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NEGOTIA
3/2019
STUDIA
UNIVERSITATISBABEŞ‐BOLYAI
NEGOTIA
3/2019
EDITORIALBOARDOF
STUDIAUNIVERSITATISBABEŞ‐BOLYAINEGOTIA
EDITOR‐IN‐CHIEF:
Assoc.Prof.IOANALINNISTOR,Babeş‐BolyaiUniversity,Cluj‐Napoca,Romania
EXECUTIVEEDITOR:
Prof.dr.CORNELIAPOP,Babeş‐BolyaiUniversity,Cluj‐Napoca,Romania
CO‐EXECUTIVEEDITOR:
Prof. dr. SVEN M. LAUDIEN, Macromedia University of Applied Sciences, Business
School Stuttgart, Germany
EDITORIALBOARD:
Prof.dr.PARTENIEDUMBRAVA,Babeş‐BolyaiUniversity,Cluj‐Napoca,Romania
Prof.dr.MASAHIKOYOSHII,KobeUniversity,Japan
Prof.dr.JÁNOSSZÁZ,CorvinusUniversity,Budapest,Hungary
Prof.dr.PHILIPPEBURNY,UniversitédeLiège,Liège,Belgium
Prof.dr.MARILENPIRTEA,WestUniversity,Timişoara,Romania
Prof.dr.SEDEFAKGÜNGÖR,DokuzEylülUniversity,Izmir,Turkey
Prof.dr.STANISLAVAACINSIGULINSKI,SuboticaUniversityofNoviSad,Serbia
Prof.dr.DJULABOROZAN,J.J.StrossmayerUniversityofOsijek,Osijek,Croatia
Prof.dr.CORNELIAPOP,Babeş‐BolyaiUniversity,Cluj‐Napoca,Romania
Prof.dr.IOANCRISTIANCHIFU,Babeş‐BolyaiUniversity,Cluj‐Napoca,Romania
Prof.dr.SMARANDACOSMA,Babeş‐BolyaiUniversity,Cluj‐Napoca,Romania
Prof.Ing.MIROSLAVSVATOŠ,CSc.,CzechUniversityofLifeScience,Prague,CzechRepublic
Prof.dr.SIMEONKARAFOLAS,TechnologicalEducationalInstitute(TEI)ofWestern
Macedonia,Greece
Prof.UEKDr.hab.MAREKĆWIKLICKI,CracowUniversityofEconomics,Poland
Prof.UEKDr.hab.KRZYSZTOFWACH,CracowUniversityofEconomics,Poland
Assoc.Prof.dr.IVANAKRAFTOVA,UniversityofPardubice,CzechRepublic
Assoc.Prof.dr.MEDETYOLAL,AnadoluUniversity,Eskisehir,Turkey
Assoc.Prof.dr.KARELTOMŠÍK,CzechUniversityofLifeSciences,Prague,CzechRepublic
Assoc.Prof.dr.BERNAKIRKULAK‐ULUDAG,DokuzEylülUniversity,Izmir,Turkey
Assoc.Prof.dr.PHAPRUKEUSSAHAWANITCHAKIT,MahasarakhamUniversity,Maha
Sarakham,Thailand
Assoc.Prof.dr.OVIDIUIOANMOISESCU,Babeş‐BolyaiUniversity,Cluj‐Napoca,Romania
Assoc.Prof.dr.ELENADANABAKO,Babeş‐BolyaiUnivesity,Cluj‐Napoca,Romania
Assoc.Prof.dr.MARIA‐ANDRADAGEORGESCU,NationalUniversityofPoliticalStudies
andPublicAdministration,Romania
Assist.Prof.dr.GURHANAKTAS,DokuzEylülUniversity,Izmir,Turkey
SeniorLect.PETERJOHNRAS,TshwaneUniversityofTechnology,SouthAfrica
SeniorLect.dr.SUSANNALEVINAMIDDELBERG,North‐WestUniversity,Potchefstroom,
SouthAfrica
Lect.dr.GAMONSAVATSOMBOON,MahasarakhamUniversity,MahaSarakham,Thailand
Assoc.Prof.dr.OANAGICĂ,Babeş‐BolyaiUniversity,Cluj‐Napoca,Romania
IndependentfinancialanalystELISARINASTITIMURESAN,Seattle,USA
SECRETARIESOFTHEEDITORIALBOARD:
Assoc.Prof.dr.OANAGICĂ,Babeş‐BolyaiUniversity,Cluj‐Napoca,Romania
Lect.dr.MARIAMONICACOROŞ,Babeş‐BolyaiUniversity,Cluj‐Napoca,Romania
The current issue contains a collection of papers on the following
topics: Marketing / Advertising; Business Economy /
Management, and Human Resources in Economy
YEARVolume64(LXIV)2019
MONTHSEPTEMBER
ISSUE3
PUBLISHEDONLINE:2019‐09‐30
PUBLISHEDPRINT:2019‐09‐30
ISSUEDOI:10.24193/subbnegotia.2019.3
STUDIA
UNIVERSITATISBABEŞ–BOLYAI
NEGOTIA
3
STUDIAUBBEDITORIALOFFICE: B.P. Hasdeu no. 51, 400371 Cluj-Napoca, Romania,
Phone + 40 264 405352; office@studia.ubbcluj.ro
CONTENT–SOMMAIRE–INHALT–CUPRINS
LASSAAD GHACHEM, COSTINEL DOBRE, REZA ETEMAD-SAJADI,
ANCA MILOVAN-CIUTA, The Impact of Cultural Dimensions on
the Perceived Risk of Online Shopping ................................................................ 7
SNEZHANA HRISTOVA, DUSICA STEVCESKA-SRBINOVSKA, Managing
Technology in Macedonian SMEs Context: Perceptions, Practices
and Challenges ........................................................................................................... 29
ERIKA KULCSÁR, CLAUDIA-IZABELA CRENGANEȘ, The end Product
of the Imagine Dragons’ and Lady Gaga’s Music, or the Nature of
Marketing Mix in the Music Industry .............................................................. 45
TAJUDEEN LAWAL, DANIYA ADEIZA ABDULAZEEZ, MOHAMMED
YABAGI IBRAHIM, Human Capital Efficiency and Profitability of
Quoted Integrated Oil and Gas Companies in Nigeria ............................ 61
STUDIA UBB NEGOTIA, LXIV, 3, 2019, pp. 7-28
(RECOMMENDED CITATION)
DOI:10.24193/subbnegotia.2019.3.01
THE IMPACT OF CULTURAL DIMENSIONS ON THE
PERCEIVED RISK OF ONLINE SHOPPING
LASSAAD GHACHEM1, COSTINEL DOBRE2*,
REZA ETEMAD-SAJADI3, ANCA MILOVAN-CIUTA4
ABSTRACT. This article analyzes the influence of cultural factors on
the perceived risks of buying online. To this end, we conducted a survey
on a sample of Francophone African students, through an online
questionnaire. In order to test the developed research model, we opted
for structural equation modeling (SEM), using the Smart PLS 2.0 software.
Data analysis has highlighted the importance of power distance in
perceiving the risks of online buying and, on the other hand, the fact
that online buying risk perception is less important in cultures where
uncertainty avoidance is high. Based on these research results,
marketers could adapt their marketing approaches at a local, regional
or international level.
Key words: online marketing, perceived risk, cultural values, mental
accounting, privacy, financial risk
JEL classification : M31; M10; L81
Recommended citation: Ghachem, L., Dobre, C., Etemad-Sajad, R.,
Milovan-Ciuta, A., The impact of cultural dimensions on the perceived risk of
online shopping, Studia UBB Negotia, vol. 64, issue 3 (September), 2019,
pp. 7-28, doi: 10.24193/subbnegotia.2019.3.01
1 Associate Professor, Ph.D., University of Monastir, lassaad.ghachem@hec.ca
2 Professor, Ph.D., West University of Timisoara, costinel.dobre@e-uvt.ro *corresponding author
3 Associate Professor, Ph.D., Ecole Hôtelière de Lausanne, reza.etemad@ehl.ch
4 Lecturer, Ph.D., West University of Timisoara, anca.milovan@e-uvt.ro
LASSAAD GHACHEM, COSTINEL DOBRE, REZA ETEMAD-SAJADI, ANCA MILOVAN-CIUTA
8
Introduction and Review of Literature
Although online sales have experienced strong growth worldwide,
their potential is still insufficiently exploited (Al-Materneh, 2016; Cases,
2002). According to Internet Live Stats, in June 2016, 49.2% of the world’s
population was using the Internet, while only 24.3% was buying from
online stores. With regard to the online retail, statistics are not very
conclusive, but all sources indicate an underutilization of its potential.
Despite the many benefits of e-commerce over the traditional commerce,
barriers to online shopping are preventing its growth (Zheng et al., 2012).
Consumer exposure to new online sales methods and information
overload on the Internet is leading to increased uncertainty for both new
and experienced users (Al Kailani and Kumar, 2011, Zheng et al., 2012).
In an international context, knowing the cultural dimensions
becomes a major asset (Al Kailani and Kumar, 2011). For example, Samiee
(2001) argues that culture is the most important factor influencing
international marketing on the Internet. This research is in line with
previous work on the impact of cultural dimensions on online shopping
behavior while proposing a new concept for the relationship between
culture and perceived risk. The objective of the study presented here is
therefore to understand the influence of cultural dimensions on the
perceived risk of online shopping. This research is grounded in Hofstede’s
model of cultural values (1984) and in the theory of consumer risk.
Culture and the online buying behavior
According to De Mooij and Hofstede (2002), the idea that the
homogenization of economic systems can lead to consumer homogeneity
has not been validated by empirical studies and the effectiveness of
marketing activities is determined by their adaptation to cultural values.
The influence of culture on the consumer behavior and marketing practice
has received varying attention over time, with renewed interest in the
subject in recent years.
Throughout literature, we can identify the relationships between
cultural differences and the perception of emotions, the processing of
information, the categorization of stimuli, self-perception, the perception
of others, the perception of the environment and aesthetic preferences,
THE IMPACT OF CULTURAL DIMENSIONS ON THE PERCEIVED RISK OF ONLINE SHOPPING
9
motivations, learning, memory, attitude, influence of the reference
group (Kastanakis and Voyer, 2014; De Mooij and Hofstede, 2011; De
Mooij and Hofstede, 2010; Aaker and Sengupta, 2000; Han and Shavitt,
1989). Authors who have addressed the topic of cultural influences on
consumer behavior discuss about the dimensions through which
culture is conceptualized and operationalized. De Mooij and Hofstede
(2002) show that from a fuzzy concept, culture has become a more
concrete concept that can be quantified and correlated with different
aspects of consumption.
The operationalization of the concept is possible thanks to the
scales proposed by various authors, the Hofstede model (2001) being
the most used analytical framework in marketing. This model is
preferred by researchers because of the availability of scores for a
large number of countries, for all its dimensions. This famous metric
has been accepted and applied at both country and individual levels in
cross-cultural studies (Yoo et al., 2011).
Zhu and Thatcher (2010) note that the expansion of e-commerce
largely depends on the socio-cultural environment of the countries. As
Van Slyke et al. (2010) point out that even if in e-commerce the
behavior of the user is a global phenomenon, the acceptance level of
online shopping is different from one country to another. These
researchers confirm that national culture influences the intention to
buy on the Internet. Moreover, according to Omar et al. (2011), to
understand the online purchasing decision-making process it is
important to put more emphasis on one’s background (such as culture)
than on the decision-making itself.
Perceived risk, trust and online buying
Recent research on the perceived risk in e-commerce highlights
several dimensions that influence the intention to purchase online
(Zheng et al., 2012). Understanding the causes of the under utilization
of the potential of the Internet must take into account the notion of
perceived risk. Perceived risk has been conceptualized from the theory
of decision and the theory of value. The concept of perceived value has
its foundations in the theory of perspective, developed by Kahneman
LASSAAD GHACHEM, COSTINEL DOBRE, REZA ETEMAD-SAJADI, ANCA MILOVAN-CIUTA
10
and Tversky in 1979, which replaced the utility function formulated by
Von Neuman and Morgenstern in 1953, with the value function (Gupta
and Kim, 2010). Through the theory of value, the authors sought to
explain, from the perspective of maximizing value, the human behaviors
adopted under conditions of uncertainty. In addition, in their theory,
Kahneman and Tversky formulated the idea that people place greater
importance on outcomes that are certain than on outcomes they consider
to be only likely. This effect, known as the certainty effect, provokes
consumer aversion, which determines their inclination to opt for rather
small gains, at the expense of higher but probable gains. Starting from
the perspective theory, approaching it in a critical way because it assumes
only a one-dimensional evaluation of the results of the decision, Thaler
(1985) formulated the theory of mental accounting. To explain consumer
behavior, Thaler proposes to consider the losses and benefits perceived
by taking a decision in relation to a reference point, not an absolute
level. Moreover - and this is important for this study - Thaler shows that
the loss function is more abrupt than the profit function, which implies
that a consumer first of all considers the losses he will suffer when
making the decision to the detriment of profits.
