for technological changes on how to address drawbacks and how to approach push back: •

xx

Being transparent: Be as transparent as possible whenever researching for new technologies. Hiding or not sharing the possible shortcomings will make stake holders irritated and the possible implementation will only frustrate users further.

Preface

• • •

Endorse your own tech implementers: Require dedicated people at each level of implementation there to talk positively about the new technology. Arrange EDPs: Organize employee development programs (EDPs) to get acquaint and train people with the usage of new technology so to avoid push backs after implementation. Be patient and clam: When it comes to implement and try new technology at work place, it is expected to maintain high degree of patience and coolness. This includes the patience with the technology, as well as with the people involved in the project. Nothing, including innovation, happens overnight.

Besides this, there are several other issues that may affect the implementation and trail phase of new technology. Most importantly, they involve political and ethical sensitivities to circumnavigate – how much information transparency and shield is required, and how do you make technology socially suitable? How do you convince a community that may question the justification for spending aid money on R&D? Consequently, experience suggests that following things should be kept in mind while implementing new technologies: • • •

Will it improve the lives of end users? Will it positively disrupt the business? Can it be effectively and prudently used by the people responsible for its implementation?

UNESCO initiated Sustainable Development Goals (SDGs), commonly called ‘Global Goals’, are a universal call to promote industrial innovation, develop infrastructure, maintain good health & well-being, protect the planet and ensure that the business value is created and growth is sustainable. With 193 governments agreeing to deliver 17 goals tackling major world issues by 2030, change lies ahead for business, not only to rethink strategy and business behaviour to align with the goals, but also to assess and evidence their impact. All over the world actions have been taken to create business value and make business growth sustainable. This will require the redesign of our technological systems, processes, and not merely the application of technological fixes that are seldom satisfactory in the long term. While some required innovations can be nurtured through various management domains at the national level, but at global level, international agencies and developed countries should come forward to strengthen technological innovations for overall sustainability and business growth. Achieving sustainable development goals will necessitate action on a number of fronts, including harnessing and maximizing the potential of technological innovation in almost all the domains of management. Besides this, public private partnership xxi

Preface

(PPP) model should be promoted at both national and international level to meet global sustainability goals, particularly with regard to meeting the needs of the world’s poorest, most vulnerable or marginalized in current and future generations. The research has shown that in developing countries technologies are either not advanced at all for lack of a sufficiently profitable market, or if advanced, are not available or well-adapted to end-user needs. The importance of innovation in creating sustainable development and enhancing organizational growth cannot be overlooked. It is useful to craft a comprehensive understanding of the dynamics of industrial and techno-innovation that can lead to transformations in individuals, organizations, supply chains, and communities toward a sustainable future. The chapters presented in the book argue that the most encompassing level of technological innovation, the level of transition, is crucial for achieving long-term sustainable development, as it has the largest potential for improvement. Editors hope that the chapters in this volume will give readers a representative sample of the latest thinking in positive organisation behaviors, knowledge creation, and organizational well-being. The book encompasses real corporate examples and research studies of this dilemma and therefore some concreate guidelines for developing government policies as well as corporate strategies. The various emerging views of Technological Innovations for Sustainability and Business Growth are reflected in the collection of chapters contributed by researchers, academicians, and practitioners from all over the world. This volume presents a total of 16 research studies as chapters spread across three sections. Each section presents a sub-theme of the broader domain. We hope that the chapters in this volume have given the readers critical perspectives regarding the latest developments in the area of technological innovations. There are sufficient indications that the field of technological innovations is thriving and continuing to serve sustainability and business growth. By creating a healthy balance between research and practice, the scholars and practitioners continue to push ahead with creating new knowledge that would enhance business growth, employee engagement, creativity, empowerment, and sustainability. The book truthfully presents a global perspective and commendably addresses the requirements of an international audience. We are thankful to IGI Global for giving us an opportunity to bring best minds at one place. We firmly believe that this book will undoubtedly serve as one of the rarest resource for academicians, researchers, and management graduates. These peer-reviewed chapters are lucid and easy to understand and implement. Without hesitation, we endorse the ‘Handbook of Research on Technological Innovations for Sustainability and Business Growth’ for all-time learning and recommend it to all libraries. Kudos to the editors, contributors, and the publisher for disseminating such a unique book! The book compromises of 15 chapters. A brief description of each chapter is as follows. xxii

Preface

Chapter 1 identifies the customer analytics capabilities in the big data spectrum. The chapter sets the stage for growing significance of big data analytics for academicians, practitioners and policy makers. It also highlights the managerial and technical aspects vis-a-vis reasons for limited attention on other relevant organizational elements. Chapter 2 discusses the sustainability of OER through context aware and intelligent e-learning systems specific to India. Such technology integrates data collected from devices and citizen-generated data and thereafter employs big data analytics to create real insights from the data. Chapter 3 illustrates the vital role played by entrepreneurs in promoting sustainability in developing countries like India. Study also highlights this novel approach to sustainable development which is fast emerging in the entrepreneurship literature. Chapter 4 presents technological innovations and regulation as determinants of business growth. The authors suggest a strong relationship between perception of learning benefits and intentions of budding entrepreneurs to exploit those benefits. The findings have implications for academia, research, practice and policy makers. Chapter 5 analyses the role of technology and entrepreneurship in economic development with special reference to South Asian countries. The chapter opines that entrepreneurship has been proven not only to be the impetus for business growth but to economic prosperity also. Chapter 6 presents the impact of digitization on commercial banking services. The authors contend that digitalization impacts everything. Especially with respect to banking services, its impact is transformative and going far deeper than the costsaving potential from innovative IT, or even from sourcing new revenue streams. Chapter 7 addresses the issue of innovations through mergers and acquisitions in pharmaceutical sector. Through extensive data and its analysis, authors opine that recent changes in the pharmaceutical industry have spurred an unprecedented wave of mergers and acquisitions in and around the globe. Chapter 8 shares a general approach for financial quantification of climate change risk for various enterprises. As per authors the fundamental apprehension for the investors is to identify techniques which would allow them to appraise and highlight the most probable financial risks that could affect the value of their asset portfolio. Chapter 9 presents the notion of sustainable business model in B2C online retailing with particular reference to Indian context. Chapter proposes that B2C businesses in the Indian set-up have lately seen an irresistible growth and acceptance owing to factors like improved Internet penetration and advancement in technology. Chapter 10 elucidates managing an individual’s identity through attire. The authors consider the influence of personal and social identity among various age groups on the significance they attach to attire and brands.

xxiii

Preface

Chapter 11 recognizes the efficacious study of specific co-creation policies in healthcare ecosystem. The chapter also signifies the synergy between various healthcare providers, policymakers and seekers. Chapter 12 deliberates provoking thoughts on the significance of engaging millennials in Corporate Governance. Authors emphasize millennials as a unique generation and therefore, stress on deep understanding the types of things that set them apart from previous generations. Chapter 13 enlightens the conceptual framework, significance and strategies to achieve Sustainable Development Goal (SDG) 3 to take a big leap in the global progress. The chapter describes that how poor health constitutes suffering and deprivation of the most fundamental kind. Though numbers of efforts have been taken to improve life expectancy and reducing some of the common killers associated with child and maternal mortality but still a lot of efforts have to be done and channelized especially in developing nations. Chapter 14 explains the impact of culture influence on employee behaviors that have bearing on organizational sustainability. The only thing of factual significance that managers or leaders do is to create and manage culture. Chapter 15 presents the emerging issues and future prospects of risk aversion in management decision making. How various set of known and unknown risks can be managed effectively and prudently are discussed.

xxiv

1

Chapter 1

Customer Analytics Capabilities in the Big Data Spectrum:

A Systematic Approach to Achieve Sustainable Firm Performance Md Afnan Hossain University of Wollongong, Australia Shahriar Akter https://orcid.org/0000-0002-2050-9985 University of Wollongong, Australia Venkata Yanamandram University of Wollongong, Australia

ABSTRACT Customer analytics plays a vital role in generating insights from big data to improve service innovation, product development, personalization, and managerial decisionmaking; yet, no academic study has investigated customer analytics capability through which it is possible to achieve sustainable business growth. To close this gap, this chapter explores the constructs of the customer analytics capability by drawing on a systematic review of the literature in the big data spectrum. The chapter’s interpretive framework portrays a definitional aspect of customer analytics, the importance of customer analytics, and customer analytics capability constructs. The study proposes a customer analytics capability model, which consists of four principal constructs and some important sub-constructs. The chapter briefly discusses the challenges and future research direction for developing the customer analytics capability model in the data rich competitive business environment. DOI: 10.4018/978-1-5225-9940-1.ch001 Copyright © 2020, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

Customer Analytics Capabilities in the Big Data Spectrum

INTRODUCTION “Big Data” continuously challenges firms, creating an exhilarating leading edge of prospect in the last couple of years. Contemporary firms are taking initiatives to adopt analytics for gaining a superior advantage in the rapidly changing datarich business environment (Popovič et al., 2016; Nam et al., 2018). The worldwide market in business intelligence and analytics is estimated to be worth $200 billion by 2020 (IDC, 2016), with many industry experts predicting that the customer analytics capability of a firm would enhance the overall firm’s performance in the big data environment (Germann et al., 2014). France and Ghose (2018) refer to customer analytics as to the advanced technology that able to solve the customercentric challenges by analyzing the massive amount of marketing data. A large stream of research focuses on the benefit of customer analytics (e.g., Verhoef et al., 2010; Erevelles et al., 2015; Braun and Garriga, 2018), with relatively little or no attention been devoted to understanding the firm’s capacity building of customer analytics in the data-rich environment. Therefore, this chapter seeks to answer the following question. RQ: What are the dimensions of customer analytics capability to gain sustainable firm performance? To answer this research question, firstly, we portray the definitional aspects of customer analytics, including discussing the difference between customer and marketing analytics. Secondly, we highlight the importance of customer analytics, and we articulate the findings of a systematic literature review and propose a set of customer analytics capability constructs. In addressing the research question, this chapter makes two contributions to customer analytics research. Firstly, it offers a theoretical framework of capability dimensions of customer analytics. Secondly, managers can get a clear idea of the customer analytics capability that will lead to attaining sustainable firm performance in the competitive business environment. Following an extensive literature review, we propose a model of customer analytics capability that gives direction to achieve sustainable business growth. Finally, we present a brief discussion on the challenges and a path for future research in this particular area.

LITERATURE REVIEW Customer Analytics in Big Data Environment Customer analytics is a robust procedure to manage today’s ever-changing customers in the data-rich environment (Sun et al., 2014). Magill (2015) argues that customer 2

Customer Analytics Capabilities in the Big Data Spectrum

analytics is no longer just an exility; it is a necessity to create the superior customer experience, triggering firms to perform large-scale customer analytics to gain profound insights into customers and the entire market. In defining customer analytics, one stream has reflected on value creation and strategy-centric analysis. For example, verhoef et al. (2010) enlightened that the application of customer analytics in the data-rich environment helps managers to implement a cross-selling strategy through analyzing individual customer’s purchasing pattern over the various product categories. Indeed, an analytically mature organization is strategically ahead to gain a competitive advantage (Ransbotham & Kiron, 2018). In another study, Germann et al. (2013) mentioned a firm’s actual performance, and management’s decision-making shape well when managers strategically applied analytics. Another stream of research defines customer analytics from the viewpoint of discovering new opportunities. For example, Surma (2011) explained the scope of data mining for customer intelligence in four areas. Firstly, customization on portable devices and the convergence of media, secondly analysis of internet user behavior, thirdly correlation between physical location and customer behavior, and finally develop an advanced system can all converse with customers inconvincible ways that provide opportunities for a firm to attain competitive differentiation. In a similar stratum, Wedel & Kannan (2016) explained that the extensive development of media, channels, digital gadgets, and programming applications (analytics) has given firms incredible opportunities to use information to enhance experiences, deliver enormous value to customers, increment their happiness, and pull out the value in return. Braun & Garriga (2018) pointed out that improvements to customer journey experiences and driving product or service design can be achieved through customer journey analytics. Table 1 presents the concepts of customer analytics and how they have been defined in the literature.

Positioning of Customer Analytics Customer analytics is a sub-dimension of marketing analytics. Customer is the king in marketing, and a company’s sustainable long-term existence depends on customers lifetime value. Marketing analytics is the technological advancement that focuses on the collection, coordination, management, and analysis of every marketing touchpoint data to confirm higher marketing return on investment (Wedel & Kannan 2016). Prior research in the big data spectrum has uncovered the critical relationship between the investigation of technology-based analytics and their considerable advantages (Braun & Garriga 2018; Dhaoui et al. 2017; Erevelles et al. 2015). However, McAfee et al. (2012) and Ross et al. (2013) suggested business firm should focus on more 3

Customer Analytics Capabilities in the Big Data Spectrum

Table 1. Definitional views of customer analytics Study

Definitions

Davenport and Harris (2007a)

Customer analytics refers to the use of quantitative data analysis statistically through various models to make managerial decisions and actions.

Kayande et al. (2009)

Customer analytics refers to customers’ data interpretation mechanism to make a superior decision.

Verhoef et al. (2010)

Customer analytics is used to manage and understand a significant amount of customers’ data by applying a descriptive and predictive model.

Agarwal and Weill (2012)

Customer analytics helps to understand customer needs, make an emotional connection, and improve business process.

Germann et al. (2014)

Customer analytics is the technique used to seek endless opportunities to generate discovery and to support repetitive decisions.

Erevelles et al. (2015)

Customer analytics is the technological advancement that helps to capture customer’s observable fact in the real-time from the data-rich environment.

Dhaoui et al. (2017)

Customer analytics focuses on technological advancement to get customer’s best insight, such as Lexicon text mining software to analyze the consumer’s sentiment.

France and Ghose (2018)

Customer-centric analytics in marketing is the technological advancement that able to solve the customer-centric challenges by analyzing the massive amount of marketing data.

Braun and Garriga (2018)

Customer analytics in big data refers to the quantitative fact-based analysis throughout the consumer’s life cycle.

exclusive assets in addition to technology, and that will help to develop firm’s analytics capability infrastructure in the data-rich environment. Marketers always manage customers. A firm needs a few assets to reap benefits from the massive volume of customer data and information; although, a number of firms rarely determine how they could build and embed customer analytics inside their firms. The adequacy and ability of the customer’s value creation can be enhanced through the mix of analytics models and algorithm development (Erevelles et al., 2015). A strategic fit model that analyze voluminous data helps to identify demographic and other vital factors of the customers, allowing firms product innovation, favorable pricing, meaningful promotion, and to set up the right place or online space for distributing products for the ultimate target customers (Verhoef et al. 2016). More precisely, customer analytics refers to the processes and technologies that give organizations insightful customers information which is necessary to deliver relevant and timely offers; further, as the resolution for all marketing activities, customer analytics comprises techniques such as predictive modeling, data visualization, information management, and segmentation (Germann et al., 2014).

4

Customer Analytics Capabilities in the Big Data Spectrum

THE IMPORTANCE OF CUSTOMER ANALYTICS It has been observed that now there is a higher pressure than before on attaining an enterprise view of the customer systematically with the accessibility of enormous amount of data (structured and unstructured) from both the internal and external sources of the firm (Sun et al. 2014; Wedel & Kannan 2016). Such pressure triggers firms to perform large-scale customer analytics to gain more profound customers insights. Kayande et al. (2009) and Germann et al. (2014) advocate that a firm benefits from customer analytics if they possess three main characteristics. Firstly, the customer’s data available are voluminous within the firm. Secondly, the existence of an analytics-based method and finally, analytics-based techniques are used to support the repetitive decision. Fieldler et al. (2013) considered a Walmart example to show the relationship between voluminous data and customer analytics effectiveness. Wal-mart successfully discovered through scanner data that hurricane warnings significantly increase sales of particular products such as PopTarts. Kumar & Petersen et al., (2012) also refer to the analytic based method such as customer relationship management (CRM) and Customer lifetime value (CLV) metrics to maximize the firm’s profitability. Analytics also helps to take the repetitive decisions on customer’s product or service. For example, Kannan et al. (2009) found that the National Academies Press (NAP) of the USA that made many of the same decisions repeatedly, built a pricing model through analytics-based customer understanding. In another example, a German mail-order company made profits after introducing a dynamic multilevel response modeling system that answered when, how often and to whom should the company mail its catalogs (Elsner et al., 2004). Similarly, Erevelles et al., (2015) focussed on customer analytics and the strategic transformation of firms, where researchers bring up an example of Southwest airlines which introduced speech analytic software to gain superior competitive advantage through extracting customer insights. Despite the potential benefits of analytics in data-rich environments, some firms are yet to introduce such mechanisms properly (Mithas et al., 2013). To be competitive in the marketplace, firms require the right process of generating and storing customer activities’ records as big data, ensure the technical capability of extracting insights from big data, and adequately manage ideas to enhance dynamic capability (Erevelles et al., 2015). Hence, to embed customer analytics as an integral part of a firm’s culture and its business routine, the firm’s top management team must adequately support it. (Germann et al., 2013). The techniques of customer analytics have rapidly transformed over the past ten years, from text analytics to audio Analytics, then video analytics, web analytics, social media analytics, behavior analytics, predictive analytics, journey analytics, and to most recently, cognitive analytics (Magill, 2016). 5

Customer Analytics Capabilities in the Big Data Spectrum

RESEARCH APPROACH The study embraced a rigorous systematic literature review applying the guidelines of Ngai and Wat (2002), Benedettini and Neely (2012), and Akter and Fosso Wamba (2016) to answer the research question: What are the dimensions of customer analytics capability to gain sustainable firm performance? Relevant studies of big data analytics capability, marketing analytics, and IT capability are also considered along with customer analytics literature; because customer analytics is emerging in the big data spectrum and information technologies are involved with the process. We considered the time frame of searching for academic papers from 2006 (January) to 2018 (November). We have selected the year 2006 as the lowest boundary because the first seminal paper “competing on analytics” by Davenport was published in Harvard Business Review in 2006 (cited>1000 times). We considered five wellrecognized databases (Scopus, Web of Knowledge, ABI/Inform Complete, Business Source Complete, and Science Direct). The searches were limited to the abstract, title, and keywords field. A total of 107 papers were critically reviewed. As we aimed to identify the primary and secondary customer analytics capability dimensions, we considered the 25 most relevant articles (see Table 2).

CUSTOMER ANALYTICS CAPABILITY DIMENSIONS We propose the following customer analytics capability dimensions based on the above mentioned systematic literature review process and its findings.

Customer Analytics Management Capability The concept of customer analytics management capability in the data-rich environment refers to a technological unit’s ability to process and manage customer-centric routine works (such as CRM, with methods that help acquisition, retention, satisfaction, and improvement of customer’s lifetime value) in a structured manner, based on the firm’s requirements and priorities. According to Kim et al. (2012), planning, coordination, controlling, and investment decision making for technology are the elemental building blocks of analytics management capability. Thus, firstly customer analytics management capability should start with the appropriate planning process, which helps to improve a firm’s performance through big data-based models, and identifies new business opportunities (Barton & Court, 2012). Secondly, a firm’s unique strategic position depends on the proper investment decision on analytics, and which helps to build up the funding model of the enterprise to balance costs of investment (Makadok, 2001; McKeen & Smith, 2015). Thirdly, the concept of 6

Customer Analytics Capabilities in the Big Data Spectrum

coordination in the context of information technology represents a type of routine that forms the cross-functional harmonization of analytics initiatives through instruments such as task forces, direct contacts, and gatherings of interdepartmental teams (Karimi et al., 2001). Finally, managers must make sure that the analytics controlling tasks are prearranged, and information technology related procedures are executed efficiently following other tools (Kim et al., 2012).

Customer Analytics Technology/Infrastructure Capability Resource-based theory (RBT) views that resources are rare, valuable, non-replaceable, and static. Firms with the proper technology capabilities are arguably ahead of the competitors in terms of providing superior value to the customers (Morris 2006). Firms need to attain IT capability urgently to deal with the changing business surroundings (Johnson & Lederer 2005; Fink & Neumann 2009). A customer-centric technological ability such as Relational Database Management System (RDBMS) is capable of storing and handling structured data (e.g., customer’s orders, customer’s inventory management data, and financial transactions) (Storey & Song, 2017). However, eighty percent (80%) of a firm’s data exists in an unstructured format (Gupta & George, 2016). To benefit from customer analytics capability, a firm has to urgently change the traditional RDMS into new-fangled technological tools such as a Java-based software Hadoop that process parallel to massive unstructured data (Bagheri & Shaltooki, 2015). Firms require some other technological tools apart from Hadoop to process, store, visualize, and analyze the large volume of data (Kaisler et al., 2013). Moreover, to gain the competitive advantage in the data-rich environment, firms must ensure the technological advancement to connect the crossfunctional data, maintain compatibility in multiple platforms and assure modularity to build the advanced model (Akter et al., 2016). The concept of customer analytics infrastructure in big data environment refers to the technological capability to connect various data points from remote places, generate well-matched (Compatible) data sharing through channels, and develop multiple models to engage in the changing environment (Cosic et al., 2012). Thus, the first infrastructure capability is to ensure the connectivity among the different customer-centric data, which consequently helps to build more critical management of customer relationship. For instance, banks often improve customer services by analyzing ATM transaction data, social media comments, and online queries in the data-rich environment (Barton & Court, 2012). The second component is compatibility that helps to synchronize overlapping data and to fix missing information for real-time decision making. For example, Amazon uses cloud technologies for rapid data analysis, collaboration, and trial suggested that connectivity and compatibility make it possible to embed information system within organizations, and such capability facilitates and develops 7

Customer Analytics Capabilities in the Big Data Spectrum

the firm’s overall technological skills. Besides, Akter et al., (2016) refer modularity as another essential component of analytics capability, allowing firms to remove or modify features as required. Similarly, Zhang et al., (2009) pointed out that the modularity facilitates IT to be reorganized and amplified when it needs changes; so the modularity progresses technology capabilities, taps business opportunities, and improves firm’s performance.

Customer Analytics Personnel Expertise Capability Personnel expertise capability refers to the ability (e.g., skills or knowledge) of analytics personnel to execute, given customer centric responsibilities in the datarich environment. This ‘know-how’ knowledge counts as capabilities and generates a firm’s competitive advantage (Gupta & George, 2016). Studies highlight that an analytics professional must be proficient in four discrete talent sets. Firstly, technical knowledge (e.g., proper management of databases and networking) refers to the understanding of mechanical fundamentals, including programming languages and equipped systems. Secondly, technology management knowledge (e.g., technique management, use of imagery tools, and operations) refers to the experience on specific resource management in the data-rich environment to attain a firm’s desired goal. Thirdly, business knowledge (e.g., awareness of business units and goals) refers to the understanding of the business environment and a range of business tasks. Finally, relational learning (e.g., collaboration with business functions) refers to the capability of analytics personnel to interact and communicate with the group of people from various business functions (Melville et al., 2004; Ravichandran et al., 2005; Bhatt & Grover 2005; Aral & Weill, 2007; Kim et al., 2011; Akter et al., 2016).

Customer Analytics 4P Mix Modeling Capability The effectiveness and capability of customers’ value creation can be improved through the 4P mix, with models (models help to measure and improve the performance of firm’s marketing mix) and algorithms (Wedel & Kannan, 2016). Appropriate modeling to analyze big data helps to identify demographic factors, competitor’s offerings and overall market trends which allow firms to improve the product, favorable price, meaningful promotion, and to set up adequate distribution channels (Verhoef et al., 2016; Wedel & Kannan, 2016). However, conventionally, marketing mix models aim to set up the marketing budget, based on the sales and marketing expenditure. In fact, this process is not sufficient, and eventually, managers are more concerned about the firm’s marketing actions, performance, and consumer attitude matrix (Keller & Lehmann 2006). Likewise, Srinivasan et al. (2010) developed a consumer mindset metrics, to improve marketing activities and a sales response. To predict 8

Customer Analytics Capabilities in the Big Data Spectrum

Table 2. Dimensions of customer analytics (CA) capability Constructs

Exemplary Studies

Key Findings

1. CA Management Capability • Planning • Decision making • Coordination • Control

LaValle, (2011); Ross et al., (2013); Kim et al., (2012); Barton & Court, (2012); McKeen & Smith, (2015)

Managers must systematically perform analytics planning process. Management must take their analytics investment decision appropriately. The capability of the coordination is required among the analysts and support staffs, and the ability of customer analytics controlling should be executed efficiently.

2. CA Technology/ Infrastructure Capability • Connectivity • Compatibility • Modularity

Morris, (2006); Davenport & Harris, (2007b); Fink & Neumann, (2009); Zhang et al., (2009); Barton & Court, (2012); Gupta & George, (2016); Akter et al., (2016); Storey & Song, (2017)

Customer analytics infrastructure capability is to ensure the connectivity among the different customer-centric data which consequently helps to build a more significant management of customer relationship and compatibility helps to synchronize overlapping data and to fix missing information for real-time decision making, and Modularity is also merely allowing firms for removal or modification of features to, or from, the model.

3. CA Personnel Expertise Capability • Technical • Technological • Business • Relational

Aral & Weill, (2007); Kim et al., (2011); Kim et al., (2012); Gupta & George, (2016)

The ability of analytics professionals to execute customer-centric responsibilities in the datarich environment. This ‘know-how’ knowledge count as capabilities and generate a firm’s competitive advantage. Personnel expertise should know technical elements, including operational systems, programming languages, and database management systems.

4. CA 4P MixModeling Capability • Incorporation • Allocation • Assessment

Keller & Lehmann (2006); Srinivasan et al. (2010); Fischer et al. (2011); Hui et al, (2013); Hanssens et al. (2014); Andrews et al., (2015); Wedel & Kannan, (2016); Verhoef et al., (2016)

Advanced customer-centric models are required to incorporate big data such as VAR model (combining 4P and attitudinal metrics) improve sales prediction and recommendation for customercentric marketing mix allocation.

and explain customer choices more rigorously, Godes & Mayzlin (2004) showed the measurement process of word of mouth (WOM); Chevalier and Mayzlin, (2006) discussed the idea of online reviews; and Moe (2003) suggested click streams data. In the model of 4P mix stratum, Hanssens et al. (2014) also developed the concept of consumer mindset metrics and attitudinal metrics in Vector Autoregressive (VAR) models to track down the firm’s sales performance and recommendations for marketing mix allocation. Albers (2012) presented plans for developing decision aids for optimal marketing mix allocation, although, a most favorable distribution of resources requires a vigilant study of how expenses should be circulated across segments. Fischer et al. (2011) recommended a heuristic approach to decipher the marketing mix budget allocation problem for multi-segment countries firms. Hui et al., (2013) and Andrews et al. (2015) emphasized on quasi and natural experiments 9

Customer Analytics Capabilities in the Big Data Spectrum

Figure 1. Customer analytics capability dimensions and sustainable firm performance model

that enable the investigators to assess the causal effect of marketing variables which helps to attain firm’s better performance. Thus, although the causality assessment in the marketing mix model has received extensive attention in academia, industry managers have not exposed their concern in the analytics capability aspect yet. Thus, the recommendation is to develop a 4P mix modeling capability to allocate marketing resources and assess the overall marketing variables effect.

CUSTOMER ANALYTICS CAPABILITY AND SUSTAINABLE FIRM PERFORMANCE Previous researchers investigated the importance of analytics capability in the big data environment and performance of a firm (e.g., Akter et al., 2016). While much research has reported the benefits of customer analytics (e.g., Verhoef et al., 2010; Erevelles et al., 2015), relatively little or no attention has been committed to understanding the customer analytics capability and firm’s performance. Our study presumes that if a firm satisfies the needs of the customers through the customer analytics, and consequently, if the firm achieves the customer analytics capability by fulfilling the above dimensions, that would create a long term positive effect on the firm’s profitability. A company can generate more customer lifetime value, and subsequently, would likely sustain excellent performance.

10

Customer Analytics Capabilities in the Big Data Spectrum

FUTURE RESEARCH, CHALLENGES, AND OPPORTUNITIES There are challenges for the managers of firms to personalize the product, especially for the individual customer. Managers’ ability to introduce and use the advanced algorithm to process heterogeneity in the behaviors of individual consumers are essential to secure customer lifetime value (Wedel & Kannan, 2016). According to Sonnier (2014) and Buhalis and Amaranggana, (2015) managers can introduce personalization analytics in the firm level not only for developing product or services but also for setting up the price, promotion and distribution channels for the target customers. Furthermore, in the competitive market environment, customers’ expectation is raising to get a seamless experience in all the channels. Thus, firms need to achieve the channel integration analytics capability where they will be able to assemble and integrate to deploy data technology resources in the offline and online channels to meet the customers’ expectations. Channel integration can be formed appropriately through inside-out capabilities (analytical and technical skills), outside-in capabilities (market responsiveness) and spanning capabilities (change management after combining inside-out and outside-in capabilities) (Hosseini et al., 2017). Furthermore, privacy and security is also a challenge for the firm. Customers expect secure transaction and want to get an assurance from the firm level regarding the highest level of privacy (Miller & Tucker 2011). Thus, firms need to address this issue seriously and must have achieved the capability of data protection in term of privacy and security issue. With the ongoing development of analytics for big data, many firms can detect the entire path of customers purchase across channels and multiple devices to improve explanations and predictions on the customer’s future purchase pattern. These provide further opportunities to consider the specific content that should be personalized and also helps to make the tailored contents for individual customers using individual-level insights.

CONCLUSION AND IMPLICATIONS This chapter has reviewed the concept of customer analytics and more importantly, has addressed the customer analytics capability dimensions in the key domains of management capability, technology/infrastructure capability, personnel expertise capability, and 4p mix modeling capability. Table 2 summarizes the aspects of customer analytics capability, and that would be expected to work at the interface of econometrics, statistics, and marketing to attain sustainable business growth. Analysts must have in-depth knowledge on customer-centric activities, programming and in contemporary marketing. The analyst of the firm must work as intermediaries 11

Customer Analytics Capabilities in the Big Data Spectrum

between the marketing manager and decision makers. Internal marketing would be necessary to build up the capacity of customer analytics. Through the process, firms can generate value for the ultimate customer, and in return, can capture the value again from the customer, and that will lead to achieving the sustainable highest level of performance. Managers and analysts need proper training and also required to play a vital role within the organization to carry out customer analytics tools. Firms need to invest in developing skillful, talented employees, and analytics models to gain a sustainable competitive advantage. Therefore, practitioners can benefit from specialized training and can use their skills within the organization to achieve sustainable business growth.

REFERENCES Agarwal, R., & Weill, P. (2012). The benefits of combining data with empathy. MIT Sloan Management Review, 54(1), 35–41. Akter, S., & Wamba, S. F. (2016). Big data analytics in E-commerce: A systematic review and agenda for future research. Electronic Markets, 26(2), 173–194. doi:10.100712525-016-0219-0 Akter, S., Wamba, S. F., Gunasekaran, A., Dubey, R., & Childe, S. J. (2016). How to improve firm performance using big data analytics capability and business strategy alignment? International Journal of Production Economics, 182, 113–131. doi:10.1016/j.ijpe.2016.08.018 Albers, S. (2012). Optimizable and implementable aggregate response modeling for marketing decision support. International Journal of Research in Marketing, 29(2), 111–122. doi:10.1016/j.ijresmar.2012.03.001 Andrews, M., Luo, X., Fang, Z., & Ghose, A. (2015). Mobile ad effectiveness: Hyper-contextual targeting with crowdedness. Marketing Science, 35(2), 218–233. doi:10.1287/mksc.2015.0905 Aral, S., & Weill, P. (2007). IT assets, organizational capabilities, and firm performance: How resource allocations and organizational differences explain performance variation. Organization Science, 18(5), 763–780. doi:10.1287/ orsc.1070.0306 Bagheri, H., & Shaltooki, A. A. (2015). Big data: Challenges, opportunities and Cloud based solutions. Iranian Journal of Electrical and Computer Engineering, 5(2), 340.