From the dimensions of perceived value, Barden (2013) believes
that the meta-principles for consumer behavior are tangibility, the
moment when the consequences of the decision manifest (immediately
or later) and certainty. Increasing the perceived value involves either
maximizing the certainty of the outcome of the decision, or minimizing the
likelihood of a loss or risk of loss by the decision made by consumers.
Risk is a component of the perceived sacrifices in perceived value
models (Gupta and Kim, 2010, Heinonen, 2004). The increase of perceived
benefits, doubled the attenuation of the perception of sacrifices, and
implicitly by risk perception, increases the probability of adopting the
decision of purchase. Risk is the perception of uncertainty in relation to
the potential negative consequences associated with a choice, the
perception of the consumer that he will suffer losses as a result of the
purchase or consumption of a good or a service (Volle, 1995). The notion
of loss characterizes a situation in which an individual obtains a result
below a point of reference, which comes from several sources: personal
experience, social reference, target value, the best possible result or the
THE IMPACT OF CULTURAL DIMENSIONS ON THE PERCEIVED RISK OF ONLINE SHOPPING
11
greatest regret about other alternatives (Yates and Stone, cited by Volle,
1995). Consumers perceive online shopping as riskier than offline
shopping (Korgaonkar and Moschis; Donthu and Garcia, in Hassan et al.,
2006, Lee and Tan, in Hsieh and Tsao, 2014, Zheng et al. 2012) because
the Internet is an open, complex environment and the technology is
beyond the control of the user (Rose, Khoo and Straub, in Kim et al.,
2005). The perception of the risks of online purchases is generated by
the Internet features, among which we can mention: i) the impossibility
of touching and trying the products before the purchase; ii) problems
arising from the security of the purchase; iii) confidentiality issues;
iv) impersonal nature of the Internet. The perceived risks of online
purchases are based on the following categories of factors: (i) consumer
characteristics; (ii) the characteristics of the products and services;
(iii) the characteristics of the buying situation; iv) the type of online
store (Korgaonkar and Karson, 2007; Mitchel, 1999). On the other hand
the perceived risk has an impact on consumer confidence (Comegys et
al., 2009) which in turn plays a major role in the online purchasing
process. According to Jarvenpaa et al. (1999) trust allows consumers to
make transactions with merchants who are not part of their immediate
network. They add that it reduces the perception of risk and facilitates
the transaction. Based on literature review, Al-Matarneh (2016) and
Zheng et al. (2012) have developed a summary of the dimensions for
consumers perceived risk when buying online (Table 1).
Table 1. The dimensions of perceived risk in online buying
The dimensions of
perceived risk in
online buying
The definition and the authors who approached the subject
The risk of qualit
y
It refers to the possibility that purchased products do not conform to
the characteristics or performance expected by consumers buying in
online stores. In some studies, we talk about “product risk” (Wani
and Malik, 2012), while in other studies we talk about “performance
risk” (Zheng, 2012).
Financial risk It refers to the perceived likelihood of consumers losing money
paid for products and other fees to enter into their possession, such
as shipping costs. In some studies it is called “economic risk”
(Zhang and Tan, 2012), while other studies use the term “monetary
risk”.
LASSAAD GHACHEM, COSTINEL DOBRE, REZA ETEMAD-SAJADI, ANCA MILOVAN-CIUTA
12
The risk of loss of
privacy and
confidentiality
It refers to the perception of insecurity about personal information
and the use of the credit card. It is also called “security risk” and
“privacy or privacy security” (Wani and Malik, 2012). It also
refers to the potential collection and use of personal data with
cookies and web bugs.
Social risk
I
t represents the potential deterioration of the consumer image
a
p
ossible non-acceptance or marginalization by the reference
(
Zheng et al., 2012); Zheng et al. (2012) call it “the risk of su
b
n
orms”. Zheng et al. (2012) refers to the potential loss of status in
g
roup due to the purchase of the product or service.
The psychological
risk
It is the potential loss of sel
f
-esteem resulting from the
frustration experienced when the consumer perceives that he has
not fulfilled the purpose for which he purchased the product.
The risk of suppl
y
It includes two dimensions: the delivery risk and the risk of loss
of time, and refers to the probability of not receiving the product
within the agreed timeframe or wasting time due to defects or
loss of product (Zheng et al., 2012; Javadi et al. 2012). Zheng et al.
(2012) also refers to the risk of loss of time due to the search for
information on the defective product or because it is not
delivered to the consumer within the agreed time.
The risk of losing
health
It refers to potential negative effects on the health of consumers
(Zhang, Tan, 2012). Some studies use the term “physiological
risk” (Wani, Malik, 2012) and other studies use the term “physical
risk” (Zheng et al., 2012).
The risk of the sourc
e
It is given by the credibility and reliability of the website.
The after-sales risk It refers to the abrupt termination o
r
the difficult relationship between
the distributor and the consumer when unexpected problems occur
at the product level and in the absence of a warranty.
(Source: adaptation after Al-Matarneh, 2016, p. 64; Zheng et al., 2012, p. 258)
Material and Method(s)
Conceptual model and research hypotheses
This research aims to study the influence of cultural factors on
perceived risks in relation to online shopping. The explanatory model,
proposed in Figure 1, presents the different concepts and research
hypotheses retained.
THE IMPACT OF CULTURAL DIMENSIONS ON THE PERCEIVED RISK OF ONLINE SHOPPING
13
Source: authors’ construct
Figure 1. The impact of cultural dimensions on online shopping
The relationship between uncertainty control and the perceived
risk of buying online
The tolerance for uncertainty and the notion of consumer
perceived risk are closely related (Park et al., 2012). The work of
Schimmack et al. (2002) has shown that people from Eastern cultures
(where the avoidance of uncertainty is high) in order to ensure their
well- being, tend to avoid risks by reducing anxiety. Instead, individuals
from Western cultures will rather promote well-being by seeking to
maximize pleasure. The work of Al Kailani and Kumar (2011) confirms
that in cultures where the avoidance of uncertainty is high, the
perceived risk of buying online is important and negatively affects the
purchase intention. Also, in cultures where the perception of risk is
strong, the impact on online shopping is negative. In cultures with low
uncertainty avoidance individuals are more flexible and adapt more
easily to new situations, their risk-taking is considered an ordinary act
Uncertainty
control
Individualism-
Collectivism
Religiosity
Power distance
Masculinity -
femininity
Rerceived risk of
buying online
H1
H2
H3
H4
H5
LASSAAD GHACHEM, COSTINEL DOBRE, REZA ETEMAD-SAJADI, ANCA MILOVAN-CIUTA
14
(Balambo, 2013). According to Al Kailani and Kumar (2011), in cultures
with strong uncertainty control, individuals try to rely on strict laws
and regulations as well as on safety and security measures to reduce
uncertainty. These authors have demonstrated that individuals from
cultures where uncertainty control is important, will experience high
levels of risk when buying online. They tend to leave less room for
chance (Hofstede, 1984). Kim and Kim (2010) point out that some
cultures where uncertainty avoidance is high will promote the safety of
their environment with more fearful attitudes to avoid ambiguous and
risky situations. They have a conservative attitude towards risk (Park et
al., 2012). Moreover, in countries with low tolerance for uncertainty,
online purchases are often underdeveloped (Lim et al., 2004). This leads
us to try to understand the relationship between the perceived risk in
online shopping and the tolerance for uncertainty among French-
speaking African students, hence the first hypothesis.
H1: Individuals from cultures where uncertainty avoidance is high
perceive more risks in buying online than others.
The relationship between individualism and the perceived
risk of online buying
According to De Mooij (2004), the dimension of individualism vs.
collectivism affects the consumer’s need for risk reduction. This effect
has been proved in studies related to online purchasing (Jarvenpaa et
al., 1999; Kim, 2005). The work of Lim et al. (2004) has demonstrated
that the aspects of individualism and collectivism influence the online
shopping behavior. According to these authors, countries with an
individualist culture are more likely to consume online than countries with
a more collectivist culture. Park et al. (2012) highlight the relationship
between perceived risk, trust and cultural differences (individualist or
collectivist): individualistic cultures (such as the US) are more likely to
trust Internet merchants than the more collectivist cultures (such as
Korea). In addition, according to Stafford et al. (2004), consumers from
an individualistic culture would use the Internet for e-commerce more
than those who come from a more collectivist culture. Furthermore,
Brosdahl and Almousa (2013) studied the impact of the individualistic
THE IMPACT OF CULTURAL DIMENSIONS ON THE PERCEIVED RISK OF ONLINE SHOPPING
15
culture on the online buying perceived social risk. They show that this
risk is low among individualistic societies. This allows us to formulate
the second hypothesis.
H2: Individuals from an individualistic culture perceive less risks
when buying online compared to those coming from a collectivist culture.
The relationship between religiosity and the perceived risk of
online buying
Religiosity is a cultural component that has often been taken into
consideration by various researchers (Bănică, 2011; Mokhlis, 2009;
Moore et al., 2001). Its influence has already been demonstrated in several
aspects of the purchasing behavior of individuals (Levin, 1979). Moreover,
empirical studies often suggest the integration of this dimension in
consumer research (Mokhlis, 2009). Religion is perceived as a true
conservator of memory, that is, more than a set of principles or values
(Bănică, 2011). For individuals from cultures with low religiosity, abstract
representations are not accepted, on the contrary they promote
rationality and reason in decision-making (Moore et al., 2001). For Siala
et al. (2004) religion influences the decision-making process in consumer
buying. Similarly, according to Yang et al. (2009), religiosity influences
the consumers’ perception of the online shopping sites. Religion can
therefore act as a device to relieve anxiety (Balambo, 2013) and
influence the perceived risk of new technologies. For example, a study
by Braman et al. (2009) showed that the perception of risk in relationship
with technology is more pronounced with conservative people with high
religiosity. Bănică (2011) states that technological innovations will
always present new challenges for religion. Religion is one of the
cultural barriers to the adoption of e-commerce (Aleid et al., 2009) in
particular because of the impact of the religious and moral ideology on
the perceived risk of e-commerce. It would therefore be appropriate to
study the impact of the religiosity dimension on the perceived risk of
online shopping. This makes it possible to formulate the third hypothesis.
LASSAAD GHACHEM, COSTINEL DOBRE, REZA ETEMAD-SAJADI, ANCA MILOVAN-CIUTA
16
H3: Individuals with high religiosity perceive more risks to buying
online than others.
The relationship between power distance and the perceived
risk of online buying
Power distance within a culture represents the gap between the
different hierarchical levels of a society and the degree of inequality
among the population of a country (Hofstede, 2001). According to Kale
and Barnes (1992), this dimension has an impact on the opportunistic
behavior of individuals. On the other hand, Rothaermel et al. (2006),
state that power distance impacts on the attractiveness of companies
active on the web. Bajaj and Leonard (2004) add that in cultures with a
high power distance, the individual will always have difficulty making
purchases on the Internet. These cultures are inclined to more interpersonal
and verbal communication and require more communication time, which
is a barrier to buying online. In the case of online purchases, the perception
of risk would therefore depend on the importance of the hierarchical
distance, hence the fourth hypothesis.
H4: Individuals from cultures promoting high power distance perceive
more risks to buying online than others.
The relationship between masculinity and the perceived risk
of online buying
The masculinity dimension (vs. femininity) postulates that male
cultures place more emphasis on tasks, assertiveness and performance,
while women’s cultures place more emphasis on the quality of life, support
for others, the protection of the environment and discretion (Hofstede,
1988). Masculinity has a positive impact on innovation (Steenkamp et al.,
1999). In masculine cultures, importance is given to prestige and status,
success, pleasure and power (De Mooij, 2004). A more masculine society
has a predominance of male buyers and is often more involved in e-
commerce (Stafford et al. 2004). The masculinity vs. femininity dimension
impacts on the consumers need for risk reduction (De Mooij, 2004).
These findings are consistent with gender studies. Women perceive a
higher level of risk towards online shopping than men (Garbarino and
THE IMPACT OF CULTURAL DIMENSIONS ON THE PERCEIVED RISK OF ONLINE SHOPPING
17
Strahilevitz, 2004) and gender influences the consumer perception on the
online shopping sites (Yang et al., 2009). Finally, other studies have shown
that loyalty is rather stronger among women’s cultures (Crotts and Erdman,
2000). It would be therefore appropriate to study the impact of the
masculinity dimension (vs. femininity) on the perceived risk of online
shopping. This makes it possible to formulate the fifth hypothesis.
H5: Individuals from masculine cultures perceive less risks to
online shopping than those from feminine cultures.
Research Methodology
As shown in Figure 1, our research model incorporates five
constructs that may have an impact on the perceived risk of online buying:
uncertainty control, individualism / collectivism, religiosity, power distance,
and masculinity / femininity. They are based on the work of:
• Hofstede (in Balambo, 2013) for measuring individualism vs.
collectivism, high power distance vs. low power distance, femininity vs.
masculinity, and high uncertainty control vs. low uncertainty control.
• Allport and Ross (in Schneider et al., 2011) for measuring
religiosity.
• Hassan et al., (2006) for measuring the perceived risk of online
buying.
Data collection involved French-speaking African university
students. Previous studies on e-commerce have often used students as
the basis of their samples (Comegys et al., 2009). In addition to this, we
chose an Internet survey administration (through an online questionnaire).
This approach makes it possible to reach a broad target of students that are
geographically dispersed and that have varied frequencies of Internet
usage. Finally, the online questionnaire has the advantage of being self-
administered and its interactive aspect promotes the immediacy of
responses. To disseminate the questionnaire, we used the list of African
scholarship holders of the “EUGEN IONESCU” program (Agence Universitaire
Francophone). In total we have received 137 student responses, of which
57% are female and 53% are studying in the Master programme (in
various specialties). In addition, 52% of these respondents come from
North of Africa.
LASSAAD GHACHEM, COSTINEL DOBRE, REZA ETEMAD-SAJADI, ANCA MILOVAN-CIUTA
18
Results and Discussions
To test the hypotheses of our research, we opted for structural
equation modeling since our model contains latent variables. We also
chose the PLS method because it can be applied to a small sample
(Fornell and Lacker, 1981). The software used for data analysis is Smart
PLS 2.0. Comparing the averages of the variables presented in the
descriptive analysis (Table 2), we find that the most important risk is
that relative to the product’s performance (with an average of 5.25).
Overall, respondents agree that it is difficult to determine product
characteristics such as quality, size, color and design simply by looking
at photos on the Web and not being able to feel and / or try the product
before buying it online. In addition, they often fear that the product
delivered does not exactly match that displayed on the screen of the
computer. A second major risk is that of the source and reliability of
companies that are online (with an average of 5.00). Then comes the
financial risk which is in third position with an average of 4.57. The
social (2.36), physical (2.66) and psychological (2.95) risks, however,
are perceived as being less important. Regarding the cultural dimensions,
we find that religion is the most important dimension (with an average of
5.08) compared to i) individualism (3.91), ii) weak power distance
(3.29), iii) masculinity (4.21), and iv) uncertainty control (4.22).
Table 2. Descriptive statistics
Constructs /
variables
Average Ecart type Min Max
Risks Financial 4.57 1.44 1 7
Performance 5.25 1.54 1 7
Time related 4.01 1.52 1 7
Social 2.36 1.48 1 7
Psychological 2.95 1.49 1 7
Physical 2.66 1.35 1 7
Source related 5.00 1.51 1 7
Individualism/Collectivism 3.91 0.85 1 7
Power Distance high/low 3.29 0.83 1 7
Masculinity femininit
y
4.21 0.66 1 7
Unce
r
tainty control high/low 4.22 0.66 1 7
Religiosit
y
5.08 1.57 1 7
Source: authors’ research results
THE IMPACT OF CULTURAL DIMENSIONS ON THE PERCEIVED RISK OF ONLINE SHOPPING
19
Reliability and validity
Table 3 shows that all the latent variables have a composite
reliability (Chin, 1998) greater than 0.6. This confirms the internal
consistency reliability of our measurement model. The convergent validity
of the measurements tests the correlations of the measurements with
their respective construct. Items with correlations less than 0.5 must be
removed. Discriminant validity indicates to what extent each construct
is both unique and different from the others, using as a criterion the
correlations between each pair of constructs. The variance shared by
different constructs (squared correlation) must be less than the average
variance extracted from each by its measures. A construct must share
more variance with its measures than it shares with other constructs in
the same model. Table 3 presents the inter-correlations between the
constructs of our research model. The diagonal of the matrix represents
the average variance for each construct. Fornell and Larcker (1981)
suggest using the average variance extracted, ie the variance shared
between a construct and its measures. In our model the discriminant
validity has been verified (greater than 0.5).
Table 3. Reliability and validity
Constructs
Composite
reliability 1 2 3 4 5 6 7 8 9 10 11 12
1. Financial .76 .72a
2. Performance .91 .37 .89
3. Time related .86 .23 .48 .84
4. Social .94 .13 .03 .30 .92
5. Psychological .87 .37 .31 .40 .27 .84
6. Physical .83 .20 .27 .20 .40 .37 .79
7. Source related .90 .23 .54 .23 -.07 .22 .19 .87
8. Individualism/
Collectivism .66 .30 .24 .11 .18 .27 .12 .16 .58
9. Power Distance .79 .32 .17 .37 .33 .28 .13 .19 .34 .75
10. Feminity/
Masculinity .84 .30 .38 .30 .28 .30 .13 .18 .30 .48 .85
11. Uncertainty
control .73 -.25 -.27 -.22 -.26 -.11 -.18 -.13 -.13 -.13 -.39 .70
12. Religiosity .94 .42 .28 .27 .09 .20 .27 .09 .10 .17 .27 -.41 .84
Note: a) Diagonal: (mean variance extracted)1/2 = (Σλi2 / n) ½
Source: authors’ research results
LASSAAD GHACHEM, COSTINEL DOBRE, REZA ETEMAD-SAJADI, ANCA MILOVAN-CIUTA
20
Figure 2 shows the results of our PLS analysis. The variance
explained in connection with the perceived risk of buying online is
58.9%. This shows that our model can predict and explain the perceived
risk. Regarding the degree of uncertainty control, we find that the
impact on perceived risk is significant (γ = -0.218). The risk of buying
online is therefore influenced by the cultural dimension of uncertainty.
In addition, the correlation is negative. This allows us to deduce that
students from cultures where uncertainty avoidance is high perceive
less risks about online buying. This contradicts the work of Al Kailani
and Kumar (2011). These students would therefore tend to leave more
room for chance (Hofstede, 1984) with a less conservative attitude to
the risk of buying online. There is a tendency for respondents from an
individualistic culture to perceive less risks to online buying than those
from a collectivist culture (γ = 0.181). It is essentially the financial risk
that is affected. However, this hypothesis is not confirmed since the
value of the coefficient is not significant. Hypothesis 2 is rejected. This is
also the case for the dimension related to religion. The trend of a positive
impact on the perceived risk (γ = 0.115), especially the financial risk, is
again observed. Nevertheless, the value of the coefficient is not important
enough for this relationship to be confirmed and any conclusion would,
in this respect, be rather risky. Hypothesis 3 is therefore also rejected.
Regarding power distance, we note that it is the cultural dimension that
has the most influence on the perceived risk of buying online (γ =
0.335). The relationship is particularly important when we talk about
social, financial, psychological and time-related risks. Hypothesis 4 is
confirmed. People from cultures favoring power distance perceive more
risks for online buying. Finally, for the 5th hypothesis, it turns out that
the more we tend towards masculinity, the more we perceive risks
related to online shopping. This could confirm that the dimension of
masculinity vs femininity has an impact on the consumer need for risk
reduction (De Mooij, 2004). However, our results contradict the
research of Stafford et al. (2004), which state that a more masculine
society would have a predominance of male buyers and is often more
involved in electronic commerce.
THE IMPACT OF CULTURAL DIMENSIONS ON THE PERCEIVED RISK OF ONLINE SHOPPING
21
Notes: *Significant at 0.05 level
**Significant at 0.01 level
Source: authors’ research results
Figure 2. Results of Structural Model Analysis (PLS)
Discussions and theoretical contributions
From a theoretical point of view, the present research demonstrates
the influence of the cultural factors on the perceived risks of online
buying. This research is based on Hofstede’s model of cultural values
(1984) and in the theory of consumer risk. In our research model we
Uncertainty
control
Individualism/
Collectivism
Religiosity
Power
distance
Feminity/
Masculinity
Source
related
Financial
Performance
Time
related
Social
Psychologicalal
Physical
Perceived
risk
-0.218*
0.181
0.115
0.335**
0.274*
0.220*
0.244*
0.243*
0.248*
0.243*
0.226*
0.244*
R2=0
,
589
LASSAAD GHACHEM, COSTINEL DOBRE, REZA ETEMAD-SAJADI, ANCA MILOVAN-CIUTA
22
have integrated five constructs that could have an impact on the perceived
risk of buying online: uncertainty control, individualism / collectivism,
religiosity, power distance and masculinity / femininity. We also took into
account the influence of religiosity over the Internet and eight dimensions
of online risk perception. Our findings show that cultural differences have
to be taken into account in the early stages of planning of any global
expansion project on the Internet.
Managerial contributions
Our results can have major managerial implications. Web marketers
could better understand the different sources of risk perceived by the
Internet user according to its culture and possibly better adapt their
marketing approaches locally, regionally or internationally. Risk perception
is an important factor in limiting the growth of online commerce, and
reducing it requires, first of all, that marketers identify and understand
its dimensions.
In the context of online shopping, Cases (2002) analyzes the
relationship between the dimensions of perceived risk and the risk
reduction strategies, taking into account the sources of information or
sources of risk: i) the product; ii) the remote transaction; iii) the Internet;
iv) the website. The author states several strategies to reduce the perception
of risk when buying online, such as: the use of resources and tools for
comparing offers, the search for complete information about the product,
price and trading conditions, the possibility to change the product, the
possibility to refund the amount spent, the existence of a local offline retailer,
the security of payments, the reputation of the retailer, the possibility to
contact the retailer remotely, the familiarization with the website, etc.
The importance of the dimensions of perceived risk differs from
one culture to another, which is why marketers should choose risk
reduction strategies that are appropriate to cultural values in each market.
Store loyalty is a strategy to reduce the buying risk in collectivist cultures
(Milner et al., 2004). Individuals belonging to individualistic and masculine
cultures can be expected to seek additional information on product
performance, on online retailers, and to evaluate products in traditional
stores before they buy from online stores. Female consumers adopt
loyalty to stores and brands as risk reducing strategies (Crotts and
Erdman, 2000).
THE IMPACT OF CULTURAL DIMENSIONS ON THE PERCEIVED RISK OF ONLINE SHOPPING
23
Some consumers prefer non-personal risk reduction strategies,
while other consumers prefer personal strategies (Zheng et al., 2012).
Non-personal strategies include providing detailed product information,
using security solutions for payment, providing money-back guarantees,
drawing on previous brand experience, and buying known brands.
Personal risk reducing strategies include comments, consumer reviews,
website loyalty, and the ability to communicate with the online vendor.
Minimizing the risk of buying online also involves providing information to
reduce uncertainty about the results of the online purchases (Zheng et al.,
2012). The presentation of certain 3D images in the content of the site,
details on the composition of the product and its size, and the presentation
of product comparisons help reduce the perceived risks of online
buying. It is recommended that sites contain clear guarantees for
refunds and that they provide quality services to develop and support
the positive experience of site visits. Developing customer retention
strategies and tailoring customer-specific offerings are also specific
components of relationship marketing that lead to risk perception
reduction and increased confidence in online retailers and their websites.
Conclusions
Among the limitations of this research, we can mention the small
sample size and the sample structure, composed exclusively of
Francophone students who have benefited from a “Eugène Ionesco”
scholarship offered by the AUF. Thus, 52% of the respondents live in
countries of the Maghreb zone, so that could mean a relatively high
homogeneity of the sample. Moreover, although previous studies on e-
commerce have often used students as the basis for their samples and
research, it would be appropriate to test our model on another non-
student population too.
In addition, as noted above, the dimensions of online risk
perception and perceived risk reduction strategies were analyzed
against a variety of variables. Literature on the importance of risk
reduction strategies based on the dominant cultural values of different
markets is not well developed. For this reason, we propose, for future
research, the analysis of correlations identified between online shopping
risk reduction strategies and the cultural values of consumers.
LASSAAD GHACHEM, COSTINEL DOBRE, REZA ETEMAD-SAJADI, ANCA MILOVAN-CIUTA
24
The research model explores the causal relationships between five
culture-related constructs and the perceived risk of online shopping.
Data analysis highlights the importance of power distance. A culture that
promotes power distance will have a particularly important impact on
the social, financial and psychological risks when shopping online. On
the other hand, we have been able to deduce that in cultures where
uncertainty avoidance is high, the perception of risk when shopping online
is less important. However, we have not been able to detect a significant
relationship between individualism and perceived risk (it is the same for
religiosity). Finally, we found that the masculinity aspect of a culture has a
positive influence on the perceived risk of shopping online.