12

Customer Analytics Capabilities in the Big Data Spectrum

Barton, D., & Court, D. (2012). Making advanced analytics work for you. Harvard Business Review, 90(10), 78–83. PMID:23074867 Benedettini, O. & Neely, A. (2012, June). Complexity in services: an interpretative framework. In 23rd Annual Conference of the Production and Operations Management Society (POMS) (pp. 1-11). Academic Press. Bhatt, G. D., & Grover, V. (2005). Types of information technology capabilities and their role in competitive advantage: An empirical study. Journal of Management Information Systems, 22(2), 253–277. doi:10.1080/07421222.2005.11045844 Braun, A. & Garriga, G. (2018). Consumer journey analytics in the context of data privacy and ethics. Digital Marketplaces Unleashed, 663-674. Springer, Berlin, Germany. Buhalis, D., & Amaranggana, A. (2015). Smart tourism destinations enhancing tourism experience through personalisation of services. In Information and communication technologies in tourism (pp. 377–389). Cham, Switzerland: Springer. Chevalier, J. A., & Mayzlin, D. (2006). The effect of word of mouth on sales: Online book reviews. JMR, Journal of Marketing Research, 43(3), 345–354. doi:10.1509/ jmkr.43.3.345 Cosic, R., Shanks, G., & Maynard, S. (2012, January). Towards a business analytics capability maturity model. In ACIS 2012: Location, Location, Location: Proceedings of the 23rd Australasian Conference on Information Systems 2012 (pp. 1-11). ACIS. Davenport, T. H., & Harris, J. G. (2007a). The dark side of customer analytics. Harvard Business Review, 85(5), 37. Davenport, T. H., & Harris, J. G. (2007b). Competing on analytics: The new science of winning. Harvard Business Press. Dhaoui, C., Webster, C. M., & Tan, L. P. (2017). Social media sentiment analysis: Lexicon versus machine learning. Journal of Consumer Marketing, 34(6), 480–488. doi:10.1108/JCM-03-2017-2141 Elsner, R., Krafft, M., & Huchzermeier, A. (2004). Optimizing Rhenania’s direct marketing business through dynamic multilevel modeling (DMLM) in a multicatalogbrand environment. Marketing Science, 23(2), 192–206. doi:10.1287/mksc.1040.0063 Erevelles, S., Fukawa, N., & Swayne, L. (2015). Big data consumer analytics and the transformation of marketing. Journal of Business Research, 69(2), 897–904. doi:10.1016/j.jbusres.2015.07.001

13

Customer Analytics Capabilities in the Big Data Spectrum

Fiedler, L., Germann, F., Kraus, M., & Perrey, J. (2013). KoenigKunde – Kapital Kundenwissen. Akzente, 3, 24–29. Fink, L., & Neumann, S. (2009). Exploring the perceived business value of the flexibility enabled by information technology infrastructure. Information & Management, 46(2), 90–99. doi:10.1016/j.im.2008.11.007 Fischer, M., Albers, S., Wagner, N., & Frie, M. (2011). Practice prize winner— Dynamic marketing budget allocation across countries, products, and marketing activities. Marketing Science, 30(4), 568–585. doi:10.1287/mksc.1100.0627 France, S. L. & Ghose, S. (2018). Marketing analytics: Methods, practice, implementation, and links to other fields. arXiv preprint arXiv:1801.09185. Germann, F., Lilien, G. L., Fiedler, L., & Kraus, M. (2014). Do retailers benefit from deploying customer analytics? Journal of Retailing, 90(4), 587–593. doi:10.1016/j. jretai.2014.08.002 Germann, F., Lilien, G. L., & Rangaswamy, A. (2013). Performance implications of deploying marketing analytics. International Journal of Research in Marketing, 30(2), 114–128. doi:10.1016/j.ijresmar.2012.10.001 Godes, D., & Mayzlin, D. (2004). Using online conversations to study word-of-mouth communication. Marketing Science, 23(4), 545–560. doi:10.1287/mksc.1040.0071 Gupta, M., & George, J. F. (2016). Toward the development of a big data analytics capability. Information & Management, 53(8), 1049–1064. doi:10.1016/j. im.2016.07.004 Hambrick, D. C., & Mason, P. A. (1984). Upper echelons: The organization as a reflection of its top managers. Academy of Management Review, 9(2), 193–206. doi:10.5465/amr.1984.4277628 Hanssens, D. M., Pauwels, K. H., Srinivasan, S., Vanhuele, M., & Yildirim, G. (2014). Consumer attitude metrics for guiding marketing mix decisions. Marketing Science, 33(4), 534–550. doi:10.1287/mksc.2013.0841 Hosseini, S., Röglinger, M., & Schmied, F. (2017). Omni-channel retail capabilities: an information systems perspective. Hui, S. K., Inman, J. J., Huang, Y., & Suher, J. (2013). The effect of in-store travel distance on unplanned spending: Applications to mobile promotion strategies. Journal of Marketing, 77(2), 1–16. doi:10.1509/jm.11.0436 IDC. (2016). IDC’s worldwide semiannual big data and analytics spending guide. 14

Customer Analytics Capabilities in the Big Data Spectrum

Johnson, A. M., & Lederer, A. L. (2005). The effect of communication frequency and channel richness on the convergence between chief executive and chief information officers. Journal of Management Information Systems, 22(2), 227–252. doi:10.108 0/07421222.2005.11045842 Kaisler, S., Armour, F., Espinosa, J. A., & Money, W. (2013). Big data: Issues and challenges moving forward. In Proceedings 2013 46th Hawaii International Conference on System Sciences (HICSS), (pp. 995-1004). IEEE. Kannan, P. K., Pope, B. K., & Jain, S. (2009). Practice prize winner—Pricing digital content product lines: A model and application for the National Academies Press. Marketing Science, 28(4), 620–636. doi:10.1287/mksc.1080.0481 Karimi, J., Somers, T. M., & Gupta, Y. P. (2001). Impact of information technology management practices on customer service. Journal of Management Information Systems, 17(4), 125–158. doi:10.1080/07421222.2001.11045661 Kayande, U., De Bruyn, A., Lilien, G. L., Rangaswamy, A., & Van Bruggen, G. H. (2009). How incorporating feedback mechanisms in a DSS affects DSS evaluations. Information Systems Research, 20(4), 527–546. doi:10.1287/isre.1080.0198 Keller, K. L., & Lehmann, D. R. (2006). Brands and branding: Research findings and future priorities. Marketing Science, 25(6), 740–759. doi:10.1287/mksc.1050.0153 Kim, G., Shin, B., Kim, K. K., & Lee, H. G. (2011). IT capabilities, process-oriented dynamic capabilities, and firm financial performance. Journal of the Association for Information Systems, 12(7), 487–517. doi:10.17705/1jais.00270 Kim, G., Shin, B., & Kwon, O. (2012). Investigating the value of sociomaterialism in conceptualizing IT capability of a firm. Journal of Management Information Systems, 29(3), 327–362. doi:10.2753/MIS0742-1222290310 Kumar, V., & Petersen, J. A. (2012). Statistical methods in customer relationship management. West Sussex, UK: John Wiley & Sons. doi:10.1002/9781118349212 LaValle, S., Lesser, E., Shockley, R., Hopkins, M. S., & Kruschwitz, N. (2011). Big data, analytics and the path from insights to value. MIT Sloan Management Review, 52(2), 21. Magill, E. (2015). Harnessing the power of customer analytics at IBM Amplify 2015. IBM Watson Customer Engagement. Retrieved from https://www.ibm.com/ blogs/watson-customer-engagement/2015/05/01/harnessing-the-power-of-customeranalytics-at-ibm-amplify-2015/

15

Customer Analytics Capabilities in the Big Data Spectrum

Magill, E. (2016). The customer analytics evolution: A path to cognitive. IBM Watson Customer Engagement. Retrieved from https://www.ibm.com/blogs/ watson-customer-engagement/2016/06/17/the-customer-analytics-evolution-a-pathto-cognitive/) Makadok, R. (2001). Toward a synthesis of the resource‐based and dynamic‐ capability views of rent creation. Strategic Management Journal, 22(5), 387–401. doi:10.1002mj.158 McAfee, A., Brynjolfsson, E. T. H., Patil, D. J., & Barton, D. (2012). Big data: The management revolution. Harvard Business Review, 90(10), 60–68. PMID:23074865 McKeen, J. D. & Smith, H. A. (2015). IT strategy: Issues and practices. Pearson Higher Ed. Melville, N., Kraemer, K., & Gurbaxani, V. (2004). Information technology and organizational performance: An integrative model of IT business value. Management Information Systems Quarterly, 28(2), 283–322. doi:10.2307/25148636 Miller, A., & Tucker, C. (2011). Encryption and data security. Journal of Policy Analysis and Management, 30(3), 534–556. doi:10.1002/pam.20590 PMID:21774164 Mithas, S., Lee, M. R., Earley, S., Murugesan, S., & Djavanshir, R. (2013). Leveraging big data and business analytics. IT Professional, 15(6), 18–20. doi:10.1109/ MITP.2013.95 Moe, W. W. (2003). Buying, searching, or browsing: Differentiating between online shoppers using in-store navigational clickstream. Journal of Consumer Psychology, 13(1-2), 29–39. doi:10.1207/S15327663JCP13-1&2_03 Morris, A. K. (2006). Assessing pre-service teachers’ skills for analyzing teaching. Journal of Mathematics Teacher Education, 9(5), 471–505. doi:10.100710857006-9015-7 Nam, D., Lee, J., & Lee, H. (2018). Business analytics use in CRM: A nomological net from IT competence to CRM performance. International Journal of Information Management. Ngai, E. W., & Wat, F. K. T. (2002). A literature review and classification of electronic commerce research. Information & Management, 39(5), 415–429. doi:10.1016/ S0378-7206(01)00107-0 Popovič, A., Hackney, R., Tassabehji, R., & Castelli, M. (2016). The impact of big data analytics on firms’ high value business performance. Information Systems Frontiers, 1–14. 16

Customer Analytics Capabilities in the Big Data Spectrum

Ransbotham, S. & Kiron, D. (2018). Using analytics to improve customer engagement. MIT Sloan Management Review, Research report, 1-20 Ravichandran, T., Lertwongsatien, C., & Lertwongsatien, C. (2005). Effect of information systems resources and capabilities on firm performance: A resourcebased perspective. Journal of Management Information Systems, 21(4), 237–276. doi:10.1080/07421222.2005.11045820 Ross, J. W., Beath, C. M., & Quaadgras, A. (2013). You may not need big data after all. Harvard Business Review, 91(12), 90–98. PMID:23593770 Sonnier, G. P. (2014). The market value for product attribute improvements under price personalization. International Journal of Research in Marketing, 31(2), 168–177. doi:10.1016/j.ijresmar.2013.09.002 Srinivasan, S., Vanhuele, M., & Pauwels, K. (2010). Mind-set metrics in market response models: An integrative approach. JMR, Journal of Marketing Research, 47(4), 672–684. doi:10.1509/jmkr.47.4.672 Storey, V. C., & Song, I. Y. (2017). Big data technologies and Management: What conceptual modeling can do. Data & Knowledge Engineering, 108, 50–67. doi:10.1016/j.datak.2017.01.001 Sun, N., Morris, J. G., Xu, J., Zhu, X., & Xie, M. (2014). iCARE: A framework for big data-based banking customer analytics. IBM Journal of Research and Development, 58(5/6), 4–1. doi:10.1147/JRD.2014.2337118 Surma, J. (2011). Business intelligence: Making decisions through data analytics: Customer Intelligence. New York, NY: Business Expert Press. Verhoef, P. C., Kooge, E., & Walk, N. (2016). Creating value with big data analytics: Making smarter marketing decisions. Routledge. doi:10.4324/9781315734750 Verhoef, P. C., Venkatesan, R., McAlister, L., Malthouse, E. C., Krafft, M., & Ganesan, S. (2010). CRM in data-rich multichannel retailing environments: A review and future research directions. Journal of Interactive Marketing, 24(2), 121–137. doi:10.1016/j.intmar.2010.02.009 Wedel, M., & Kannan, P. K. (2016). Marketing analytics for data-rich environments. Journal of Marketing, 80(6), 97–121. doi:10.1509/jm.15.0413 Zhang, J., Li, H., & Ziegelmayer, J. L. (2009). Resource or capability? A dissection of SMEs’ IT infrastructure flexibility and its relationship with IT responsiveness. Journal of Computer Information Systems, 50(1), 46–53.

17

18

Chapter 2

Enhancing the Sustainability of OER Through Context-Aware and Intelligent E-Learning Systems Specific to India Shruti Tripathi https://orcid.org/0000-0002-1341-5614 Amity University, Noida, India Archana Thakran Amity University, Noida, India Monika Sharma Amity University, Noida, India

ABSTRACT The chapter discusses the essence of “Openness” in the education sector and how it is transforming the landscape worldwide, along with the opportunities for educators and learners moving towards Industry 4.0. E-learning applications need to be dynamically adjusted not only according to the learner’s knowledge but also depending on a relevant context which is imperative for a diverse country like India. The general aspects of OER, its meaning, and different CC licenses are discussed. The authors also deliberate upon the licensing issues in the use and reuse of OER. In a fast-developing economy, it is important to not only adopt the new techniques in education but also assess the strengths and weaknesses of OER usage.

DOI: 10.4018/978-1-5225-9940-1.ch002 Copyright © 2020, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

Enhancing the Sustainability of OER Through Context-Aware Systems

INTRODUCTION The word “Open” has different meaning in term of its usage. Open Education is a new way of thinking where one shares the knowledge freely and openly with the world. Open education mainly depends on Open Educational Resources and Open Licensing. The essence behind OER is to bring best of the world’s knowledge at a platform where anyone from anywhere can teach or learn sitting at any corner of the world. The early adopters of OER firmly conjecture this thought that education is a public good and the Openness’s associated with it can bring strong, positive transformation in education. The intent is to bring access of education/knowledge to all with limited resources.

WHAT IS OER? OER are the teaching leaning materials which are made freely and legally available for anyone in the world to Reuse, Revise, Remix, Redistribute & Retain (Wiley,2014). There is a diverse range of opinion on what constitutes an open education resource. The word “open” can have different meanings in different contexts. There are at least two dimensions of open: cost and freedom. Regarding freedom, David Wiley defines 5 Rs for educational content, i.e. Reuse, Revise, Remix, Redistribute and Retain. According to UNESCO any learning material which is released with open license or in public domain for the use, remix and adaptation with no cost constitutes as OER (UNESCO,2012). The OER movement came into limelight way back in 2001 when MIT decided to make all their course material free and Open for rest of the world. This movement was funded jointly by the Hewlett and the Andrew W. Mellon foundations. From this huge step, Open courseware consortium which is known as OE consortium today came into existence. In OE consortium more than 243 institutes from more than 40 countries have contributed in sharing their knowledge free with the world. According to the Open Courseware Consortium, it is a conglomerate of various full course which are of high quality and are released under open license and are available for use as per 5R. The Open Courseware finder is used to search and find OCW courses. UNESCO in 2005 formed a global OER Community wiki to share knowledge and learning material as a collaborative effort on the challenges around the creation and adoption of Open Educational Resources. With the advent of OER movement, many forward-looking educators are sharing their knowledge openly and transforming the education worldwide.

19

Enhancing the Sustainability of OER Through Context-Aware Systems

Figure 1. Traditional educational resources vs. OER

WHY OER MATTERS? OER is a global movement with the aim to make knowledge available for all. It has the potential to change the landscape of education everywhere and making it accessible in any part of the world. According to Lisa Petrides, OER is not only free content but the process how OER are produced, for others to use, adapt and further improve the quality of the existing content (ISKME,2017). Here are some more ways taken from an ISKME video titled “Game Changer” that provides the intention of OER: • • •

Idea exchange: Anyone from any part of the world can connect and share knowledge. Customization: OER provides me the freedom to adapt the content according to the need of the learners. Teaching & learning happening beyond the four walls of the classroom.

It is an effective way to bring about pedagogical changes and improve students’ learning outcome. 20

Enhancing the Sustainability of OER Through Context-Aware Systems

Figure 2. Traditional learning vs. OER: From cascading style of education to constant adoption

Licensing Issues in the Use and Reuse of OER OERs are recognized by the licenses associated with them. Creative commons is the organization that has created a licensing scheme that allows you to use OER without any legal issues. But before understanding Creative commons Licenses, lets us know about copyright, fair use and public domain. Copyright: a form to protect the author’s intellectual property and its usage by others. Fair Use: There are certain conditions till when an author can enjoy copyright protection for e.g. “for purposes like criticism, news reporting, teaching (including multiple copies for classroom use), scholarship, or research” is not an infringement of copyright. All these activities come under Fair Use. Public Domain: Any learning material which has no intellectual property rights associated with it comes under Public domain category. It could because of copyright exemption, or the expiry of copyright.

Creative Commons (CC) Licensing CC licenses are relaxed copyright from the default “all-rights-reserved” to “some rights reserved.” Authors are free to choose any of the six CC licenses that provide flexibility to others to use their material for free. CC licenses ranges from the one being Open versions like CC-BY, CC-BY-SA which gives the freedom to other to remix, adapt and even make some money from it as it can be used for commercial purpose. Further it goes to more restrictive ones like CC-BY-ND, CC-BY-NC-SA, CC-BY-NC which allows the re-use but restrict the adaptation and commercial use of the original work. CC-BY is the most common and preferred license. US Govt. has passed a law, if any work is created using public money, it shall be released under CC-BY license. Foundations like Ford, Bill & Melinda also have opted for CC-BY licenses for the work done by them. 21

Enhancing the Sustainability of OER Through Context-Aware Systems

Figure 3. Creative commons license

Figure 3 shows a table which gives a clear picture about the use and re-use under different CC licenses:

USING OER With the advent of OER, there has been many new opportunities for a faculty/educator to use best of the world class content for free which could be simple lesson plan to full courses (Tuomi, 2013) . An educator is now empowered with various options to improve his teaching and enhance students’ learning outcome by integrating OER into teaching & learning (Farrow, 2017). Surveys establish that faculty members have a positive attitude towards using OER (Hilton, 2016), though they may be using it in their current pedagogy. OER has provided access to world class study material at a very minimum cost or at free of cost.

22

Enhancing the Sustainability of OER Through Context-Aware Systems

According to Delimonta et al. (2016) faculty find creation of OER as challenge due to time constrain, technological support from the institute, proper institutional level OER policies, lack of CC licensing knowledge etc. (Delimonta, Turtleb, Bennett, Adhikarid, & Lindshield, 2016). Quality of OER is another challenge faced by the faculty in using and reuse of OER for preparing their lesson plan. According to UNESCO, quality in OER comes with time through peer review (UNESCO notes, p. 4 2016). To make OER sustainable in India it depends on how it will be reinforced by policies, what motivations can fit in, how it will reach to masses, how smoothly it will be supported by technology to make it administratively effective. We can understand this by dividing the OER into two categories “The Boosters” and “The Barriers”.

The Boosters From the Learner’s Perspective 1. The present day professions are undergoing massive changes due to Industry 4.0(advancement in technology and modernizations of workplaces) here OER enables the working class to learn from anywhere and anytime (Kanwar et al 2010) which is opposite to conventional educational system which is rigid in its contents and focused on a particular age group of individuals saves time and supports green drive; 2. It supports life-long learning models (European Commission, 2000) which can be helpful to deal with VUCA(volatility, uncertainty, complexity, and ambiguity); 3. The concept of free and freely availability with life-long learning of OER helps adults overcome their learning inhibitions, empowers them and boosts their self-esteem; 4. India has a young demography (around 41% of population is in the bracket of 25-54 year age group) which makes a strong and agile working class; 5. By permitting reuse and adaptation the OER makes the learner an active participant in the process as against the passive one in traditional learning (Butcher, N. (2010); 6. OER gives access to wide range of quality content options

From the Educator’s Perspective 1. The scope of OER is immense; the annual report of Ministry of Skill Development and Entrepreneurship (2016-17), states that less than 5% of the total workforce in India has undergone formal skill training, a sizable requirement can be 23

Enhancing the Sustainability of OER Through Context-Aware Systems

2. 3. 4. 5.

fulfilled through online courses. The digital technology is changing the job profiles in terms of qualifications and the required skills and very importantly due to advent of AI the newer roles will less physical and more complex and mentally more demanding. So to keep up the pace with these requirements OER has a big role to play. Though a complex adjustment of the learning in actual work scenarios is still to be made; OER gives improved visibility i.e. distribution of the course. It opens up opportunities to collaborate in the same/inter disciplinary fields experts; High research/resource currency and relevancy also it allows for peer review thus making the contents superior; Organisations with high degree of technology quotient demonstrate better performance; The objective of OER is to minimize the cost of textbooks and replace it with innovative and updated quality content.

The Barriers 1. Higher education is not only about learning but it is also about an environment which enables in bringing in creativity, assimilating and analyzing the information and perspectives through a live face to face interaction with teachers and peer groups and thus paving way to develop a better thought process, applications and queries, truth, innovations, dialogues and personality building (Boyer (1990)) OER has still to figure out this issue; 2. Making a quality on-line learning program content is technical as well as expensive, as in past many OER initiatives have run on donation and once the financial support is withdrawn the projects come to an end for example the Utah state University Open Course ware despite being successful had to be pulled down due to lack of funds; 3. The awareness of opportunity is as important as the opportunity itself, lack of awareness of policy support for continued education of low-skilled workers is still a big challenge in a country like India though government is taking big initiatives in form of digital India. Apart from this non clarity of the terms and conditions of licensing to the faculty and common user inhibits them to use the platform smoothly; 4. Teaching pedagogy is yet to be ascertained, though it has started disruption in the traditional teaching method, also complex adjustments of the learning in actual work scenarios remains to be tackled; 5. There is limited mechanism of control over the process of reuse and adaptation of materials once they are shared in public domain (Butcher, 2010);

24

Enhancing the Sustainability of OER Through Context-Aware Systems

6. OER is an enabler of job but surely not the guarantee there is no concept of campus recruitment post the course completion, lack of data to support the success of OER in different careers; 7. The programs are left for the self-judgment of the incumbents as no qualifying entrance exam like system is there for taking up a course also it requires a lot of self-motivation to continue the learning, may subject to monotony. There is absence of well-defined regulatory body to monitor the quality of the contents Resource sustainability; 8. Of critical importance is the strong policy implementation for monetary and non-monetary incentivisation of OERs for a common faculty. Developing an OER capsule should be made equivalent to research; 9. Provide teachers with continuous professional development opportunities in form of regular workshops and trainings to boost their ICT and OER skills. 10. Creation of quality assurance mechanism is very important .One of the largest on-line learning platform of India Unacademy, on boarded many teachers for its growing business but soon through the student feedback they noticed the downfall in terms of quality content which then had to be tackled through a full time quality assurance team. 11. Other social issues like time consuming for faculty/ learners, maintenance of academic ethics on the user solely, cyber related health risks, Quality assurance of material providers and learners, learners ADA and accessibility issues.

PROPOSED MODEL FOR CONTEXT-AWARE AND INTELLIGENT E-LEARNING SYSTEMS FOR ENHANCING THE SUSTAINABILITY In the digital era, Artificial Intelligence and its applications are very useful tool for decision making process, cost reduction in education through the e- learning systems with the help open education resources, changes in learning environment and personalize the services according to the students. The main concern towards the design and implementation of e-Learning systems is the learning sessions for students with diverse educational backgrounds. The development of an intelligent learning system that is adaptable to the various needs of the students is a challenging job. Typically, present e-learning systems contain information regarding students’ preferences; knowledge, background, and skills; distinct behaviors and learning capabilities. However, e-learning applications need to be dynamically adjusted not only according to the students’ knowledge but also depending on a relevant context. Even though there are numerous methods for considering the framework in e-Learning applications, they emphasize primarily on 25

Enhancing the Sustainability of OER Through Context-Aware Systems

scientific and networking areas without taking into account other contextual features such as social and educational. In a country like India which has diversity as a major demographic dividend it is imperative to consider the background of the learner for better delivery of topics. In this Chapter, we propose an ontology-based strategy of training, learning and evaluation mentor that hasn’t been used to develop intelligent e-Learning systems. An ontology that refers to the area specific concepts, context, and the information is used to denote and store the knowledge-based required for intelligent e-Learning systems and developing intelligent session plans. The Mentors assesses each student from the past credentials for the level of learning session plans and draw a concept-graph and context-graph. This e-learning application is dynamically adapted by traversing the graph, to set the level, background, knowledge, and the context of the student based on the answers and bridges the space between the probable and real competency level.

Sustainability of OER and Open Pedagogy: A Case Study of a US Based Organisation Open Educational Resources have brought a huge transformation in education sector. The aim of sharing knowledge with the world has made education accessible to all. Anyone sitting at any part of the world can get access to the best content. Figure 4. Architecture of the ontology-based E-learning intelligent system

26

Enhancing the Sustainability of OER Through Context-Aware Systems

Many people argued how one can make this movement sustainable. Initially, OER was funded by foundations like William flora, gates foundation, etc but to make it self-sustainable, there was a need of strong business model around it. Many business models emerged out of OER to make is self-sustainable by making use of the power of “Open” which allowed anyone to make commercial use of OER. It is a way forward for trainers, entrepreneurs to commercialize. Here is one such example where a US based organization, Progia LLC made commercial use of OER. The freedom which comes with CC licenses that an author chose to offer for his/her work can be used to make money. Progia has created more than 20 courses using learning material from OER and out them they are offering 5 courses online in partnership with NIESBUD, an autonomous institute under MSME, GOI. A student comes on NIESBUD’s e-learning website, get registered for the course and make the payment which both Progia & NIESBUD share as per their agreed terms and conditions. The cost/ fees of these courses are kept very minimal so that every student can afford it. In this model, skill based courses are offered by which a student can get a job. OER is not only providing revenue to the institute but is helping in lowering the cost (course creation and course offering) while maintaining a good quality. Progia’s team identified the subject area in which they wanted to create courses. The experts selected the learning material which was under CC-BY license. They created the lesson plan, structured it according to the course template, and edited the material as per the requirement of the course, for example, Communication Skills 101 which is the basic course for a student who wants to learn effective communication skills at the workplace or in day today conversation. Progia’s team kept it very simple and easy keeping in mind the level of the students. They edited the lesson plans, hand-outs which they selected from OER and created their own lessons and videos. So instead of “re-inventing the wheel”, Progia made the “Wheel Better” by using the material from OER and adding value to the existing content and are generating revenue. OER is providing enormous opportunity to everyone which includes, academic institutes, training companies and entrepreneurs to make it a self- sustainable model and get maximum benefit out of it.

REFERENCES Athanasiadis, I. N. (2007, November). Training intelligent agents in the semantic web era: The golf advisor agent. In IEEE/WIC/ACM International Conferences on Web Intelligence and Intelligent Agent Technology – Workshops (pp. 499-502). IEEE Computer Society. 27

Enhancing the Sustainability of OER Through Context-Aware Systems

Boyer, E. L. (1990). Scholarship reconsidered: Practices of the professoriate. San Francisco, CA: Jossey-Bass. Retrieved from https://www.msde.gov.in/assets/images/ annual%20report/Annual%20Report%202016-017%20-%20English.pdf Butcher, N. (2010) ICT, education, development, and the knowledge society. Available at http://www.gesci.org/assets/files/ICT,%20Education,%20Development,%20 and%20the%20 Knowledge%20Society(1).pdf Delimont, N., Turtle, E. C., Bennett, A., Adhikari, K., & Lindshield, B. L. (2016). University students and faculty have positive perceptions of open/alternative resources and their utilization in a textbook replacement initiative. Research in Learning Technology, 24(29920). doi:10.3402/rlt.v24.29920 Digbijay, M. (2019, March 31). We help teachers create content for students. Times of India. Retrieved from https://timesofindia.indiatimes.com/people/we-help-teacherscreate-content-for-students/articleshow/68652854.cms EC (European Commission). (2000). Memorandum on lifelong learning. Commission staff working paper, Brussels, 30.10.2000. SEC (2000) 1832. Available at http:// tvu.acs.si/dokumenti/LLLmemorandum_Oct2000.pdf Farrow, F. (2017). Open education and critical pedagogy. Learning, Media and Technology, 42(2), 130–146. doi:10.1080/17439884.2016.1113991 Gaeta, M., Orciuoli, F., & Ritrovato, P. (2009). Advanced ontology management system for personalized e-Learning. Journal of Knowledge Based Systems, 22(4), 292–301. doi:10.1016/j.knosys.2009.01.006 Hilton, J. (2016). Open educational resources and college textbook choices: A review of research on efficacy and perceptions. Educational Technology Research and Development, 64(4), 573–590. India demographics profile. (2018). Retrieved from https://www.indexmundi.com/ india/demographics_profile.html ISKME. (2017). OER commons & open education. Retrieved from https://www. oercommons.org/about Kanwar, A., Kodhandaraman, B., & Umar, A. (2010). Toward sustainable open education resources: A perspective from the global south. American Journal of Distance Education, 24(2), 65–80. doi:10.1080/08923641003696588 Kontopoulos, E., Vrakas, D., Kokkoras, F., Bassiliades, N., & Vlahavas, I. (2008). An ontology-based planning system for e-course generation. Expert Systems with Applications, 35(1-2), 398–406. doi:10.1016/j.eswa.2007.07.034 28

Enhancing the Sustainability of OER Through Context-Aware Systems

Members of the IPT 692R Class at BYU. (2009). Open educational resources policy background. Retrieved from http://education.byu.edu/a2k/documents/oer_policy_ backgrounder.pdf Niesbud. (n.d.). Retrieved from http://niesbudelearning.info/ Progia. (n.d.). Retrieved from http://www.contentbyexperts.net/Courses/course/ communication-skills Tuomi, I. (2013). Open educational resources and the transformation of education. European Journal of Education, 48(1), 58–78. doi:10.1111/ejed.12019 UNESCO. (2012, June). 2012 Paris OER declaration. Retrieved from http://iite. unesco.org/files/news/639202/Paris%20OER%20Declaration_01.pdf UNESCO. (2016, April 5). Support for the establishment of a UNESCO normative instrument for open educational resources (OER). Provisional agenda of the 199th session of the UNESCO executive board meeting (2016). Retrieved from http:// unesdoc.unesco.org/images/0024/002442/244241e.pdf Wiley, D. (2014). The access compromise and the 5th R [Blog post]. Retrieved from https://opencontent.org/blog/archives/3221

29

30

Chapter 3

Role of Entrepreneurs in Promoting Sustainability in India Manish Nangia National Institute of Fashion Technology, Delhi, India Sonali Roshan Saldanha National Institute of Fashion Technology, Mumbai, India

ABSTRACT The concept of sustainable development arises from a global perspective of seeing survival, progress, and the continued, improved life of human beings and their society. Sustainable development entails all processes of fundamental change in the social system and institutions. All businesses need to grow and be profitable. Companies in the public and government sectors are developing sustainable methods of manufacturing process and market development strategies. Corporate Social Responsibility, or Corporate Sustainability, has a crucial social component as companies think of profiting and ways and means to protect the environment. Sustainable innovators create new products and services designed to solve the problems created by the impact of economic growth, increasing population, and diminishing natural resources. The new awareness of global warming is set and there are efforts from the entire earth to address this challenge.

DOI: 10.4018/978-1-5225-9940-1.ch003 Copyright © 2020, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

Role of Entrepreneurs in Promoting Sustainability in India

INTRODUCTION TO SUSTAINABLE DEVELOPMENT Sustainable development has arisen from a global perspective. A need for survival, progress and continued improved life of human beings within society in which they dwell. It entails all processes of fundamental change in our social system and institutions. The new global awareness of climate change is set. According to report dated 08th October 2018, Gro Harlem Brundtland, Acting Chair of the Elders, London, said “This report is not a wakeup call, it’s a ticking time bomb”, and there are efforts from the entire earth to address this challenge and support the planet’s life as well as the social and economic systems which are interconnected and interdependent. The 1987 report of the World Commission on Environment and Development (the Brundtland Commission), developed focus on the idea of carrying capacity, planning and intervention in unsustainable practices as well as the enhancement in efficient resources. Companies in the public and government sectors are developing sustainable methods of manufacturing process and market development strategies. To grasp new avenues and opportunities there is a need for careful research, detailed and informed analysis along with controlled decision making. All businesses today need to grow in order to survive and sustain in this competitive era and ever-changing consumer demands have given way to market diversification. The ever-changing market conditions and advanced technology challenge the companies to reinvest, redesign and reposition themselves in this fierce market. All business needs to grow and yet grow profitable. Corporate Social Responsibility or Corporate Sustainability has a crucial social component as companies are thinking of making a profit as well as looking for ways and means in order to protect the environment in which they dwell. Sustainable innovators create new products and services which are designed to solve the problems created by the impact of economic growth, including but not limited to increasing growth of population and diminishing natural resources in the society. A search for dynamic integrated solutions which is in the process of safe-guarding our ecological system, protecting our environment from hazardous effects comprising of improved human health performances, improved quality of life and financial and social security for all the human kind is need of the hour. Innovations in sustainability have seen a wave of change in the 1980’s and 1990’s. Presently, it comprises of a wave of creativity led by growth in population of innovative entrepreneurs and business ventures. The innovations are applied right from the raw materials, use of resources, product designs, company procedures, marketing strategies, logistics, supply chain, and so on and so forth. The emphasis is on renewable energy, technical solutions to reduce pollution and use of safe raw materials to produce finished goods. All these can be viewed through a sustainability

31

Role of Entrepreneurs in Promoting Sustainability in India

lens. All companies therefore urge a need to explore possibilities of various efficient sustainable business practices and be in better positions to handle any situation that may cause concerns for environmental as well as economic downturn.

Objectives of the Study The Main Objective of this Study 1. To analyze the role of Innovation in promoting Sustainable Development in India. Sub-Objectives of the Study Two important sub-objectives are given below: 1. To analyze the role of Creativity and Innovation in promoting Sustainable Business Practices in India. 2. To analyze the strategies adopted by Govt. of India in promoting the concept of Make in India.

Research Methodology Sources of data collection: The secondary data increase the reliability, usefulness, validity, accuracy and importance of descriptive analysis. Data is collected from various published Books, Reports, Journals and Magazines. Some unpublished Information collected from manuscripts, research papers, articles, seminars and workshops. The significant source of secondary data is used from previous researches, research articles, newspapers and business magazines, different departmental magazines, annual reports, summary and websites for which references are incorporated.

THE ROLE OF CREATIVITY AND INNOVATION IN SUSTAINABLE BUSINESS PRACTICES Business is the process where the exchange of goods, services and money is done for mutual profitable gain. It is also an institution set up to provide goods and services to the society and has a legal process that could include manufacturing, purchasing, marketing, selling, etc. in order to earn profits. The economic change can bring out the most powerful output in terms of giving back better and improved benefits and justice to the society through best business practices. The best business practices focusing on Sustainability includes safe disposal of waste materials produced at the 32

Role of Entrepreneurs in Promoting Sustainability in India

time of manufacturing of goods, saving of environment by using recycled materials, usage of renewable resources and reduction of e-waste contributing to not only the businesses but societies at large. As a result, the use of sustainable and innovative technology has rapidly progressed and advanced among few companies and they are adapting it into their day to day operations. These companies have a visionary role of creativity and innovation in their growth and sustainability which is diffused in modern and advanced capitalist societies. Successful and economic entrepreneurs having the capacity and vision of future advancement along with the aptitude to recognize new products and services, new procedures, process and techniques, new ways of logistics and supply chain, necessary infrastructure, labor, resources, assembling and management which bring all this elements together to form a cohesive work environment and function as a successful entrepreneurial enterprise. Business entrepreneurs are persons with powerful intuitions and confidence and can sense a good market opportunity and are ready to go to an extent of taking risk whether it is personal, professional or financial to achieve their set goals and targets. They also possess very good decision-making skills as they scrutinize and comprehend the macro and the micro environments of business. Their role is to take calculated risks and take care and manage any crises, sudden uncertainties and bring together all the productive resources like material, men, money, methods, etc. to get the desired results and accomplish the set goals and targets.

Creativity Creativity is the act of creation of a new and original imaginative idea into reality. It is a process of making something new which can be a new design, process, solution, environment etc. It consists mainly of two processes which is thinking and then creating or producing. Creativity has two important features, people and process. In creativity at times there might be a difference in what you think and what is created. Creativity generate ideas that results in improved efficiency and effective system. Today a lot of organizations are educating their employees through various creative workshops and investing a lot on building capable and creative employees. The employees learning are applied to bring out new and innovative ways of functioning of the organization and seize the opportunity to be ahead in this competitive business environment.

Innovation and the Role of Entrepreneur Innovation can be in the area of production or adoption, assimilation and exploitation of a value-added novelty in economic and social spheres; renewal and enlargement of products, services, and markets; development of new methods of production; and 33

Role of Entrepreneurs in Promoting Sustainability in India

establishment of new management systems. It is both a process and an outcome (Crossan & Apaydin, 2010). Innovation is a very crucial and specific task of any entrepreneur. It is a tool of all entrepreneurs where they can manipulate, exploit and create means of generating business. Entrepreneurs have to tactfully search for new innovations and apply them in their business. It is a challenging job for the entrepreneurs to constantly evolve and generate new methods of functioning. In this way, the entrepreneur invents a new asset in terms of a tangible product or an intangible service to offer to the customers and sustain his business. In order to be successful, entrepreneurs are required to have certain traits like being passionate, persistent, visionary, risk taker and able to exploit opportunities with good inter personnel skills.

Technological Innovations for Sustainability and Business Growth A lot of Entrepreneurs are applying sustainable concepts in their business as sustainability and business growth goes hand in hand. Since the natural resources are depleting in many countries of the World, it is the call of every society to work towards the betterment of the environment and the planet where they live in. Sustainability has a multi-dimensional edge that relates to harmonizing the corporate social responsibility which involves balancing the economic, environmental and social responsibility angles of sustainability. According to researchers the prime focus of the firm should be on environmental or social interests while keeping intact and enhancing the economic interest of the firm. The multi scale focal point of sustainability demands aspects such as the geographical area which includes city, region or country, institutional aspect of firm like joint ventures, partnership and temporal scales like days, months, year or decades. The extensive elucidation of sustainability makes the rewards much more fascinating and challenging. The strong environmental and economic pressures have led to a move towards much more eco – friendly products, less waste and emissions and optimum resource consumption patterns of mobilizing resources. Companies are finding new ways and sources of income by incorporating sustainability, reducing costs and optimizing the use of resources efficiently. This leads to a much more technological driven and management innovative business model. Managing sustainability becomes more complex when competition which was once amongst businesses has become a competition among their supply chains also (Christopher, 2016). Alternatively, the interconnectedness of firms and strongly integrated channels of customers and suppliers form much stronger core competency for businesses enhancing their competitiveness. The global society demands conservation of fossil fuels and the development of renewable energy as

34

Role of Entrepreneurs in Promoting Sustainability in India

renewable energy is the back – bone of sustainability. The SME’s contribute to a large part of production activities whether it is for goods and services around the world leading to the greatest opportunities to incorporate practices to boost sustainability.

The Role of Technology in Sustainability The next big initiatives taken by firms in achieving Sustainability are investing in Innovative Technological Solutions which need to complement the direct approach of controlling the consumption of fossil fuels. Technology plays a vital role in global sustainability. Green technological solutions adapted by many firms vary in form and purpose, yet maintaining the same purpose, to curtail the effect on future generations. Many of these initiatives taken by these companies are in support to ease out and others are to adapt sustainable programmes. A lot of recent new technologies are based on long – existing knowledge and offer best solutions to firms to enhance sustainable developments. Constant innovation has led to reduction of prices of solar panels and wind turbines which are the traditional forms of sustainable technology.