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STUDIA UBB NEGOTIA, LXIV, 3, 2019, pp. 29-44
(RECOMMENDED CITATION)
DOI:10.24193/subbnegotia.2019.3.02
MANAGING TECHNOLOGY IN MACEDONIAN SMEs
CONTEXT: PERCEPTIONS, PRACTICES AND CHALLENGES
SNEZHANA HRISTOVA1*, DUSICA STEVCESKA-SRBINOVSKA2
ABSTRACT. Academicians and policy makers alike state that technology
is the catalyst of growth for small medium businesses (SMEs). The
review of past research reveals that the strategic upside of technology
is the accomplishment of competitive advantage through their business
strategies. The effective implementation of advanced technologies enables
companies to achieve economies of scale and scope simultaneously. That is,
investigating advanced technologies reduces the cost of future product
innovation, allowing the company to increase its speed of response to
market and competitive changes. Therefore, investment in advanced
manufacturing technologies represents a strategic option. Despite the great
importance of technology in small sized businesses, not many studies
attempted to explore technology embraced by them, especially within the
Macedonian context. The purpose of this paper is to gain an understanding
of advanced technology knowledge and usage within the specific SME
sector in the Republic of North Macedonia and to discover, if technology is
used, whether it is seen as crucial to their competitive strategy. Moreover,
the main research question is how advanced technology affects different
aspects such as costs, sales and profitability, employee productivity,
customer care, share of the e-market and competitiveness. Primary data
were obtained through a questionnaire survey, carried out in small
and medium sized businesses in the Republic of North Macedonia and
evaluated using the tools of descriptive statistics and the methods of
comparison, induction, deduction and synthesis. The research results
indicate that advanced technology influences favorably the overall costs
and also increases profitability. Likewise, the findings show that advanced
technology leads to increase of productivity and sales. One of the
conclusions of the paper is that small businesses find it important to invest
in advanced technology in order to promote competitiveness.
1 Associate Professor, University American College Skopje, School of Business Economics
and Management shristova@uacs.edu.mk *corresponding author
2 Assistant Professor, University American College Skopje, School of Business Economics
and Management dusica@uacs.edu.mk
SNEZHANA HRISTOVA, DUSICA STEVCESKA-SRBINOVSKA
30
Keywords: Strategy, Competitiveness, Advanced technology, Innovation,
SMEs.
JEL Classification: M19; L19; O39
Recommended citation: Hristova, S., Stevceska-Srbinovska, D., Managing
technology in Macedonian SMEs context: perceptions, practices and challenges,
Studia UBB Negotia, vol. 64, issue 3 (September), 2019, pp. 29-44, doi:
10.24193/subbnegotia.2019.3.02
Introduction
Our starting premise in this paper is that creating and maintaining
competitive advantage is one of the main and most challenging tasks of
today’s businesses growth. One of the most basic questions that trigger
the managers nowadays is how firms can manage strategically their
product offering, value chain system, product strategies and technology,
competences and capabilities in complex changing business and
technological environment (Burgelmann, 2001). With other words, the
key to raising growth is the ability to compete in increasingly global
markets, both at home and abroad, and to build competitive advantage.
In fact, the need to innovate constantly in order to achieve and sustain a
competitive position is the central challenge to managers of all
companies. Therefore it can be noted that today in the market survive
only those companies which quickly and constantly introduce new
products and services. Over the years, company’s strategies follow
some kind of pattern that emphasize difference and competition and
strategies that recognize the roles of technology and innovation. As
technology advances, organizations are moving towards adapting the
best options so as to enjoy a competitive edge.
Review of Literature
In a broader sense, technology includes many tools and innovative
processes that managers and employees use to help company to achieve
its goals. In regards to the strategic management process that mostly
MANAGING TECHNOLOGY IN MACEDONIAN SMEs CONTEXT: PERCEPTIONS, PRACTICES AND CHALLENGES
31
relates to planning how to use resources for goal achievement, technology
is something that ensures the best use of resources and capabilities. As
early as 1961, the great Schumpeter has acknowledged that technological
competition on global scale makes a significant managerial challenge
for firms or organizations since technological advancements have
brought about drastic changes in form of emergence, fusion, disruption
and evolution of industries over time.
Burgelman et al. (2001) defines technology as “ technology refers
to theoretical and practical knowledge, skills and artifacts thatcan be
used to develop products and services as well their production anddelivery
systems. Technology can be embodied in people, materials, cognitive
and physical processes, plant, equipment, and tools”. According to Durrand
(2018), technology relates to design, production and distribution of goods
and services in response to market needs. What he points out is that
technology should be managed even it includes tacit know how that is
very hard to be managed. According to Dosi (1982), technology is
naturally related with innovation since the technology requires continual
improvement through a flow of incremental innovations which construct
and shape a technological trajectory. Some scholars have considered
technology also as the attainment of strategic goals by suggesting
product innovations. It provides an input in the product development
process to be utilized effectively in a strategically managed company.
Technology refers to information systems that businesses use to
maintain their competitive advantage by responding to their business
markets. A strategically managed organization sets goals for developing
new technologies, or new capabilities, to introduce in a target economy,
not just product innovations. This relates to expanding the organization's
market position, another goal of strategic management. A firm can
create new markets when it introduces new technologies if it believes
in front-end investment in technology development.
When it comes to the concept of “advanced” that is defined as any
technology used in the design, engineering, fabrication and assembly,
automated materials management, as well as the development of systems
of information, integration and control (Trott, 2008). Thus understood,
advanced technology in enterprises can be divided into advanced technology
in production and advanced technology in the information communication
and management. Advanced technology can be also considered as knowledge,
SNEZHANA HRISTOVA, DUSICA STEVCESKA-SRBINOVSKA
32
where employees are both producers of knowledge and keepers of
knowledge. Their knowledge is an asset that managers seek to develop
through the strategic management process, including identifying what the
organization will do to develop employees through training and professional
development (Collins at al.2010).
The implementation of advanced technologies allows companies
to diverge from the traditional strategies of striving for low-cost leadership
and differentiation. Effective implementation of advanced technologies
enables companies to achieve economies of scale and scope simultaneously.
That is, implementing advanced technologies reduces the cost of future
product innovation, allowing the company to increase its speed of response
to market and competitive changes. However, technology itself can have
important strategic implications for the companies and can exploit
competitive advantages, but yet not all of them are strategically beneficial. In
addition, technology alone cannot provide a competitive advantage. The
way these technologies need to be applied (technology strategy) and
implemented (technology management) needs to be understood by
both the academics and the practitioners. In this regards to this, the
performance of firms, besides other factors, basically relies on effective
management of these technologies. According to Biggler (2009), a firm’s
ability to build competitive advantage depends on the practices of general
management. In fact, general management who create the distinctive
set of practices and also develops a context for technology development
manage to stay ahead, offering the highest quality products with lowest
cost and doing continuous, incremental improvements that are value
driven. Pandza et al. (2004) posit that “Advances in technology have
moved companies toward a new competitive landscape. Managers are
experiencing the emergence of new concepts or even a new paradigm”.
The rapid change in technology over the last two decades has raised
concern on two major issues. These have been defined by Mitchell
(1998) (1) poor linkage between technology and strategy planning and
(2) over-reliance on short-term measures, both of which masks the more
strategic plans. Strategic importance of technology has been recognized
as helping to provide competitive advantage.
Furthermore, many scholars recommend that technology strategy
should be aligned to corporate strategy in order to reap out benefits
like performance and competitiveness for the company and therefore
MANAGING TECHNOLOGY IN MACEDONIAN SMEs CONTEXT: PERCEPTIONS, PRACTICES AND CHALLENGES
33
the more attention should be paid to technology in strategic processes.
(Ansoff, 1986, Mei &Nie, 2008, Dodgson et al., 2008). In 1980, Kantrow was
the first that advocated a better integration of technology into strategic
management. Technology strategy is a key ingredient in strategic technology
management and has become a primary factor in devising business
strategy and to sustain a competitive advantage, so companies do need to
connect and align technology strategy with business strategy. (Bleicher,
2004). Characteristics and capabilities of a technology need to be developed
and evaluated across the company. Considering the importance and
relation of technology with the firms’ broad competitive strategy, technology
should be connected and aligned to business strategy. Moreover, firms’
strategy on products, services and processes must be devised in relation
to technology throughout the value chain process (Dodgson et al., 2008).
According to Burgelman et al. (2001), in current era, technology
strategy has become a key factor in devising business strategy and to
sustain a competitive advantage. He studied this fact and concluded that
it helps to answer questions such as, which competences and technologies
are to be adopted for competitive advantage, what should be the investment
level on technology development, and how to organize technology
development and its management etc. Although, scope and importance
of technology strategy is defined in companies, but the extent to which
such strategy is incorporated into business strategy and the existence of
an explicit technology strategy varies even in technology oriented firms
(Kropsu-Vehkapera et al., 2009).
According to Bleicher (2004), strategic management is a big umbrella,
in which strategic technology management is one colour and food for
thought. Portfolio of technological evolution in a company should be
managed strategically by taking into account technology during strategy
formation and execution process of a company. Herewith, strategic technology
management is expected to provide means or ways to manage complexity,
ambiguity and dynamic nature of businesses, caused by the technology.
Porter (1985) stated that technology is involved in all activities of value
creation process of a company so technology aspects must be considered
properly during strategy formation. Therefore, companies do need to cater
for technology matters in line to product and business strategy. In his
book Competitive Advantage (1985), Porter noted that technology has
SNEZHANA HRISTOVA, DUSICA STEVCESKA-SRBINOVSKA
34
the potential to change the structure of existing industries and to create
new industries. It is also a great equalizer, undermining the competitive
advantages of market leaders and enabling new companies to take
leadership away from existing firms.
In the context of SMEs, since the major focus in this paper is given to
them, the adoption and use of technology is widely seen as critical for
their competitiveness in the emerging global market. The benefits of advanced
technology in SMEs are quite enormous and should not be underestimated.
They include cost reductions and improved marketing strategy, more
efficient and effective communications as well as superior procurement
and methods of distribution (Collins et al., 2010; Pool et al., 2006; Singh,
2011; Pickernell et al., 2013; Ajayi and Olayungbo, 2014). However, it
should be considered also that SMEs generally struggle with limited
resources in terms of time, money and expertise. Juggling competing demands,
SMEs are often cash poor and most lack the range of internal expertise
available to the large firm. In fact, it is the skill and enthusiasm of the
owner-manager that typically drives the business forward and shapes
the character of investment decisions (Caldeira & Ward, 2002).
Compared to large businesses, SMEs are facing a lot of obstacles
and lag behind in their use of technology in both ways-operationally
and strategically. One of the primary shortcomings that characterize
them is actually the lack of managerial skills to conceive, plan and
implement and reluctantly update technology (Caldeira & Ward, 2002).
According to Pool at al. (2006), SMEs are” constrained by resources,
hemmed in by competing demands, caution and suspicion often greet
new technological opportunities. Therefore large firms for example, have
adopted e-commerce much faster than SMEs. The evidence is showing that
when it comes to introducing e-commerce, SMEs managers are acting with
caution to its opportunities and approach very slowly in their strategic
and operational actions. (Al-Qirim, 2005).
In case of developing countries, such as the Republic of North
Macedonia itself, a very specific obstacles can be identified on the issue
how SMEs manage technology and innovation. Internal barriers are those that
typically include organizational culture, lack of resources, owner/managers’
attitude toward strategic technology, and the level of training of employees.
The external barriers are those that lie outside and include a lack of
MANAGING TECHNOLOGY IN MACEDONIAN SMEs CONTEXT: PERCEPTIONS, PRACTICES AND CHALLENGES
35
infrastructural facilities and limited funds from banks and other governmental
bodies. Kapurubandara and Lawson (2006) suggest that in order for
these inhibitors to be overcome, SMEs need to work collaboratively.
Perhaps one of the most surprising barriers to advanced technology
adoption is the lack of knowledge of ICT solutions, how they work, their
implementation and perceived benefit to the SME sector. The attitude of
management in an organization plays a crucial role in the adoption of ICT
as in most cases in SMEs the managers are also the owners. Support
from the management of an organization, most especially top management, is
essential for successful technology implementation and adoption for
SMEs. If the management is not disposed to its adoption and utilization,
then SMEs will not be able to use. The owner/manager’s weakness therefore
becomes a limitation of the business as well. Lastly, most SMEs do not
have the capability to expand their advanced technology resources due
to limited access to capital (Paul et al., 2008). This is a common factor
that affects the adoption of advanced technology in SMEs.
Overall, there are not exiting common frameworks that can lead
SMEs how to better integrate technology and innovation into value
chain model of a business. This is because of the rapid changing and
increasingly competitively and high complexity of the global economy.
In general, companies have to evolve their own strategic management
technology practices according the nature of their business, R&D pursued,
organizational culture and structure etc. However, what can be highlighted as
common are the basic aspects related to value creation and business
model, strategy formation and execution, technology strategy, technology
management, innovation management, and interface between technology and
innovation strategy. This would allow SMEs to better understand concepts and
intermediary steps, required to formulate a technology and innovation
framework for them to develop and sustain technological capabilities.
With this, they will be able to benefit from their internal strengths,
overcome their weaknesses, exploit external opportunities and minimize
their external threats. Foremost, main variables affecting innovation are
consisting of firm strategy, expenditure on research and development, use
of technological information sources and overall performance of the firm.
In addition, it can be acknowledged that most of SMEs do not pay
much attention to technology strategy or technology management. The
reasons are very broad, such as lack of awareness and low interest on
SNEZHANA HRISTOVA, DUSICA STEVCESKA-SRBINOVSKA
36
the part of management, very narrow focus on managing everyday
operational activities, lack of funds for research and development etc.
certainly, they are SMEs that innovate or invest in technology but this
usually happens when customers require new offerings, suppliers propose
new modes for transformation or competitors power increases. What we
can state here is that in most of the cases, there is passive innovation and
the reactions are mostly related to the innovations that are coming from
outside. The major challenge of SMEs should be greater operationalization
of the technology strategy as a core competence.