STRATEGIES ADOPTED BY GOVERNMENT OF INDIA IN PROMOTING THE CONCEPT OF MAKE IN INDIA Many countries have started giving a lot of significance and importance to Entrepreneurship. Government offers a lot of schemes and subsidies for people who want to become entrepreneurs. A lot of new information and innovation is put up in practice to take advantage of the advanced technology to reap highest returns. The UNICEF has also laid down high value on the establishment of SME’s and entrepreneurs in turn are taking the maximum advantage out of it. A drastic change and advancement are seen in business growth in developed as well as underdeveloped and emerging market economies. The Government of India is assisting and empowering new entrants to establish their business sets ups and is also providing them with all the required help to easily and smoothly cope up with the challenges. India has launched the Make in India Initiative on September 25, 2014 with the primary goal of making India a global manufacturing hub, by encouraging both multinational as well as domestic companies to manufacture their products within the country. The programme was launched with the aim of putting India as a major business hub for both global design and manufacturing. The Make In India initiative have opened up various avenues and opportunities to facilitate investment, foster innovations, protection of Intellectual property rights, provide state of art facilities and infrastructure along with production facilities. To add to the initiative also a lot of government schemes and subsidies have been worked out 35

Role of Entrepreneurs in Promoting Sustainability in India

Figure 1.­

Source: Orissadiary.com/indigenous-development-make-india-initiative/

and the process has been eased out. It aims to take the GDP to 25% by 2022 from the existing 16%. The advantage of this initiative is a long term prospect that has a very powerful human support system along with a vigorous demand for domestic products setting up a strong and solid base of the entrepreneurs as there is no dearth of creative and talented entrepreneurs in India.

INDIA: THE SMART CITY PROJECT Smart Cities Mission is an urban renewal and retro fitting progamme by the Government of India with the mission to develop 100 cities across the country making them citizen friendly and sustainable. The strategic components of this project are area–based upliftment and development in terms of city extension known as Greenfield development in addition to a Pan–City initiative implementing Smart Solutions to cover larger parts of the city. The Government of India announced the Smart Cities Mission (SCM) which is aimed at up advancement and up gradation of 100 cities. The initiative has a vision of developing 100 smart cities as a satellite town of larger cities and modernizing the other small mid- sized cities. The Union Government proposed to transform it into a Smart City by joining hands with State Government as well as by encouraging investment from private organizations as part of their sustainable business practices. The objective of this programme is to provide core infrastructure, decent quality of life and a clean and green sustainable environment for the citizens. In Smart City Mission, there are various projects like affordable housing, integrated multi – modal transport, preservation and creation of open spaces, traffic and waste management. The projects focus on the entire city or certain areas of that city where it will be implemented.

36

Role of Entrepreneurs in Promoting Sustainability in India

REFERENCES Academy, S. (Ed.). (2012). Sustainability innovation in business. Retrieved from https://saylordotorg.github.io/text_sustainability-innovation-and-entrepreneurship/ s06 sustainability-innovation-in-b.html Adec Group - Web Development Team. (2015, May). The role of technology in sustainability. Retrieved from https://firstcarbonsolutions.com/resources/newsletters/ may-2015-the-role-of-technology-in-sustainability/the-role-of-technology-insustainability Agarwal, R. (2019, Jan. 16). Smart city project initiative still top agenda for New Delhi Municipal Council. Retrieved from https://www.dnaindia.com/delhi/report-smartcity-project-initiative-still-top-agenda-for-new-delhi-municipal-council-2708466 Batham, D. (2016). Smart city mission (India). Retrieved from https://www.slideshare. net/divyanshbatham/smart-city-mission-india Bell, D. V., & Cheung, Y. K. A. (Eds.). (2009). Introduction to sustainable development-Vol. I. EOLSS Publications. Clifford, M. (2017). 30 things you can do to promote creativity. Retrieved from https://www.opencolleges.edu.au/informed/features/30-things-you-can-do-topromote-creativity-in-your-classroom Greenfield, D. (2013). Best practices for manufacturing operations management. Retrieved from https://www.automationworld.com/article/technologies/mes-mom/ best-practices-manufacturing-operations-management Kumar, V., & Kumar, U. (2017). Introduction: Technology, innovation and sustainable development. Transnational Corporations Review, 9(4), 243–247. doi:10.1080/19 186444.2017.1408553 Ministry of Housing and Urban Affairs. (2017). Smart cities mission. Retrieved from http://smartcities.gov.in/content/innerpage/strategy.php Moneymatters. (2017, Jan. 11). Important qualities of an Entrepreneur. Retrieved from https://accountlearning.com/important-qualities-entrepreneur Naiman, L. (2019). What is creativity? (And why is it a crucial factor for business success?). Retrieved from https://www.creativityatwork.com/2014/02/17/what-iscreativity

37

Role of Entrepreneurs in Promoting Sustainability in India

Nnadi, C. (2014). The role of creativity and innovation in business growth and sustainability: An ideal model. International Journal of Economics & Management Sciences, 03(01). doi:10.4172/2162-6359.1000171 Orissadiary. (2017). Indigenous development of Make in India Initiative. Retrieved from http://orissadiary.com/indigenous-development-make-india-initiative Rashid, M. (2014). Basic concept of business. Retrieved from https://www.slideshare. net/MRshakin/basic-concept-of-business-43000955 Seetharaman, G. (2018, June 9). Smart cities mission is still very much a work in progress post three years of its launch. The Economics Times. Retrieved from https://economictimes.indiatimes.com/news/economy/infrastructure/smart-citiesmission-is-still-very-much-a-work-in-progress-post-three-years-of-its-launch/ articleshow/64523035.cms Wikipedia contributors. (2019, May 15). Smart cities mission. Retrieved from https:// en.wikipedia.org/wiki/Smart_Cities_Mission

38

39

Chapter 4

Technological Innovation and Regulation as Determinants of Business Growth: An Institutional FDI Fitness Theoretical Framework

Nisha Goel Amity University, Delhi, India

Gurinder Singh Amity University, Noida, India

Hima Bindu Kota Amity University, Noida, India

Monir Mir University of Canberra, Australia

Bhawna Kumar Amity University, Noida, India

ABSTRACT For growth and survival of the business, technological innovations and regulatory reforms in business are absolutely necessary. Over the years, it has become evident that businesses cannot sustain without innovation and since technology is the major facilitator of innovation, it is imperative to sustain and grow businesses. An easy and encouraging regulatory environment is icing on the cake. Technology in business caused tremendous growth in trade & commerce and business concepts & models were revolutionized as a result of the introduction of technology. This chapter studies the role of technological innovations and regulations in the growth of foreign direct investment in an emerging economy, India. Using data for a 10-year period (20082017), the sophisticated tools, namely augmented Dickey-Fuller test, Johansen Cointegration test, and Linear Regression analysis are applied. The results show that technological innovations and regulations have a positive impact on attracting foreign direct investment into India and in turn, helping the business in India to grow. DOI: 10.4018/978-1-5225-9940-1.ch004 Copyright © 2020, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

Technological Innovation and Regulation as Determinants of Business Growth

INTRODUCTION Innovations in technology has profoundly influenced the worldwide economy and its implications can be seen in changing world market, better standard of living and better trade opportunities. Technology has raised expectations for everyday comforts and is leading in progressively vigorous global change. Advances in technological innovations have essentially improved business activities and helped cutting down the cost of production of many operations. The progress of software business, along with media communications, have expanded employment opportunities and also reinforced financial development of a country. Regulations are the monitoring checks put on businesses by governments and other regulator institutions, which impact various decisions of firms like estimating price, generation of employment, entry and exit decision. As per the OECD, regulation is the most unavoidable type of government intervention in economy, yet OECD believes that an effective regulation policy is a basic requirement for the working of a market economy. It has been noted that intra-industry trade increases with the liberalization of trade, particularly tariff rate reductions (Goldar and Banga, 2007), making an argument that India, being an emerging economy, will see high growth due to technological innovations and regulatory reforms. The expansive increase in the Foreign Direct Investments (FDI) in India is one of the after-effects of technology and the easing of regulatory reforms that played an important role to boost the business. In any economy investment is essential for any business to sustain. In India, foreign investment plays a major role in upliftment of the economy and this paper considers FDI as a factor responsible to boost the growth of businesses in India. Most of the emerging countries show a positive outlook towards FDI. India changed its policy framework considerably in 1991, moving from a restrictive policy to a more liberalised one, in the process leading to huge increase in the FDI inflows, from a mere USD 0.325 billion in 1991, to a whopping USD 42.1 billion in 1998, a humongous increase in a matter of just 7 years. The liberalisation also changed the type of industrial sectors which saw FDI inflows, sources and entry modes of FDI, reaching an all-time high of 8.579 USD billion in 2018. After liberalisation, India’s Gross Domestic Product (GDP), increased manifold from USD of 462.17 billion in 2001 to USD 2597.491 billion in 2017. Studies analysing the effect of foreign inflows on economic efficiency and growth of countries show inconclusive evidence, with both positive (Strout and Chennery, 1996) and Mathiyazhagan, 2005) and unfavourable impact (Singer, 1950; Griffen, 1970; and Weisskof, 1972).

40

Technological Innovation and Regulation as Determinants of Business Growth

The fundamental framework behind the promotion of FDI lies in the way that these nations are inadequate in savings and investments which brings down overall economic growth. So to overcome any issues between investment need of a nation and its savings, FDI is considered as an imperative aid (Moran, 1999). In India, at the time of independence in 1947, focus was more on self-efficiency rather than foreign investment. Though later on, limited accessibility of finance changed the perspective towards FDI (Kumar, 1996). From then the discussion over the need of FDI began and later in 1980s, Government of India went for deregulation of industries, which initiated the liberalisation process, and was a precursor to the economic liberalisation in 1991. Hence this study examines the role of technological innovations and regulations in improving FDI, which is one of the variables which contributes in the growth of a nation.

REVIEW OF LITERATURE FDI and Growth Several studies have been conducted to analyse the impact of FDI on economic growth and have found mixed results. FDI has been found to positively impact income growth and productivity (Hansen and Rand, 2005; Li and Liu, 2005; OECD 2002; (Tseng & Zebregs, 2002) and enhance growth in a dual way; firstly by adoption of new technology and in the process leading to capital spillovers and secondly, in terms of knowledge transfers (De Mello, 1997). It was also found that FDI contributes to positive growth in different conditions like high per-capita income of a country (Blomstrom, Lipsey and Zejan (1994); trade openness (Balasubramanyam, Salisu and Sapsford, 1996); education level of the labour force (Borenztein, De Gregio and Lee, 1998); and developed financial markets (Alfaro et al., 2004; Hermes and Lensink, 2003; and Durham, 2004) In addition, a country that offers low cost labour, good resources and big markets, and a promising improvement in future, bring easy investors and yield development (Nistor, 2015; Pillai and Rao, 2013). On the other hand, several studies found that FDI either had a weak impact (Holtz-Eakin, Newy and Rosen 1988) or no impact on long-term growth (Carkovic and Levine, 2002; Zhang, 2001) A reverse relation between FDI and growth shows that higher growth showing countries attract higher FDI (Kinoshita & Campos, 2003) with growth being an important factor associated with FDI (Uduak, Isihak, & Asongu, 2012) and the quick developing economies of the world having bigger market possibilities are tend to pull in bigger inflow of FDI (Labes, 2015) .

41

Technological Innovation and Regulation as Determinants of Business Growth

FDI and Regulation Countries can benefit from FDI if they are able to generate a good regulatory environment (Adams, Evans and Opoku, 2015 and Lokesha & Leelavathy, 2012). Several regulatory factors of a country that determine the FDI decision have been studied like corporate taxation (Wheeler & Mody, 1992 and Tung & Cho, 2001); economic freedom (Bengoa and Sanchez-Robles, 2003); trade openness (Labes, 2015). Countries with high levels of political stability, together with a deregulated environment, tend to attract high levels of inward FDI. (Bengoa and Sanchez-Robles, 2003).

FDI and Technology FDI inflow in a country is based on many variables, no single determinant alone can bring FDI in a country. FDI has great contribution in host countries’ technological advancements (Mun, 2008). As investor always looks for a mutual benefit relationship, FDI brings things which are lacking in the country where they want to invest, like technological transfer (Azhar S, 2012), capital, skills, technology, innovation property rights (Hymer, 1960), increasing of production with skilled labour, and reducing the cost of production with the help of technological innovations (Bevan and Estrin, 2004). Many times, FDI is regarded as amalgamation of technology, skills, resources, capital, marketing and management that could develop better relations for business across border (Lokesha & Leelavathy, 2012 and Balasubramanyam et al., 1996).

THEORETICAL FRAMEWORK: INSTITUTIONAL FDI FITNESS THEORY The theory of Institutional FDI Fitness, developed by (Wilhems and Witter 1998), based on four aspects: government, market, educational and socio-cultural fitness, focuses on a country’s ability to attract, absorb and retain FDI. The present study is based on the concept of government which plays one of the biggest roles in attracting FDI. Government fitness, like trade openness, low degree of intervention in trade and exchange rate, transparency in dealings and low corruption, manages the market fitness through the adoption of protective regulation (Popovici and Calin, 2014). Countries with hostile policies are unfavourable FDI destinations (Wilhelms & Witter, 1998).

42

Technological Innovation and Regulation as Determinants of Business Growth

Figure 1. Model of the study: independent variables

The theory of institutional FDI fitness has been empirically tested mainly in the African context and found that governments’ economic policies an ability to maintain political stability and eliminate corruption enhances a country’s attractiveness to foreign investors (Musonera, Nyamulinda and Karuranga, 2010 and Muthoga, 2003).

Research Gap Worldwide, studies analysing the determinants of FDI have focussed on factors like trade balance, exchange reserve, industrial production, labour cost among others. In Indian context Goel (2018) in the similar study tried to measure the impact of capital investments in India through different parameters. The variables of this study are studied on individual basis and apparently, in the Indian context, they have not been studied together. The present study intends to fill this gap, as it explores the linkages between government regulations (including technological innovations), FDI and economic growth in a comprehensive manner.

The Objective of the Study The study is revolving around three different and essential variables of FDI, namely Technology, Regulations and Growth, the objectives of the study are: • • •

To analyse the role of technological innovations and regulations in increasing FDI. To analyse the role of technological innovations and regulations on growth of a country. To analyse the role of FDI in growth of the business in the country.

43

Technological Innovation and Regulation as Determinants of Business Growth

Research Methodology Research Method An empirical research design is being followed to understand the role of regulations, technology and FDI on the growth of India.

Sample The sample for this study is seven proxies used for four variables that is Business, Technology, Regulation and Growth as shown in table no 1 below. The period taken for the study is from January 2008- December 2017. Eviews 9 was used for the purpose of mathematical and statistical analysis.

Sources of Data Collection This study used secondary data. Various sources from Bloomberg Database, worldbank.co, trading economic.com, and indiastats.com are used to collect the data.

Variables of the Study In the study there are four variables (Business, Technology, Regulations and Growth) and seven proxies (FDI, Global Innovative Index, Competitive Rank, Regulation Index, GDP total, GDP per capita and GDP per capita Growth) which are used to describe the variable best for the analysis. Table 1. ­ S. No

Variables

1

Business

2

Technology

3

Regulations

Proxy FDI Global Innovative Index Competitiveness Rank Regulation Index GDP (Total)

4

Growth

GNI (Per Capita) GDP (Per Capita Growth)

44

Technological Innovation and Regulation as Determinants of Business Growth

Statistical Tools Used Descriptive statistics (Mean, Median, Mode, standard deviation, skewness, kurtosis) has been assessed to outline the general pattern and trend of the dataset. Keeping in mind that the data is time series in nature it is important to test for Unit root test in order to determine whether the data is stationary or not with the help of Augmented Dickey Fuller Test (ADF) on each parameter of variable. Johansen Co-integration test is also applied to check the existence of the long and short run inter-relationships and integration among variables. We also tried to apply the regression in order to have more predictability about the case and the relationship different variables are having with each other in the study. For regression we have used the log values of the data in order to analyse the data more accurately and thereby drawing some useful conclusion.

Hypotheses of the Study Ho: Technological Innovations and Regulations does not increase FDI. H1: Technological Innovations and Regulations increase FDI. Ho: Technological Innovations and Regulations does not have positive impact on growth of a country. H1: Technological Innovations and Regulations does have positive impact on growth of a country Ho: FDI does not impact growth of the business in the country. H1: FDI impact growth of the business in the country.

Research Models Used The different equations have been formed on the basis of the dependence and independence relationship. Following are the equations which have been estimated through regression analysis. Model No-1: FDI = α + β1RI + β2GII + β3CR + εt

(1)

Model No-2: FDI = α + β1RI+ εt

(2)

Model No-3: FDI = α + β1GII+ εt

(3)

Model No-4: FDI = α + β1CR+ εt

(4)

Model No-5: GDP = α + β1RI+ β2GII + β3CR + εt

(5) 45

Technological Innovation and Regulation as Determinants of Business Growth

Model No-6: GDP= α + β1RI + εt

(6)

Model No-7: GDP= α + β1GII + εt

(7)

Model No-8: GDP= α + β1CR + εt

(8)

Model No-9: FDI = α + β1GDP + εt

(9)

Data Analysis and Interpretation First of all, the descriptive statistics has been calculated for the data set under study in order to analyse the basic property of the data set and to have further insight about the data. As indicated in Table-2 that mean of FDI is greater than other variables under consideration. Moreover, GDPPC and GNIPC is equivalent to each other and ranked second and third highest mean among other variables after FDI. All data series, except FDI, are negatively skewed. Variables GNIPC, FDI, GDPPC and GDP are having kurtosis value less than 3, whereas variables GII, CR and RI are having kurtosis value more than 3. Jarque-Bera statistic indicates that data set for variables GNIPC, GII, GDPPC, GDP and RI are not normally distributed as p-value is below 0.05. This is a common phenomenon in time series data. After analysing the descriptive statistics, we applied the Augmented Dickey-Fuller test for the purpose of checking unit root in the data. The results of unit root test are depicted by Table-3. The results of the table suggest that, at level, except FDI, all other variables under study are having unit root. So, the null hypothesis, data has Table 2. Descriptive statistics of variables GNIPC

GII

FDI

CR

GDPPC

GDP

RI

Mean

7.253487

4.035927

7.839806

3.973768

7.270786

1.730745

4.860921

Median

7.313131

4.143009

7.788383

3.969579

7.284084

1.838545

4.882802

Maximum

7.495542

4.394449

8.987197

4.262680

7.571524

2.27985

4.934474

Minimum

6.907755

3.135494

6.948897

3.663562

6.899204

1.197485

4.605170

Std. Dev.

0.179964

0.348495

0.457735

0.152822

0.191089

3.601598

0.087439

Skewness

-0.622474

-1.631154

0.065538

-0.131305

-0.548367

-0.289710

-2.450354

Kurtosis

2.214696

4.782238

2.264122

3.120187

2.618569

1.839644

7.501877

Jarque-Bera

10.83299

69.09513

2.793487

0.417043

6.741571

8.410768

221.4192

Probability

0.004443

0.000000

0.247401

0.811784

0.034363

0.014915

0.000000

Observations

120

120

120

120

120

120

120

46

Technological Innovation and Regulation as Determinants of Business Growth

a unit root, is not rejected and p-value is more than 0.05 making these time series non-stationary. THE ADF test was again conducted on the same time series and it was found that after taking first difference, t-statistic came out to be more than test critical and p-value is also less than 0.05. Hence rejected the null hypothesis that data has a unit root and hence series is found to be stationary. It is to be noted that these results at first difference are significant at even 1% significance level. After the ADF test, Johansen’s co-integration test has been applied for the purpose of examining any co-integrating relationship among them. Table 4 shows the results of Johansen co-integration which depicts about the long-run inter-dependence between different data series. The test results show that Trace statistic and Max-Eigen statistic values are coming out to be more than test critical value and hence it indicates four co-integrating equations according to both Trace statistics and Max-Eigen value. The results for these equations are also significant at 5% level. Hence, it is observed with Johansen’s test that there are four co-integrating equations for the data series which are integrated with each other.

Table 3. Results of augmented Dickey-Fuller test Variables

t-Statistic

P-Value

Regulation Index

-0.184592

0.9362

Global Innovative Index

-1.547121

0.5060

Competitiveness Rank

-0.977257

0.4597

FDI

-6.395119

0.0001

GDP (Total)

-0.624417

0.8599

GNI (Per Capita)

-0.885195

0.7896

GDP (Per capita Growth)

-1.200184

0.6729

At Level

At First Difference Regulation Index

-10.86583*

0.0000

Global Innovative Index

-3.339223*

0.0155

Competitiveness Rank

-10.78770*

0.0000

FDI

-11.96499*

0.0000

GDP (Total)

-11.27023

0.0000

GNI (Per Capita)

-2.477552

0.0000

GDP (Per capita Growth)

-2.921641*

0.0003

Note: * significant at both 5% and 1% level

47

Technological Innovation and Regulation as Determinants of Business Growth

After the application of ADF test and Johansen co-integration test, the regression analysis was done in order to further analysis the dependence and independence relationship among different variables under study. Table 5 shows the regression result of the equation 1 which has been estimated with the help of Eviews9. It is very clear from the results as depicted in Table 5 that FDI being dependent variable is being influenced by independent variables RI, GII and CR. The adjusted R-squared is however at 0.4008, depicting that explanatory variables are having the power to explain changes in the dependent variables by 40%. This is because there are other factors which influences FDI in an economy. But still from the results of regression, it is very much clear that FDI is still being Table 4a. Results of Johansen’s co-integration test Hypothesized No of CE(s)

Eigen Value

Trace Statistics

Prob.**

None*

0.211822

457.1789

0.0001

At most 1*

0.165875

197.6852

0

At most 2*

0.417745

148.1741

0.0001

At most 3

0.165889

185.6956

0

At most 4

0.211748

196.1785

0.0674

At most 5

0.165785

147.6159

0.0748

At most 6

0.211145

214.1795

0.0659

Trace Statistics

Prob.**

Trace test indicates 3 cointegrating eqn(s) at the 0.05 level * denotes rejection of the hypothesis at the 0.05 level **MacKinnon-Haug-Michelis (1999) p-values Unrestricted Cointegration Rank Test (Maximum Eigenvalue)

Table 4b. Results of Johansen’s co-integration test Hypothesized No of CE(s)

Eigen Value

None*

0.214522

445.1485

0.0001

At most 1*

0.145875

145.6745

0

At most 2*

0.274822

275.1256

0.0001

At most 3

0.147875

145.6956

0

At most 4

0.265822

165.1159

0.0698

At most 5

0.175875

174.6956

0.0748

At most 6

0.145825

165.1175

0.0878

Trace test indicates 3 co-integrating eqn(s) at the 0.05 level * denotes rejection of the hypothesis at the 0.05 level **MacKinnon-Haug-Michelis (1999) p-values Unrestricted Cointegrating Coefficients (normalized by b’*S11*b=I):

48

Technological Innovation and Regulation as Determinants of Business Growth

Table 5. Showing regression results for model 1 (Dependent Variable: FDI) Regression

Model-1

Model-2

Model-3

Model-4

RI

-3.45495(0.00000)*

-1.675701(0.0004)*

-

-

GII

-0.18746(0.00008)*

-

0.209848(0.00081)*

-

CI

1.608933(0.0002)*

-

-

0.181595(0.00510)*

0.42103

0.102466

0.225525

0.1367632

0.400884

0.094860

0.182677

-0.114768

10.97151(0.0000002)*

13.47135(0.000365)*

3.090902(0.000813)*

0.435346(0.000516)*

Variable

R Square Adjusted R

2

F(Significance)

Table 6. Showing regression results for model 1 (Dependent Variable: GDP) Regression

Model-1

Model-2

Model-3

Model-4

Variable RI

-3.2793(0.00000)*

-2.3631211(0.00000)*

-

-

GII

5.01832(0.00000)*

-

7.56615(0.00000)*

-

CI

9.60471(0.00000)*

-

-

-3.6231810(0.00093)*

0.87268

0.328681

0.535416

0.23615

R Square Adjusted R

2

F(Significance)

0.86939

0.322991

0.531479

0.21534

265.035(0.000000)*

57.77327(0.00039)*

135.9906(0.00000)*

2.853914(0.000937)*

influenced by a competitiveness rank, regulation index and global innovative index. Further p-value of all the explanatory variables is coming out to be less than 0.05. Therefore, we are having a reason to believe that these variables are having a significant influence on FDI of the economy. Although, RI and GII are having negative impact on FDI and CR is having positive impact on it. The next part of the table is showing the individual results of the three variables simultaneously. In the individual analysis of RI and FDI, where FDI is the independent variable. Table 6 shows the regression result of the equation 2. It is very clear from the results as depicted in Table 6 that GDP being dependent variable is being influenced by independent variables RI, GII and CR. The adjusted R-squared is however at 0.8693, depicting that explanatory variables are having the power to explain changes in the dependent variables by 86.93%. It is very much clear that GDP is being influenced by a competitiveness rank, regulation index and global innovative index to a greater extent. Further p-value of all the explanatory variables is coming out to 49

Technological Innovation and Regulation as Determinants of Business Growth

Table 7. Regression result for equation 3 Dependent Variable: GDP Variable

Coefficient

Std. Error

t-Statistic

Prob.

C

-9.288517

5.131119

-1.807975

0.0732

FDI

3.400714

6.548609

5.19604

0

0.1862

Mean dependent var

Adjusted R-squared

R-squared

0.179304

S.D. dependent var

3.600801

S.E. of regression

3.267101

Akaike info criterion

51.2716

Sum squared resid

1.266723

Schwarz criterion

51.31806

Hannan- Quinn criter.

51.29047

Log likelihood

-3074.296

F-statistic

26.99884

Prob(F-statistic)

0.000001

1.738611

be less than 0.05. Therefore, we are having a reason to believe that these variables are having a significant influence on GDP of the economy. Although, RI is having negative impact on GDP as it is believed that the more you put regulations in an economy, the less open an economy will become. Further, GII and CR are having positive impact on it. Table 7 shows the regression result of the equation 3. Basically, this equation has been estimated in order to see that whether FDI is impacting GDP of the economy or not. It can be seen from the results of the regression equation 3 that although, adjusted R-squared is only 0.1793, depicting not a higher degree of explanatory power but one should note that FDI is not an only factor which impacts GDP of an economy. Moreover, the p-value of explanatory factor is coming out to be less than 0.05, making it statistically significant. Therefore, we are having a reason to believe that this variable is having a significant influence on GDP of the economy and that too a positive one.

SUMMARY AND CONCLUSION The expansive increase in the Foreign Direct Investments (FDI) flows in India is a very direct intimation showing the result of Globalisation Policy 1991 for the last 25 years. Total FDI in India Increased from USD 325 million in 1991, to USD 42.1 billion in 1998, the tremendous difference in the flow was witnessed in just 7 years. Now, in 2018 FDI in India has increased by 855 USD Million from 1995 until 2018, reaching an all-time high of 8579 USD Million in 2017.

50

Technological Innovation and Regulation as Determinants of Business Growth

It is very clear from the analysis that variables viz; competitiveness rank, global innovative index and regulation index, which were examined during the course of the study and we found that all three variables had a significant impact on the flow of FDI as well as GDP of the economy. It is also found that FDI has an impact on GDP too. With the analysis of all this, we can conclude that in the wake of competitive world and regulated framework of the economy, these factors are playing a very significant role in the flow of capital in the economy as well as GDP of the economy too.

Limitations of the Study • • •

The Study depends on secondary form of data, and constraints of secondary data are connected to the study. The time of study taken could be expanded so as to cover increasingly wide and imperative information. The factors could likewise be upgraded as in the present investigation it only covered few variables, the horizon could be broadened with however there are other variable that characterizes and affect the innovation and controls.

Implications of the Study • •

The research could be utilized to improve the growth of the business in a country by improving the variables and letting the flow of capital from the world to enter The study could also be used by the administration experts to take strategical decisions to enhance the flow of foreign capital by concentrating more on the improvement of technology and making more favourable policies.

REFERENCES Adams, S., & Opoku, E. E. O. (2015). Foreign direct investment, regulations and growth in sub-Saharan Africa. Economic Analysis and Policy, Elsevier, 47(C), 48–56. doi:10.1016/j.eap.2015.07.001 Alfaro, L., Chanda, A., Kalemli-Ozcan, S., & Sayek, S. (2004). FDI and economic growth: The role of local financial markets. Journal of International Economics, 64(1), 89–112. doi:10.1016/S0022-1996(03)00081-3

51

Technological Innovation and Regulation as Determinants of Business Growth

Ang, J. B. (2008, January). What are the mechanisms linking financial development and economic growth in Malaysia? Economic Modelling, 25, 1, 38-53. doi:10.1016/j. econmod.2007.04.006 Azhar, S. & Marimuthu, K. N. (2012). An overview of foreign direct investments in India. International Journal of Multidisciplinary Management Studies, 2(1).202-214. Balasubramanyam, V. N., Salisu, M., & Sapsford, D. (1996). Foreign direct investment and growth in EP and IS countries. Economic Journal (London), 106(434), 92–105. doi:10.2307/2234933 Bengoa, M. & Sanchez-Robles, B. (2002). Foreign direct investment, economic freedom and growth: New evidence from Latin America. European Journal of Political Economy, 19 (2003) 529–545. Bevan, A. A. & Estrin, S. (2004). The determinants of foreign direct investment into European transition economies. Blomstorm, M. (1998). Multinational corporations and spillovers. Journal of Economic Surveys, 12(3), 247–277. doi:10.1111/1467-6419.00056 Blomström, M., Lipsey, R. E., & Zejan, M. (1994). What explains developing country growth. NBER Working Paper No. 4132. Cambridge, MA: National Bureau of Economic Research. Borensztein, E., De Gregorio, J., & Lee, J.-W. (1998). How does foreign direct investment affect economic growth? Journal of International Economics, 45(1), 115–135. doi:10.1016/S0022-1996(97)00033-0 Carkovic, M. & Levine, R. (2002). Does foreign direct investment accelerate economic growth. Working Paper. City: University of Minnesota Department of Finance. Retrieved from ssrn.com/abstract=314924 Chenery, H. B., & Strout, A. M. (1966). Foreign assistance and economic development. The American Economic Review, 56, 679–733. De Mello, L. R. (1997). Foreign direct investment in developing countries and growth: A selective survey. Journal of Development Studies, 34(1), 1-34. (Dissertation), Massachusetts Institute of Technology. Durham, J. B. J. B. (2004). Absorptive capacity and the effects of foreign direct investment and equity foreign portfolio investment on economic growth. European Economic Review, Elsevier, 48(2), April, 285–306. doi:10.1016/S00142921(02)00264-7

52

Technological Innovation and Regulation as Determinants of Business Growth

Goel, N., & Singh, G. (2018). The impact of regulations and technology on the business environment in India. Australian Accounting Business and Finance Journal, 12(2), 87–103. Goldar, B. N. & Gupta, D. B. (2008). Subcontracting in Indian Industry: A study of small-large industry linkage. In K. Odaka & Y. Kiyokawa (Eds.), Small and medium scale industry in India and the model of Japan. New Delhi, India: Allied Publishers. Griffen, K. (1970). Foreign capital, domestic savings and economic development. Magdalen College Oxford, 32(2), 99–112. Hansen, H. & Rand, J. (2005). On the causal links between FDI and growth in developing countries. Research Paper No. 2005/31 World Institute for Development Economic Research. Hermes, N., & Lensink, R. (2003). Foreign direct investment, financial development and economic growth. The Journal of Development Studies, 40(1), 142–163. doi:1 0.1080/00220380412331293707 Holtz-Eakin, D., Newey, W., & Rosen, H. S. (1988). Estimating vector autoregressions with panel data. Econometrica, 56(6), 1371–1395. doi:10.2307/1913103 Hymer, S. H. (1960). The international operation of national firms: A study of direct foreign investment. (Doctoral dissertation), Massachusetts Institute of Technology. Investment in Fast-Growing Economies. (n.d.). A study of BRICS and MINT. African Governance and Development Institute; A G D I Working Paper, 1–47. Kinoshita, Y., & Campos, N. F. (2003). Why does FDI go where it goes? New Evidence from the Transition Economies. doi:10.2139srn.414540 Kumar, N. (1996, February). Foreign direct investments and technology transfers in development: A perspective on recent literature. Retrieved from http://www. intech.unu.edu Labes, S.-A. (2015). FDI determinants in BRICS. CES Working Papers, VII(2), 296–308. Retrieved from http://ceswp.uaic.ro/articles/CESWP2015_VII2_LAB.pdf Li, X., & Liu, X. (2005). Foreign direct investment and economic growth: An increasingly endogenous relationship. World Development, 33(3), 393–407. doi:10.1016/j.worlddev.2004.11.001 Lokesha, A. B. K., & Leelavathy, D. S. (2012). Determinants of foreign direct investment: A macro perspective. Indian Journal of Industrial Relations, 47(3), 459–469. doi:10.1093/gbe/evt161 53

Technological Innovation and Regulation as Determinants of Business Growth

Mathiyazhagan, M. K. (2005). Impact of foreign direct investment on Indian economy: a sectoral level analysis. Institute of South Asian Studies, 6(149), 1–20. Moran, T. H. (1999). Foreign direct investment and development. Institute for International Economics, (September), 20–21. Retrieved from http://www.oecd. org/investment/mne/2089864.pdf Mun, H., Lin, T., & Man, Y. (2008). FDI and economic growth relationship: An empirical study on Malaysia. International Business Research, 1(2), 11–18. Muthoga, S. K. (2003). Determinants of FDI in Kenya. (Unpublished Master’s project). Kenyatta University. Nistor, P. (2015). FDI implications on BRICS economy growth. Procedia Economics and Finance, 32(15), 981–985. doi:10.1016/S2212-5671(15)01557-9 Nyamulinda B. I., Musonera, E., & Karuranga, E. (n.d.). FDI fitness in sub-Saharan Africa-The case of Eastern African Community (EAC). Popovici, O. C. & Calin, A. C. (2014). FDI theories. A location-based approach. The Romanian Economic Journal, 53, (2017) 3-24. Tseng, W. & Zebregs, H. (2002). Foreign direct investment in China: Some lessons for other countries. IMF Policy Discussion Paper, 2(3), 1–25. Tung, S. & Cho, S. (2001). Determinants of regional investment decisions in China: An econometric model of tax incentive policy. Uduak, A. S., Isihak, R. S., & Asongu, S. A. (2012). Determinants of Foreign Direct. Weisskopf, T. (1972). The impact of foreign capital inflow on domestic savings in underdeveloped countries. Journal of International Economics, 2(1), 25–38. doi:10.1016/0022-1996(72)90043-8 Wheeler, D., & Mody, A. (1992). International investment location decisions: The case of U.S. firms. Journal of International Economics, Elsevier, August, 33(1-2), 57–76. doi:10.1016/0022-1996(92)90050-T Wilhelms, S. K., & Witter, M. S. D. (1998). Foreign direct investment and its determinants in emerging economies. United States Agency for International Development, Bureau for Africa, Office of Sustainable Development.

54

Technological Innovation and Regulation as Determinants of Business Growth

APPENDIX Table 8. ­ S. No

Variable

Abbreviations

Definition

1

Foreign Direct Investment

FDI

Foreign Direct Investment (FDI) measures the total level of direct investment at a given point in time, usually the end of a quarter or of a year.

2

Global Innovative Index

GII

The Global Innovation Index is an annual ranking of countries by their capacity for, and success in, innovation.

3

Competitiveness Rank

CR

It is defined by the World Economic Forum. It is a set of Institutions, policies, and factors that determine the level of productivity of a country, conditions of public institutions and technical conditions. (BIRG,2013)

4

Regulation Index

RI

The Regulation Index ranks economies from 1 to 190, with first place being the best. A high ranking (a low numerical value) means that the regulatory environment is conducive to business operation. The Index averages the country’s percentile rankings on 10 topics covered in the World Banks Doing Business. The ranking on each topic is the simple average of the percentile rankings on its component indicators. (Bank,2017)

5

Gross Domestic Product (Total)

GDP

Gross domestic product (GDP) is a monetary measure of the market value of all the final goods and services produced in a period of time, often annually.

6

Gross National Income (Per Capita)

GNI

Gross National Income is the total domestic and foreign output claimed by residents of a country, consisting of gross domestic product, plus factor incomes earned by foreign residents, minus income earned in the domestic economy by non-residents

GDP

GDP per capita growth is a measure of a country’s economic output that accounts for its number of people. It divides the country’s gross domestic product by its total population. That makes it the best measurement of a country’s standard of living. It tells you how prosperous a country feels to each of its citizens

7

Gross Domestic Product (Per Capita Growth)

55

56

Chapter 5

Role of Technology and Entrepreneurship in Economic Development: A South Asian Perspective Amit Singh Delhi School of Economics, India Sheetal Maurya Delhi School of Economics, University of Delhi, India

ABSTRACT This chapter examines the role technological readiness and level of entrepreneurial activities has on economic development of select South Asian countries viz; India, Pakistan, Bhutan, and Nepal. As per comparative analysis, India outranks its neighbour countries in term of technological readiness and innovation. The role of entrepreneurial activities in economic development and its statistical significance is studied using Least Square Panel Data Regression using GDP at Current Prices as dependent variable and total number of newly registered LLC, total natural resource rents, government final consumption expenditure, and gross secondary enrollment rate as independent variables. The data on these variables was collected for the period of 2006-2017. The present study reports statistically significant (at 1%) positive impact of government final expenditure and entrepreneurial activities on economic development in select developing countries.

DOI: 10.4018/978-1-5225-9940-1.ch005 Copyright © 2020, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

Role of Technology and Entrepreneurship in Economic Development

INTRODUCTION It is not surprising that technological developments and entrepreneurship has received considerable degree of attention of research community during the last few decades. The level of entrepreneurial activities and technological advancement in an economy are undoubtedly of vital importance. Entrepreneurship is commonly defined as, a systematic process of recognition, creation and exploitation of market opportunities through technical and/or organizational innovation (Schumpeter,1965). Innovation and creativity, therefore, are two vital pillars of any entrepreneurial venture. However, with ever increasing reliance on technology, the technological mindset of aspiring entrepreneurs has emerged as third pillar of a successful venture. There is a wide consensus in the available literature that entrepreneurial growth facilitates the economic development via multiples channels (Singh and Maurya 2018, Stam and Van Stel, 2011; Van Stel et al., 2005; Audretsch, 2007; Baumol & Strom, 2007; Hessels & Van Stel, 2011; Minniti & Lévesque, 2010; Anokhin, Grichnik, and Hisrich, 2008). Entrepreneurship drives the economics growth through knowledge spillovers, job creation, providing innovative and diverse products and services and increased market competition. However, as documented in the extant literature, the impact of entrepreneurial growth is contingent upon the stage of economic development (Bosma et al., 2009; Ferreira, Fayolle, Fernandes, & Raposo, 2017) and it may not be consistent in developing and developed countries (Valliere & Peterson, 2009). Ferreira et al. (2017) reported that the relevance of entrepreneurship depends on stage of economic development of concerned country. There is a lack of conclusive empirical evidences on how the impact of entrepreneurial activities on economic development varies across the countries of different stage of economic development. While some studies report a positive and higher effect of entrepreneurial activities amongst the developed countries as compared to developing countries (Sternberg & Wennekers, 2005; Van Stel et al., 2005), others report a no direct effect of entrepreneurial activities in developed countries and a direct and positive effect in low income countries (Stam, Hartog, Van Stel, & Thurik, 2011). On this background, the present study attempts to examine the effect of level of entrepreneurial activities on economic development in developing countries and its statistical significance thereof. For this purpose, four South Asian developing nations has been selected viz. India, Pakistan, Nepal and Bhutan. Further, the select countries has been compared on the basis of the technological readiness, technological adoption and innovation and sophistication factors.

57

Role of Technology and Entrepreneurship in Economic Development

Comparison of Select South Asian Countries on their Technological Readiness Table 1 shows that during 2017-18, Bhutan is ranked at top (105) in terms of technological readiness, followed by India (107), Pakistan (111) and Nepal (111). Both the value and rank of Bhutan, Nepal and Pakistan on technological readiness has improved over past five years. However, the global ranking of India on technological readiness appears to have deteriorated even though the score has improved. It can be observed that the global standing of select South Asian countries on their technological readiness is relatively weak. In term of Technology adoption which measures the availability of latest technologies, firm level technology absorption and FDI and technology transfer; India is at the top amongst the select countries immediately followed by the Pakistan, Bhutan and Nepal. However, the global standing of India on technology adoption has appeared to have deteriorated over past five years. On the other hand, its neighbour country Bhutan has shown a significant improvement in its global ranking on this indicator. The remaining two countries have roughly maintained their global position on this indicator. Further, in terms of sub-index innovation and sophistication factors which indicates the internet penetration and user engagement, India outranked Pakistan (72) Bhutan (78) and Nepal (122). Over past five years, the global ranking of select countries have improved. Despite being a small economy, Bhutan has performed quite well on almost all the indictors. Apparently, India outranks Pakistan, Bhutan and Nepal in terms of their overall technological readiness, innovation and sophistication. Both India and Bhutan are nearly equally competitive in terms of their technological readiness followed by Pakistan and Nepal. However, India substantially outranks Bhutan on technology adoption. This could be due to greater ICT use in Bhutan. India and Pakistan are the close competitors in terms of technology adoption. The select South Asian countries can roughly be ranked as 1) India 2) Pakistan 3) Bhutan and 4) Nepal on their overall technological readiness. The above Table presents a comparative descriptive analysis of select South Asian countries viz. Bhutan, India, Nepal and Pakistan on their relative technological readiness. The overall technology readiness of a country indicates its technological adoption (measured by availability of latest technologies, firm level technology absorption and FDI and technology transfer) and ICT use (measured by percentage of internet users, fixed broadband internet subscription/100 pop., internet bandwidth and mobile broadband subscription /100 pop.). The sub-index innovation and sophistication factors measures the capacity for innovation, quality of scientific

58

Role of Technology and Entrepreneurship in Economic Development

Table 1. Comparison of select countries on their technological readiness1 Year

2017-2018 Value

Rank

2016-2017 Value

Rank

2015-2016 Value

Rank

2014-2015 Value

Rank

2013-2014 Value

Rank

Technological Readiness Bhutan

3.211738

105

3.1891038

102

2.8902796

111

2.6871303

124

2.572171

132

India

3.1158861

107

2.9932774

110

2.7327426

120

2.7482499

121

3.2231678

98

Nepal

2.7674525

119

2.5586882

126

2.6165004

128

2.6066088

128

2.5529347

133

Pakistan

2.981736

111

2.7346555

119

2.8778521

113

2.8307575

114

2.9043406

118

Bhutan

4.0171657

104

3.9065236

116

3.7731116

129

3.620538

140

Technological Adoption 3.8598638

121

India

4.5055903

72

4.4845829

71

4.0927766

102

4.1846644

106

5.0884514

47

Nepal

3.5647544

122

3.4511922

128

3.7315969

125

3.8738013

124

3.8985191

123

Pakistan

4.457173

74

4.0895639

102

4.4446615

81

4.4076993

87

4.4607401

94

Innovation and Sophistication Factors Bhutan

3.5339689

78

3.3834189

94

3.2892558

105

3.2156381

111

3.1649719

117

India

4.2901246

30

4.218095

30

3.8983761

46

3.855056

52

4.0043745

41

Nepal

3.0749617

122

2.9422954

127

2.9850665

127

2.980409

124

2.9075192

132

Pakistan

3.593312

72

3.466245

85

3.4356513

89

3.4829252

83

3.4810297

78

Source: The Global Competitiveness Index Historical Dataset © 2007-2017 World Economic Forum.

research institution, company spending on R&D, university -industry collaboration in R&D, government’s procurement of advance technology product and business sophistication.

LITERATURE REVIEW: ENTREPRENEURSHIP AND ECONOMIC DEVELOPMENT The extant literature suggests that majority researches, previously conducted in field of entrepreneurship, have documented a favourable impact of growth in entrepreneurial activities on economic development. The investigation of (Singh & Maurya, 2018); (Acs & Armington, 2003) and (Van Stel & Thurik, 2005) on impact of entrepreneurial activities on economic development reported the significant and positive impact at regional level. Contrary to this, using self-employment as a measure of entrepreneurship on a sample of 22 OECD countries, (Salgado Banda, 2005) found negative association between self-employment and economic growth. While others report that self-employment not only reduce unemployment but also create new job opportunities (Klepper & Quesada Delgado, 2007; Smallbone & 59

Role of Technology and Entrepreneurship in Economic Development

Welter, 2001; Audretsch & Thurik, 2001). It is observed that small firms significantly contribute toward the creation of jobs and hence in the process toward overall economic development. Hence, economic policy changes should aim to boost entrepreneurship (Carland & Carland, 2004). Previous studies have further reported a positive impact of technological innovations and entrepreneurship, taken as growth factors in production function, on employment in SMEs (Wong & Autio, 2005) and local economic growth (Audretsch, Keilbach, & Lehmann, 2006). In another study, by developing an economic growth model with determinants namely; R&D, social and human capital, entrepreneurship, university research and industry structure, Koo & Kim (2009) reported a significant role in regional economic development. Consistent with Koo & Kim (2009), based on a panel data analysis of 125 countries, Harshana (2016) documented that entrepreneurial activities affects the economic development even after controlling for the regional variations. Entrepreneurial activities were found as a significant factor amongst the other factors of economic development viz, governance, business environment, financial development and quality of institution. Some other researches focus on factors stimulating entrepreneurial intent and potential. Mukesh, Rao and Pillai (2018) used a data triangulation method to study the linkages between entrepreneurial potential and higher education in India. The study documents positive linkages between the two, however, inconsistent entrepreneurial development policies are the biggest challenge. Similarly, Pandit, Joshi and Tiwari (2018) studied entrepreneurial intention amongst Indian students based on four key indicators viz. vision, risk taking, willingness to exploit opportunities and operational focus and persistency. They document that entrepreneurial intentions can be enhanced by redesigning the higher education to inculcate entrepreneurial skills. Consistent with these findings, Raghuvanshi, Agrawal and Ghosh (2017) and Villanger (2015) also emphasised on the lack of education and training as the key barriers to entrepreneurship in a causal framework of barriers. In all the previous inter-disciplinary researches in area of role of entrepreneurial growth, the measurement of level of entrepreneurial activities in a country remained a key challenge. The total level of entrepreneurial activities is comprised of both organised and unorganised sector activities. Where activities of organised sectors can still be proxied by appropriate variables, accounting for unorganised sector continues to be an obstacle. Hence, this remains to be a key limitation of majority of extant literature. A review of extant literature on factors influencing economic development reveals that majority of researches has identified the availability of required natural resources (Upreti, 2015; Djapou, Chimene and Ndedi 2017; Chirwa and Odhiambo, 2016) literacy rate and government consumption expenditure (Sharma, Kautish, & Kumar

60

Role of Technology and Entrepreneurship in Economic Development

2018; Chirwa and Odhiambo, 2016; Bright, Chizonde, 2016) as key determinants of economic development. Based on the literature review and availability of data, the present study takes the natural resources, government expenditure and literacy rate as the control variables along with the key independent variable of our interest i.e. level of entrepreneurial activities.

OBJECTIVES 1. To study effect of level of entrepreneurial activities in select South Asian developing countries on their economic development. 2. To comment on the statistical significance of observed association between entrepreneurship and economic development in select countries. 3. To examine the association between natural resource rents and economic development and its statistical significance thereof. 4. To examine the association between literacy rate and economic development and its statistical significance thereof. 5. To examine the association between government final consumption expenditure and economic development and its statistical significance thereof.

HYPOTHESIS DEVELOPMENT H01: There is no statistically significant impact of measure of literacy level on economic growth proxied by GDP i.e. β1=0. H02: There is no statistically significant impact of total natural resource rent on economic growth proxied by GDP i.e. β2=0. H03: There is no statistically significant impact of government final consumption expenditure on economic growth proxied by GDP i.e. β3=0. H04: There is no statistically significant impact of entrepreneurial activities measured by number of newly established limited liability companies on economic growth proxied by GDP i.e. β4=0.

METHODOLOGY AND DATA COLLECTION To study the role of level of entrepreneurial activities on economic development, Least Square Panel Data Regression has been performed using the appropriate control variables that were reported to be significant determinants of economic 61

Role of Technology and Entrepreneurship in Economic Development

development in previous researches. The economic development is measured by the GDP at current USD for each country. The growth in entrepreneurial activities is proxied by growth in total number of newly registered limited liability companies in each country. Hence, in present study the definition of entrepreneurship is limited to the organised sectors only. The other control variables are namely, Total natural resource rents of each country; the level of general final consumption expenditure of government measured in current US dollar; and the quality of human resource proxied by gross secondary enrolment rate. A logarithmic transformation of all variables was taken. The sample used to study the impact of level of entrepreneurial activities on economic development comprise the data on GDP at current US dollar, secondary school enrolment rate, total natural resource rents, government expenditure, and number of newly established limited liability companies for the period of 2006-2017 on select countries. The data has been collated from the database of World Bank and World Economic Forum and analysed using Eviews9.

Operationalization of Variables and Statistical Model The Table 2 presents the operationalization of variables and their expected relationship with dependent variable. Based on selected variables following functional and algebraic model is formulated: Human resources, Natural resources, Government expenditure,   Economic Growth = f   entrepreneurial activities

Log(GDP) = β0 + β1Log(Secondary school enrolment) + β2 Log(Total natural resource rents) + β3Log(Government expenditure) + β4Log(Total number of newly established LLC) + Ɛi Or LGCP = β0 + β1(LSES) + β2(LTNRR) + β3(LGGFCEV) + β4(LNNBR) + Ɛi.

62

Role of Technology and Entrepreneurship in Economic Development

Table 2. Operationalization of variables and expected relationship Variables

Operationalization

Expected Relationship

Dependent Variable Gross Domestic Product (LGCP)

Logarithmic transformation of GDP at market prices based on current US dollars. GDP is the sum of gross value added by all resident producers plus any product taxes and minus any subsidies not included in the value of the products. It is calculated without making deductions for depreciation of fabricated assets or for depletion and degradation of natural resources. Control Variables

Total Natural Resource Rents (LTNRR)2

Logarithmic transformation of total natural resources rents (% of GDP). Total natural resources rents are the sum of oil rents, natural gas rents, coal rents (hard and soft), mineral rents, and forest rents.

Positive

School Enrolment (LSES)

Logarithmic transformation of Gross enrolment ratio, secondary, both sexes (%). Total enrolment in secondary education, regardless of age, expressed as a percentage of the population of official secondary education age3.

Positive

Government Final Consumption Expenditure, in current USD (LGGFCEV)

Logarithmic transformation of Government final consumption expenditure in Current USD. It includes payments for operating activities of the government in providing goods and services such as, compensation of employees (wages and salaries), interest and subsidies, grants, social benefits, and other expenses such as rent and dividends. It also includes most expenditures on national defence and security but excludes government military expenditures that are part of government capital formation.

Positive

Entrepreneurial4 Activities (LNNBR)

Logarithmic transformation of number of newly registered limited liability companies in a year.

Independent Variable Positive

RESULTS AND ANALYSIS Correlation Analysis Table 3 presents the correlation of independent variables with dependent variable. It can be observed that there is high degree of positive correlation between govt. final consumption expenditure and economic development (r =0.99) which is statistically significant at 1%. Increase in govt. consumption expenditure cause GDP to increase by a multiplier effect. Similarly, entrepreneurial activities and total natural resource rent is also significantly correlated with GDP. Increase in number of newly registered LLC correlated positively and significantly with GDP (r = 0.732). However, total natural resource rents is observed to be negatively correlated with GDP (r = -0.673).

63

Role of Technology and Entrepreneurship in Economic Development

Table 3. Pearson correlation matrix Pearson Correlation Coefficients Variables GDP

GDP

School Enrolment

Total Natural Resource Rents

Govt. Final Consumption Expenditure

Entrepreneurial Activities

1

-0.242 (0.448)

-0.673* (0.023)

0.990** (0.000)

0.732* (0.010)

1

-0.669* (0.025)

-0.314 (0.320)

0.647* (0.032)

1

-0.645* (0.032)

-0.161 (0.636)

1

0.752** (0.008)

School Enrolment Total Natural Resource Rents Govt. Final Consumption Expenditure Entrepreneurial Activities

1

Source: Authors’ calculation. Note: The values in parentheses indicates the p-values. *. Correlation is significant at the 0.05 level (2-tailed). **. Correlation is significant at the 0.01 level (2-tailed).

This may be due to inefficiency in extraction of resources or fluctuations in global prices of resources. Contrary to prediction, enrolment rate in secondary education is negatively associated with GDP, however, this association is statistically insignificant.

Panel Data Analysis The result of panel data regression is presented in Table 4. The explanatory variables in Model together explains the 99.8% of variation in dependent variable (Adjusted R2=0.998). The F-statistics signifies the overall goodness of fit of the model and tests a joint null hypothesis that all partial slope coefficient of regression equation is simultaneously zero i.e. the model has no explanatory power. H0: β1=β2=β3=β4=0 H1: At least one partial slope coefficient is non-zero. where; β1= Slope coefficient school enrolment β2= Slope coefficient for total natural resource rents β3= Slope coefficient for government expenditure β4= Slope coefficient for growth in number of newly registered LLC.

64

Role of Technology and Entrepreneurship in Economic Development

The model is found statistically significant at 1% level of significance and there is significant evidence to reject the null hypothesis that model has no explanatory power. The partial slope coefficients of all explanatory variables are statistically significant at 1% significance level. Consistent with our expectation and findings of extant literature, the growth in entrepreneurial activities positively affects the economic growth via several routes. Similarly, the general final consumption expenditure of government positively affects the economic development, a percent increase in government spending for operating activities go a long way in accelerating growth. However, contradictory to our initial belief, the secondary school enrolment rate and total natural resource rents have significant negative impact on GDP. The similar anomalies were reported in some of previous researches without any plausible explanation (Singh & Maurya, 2018). Overall, the tested model is found significant across all four South Asian developing nations viz. India, Pakistan, Nepal and Bhutan. Hence, despite of differences in technological readiness, the entrepreneurial activities have significant positive impact on economic development of select developing nations of South Asian region.

CONCLUSION A comparative study of select South Asian countries in terms of their technological readiness and innovation reveals that, India outranks all its neighbour countries. Interestingly, despite being a small economy Bhutan has improved continuously on its technological readiness over past five years. The findings of panel data regression analysis confirm our initial belief that increasing level of entrepreneurial activities, measured by number of newly registered LLCs, positively affects the economic growth. This is consistent with the results reported by previous studies (Acs & Armington, 2003; Van Stel & Thurik, 2005; Singh & Maurya, 2018; Klepper & Quesada Delgado, 2007; Smallbone & Welter, 2001; Audretsch & Thurik, 2001). Since, the study is performed on select South Asian developing countries, the results can be generalised for other developing nations. Hence, the focus should be on developing government policies that facilitate a conducive system for entrepreneurial development shall go a long way in overall economic development. Further, consistent with the findings of (Sharma, Kautish, & Kumar 2018; Chirwa and Odhiambo, 2016; Bright, Chizonde, 2016) the study reports a statistically significant positive impact of government final expenditure and entrepreneurial activities on economic development.

65

Role of Technology and Entrepreneurship in Economic Development

Limitations and Scope for Future Research Due to unavailability of data on other south Asian countries namely Sri Lanka and Bangladesh, could not be included in the present study. Further, the study period is restricted to 2006 to 2017 due to data unavailability for select countries. Limited availability of data puts a constraint on number of predictor variables that can be examined. The rule of thumb requires at least ten data points per predictor variable. The unavailability of appropriate indicator of entrepreneurial activities of unorganised sector remains to be key limitation of present study as well as of previous studies. The lack of appropriate measure of entrepreneurial growth itself presents a scope for developing one. More comprehensive and comparative study can be done by including other developing and developed nations as well.

Table 4. Partial slope coefficients and model summary of panel data regression Std. Error

t-Statistic

C

Variable

2.126272

Coefficient

0.281649

7.549355

0.0000

Prob.

Remarks

LSES

-0.097906

0.031152

-3.142839

0.0030

Statistically Significant at 1%

LTNRR

-0.123127

0.036149

-3.406119

0.0014

Statistically Significant at 1%

LGGFCEV

0.996777

0.014771

67.48136

0.0000

Statistically Significant at 1%

LNNBR

0.069519

0.012378

5.616281

0.0000

Statistically Significant at 1%

Model Summary R-squared

0.998723

Mean dependent var

24.73335

Adjusted R-squared

0.998604

S.D. dependent var

2.652509

S.E. of regression

0.099095

Akaike info criterion

-1.687149

Sum squared residual

0.422250

Schwarz criterion

-1.492232

Log likelihood

45.49157

Hannan-Quinn criterion

-1.613490

F-statistic

8408.060

Prob(F-statistic)

0.000000

Durbin-Watson statistics

1.990494

Dependent Variable: LGCP Method: Panel Least Squares Periods included: 12 Cross-sections included: 4 Total panel (balanced) observations: 48 Source: Author’s Calculations

66

Role of Technology and Entrepreneurship in Economic Development

REFERENCES Acs, Z. & Armington, C. (2003). Endogenous growth and entrepreneurial activity in cities: An empirical analysis. 339-349. Anokhin, S., Grichnik, D., & Hisrich, R. D. (2008). The journey from novice to serial entrepreneurship in China and Germany: Are the drivers the same? Managing Global Transitions, 6, 117–142. Audretsch, D., Keilbach, M., & Lehmann, E. (2006). Entrepreneurship and growth. New York, NY: Oxford University Press. doi:10.1093/acprof:o so/9780195183511.001.0001 Audretsch, D., & Thurik, R. (2001). What is new about the new economy? Sources of growth in the managed and entrepreneurial economies. Industrial and Corporate Change, 10(1), 267–315. doi:10.1093/icc/10.1.267 Audretsch, D. B. (2007). Entrepreneurship capital and economic growth. Oxford Review of Economic Policy, 23(1), 63–78. doi:10.1093/oxrep/grm001 Baumol, W. J., & Strom, R. J. (2007). Entrepreneurship and economic growth. Strategic Entrepreneurship Journal, 1(3-4), 233–237. doi:10.1002ej.26 Bosma, N., Ács, Z., Autio, E., Coduras, A., & Levie, J. (2009). GEM executive report 2008. Babson Park, MA: Babson College, Universidad del Desarrollo, and Global Entrepreneurship Research Consortium. Bright, C. (2016). The macroeconomic determinants of economic growth in Zambia: Do copper prices matter? Munich Personal RePEc Archive. Retrieved from https:// mpra.ub.uni-muenchen.de/87854 Carland, J., & Carland, J. (2004). Economic development: Changing the policy to support entrepreneurship. Academy of Entrepreneurship Journal, 10(2), 104–114. Chirwa, T. G., & Odhiambo, N. M. (2016). Macroeconomic determinants of economic growth: A review of international literature. South East European Journal of Economics and Business, 11(2), 33–47. Ferreira, J. J., Fayolle, A., Fernandes, C., & Raposo, M. (2017). Effects of Schumpeterian and Kirznerian entrepreneurship on economic growth: Panel data evidence. Entrepreneurship and Regional Development, 29(1-2), 27–50. doi:10.1 080/08985626.2016.1255431 Fouthe, D., Diane, C., & Ndedi, A. A. (2017). Analyzing factors affecting economic growth within CEMAC countries. doi:10.2139srn.2986075 67

Role of Technology and Entrepreneurship in Economic Development

Harshana, K. (2016). Investigating the impact of entrepreneurship on economic development: A regional analysis. Journal of Small Business and Enterprise Development, 23(3), 896–916. doi:10.1108/JSBED-09-2015-0130 Hessels, J., & Van Stel, A. (2011). Entrepreneurship, export orientation, and economic growth. Small Business Economics, 37(2), 255–268. doi:10.100711187-009-9233-3 Klepper, L., & Quesada Delgado, J. (2007). View point: Entrepreneurship: New data on business creation and how to promote it. Washington, DC: The World Bank Group. Leff, N. (1978). Industrial organization and entrepreneurship in the developing countries: The economic groups. Economic Development and Cultural Change, 26(4), 661–675. doi:10.1086/451052 Minniti, M., & Lévesque, M. (2010). Entrepreneurial types and economic growth. Journal of Business Venturing, 25(3), 305–314. doi:10.1016/j.jbusvent.2008.10.002 Mukesh, H. V., Rao, A. S., & Pillai, R. (2018). Entrepreneurial potential and higher education system in India. The Journal of Entrepreneurship, 27(2), 258–276. doi:10.1177/0971355718781275 Pandit, D., Joshi, M. P., & Tiwari, S. R. (2018). Examining entrepreneurial intention in higher education: An exploratory study of college students in India. The Journal of Entrepreneurship, 27(1), 25–46. doi:10.1177/0971355717738595 Raghuvanshi, J., Agrawal, R., & Ghosh, P. K. (2017). Analysis of barriers to women entrepreneurship: The DEMATEL approach. The Journal of Entrepreneurship, 26(2), 220–238. doi:10.1177/0971355717708848 Salgado Banda, H. (2005). Entrepreneurship and economic growth: An empirical analysis. Dirección General de Investigación Económica. Banco de Mexico: DEGIT Conference Papers. Schumpeter, J. A. (1965). Economic theory and entrepreneurial history. In H. G. Aitken (Ed.), Explorations in enterprise. Cambridge, MA: Harvard University Press. doi:10.4159/harvard.9780674594470.c5 Sharma, R., Kautish, P., & Kumar, D. S. (2018). Impact of selected macroeconomic determinants on economic growth in India: An empirical study. Vision, 22(4), 405–415. doi:10.1177/0972262918803173 Singh, A. K., & Maurya, S. (2018). Effect of growth in entrepreneurial activities on economic growth: Evidence from India. In S. Seth, J. Batra, P. Singh, & N. Tandon (Eds.), Business 2025: Driving growth through strategic innovation, entrepreneurship and digitisation (pp. 89–95). New Delhi, India: Boomsbury Publishing India. 68

Role of Technology and Entrepreneurship in Economic Development

Smallbone, D., & Welter, F. (2001). The role of government in SME development in transition economies. International Small Business Journal, 19(4), 63–77. doi:10.1177/0266242601194004 Stam, E., Hartog, C., Van Stel, A., & Thurik, R. (2011). Ambitious entrepreneurship, high-growth firms and macroeconomic growth. In M. Minniti (Ed.), The dynamics of entrepreneurship: Evidence from global entrepreneurship monitor data (pp. 231–249). Oxford, UK: Oxford University Press. doi:10.1093/acprof:o so/9780199580866.003.0011 Stam, E., & Van Stel, A. (2011). Types of entrepreneurship and economic growth. In A. Szirmai & M. Wim Naudé (Eds.), Entrepreneurship, innovation, and economic development (pp. 78–95). Oxford, UK: Oxford University Press. doi:10.1093/acpr of:oso/9780199596515.003.0004 Sternberg, R., & Wennekers, S. (2005). Determinants and effects of new business creation using global entrepreneurship monitor data. Small Business Economics, 24(3), 193–203. doi:10.100711187-005-1974-z Upreti, P. (2015). Factors affecting economic growth in developing countries. Major Themes in Economics, 17, 5. Retrieved from https://scholarworks.uni.edu/ mtie/vol17/iss1/5 Valliere, D., & Peterson, R. (2009). Entrepreneurship and economic growth: Evidence from emerging and developed countries. Entrepreneurship and Regional Development, 21(5-6), 459–480. doi:10.1080/08985620802332723 Van Stel, A., & Thurik, A. (2005). The effect of entrepreneurial activity on national economic growth. Small Business Economics, 24(3), 311–321. doi:10.100711187005-1996-6 Villanger, E. (2015). Entrepreneurial abilities and barriers to microenterprise growth: A case study in Nepal. The Journal of Entrepreneurship, 24(2), 115–147. doi:10.1177/0974927615586888 Wong, P. H., & Autio, E. (2005). Entrepreneurship, innovation and economic growth: Evidence from GEM data. Small Business Economics, 24(3), 335–35. doi:10.100711187-005-2000-1

69

Role of Technology and Entrepreneurship in Economic Development

ENDNOTES 1



2



3



4



70

Each indicator and its dimensions are measured on a scale of 1 to 7(Highest value). And every country is ranked out of total 137 nations. Natural resources are usually valued by reference to their economic rents, referred to as “resource rents.” The resource rent of a natural resource is the total revenue that can be generated from the extraction of the natural resource, less the cost of extracting the resource (including a normal return on investment to the extractive enterprise). Total natural resources rents are the sum of oil rents, natural gas rents, coal rents (hard and soft), mineral rents, and forest rents. Gross enrolment rate can exceed 100% due to the inclusion of over-aged and under-aged students because of early or late school entrance and grade repetition The definition of entrepreneurship used is limited to the organised sectors. However, it should be noted that the exclusion of the unorganised sectors is based on the difficulties of quantifying the number of firms that comprise it, rather than on its relevance for developing economies. Hence, the data facilitates the analysis of the growth of the organised private sectors.

71

Chapter 6

Impact of Digitization on Commercial Banking Services Preeti Garg https://orcid.org/0000-0001-9367-540X Amity University, Delhi, India

ABSTRACT The chapter gives us an overview and defines digitization and financial services and how both of the verticals can be incorporated into each other. It aims to determine factors that influenced consumer attitude towards online banking, discrepancies faced by the consumers in online banking, the degree of satisfaction among the consumers and their background of the Indian banking system. How the banking system in India is categorized is included. The chapter defines the various functions of commercial banks and the myriad services they provide. In order to conduct the research, a questionnaire was prepared. It is attached below. Descriptive analysis has been done.

INTRODUCTION Banking has to work when and where you need it. The best advice and the best service in financial services happen in real time and is based on customer behavior, using principles of big data, mobility and gamification. –Brett King (Futurist) We live in times where everything is just a click away. You wish to order food, you have Swiggy, Zomato. You wish to book cabs, you have Ola, Uber. You wish to wish to get treated with personalized services, you have UrbanClap. This puts emphasis as to how impertinent technology is in our day to day activities. DOI: 10.4018/978-1-5225-9940-1.ch006 Copyright © 2020, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

Impact of Digitization on Commercial Banking Services

Digitization, in its literal meaning implies, the process of converting information into a digital format. Digitization helps in making information available within a matter of seconds. It is really difficult to assume even a day without our cellular devices or laptops sans internet connection. But why has digitization become so important? Why there is a need to have it in our financial sector and further cascade it down to financial services? Wikipedian interpretation of financial services states that financial services are the economic services provided by the finance industry, which encompasses a broad range of businesses that manage money, including credit unions, banks, credit card companies, insurance, consumer finance etc. The financial services sector forms the crux on which an economy stands. Without a solid financial services sector, the basic activities required to run a nation’s economy cannot be made operational. A financial services sector encompasses in itself myriad services like investment banking services whereby in capital markets it involves underwriting services, assist companies with mergers and acquisitions, providing brokerage services and also private banking services exclusively to high net worth individuals. We have Private equity funds and venture capitalists that provide financing to the new businesses in return for an equity stake in those companies. One of the most popular financial services provided by this sector is commercial banking service. Commercial banking services form the foundation of financial services group. The basic activities of any commercial bank include safekeeping of deposits, issuance of credit and debit cards and the lending of money. The banking industry is largely customer driven and hence a survival in today’s competitive environment depends as to how technologically advanced this sector is since most of the people especially in urban areas have access to internet connection and everybody owns a desktop/laptop or a cellular device. The most impertinent role played by technology is enhancing and improving quality of services provided by the banking industry. Technological advancement is rightly regarded as the third wave of industrial revolution after agricultural and industrial revolution. Technology’s importance is so much that it is a “need” now to have digitization in the financial sector rather than just something that’s there to boost a company’s value. We live in times where everybody is in rush from dawn till dusk. Technological advancement in any sector saves time and provides better customer services. Moreover, it reduces the operational costs on the part of an institution. Hence, digitization in financial sector is revolutionary. The need and importance of digitization in financial sector in India was felt in the late 1980’s. In 1988, the Reserve Bank of India set up a committee on computerization in banks that was headed by Dr. C. Rangarajan. The committee emphasized on the need to make settlement operation computerized. Hence, the banking industry began 72

Impact of Digitization on Commercial Banking Services

Figure 1. ­

Source: Forbes (Technological advancements and development in the Indian Banking system over the years)

the use of information technology with standalone PC’s and eventually migrated to Local Area Network connectivity. The process gained even more importance and pace when LPG (Liberalization, Privatization and Globalization) policies were introduced in 1991 making India an open economy. One of the major reasons that this growth catapulted was infusion of Private Sector Banks and Foreign banks that posed a competition for the public sector banks. Hence, a lot of commercial sector banks started adopting the digitization route as a way to counter competition and remain relevant in this rat race. I took up the topic of Impact of Digitization on Commercial Banking Services in India since I wanted to study what impact technology had in this space. Furthermore, I wanted to study as to how satisfied the consumers were with the advent of this phase.

OBJECTIVES OF THE STUDY The study aims to find out the answer to the following questions: 1. To study the issues/ discrepancies in online banking system: Digitization is the need of the hour. But still there are people who make use of traditional banking systems. Traditional banking system provides end to end banking services and despite a digital revolution in this sector, traditional banking hasn’t got out of style. Hence, the study aims to find out the issues/ problems in the online banking system and why people are still making use of traditional banking services.

73

Impact of Digitization on Commercial Banking Services

2. To identify the factors influencing the customer’s attitude towards online banking: The study aims to find out the reasons people opted for online banking services. Whether it was availability of better and more reliable information, simplification of processes, 24-hour services, avoiding the paperwork or reduction of frauds or mistakes. Also, it aims to find out as to what is making them stick to it. 3. To study the degree of satisfaction among the customers: This objective is aimed exclusively towards people who make use of online banking services. Hence, it aims to find out the degree or the level of satisfaction digitization had on the consumers. 4. To study customer’s perception as to which sector is more technologically advanced: Earlier, Indian economic sector was dominated by the public sector banks. After opening up of the Indian economy, the private sector banks and foreign banks came into picture. Hence the study aims to find out consumer’s perception of which sector’s bank do they feel are more tech savvy.

THEORY: THE INDIAN BANKING SECTOR Bank is an institution that accepts deposits and offers loan. A banking institution is a financial institution part of the financial sector of the economy and one of the most integral part of the sector. If the financial sector is the backbone of the economy, a bank can be regarded as the backbone of the financial sector. A banking institution helps promote the economic development as well as growth of an economy. In India, the banks have been divided into different groups. Each group target their own respective markets and have different set of objectives.

Banking in India can be Categorized as: 1. 2. 3. 4.

Central Bank Commercial Banks Cooperative Banks Developmental Banks

But before being organized into a structural form, banking existed as indigenous banking. Indigenous bank’s presence can be traced back to the Vedic times of 2000-1400 BC. Although, the concept of indigenous banking started to decline with the coming up of the British era, indigenous banking still holds a prominent position in the Indian money market even today. 74

Impact of Digitization on Commercial Banking Services

Chettis, Mahajans, Shroffs and Seths etc. still lend money and act as money changers and finance internal trade of India by means of internal bills or Hundis. But indigenous banking has their own set of problems, discrepancies and defects. They belong to the unorganized sector and do not have any contact with other sections of the banking sector. Banking is combined with trading and commission business and thus have introduced trade risks into their banking business. They usually ignore the difference between short term and long term finance and also between the purpose and motive of finance. The major renege of indigenous banking system is the fact that do not give or provide receipts in most of the cases and even charge exorbitant prices in the form of rates of interest.