In the Republic of North Macedonia, small and medium sized
companies (SMEs) play a significant role in the country’s economic
development. As of 2018, SMEs comprise of 99.7% of businesses and
account for almost two thirds of total value added and nearly three
quarters of all jobs, well above the respective EU averages of 57% and
66%. In 2008-15, the value added by SMEs increased by 17%, while
employment grew by 19%.(European Commission Report, 2017). In the
EC Report, it is noted also that especially small and micro companies
face problems in particular with skills and innovation. In this perspective,
there is a notable need to catch up as regards online transactions, lack of
ICT skills and R&D support to SMEs. Other remaining problematic issues
include regular access to finance with a dearth of alternative non-
banking financing sources, and a lack ofentrepreneurship which is
viewed negatively by those who believe that setting up a business is the
only option to find work. The majority of SMEs in North Macedonia do
not have access to bank loans or funding to support the development of
advanced technology in their businesses. Moreover, paying back loans
that have high interest rates/bank charges can be too much of a burden
for the majority of typical SMEs. The lack of a skilled labour force and
basic business skills are a bottleneck for most Macedonian SMEs,
affecting their potential for growth in productivity and competitiveness
and, consequently, in new employment.
Due to the importance of this sector, the development of the
small and medium enterprises is listed as one of the main priorities of
the government. Overall, the efforts are already focused on improving the
business environment for the development of SMEs, while strengthening
the efforts for improving the competitiveness and innovations. (National
Strategy for SMEs 2018-2023) This attitude is also evident in the latest
MANAGING TECHNOLOGY IN MACEDONIAN SMEs CONTEXT: PERCEPTIONS, PRACTICES AND CHALLENGES
37
review of the Economic Policy Index of the EU, (OECD, 2016) where
OECD acknowledges Macedonia for its institutional framework and
operational environment, where the country is considered "one of the
most advanced economies in the the region of Southeast Europe in
terms of advancement of its SME sector”. This assessment is positive
aspect and should encourage the authorities to continue with the policy
of fostering entrepreneurship and SMEs growth and also ensure
adequate provision of services that meet the needs of SMEs. What is
worth to be stressed here and in regards to the topic of this paper is
that besides the policies and programs, what is more specifically very
crucial is the given support in terms promoting the use of technology
in SMEs as a strategy for stimulating increased productivity and
competitiveness. All these facts indicate the importance of advanced
technology as a key factor for the development of SMEs. As Polland
(2006) noted “in the information society environment successful
enterprises produce high technology goods and services and transform
human effort materials and other economic resources into product and
services that meet customers need. In such society, in order to be
successful, SME would need high quality information and must always
provide superior value, better than competitors, when it comes to
quality, price and services.” For these reasons, the Government of
Macedonia should emphasize the importance of advanced technology
and its uses by SME’s as a strategy for increased productivity and
competitiveness. The adoption and use of advanced technology is
critical for the competitiveness of Macedonian’s SMEs in the emerging
global market, while promoting significant positive consequences on
the nation’s economy. Also, it can help SMEs to may tap the rapid growth
of e-commerce to expand globally. The Internet is revolutionizing the
way businesses operate and compete, as e-commerce transcends the
limitation of geographical boundaries. For example, by effectively
harnessing the internet, SMEs are able to search the international
business community for potential partners and suppliers without the
need for expensive and time-consuming travel. Moreover, high value-
added services may be delivered via e-commerce at relatively low costs.
On its part, the government has invested considerably in the necessary
infrastructure to make e-commerce possible.
SNEZHANA HRISTOVA, DUSICA STEVCESKA-SRBINOVSKA
38
Results and Discussions
Primary data were obtained through a questionnaire survey,
carried out in small sized businesses in the Republic of North Macedonia
and evaluated using the tools of descriptive statistics and the methods
of comparison, induction, deduction and synthesis. The questionnaire
was answered by 47 respondents (sent to 98 respondents) from small
and medium sized companies in the Republic of North Macedonia. The
data was collected over a two-week period of time and the response
rate was 47%. The majority of the respondents were managers (74.8%
or 35 respondents), followed by those who stated that they are both
owners and managers (20% or 9 respondents) and lastly those who are
owners (6% or 3 respondents). The majority of the respondents came
from businesses operating for more than 10 years (70%), followed by
those that exist between 1 and 5 years (22%) and those that operate
between 5 and 10 years (8%). The majority of the surveyed companies
81% were small sized (up to 50 employees), while 19% were medium-
sized (up to 250 employees) as defined by the established national
classification. Regarding the competiveness internationally, 35 (74%) of
the interviewed managers responded that they mostly compete on the
global market. For the rest of the interviewed managers (12), the local
market is the key for their operations.
The questions were designed to gain an understanding of
advanced technology knowledge and usage within the specific SME and
to discover, if technology is used, whether it is seen as crucial to their
competitive strategy. It is important to once again highlight that this
research makes use of a quantitative approach in trying to answer the
research question. The replies are based on the perceptions and
practices of the SMEs’ managers as they run their businesses. To begin
with, the respondents were prompted to provide their opinions of the
importance of advanced technology to them based on their previous
experiences. Most of them perceived advanced technology as a crucial
factor, as something that is necessary for success, as a pathway to
development and improvements. Some connected advanced technology
to their everyday operational activities. There was only one answer that
shed a slightly more worrying tone to the term advanced technology
accentuating that it can be a terrifying thing, but something that has to
MANAGING TECHNOLOGY IN MACEDONIAN SMEs CONTEXT: PERCEPTIONS, PRACTICES AND CHALLENGES
39
be done, by accentuating that small changes and adjustments happen
all the time.
Asked about the usage of advanced technology in their business
operations, the survey shows that almost all (93.62%) of the respondents
agree that their business uses some form of advanced technology in their
business processes. When asked about the technology employed,
27(57%) of the managers consider their current technology sufficient
for the product strategy requirements. Nevertheless, they would
consider additional investment if needed and 20 (43) of them answer
that they will definitely need to change the applied technology if new
products are to be added to their current product lines.
The next question provides deeper insight into whether the
companies have a technology strategy as a part of the overall strategic
management process. It also tries to test whether the respondents are
familiar with the concept of technology strategy. The respondents were
offered set of options for answering this question. For most of the
respondents (68%) technology strategy means a primary factor in
devising business strategy and to sustain a competitive advantage, so
companies do need to connect and align technology strategy with
business strategy. As this is one of the most relevant definitions of
technology strategy the answer uncovers that the respondents are
familiar with the concept itself. The other answers were related to
pursuing new technology opportunities, overall change of the business
model, research and development etc. However, on the question do
they have a technology strategy as part of their strategic management
process? only very few firms (10%) have declared that they have a
specific technology strategy to support the overall business strategy.
Regarding their general attitude towards the investment in technology,
only few of the managers of answered that the needed investment is
very often an issue in his company if the market requires a particular
investment. What was mentioned as problematic issues were the
financial resources as a very relevant factor for the new technology
decisions. Very often the regular budgets are quite limited. Regarding
the research and development budgets, 16(34%) of the managers
reported their regular budgets for these purposes, limited budgets for
R&D have 19(40%), while other 16(34%) have no R&D budget at all.
SNEZHANA HRISTOVA, DUSICA STEVCESKA-SRBINOVSKA
40
One of the main driving motivation to invest in advanced
technology was to gain competitive advantage and to increase their
operational efficiency (70%). Improving employee productivity was
marked by 50%, followed by profitability and improving customer care
respectively with 50%, while increasing market share was indicated as
the most by 35% of the managers. Very few firms (17%) have chosen
employee satisfaction as reason to invest in advanced technology.
We have also investigated the perceptions about the benefits
that SMEs have from advanced technology. When asked about the main
benefits from the usage of advanced technology, the most cited benefit
as a result of advanced technology use is the opportunity for market
expansion and facing with competition (80%). The second rated answer
from the surveyed managers is improved operations and quality of
service (75%) while advanced collaboration with customers and suppliers
is experienced by 53% of managers. Close to 48% of the managers cited,
cost reduction as the main benefit, followed by increased productivity.
In the following section, the main question in focus is how
advanced technology affects more specifically the aspects such as costs,
sales and profitability, employee productivity, customer care, share of
the e-market and competitiveness. Asked about the cost reduction
brought by the advanced technology, answers were split between 28%
of the surveyed managers, who put forward the reducing the cost of the
inventory, 33% who indicated on the advertising and distribution and
32% who think that it is the reduction of the total cost. We also
questioned the impact of advanced technology on increasing customer
care and the responses have indicated the greatest influence on the
fulfillment of the requirements of customers/ partners, such as increasing
loyalty and consumer confidence. The impact on sales was elaborated
thorough to its major effect on impact on reducing the cost of offering
sales (35%), identifying the needs of consumers (27%), increasing sales
due to suggestive products and services (20%), and lastly on rising sales.
On the question how advanced technology influences on increasing
profitability the respondents see that it mostly increases net profit, due
to the increased time and increased efficiency of employees. When it
comes to the question how advanced technology affects the employee
productivity, the answers provided have indicated the greatest impact
on internal vertical communication, horizontal communication and as
MANAGING TECHNOLOGY IN MACEDONIAN SMEs CONTEXT: PERCEPTIONS, PRACTICES AND CHALLENGES
41
well as the on the efficiency increase. For the question how does the
advanced technology impacts on increasing share of the e-market,
participants respondents see most benefits thorough a better positioning
on the market, acquiring new Internet access partners and identifying the
most profitable customers / partners. Lastly the respondents were asked
about the impact of the advanced technology on their competitiveness.
Most of the companies (54%, 25 companies) had major effect on their
competitiveness, followed by those which experienced moderate effect
on their performance (44%, 21 companies). On the other hand very few
companies (2%, 1 company) reported either minor changes or no changes
to their competitiveness.
Conclusion
Advanced technology is crucial to SMEs if they seek to increase
their effectiveness and productivity. Through increased usage, they can
reduce operating costs, but also the use of quality information could result
in an improvement in the value of their output. Using new technologies
facilitates the global connectivity of companies and provide new ways of
delivering products and services. The new business strategies empowered
by the development of advanced technology enable to small and medium-
sized companies’ access to new markets and new sources of competitive
advantage, which are the basic conditions for growth.
This paper has intended to explore the perceptions and practices
of Macedonian SMEs managers’ regarding the application of advanced
technology in their companies and the benefits thereof. Аccording to the
results of the survey, a positive aspect is that most of the SMEs already use
some kind of technology in their business operations. Encouraging is the
fact that the small and medium-sized companies recognize the benefits
that they would gain by applying advanced technologies, such as to
opening new business opportunities, cost efficiency, increased productivity,
increased competitiveness etc. All these benefits will enable increased
growth and development of small and medium-sized companies and thus
of the overall economy of N. Macedonia. The results have also shown that
overall the managers find important to invest in advanced technology,
whereby the main motivation is related mostly with creating competitive
advantage and increasing the operational efficiency, followed by improving
SNEZHANA HRISTOVA, DUSICA STEVCESKA-SRBINOVSKA
42
employee productivity, profitability and improving customer care
respectively. However, although the managers SMEs, in general, are
motivated to invest in advanced technology, there is a lack of technology
strategy to be updated with new strategic management trends. With
regard to awareness of the benefits of the technology strategy, almost all
of them use and invest in advanced technology lacking the vision of
strategic core competence. Indeed, the findings of this work show that
though the applicability of technology strategy is not widespread at the
highest level among SMEs; albeit, the better integration of strategic
management within the technology usage and implementation is
overwhelming and SMEs who pursue it can expect further enhancement
in the level of performance. Lastly, while SMEs should continue with the
intention of adopting new advanced technologies to achieve greater
competitiveness, growth and development of companies, the Macedonian
Government should also foster its efforts to create an environment that
will be good enough to stimulate the application of advanced technology
and provide support to small and medium-sized companies in their
aggressive usage and implementation in their operations.
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STUDIA UBB NEGOTIA, LXIV, 3, 2019, pp. 45-60
(RECOMMENDED CITATION)
DOI:10.24193/subbnegotia.2019.3.03
THE END PRODUCT OF THE IMAGINE DRAGONS’ AND
LADY GAGA’S MUSIC, OR THE NATURE OF MARKETING
MIX IN THE MUSIC INDUSTRY
ERIKA KULCSÁR1, CLAUDIA-IZABELA CRENGANEȘ2
ABSTRACT. It is a fact that consumer behaviour changes according to
the decisive events that occur in people's lives. More precisely, they
buy different products or services when events such as marriage,
childbirth or the loss of a family member occur. Music, on the other
hand, is a service product which use does not change depending on
what events occur in people's lives. In fact, there are songs that are
required at weddings, christenings and funerals. This article examines
first of all (a) what defines the songs of Imagine Dragons and Lady
Gaga, more specifically (1) the source of their emotions in their songs,
(2) what these songs provide beyond emotions and how these things
materialize, (3) what they convey to society, as well as (b) how
marketing mix elements are represented in the music industry.