Structured and Organized Indian Banking System 1. Reserve Bank of India: The Reserve Bank of India (RBI) is the premier authority for monetary issues and banking operations in India. Known as the banker of banks, RBI began its operations on April 1’1935 in accordance with the Reserve Bank of India Act, 1934. 2. Commercial Banks: Commercial banks in India comprise of large public sector banks, private sector banks and foreign banks. The most imperative role of commercial banks is to muster the savings of general public and make them available to small and large trading and industrial units especially for the working capital requirements 3. Scheduled and Non-Scheduled banks: Scheduled banks in India are the banks that have been included in the second schedule of Reserve Bank of India Act, 1934. Thus, banks which satisfy the criteria laid down under section 42(6)(a) of the act only are included under scheduled banks. 4. Regional Rural banks: The main objective of rural regional banks is providing credit and deposit facilities to small and marginal farmers, agricultural laborers, rural artisans etc. 5. Cooperative Banks: The co-operative banks involve autonomous association of people united voluntarily to meet their common social, economic and cultural requirements through jointly owned and democratically controlled enterprise.

FUNCTIONS PERFORMED BY COMMERCIAL BANKS Commercial banks provide myriad functions to its customers in order to help them and assist them to better manage their lives. The various functions performed by a commercial bank includes:

75

Impact of Digitization on Commercial Banking Services

Primary Functions: 1. Accepting of Deposits 2. Advancing of Loans

Secondary Functions: A banking organization performs other secondary functions besides its primary functions as listed below: 1. 2. 3. 4. 5. 6. 7.

Discounting of Bill of Exchange Cheque Payment Remittance Collection and Payment of Credit Instruments. Foreign Currency Exchange Consultancy Bank Guarantee

The different types of commercial banking services provided by commmercial banks are: 1. INDIVIDUAL BANKING: These include a. Checking of Accounts b. Savings Accounts c. Debit and Credit Cards d. Insurance e. Wealth Management 2. BUSINESS BANKING: The various services provided by commercial banks to business owners include: a. Business Loans b. Checking accounts c. Savings Account d. Debit and Credit Cards (reconciliation, reporting, credit card processing) e. Merchant Services f. Cash Management 3. DIGITAL BANKING: The various digital banking services provided by commercial banks are: a. Online and mobile banking b. Mobile check deposit c. Online Bill payment 76

Impact of Digitization on Commercial Banking Services

d. eStatements 4. LOANS: A banking organization provides various loans of all shapes and sizes. Some common type of loans are: a. Personal Loans b. Home Equity Loans c. Home Equity Lines of Credit d. Home Loans e. Business Loans

REVIEW OF LITERATURE 1. Gunasekaran in his research titled an empirical investigation of e-banking/ internet banking from bank customer’s perspective concludes from his research that the usage of ATM, telebanking and internet banking are perceived as important and these services are associated with socio-economic and demographic characteristics of the respondents. He also concluded that although many people still preferred manual banking over internet/ online banking, these customers tend to use e-banking/ internet banking and adoption of online banking among these customers is significantly influenced by the number of times they visited the banks and the number of banking transactions that happened per month. He also conclude that people were beyond satisfied by the services provided by the public as well as private sector banks via e-banking/ online banking.He also noted that major discrepancies faced by people using online banking services are risk of getting wrong information and complications and difficulties while using online banking services. The major factors that prompted customers to use online banking services were that it saves time and is cost less, provides accurate and reliable information. Online banking services are flexible and there is an ease in the accessibility along with convenience.It also concluded that the quality of online banking services provided by private sector banks were remarkably higher than that of public sector banks. 2. An article in Forbes India, 2017 by Prof. Bijoy Bhattacharyya, expressed that today, all the banks aim to provide digitization and is a topmost agenda for all the banks in India. Along with that, the Indian government is aggressively promoting online banking and digitization. NDA government on 8th November’ 2016 introduced demonetization whereby. The exercise was basically aimed at making Indian financial sector more tech savvy. They also introduced Bharat 77

Impact of Digitization on Commercial Banking Services

3.

4.

5.

6.

78

Interface for Money (BHIM), by National Payments Corporation of India which was a significant step towards digitization. But still there exist obstacles on this road that include security risks, financial literacy and customer awareness that is mostly lacking in the rural areas and also in some parts of urban areas. The article also states that business analytics and artificial intelligence has the potential and can prove to be a game changer for the banking industry. Garg S in her research titled, Digitization- A study with reference to customer satisfaction towards e-banking concludes that customers are very much satisfied with the services provided by the banks in respect with online banking. The major drivers for their satisfaction are freedom of control, peace of mind and saving of time as online banking enables the customers to meet their payment needs. Furthermore, it helps the customers in saving their valuable time by providing them an opportunity to work from home or office. Hence, according to her research, the online banking is gaining importance among customers who want their transactions to be accurate and efficient. For the research, statistical tools like t-test, f-test, ANOVA and correlation were used. George A. in his research titled, Impact of Service Quality in Internet Banking on customer satisfaction aims to explore service quality dimensions in Internet Banking in the state of Kerela and aims to investigate the effect of these dimensions on customer satisfaction. Attributes that identified as parameters in respect of service quality are efficiency, privacy and security. The study highlights the necessity for the banks to have highly qualitative of responsive bank employees who can respond quickly and professionally to all the requirements and complaints of the customers. The study also concludes that banking professionals need to promote internet banking among their customers, thus having a managerial impact. Moreover, the study concludes that customers were reluctant mostly because of the security reasons and hence banks need to boost confidence among the customers with respect to online banking services. Vyas S. in her research titled Impact of E-Banking on Traditional Banking Services concludes that e-banking services are borderless entities permitting banking activities anywhere and anytime. During this step of the process, controls that could mitigate risks as appropriate to the organization’s operations were provided. The goal of the recommended controls is to reduce the level of risk to the IT system and its data to an acceptable level Gupta & Bansal in their paper titled Development of an Instrument to measure Internet Banking Service Quality in India conclude that Indian banking service quality constitutes five dimensions namely Security, Reliability, Efficiency, Responsiveness and site aesthetics and that they can use these 5 models to measure to measure the service quality and therefore can effectively manage

Impact of Digitization on Commercial Banking Services

7.

8.

9.

10.

their resources. Moreover, the practitioners must pay utmost attention to Security since it is of paramount importance. Furthermore, they should come up with new ideas and technologies that can enable banks to deliver these services efficiently since efficiency is one of the most important factors that derives customer satisfaction. Gupta PK of Jamia Milia Islamia in his research titled Internet Banking in India- Consumer concerns and bank strategies concludes that internet banking in India is still at its nascent stage and is controlled mainly by private and foreign sector banks. The use of internet banking is confined to a few customer segments. There are myriad risks associated with online banking which banks must aim to mitigate. The banks should focus on strategic consumer groups in order to maximize its revenues. At last, the research concludes that banks cannot really avoid the internet banking phenomenon but must come up with competitive models in order to gain a competitive advantage. Malhotra P. from her research titled an analysis of Internet banking offerings and its determinants in India attempted to present the current status of internet banking in India concludes that private sector banks are better off as they provide a wider range of financial services through internet banking in comparison to public sector banking. The size of the bank, experience of the bank in offering internet banking, financing pattern and ownership of the bank are found to be significant determinants that affect internet banking services. Singh B from his research titled Adoption of internet banking: An Empirical Investigation of Indian Banking Sector concludes that foreign sector banks and private sector banks offered a broad range of services over the Internet. Public sector banks usually lag behind in offering myriad services online. Also, banks with greater infrastructure facilities and fixed assets expenditure have the greatest incentive to adopt internet banking. Moreover, the study also finds out that internet banks in foreign sector are more profitable than noninternet banks however, internet banks in private sector are significantly less profitable than non- internet banks. The study also concludes that the growth in internet banking in India is basically due to private sector banks and foreign sector banks. Khan SM in his research titled Service quality evaluation in Internet Banking: An Empirical study in India attempts to explore the quality of internet/online banking from a customer’s point of view. The research concludes that two dimensions namely privacy/security and fulfilment are not significantly contributing enough to contribute towards the overall service quality. Basically, according to the consumers, banking organizations fail to provide adequate services towards these dimensions and since for India, the online banking services are crucial, bankers must pay attention towards these parameters. 79

Impact of Digitization on Commercial Banking Services

11. Krishnan S. from her research titled Operational efficiency and service quality of commercial banks in India concludes that as far as service quality provided by the Indian Banking Industry, the level of customer’s satisfaction is only moderate and thus no Indian banking organization is providing a better quality service to the customers. Hence, Indian banking industry need to amp up their operational efficiency and quality of services provided. 12. Saibaba in his paper titled a study on factors determining internet banking adoption in India concludes that although internet banking allows people to transact anywhere, anytime and that penetration of internet into the Indian Banking system is growing at a rate too fast, the usage rate in India has been lower as compared to developed nations. The result also suggests the banks to take up adequate measures in order to promote adaption of online banking among the consumers. Furthermore, the study also suggests banking organizations to improve their security features and banks must communicate the various benefits of using online banking services over other banking channels too. Also, the study states that banking organizations must make use of social media platforms in order to spread tin he word about online banking services in India. 13. Amutha in his research titled Customers attitude on the new technological services of banking sector in Dindigul district a study with special reference to net banking aimed at examining how far the customers are satisfied with the net banking services offered by both private and public sector bank in Dindigul district. Not only that, it aimed at emphasizing that customers are the most important assets. Customers are critical about the quality of the services that they are receiving now more so than ever after the nationalization of banks.

RESEARCH METHODOLOGY Research Methodology implies the science as to how a research is done. It describes the way to systematically and logically solve a problem. It helps one in understanding not just the product but also the process of research or study.

Methodology Methodology implies the strategy that aims to outline the process as to how the research is going to be undertaken. It does not directly give out a method in which the research is going to take place but it enables a big picture as to how the research in a given field on a given topic is going to take place. 80

Impact of Digitization on Commercial Banking Services

For my dissertation on the topic “Impact of Digitization on Financial Services in India: with respect to Commercial Banking Services”, I was keen to know and understand a customer’s perception and their level of satisfaction from using banking services through online mode. I was also interested to know as to how many people do make use of online banking system and what are the reasons for not, I wanted to examine the influence that online banking had on the consumers, to identify the factors that influenced the customer’s attitude towards online banking etc. Hence, I took up descriptive analysis route in order to decipher the above questions and also fulfil the objectives that I set for my research titled “IMPACT OF DIGITIZATION ON FINANCIAL SERVICES IN INDIA: with respect to Commercial Banking services” and therefore I made use of a questionnaire which I distributed to 150 prospective respondents and received reply from 120.

ANALYSIS AND RESULTS This questionnaire was prepared on the topic “Impact of digitization on financial services in India: with respect to Commercial Banking Services” in order to understand how digitization of banking services has affected the consumers in past few years and if consumers are happy as well satisfied with these services or not. In the light of this topic 120 people were surveyed, males and females both to understand the impact of digitization on the financial services in India.

Demographic Analysis Out of 120 respondents, the major age group that replied back to the survey was of the age group between 18-24 which is 70.8% of the total respondents. This was followed by age groups of 40-60 (14.2%) and then age group of 25-40 (10.8%). The least number of respondents from the age group 60 and above. 82 out of 120 respondents were females while 38 out of 120 respondents were male. Next question was about the family income of the respondents. Maximum respondents had family income less than 5 lakhs which comprised of 35% of the total respondents. This was followed by income groups from 5 lakhs - 10 lakhs (31.7%), then 10 lakhs-15 lakhs (15.8%), then 15 lakhs-20 lakhs (11.7%) and then at last more than 20 lakhs (5.8%). Most of the respondents were students with 45% of the total respondents. Other occupations included professionals (26.7%) followed by businessmen/ businesswomen (26.7%). At last, occupations included government employees (6.7%), housewives (4.2%) and others (5.8%). 81

Impact of Digitization on Commercial Banking Services

Figure 2. ­

Objective 1: To study the discrepancies in the online banking system: Analysis: The results display the drawbacks of online banking system which still motivates people to go for the traditional banking route. Most of the people perceive online banking as complicated (29.8% of the respondents who use traditional banking) which was followed by the reason that people don’t consider online banking as easy or user friendly, moreover a lot of the respondents felt that online banking was difficult to access and hence, people were inclined towards traditional banking. Rigidity and lack of required response are also additional factors that prompted people to adopt the traditional banking route.

Figure 3. ­

82

Impact of Digitization on Commercial Banking Services

Figure 4. ­

Respondents were further asked questions if or not they use online banking services. 75.8% of the respondents make use of online banking services and 24.2% do not. The respondents were also asked as to why have they never used internet banking services to which majority of the respondents replied that they do not trust internet services when it comes to managing their money hence, security was a major factor for people not using online banking services. Furthermore, the respondents also cited that they prefer personal human relations for this process. The respondents who replied positively to the question whether or not they use online banking services were asked different set of questions. Degree of confidence that respondents have in online banking system: When asked their degree of confidence in the online banking services on a likert scale of 1-5(1=little, 5= very high) majority of them had a high degree of confidence.

Figure 5. ­

83

Impact of Digitization on Commercial Banking Services

Objective 2: To identify the factors influencing customer’s attitude towards online banking. Analysis: The respondents were asked the main reasons/factors as to why they use online banking services to which majority of the respondents cited anytime service as the major reason for them to use online banking services followed by a simplified process as another major reason why people use online banking system. This process also helps avoiding paperwork which can be burdensome for a lot of consumers. Furthermore, online banking helps in reduction of fraud and mistakes, provides perfect information and also helps in improving customer service. Here is the response: Objective 3: To study the degree of satisfaction among the customers. Analysis: The respondents were asked if or not they were satisfied with respect to online banking services, to which majority of them replied in positive having a high level of satisfaction while using online banking services. The respondents, at last were asked their level of satisfaction on a likert scale regarding the following specific banking services whereby 1=extremely satisfied, 2=satisfied, 3=neutral, 4=dissatisfied, 5=extremely satisfied. The responses received to it are presented below: Objective 4: To study Consumer’s perception as to which sector’s bank (Public sector bank/ Private Sector Bank) is more technologically advanced Figure 6. ­

84

Impact of Digitization on Commercial Banking Services

Figure 7. ­

Figure 8. Account information and balance enquiry

Figure 9. E-payments

Figure 10. Account to account transfer

85

Impact of Digitization on Commercial Banking Services

Figure 11. Due installment enquiry

Figure 12. Statement request (by mail, fax)

Figure 13. SMS alert about specific information to the bank services/ new products

Figure 14. Transaction status

86

Impact of Digitization on Commercial Banking Services

Figure 15. ­

Analysis: 50% of the respondents use public sector banks while other 50% of the respondents use private sector banks. 100 out of 120 respondents considered private sector banks as more technologically advanced while remaining 20 respondents felt that public sector banks are more technologically advanced.

CONCLUSION From the analysis, it can be concluded that a majority of the population make use of online banking system and have shown a high degree of confidence in it. People who do not make use of online banking system do so because they don’t trust internet when it comes to managing their money and they consider one on one relation as impertinent for banking. People use online banking system because online banking services are available 24*7 which makes it accessible to people at all the times, moreover people use online banking because of a simplified process and the fact it avoids paperwork. People are satisfied with the online banking system and the various services provided along with it. Also, from the analysis, it can be concluded that people considered private sector banks to be more technologically advanced as compared to public sector banks.

87

Impact of Digitization on Commercial Banking Services

SUGGESTIONS Every step or every new process has its own challenges. Similarly, digitization has its own pitfalls. But since it is a phenomenon that cannot be avoided in today’s time and age, here are some suggestions that can be taken into consideration in order to improve it: 1. Security must be the top priority in respect to providing commercial banking services online. The basic analysis for digitization of commercial banking services stands at the cradle of authentication of banking services. What is usually observed in the day to day banking services is its extent of safeguarding the cyber threats. Ultimately, there is always proper precaution that is needed to be taken when a huge amount of money is transacted. Precaution towards safe usage of transactions should be involved these days mainly with new e commerce companies emerging. 2. Usually due online traffic, websites sometimes don’t function which results in transactions’ failure, the traffic must be managed properly. 3. Fintech is the need of the hour but it requires thorough awareness especially in the rural areas since complex banking functions requires banking personnel’s help and guidance. People in rural areas are not very well educated, hence significant improvement is required especially in the rural areas. 4. The customer call responsiveness must be prompt and effective. 5. Often transactions take a lot of time to be processed. This often creates irritation amongst the users. Hence, transaction’s time must be reduced.

LIMITATIONS OF THE STUDY The study has following limitations: 1. Number of respondents are less (only 120). 2. The majority of the respondents are youngsters, college going students who do not make an extensive use of banking system. 3. The responses are restricted to particular area Delhi-NCR. 4. In order to do the analysis, a questionnaire was prepared whereby the questions were divided into 2 categories. There was a separate set of questions for people who make use of online banking system and a separate set of questions for people who do not. A few respondents chose to answer both set of questions which impacted the route of research. 88

Impact of Digitization on Commercial Banking Services

REFERENCES Amutha, M. (2015). Customers attitude on the new technological services of banking sector in Dindigul district a study with special reference to net banking, Madurai Kamraj University. Retrieved from http://shodhganga.inflibnet.ac.in/ handle/10603/125198 Bansal, I. Development of and Instrument to measure internet banking service quality in India, Banasthali University Banasthali Vidhyapith. Retrieved from https://pdfs. semanticscholar.org/26ba/6b23513272d29c48bbb928ad75ad4d6a73f5.pdf Bhattacharyya, B. (2017). Digital revolution in the Indian banking sector, Forbes India. Retrieved from http://www.forbesindia.com/article/weschool/digital-revolution-inthe-indian-banking-sector/47811/1 Four Different Types of Services. Banking. (n.d.). Retrieved from https:// localfirstbank.com/content/different-types-of-banking-services/ Gunasekaran, K. (2011). An empirical investigation of e-banking/ internet banking from customers’ perspective, Bharathidasan University. Retrieved from http:// shodhganga.inflibnet.ac.in/handle/10603/9516 Gupta, P. K. (2008). Internet banking in India- Consumer Concerns and Bank Strategies, Global Journal of Business Strategies. Retrieved from https://papers. ssrn.com/sol3/papers.cfm?abstract_id=1543420 Indian Banking System. Structure and other Details (with Diagrams). (2014, Feb. 21). Retrieved from http://www.yourarticlelibrary.com/banking/indian-bankingsystem-structure-and-other-details-with-diagrams/23495 Khan, M. S. (2009). Service quality evaluation in internet banking: An empirical study in India, Inderscience. Retrieved from http://dspace.nitrkl.ac.in/dspace/ handle/2080/746 Malhotra, P. (2009). Impact of internet banking on bank performance and risk: The Indian experience, Eurasian Journal of Business and Economics. Retrieved from https://core.ac.uk/download/pdf/25988647.pdf Malhotra, P. (2013). An analysis of Internet banking offerings and its determinants in India, Geeta Institute of Management and Technology, Kurukshetra, Haryana. Retrieved from https://www.emeraldinsight.com/doi/abs/10.1108/10662241011020851

89

Impact of Digitization on Commercial Banking Services

Manoj, P. K. (2009). Technology in banks and its impact on operational efficiency and risk management with special reference to Commercial banks in Kerala: An econometric analysis, Mahatma Gandhi University. Retrieved from http://shodhganga. inflibnet.ac.in/handle/10603/27095 Meenakshi Kharb. (2016). Customer orientation towards internet banking scheduled commercial banks, Manav Rachna International University. Retrieved from http:// shodhganga.inflibnet.ac.in/handle/10603/168482 (n.d.). Retrieved from https://www.lopol.org/article/banking-system-in-india Saibaba, S. (2015). A study on factors determining internet banking adoption in India, Acharya Nagarjuna University. Retrieved from http://shodhganga.inflibnet. ac.in/handle/10603/188262ce Services Offered by Modern Commercial Banks. (n.d.). Retrieved from https:// accountlearning.blogspot.com/2013/07/services-offered-by-modern-banks-to. html?m=1 Singh, B. (2004). Adoption of internet banking: An empirical investigation Indian Banking Sector, Guru Nanak Dev University, Amritsar, India. Retrieved from http://www.icommercecentral.com/open-access/adoption-of-internet-banking-anempirical-investigation-of-indian-banking-sector.php?aid=38659 Sreela Krishnan. (2014). Operational efficiency and service quality of commercial banks in India, Mahatma Gandhi University. Retrieved from http://shodhganga. inflibnet.ac.in/handle/10603/79211 Vyas, D. S. (2012). Impact of e-banking on traditional banking services, International Journal of Computer Science and Communication Networks. Retrieved from https:// arxiv.org/abs/1209.2368

90

91

Chapter 7

Innovations Through Mergers and Acquisitions in the Pharmaceutical Sector Abdul Wajid https://orcid.org/0000-0003-2585-5550 Amity University, Uttar Pradesh, India Kashif Hasan Khan Ala-Too International University, Bishkek, Kyrgyzstan Harish Handa Delhi University, India

ABSTRACT Pharmaceutical firms have a noteworthy contribution in SDGs (Sustainable development goals). Their unceasing innovation of low-cost medicines and discovery of lifesaving drugs can assist in achieving the SDG 3 (good health and well-being). Having gone through the M&A scenario in the global pharmaceutical industry and the amount disbursed on R&D, the authors tried to find answers to a few important questions to understand whether these activities are in line to achieve global goals i.e. first, does Merger and Acquisition M&A in pharmaceutical sector increase innovations? Second, how can companies fully utilize M&A activities to increase innovation in the pharmaceutical sector? Third, is there any association between R&D expenditures and innovation outcome? We theoretically analyze and consolidate academic research on how M&A activities support innovation in the pharmaceutical industry. The present chapter also tried to unveil the association between R&D expenditures and the firm innovation as measured by the number of patent applications by selected Indian pharmaceutical firms. DOI: 10.4018/978-1-5225-9940-1.ch007 Copyright © 2020, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

Innovations Through Mergers and Acquisitions in the Pharmaceutical Sector

INTRODUCTION The United Nations Conference happened in 2012 in Rio de Janeiro, paved the way for seventeen Sustainable Development Goals (SDGs) or global goals. The primary motivation behind setting these goals are the challenges faced by our world today be it political, environmental or related to economy. These goals have a very broad scope and that’s the reason they replaced Millennium Development Goals (MDGs). All the seventeen SDGs are interconnected. These goals were born not just to improve the lives of present population but also for the future generations by making our planet more sustainable, safer and prosperous1.Global goals prioritize good health and well-being as a main sustainable development goal (goal 3), thus the pharmaceuticals come into main stream and calls to end AIDs, malaria, hepatitis, tuberculosis, water borne diseases and other communicable and non-communicable diseases by 20302. Better medicines at low costs, lifesaving drugs and vaccines for all are the priorities under this goal. According to Richard Saynor, senior Vice President GSK, pharmaceutical firms have a responsibility to provide people high quality medicines and healthcare irrespective of their nations and income (Pharma BoardRoom, 2018)3. To provide medical assistance to more patients and to ensure sustainability in the future, we have to understand that reasonable pricing is necessary. Pharmaceutical firms have a main contribution in SDGs, by continuous innovation of low cost medicines and discovery of lifesaving drugs they can assist in achieving the SDG 3 target by 2030. Innovation has been a matter of considerable significance in almost all organizations, its prominence can never be undermined in today’s aggressive competitive markets. As competition is at its utmost peak, innovation is obligatory not just for augmenting revenues but for survival, means sustainability of innovation is something the organizations are striving for (Tohidi & Jabbari, 2012). Surprisingly a little research has been reported until recently as to how merger and acquisition (M&A) undertakings by pharmaceutical firms impact their innovation trajectories, probably because R&D productivity & integration outcomes are not shared publicly and usually done privately (La Mattina, 2011). According to Yoon & Deeken, (2013) there are multiple indicators that explain a firms innovation outcome like new process, improved business models and new products. For present study we limit the definition of innovation to new drug development only as it is the easiest way to quantify innovation outcome in pharmaceutical firms (Reeb, 2017). According to ‘the pharma letter’ report 2018, the number of global M&A deals in pharmaceuticals reached to 111 in numbers, which were 101 in 2017. It reported 26 deals that valued over $1 billion. It also estimated the value of M&A in pharmaceuticals which was about $124.7 billion4. Given such high number of deals

92

Innovations Through Mergers and Acquisitions in the Pharmaceutical Sector

and amount spent on pharmaceutical M&A, it’s imperative to know the outcome of these deals in regards to their contribution in achieving global goals. As per our knowledge and understanding there is hardly any previous study which underlined the pharmaceuticals M&A effect on achieving global goals. This prompted us to take this under-investigated topic, moreover, there are dualistic rational behind selecting pharmaceutical industry. First, this industry has been at the forefront in (M&A) activities around the world. Secondly, innovation is the central element of competition among pharmaceutical firms. Discovery and development of drugs pose unique challenges and social & ethical responsibilities. Before discussing innovation in the pharmaceutical sector, it is imperative to know that innovation to some extent is dependent on R&D activities (Achilladelis & Antonakis, 2001). According to press reader 2018 report, the cumulative spending on R&D by top 10 Indian pharmaceutical companies was around Rs 95 billion or 9500 crores this fiscal. The report also mentioned that during January to June 2018, Indian pharmaceutical companies received “125 final Abbreviated New Drugs Applications (ANDA) approvals from US FDA out of total 323 ANDA approvals received” probably because of high expenditure on R&D by Indian pharmaceuticals5. After going through the M&A scenario in global pharmaceutical industry and the amount spent on R&D, the authors tried to find answers of a few important questions to understand whether these activities are in line to achieve global goals i.e. first, does M&A in pharmaceutical sector increase innovations? Second, how can companies fully utilize M&A activities to increase innovation in pharmaceutical sector? Third, is there any association between R&D expenditures and innovation outcome? The answers to question1 and question 2 is explained through extensive review of literature, while, the answer to question 3 is explained through basic statistical analysis. The present study focuses on innovations by pharmaceutical companies especially after two firms either merge or one is acquired by another. By innovation of new drugs at low cost pharmaceutical companies can improve access and availability to affordable medicines and treatment to all sections of population. Subsequent innovations can help in prevention & treatment of diseases by providing high quality products, quantity and accessibility. As population grow old, the use of high cost medicines and treatment increases and subsequently the need of low cost drugs and treatment arise. The rest of the study is arranged into six sections, a review of significant literature on the topic followed by the answers of research question 1 and question 2 is done in section 2, then association between R&D expenditures and innovation outcome is explained in section 3, next, result and discussion is done in section 4, subsequently, managerial and social implications are given in section 5, and at last, section 6 provides future research directions.

93

Innovations Through Mergers and Acquisitions in the Pharmaceutical Sector

REVIEW OF LITERATURE Starting with one of the important theories i.e. theory of innovation and learning proposed by (Cohen & Levinthal, 1990) explained that a firm has two ways to enhance its intellectual property. It can do it either by spending in numerous knowledge augmenting projects or by acquiring existing knowledge base through M&A’s. Same views were expressed by Henderson and Cockburn, (1993) in theory of Industrial organization which says M&A’s help firms to carry out numerous R&D ventures and offer opportunity to reduce the costs through scale and scope of economies. While resource-based theory explained by Barney, (1991), stresses that in times of extreme competition firms can really avoid time taking procedure of in-house innovation instead M&A is a potential tool that can really assist the firms to expand their assets base. R&D is the prominent intellectual source in the pharmaceutical industry. The innovation of a new drug is highly complex, time taking and extremely costly affair, according to Heracleous & Murray, (2001) traditionally the first step in product development cycle starts with the discovery of a new compound. This course usually takes one year to find one pharmacologically viable new chemical entity (NCE) than an NCE goes into pre-clinical testing for approximately 2 years and normally one out of 20 NCEs survive. Next step is clinical trials for that, an approval from the regulatory authority is needed, for example, the Food & Drug Administration (FDA) in the United States. Clinical testing comprises testing in three phases. Phase I is a safety assessment test on which typically, a year is devoted. In Phase II, two years are spent on evaluating effectiveness, dosage and side effects and at last in Phase III, safety in long-term is assessed by applying it on large samples of patients for three years. Out of every five new drugs entering Phase I, approximately 1.65 typically complete the last phase successfully. After completion of clinical trials, companies need to file a new drug application (NDA) or biologic license application (BLA) contingent on the category of product, which is then reviewed by a regulatory authority, for example, FDA that may require one and a half year to finalize their review. (Heracleous et al., 2001) also said that during 1990 to 1995 the total development cycle lasted 15.3 years on an average. The success rate was so minimal that only one out of almost 5000 compounds outlasted to become a newly approved drug. Over two-thirds of the total R&D cost of a successful new drug was spent on clinical trials. The study of (DiMasi et al., 2016) surveyed 10 pharmaceutical firms and randomly selected R&D costs of 106 new drugs, their study reported direct clinical period cost and capitalized clinical period cost estimate of $965 Million & $1460 Million for every approved new drug. In view of above-stated significance and complexity in the innovation of new drugs, present study theoretically analyzes the significant existing literature on how M&A activities support innovation in the pharmaceutical industry. Beginning with 94

Innovations Through Mergers and Acquisitions in the Pharmaceutical Sector

one of the critical studies on the topic, Barkema & Vermeulan, (1998) suggested that companies that have few technological capabilities are more likely to acquire innovative firms while companies that have strong technological abilities are less likely to acquire or merge with a foreign firm and choose new start up over acquisitions. Pharmaceutical firms depend on new drugs and in order to sustain average industry growth they need to introduce new drugs every year and mergers in the pharmaceutical sector happens as a result of failure to innovate. A study by (Koenig & Mezick, 2004) investigated the research and development activities of pharmaceutical firms to fathom the impact of M&A activity on R&D productivity. They submitted that firms which experienced M&A had more favorable R&D productivity in comparison to firms that did not indulge in M&A activities. An important study by Higgins & Rodriguez (2006) adopted a distinctive approach to understand the complex outcome of R&D productivity, the study examined 160 pharmaceutical acquisitions and realized that on an average there is a significant enhancement in returns of acquirers, further returns were found positively correlated with acquirer’s prior information of R&D activities of target firms. A unique index was also developed to know the status of internal productivity of a firm. It was suggested that when firms experience a decline in their R&D productivity they tend to choose M&A to boost their research pipelines. Similarly, Dierks et al, (2016) deliberated that pharmaceutical firms are under pressure in the fast moving market and the need to create innovative drugs prompts them to resort to the strategy of inorganic growth i.e. through M&A, collaborations & venture capital. Further, Shibayama et al., (2008) investigated the impact of M&A activity by taking a case study of a Japanese pharmaceutical firm, they also advocated that M&A activities have the potential to reinforce long-term research capabilities in pharmaceutical firms. Grabowski & Kyle, (2008) expressed a different perspective on M&A activities by pharmaceutical firms, they established that pharmaceutical mergers were the result of numerous motives and conditions, particularly the mergers were driven by industry and firm-related shocks. Some firms suffered from R&D gaps and patent expirations and the mergers were helpful in cost-reduction and solving short-run problems, but no significant improvement was seen in the long-term R&D outcomes, they further deliberated that many big pharmaceutical firms deal with constant R&D outcome problems. Same results were submitted by Munos, (2009) who took a fairly large sample size comprising 1,222 new drugs that were approved by the United States Food and Drug Administration (USFDA) during 1950 to 2008, and the study concluded that though the R&D investment during these years had increased drastically, the production of new drugs had been constant. The findings raised serious questions regarding the sustainability of R&D models of companies, further, it also raised doubts on the rationale of M&A activities as these inorganic growth routes had no discernible effect on new drugs production. Similar results 95

Innovations Through Mergers and Acquisitions in the Pharmaceutical Sector

were reported by (Ornaghi, 2009) who investigated the merger effects on the longterm innovation ability of pharmaceutical firms, the study concluded that mergers did not deliver any significant efficiency gains to merged entities, it was further suggested that merged entities innovation activities were worst comparing to nonmerging firms and when acquirers decide to acquire firms with related technological contents in order to limit the negative impact on their growth, may end up having less innovative incentives in the long run. Further, (La Mattina, 2011) in their study also suggested that consolidation in pharmaceutical industry might have a reasonable short run rationale, but the impact of consolidation activities was destructive on R&D productivity of organizations. Comanor & Scherer, (2011) expressed a very important insight, they deliberated that there is always a need of innovation in the pharmaceutical sector, as per U.S antitrust policies, the evaluation of a merger is done on the basis of its impact on innovation and price levels. A study by Ringel & Choy, (2017) observed that large pharmaceutical mergers result in significant improvement of R&D productivity, measured as a total amount of innovation created. They further expounded that big mergers among pharmaceutical firms could have a multidimensional impact on competition, drug prices & employment, but the most prominent impact could be on innovation through R&D reassessment. Mergers could be a boon for a merged entity as it gives impetus to management to reevaluate existing projects, to do away with projects that are unlikely to offer any advancement in treatment and focus more on promising projects. Dierks & Reginster, (2018) deliberated that although M&A concentrate the market, but the empirical evidence suggests that they do not decrease innovation outcome, they further suggested that small firms are a major source of innovation and large pharmaceutical firms acquire them which leads to the commercialization of new drugs as large firms can bear the expenses of filing patent applications and clinical trials.

M&A ACTIVITIES AND INNOVATION The SDGs provide a direction to governments and private sectors all over the world to work towards attaining long term sustainability and prosperity for environment and society as a whole. Mergers and acquisitions in pharmaceutical companies help them to fill gaps in their product pipelines, to expand therapeutic areas, to eliminate duplicate resources and achieve cost savings (Jung, 2002). This part of the chapter answers the second question “how can companies fully utilize M&A activities to increase innovation in pharmaceutical sector?” the answer to this question is explained by some notable studies, a few of them is reported in this section. Starting with the most important factor behind successful M&A and subsequent innovation 96

Innovations Through Mergers and Acquisitions in the Pharmaceutical Sector

in high technological industries like pharmaceuticals may be the integration process. As Haspeslagh & Jemison (1991) suggested that its implementation process that has a major role in explaining whether the acquisition or merger will be successful or not. Better integration between two firms help them in aligning their common goals and actions to achieve superior outcome (Puranam & Srikanth, 2007), while inappropriate integration process may have unfavorable impact on the acquisition outcome and subsequently on innovation output. Acquirers previous experience also impact innovation outcome as Nicholls-Nixon & woo (2003) suggested that prior experience in acquisitions have positive impact on technical output of the combined firm and hence may have positive impact on innovation outcome, because prior experience may help in selecting appropriate partners. Makri et al. (2010) considered similarity and complementarity of technological knowledge and suggested that complementarity knowledge base of target and acquirer may have positive impact on innovation outcome. Size of knowledge base also impact innovation outcome as Ahuja and Katila (2014) explained that although high knowledge base of acquired firms improve innovation but if knowledge base of acquired firm is disproportionally larger than acquiring firm may have negative impact on innovation output of the combined firm because knowledge absorption, understanding and implementation is a time taking process. They also submitted that in technological acquisitions innovation outcome is positively affected by the relatedness of acquiring and acquired firm. Horrobin, (2000) expounded that vital post-merger decisions involve the integration of R&D, as researchers believe that full integration of R&D often leads to innovation through internal collaborations of process and technology. While limited R&D integration may make it difficult to realize innovation synergies.

R&D EXPENDITURES AND INNOVATION OUTCOME According to Reeb, (2017) “R&D spending is arguably the most widely used measure of corporate innovation activity”. He suggested that probably the most important benefit to measure innovation through R&D expenditures is that most firms report it. The study further suggested that “R&D spending, patent counts, patent citations & new product announcements” are widely used to quantify corporate innovations. According to Griliches (1981) there exist a measurable connection between R&D and the quantity of patents. Cloodt, et al. (2006) explained that organizations having low R&D expenditures experience increment in their patents if they increase their R&D expenditures. Nonetheless, organizations that already incur comparatively high R&D expenditures an additional increment of these outlays doesn’t prompt any significant development in new patents. 97

Innovations Through Mergers and Acquisitions in the Pharmaceutical Sector

In view of the explained association between R&D expenditures and innovation outcome, we attempted to statistically check it by using Pearson correlation analysis between R&D expenditures and number of patent applications by selected six Indian pharmaceutical firms. Table 1 reports number of patent applications by six Indian pharmaceutical firms during the years 2010 to 2018. Table 2 reports R&D expenditures by the same pharmaceutical firms as reported in Table 1. As it is clear from the table that there is an increasing trend in the R&D expenditures in most of the selected pharmaceutical companies. Further, Table 3 reports correlation between number of patent applications and R&D expenditures. It can be seen that out of six pharmaceutical firms three firms showed a significant association between R&D expenditures and number of patent applications. Other firms also showed some degree of association though not statistically significant. So, it can be said that there is an association between R&D expenditures and innovations. Table 1.­

Table 2.­

98

Innovations Through Mergers and Acquisitions in the Pharmaceutical Sector

Table 3.­

RESULTS AND DISCUSSION The importance of innovation of low-cost drugs and treatment can never be undermined mostly because of its direct benefits to all section of population. After extensive review of literature on the topic, research findings reveal that there is no universal agreement among scholars regarding M&A’s impact on innovation outcomes a few researchers (Barney, 1991; Cohen & Levinthal, 1990; Henderson and Cockburn, 1993; Koenig & Mezick, 2004; Higgins et al., 2006; Shibayama et al., 2008; Dierks et al, 2016; Ringel et al., 2017) reported positive impact of M&A’s on pharmaceutical firms innovation outcomes, while others (Grabowski et al., 2008; Munos, 2009; Ornaghi, 2009; La Mattina, 2011; Comanor & Scherer, 2011) reported negative impact of M&A on firms innovative outcomes. So, the answer to the first question “does M&A in pharmaceutical sector increase innovations?” has no clear conclusion and is open for future empirical study. Secondly, the answer to our second research question “how can companies fully utilize M&A activities to increase innovation in pharmaceutical sector?” is explained by different authors and suggested that different factors like integration process, prior experience, complimentary technological knowledge, knowledge base of acquired firm and post- merger and acquisition R&D integration process may have impact on the innovation output of the firm and firm should bear those factors in mind to increase innovation post M&As. Thirdly, the answer to the question “is there any association between R&D expenditures and innovation outcome?” there is no universal consensus among researchers regarding the measurement of innovation. Some researchers’ reliance on the amount of spending on research and development or on patent applications as a means of measuring the productivity and innovation (Koenig, 2004). While others believe that the productivity and actual innovation is the discovery of quality medicines actually benefitting the patients (Ringel et al., 2017). In present study, the authors considered the measurement of innovation based on patent applications as considered by (Koenig, 2004) and after the basic statistic test, submit that there is an association between R&D expenditures and innovation outcomes in the pharmaceutical sector. 99

Innovations Through Mergers and Acquisitions in the Pharmaceutical Sector

SOCIAL AND MANAGERIAL IMPLICATIONS Considering the fast pace and skyrocketing deals in M&A in the global pharmaceutical sector, it is vital to understand their impact on the society. To achieve the global goals and focus on the broader responsibility of pharmaceutical firms towards building a sustainable low-cost preventive and curative treatment mostly for low income countries, the present study explains the link between M&A in pharmaceutical sector and their significance in achieving SDG 3. This study is probably first of its kind to explain how M&A in pharmaceutical sector may help to achieve global goals. A large amount is spent every year on the consolidation phenomenon, the top management involved in M&A decisions must take into account the impact of these inorganic activities on achieving global goals. The study highlights the importance of innovation in pharmaceutical sector especially after their M&A and it may be helpful for researchers, governments, regulatory associations, academicians and people associated with M&A strategy in pharmaceutical industry.

FUTURE RESEARCH DIRECTIONS Our analysis of the topic discovered that cross-border mergers & acquisitions by pharmaceutical firms and their impact on their innovation upshot have not received much attention from academicians which is very striking as pharmaceutical firms are at the forefront in cross-border mergers and acquisitions, this issue can be a great research opportunity. Additionally, second research opportunity may be to explore the innovation outcome of M&A activities by pharmaceutical firms originating from emerging economies like India as there is a dearth of studies on the aforesaid topic. Future studies may take a large sample size and use sophisticated statistical tools to check M&A phenomenon and their impact on achieving SDGs.

CONCLUSION In the last few years, a tremendous amount of attention has been delivered to improve the quality of human beings. A landmark step of setting up SDG 3 helped navigating the entire discourse in a new route. Although the existing literature runs into volumes witnessing what has been done, it still leaves an impression that the millions of miles to be covered to reach the destination safely. The present chapter is an attempt to shed light on where the discourse is halting. Given high number of M&A deals and amount spent on pharmaceutical M&A, it’s imperative to know the outcome of these deals in regards to their contribution in achieving global goals. 100

Innovations Through Mergers and Acquisitions in the Pharmaceutical Sector

As per our knowledge and understanding there is hardly any previous study which underlined the pharmaceuticals M&A effect on achieving global goals. The present chapter focuses on innovations by pharmaceutical companies especially after two firms either merge or one is acquired by another. By innovation of new drugs at low cost pharmaceutical companies can improve access and availability to affordable medicines and treatment to all sections of population. The authors tried addressing how M&A in pharmaceutical industry lead to innovations and subsequently, to achieve SDG 3. A few questions were raised in order to locate a discourse in an appropriate place. The answers to those questions were answered through extensive literature review and basic statistical tools.

REFERENCES Achilladelis, B., & Antonakis, N. (2001). The dynamics of technological innovation: The case of the pharmaceutical industry. Research Policy, 30(4), 535–588. doi:10.1016/S0048-7333(00)00093-7 Ahuja, G. & Novelli, E. (2014). Mergers and acquisitions and innovation. In The Oxford Handbook of Innovation Management. doi:10.1093/oxfordhb/9780199694945.013.026 Barkema, H. G., & Vermeulen, F. (1998). International expansion through start-up or acquisition: A learning perspective. Academy of Management Journal, 41(1), 7–26. Barney, J. (1991). Firm resources and sustained competitive advantage. Journal of Management, 17(1), 99–120. doi:10.1177/014920639101700108 Cloodt, M., Hagedoorn, J., & Van Kranenburg, H. (2006). Mergers and acquisitions: Their effect on the innovative performance of companies in high-tech industries. Research Policy, 35(5), 642–654. doi:10.1016/j.respol.2006.02.007 Cohen, W. M., & Levinthal, D. A. (1990). Absorptive capacity: A new perspective on learning and innovation. Administrative Science Quarterly, 35(1), 128–152. doi:10.2307/2393553 Comanor, W.S. & Scherer, F.M. (2011). Mergers and innovation in the pharmaceutical market. Dierks, R. M. L., Bruyère, O., & Reginster, J. Y. (2018). Critical analysis of valuation and strategical orientation of merger and acquisition deals in the pharmaceutical industry. Expert Review of Pharmacoeconomics & Outcomes Research, 18(2), 147–160. doi:10.1080/14737167.2018.1417040 PMID:29243501

101

Innovations Through Mergers and Acquisitions in the Pharmaceutical Sector

Dierks, R. M. L., Bruyère, O., Reginster, J. Y., & Richy, F. F. (2016). Macro-economic factors influencing the architectural business model shift in the pharmaceutical industry. Expert Review of Pharmacoeconomics & Outcomes Research, 16(5), 571–578. doi:10.1080/14737167.2016.1239534 PMID:27653356 DiMasi, J. A., Grabowski, H. G., & Hansen, R. W. (2016). Innovation in the pharmaceutical industry: New estimates of R&D costs. Journal of Health Economics, 47, 20–33. doi:10.1016/j.jhealeco.2016.01.012 PMID:26928437 Grabowski, H. & Kyle, M. (2008). 11. Mergers and alliances in pharmaceuticals: effects on innovation and R&D productivity. The economics of corporate governance and mergers, p. 262. Griliches, Z. (1981). Market value, R&D, and patents. Economics Letters, 7(2), 183–187. doi:10.1016/0165-1765(87)90114-5 Haspeslagh, P. C. & Jemison, D. B. (1991). The challenge of renewal through acquisitions. Planning review, 19(2), 27-30. Henderson, R., & Cockburn, I. (1993). Scale, scope and spillovers: the determinants of research productivity in the pharmaceutical industry (No. w4466). National Bureau of Economic Research. doi:10.3386/w4466 Heracleous, L., & Murray, J. (2001). The urge to merge in the pharmaceutical industry. European Management Journal, 19(4), 430–437. doi:10.1016/S02632373(01)00046-9 Higgins, M. J., & Rodriguez, D. (2006). The outsourcing of R&D through acquisitions in the pharmaceutical industry. Journal of Financial Economics, 80(2), 351–383. doi:10.1016/j.jfineco.2005.04.004 Horrobin, D. F. (2000). Innovation in the pharmaceutical industry. Journal of the Royal Society of Medicine, 93(7), 341–345. doi:10.1177/014107680009300702 PMID:10928019 Jung, J. (2002). Creating breakthrough innovation during a pharmaceutical merger or acquisition. IBM Institute for Business Value manuscript. Koenig, M. E., & Mezick, E. M. (2004). Impact of mergers & acquisitions on research productivity within the pharmaceutical industry. Scientometrics, 59(1), 157–169. doi:10.1023/B:SCIE.0000013304.40957.0d La Mattina, J. L. (2011). The impact of mergers on pharmaceutical R&D. Nature Reviews. Drug Discovery, 10(8), 559–560. doi:10.1038/nrd3514 PMID:21804580

102

Innovations Through Mergers and Acquisitions in the Pharmaceutical Sector

Makri, M., Hitt, M. A., & Lane, P. J. (2010). Complementary technologies, knowledge relatedness, and invention outcomes in high technology mergers and acquisitions. Strategic Management Journal, 31(6), 602–628. Munos, B. (2009). Lessons from 60 years of pharmaceutical innovation. Nature Reviews. Drug Discovery, 8(12), 959–968. doi:10.1038/nrd2961 PMID:19949401 Nicholls‐Nixon, C. L., & Woo, C. Y. (2003). Technology sourcing and output of established firms in a regime of encompassing technological change. Strategic Management Journal, 24(7), 651–666. doi:10.1002mj.329 Ornaghi, C. (2009). Mergers and innovation in big pharma. International Journal of Industrial Organization, 27(1), 70–79. doi:10.1016/j.ijindorg.2008.04.003 Puranam, P., & Srikanth, K. (2007). What they know vs. what they do: How acquirers leverage technology acquisitions. Strategic Management Journal, 28(8), 805–825. doi:10.1002mj.608 Reeb, D. M. (2017). Measuring the degree of corporate innovation. ADBI Working Paper 781. Tokyo, Japan: Asian Development Bank Institute; Available at https:// www.adb.org/publications/measuring-degree-corporate-innovation Ringel, M. S., & Choy, M. K. (2017). Do large mergers increase or decrease the productivity of pharmaceutical R&D? Drug Discovery Today, 22(12), 1749–1753. doi:10.1016/j.drudis.2017.06.002 PMID:28646641 Shibayama, S., Tanikawa, K., Fujimoto, R., & Kimura, H. (2008). Effect of mergers and acquisitions on drug discovery: Perspective from a case study of a Japanese pharmaceutical company. Drug Discovery Today, 13(1-2), 86–93. doi:10.1016/j. drudis.2007.10.015 PMID:18190869 Tohidi, H., & Jabbari, M. M. (2012). The importance of innovation and its crucial role in growth, survival and success of organizations. Procedia Technology, 1, 535–538. doi:10.1016/j.protcy.2012.02.116 Vyas, V., & Narayanan, K. (2016). Does M&A matter for R&D? Evidence from the pharmaceutical sector in India. In Technology (pp. 89–109). Singapore: Springer. doi:10.1007/978-981-10-1684-4_6 Yoon, E., & Deeken, L. (2013). Why it pays to be a category creator. Harvard Business Review, 91(3), 21–23.

103

Innovations Through Mergers and Acquisitions in the Pharmaceutical Sector

ENDNOTES 1



2



3



4



5

104

https://www.undp.org/content/undp/en/home/sustainable-development-goals/ background https://unstats.un.org/sdgs/files/report/2018/TheSustainableDevelopmentGo alsReport2018-EN.pdf https://pharmaboardroom.com/articles/how-can-pharma-progress-thesustainable-development-goals https://www.thepharmaletter.com/article/pharmaceutical-m-a-deals-in-2018 https://www.pressreader.com

105

Chapter 8

A General Approach for Financial Quantification of Climate Change Risk for Enterprises Mahesh Gangaram Kanak Indian Institute of Management (IIM), Lucknow, India Sunita Purushottam Treeni, India

ABSTRACT Climate change is a major risk for the global economy. Increased frequency of climatic events coupled with unsustainable economic development without considering environmental & social aspects has resulted in runaway climatic impacts. It became evident for all stakeholders to work in unison; which led to formation of Task force on climate-related financial disclosures (TCFD). Financial quantification of climate risk is a new area to be explored & could be an effective measure to tackle climate change. This chapter provides a general approach for financial quantification of climate change risk for businesses to understand & prioritize climate action. Though the approach is limited to the manufacturing sector, it can be used with some modifications for other sectors. It will help find impacts that climate change could pose to supply chain using various tools & evaluation of its usefulness. As ‘Climate Action’ is part of Sustainable Development Goals; it will be useful to understand how integrating TCFD could help enterprises tackle climate change by localizing SDG-13 into their businesses.

DOI: 10.4018/978-1-5225-9940-1.ch008 Copyright © 2020, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

A General Approach for Financial Quantification of Climate Change Risk for Enterprises

INTRODUCTION A pendulum at rest can be said to be in static equilibrium, while a pendulum in motion is in dynamic equilibrium. Similarly, the earth is in dynamic equilibrium, constantly rebalancing through physical and ecological processes that act on both human and geological time scales (CPA, 2017). Everyone has to bear the impact (positive or negative) of Earth’s dynamicity. Industrial revolution has enriched the lives of humans, but at the expense of harmful forces in the natural processes such as the anthropogenic greenhouse gases. Our everyday life is influenced by past and current climatic conditions as depicted in Figure 1. We are habituated to normal living conditions but get sensitive once the conditions fall outside normal. Climate change poses number of challenges to different groups of people. The impact of climate change is severe for those living in the vicinity of areas prone to coastal storms, sea level rise, and other natural disasters. Enterprises are no different and are impacted because of climate change. Almost every type of business is dependent on climate, and hence are affected by climate change risks. Various studies have provided a clear understanding of cause and effect between emissions and climate change. Record-breaking high temperatures, humidity, sea level rise, natural disasters, and many other indicators show that earth is heating up fast, and all emissions that are being released into the atmosphere from fossil fuel burning is changing our climate.

Climate Change Impact in India The rapid rate and magnitude of climate change related impacts is of greatest concern worldwide. India has experienced decreased snow cover, affecting snow-fed and glacial systems such as the Ganges and Brahmaputra as depicted in Figure 2; 70% of the summer flow of the Ganges comes from melt water, erratic monsoon with serious effects on rain-fed agriculture, peninsular rivers, water and power supply, drop in wheat production by 4-5 million tones, with even a 1ºC rise in temperature, rising sea levels causing displacement along one of the most densely populated coastlines in the world, threatened freshwater sources and mangrove ecosystems, increased frequency and intensity of floods with vulnerability of people in coastal, arid and semi-arid zones of the country (Pink, 2016). Studies also indicate that over 50% of India’s forests are likely to experience shift in forest types, adversely impacting associated biodiversity, regional climate dynamics as well as livelihoods based on forest products (Pink, 2016). The biggest impact of climate change is the change in the natural water cycle and this creates a series of cascading impacts on water availability, food, transportation and therefore is material to every business on earth.

106

A General Approach for Financial Quantification of Climate Change Risk for Enterprises

Figure 1. Climate change: processes, characteristics and threats (Source: (Philippe Rekacewicz, 2006))

Figure 2. Impacts of climate change in India (Source: Infographic by Business Today)

107

A General Approach for Financial Quantification of Climate Change Risk for Enterprises

Climate Change Risk to Enterprises World Economic Forum’s (WEF) Global Risks Report for 2019 as shown in Figure 3 lists top risks due to climate change. Enterprises around the world are taking the risks of climate change very seriously. It is not only due to the strong commitment as a global enterprise, but the impact climate change could have on business in the future. As one can see the risks in 2018 have shifted to climate and natural disaster risks and almost all of impacts are related to climate change. By 2019 the risks are same only moved higher in order. The ones marked in green in Figure 3 relate to climate change risks. There are direct or indirect impacts of climate change on businesses. Climate change directly affects the physical assets such as buildings, machinery, equipment and other infrastructure. Indirectly, climate change affects business operations through changes such as new regulations, government policies, market demand, changes in prices and availability of inputs. Some of the climate change risks to business are as follows; Rising Temperature: Extreme temperatures in India indirectly impacts business in the form of reduced labour productivity, increased energy use, different cooling techniques, etc. It could also impact the agricultural productivity. Figure 3. Type of risks exposed to enterprises (Source: (Forum, 2019))

108

A General Approach for Financial Quantification of Climate Change Risk for Enterprises

Precipitation Changes: Higher precipitation in some regions, and less rainfall in others have indirect impacts on yields, buildings, sewerage and ground water availability. Freshwater Loss: A report by the Intergovernmental Panel on Climate Change (IPCC) states that “water and its availability and quality will be the main pressures on, and issues for, societies and the environment under climate change” (IPCC, 2008). The industry demand for water in India is estimated to more than triple between 2000 and 2025 (IWRM, 2007). Decreasing availability, declining quality and growing demand for water are likely to have serious effects on the cost and productivity of companies. Water intensive industries are likely to face reputational damages as water is a controversial issue among local communities. Price Rise of Energy: Climate change affects both supply and demand of electricity: while higher temperatures lead to an increased demand for energy, e.g., for air conditioning and cooling, it also affects supply, e.g., by damaging business operations of energy providers. At the same time, energy needs in India are expected to triple between 2006 and 2025 (CSIS, 2006). For all these reasons, energy prices are likely to show greater volatility and gradually increase over the next decades (CSIS, 2006). Regulatory Requirements: Both the need to reduce greenhouse gas emissions for mitigating climate change and the need to adapt to the impacts of climate change could trigger policy action, changing the framework conditions for business. More stringent regulation affecting business can be expected in the future, especially in the fields of emission reduction and resource consumption. Besides national and state-level regulation relevant to all Indian businesses, Micro, Small and Medium enterprises (MSMEs) need to also anticipate the policies of foreign countries to be competitive in the global value chain (KPMG, 2007). Strategic plans by small and medium-sized enterprises (SMEs) for combating climate change related risks will help them to reduce greenhouse gases, efficient consumption, and reduce pollution discharge and waste output, with increased savings, and access to cleaner technologies. This will in turn help them to grow globally through use of clean technologies, reduce production cost to meet the international demands and hence improve environmental and social performance, while remaining competitive.

Is Financial Quantification of Climate Change Related Risks Really Required? Exposure of enterprises to climate change related risks differ by sector, geography, etc. Climate change related impacts to business has been overlooked by enterprises in pricing their assets due to limited awareness and knowledge of climate change 109

A General Approach for Financial Quantification of Climate Change Risk for Enterprises

related problems to business that prevents identification of such risks. Traditionally, focus of enterprises has been only on short term risks without worrying about the long-term risks. Also, most of the current frameworks in place give little weight to the financial implications of a changing climate. It is not always easy to directly measure the financial impacts of climate change making it difficult to factor it in their strategic decision-making process. Financial community involving investors, lenders, insurers, underwriters, and others need to make important financial decisions in the organization and hence need to understand the impact that climate change related risks would pose to the financial position of the enterprise as reflected through its financial statements like the income statement, balance sheet and cash flow statements. As per HSBC sustainable finance survey, 2017 about 68% of global investors intended to increase their low-carbon related investments to accelerate the transition to a clean energy economy. Growing investor appetite for low carbon investments is strongest in Europe (97%), the Americas (85%) and Asia (68%) (“Sustainable Finance Survey”, 2018). The Middle East (19%) is the only region to experience an annual decline in this trend. Financial community is a key player helping enterprises mitigate the effects of climate change and in turn help themselves in making risk free investment decisions. Due to this growing concern of financial community, it becomes necessary for an enterprise to assess the climate change related impacts and develop solutions to mitigate them, by considering the actual and most probable financial impacts on revenues, expenses, assets, liabilities and other financial parameters. One of the factors inhibiting companies increasing their disclosure levels is the lack of any clear competitive advantage from doing so, specifically with regard to the cost of funding. The main drivers of increased transparency are investor pressure (83%) and international regulation (77%) (“Sustainable Finance Survey”, 2018). Recognizing climate change as an emerging threat to the stability of the financial system, the Financial Stability Board (FSB) formed the Task Force on Climate-related Financial Disclosures (TCFD) to help businesses take into account climate-related issues affecting their operations (Bloomberg Professional Services, 2018). The Task Force developed a set of recommendations that are applicable to organisations in any sector or country, offering guidance on how organisations should disclose climaterelated risk in mainstream financial filings (i.e. annual reports). What happens when floods, droughts, sudden changes in government policies, regulatory changes, etc. would endanger the very existence of enterprises? What does it mean for their livelihoods, security (in terms of investments), and for the wider community? How should they respond to such adverse situations? As climate change is driving such events to become more frequent and intense, we try to analyze its impact on the supply chain of enterprises and help generate an approach which could help them mitigate the risks and ensure its existence to serve the wider 110

A General Approach for Financial Quantification of Climate Change Risk for Enterprises

community. One of the issues facing every industry is the access to methods and tools for quantifying the climate change risks to businesses. So, through this paper, we have provided a general approach that an enterprise could follow to identify the climate change risk, mitigate and quantify the risk which could help the financial community to make risk resistant decisions and help enterprises make a mark globally.

HISTORICAL OVERVIEW There have been numerous debates on global warming and climate change. United Nations and other international bodies have been trying for the past four decades to come up with some fruitful solutions to tackle the issue. Before drawing any conclusion on climate change, we must know about the importance of environmental issues and rise of climate change issues within the same context as depicted in Figure 4. In 1949, the UN Scientific Conference on the conservation & utilization of resources addressed the depletion of natural resources and their use (Jackson, 2007). The main focus was on the ways to manage these resources for economic and social development and not on conservation. Later on, the first UN Conference on the Human Environment held in Stockholm, Sweden, 1972, also known as the First Earth Summit, adopted a declaration that set out principles for the preservation and enhancement of human environment, & an action plan containing recommendation for international environmental action (Jackson, 2007). Climate change issue was raised here for the first time, warning national governments to be precautious of their activities leading to climate change. In 1980, the UN Environment Programme (UNEP) expressed concern over damage to the ozone layer and recommended measures to limit the production and use of chlorofluorocarbons. This culminated into adoption of Vienna Convention for the Protection of the Ozone Layer (Jackson, 2007). In 1988, the Intergovernmental Panel on Climate Change (IPCC), a forum looking after greenhouse warming and global climate change, met for the first time wherein the world meteorological organization (WMO) and UNEP were asked to initiate a broad review and make recommendations on climate change, including possible response strategies to delay, limit or mitigate the impact of climate change. In 1989, the Montreal Protocol on substances that deplete the Ozone Layer came into effect. In 1990, IPCC produced the first Assessment Report which concluded that the temperatures had risen by 0.3-0.6C over the last century (Jackson, 2007). With an urgency for stern action on climate change, the UN Conference on Environment and Development was held in Rio de Janeiro, 1992. Framework for seeking international agreements to protect the integrity of the global environment and Agenda 21, which reflected a global consensus on development and environmental 111

A General Approach for Financial Quantification of Climate Change Risk for Enterprises

cooperation was set up. The cornerstone of the climate change action was, the adoption of the Kyoto Protocol in Japan in Dec 1997, the most influential climate change action. It was started with an aim to reduce the emissions of carbon dioxide and other greenhouse gases by at least 5% below 1990 levels in the commitment period of 2008 to 2012. In 2007, IPCC’s fourth assessment report concluded that it was more than 90% likely that humanity’s emissions of greenhouse gases were responsible for modernday climate change (BBC, 2013). IPCC release its fifth assessment report in 2014. In Dec 2015, the Paris climate conference took place and the Paris Agreement entered into force on 4 November 2016 after the conditions for ratification by at least 55 countries accounting for at least 55% of global greenhouse gas emissions were met. All EU Countries ratified the agreement (“International Agreements on Climate Action”, 2017). The agreement presented a balanced outcome with an action plan to limit global warming ‘well below’ 2°C (International Agreements on Climate Action”, 2017). Figure 4. History of climate change agreements (Source: UN, French Govt)

112

A General Approach for Financial Quantification of Climate Change Risk for Enterprises

Efforts were put in at the national level but didn’t seem to culminate at the regional and individual levels. Now, there was growing concern among the financial and business community on the after effects of climate change on their business. As climate change posed threat to the stability of the financial system, the Financial Stability Board (FSB) formed the Task Force on Climate-related Financial Disclosures (TCFD) to help businesses consider the climate-related issues affecting their business operations. TCFD formed a set of recommendations that were applicable to organisations in any sector or country, offering guidance on how organisations should disclose climate-related risk in financial filings (i.e. annual reports). This would actually make the efforts taken by enterprises and national governments visible on the global scale and help the global community to learn and adopt the best practices to curb climate change risks. Tremendous efforts have been made to make the issue of climate change a central focus of the international agenda and still it continues, even as opposing sides of the debate try to make their case. As evidence of the risks of ignoring climate change become more striking, more participation and combined efforts of the global community is required to win our battle against climate change.

Task Force on Climate-Related Financial Disclosures (TCFD) Background of Task Force on ClimateRelated Financial Disclosures (TCFD) The main driving force behind TCFD has been the Financial Stability Board (FSB), an international body that makes efforts to maintain a stable international financial system. Mark Carney, FSB chairman established the task force in 2015, as per the request from the G20 to understand the financial risks due to climate change. Michael Bloomberg, the U.N. Special Envoy for Climate Action was appointed the chair of the industry-led TCFD (Bloomberg Professional Services, 2018). FSB chose 32 task force members to include users and preparers of disclosures from G20, covering a range of economic sectors and financial markets (Bloomberg Professional Services, 2018). The task force has been working on adoption and implementation initiatives to ensure uptake of the recommendations. It is also working on increasing support for its work from a number of stakeholders.

113

A General Approach for Financial Quantification of Climate Change Risk for Enterprises

Formation of TCFD Climate change has impacted both communities in the form of intensified climate episodes, water risks and the businesses operating in the affected communities. Globally, forward looking enterprises have acknowledged the risks that climate change poses to business and the economy; while at the same time brings opportunities for growth. Growing impact of climate change on business, the Financial Stability Board (FSB) formed the Task Force on Climate-related Financial Disclosures (TCFD) in December 2015. The objective was to address the financial impact climate change poses to businesses and the global financial system through systematic common framework for disclosures. Chaired by Michael Bloomberg, in 2017 the Task Force issued a set of recommendations that would help enterprises disclose useful decision-making information to better understand climate-related financial risks and opportunities (Bloomberg Professional Services, 2018). The recommendations are designed to assist enterprises identify and disclose the potential financial impacts of climate-related risks and opportunities on their businesses, which would help the financial community to better assess and price them. The disclosures would help drive capital towards sustainable investments, building a resilient economy.

Mission of TCFD The Task Force took about 18 months to develop the recommendations which covers sectors and jurisdictions (Bloomberg Professional Services, 2018). They were structured around 4 thematic areas representing the core elements of how organizations operate. The recommendations and the disclosures by TCFD are as shown in Figure 5. As of April 2018, more than 275 companies, with a combined market capitalization of more than $6.6 trillion, have expressed support for the TCFD recommendations. This include more than 160 financial firms, responsible for assets of over $86.2 trillion (Bloomberg Professional Services, 2018).

Importance of TCFD to Various Stakeholders As the risks due to climate change are visible, investors are concerned about the impact of these on long term financial performance. TCFD was established with an aim to help all stakeholders in the global financial system by providing consistent and comparable guidelines for disclosure of climate change related impacts. It would also help investors make informed decisions on investments. With improved disclosure the investor community will have the 114

A General Approach for Financial Quantification of Climate Change Risk for Enterprises

Figure 5. TCFD recommendations and disclosures (Source: TCFD: A game changer by KPMG)

information required to adequately address risks and fund opportunities that will create a more sustainable future. Enterprises could benefit by using the disclosed information to adjust their strategies and processes to be more sustainable and resilient through fruitful actions. Collectively, these actions are what is needed to slow climate change.

PROBLEM STATEMENT In today’s economic environment, progressive enterprises on one hand, aim to have a sustainable business with continuous flow of investments, while the financial community on the other hand wishes to make risk free investments. Nowadays, both the financial community and enterprises are experiencing the effects of climate change. Financial community face the threat of instability in the financial system due to lack of information on the financial disclosures by enterprises. Enterprise must face the consequences of such non-disclosure of financial impacts to business operations due to climate change. There are two major benefits for businesses through this exercise:

115

A General Approach for Financial Quantification of Climate Change Risk for Enterprises

1. Understand how they will be impacted by climate change in financial terms and therefore the potential opportunities to survive in a climate challenged world 2. Gain access to funds from a financial community which is increasingly using climate change preparedness lens for their investments. Therefore, in this chapter, we have formulated a generalized approach by using the various resources, tools, scenario analysis and recommendations of TCFD to financially quantify the risk that climate change poses to enterprises which would in turn help the financial community in making risk free investment decisions.

METHODOLOGY Climate change affects every economic sector; though the impact differs but the losses are sure to be incurred. Financial impacts to enterprises are driven by climate change related risks and opportunities faced by enterprises. We have formulated a generalized approach for enterprises whereby they could first identify the risk due to climate change to their business operations using various resources and tools available. Once the risks are identified and assessed; enterprises could then consider actual and potential financial impacts on revenues, expenditures, assets and liabilities. Risk monitoring and assessment is possible with the help of technological tools that are easily available today and can be modified as per the requirement. Climate change could affect the organization’s financial position over different periods of time. The effects could emerge over medium to longer term, but timing and magnitude are uncertain. This poses varied challenges to businesses and hence businesses need to consider the potential implications of the same under different conditions. One of the ways available to asses such implications is the use of scenario analysis.

Scenario and Scenario Analysis Scenarios are not forecasts or predictions; they are stories methodically developed for the future. They shed light on the day-to-day decisions of the enterprises and help enterprises think of alternative assumptions and develop strategies for the same. Scenario analysis is a well-known methodology to develop strategic plans for a range of future states (“The Use of Scenario Analysis in Disclosure of ClimateRelated Risks and Opportunities”, 2017). Though the method is new for enterprises, it is useful tool for understanding the climate change related risks to enterprises and also help them in combating the same. Its main purpose is to understand the impact of climate change on the business operations and risk that enterprises might 116

A General Approach for Financial Quantification of Climate Change Risk for Enterprises

encounter under different future states. There are number of publicly available climate-related scenarios given by the International Energy Agency (IEA), IPCC, and other bodies that could provide a basis for company, industry or sector wise scenarios. The Task Force has also recommended enterprises to use at a minimum, a 2°Celsius (2°C) scenario and consider using other scenarios most relevant to the organization’s circumstances, such as scenarios related to Nationally Determined Contributions (NDCs), business-as-usual (greater than 2°C) scenarios, physical climate risk scenarios, or other challenging scenarios (“The Use of Scenario Analysis in Disclosure of Climate-Related Risks and Opportunities”, 2017) .

Publicly Available Scenarios Widely available scenarios for enterprises given by the IPCC and IEA are categorized into transition and physical risk scenarios. Transition risk scenarios includes the possible risks to enterprise operations caused by plausible government policies, regulations, deployment of clean technologies to limit the emissions, etc. Physical risk scenarios on the other hand includes the possible risks to enterprise operations caused by the changes on Earth (i.e. Natural disasters, rise in the sea level, etc.). IEA and IPCC scenarios are as shown in Figure 6 and Figure 7 respectively. The scenarios of human influence underlying the AR5 projections are known as RCPs (Representative Concentration Pathways), because they are expressed in terms of greenhouse gas concentrations rather than emission levels. Each RCP implies a different amount of human-driven climate change (i.e., each RCP results in a different amount of extra heat energy being stored in the Earth system as a result of greenhouse gas emissions). The scenarios are developed using assumptions concerning economic growth, choices of technology and land-use. The scenarios reflect a wide range of possible mitigation actions. IEA World Energy Outlook (WEO) Current Policies Scenario (projected to generate warming of 6°C) (“The Use of Scenario Analysis in Disclosure of Climate-Related Risks and Opportunities”, 2017) The Current Policies Scenario considers only those policies that have been formally adopted by governments. This scenario assumes that governments will not propose any policy changes and the business would continue as usual. IEA WEO New Policies Scenario (projected to generate warming of 4°C) (“The Use of Scenario Analysis in Disclosure of Climate-Related Risks and Opportunities”, 2017) It is the central scenario of WEO. It takes into account the policies and implementing measures affecting energy markets that have been adopted, together with relevant policy proposals, even though specific measures necessary to put them into effect may need to be fully developed. 117

A General Approach for Financial Quantification of Climate Change Risk for Enterprises

IEA WEO 450ppm Scenario (projected to limit warming to 2°C) (“The Use of Scenario Analysis in Disclosure of Climate-Related Risks and Opportunities”, 2017) The WEO 450 Scenario takes a different approach. “It adopts a specified outcome: achievement of the necessary action in the energy sector to limit the rise in longterm average global temperature (with a likelihood of 50%) to 2°C and offers steps by which that goal might be achieved.” IEA INDC Paris Agreement Scenario (projected to limit warming to 2.6°C) (“The Use of Scenario Analysis in Disclosure of Climate-Related Risks and Opportunities”, 2017) The INDC Scenario assesses implications of the INDCs submitted before COP21 as the basis for the Paris Agreement. IEA ETP 2DS Scenario (projected to limit warming to 2°C) (“The Use of Scenario Analysis in Disclosure of Climate-Related Risks and Opportunities”, 2017) The IEA has a separate annual publication called “Energy Technology Perspectives” (ETP) which provides scenario analysis of lower carbon technology development and deployment in various sectors. ETP 2016 lays out an energy system development pathway and an emissions trajectory consistent with at least a 50% chance of limiting the average global temperature rise to 2°C.

Figure 6. IEA WEO scenarios to 2040 (Source: IEA. World Energy Outlook, 2015. http://www.worldenergyoutlook.org/weo2015)

118

A General Approach for Financial Quantification of Climate Change Risk for Enterprises

Figure 7. IPCC AR5, climate change: action, trends, and implications for business (Source: Cambridge University Press, 2013)

Climate Change Risks and Opportunities to Enterprises Once the scenarios are identified, enterprises can then look for potential risks that an enterprise will be exposed to. Risks and subsequent impact to enterprises depends on the sector in which the organization operates. Few of the potential risks to enterprises as listed by TCFD are as shown in Figure 8 and Figure 9. Some of the risks may prove advantageous and act as opportunities for overall growth of the enterprise in the future. So, it becomes important for enterprises to look at the 119

A General Approach for Financial Quantification of Climate Change Risk for Enterprises

potential risks as opportunities and channel the forces in the required direction for its overall future growth.