Key words: music, marketing-mix, Imagine Dragons, Lady Gaga, end
product, personalization
JEL classification: M31
Recommended citation: Kulcsár, E., Crenganeș, C-I., The end product of
the Imagine Dragons’ and Lady Gaga’s Music, or the nature of marketing
mix in the music industry, Studia UBB Negotia, vol. 64, issue 3 (September),
2019, pp. 45-60, doi: 10.24193/subbnegotia.2019.3.03
1 Lecturer, PhD, Faculty of Economics and Business Administration, Babeș-Bolyai
University of Cluj-Napoca, Romania, e-mail: erika.kulcsar@econ.ubbcluj.ro
2 Bachelor in economy, Faculty of Economics and Business Administration, Babeș-Bolyai
University of Cluj-Napoca, Romania, e-mail: gothard_klaudia@yahoo.com
ERIKA KULCSÁR, CLAUDIA-IZABELA CRENGANEȘ
46
Introduction and Review of Literature
Music has been an integral part of society for many centuries, as
“approximately 70,000 years ago, all music was popular, in so far as it
was shared and enjoyed by all members of a society” (Blacking, 1981, p. 9),
therefore songs – as many other products/services - have taken various
forms. According to research by North, Hargreaves and O'Neill, listening
to pop music is far more popular than listening to classical music. In
fact, listening to classical music offers only one perceived advantage
over pop music: the positive perception of music by teachers and parents
regarding listening to this genre (North, et al., 2000). However, the
question arises: what is the impact music can have.
(A) Music products not only provide light-hearted feelings or
entertainment but also, in many cases, have deep thought-provoking
content. There are even songs that can have a drastic impact on people's
lives. The (perhaps) best example of this is the song Gloomy Sunday by
the Hungarian lyricist Pál Jávor. The song has also attracted the attention of
singers/bands like Billie Holliday, Marianne Faithfull, Sinead O'Connor,
Björk, Sarah McLachlan, Diamanda Galas, Heather Nova, Sarah Brightman,
Sarah Vaughan, Matt Forbes and Tunes of Down. According to some, the
song can be linked to 17 suicides in Hungary and up to 200 worldwide
(available at: https://retrolegends.hu/ 2013/12/10/szomoru-vasarnap-a-
gyilkos-dal/). It is true that there are many questions about the song, but
it is also a fact that Gloomy Sunday3 also had a profound influence on
Rezső Seress (composer/performer), who committed suicide in 1968
(at the second attempt), and this song has been added to music history
as a “suicide” song (Horváth, 2015, available at: https://www.szeretlek
magyarorszag.hu/az-ongyilkosok-himnusza-volt-a-szomoru-vasarnap/).
(B) A song, or even a melody, has the ability to take us back in
time, and consequently, one of its peculiarities is that it recalls the
3 My darling come on last Sunday,/There will be a priest, a coffin, a catafalque, a
cerecloth./Even a flower will wait, a flower and a coffin./Under blooming trees this
path will be the last./My eyes will be open to see you last time./ Don't be afraid of
my eyes, giving my blessings even if I will be dead ... (Lyricist: Jávor Pál,
composer/performer Seress Rezső)
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47
past (there are many comments on YouTube that support this
statement). Furthermore, music appears as an opportunity in the lives
of those people who are no longer able to express their needs through
words and gestures, so music can make a significant contribution to the
acceptance of the aging process (Hays, 2005). Hays and Minichiello's
research has shown that in the lives of older people (aged 60 years
and older), music is nothing more than “ways of understanding and
developing their self-identity; connecting with others; maintaining
well-being; and experiencing and expressing spirituality” (Hays and
Minichiello, 2005, p. 437).
(C) A musical work can influence our mood and we can choose a
song based on our mood, but listening to music is also common during
other activities (Chamorro-Premuzic and Furnham, 2007), because music
(more and more) is used as leisure goods, as a resource of everyday life
(North, et al., 2004). Music offers people an alternative way of solving
everyday problems (Hays, 2005): “music therapy could reclaim music
for everyday life as a central force in humanizing culture” (Ruud, 2008,
p. 58).
(D) Nor can we overlook the fact that the content of a video clip
made for a particular song can influence the formation of social values.
Based on Wallis's research, he concluded that “significant gender displays
primarily reinforced stereotypical notions of women as sexual objects,
and to a lesser degree, females as subordinate and males as aggressive”
(Wallis, 2011, p. 160),
(E) Music can also play a significant role in the process of
socialization, as it may be one of the most popular topics when two people
who do not know each other initiate conversation (Rentfrow and
Gosling, 2006).
(F) The relationship between music and politics is not new
either. The relationship between these two is defined by dimensions
such as “the organization of the link, its legitimation and its cultural
performance” (Street, et al., 2008, p. 269).
(G) A melody has a well-defined role in the economic sphere, as a
melody plays an important role in the promotion of a given product,
because “music is increasingly used as a stimulus in the retail environment
as well as in radio and television advertising” (Bruner, 1990, p. 94).
ERIKA KULCSÁR, CLAUDIA-IZABELA CRENGANEȘ
48
Material and Method(s)
• The end product refers to (1) the emotions4 that come from
listening to a song, (2) all the phenomena it provides beyond the
emotions, and (3) its message.
• Songs by the band Imagine Dragons and singer Lady Gaga were
included in the analysis. They were chosen because (1) the
performers are relatively young5, (2) have special characteristics,
(3) they are one of the best known representatives of the alternative
rock band and the pop genre, (4) both Dan Reynolds and Lady
Gaga are songwriters and (5) both genders are thus represented.
• Older and newer (2018) songs were selected in case of both
artists. The song It’s Time by the Imagine Dragons (because it
helped Dan Reynolds get over the time he was struggling with
depression and anxiety), (available at: https://kozepsuli.hu/5-
dolog-amit-tudnod-kell-az-imagine-dragons-zenekarrol/), as well
as the song entitled Natural. On the other hand, the song Bad
Romance by Lady Gaga was included in the analysis, because this
song can be considered her ars poetica (Kiss, 2012) as well as
the Shallow song.
• Content analysis was based on the YouTube video-sharing website.
• Only English comments were analysed.
• The song reviews were collected on the same day (21.08.2019),
collected by the same person in order to eliminate multiple
perspectives that would lead to distortion.
• In case of each song the first 300 comments served as the basis
for subsequent content analysis. In addition, only those comments
with explicit content were analysed, either referring to the song or
to the video clip.
4 The basic emotions defined by Paul Ekman form the basis of the analysis, which are:
joy, sad, angry, surprised, fearful, disgust (available at:
https://asszertivakademia.hu/erzesek-listaja/).
5 We chose the younger generation because their songs are obviously aimed primarily
at young people and can thus influence the formation of social values.
THE END PRODUCT OF THE IMAGINE DRAGONS’ AND LADY GAGA’S MUSIC, …
49
• Comments referring to the rating of the song or the video clip
were not included in the analysis, as the following points of
analysis were taken into consideration: (1) what emotions are
triggered, (2) what they provide beyond emotions, and (3) what
is the most important line in the lyrics (quoted lines were
included in the analysis; they were clearly related to the content
of the song; they were not part of the communication between
comment writers).
• The terms used in the analysis, namely: band, singer and performer
are considered of equal reference, as well as the musical product
refers to songs and video clips - as the complexity of musical
productions and their creative execution is becoming increasingly
important in the music industry.
• At the beginning of data collection:
o the Imagine Dragons It’s Time (Official) song had a total of
425.386.580 views, and 73.449 comments; while the Natural
(Official) song had a total of 270.233.150 views, and 125.033
comments,
o Lady Gaga’s song Bad Romance (Official) had a total of
1.092.398.732 views, and 806.611 comments, while the song
Shallow - performed together with Bradley Cooper (in the
movie A Star is Born) - had a total of 134.585 comments and
a total of 666.294.231 views.
Results and Discussions
The elements that determine marketing are also important in the
music industry. Not only the classic marketing mix elements (product,
price, distribution, promotion) but also the extended marketing mix
elements (people, physical evidence, processes, consumer/other consumer)
have their justification.
The first step was to analyse the songs of Imagine Dragons and
Lady Gaga. The content analysis was followed by a detailed analysis of
the collected data, which can be used to more precisely outline the
nature of each marketing mix element in the music industry.
ERIKA KULCSÁR, CLAUDIA-IZABELA CRENGANEȘ
50
The end product of the songs and video clips of Imagine Dragons
and Lady Gaga
(1) The Imagine Dragons alternative rock band was formed in
Las Vegas, Nevada in 2008 (available at: https://hu.wikipedia.org/wiki/
Imagine_Dragons). The mix of tribal and electronic sounds gives the band a
unique touch of rhythm (available at: https://antropos.hu/imagine-
dragons-alternative-rock-nevadabol/). They also give concerts in arenas,
stadiums, but (for them) it is “nicer” to perform in front of a smaller
audience, because they get closer to the audience (available at:
https://starity.hu/magazin/58331-9-erdekesseg-amit-nem-tudtal-az-
imagine-dragons-zenekarrol/).
In the next section the songs of Imagine Dragons: It’s Time and
Natural are presented, with reference to the end products.
Table 1. The end products of the songs and video clips
of Imagine Dragons: It’s Time and Natural
It’s Time Natural
• causes sadness (1)6,
• provides happiness (2),
• touches emotionally (1),
• triggers feelings with physical signs:
tears (4), chills/goose bumps (1-1),
• gives hope (1),
• provides emotional support (9),
• provides positive things (2 - specific
things have not been identified by the
comment writers),
• contributes to the understanding of
life/ helps to understand the meaning
of different things (1-1),
• gives you the opportunity to forget (to
forget the responsibilities of adulthood -1),
• gives strength (2),
• motivates (2),
• contributes to mental health (1),
• provides feelings (a) which are close to
tears (1), (b) with physical signs: goose
bumps (1),
• motivates (1),
• provides energy (2),
• provides help in the process of
finding/accepting one’s true self (1-1),
• presents the dark reality (1),
• refers to the possibility of a fresh start
and its achievability (1),
• points out that nothing happens without
consequences (1),
• suggests that being a hunter is better
than being chased/being the prey (1),
• draws attention to the fact that
deprivation of emotion appears as an
opportunity for survival (2).
6 Frequency of occurrence in comments
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51
It’s Time Natural
• brings back the good old days (1),
• refers to the inseparability of heaven
and hell (1),
• refers to the importance of staying true
to ourselves (6),
• refers to the inseparability of home
and true love (1).
Source: Comments on YouTube regarding Imagine Dragons’ music products: It’s Time
and Natural
In our opinion:
• in the song It’s Time the possibility to restart life is an eternal
opportunity, even if someone is already at the bottom of the pit.
The importance of letting go in life is also apparent in the lyrics
of the song (“Don't look back”) in order to stay true to ourselves.
The Imagine Dragon admits that the road we choose or the road
which is assigned to us is a lonely one, and that loneliness will
become more and more powerful and stronger, but faith helps
prevent destruction of the self. The video clip of the song is a
true reflection of the song. To throw light into the earth, like a
seed, does not mean multiplying light but destroying it (there is
no heaven without hell).
• in the song Natural they bluntly suggest that everything we do
has a price or comes with a consequence. Letting go, being free
of emotions, being separated from external factors is probably
the only way we can protect ourselves from the world around us.
They openly express their opinion that the role of the predator
ensures survival. The song draws attention (“Cause this house of
mine stands strong”) to the power of faith in ourselves, however,
its main theme is the conflicting process of searching and finding
ourselves. The directness of the lyrics is also reflected in the
video clip of the song, as the video clip also bluntly announces
the inevitability of death. There is nothing artificial or fake about
how they confront their fans with the reality.
ERIKA KULCSÁR, CLAUDIA-IZABELA CRENGANEȘ
52
The songs of Imagine Dragons do not manipulate reality, the
singers do not write songs, nor do they make video clips that depict the
sunny side of life. Their songs have a deep moral to tell, but at the same
time there is something elusive in these songs that grabs the attention
of the audience (at least those who love their songs).
(2) Stefani Joanne Angelina Germanotta, aka Lady Gaga, an
Italian-born American singer-songwriter and actress, made her 2008
debut with the album The Fame. Provocative behaviour is not far from
the singer, and it is present in the content of her songs as well as in her
video clips. Clothing is also very important for Lady Gaga. Lady Gaga has
elevated her style to a level that has already become a personal
trademark (her dress made of raw beef, commonly referred to by the
media as the meat dress, stirred controversy worldwide). Together with
the Yale University, she was present at the Emotion Revolution Summit in
2012, where she gave a lecture to young people on the importance of
emotions (available at: https://hu.wikipedia.org/wiki/Lady_Gaga).
According to Kiss, “Lady Gaga is constantly revealing her attraction and
rejection (...) towards the rejected, marginalized, non-aesthetic cultural
backgrounds, fields and beyond all these she expresses a form of sexual
distortion” (Kiss, 2012, p. 39).
In the next section the songs of Lady Gaga’s Bad Romance and
Shallow are presented, with reference to the end products.
Table 2. The end products of the songs and video clips of Lady Gaga:
Bad Romance, Shallow
Bad Romance Shallo
w
• provides feelings with physical signs:
goose bumps (1),
• teaches (1),
• helps finding one’s true self (1),
• depicts society (definition of ahead of this
time (4),
• refers to total acceptance (1),
• draws attention to equality (1),
• emphasizes that there is no constraint in
relationships: “I want your everything as long
as it’s free” approach/principle (1).
• touches emotionally (3)/hits deep
(1)/makes break in every emotion
(1),
• provides feelings with physical
signs: tears (6), chills/goose bumps
(1-3),
• suggests a feeling that heaven is near
(1),
• provides feelings to make life
enjoyable (1),
• provides support (1).
Source: Comments on YouTube regarding Lady Gaga’s music products Bad Romance and
Shallow
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53
According to our opinion:
• the song Bad Romance shows “bad romance” as a real need. The
video clip for the song is more than surprising. The woman is
portrayed as an object of use, emphasizing male dominance.
• in the song Shallow, the desire for more, the thirst for change
appear as realistic needs, because even in best times there is the
desire of something else, in worse times there is fear. One of the
hardest fights we can fight in our lives is about how to overcome
the fear of ourselves (the state of “And in the bad times, I fear
myself”). The video clip illustrates an eternal theme: love being
not pain free. The motorcycle appears as a symbol of freedom
and the wedding as one of the most important moments in life.
The whole video is characterized by naturalness and clarity.
Lady Gaga has undergone a major transformation. While at the
start of her career she was more about to “shock” her audience, her
latest song with Bradley Cooper is characterized by true naturalness.
The question is whether Lady Gaga has consciously cultivated this
change or simply immersed the audience into the process of personal
transformation. However, it can be noted that this change has been
received as a kind of surprise.
Classic and extended marketing mix regarding music products
(1) Service product: the songs of Imagine Dragons (It’s Time,
Natural) trigger happiness or sadness in the same way. The analysed
musical products/songs give hope, provide support, strength and energy;
at the same time they contribute to understanding life, they also motivate
and help forgetting the hard times, as well as help finding or accepting
ourselves. They also point out that: (a) to be true to ourselves: to keep
the values that define us, not to give up for anyone, for anything, (b)
there is no heaven without hell, (c) all actions have consequences (s),
but the opportunity to restart is always there, and (d) one of the
prerequisites for survival is to be free of emotions, and being a hunter is
better than being the hunted or the prey. Lady Gaga's music productions
ERIKA KULCSÁR, CLAUDIA-IZABELA CRENGANEȘ
54
(Bad Romance, Shallow) provide support, also teach and help us, the
audience, to find ourselves. The song Bad Romance draws attention to
equality and the song also implies full acceptance of life and society
around us. Interestingly, happiness and sadness did not appear literally
as concepts in the comments. Nevertheless, this does not mean that the
songs would lack any emotion. All in all, listening to any song can encompass
many forms of human behaviour, as it evokes basic emotions, provides
support, triggers motivation, educates people, and gives strength. At the
same time, in our opinion, one of the most important value/end product
of a song is nothing else than hope giving. In addition, a song can draw
attention to certain things, and by becoming aware of these will help to
understand/accept ourselves and the outside world as well.
(2) Price/charge: the impact of changes in the technology
environment is not negligible as far as the application of price/charges
in the music industry is concerned. Of course, this does not mean that
this classic marketing mix element no longer plays a role just because it
requires a different approach. However, paying for attending a concert
is just as costly, and the price of the ticket can even predict the quality
of the concert.
(3) Distribution: placement can be very important as it has to be
the optimal solution for the consumer/customer (Vorzsák, 2005). Music
outlets, record stores used to play a significant role in the music industry,
however, their role has declined nowadays, despite the fact that there are
stores selling vinyl records to those interested. Changes in the technology
environment have also influenced these marketing mix elements
(YouTube), and selling concert tickets has moved to online platforms as
well. Consequently, defining the nature/intensity of the relationship
between price/fee, distribution and technology is necessary.
(4) Marketing communication: communication in the music
industry is very intensive and very diverse. The media, especially the social
media, play an important role in fostering the relationship between
performers and the audience. In addition, Lady Gaga's theatrical invitations
that she meets, as well as being featured in fashion shows, are part of
the communication channel. Furthermore, the actors in the music
industry are part of the communication with every step they take. Lady
Gaga, for example, tattooed “Little Monsters” on her arm in February
THE END PRODUCT OF THE IMAGINE DRAGONS’ AND LADY GAGA’S MUSIC, …
55
2010, in order to ink her love for her fans. Little Monsters is the name
given by Lady Gaga to her fan base. Lady Gaga donates to the needy
(victims of the Haitian disaster) or helps fight AIDS and HIV with Cyndi
Lauper. In 2011, she set up a foundation (with her mother) to prevent
abuse and suicide. Since 2016, she has been fighting online bullying.
Protecting and supporting young people is also a priority in Gaga's life
(available at: https://starity.hu/sztarok/lady-gaga/eletrajz/). Imagine
Dragons founded the Tyler Robinson Foundation in 2013 to help families
who are financially unable to meet the unexpected costs of childhood
cancer. However, they also support other charitable foundations (GLAAD,
Love Loud Foundation, Multiple Myeloma Research Foundation, Musicians
on Call) and advocate for issues such as: cancer, civil rights, health,
LGBT (available at: https://www.looktothestars.org/celebrity/ imagine-
dragons).
(5) People: the band members, the crew and staff they work with,
the backup singers all influence the quality of the musical productions, but
the frontman is the one who gives the direction. And one of the greatest
assets of a performing artist is his or her personality (apart from the
basic attributes, of course), because they can make marketable what
they represent. For the service to be successful and for consumers to
leave the concert contentedly, something else is needed besides the
average and usual. Different from the average may be the performance,
the dance choreography or the various show elements. Lady Gaga's
concerts (at least so far) are not characterized by modesty. At the same
time, we have to mention the fact that there are performers who
impress the audience with their simplicity and clean presentation. We
could also say that the personality of the performer really defines the
quality of the performance, something that differentiates itself from
other performers.
(6) Consumer/other consumer: in the case of a concert, service
provision and consumption are inseparable and occur simultaneously.
What is more, there is an interaction between the service provider and
the consumer, and thus the consumer becomes a co-supplier who devotes
time and effort, which is an input without which service delivery cannot
take place and becomes meaningless (Vorzsák, 2005). In the case of
concerts, the role of other consumers and other spectators is not negligible
ERIKA KULCSÁR, CLAUDIA-IZABELA CRENGANEȘ
56
as they are also involved in the creation of the service. Consequently, the
impact of the behaviour of other consumers on the quality of services
perceived may be significant. However, one should not ignore the fact
that the judgment of a particular concert/song can be quite biased. The
subjectivity, the effects that exert their validity, and the way they are
experienced depend heavily on the consumer / customer. Bon Jovi's
concert (July 21, 2019, Bucharest) has given satisfaction as well as
provoked dissatisfaction among the audience (ProTV - News).
(7) Processes: in the music industry, processes are nothing more
than ways for the performers to convey their message to the consumer/
client and refer to the way the performers can make their message part
of the service product. The extent to which consumers/clients engage in
the process is highly dependent on the performer, and more specifically
the extent to which he/she uses active client policy.
(8) Physical evidence: the physical environment is the environment
in which the service is provided. In the music industry, the need of “being
part of it” is still fulfilled the physical environment, whether it is a
stadium, a concert hall or a theatre. Of course, the nature of the concert
has a great influence on the choice of physical environment, but the
nature of the physical environment also affects the nature of the
concert. In addition, physical evidence, such as various show items or even
the performer's attire, can contribute to the impression of perceived
quality. A concert that is organized in a stadium has a different character
compared to one that is organized in a smaller venue, thus the level and
intensity of the impressions felt by the clients may be altering. Both the
Imagine Dragons and Lady Gaga organize large and small concerts/
performances in order to get closer to the audience and create an
intimate atmosphere.
Conclusion
In the present study we tried to define what music performers
would like to convey by their songs and what consumers/customers
find and feel when listening to a song. However, we believe that this
approach is not justified in this form, as consumers are able to
THE END PRODUCT OF THE IMAGINE DRAGONS’ AND LADY GAGA’S MUSIC, …
57
personalize the song by reading between the lines, interpreting the
message from their point of view, since the interpretation of the song
depends primarily on their experience, and these experiences may
never match those of the artist, even if they are very similar. Due to the
individual approach in the music industry there is no mass marketing,
segmentation or even niche, as the unique interpretation of any song
makes each song very personal and needs a unique and personal approach
of the consumer. However, there are times when the message of the
songwriter is accurately decoded by the target audience: see Dan Reynolds
testimony that the song Natural is about finding yourself and about
being able to stand up and face any difficulty (Ivánczi, 2018, available at:
https://shortscore.net/2018/07/18/natural-friss-dallal-jelentkezett-az-
imagine-dragons/). Consequently, the end product of a song is determined
by the customer, but the personality of the artist/lyricist is also required
in order to become a potential end product.
Based on the research it can be concluded that:
• the end products of Imagine Dragons' songs are the following: (1)
emotions: happiness and sadness, (2) providing things without
which there is no progress/ development: hope, oblivion, support,
strength/energy, motivation, mental health, understanding
processes in life, finding one’s true self, and (3) consolidating the
importance of loyalty to oneself and preparing for the outside
world, and as a result, there is a chance of survival,
• the end products of Lady Gaga's songs include: (1) providing
things without which there is no progress /development: support,
learning, finding one’s true self, and (2) accepting the importance
of equality.
According to the analysis, the end product of Imagine Dragons
and Lady Gaga's songs is all about finding one’s true self. Interestingly,
even though the Imagine Dragons is an alternative rock band that has a
lower popularity, (taking into consideration the number of songs
included in the analysis - and the number of comments is even much
lower), it has still provided more end products (at least based on the
analysed comments) than Lady Gaga’s songs.
ERIKA KULCSÁR, CLAUDIA-IZABELA CRENGANEȘ
58
Nowadays, it is a real challenge if a band/singer wants to
differentiate themselves from their “competitors”. Imagine Dragons employs
a version of rawness that conveys their views and messages that sets
them apart from other alternative rock bands, but at the same time it is
not offensive, nor discouraging (at least not for its fans). Lady Gaga, on
the other hand, creates shocking and surprising phenomena in order to
differentiate herself from other artists. Indeed, everyday life events act
as source of these songs, and the message of one song can be found in
the lyrics of other songs as well, but that does not deprive them of their
value, as in such cases they play the role of reinforcement advertising.
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Data collected: using Google's web search engine
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STUDIA UBB NEGOTIA, LXIV, 3, 2019, pp. 61-80
(RECOMMENDED CITATION)
DOI:10.24193/subbnegotia.2019.3.04
HUMAN CAPITAL EFFICIENCY AND PROFITABILITY
OF QUOTED INTEGRATED OIL AND GAS COMPANIES
IN NIGERIA
TAJUDEEN LAWAL1*, DANIYA ADEIZA ABDULAZEEZ2,
MOHAMMED YABAGI IBRAHIM3
ABSTRACT. Human capital represents the engine that drives the
entity and the foundation on which organizational success rests. This
study examines the impact of human capital efficiency on profitability
of five Integrated Oil and Gas companies in Nigeria between 2008 and
2017. This was examined by means of value added intellectual
coefficient (VAIC) and it analyses how human capital efficiency affects
the profitability of these firms measured by return on assets (ROA)
and return on equity (ROE). Multiple regression technique was applied
on data to draw inferences using STATA Version 13. The finding of the
study reveals that Human capital efficiency has positive and significant
impact on the ROA of the firms under study. Based on the findings of
the study, it is therefore, recommended that integrated oil and Gas
companies in Nigeria should continue to invest more on their
employees in order to improve their performance. The study also
recommends that Human Capital should be treated as the most
valuable asset of integrated oil and Gas companies in Nigeria.
Keywords: human capital efficiency, return on assets, return on equity,
value added intellectual coefficients.