Resources and Tools for Climate Risk Assessment and Adaptation Several tools are available to enterprises to use scenario analysis for risk and impact, and thus develop strategies to mitigate them. Also, there is less time available to devise strategies to tackle the climate change risks once they face them. Most of the tools are available both at global and local level. We have listed out few tools along with detail references for using these tools. Enterprises can make the best use of them as per their requirement. Most of the tools are made available by the World Resources Institute (WRI), US Environmental Protection Agency (EPA), the United Nations Environment Programme (UNEP) and other world-renowned bodies (“The Use of Scenario Analysis in Disclosure of Climate-Related Risks and Opportunities”, 2017) . Though these tools act as reference; enterprises can develop their own technique to analyze the climate change related risks and develop solutions to tackle risk completely. A list of tools for varied purposes have been listed in tables denoted by Figure 10 and Figure 11 with all required data for enterprises.

Metrics for Climate Change Related Risk Quantification Metrics are a useful way for enterprises to assess climate change related risk in quantitative terms and for financial communities to make risk free investment decisions. TCFD recommendations require enterprises to disclose the metrics that Figure 8. Climate change related risks and opportunities to enterprises (Source: FINAL-TCFD-Annex-Amended-121517.pdf)

120

A General Approach for Financial Quantification of Climate Change Risk for Enterprises

they use to assess climate-related risks and opportunities. Financial community needs to understand the way an organization measures and monitors its climate change related risks and opportunities to identify and analyze the risk adjusted investment decisions, exposure to climate related impacts and devise ways to manage their risky investments. So, it becomes an important requirement for enterprises to provide the key metrics that they use to handle climate change related risks. Enterprises deal with number of climate risks, and so should consider elements such as water, energy, land, and waste management in their metric formulation. TCFD also recommends enterprises to provide details of the methodology used to formulate the metrics. Metrics depend on the targets that enterprise sets for itself to be achieved with respect to climate change risk. There could be numerous targets related to GHG emissions, water use, land use, different sources of energy use, fleet used for transportation, efficiency of the workers, financial loss tolerances, sale of products and services based on consumer behaviour, etc. So, enterprises need to build up relevant and useful metrics pertaining to the targets that they aim to achieve related to climate change related risks. Table denoted by Figure 12 shows a list of metrics and their features as recommended by TCFD.

Figure 9. Risk types exposed to an enterprise (Source: https://www.pwc.co.uk/ sustainability-climate-change/assets/pdf/tcfd-final-report.pdf)

121

A General Approach for Financial Quantification of Climate Change Risk for Enterprises

Figure 10. Tools available to enterprises for climate change related scenario analysis

122

A General Approach for Financial Quantification of Climate Change Risk for Enterprises

Figure 11. Tools available to enterprises for scenario analysis

Detailed Financial Quantification Approach Please note, the general approach as mentioned requires tremendous efforts to be done at the ground level by the different departments of the enterprise. We have just given an approach on paper which could be utilized as a reference by enterprises themselves to come up with a satisfactory solution, that could help other enterprises around the world to implement the same in their organizations and benefit from it. This can be a major breakthrough in the field of climate change wherein the enterprise would benefit financially and help build a sustainable environment. The formulated general approach could be modified as per the area of expertise and business for quantification of climate change related risk. Climate accounting has become a major concern among financial community who need to understand the risk posed by climate change to enterprises to make risk-free investment decisions. In turn, it becomes mandatory for enterprises to disclose the climate change risk and impact to their business for timely reception of investments. Currently, there is no fixed approach for climate change related risk quantification. So, we have tried to analyze the plausible risks and impacts that climate change could pose to enterprises and tried to convert the same in monetary terms to observe the impact 123

A General Approach for Financial Quantification of Climate Change Risk for Enterprises

Figure 12. Metrics for climate change risk quantification (Source: TCFD Annexure document; FINAL-TCFD-Annex-Amended-121517.pdf)

124

A General Approach for Financial Quantification of Climate Change Risk for Enterprises

on financial statements. Since we have analyzed only few general risks that could be applicable to any business this approach will require sectoral contextualization. First step to quantification of risk is identification of risks. For identification of different risk in quantitative terms, we need to monitor the different stages using different technological tools available and make modifications as per requirement. These tools not only capture and monitor the risk; but also forecasts the potential damage to businesses. For ease of understanding, we have analyzed the various stages of the supply chain of an enterprise as denoted by Figure 13 and tried to use scenario analysis to calculate the impact of climate change risk to each of these stages in economic terms. We need to use different scenarios i.e. range of temperature rise; 1.5-2o C, 2-3.6 and above 3.6oC, etc. and analyze the impact of risk for each of these scenarios in monetary terms. And then proceed with analysis of next part in each of the other stages. Proposed strategies could be deployed by enterprises to tackle the risks and gains that could be enjoyed by them. We will then collate all the cost and investments to see the overall effect on financial statement.

Use of Technology for Monitoring and Measurement of Climate Related Risk and Impact to Enterprises Quantifying climate related risk requires monitoring and measurement of various risk parameters. There are various tools available to enterprises for risk monitoring, assessment and evaluation. Technology has been a saviour in every journey that impacts enterprises. There are various technological tools available today that monitors the environmental and health risk to businesses and analyzes their impact in monetary terms. Tools that even perform predictive analytics to help enterprises adapt to or mitigate the various risks to their business. It is up to the enterprises to look upon these technological interventions as assets to achieve a sustainable competitive advantage in an uncertain environment. The scenarios useful for understanding the risk to enterprises could be integrated into the systems or new systems can be Figure 13. Stages in the Supply chain of an enterprise (Source: Produced by the authors of the paper)

125

A General Approach for Financial Quantification of Climate Change Risk for Enterprises

developed using the scenarios. So, end to end flow across the supply chain can be monitored, assessed and analyzed using the tools, and adaptive or mitigation mechanisms could be put in place based on the prediction from the analyzed data. So, it becomes important for enterprises to leverage use of these technological tools to their utmost advantage and also innovate in the process.

Procurement of Raw Material Enterprises either would outsource their raw material or themselves extract and process the goods. So, we analyze the different physical and transition risk posed to suppliers in extraction, processing and delivery of the raw material. Different risks involve plausible damage to supplier units, reduced availability of water, energy sources, etc. due to extreme weather conditions, regulatory and policy changes causing the supplier to change the extraction and processing process. All these Figure 14. Impacts due to climate change in the raw material procurement stage of supply chain (Source: Produced by authors of the paper)

126

A General Approach for Financial Quantification of Climate Change Risk for Enterprises

would lead to change in the raw material price for the enterprise and would in turn affect their expenditure and revenues. In cases where the enterprise itself extracts and processes raw materials, risks would be the same; except that the effect would be felt by end user and in turn affect the enterprise in terms of consumer demand. Table denoted by Figure 14 shows various risks and impacts posed to enterprises; Figure 15. ­

Figure 16. Impacts due to climate change in the manufacturing stage of supply chain (Source: Produced by authors of the paper)

127

A General Approach for Financial Quantification of Climate Change Risk for Enterprises

Figure 17. ­

whereas Figure 15 shows changes in financial statement parameters at the raw material procurement stage.

Manufacturing or Production of Finished Goods Enterprises depend on machinery, labour, manufacturing unit (property used for manufacturing activity), energy source, water, etc. for production of finished goods using the procured raw materials. Climate change poses number of challenges to the manufacturing process. Physical risks like extreme weather conditions pose threat to the manufacturing unit based on its vulnerability to weather events, causes threat to life as it affects the efficiency and productivity of workers thereby reducing the goods produced leading to reduced fulfillment of the expected demand. Transition risks like change in government policies and regulations pertaining to mandatory clean energy sources, requirement of clean technologies, etc. affects revenues, 128

A General Approach for Financial Quantification of Climate Change Risk for Enterprises

Figure 18. Impacts due to climate change in the warehousing stage of supply chain (Source: Produced by authors of the paper)

expenses, assets, liability of the enterprise as shown in the table. Table denoted by Figure 16 shows various risks and impacts posed to enterprises and Figure 17 shows the changes in the financial statement parameters at the manufacturing stage in the supply chain.

Warehousing (Storage of Finished Goods for Delivery) Climate change affects the storage facility of goods in a similar way as other stages. There could be impacts to the storage facility, assets, personnels working in the storage center, goods stored, need for investment in clean energy sources due to regulatory changes as mandated by the government, etc. Enterprises need to invest to think about the same using various scenarios and come up with mitigation and resilience measures to tackle climate change. Table denoted by Figure 18 shows the various risks and quantitative impacts posed to enterprises and Figure 19 shows changes in the financial statement parameters in the warehousing stage in the supply chain. 129

A General Approach for Financial Quantification of Climate Change Risk for Enterprises

Figure 19. ­

Distribution of Goods to Consumers Enterprises have a huge fleet of personnels and vehicles for delivery of goods to consumers. So, it becomes necessary for enterprises to keep a look at the policy and regulatory requirements of the government pertaining to the delivery stage of supply chain. Enterprises may have to spend too much if they have to face the sudden shock by the government with regards to changes in the vehicular fleet (working on clean energy sources). Climate change could cause damage to the distribution network, personnels handling the distribution channels, goods, and pose challenges 130

A General Approach for Financial Quantification of Climate Change Risk for Enterprises

in terms of changing the sources of energy for a clean environment. So, it becomes necessary for an enterprise to immediately invest in R&D of clean technologies, vehicular fleet with clean fuels, and other changes to benefit from threats posed by climate change. Table denoted by Figure 20 shows the various risks and quantitative impacts posed to enterprises and Figure 21 shows changes in the financial statement parameters in the distribution stage.

Consumption of Goods by Consumer Consumer preferences have been changing as they are seen to be more sensitive towards climate change. Consumers understand the risk that climate change could pose to their survival, and hence have modified their way of living. So, in response enterprises need to make amendments to their usual way of manufacturing products. Consumers nowadays prefer low waste and emission generation products. They need more of environment friendly means of product manufacturing and packaging. Enterprises need to cater to changing consumer needs by investing in R&D of Figure 20. Impacts due to climate change in the distribution stage of supply chain (Source: produced by authors of the paper)

131

A General Approach for Financial Quantification of Climate Change Risk for Enterprises

Figure 21. Impacted financial parameters due to climate change at the distribution stage (Source: Produced by authors of the paper)

environment friendly products and packaging techniques. Table denoted by Figure 22 shows various risks and quantitative impacts posed to enterprises and Figure 23 shows changes in the financial statement parameters in the consumption stage.

Disposal of Waste Generated by the Enterprise Huge amount of waste is generated while producing a product and post its use. There have been many advancements in packaging technologies that reduces 132

A General Approach for Financial Quantification of Climate Change Risk for Enterprises

Figure 22. Impacts due to climate change in the consumption stage of supply chain (Source: Produced by authors of the paper)

Figure 23. Impacted financial parameters due to climate change at the consumption stage (Source: Produced by authors of the paper)

emissions and waste. Since the consumer prefers a sustainable future, enterprises need to devise strategies to reduce waste and emissions generating out of it to meet consumer expectations. Also, the enterprise could face challenges if government 133

A General Approach for Financial Quantification of Climate Change Risk for Enterprises

levies a charge on emissions arising out of the generated waste. So, enterprises need to make investment in research on understanding consumer needs and also on development of environment friendly waste disposal techniques. Table denoted by Figure 24 shows various risks and quantitative impacts posed to enterprises and Figure 25 shows changes in the financial statement parameters in the waste disposal stage of the supply chain.

Opportunities to Enterprises Due to Climate Change Risk Climate change though poses risk to enterprises, it could benefit them as well. Enterprises should foresee the risks and develop strategies in place to tackle them so as to benefit from the opportunities arising out of these risks. Few of the opportunities are stated below. So, enterprises should consider climate change as an opportunity rather than a risk for a sustainable future. REDUCE Energy Cost: As climate change risk requires enterprises to invest in clean energy sources, technologies, etc. to meet the plausible policy or regulatory requirements; enterprises would benefit from the investment as they would no longer need any further investment when such scenario actually occurs.

Figure 24. Impacts due to climate change in the disposal stage of supply chain (Source: Produced by authors of the paper)

134

A General Approach for Financial Quantification of Climate Change Risk for Enterprises

Figure 25. Impacted financial parameters due to climate change at the disposal stage (Source: Produced by authors of the paper)

IMPROVE Energy Efficiency: If the enterprise invests in clean technologies, efficient means of transportation, environment friendly product manufacturing and disposal techniques, they would enjoy the benefits in terms of improved energy efficiency. So, if in case any risks due to changes in regulations, policies or consumer behaviour becomes a reality, enterprises need not worry, as they already would be having all the efficient sources of energy in place. DEVELOP New Products and Services: Enterprises would invest in R&D of new products, technologies, understand changing consumer behaviour, etc. with low or zero emissions and waste in response to the climate change related risk that they assume would be true as per their scenario analysis. So, enterprises would enjoy the benefits of increased demand of their products as they would be having the required changes as mandated. DIVERSIFY the Business: Since enterprises would be investing in clean technologies, assets, etc. it would altogether make them venture into a new business which would be environment friendly, allowing them to enter into new sustainable markets, better processes and handle their businesses. So, an enterprise gets the opportunity to diversity its business portfolio. Enterprises could use Net present value (NPV), which is the difference between the present value of cash inflows and outflows over a period of time to analyze the 135

A General Approach for Financial Quantification of Climate Change Risk for Enterprises

profitability of the investment that they could make in clean technologies and others to tackle climate change risks. It is given by the mentioned formula. This would additionally help them realize the opportunities that climate change risk could provide to their business. T

(

)

NPV = ∑ C t / (1 + r )t − C 0 t =1

where, Ct = net cash inflow during the period t, Co = total initial investment costs, r = discount rate, and t = number of time periods (Kenton, 2019).

Linking Enterprise Strategy on Climate Related Risk with SDG 13 (Take Urgent Action to Combat Climate Change and Its Impacts) Actions to mitigate climate change risk are also a part of the sustainable development goals (SDG 13 as shown in Figure 26) which came as part of the post-2015 development agenda. Climate change could be tackled only if SDGs are met. The Government of India has been making efforts through devising policies and action plans on climate change. It is not public sector alone who could bring about a change. It becomes necessary for everyone including individual people, universities, governments and institutions and organizations work towards these goals at same time as these 17 SDGs are all interlinked. As India is most vulnerable to the effects of climate change, public and private sectors need to partner together and devise policies, strategies and use technology to help each other; and wider community mitigate and achieve the climate action target. Though Government has formed policies and action plans for India as a whole; Enterprises could localize the SDG on climate action into their businesses. TCFD recommendations along with SDG 13 goal would provide more specific targets for enterprises to monitor and analyze climate related risk. Aligning the enterprise level priorities related to climate risk with the SDG targets, developing the scenarios based on TCFD recommendations and using technological interventions would help enterprises convert the risk into opportunities and utilize it to their full advantage for a sustainable future.

136

A General Approach for Financial Quantification of Climate Change Risk for Enterprises

BENEFITS OF FINANCIAL QUANTIFICATION OF CLIMATE CHANGE RISK Handling of climate change related risk would only benefit the concerned handler (either an enterprise, insurers, creditors, etc.), but handling and disclosure through financial quantification of climate change related risk benefits a large number of audience (or stakeholders). The benefits though different are interdependent on one another. There is no comparison on who benefits more or less. Every stakeholder finds it useful for making informed decisions in their area of business if the climate change related risk is financially quantified. We will now see how each stakeholder benefits from the financial quantification of climate change risk, and how are they interlinked as depicted by Figure 27.

Economic Benefits Economic progress depends on the level of transparency maintained by different stakeholders and thus a healthy competition taking into account all the factors required for a sustainable future. In context of financial quantification of climate changed related risk and its disclosure, it becomes necessary for enterprises to quantify the risk so as to help the financial community make informed decisions on their investment. We will now see how each of these stakeholders benefits from the financial quantification of climate change related risk.

Benefits to Financial Community Financial community involving investors, lenders, insurers, regulators, policy makers, and other stakeholders in the financial markets are the major risk bearers of

Figure 26. SDG-pyramid

137

A General Approach for Financial Quantification of Climate Change Risk for Enterprises

Figure 27. Benefits due to climate change risk quantification for sustainable progress

climate change. So, it becomes necessary for them to have a clear picture of climate change related risk on their investment for making informed investment decisions. Financial quantification of climate change risk will help prevent large shocks stemming from different types of climate risk. Disclosure rules to enterprises on financial quantification of climate change risk will protect the financial community and help maintain market stability. It will in turn provide them with the information they need to avoid capital losses and prevent disorderly changes in asset prices. Financial community depends on the disclosures made by enterprises in their financial statements, to make appropriate investment decisions. So, financial community are the major beneficiaries of financial quantification of climate change related risk which help them make informed investment decisions and maintain economic stability.

Benefits to Enterprises Enterprises need capital to run their business sustainably. They are dependent on financial community for the same and in turn need to disclose their financial position to investors to receive appropriate capital. So, enterprises need to financially quantify the climate change related risk to their business and make them part of their financial fillings for timely receipt of capital and investment for carrying out their business. Disclosure of climate change related risk in financial terms provides decisionuseful environmental information to markets via the mainstream corporate report. It provides secure and more complete, meaningful, reliable, and consistent data across all sectors or divisions within an enterprise that helps investors clearly understand the risks and steps to mitigate them. There is more transparency of business risk in financial terms; leading to increased investments for sustaining the business. This provides competitive advantage too as the enterprise would be fully transparent to the world in terms of the risk to their business in financial terms and help them in 138

A General Approach for Financial Quantification of Climate Change Risk for Enterprises

their overall growth. Also, the enterprises do not need to incur any additional cost for quantifying the data as TCFD is aligned with other reporting entities and their recommendations overlap with widely used frameworks such as GRI and CDP. So, the financial quantification of climate change risk provides enterprises a competitive edge over others and thus helps seek investment from financial community for making sustained business decisions.

Environmental Benefits With efforts of financial community and enterprises in disclosing the climate change related risk, both the stakeholders will try to practically implement measures to tackle the risk and the enterprise will make the financial statement worthy enough for large investments from financial investors. Conscious efforts both these parties will benefit the environment at large. Risks such as taxation on carbon emissions, clean technology and sources of energy will make enterprises reduce their carbon footprint and thereby reduce their environmental impact. Many other efforts by enterprises will help make the environment sustainable to live in. So, conscious efforts and practices in place would help enterprises and other stakeholders to sustain themselves and hence the environment for a better tomorrow.

Social Benefits Financial community, enterprises, environment and all others make up the society. As all the stakeholders are dependent on each other, the society also benefits as a whole if the other stakeholders benefit. Society develops with people and hence it is essential for the people in enterprises, financial communities, environment, etc. to disclose the climate change related risk to their business and help in the betterment of the society. In short, financial quantification of climate change related risk and its disclosure by enterprises benefits number of stakeholders and helps in developing a progressive society with a sustainable future.

LIMITATIONS OF THE STUDY Our approach is a general case for enterprises in the manufacturing sector. But it could be modified as per the area of business by other sectors too. The risk due to climate change are similar for most of the sectors in manufacturing, with risks for fossil fuel utilities higher. Impact differs widely.

139

A General Approach for Financial Quantification of Climate Change Risk for Enterprises

We have considered all the stages of supply chain for a manufacturing enterprise; as it covers the overall nature of its profit-making business. So, it becomes easier to understand the risk due to climate change on these stages and then collate them to understand the overall impact in financial terms. Inspite of our area of study being restricted to only manufacturing sector, enterprises in other sectors could modify it and develop their own approach. In this way, we could have approaches from each sector that could be studied in more detail and correlated to generate a single approach for all enterprises across the globe. The approach has not been tested due to time constraints for our study; but is an effort to help enterprises carry out their own testing by involving various concerned departments to provide their data that could be combined to generate the final financial statements. Enterprises should take into account every aspect of this approach and combine it with other sustainability approaches to streamline their method of disclosing their sustainability efforts that could save time and money.

CONCLUSION There has been increasing demand from financial community for financial quantification of climate change related risk to enterprises at the global, regional and local level. Though TCFD has been formed with a view to inculcate this requirement, it is only practically possible if conscious efforts are made by all the stakeholders. Enterprises across the globe are indeed facing the impacts of climate change in terms of reduced employee efficiency, damaged infrastructure, low quality produce, etc. and so it becomes necessary for them to take urgent action to tackle the same. A large body of literature is available on the various tools available for analyzing the scenarios due to climate change; which could be utilized by enterprises to evaluate the impact on their own businesses and financial disclose it too. Financial community, on the other hand require such transparency in risk disclosure to make informed investment decisions. Our analysis though not tested would prove useful; if the approach is analyzed and included by enterprises in their own approach of making financial disclosures. The approach would provide a complete report of the various risk that an enterprise is exposed to and help them tackle the risk (through required investments) and thereby reduce or eliminate them. Though the risks as highlighted in this paper, are relevant and require urgent attention; financial quantification of impacts to enterprises is a complex process. So, it is important for enterprises to analyze their every business operation and risks that climate change could pose to their operations in financial terms. And, accomplishment of this task requires efforts from various departments of the enterprise. Through this paper, we have made sincere efforts to provide insights into 140

A General Approach for Financial Quantification of Climate Change Risk for Enterprises

the risks that climate change poses to enterprises and the part that enterprises can play in adopting appropriate measures to adopt to risk quantification and in doing so make their global value chains more resilient. Much more work needs to be done by enterprises in their own perspective as the approach requires data that is spread out across the enterprise. Once enterprises from various sectors build their own approaches using our general approach as the base, we could analyze the approaches further to understand the common link and then propose the best approach. In conclusion the approach as mentioned in the paper is a general case for enterprises to financially quantify the climate change related risk and help them mitigate or eliminate the risk through appropriate adaptation and resilience techniques.

REFERENCES A brief history of climate change. (2013, Sept. 20). Retrieved from https://www. bbc.com/news/science-environment-15874560 A four step process for modelling climate risk - BNP Paribas CIB. (2018, April). Retrieved from https://cib.bnpparibas.com/sustain/a-four-step-process-formodelling-climate-risk_a-3-946.html A framework to assess and disclose the impact of climate change on financial performance. (2018, April). Retrieved from https://www.mmc.com/content/dam/ mmc-web/Global-Risk-Center/Files/nacd-governance-challenges-2017.pdf ap2s-climate-report-based-on-tcfds-recommendations. (2018, April). Retrieved from http://www.ap2.se/globalassets/hallbarhet-agarstyrning/klimat/tcfd/ap2s-climatereport-based-on-tcfds-recommendations.pdf Aaheim, A., Fuglestvedt, J. S., & Godal, O. (2006). Costs savings of a flexible multigas climate policy. Energy Journal (Special Issue No. 3, 2006), 485-501. Retrieved from https://www.researchgate.net/publication/237375750_Tittel_Costs_Savings_of_a_ Flexible_Multi-Gas_Climate_Policy_Title_Costs_Savings_of_a_Flexible_MultiGas_Climate_Policy Aamaas, B., Peters, G., & Fuglestvedt, J. S. (2013). Simple emission metrics for climate impacts. Earth System Dynamics 4 (2013), 145-170. Retrieved from https:// www.earth-syst-dynam.net/4/145/2013/esd-4-145-2013.pdf Actuaries Climate Risk Index. (2018, April). Retrieved from http://www.naic.org/ cipr_topics/topic_actuaries_climate_risk_index.htm

141

A General Approach for Financial Quantification of Climate Change Risk for Enterprises

An integrated method for assessing climate-related risks and adaptation alternatives in urban areas - ScienceDirect. (2018, April). Retrieved from https://www.sciencedirect. com/science/article/pii/S2212096315000042 BCorp_Calculating_Greenhouse_Gas_Emissions. (2018, April). Retrieved from http://www.bcorporation.net/sites/default/files/documents/portal/BCorp_ Calculating_Greenhouse_Gas_Emissions.pdf BHP approach for climate change. (2018, April). Retrieved from http://eneken.ieej. or.jp/data/7380.pdf Bloomberg launches first tool to measure risk of carbon assets still in ground EcoWatch. (2018, April). Retrieved from https://www.ecowatch.com/bloomberglaunches-first-tool-to-measure-risk-of-carbon-assets-still-i-1881837407.html Center for Strategic and International Studies (CSIS). (2006). India’s Energy Dilemma. Available at http://csis.org/files/media/csis/pubs/sam98.pdf CEO Guide to TCFD. (2016, January). Retrieved from https://www.wbcsd.org/ Overview/Resources/General/CEO-Guide-to-climate-related-financial-disclosures Ceres_climate_risk_disclosure_in_SEC_Filings.pdf. (2018, April). Retrieved from https://www.greenbiz.com/sites/default/files/document/Ceres_Climate_Risk_ Disclosure_in_SEC_Filings.pdf CICERO. (2018, April). Retrieved from https://www.cicero.oslo.no/en/ciceroclimate-finance/what-is-climate-risk Climate change & the global economy: Quantifying the impact - Individual Investors - Schroders. (2018, April). Retrieved from http://www.schroders.com/en/ us/private-investor/insights/economic-views/climate-change--the-global-economyquantifying-the-impact/ Climate change: Perspectives from India. (2018, April). Retrieved from http://www. undp.org/content/dam/india/docs/undp_climate_change.pdf Climate resilience evaluation & awareness tool (CREAT) | U.S. climate resilience toolkit. (2018, April). Retrieved from https://toolkit.climate.gov/tool/climateresilience-evaluation-awareness-tool-creat Climate risk disclosure & scenario analysis archives - four twenty seven. (2018, April). Retrieved from http://427mt.com/category/solutions/climate-risk-disclosurescenario-analysis/

142

A General Approach for Financial Quantification of Climate Change Risk for Enterprises

Compendium on methods and tools to evaluate impacts of, vulnerability and adaptation to climate change. (2018, April). Retrieved from https://unfccc.int/files/ not_assigned/c/application/pdf/compendium.pdf CPA. Canada. (2017, January). The time value of carbon: Smart strategies to accelerate emission reductions. Retrieved from https://www.cpacanada.ca/-/media/ site/business-and-accounting-resources/docs/g10225-rg-time-value-of-carbonsmart-strategies-to-accelerate-emission-reductions-january-2017.pdf? CRiSTAL users’s manual - V5 - Community-based risk screening tool – adaptation and livelihoods. (2018, April). Retrieved from https://www.iisd.org/pdf/2012/ cristal_user_manual_v5_2012.pdf CSSR_Ch4_climate_models_scenarios_projections. (2018, April). Retrieved from https://science2017.globalchange.gov/downloads/CSSR_Ch4_Climate_Models_ Scenarios_Projections.pdf Deciphering the task force on climate-related financial disclosures (TCFD). (2018, May 2). Retrieved from https://www.bloomberg.com/professional/blog/decipheringtask-force-climate-related-financial-disclosures-tcfd/ 2. degree investing. (2018, April). Retrieved from https://2degrees-investing.org/ Developing climate-related financial disclosures - financial stability board. (2016, January). Retrieved from http://www.fsb.org/what-we-do/policy-development/ additional-policy-areas/developing-climate-related-financial-disclosures/ Final TCFD Report June 2017. (2017, June). Retrieved from https://www.slideshare. net/turloughguerin/final-tcfd-report-june-2017 Forum, W. E. (2019). The Global Risks Report 2019. World Economic Forum. Retrieved from https://www.weforum.org/reports/the-global-risks-report-2019 Homepage, T. C. F. D. (2016, Jan.). Retrieved from task force on climate-related financial disclosures | TCFD. Retrieved from https://www.fsb-tcfd.org/ How climate change could affect corporate valuations | McKinsey & Company. (2018, April). Retrieved from https://www.mckinsey.com/business-functions/ strategy-and-corporate-finance/our-insights/how-climate-change-could-affectcorporate-valuations How to understand climate change scenarios | CoastAdapt. (2018, April). Retrieved from https://coastadapt.com.au/how-to-pages/how-to-understand-climate-changescenarios

143

A General Approach for Financial Quantification of Climate Change Risk for Enterprises

India is one of most vulnerable nations to climate change impacts | The Third Pole. (2018, April). Retrieved from https://www.thethirdpole.net/en/2017/11/12/climaterisk-perilously-high-in-india/ International agreements on climate action. (2017, Oct. 23). Retrieved from https:// www.consilium.europa.eu/en/policies/climate-change/international-agreementsclimate-action/ International Water Management Institute (IWRM). 2007. India’s water future to 2025–2050: Business-as usual scenario and deviations. Available at http://www. iwmi.cgiar.org/publications/IWMI_Research_Reports/PDF/PUB123/RR123.pdf IPCC. (2008). Introduction to climate change and water. Technical paper. Available at http://www.ipcc.ch/pdf/technical-papers/ccw/chapter1.pdf Jackson, P. (2007, June). From Stockholm to Kyoto: A brief history of climate change | UN Chronicle. Retrieved from https://unchronicle.un.org/article/stockholm-kyotobrief-history-climate-change Jupiter launches climate data, analytics and technology platform to predict and manage weather and climate change risks. (2018, April). Retrieved from https:// globenewswire.com/news-release/2018/02/12/1339285/0/en/Jupiter-LaunchesClimate-Data-Analytics-and-Technology-Platform-to-Predict-and-Manage-Weatherand-Climate-Change-Risks.html Kenton, W. (2019, June 25). Net present value (NPV). Retrieved from https://www. investopedia.com/terms/n/npv.asp KPMG. (2007). Climate change: Is India Inc. prepared? A KPMG study. Available at http://www.kpmg.de/docs/080802_Climate_Change_Is_India_Inc_ready.pdf lb-na-26587-en-n. (2018, April). Retrieved from http://publications.jrc.ec.europa. eu/repository/bitstream/111111111/31663/1/lb-na-26587-en-n.pdf Managing climate-related financial risk – lessons from Adani. (2018, Feb). The fifth estate. Retrieved from https://www.thefifthestate.com.au/energy-lead/localgovernment-energy-lead/managing-climate-related-financial-risk-lessons-fromadani Measuring-physical-climate-risk-white-paper_four-twenty-seven-2017.pdf. (2018, April). Retrieved from http://427mt.com/wp-content/uploads/2017/11/MeasuringPhysical-Climate-Risk-White-Paper_Four-Twenty-Seven-2017.pdf

144

A General Approach for Financial Quantification of Climate Change Risk for Enterprises

Models to Scenarios | ACER-ACRE. (2018, April). Retrieved from http://www. acer-acre.ca/resources/climate-change-in-context/over-riding-concepts/models-toscenarios NITI Aayog | Energy and International Cooperation Vertical. (2018, April). Retrieved from http://indiaenergy.gov.in/wp-content/uploads/2017/09/Knowledge-Initiatives. pdf NITIBlog20_AnilJain. (2018, April). Retrieved from http://niti.gov.in/writereaddata/ files/document_publication/NITIBlog20_AnilJain.pdf Note-10-EMCompass-How-New-Data-Tools-Can-Assess-Climate-Risks. (2018, April). Retrieved from https://www.ifc.org/wps/wcm/connect/eff61c3e-5172-46fd8a31-defa84b9f556/Note-10-EMCompass-How-New-Data-Tools-Can-AssessClimate-Risks.pdf?MOD=AJPERES Philippe Rekacewicz, U.-A. (2006). UNEP/GRID Arendal 2006. Vital climate change graphics update, 1. Retrieved from http://old.grida.no/graphicslib/detail/ climate-change-processes-characteristics-and-threats_15a8# Pilot Project on Implementing the TCFD Recommendations for Banks – United Nations Environment – Finance Initiative. (2016, January). Retrieved from http:// www.unepfi.org/banking/tcfd/ Pink, R. M. (2016). Water rights in Southeast Asia and India. Houndmills, Basingstoke, Hampshire: Palgrave Macmillan; doi:10.1057/9781137504234 Quantifying global supply chain risks due to climate change. (2018, April). Retrieved from https://phys.org/news/2014-02-quantifying-global-chain-due-climate.html Quantifying the economic cost of climate change - YouTube. (2018, April). Retrieved from https://www.youtube.com/watch?v=yNYZJD_llno Quantifying the influence of global warming on unprecedented extreme climate events | PNAS. (2018, April). Retrieved from http://www.pnas.org/content/114/19/4881 Risk: Trying to quantify our uncertainty - YouTube. (2018, April). Retrieved from https://www.youtube.com/watch?v=MmnPdXZz-S8 Slides klimaat/climate adaptable society programma. (2018, April). Retrieved from http://www.climateurope.eu/wp-content/uploads/2017/05/Webinar6_Presentation2_ EddyMoors.pdf

145

A General Approach for Financial Quantification of Climate Change Risk for Enterprises

Supply chain management in view of climate change: an overview of possible impacts and the road ahead | Dasaklis | Journal of Industrial Engineering and Management. (2018, April). Sustainable finance survey. (2018, Nov. 11). Retrieved from https://www.hsbc.com/ media/media-releases/2017/sustainable-finance-survey TCFD-Technical-Supplement. (2016, Jan). Retrieved from https://www.fsb-tcfd.org/ wp-content/uploads/2016/11/TCFD-Technical-Supplement-A4-14-Dec-2016.pdf The economic threat of climate change. ‘Business-as-usual is actually radical risktaking’ |Greentech Media. (2018, April). Retrieved from https://www.greentechmedia. com/articles/read/running-the-numbers-how-businesses-can-calculate-their-climatechange-risk#gs.pdCeing The impact of climate risks on companies, the case of Orange. (2018, April). Retrieved from https://e-rse.net/impact-risques-climatiques-entreprises-cas-orange269256/#gs.CUJreV4 The Use of Scenario Analysis in Disclosure of Climate-Related Risks and Opportunities [Technical Supplement]. (2017, June). Water shortages cost Indian energy companies billions | World Resources Institute. (2018, April). Retrieved from http://www.wri.org/blog/2018/02/water-shortagescost-indian-energy-companies-billions 7. ways climate change affects companies. (2018, April). Retrieved from https://www. investopedia.com/financial-edge/0210/7-ways-climate-change-affects-companies. aspx

146

147

Chapter 9

Sustainable Business Model in B2C Online Retailing: An Indian Consumer Perspective Suhail Ahmad Bhat University of Kashmir, India Mushtaq Ahmad Darzi University of Kashmir, India Sami Ullah Bhat University of Kashmir, India

ABSTRACT The main purpose of the chapter is to empirically analyze the impact of trust, innovation, usefulness, concentrated product category, and customer support service on commitment which in turn influences eWOM and sustainable consumption. Sustainable consumption ultimately influences sustainable competitive advantage. The study has adopted SEM approach, where an instrument was developed in the form of structured questionnaire (using both EFA and CFA) regarding the abovementioned variables. A survey has been conducted via online and offline mode in the state of Jammu and Kashmir (India) and a sample of 589 respondents has been drawn randomly from the population of e-shoppers. The results of the study have revealed that sustainable online shopping dimensions have a significantly positive impact on the commitment which in turn has a significantly positive influence on eWOM and sustainable consumption. The study has unique contribution in the online retail industry, which is continuously incurring huge losses in the online marketplace by incorporating sustainability dimensions in B2C business models.

DOI: 10.4018/978-1-5225-9940-1.ch009 Copyright © 2020, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

Sustainable Business Model in B2C Online Retailing

INTRODUCTION The prerequisite logic of any business model is profit earning and not just a revenue generation. The rationale of such a business model is based on value proposition to customers by creating, communicating and delivering value (in a commercial value chain) to the target customer for profit (Teece, 2010; Laasch, 2017). The emergence of dotcom era has shaped the business model concept leading purely to profit logic of value (Ghaziani and Ventresca, 2005; Nielsen and Lund, 2014). This concept was further shaped by the technological innovation, entrepreneurial ventures and corporate strategy (Teece, 2010; Casadesus-Masanell and Ricart, 2010). Randles and Laasch (2016) have studied the combined elements from commercial, noncommercial and non-market logic. Such value logics have been studied from the institutional lens (Ocasio and Radoynovska, 2016). However, the combination of commercial and sustainability rationale in the business model has very less been studied in e-retailing by the researcher and is particularly relevant in the present context (Jablonski, 2016). Such business models will help in achieving the goals of sustainable development which has become a global issue of our times (Bocken et al., 2014). Sustainable business models will facilitate sustainability in business by bringing innovations to the market, enhancing usefulness of market offerings and building trust among consumers (Stubbs and Cocklin, 2008; Eccles et al., 2012; Bohnsack et al., 2014). Therefore, businesses need to transform their neoclassical business models, by emphasizing on the social, cultural and environmental priorities, into sustainable business model. The growing digital economy has resulted in a paradigm shift in the retailing business across the world. Internet has given birth to the online retailing and has bought in new challenges and opportunities to both consumer and retailer (Mukherjee and Nath, 2007). Online retailing preferably deals with an exchange of value where parties interact electronically through numerous telecommunication networks (Jones et al., 2000). Perceived insecurity on internet has posed a challenge to online retailers to establish long-term relationships with consumers, as there are apprehensions of high-profile lapses in online security, spamming, hacking of accounts, phishing and fraudulent businesses etc. (Warrington et al., 2000; Newholm et al., 2004). In light of these insecurities in internet shopping, retailers need to build up consumer confidence by encouraging trust, usefulness, innovation, better customer support and service, depth in product and consumer understanding which will foster consumer commitment. Therefore, retailers have recognized a need to implement a triple bottom line approach of Elkington’s (1997) which emphasizes on three core dimensions of sustainability i.e., environment hygiene, social impartiality and economic prosperity (Balderjahn et al., 2003). The business models adopted by the e-retailers should meet all the three dimensions (planet, people and profit) ideally and simultaneously. It 148

Sustainable Business Model in B2C Online Retailing

has become pre-requisite for business firms to adopt such legislations for long-term competitiveness (Murphy et al., 2013). Similarly, consumers are also expected to pave way for sustainable development by consuming sustainably. Balderjahn et al. (2003) has ascertained that well-studied and revealed consumer consciousness for sustainable consumption will assist and reinforce the marketing tactics of retailers and shall also influence the regulatory framework of legal institutions for achieving the sustainability goals. Online commerce companies can achieve sustainable competitive advantage by emphasizing on ‘operational effectiveness’ and ‘distinctive strategic positioning’. Operational effectiveness can be understood as doing things better than your competitors and strategic positioning means creating and delivering unique value to the target customer (Porter, 2001). The present literature on online retailing has till date not clearly operationalized the pressing issue of sustainable competitive advantage. Further, there isn’t any conceptual framework delineating the sustainability and sustainable consumer behaviour from consumer perspective in internet retailing (Lumpkin and Dess, 2004; Tanriverdi and Venkatraman, 2005; Javalgi et al., 2005). According to Levitt (1984) technological innovations have driven the world towards converging commonality. Due to the emergence of global market, every consumer across the world wants all the things they have seen, heard or experienced via new technologies. Internet growth and online retailing has boosted the globalization of markets. Singh and Kundu (2002) deciphered that internet business has distinctive set of advantages such as network capabilities, open international accessibility, innovative entrepreneurship etc. These unique capabilities of internet commerce differentiate e-retailing business models from the tradition retailing models, thus incorporating sustainable competitive advantage in e-marketplace. In general, the literature reflects the need for a sustained business model and well-established measure of sustainable competitive advantage. The study attempted to address these research gaps by exploring the role of sustainability dimensions on commitment and sustainable competitive advantage.

Theoretical Background and Hypotheses Development The paper identifies sustainable business model as the basic architecture and blueprint through which and organization creates and delivers value to the market for competitive positioning (Teece, 2010; Davies and Chambers, 2018). Osterwalder et al. (2005) has proposed four dimensions of business model which were further divided into nine sub-dimensions. However, Bocken et al. (2014) and Osterwalder and Pigneur (2010) has converged these dimensions into four major constructs such as value proposition, value creation, value delivery and value capture. Value proposition relate to production and service operation developed by organization, 149

Sustainable Business Model in B2C Online Retailing

its target customers and existing customer relationships; value creation and delivery deals with the development of market offerings in the form of products, services and others, resource procurement, channel management using innovative technology; value capture means profits and revenues generated and the cost structure of the business (Davies and Chambers, 2018). The above discussions reflect that these business models have given emphasis on the economic value creation rather than sustainability. Researchers have recently come up with business models by incorporating sustainability dimensions (Bocken et al., 2014; Rauter et al., 2017). The sustainable business models not only capture the economic dimension of the business but try to balance the economic, social and environmental value creating dimensions (Boons and Lideke-Freund, 2013). All the three domains strive together to develop a sustainable consumption behaviour among the consumers which will ultimately give unique sustainable competitive advantage to the business.

Sustainable Competitive Advantage Sustainable competitive advantage can be operationalized as the creation of superior consumer value and the achievement of lower relative costs by employing innovative technology which results in market share dominance and superior financial performance than competitors (Kuncoro and Suriani, 2018). Ma (2004) has conceptualized competitive advantage to the comparative positional superiority in the market that distinguishes it from the rivals by providing unique competences that are difficult to be copied. He has further opined that competitive advantage is derived in the form of valuable, rare, non-substitutable and inimitable resources obtained from the integration of unique resources and capabilities. Sustainable competitive advantage is believed to be an advantage that lasts for longer period of time (Porter, 1990). Advocating sustainable competitive advantage only through financial parameters has attracted huge criticism (Barney, 1991), therefore there is a need to conceptualize this construct multi-dimensionally by incorporating market advantage, financial performance and human capital advantage indicators (Bontis et al., 2000; Weerawardena, 2003; Javalgi et al., 2005; Pratono et al., 2019). The current study has operationalized sustainable competitive advantage from the consumer perspective where human capital and market advantage dimensions have been measured and not the financial dimension.

Trust Trust has been conceptualized as the willingness to rely on the exchange partner in whom one has confidence (Moorman et al., 1993). The previous literature defines trust as “psychological state comprising the intention to accept vulnerability based on positive expectations of the intentions or behaviors of another (Rousseau et 150

Sustainable Business Model in B2C Online Retailing

al., 1998, p. 395). Trust is felt when one party has confidence in another partner’s reliability and integrity (Mukerjee and Nath, 2007; Oh et al., 2012). Researchers have argued that trust has a crucial impact on consumer’s motive to buy online and actual buying, hence online retailing trust is of highest value to be taken care of (Li et al., 2014; Köksal and Penez, 2015). A critical complement of trust is commitment (Morgan and Hunt, 1994). Trust influences relationship commitment, as the trustbased relationships are highly valued by the businesses and remain committed to them (Sahin et al., 2013). Chou et al. (2015) have observed that lack of trust is one of the key reasons behind consumers not purchasing online (Khan and Rahman, 2016). Researchers such as Moorman et al. (1992), Morgan and Hunt (1994) and Mukerjee and Nath (2007) have emphasized on the trust-commitment relationship. In view of the above discussions, following hypothesis has been proposed: H1: Trust has a significant impact on consumer commitment.

Innovation Innovation has been operationalized as the adoption of novel ideas, behaviour, system, policy, program, device, process, product or service in an organization. It is concerned with all types of business innovations such as technological, nontechnological, marketing etc. (Goldsmith and Hofacker, 1991; Damanpour, 1992; Phillips, 1997). The main focus of innovation is to create some new outcomes which will assist a business undertaking to gain competitive position and improve performance (Gandotra, 2010; Huy et al., 2012; Chahal and Bakshi, 2015). Orlikowski (1991) has deciphered innovation into two ways- incremental and radical innovation. Incremental innovation deals with the improvement in the existing products, services and technologies whereas radical innovation deals with bringing in new products or product lines, services or technologies. Pantano (2014) has identified four innovation drives in online retail industry such as digital signage, self-service technologies, mobile apps and ubiquitous stores. It is through innovation that organizations can develop new technologies and processes which helps an organization in value creation and developing positive commitment among the consumers (Subramaniam and Youndt, 2005; Chahal and Bakshi, 2015; Kafetzopoulos and Psomas, 2015). Schimansky (2014) has found a positive influence of high level of commitment on employee’s innovative behaviour and mediating role of ability, motivation, and opportunity on employee innovation. There is very limited literature that has explored the link between innovation and commitment. In light of the above discussion the present study attempts to fill this research gap by proposing the following hypothesis: H2: Innovation has a significant impact on consumer commitment. 151

Sustainable Business Model in B2C Online Retailing

Usefulness The current study has conceptualized usefulness as the degree to which a consumer believes that using a particular system would enhance his or her shopping performance (Davis, 1989). Usefulness plays an important role in the initial and subsequent stages of technology adoption process (Mou et al., 2017). Usefulness in online retailing is the benefit and expected value of purchasing on internet (Huang, 2017). Casalo et al., (2008) has observed an indirect effect of usability on commitment through satisfaction. It has also observed the commitment to the website is a key factor to maintain long-term relationship between consumer and business. Usefulness is one of the key factors in determining quality of the website (Yang and Fang, 2004; Bigne-Alcaniz et al., 2008). Casalo et al. (2008) have also proposed that website usability has direct and positive influence on consumer’s commitment towards a particular webstore. On the basis of above discussions following hypothesis has been proposed: H3: Usefulness has a significant impact on consumer commitment.

Concentrated Product Category Concentrated product category has been operationalized as the extent to which an online retail store possess exclusive product categories that are not available conveniently in local markets. Product category has been extensively studied in the branding literature (Broniarczyk and Alba, 1994; Chaudhuri and Holbrook, 2001). It has been observed by Kressmann et al. (2006) that product category involvement leads to higher perceived relationship quality towards a brand however, Valta (2013) has found that product category involvement does not significantly influence brand relationship quality. The literature discussed has mostly focused on the relationship quality that is influenced by product category in offline retailing however, there is no such study that has particularly focused on the e-retailing. Also Albert et al. (2008) has argued that consumers may treat product categories differently and will develop a different feeling towards a brand. The study attempts to address this research gap by operationalizing the concentrated product category as the driver of sustainability (that has not yet been studied in the literature) and establishing its relationship between concentrated product category and commitment. On the basis of above discussions following hypothesis has been formulated: H4: Concentrated product category has a significant impact on consumer commitment.

152

Sustainable Business Model in B2C Online Retailing

Customer Support Service Customer support service has been operationalized as the quality of service in terms of customer support (both pre and post-sale) and logistic support provided to the consumer while purchasing online. Customer service in e-retailing context includes many service aspects such as product/service selection and support, customer problem solving, handling frequently asked questions of consumers through e-mails and other channels, keeping customers informed, logistic related support etc. (Zeithamal et al., 2002; Park and Kim, 2003; Cao et al., 2018). Building relationship with customers by offering better service quality is emerging as an alternative strategy for increasing customer satisfaction and commitment (Rustbult and Arriaga, 1997). Huston and Burgess (1979) has opined that committed individuals are more likely to disclose information about their preference and other personal issues. Researchers have previously established a relationship among the service quality, costs (Crosby, 1979), profitability (Santos, 2003), customer satisfaction (Cronin and Taylor, 1992) and word-of-mouth marketing (Caruana, 2002) but very few researchers have studied the relationship between customer support service and commitment in online retailing. Rowley (2006) has put forward a different dimension structure of e-service quality which include web-experience, trust, and customer satisfaction, intention to purchase, commitment and loyalty. In accordance to the above discussed literature, following hypothesis has been formulated: H5: Customer support service has a significant impact on consumer commitment.

Commitment Commitment is operationalized as the enduring desire of a customer to maintain longterm valued relationship with the online retailer. It has been regarded as the critical variable for long-term success that has been created by trust (Dagger et al., 2011; Sahin et al., 2013). Welty and Becerra-Fernandez (2001) has defined commitment as a kind of ‘binding’ between a customer and a seller based on a set of conditions of satisfaction within a predefined time. Commitment results in mutual gain from both the parties involved including buyers and sellers (Wu et al., 2004; Mukherjee and Nath, 2007). Srinivasan and Brush (2006) opined that credible commitment develops when there is a voluntarily engagement of both the parties in the activities which enhance mutual interest. Researchers have found that when buyer share an important information with the seller it indicates the commitment of buyer to seller. This information is utilized by the seller in bring both technological and nontechnological innovations in the products/services offered to the customer (Nyaga et al., 2010; Lariviere, et al., 2014). In this regard Mariadoss et al. (2011) have observed 153

Sustainable Business Model in B2C Online Retailing

that firms with competitive advantage facilitate sustainable consumption behavior among consumers through technical and non-technical innovations. Therefore, sustainable innovation practices need to be given greater emphasis by considering technical, environmental, social and economic aspects by the e-retail firms to achieve the goal of sustainable competitive advantage (Sharfman et al., 2009; Vavra et al., 2011). Further, Liljander and Strandvik (1995) have found that customer commitment leads to positive eWOM resulting in higher consumer referrals. Consumers with positive intention to referrals are more likely to share positive experiences of an organization with other consumers (Bettencourt, 1997; Tsao and Hsieh, 2012). In light of the above discussions following hypotheses have been proposed: H6: Commitment has a significant impact on Sustainable Consumption. H7: Commitment has a significant impact on Positive eWOM.

eWOM eWOM has been conceptualized as the computer-mediated communication tool using online media to express and share with consumers one’s opinions and experiences regarding the e-retailers products and services (Lin & Fang, 2006; Okazaki, 2009; Tsao and Hsieh, 2012). Okazaki (2009) has deciphered that WOM tends to be more persuasive rather highly influential than other media of communication (Sun et al., 2006; Matute et al., 2016). Hawapi et al. (2017) have found that eWOM has a positive influence not only on overall collaborative consumption but also influences its two broad domains i.e. perceived value and perceived risk. Leismann et al. (2013) opined that several factors motivate a consumer to go for collaborative consumption such as cost saving, sustainability, self-belongingness towards society and to avoid the burden of ownership. The sustainability component collaborative consumption justifies efficiency in production and technological innovation, which will conserve the ruthless utilization of natural resources (Hawapi et al., 2017). It has been observed that consumers intend to access online reviews about product, service or other offerings of marketers to make informed decisions (Hur et al., 2017; Biswas and Roy, 2018). On the basis of above discussions following hypothesis has been formulated: H8: eWOM has a significant impact on Sustainable Consumption.

Sustainable Consumption Sustainable consumption has been operationalized as the behavioural intention of consumer to purchase from the webstore by taking into consideration all the domains of sustainability i.e. social, environmental, economic and technological. Sustainable 154

Sustainable Business Model in B2C Online Retailing

consumption behaviour has been understood as the process of meeting the present needs through reduced and more rational consumption and usage of natural resources, adopting environmental friendly lifestyle practices, developing green habits and green product consumption to product aspirations of future generations (Biswas and Roy, 2015; Biswas, 2017; Biswas and Roy, 2018). Brundtland (1987) has defined sustainable consumption as “the use of goods and services that respond to basic needs and bring a better quality of life while minimizing the use of natural resources, toxic materials and emissions of waste and pollution over the life cycle, so as not to jeopardize the needs of future generations”. It has been observed by Miles and Covin (2000) that sustainable consumption is positively associated with competitive advantage. Weerawardena and Mavondo (2011) have found that both technological and non-technological innovation affect competitive advantage through sustainable consumption (Mariadoss et al., 2011; Kamboj and Rahman, 2017). Researchers has observed that information disclosure leverages the consumers’ understanding of green products and its marketers which tends to generate a USP (unique selling propositions) to the company (Vaccaro and Echeverri 2010; Lin et al. 2017). From the above discussions on the various variables of sustainable business model, it has been concluded that these variables are very rarely studied in the online retailing literatures. There is no such study in the literature that has studied all of these variables together. The present study made an attempt to propose a comprehensive model, incorporating all these variables, and later on empirically testing its validity and reliability on the data collected from the online shoppers. The conceptual framework if shown in Figure 1.

Methodology Measurement of Constructs The various constructs of the conceptual model were measured by multiple scale items. Each construct was measured by at least 4-5 items/statements after a thorough review of the available scales in the literature. Some items were as such adopted Figure 1.

155

Sustainable Business Model in B2C Online Retailing

whereas some were modified to fit the e-retail customer. In addition, some new items have been developed constructs which don’t have any well-established scale in the literature. The nine constructs depicted in Figure 1 have been measured by items adopted from the research work of different authors present in the Annexure I. The study has adopted 5-point Likert scale for measuring the consumer’s degree of agreement and disagreement towards the various items. The 5-point scale adopted by the researcher ranges from 5-strongly agree to 1-strongly disagree. A total of 43 items were used to measure nine constructs with trust consisting of 5 items, innovation consisting of 5 items, usefulness contains 4, concentrated product category contains 4, customer support services contains 5, commitment contains 5, eWOM consists of 5, sustainable consumption contains 5 and sustainable competitive advantage contains 5 scale items.

Population and Pilot Study The population from which sample has been drawn includes the customers who have prior online purchasing experience. Sample frame for such customers was obtained from the parcel delivery courier companies which deliver e-retail parcels across the state of Jammu and Kashmir. Majority of the online retail consignments are handled by Ecom Express and JV Express and have emerged as the leading players in the online retail logistics in the state (almost 80 percent of the online consignments are delivered by these companies). A data of 54200 customers to whom the parcels have been delivered by Ecom Express and JV Express was collected as sample frame (Kashmir Life, 2016). Data collection was carried out using a well-structured questionnaire that was divided into two sections, one containing sociodemographic variables and the other containing statements of nine variables. Before the collection of final data, pilot testing was carried out to purify the research instrument. In the first phase, face validity and content validity of the questionnaire was ensured by seeking feedback from the academicians, industry experts and psychometric experts. Suggestion sought from the experts were incorporated in the questionnaire. In the second phase, feedback from the online retail consumers was received to ensure reliability and validity of the constructs and their respective items. To fulfill this aim, questionnaire was distributed among the online retail customers and a total of 95 filled questionnaire were received back. Some suggestion were given by the respondents regarding wording of the items, which were incorporated in the questionnaire. The data was consolidated in SPSS data sheet and exploratory factor analysis was performed to validate and standardize the instrument.

156

Sustainable Business Model in B2C Online Retailing

EXPLORATORY FACTOR ANALYSIS (EFA) EFA was carried out for the purpose of data reduction and summarization to remove items with poor loading from the initial battery of 43 items (Malhotra and Dash, 2010). EFA was carried out in SPSS 16 on a pilot sample of 95 using principal component analysis (PCA) extraction method with varimax rotation. The reason for employing PCA being that it maximizes the number of items on a particular component with high loadings thus enhancing interpretability of the components (Malhotra, 2002). EFA was evaluated on the basis of certain criterion including Kaiser-Meyer-Olkin (KMO), Bartlett’s test of sphericity, Eigen value, variance explained and item loadings. The various threshold for the above-mentioned criterion includes KMO > .50; Eigen value > 1; total variance extracted > .50 and EFA loading > .60 (Hair et al., 2003). It took about 15-20 iterations to clean the data set while taking in consideration the above-mentioned criterion. The results of EFA are shown in Table I whereas reliability coefficient, KMO and Bartlett’s tests are shown in Table II. The Table I depicts the loadings of each item in their respective components along with eigenvalue and cumulative percentage of variance of each component. It is revealed from the Table I that all the items in their respective components have loading above the set threshold i.e. .60 whereas in other components have poor loading. However, CSS19 and WOM29 have poor (below .60) and were removed from the data set, thus resulting in the retention of 41 items. The dropped items were not considered for further analysis. Further, from the same table it is quite apparent that Eigen value and percentage of variance explained by all the components is above the set limit of 1 and .50 respectively. The first component namely sustainable competitive advantage has highest Eigen value and explains maximum percentage of variance as compared to the other components in the matrix (Table I). The Table II reveals that the Cronbach’s alpha (reliability coefficient) of all the constructs is above .70 and other fit indices namely KMO and Bartlett’s test of Sphericity are also met.

Sampling Procedure The sample size for the present study was determined on the basis of a criteria that for each item there should be 10-15 respondents (Hinkin, 1995; Hair et al., 1998). While applying the above criteria a minimum sample size of 410 is required as there are 41 items in the questionnaire. It has been argued by Hoelter (1983) that for testing structural equation modelling a sample of 300 is adequate. The sampling technique employed by the study included simple random sampling (SRS), where a sample of 410 respondents was drawn from the population of 54200 online shoppers. Respondents selected for the sample were approached through both online and offline modes. Before sending the questionnaire respondents were enquired about 157

Sustainable Business Model in B2C Online Retailing

Table 1. Results of EFA (rotated component matrix) Items

SCA

Trust

SC

U

I

C

CSS

CPC

eWOM

SCA40

.845

.246

.114

-.045

.112

.169

.032

.037

.128

SCA39

.834

.221

.186

.026

.014

.036

.109

.214

.127

SCA42

.820

.062

.077

.047

.096

.116

.181

.124

.270

SCA41

.819

.159

.106

.115

.072

-.124

.168

.133

.146

SCA43

.759

.189

.059

.282

.176

.005

.012

.055

.157

T5

.189

.878

.074

.115

.006

.196

.156

.012

.058

T3

.125

.875

.073

.132

.026

.218

.144

-.069

.054

T1

.253

.835

.103

.109

-.025

.063

.065

-.029

.114

T2

.116

.814

.207

.154

.022

.175

-.065

-.018

.216

T4

.142

.785

.033

.206

.008

.262

.258

.054

.054

SC38

.319

.018

.795

.133

.075

-.009

.038

.126

.112

SC34

-.125

.132

.781

.022

.081

.148

.289

.154

.008

SC36

.238

.063

.776

.039

-.005

.062

.185

.185

.135

SC35

.004

.195

.774

.115

.146

.128

.222

.041

.076

SC37

.137

.066

.741

.029

.283

.001

.152

.052

.030

U11

.124

.129

.093

.934

-.001

.089

.076

.103

.056

U13

.085

.073

.146

.923

-.006

.127

.046

.096

.049

U12

.134

.193

.060

.900

.030

.028

.200

.097

.040

U14

-.023

.261

-.017

.793

-.015

.089

.256

.176

.043

I7

.134

-.046

.148

.083

.817

.070

.204

.048

.087

I6

.088

-.065

-.008

-.030

.812

.215

.246

.191

.046

I10

.198

-.077

.133

.007

.771

.160

.045

.276

.079

I8

-.028

.079

.008

-.070

.757

.084

.368

.200

.030

I9

.050

.159

.321

.006

.716

.111

-.258

.056

.082

C28

-.039

.097

.124

.138

.146

.837

-.044

.069

-.007

C24

-.023

.230

.006

.059

.084

.808

.070

-.005

.130

C25

.145

.170

.194

-.081

.082

.768

-.043

.057

.061

C26

.233

.234

.132

.140

.172

.741

.099

.034

.081

C27

-.074

.081

-.111

.091

.082

.738

.129

-.056

.103

CSS20

.071

.128

.174

.097

.221

.074

.847

.106

.169

CSS23

.109

.134

.307

.220

.194

.080

.813

.078

.028

CSS22

.184

.154

.208

.172

.200

-.034

.783

.029

.130

CSS21

.172

.119

.276

.168

.223

.104

.730

.098

.043

CPC15

-.113

.103

.067

.062

.171

-.054

.196

.823

.044

continues on following page 158

Sustainable Business Model in B2C Online Retailing

Table 1. Continued Items

SCA

Trust

SC

U

I

C

CSS

CPC

eWOM

CPC17

.278

-.015

.142

.115

.143

.010

.048

.777

-.020

CPC16

.301

-.179

.179

.131

.302

.002

.148

.709

.173

CPC18

.196

-.050

.173

.232

.153

.132

-.071

.700

.056

WOM33

.190

.086

.166

.098

-.058

.054

.120

.075

.831

WOM32

.123

.171

-.046

-.060

.038

.246

.090

.107

.751

WOM31

.254

.170

.222

.021

.128

-.102

-.032

-.069

.730

WOM30

.173

.019

.006

.140

.235

.192

.144

.065

.721

Initial Eigen Values

11.91

4.40

3.42

3.18

2.61

2.11

1.82

1.44

1.30

Cumulative Percentage of Variance

10.51

20.89

30.15

39.20

48.15

56.95

65.27

71.93

78.56

Note: SCA- Sustainable Competitive Advantage; SC- Sustainable Consumption; U-Usefulness; I- Innovation; C- Commitment; CSS- Customer Support Service; CPC- Concentrated Product Category; eWOM- Electronic Word of Mouth; Source: SPSS Output

Table 2. Results of reliability, KMO and Bartlett’s test Constructs

T

I

U

CPC

CSS

C

eWOM

SC

SCA

Cronbach’s Alpha

.944

.894

.955

.853

.934

.879

.828

.894

.928

KMO Measure of Sampling Adequacy Bartlett’s Test of Sphericity

.724 Approx. Chi-Square

3873

df

820

Sig.

.000

Note: KMO- Kaiser-Meyer-Olkin; Source: SPSS Output

their interest in the survey. Only those respondents were approached who gave positive interest in the present survey. For convenience the researcher distributed 600 questionnaires among the online retail customers. Out of 600 questionnaires only 589 were properly filled and received back by the researcher/s with an overall response rate of 98.17 (Pennings et al., 2002).

Non-Response Bias and Common Method Bias Issues The issues of non-response bias was checked by comparing the respondent sample of 589 with a non-respondent sample of 50. The non-respondent sample was drawn separately using SRS techniques from the population of 54200 (Armstrong and 159

Sustainable Business Model in B2C Online Retailing

Overton, 1977). Independent sample t-test was applied to compare the two samples (respondent and non-respondent). It was observed that the difference between the respondents and non-respondents was insignificant i.e. there is no difference between the responses of the respondents and the responses of the non-respondents. Common method bias issue was tested using Harman’s single factor test (Podsakoff et al., 2003). In this test all the 41 items were made to load in a single component through PCA without rotation. If this single component explains more than 50 percent of variance then there are common method bias issues (Harman, 1960). Results of the test indicate that this single component explains only 33.04 percent of variance, therefore common method bias issues are absent in the data.

Sample Characteristics Sample Characteristics are presented in the form of sociodemographic profile of the respondents in the Table III. It is depicted from the table that highest percentage of respondents was observed from Kashmir division (47.7 percent) and lowest from Ladakh division (7.1 percent). Maximum respondents belonged to rural area (56 percent) than urban area. The sample contained highest percentage of respondents from male group (57 percent) than female group. Maximum number of respondents were single (80.3 percent) and fall in the age group of 21-30 years (53.8 percent). Students constituted the highest percentage of respondents (61.6 percent) and maximum respondents were post graduate (35.3). Highest number of respondents fall in the monthly family income group of INR 10001-30000 (31.4 percent) and lowest number of respondent fall in INR above 70000 in the sample. The frequency and percentage of different sociodemographic variables is shown in the Table III.

Results Confirmatory Factor Analysis (CFA) CFA was carried out on the final data of 589 to check the stability of the measurement model. Maximum likelihood approach was employed to perform CFA separately on the independent and dependent set of constructs. The results of the independent measurement model, consisting of trust, innovation, usefulness, concentrated product category and customer support service, reveals that all the fit indices are in the acceptable range. The fit indices of the independent measurement model were found to be χ2/df = 2.27 (below the threshold of 3.00); GFI = .937; CFI = .962 (both below the threshold of .900); RMR = .032; RMSEA = .046 (both below the threshold value of .08) indicating that the data fits the model (Carmines and McIver, 1981; Steiger, 1990; Byrne, 1998). 160

Sustainable Business Model in B2C Online Retailing

Table 3. Sociodemographic profile of respondents Frequency

Percentage

Cumulative Percentage

Jammu

266

45.2

45.2

Kashmir

281

47.7

92.9

Ladakh

42

7.1

100

Urban

259

44

44

Rural

330

56

100

Male

336

57

57

Female

253

43

100

Single

473

80.3

80.3

Married

116

19.7

100

Govt.

97

16.5

16.5

Private

59

10.0

26.5

Business

46

7.8

34.3

Student

363

61.6

95.9

Sample Categories

Geographical Division

Geographical Area Gender Marital Status

Employment

Age (Yrs.)

Education

Monthly Family Income (INR)

Any Other

24

4.1

100

Below 20

151

25.6

25.6

21-30

317

53.8

79.5

31-40

97

16.5

95.9

Above 40

24

4.1

100

Secondary

8

1.4

1.4

Hr. Secondary

84

14.3

15.6

Graduate

177

30.1

45.7

Post Graduate

208

35.3

81.0

Above Post Graduate

112

19.0

100

Below 10000

137

23.3

23.3

10001-30000

185

31.4

54.7

30001-50000

159

27.0

81.7

50001-70000

60

10.2

91.9

Above 70000

48

8.1

100

During the process of CFA items with standardized factor loading below .65 were dropped and the measurement model was run again till all loading meet the .70 limit. The results of the CFA are shown in the Table IV, it is revealed that the all items have standardized factor loading above .65 except T6 which was dropped for further analysis. Reliability and validity of the independent constructs were 161

Sustainable Business Model in B2C Online Retailing

established through average variance extracted (AVE), composite reliability (CR) and discriminant validity (DV). It is revealed from the Table IV that AVE and CR of all the five constructs is above the threshold of .50 and .70 respectively. Further, the table depicts that square root of AVE (shown diagonally in highlighted cells) is greater than the correlation coefficient between the constructs (shown in below diagonal cells). These results indicate that the constructs are both reliable and valid (Fornell and Larcker, 1981; Bagozzi and Yi, 1988). The results of the dependent measurement model, consisting of commitment, eWOM, sustainable consumption and sustainable competitive advantage, reveals that all the fit indices are in the acceptable range. The fit indices of the dependent measurement model were found to be χ2/df = 2.93 (below the threshold of 3.00) (Carmines and McIver, 1981); GFI = .931; CFI = .950 (both below the threshold of .900) (Byrne, 1998); RMR = .041; RMSEA = .057 (both below the threshold value of .08) (Steiger, 1990) indicating that data fits the model. During the process of CFA, items with standardized factor loading below .65 were dropped and the measurement model was run again till all loading meet the .70 limit. The results of CFA are shown in the Table IV, it is revealed that all items have standardized factor loading above .65 except C24 which was dropped for further analysis. Similarly, reliability and validity of the dependent constructs were established through AVE, CR and DV. It is revealed from the Table IV that AVE and CR of all the four constructs is above the threshold of .50 and .70 respectively. Further, the table depicts that square root of AVE (shown diagonally in highlighted cells) is greater than the correlation coefficient between the constructs (shown in below diagonal cells). These results indicate that the constructs are both reliable and valid (Fornell and Larcker, 1981; Bagozzi and Yi, 1988).

Structural Equation Modelling (SEM) SEM approach was employed for testing the various hypotheses formulated in the study. A structural model was developed in AMOS and was tested on the final data set of 589. Model fitness was evaluated on the basis of model fit indices as shown in the Figure II. It is depicted from the Figure II that CMIN/DF (χ2/df) is below 3, goodness of fit indices (GFI and CFI) are close to .90, badness of fit indices below .08, indicating data fits the model. Results of the SEM are presented in the Table V, which depicts standardized estimates, critical ratios and R-square. It is revealed from the table that trust, innovation, usefulness, concentrated product category and customer support service have significant impact on commitment. Therefore, hypotheses H1, H2, H3, H4 and H5 have been supported with regression estimate of .14 and critical ratio of 2.46; regression estimate of .16 and critical ratio of 2.94; regression estimate of .27 and critical ratio of 4.24; regression estimate of .24 and critical ratio of 3.67; 162

Sustainable Business Model in B2C Online Retailing

Table 4. Results of confirmatory factor analysis Constructs

Trust (T)

Innovation (I)

Usefulness (U)

Concentrated Product Category (CPC)

Customer Support Service (CSS)

Items

Std. Loadings

T1

.831

T2

.786

T3

.767

T4

.678

T5

.677

I7

.700

I8

.773

I9

.686

I10

.704

U11

.780

U12

.800

U13

.769

U14

.701

CPC15

.750

CPC16

.777

CPC17

.803

CPC18

.746

CSS20

.707

CSS21

.765

CSS22

.773

CSS23

.735

Discriminant Validity

AVE

CR

.563

.865

.750

.513

.808

.554

.717

.583

.848

.670

.622

.763

.592

.853

.717

.586

.706

.556

.833

.509

.536

.569

T

I

U

CPC

CSS

.769

.563

.745

continues on following page

regression estimate of .12 and critical ratio of 2.45 respectively. The five constructs together explain 61 percent of variance in commitment as revealed by R2 (Table V). Further, it is revealed from the Table V that commitment has a significant impact on eWOM with standardized estimate of .38 and critical ratio of 7.48 significant at .000. Thus hypothesis H7 has been supported and commitment explains 14 percent of variance in eWOM as depicted by the R2. Also commitment has significantly positive impact on sustainable consumption (estimate = .31, critical ratio = 6.68 significant at .000) and eWOM has significantly positive impact on sustainable consumption (estimate = .45, critical ratio = 8.70 significant at .000) and both the constructs jointly explain 41 percent of variance in sustainable consumption (R2 = .41). Therefore, hypotheses H6 and H8 are supported (Table V). Furthermore, it is 163

Sustainable Business Model in B2C Online Retailing

Table 4. Continued Constructs

Commitment (C)

e-Word of Mouth (eWOM)

Sustainable Consumption (SC)

Sustainable Competitive Advantage (SCA)

Items

Std. Loadings

C25

.749

C26

.867

C27

.703

C28

.746

WOM30

.731

WOM31

.757

WOM32

.708

WOM33

.712

SC34

.711

SC35

.714

SC36

.796

SC7

.760

SC38

.717

SCA39

.731

SCA40

.745

SCA41

.810

SCA42

.789

SCA43

.756

Discriminant Validity

AVE

CR

.591

.852

.769

.529

.818

.333

.727

.548

.858

.398

.552

.740

.588

.877

.382

.487

.549

C

eWOM

SC

SCA

.767

Note: AVE- Average Variance Extracted, CR- Composite Reliability; Highlighted cells show Square root of AVE; Source: AMOS Output

observed from the Table V that sustainable consumption has significantly positive impact on sustainable competitive advantage (estimate = .58, critical ratio = 11.03 significant at .000) and sustainable consumption explains 34 percent of the variance in sustainable competitive advantage as depicted from the R-square value of .34.

DISCUSSION AND CONCLUSION The main aim of the study was to propose a sustainable business model for online retailing companies that could give an edge to the e-retailer over its competitors in the market. After conducting an extensive review and discussion with the experts from academia and industry, the study proposed a conceptual framework by delineating five dimensions of sustainability such as trust, innovation, usefulness, concentrated product category and customer support service. These dimensions were presumed to 164

Sustainable Business Model in B2C Online Retailing

Figure 2.

influence commitment of consumer towards a particular webstore, which in turn affects eWOM and sustainable consumption. The sustainable consumption behaviour was presumed to influence sustainable competitive advantage. The proposed model was empirically tested by initially validating the measurement scale by applying various reliability and validity tests and finally the structural model was tested in the light of conceptual framework relationships. It was found that the data fits the model as indicated by various model fit indices of SEM model. Hypothesis testing was carried out through structural model and it was found that trust has a significantly positive impact on commitment, which supports our first hypothesis. These results confirm that online consumers are in agreement that webstore provide correct and trustworthy information and always make efforts to boost customer. Webstore having conviction that customers shall be given first preference and will do their best by delivering on their commitments and promises is the key of success. Sustainable business model requires trust from all parts of the organization whether it is customer, employee or employer. These results are consistent with the research work of Mukerjee and Nath (2007) and Khan and Rahman (2016). A webstore can achieve sustainable competitive advantage by consciously balancing customer actions and their values, honoring their commitments and strengthening their belief system.

165

Sustainable Business Model in B2C Online Retailing

Table 5. Results of structural model Hypotheses

Std. Estimates

Critical Ratio

Decision

T

.14

2.46**

Supported

Paths

H1

C