JEL classification: J24; G19
1 Department of Accounting and Finance, Kwara state University, Malete Kwara State Nigeria,
e-mail: ltajudeen@yahoo.com, tajudeen.lawal@kwasu.edu.ng * corresponding author
2 Department of Entrepreneurship and Business Studies, Federal University of Technology,
Minna, Niger State, Nigeria, e-mail daniyad3rd@yahoo.com
3 Department of Accountancy, Federal Polytechnic, Bida, Niger State, Nigeria, e-mail:
badamasi82@gmail.com
TAJUDEEN LAWAL, DANIYA ADEIZA ABDULAZEEZ, MOHAMMED YABAGI IBRAHIM
62
Recommended citation: Lawal, T., Abdulazeez, D.A., Ibrahim, M.Y.,
Human capital efficiency and profitability of quoted integrated oil and gas
companies in Nigeria, Studia UBB Negotia, vol. 64, issue 3 (September),
2019, pp. 61-80, doi: 10.24193/subbnegotia.2019.3.04
Introduction
Human capital represents the engine that drives the entity and
the foundation on which everything rests. In modern times, where
tangible assets are no longer the only resources that generate profit for
organization, investment in intangible capital which is hidden in an
organization to create value for it and enhance its performance is
important for an organization. The achievement of organization goals
depend to a large extent on the availability of intellectual and operational
know-how, customer and supplier relationships, a committed workforce,
and other intangible assets. To achieve the objective of coordinating other
forms of intellectual assets, there is need for proper and adequate
investment in human capital. OECD (2008), state that using only tangible/
physical assets in measuring investment may lead to inefficient
policymaking, misallocation of resources by managers and increased
cost of capital for investors. Therefore, if organizations consider
intellectual capital as investment, instead of expensing it, the problem
of adequately measuring and valuing firms will be overcome. Human
capital as an intellectual property relates to the knowledge and
experience used to create value for an organization. Knowledge being
the new engine of corporate development has become one of the great
methods of recent years, given that value can be generated by intangible
assets. Human capital is seen as the knowledge embedded in the minds
of all employees. Profitability is the ability of a given instrument to earn
a return from its use. It is the ability to make profit from all the business
activities of an organization, company, firm, or an enterprise. Profitability
shows the degree to which a firm’s revenues exceed over cost.
Yusuf (2013) opines that the importance of human capital and its
measurement has been increasingly considered in order to manage this
intangible asset and reduce its costs while improving its benefits. Becker,
HUMAN CAPITAL EFFICIENCY AND PROFITABILITY OF QUOTED INTEGRATED OIL AND GAS COMPANIES …
63
Huselid and Ulrich (2002) state that human capital performance is the
extent to which employees contribute to effective implementation of the
organization strategy. They believed that human capital performance is
indeed performance behaviors that affect customers buying experience
and therefore it is the basis of the company’s financial performance. Using
balanced scorecard terminology, Kaplan and Norton (2004) assert that
human capital is a leading indicator and the main source of value creation
for companies. Improvement in human capital performance will positively
affect internal process, customer and financial results of the companies.
Measuring human capital efficiency has become an essential issue for
companies in today’s business world and may help them to get the right
perspective on human capital in being valued based on its performance.
Using a proper performance measurement tool could provide the firms
with the necessary information for creating an action plan in order to
improve human capital contribution to the organizational success.
Danjuma and Akinpelu (2016) examine the impact of Human
Capital Efficiency on Corporate Performance of industrial goods
companies listed in the Nigerian Stock Exchange Market for a period
of 6 years (2009-2014). The effect of Human Capital Efficiency on
Performance was examined by applying the Human Capital component
of the Value Added Intellectual Coefficient (VAIC) methodology. The
study adopted multiple linear regression models to analyse the impact
between the dependent variables and the independent variable. The
result showed that Human Capital Efficiency has positive significant
impact on ROA and EPS, and an insignificant negative relationship is
found between human capital efficiency and size, lagged Human Capital
Efficiency and Number of Employee Growth. The study covered only six
years period as well as from 2009-2014.Yusuf (2013) examines the
relationship between human capital efficiency and financial performance
of banks in Nigeria from 2006-2010. Two hypotheses Human capital
efficiency has no significant impact on the EPS of Nigerian banks and
Human capital efficiency has no significant impact on the ROE of
Nigerian banks were tested. The study adopted VAIC models. The study
found that efficient utilization of human capital does not have any
significant impact on the return of equity of banks. This present study
covers a ten years period from 2008 up till 2017 which depict the
current happening in the Nigeria stock market.
TAJUDEEN LAWAL, DANIYA ADEIZA ABDULAZEEZ, MOHAMMED YABAGI IBRAHIM
64
This study therefore seeks to empirically examine the impact of
human capital efficiency on profitability of integrated oil and Gas
companies in Nigeria from the 2008 to 2017 by adopting Pulic (1998)
VAIC model.
The following section includes literature review concerning
the main variables of the study as well as conceptual and theoretical
framework. The research methodology is presented in section three. The
results and conclusion and recommendations are discussed in sections
four and five respectively.
The concept of human capital
Human capital is defined as the sum of knowledge, skills, creativity
and personal values of the employees which contribute towards both the
tangible and intangible assets of the firm and can be improved by training
and other similar seminars. Human capital (HC) consists of skills and
knowledge possessed by employees and goes with them when they leave
the firm (Cater and Cater, 2009); such intangible capital cannot be retained
by the firm. Subramaniam and Youndt (2005), opine that human capital is
the key resource of the firm in an era where knowledge and skills of the
employees are essential to create a sustainable competitive advantage. HC
theory further explains the importance of HC as a major driver of a firm’s
productivity and assesses the employees’ possession of necessary skills
and knowledge to fulfill the requirements of their jobs. HC is important in
industries such as banking and pharmaceuticals where firms compete in
innovation and advancement. These firms need employees who possess
innovation and problem solving skills. Hsu and Wang (2012) argue that a
firm can improve its performance so long as its employees continue to
improve their knowledge and skills because HC focuses on the value
addition to the business in terms of profitability. HC contributes towards
organizational efficiency in many ways such as decision making, which
improves when employees possess the required skills.
The concept of profitability
The word 'profitability' is composed of two words, namely; profit
and ability. The term profit is an excess of revenues over associated
HUMAN CAPITAL EFFICIENCY AND PROFITABILITY OF QUOTED INTEGRATED OIL AND GAS COMPANIES …
65
expenses for an activity over a period of time whereas, the term ability
indicates the power of a firm to earn profits (Nimalathasan, 2009). The
ability of an enterprise also denotes its earning power or operating
performance that is, the business ability points towards the financial
and operational ability of the business. So, on this basis profitability
may be defined as the ability of a given instrument to earn a return
from its use (Nishantini and Nimalathasan, 2013). It is the ability to
make profit from all the business activities of an organization, company,
firm, or an enterprise. Profitability shows the degree to which a firm’s
revenues exceed over cost.
Review of related empirical studies
Kamath (2008) investigates the efficiency of IC and its relationship
with the financial performance of firms in the Indian pharmaceutical
industry for 10 years (1996- 2006), the author used VIAC to measure
the efficiency of IC. The results reveal that domestic firms are relatively
more efficient in using IC. The results also reveal that only human
capital is closely associated with the profitability and productivity of
the firm in terms of ROA and assets turnover, respectively. Ting and
Lean (2009) study the impact of IC on the financial performance of
financial institutions in Malaysia. Data from annual reports of Malaysian
financial institutions were used to measure IC for the period 1999-
2007. The results reveal that VAIC is significantly positively correlated
with a firm’s financial performance in terms of ROA. Further analysis of
the individual components of VAIC shows that human and physical
capitals significantly contribute to the added value. Kamalauddin and
Abdul Rahaman (2009) examine the effectiveness of organization through
human, relational and structural capital. Descriptive statistics, correlation
and regression analysis were the statistical tools used in the study. It was
found that among the intellectual capital components, structural and
relational capital significantly influenced the organization’s effectiveness,
with structural capital being the strongest predictor. Maditinos, Chatzoudes,
Tsairidis and Theriou (2011) measure the efficiency of IC and its impact
on the financial performance and market value of firms listed on the
Athens Stock Exchange for the period 2006-2008. The study reveals no
significant relationship between VAIC and market value and firm financial
TAJUDEEN LAWAL, DANIYA ADEIZA ABDULAZEEZ, MOHAMMED YABAGI IBRAHIM
66
performance. However, the authors argue that these results are not
surprising because of some alarming characteristics of the Greece economy,
such as the low level of foreign direct investment, an inefficient capital
market and huge public sector holdings, which may have caused the
low IC efficiency. The results can also be as a result of the numbers of
years used in the study.
Perera and Thrikawala (2012) investigate the impact of investment
in human capital on financial performances of the companies in Sri Lanka
for the period of 2 years from 2009 to 2010. The study used sample 40
companies listed under Colombo Stock Exchange. Data analysis was
carried out with aid of SPSS (Statistical Package of Social Sciences). The
study revealed that there is a significant relationship between investment
in human capital and firm financial performance. Kamal, Mat, Rahim,
Husin and Ismail (2012), examine the efficiency of IC and its association
with the financial performance of 18 commercial banks publicly traded
in Malaysia. The study revealed that only physical capital is significantly
positively correlated with a firm’s performance. The result showed that
human capital efficiency has negative impact on ROA and ROE, which
means that an increase in human capital efficiency leads to a decrease
in ROA and ROE, which contradicts the basic theory of IC.
Yusuf (2013) examines the relationship between human capital
efficiency and financial performance of banks in Nigeria from 2006-2010.
Two hypotheses Human capital efficiency has no significant impact on the
EPS of Nigerian banks and Human capital efficiency has no significant
impact on the ROE of Nigerian banks were tested. The study adopted
VAIC models. The study showed that using human capital in an efficient
way does not have any significant impact on the return of equity of
banks. Also, the study showed that size of the bank has no significant
impact on it return on equity, the study went further to state that return
on equity of banks cannot be predicted by human capital efficiency and
size of the banks. The results of the study may be as a result of the
number of years and banks used in the study. Sumedrea (2013)
investigates the effect of intellectual capital and its influence on the
economic performance based on the VAIC model. The results were
obtained by applying certain regression models and suggest that, in
crisis time, the development of companies is influenced by the human
and the structural capital, while profitability is additionally linked to the
HUMAN CAPITAL EFFICIENCY AND PROFITABILITY OF QUOTED INTEGRATED OIL AND GAS COMPANIES …
67
financial capital through the value added intellectual capital coefficient.
Gigante (2013) examine the impact of IC efficiency on the performance of
nine European countries for the period 2004 to 2007. The revealed that
study that the mean IC efficiency scores for Finnish banks are highest,
i.e. 12.23, and 1.88 for German banks being the lowest. Further analysis
shows that human capital efficiency for banks in Finland is again the
highest. The study reveals that IC efficiency is significantly correlated
with the financial performance of banks in terms of ROA and ROE.
However, the study revealed that there is no correlation between IC
efficiency and market valuation in terms of the M/B ratio of the banks.
In a study on IC efficiency and its impact on financial performance
of pharmaceutical firms in India, Vishnu and Gupta (2014) extended the
original VAIC model by including a new variable called relational capital
(RC). The authors’ results showed a positive relationship between IC and
firm performance but the new variable RC fails to produce any significant
relationship. ROA is the preferred dependent variable over ROS (Return
on Sales). The study however, suggests adding more variables to the
VAIC model and using new proxies to measure the variables. Parham
and Heling (2015) examine the relationship between human capital and
financial performance of Dutch companies. The study investigates the
efficiency of Human Capital and its impact on the financial performance
of Dutch production companies for a period of 6 years (2007-2012) and
applying the human capital component of the VAIC methodology. The
study applied multiple linear regression models to analyze the relationship
between Human Capital and organizations performance. The study
results showed that there is positive relationship between HCE and all
three corporate performance measures.
Danjuma and Akinpelu (2016) examine the impact of Human
Capital Efficiency on Corporate Performance of industrial goods companies
listed in the Nigerian Stock Exchange Market for a period of 6 years
(2009-2014). The effect of Human Capital Efficiency on Performance was
examined by applying the Human Capital component of the Value Added
Intellectual Coefficient (VAIC) methodology. The study adopted multiple
linear regression models to analyze the impact between the dependent
variables and the independent variable. The result showed that Human
Capital Efficiency has positive significant impact on ROA and EPS, and
an insignificant negative relationship is found between human capital
TAJUDEEN LAWAL, DANIYA ADEIZA ABDULAZEEZ, MOHAMMED YABAGI IBRAHIM
68
efficiency and size, lagged Human Capital Efficiency and Number of
Employee Growth. The study covered only six years period as well as
from 2009-2014. The findings of the study may be as a result of number
of years used in the study. Ariff, Islam and van Zijl (2016) did not find a
relationship between human capital and the performance of multinational
R&D corporations listed on the U.S Stock exchanges. They pointed out
the management’s lack of control over the human capital may be an
explanatory reason for the result. Nadeem (2016) investigates the IC-FP
relationship in developed, emerging and frontier markets using over
7,100 listed firms for the period 2005-2014. The study applied the system
generalized method of moments (SGMM) to overcome the problem of
endogeneity and so produce unbiased results. The findings revealed that
IC efficiency is highest for developed markets followed by emerging and
lowest for frontier markets. The study also revealed that a significant
positive relationship exist between IC and FP in almost all types of market.
The result further revealed that the significant positive relationship
between human capital (HC) and FP in static models disappears when
SGMM is applied. The study also made some adjustments in the value
added intellectual coefficient (VAIC) model and presents A-VAIC model
to overcome criticism of the original VAIC model. We then test A-VAIC
on developed and emerging markets and report more consistent results
where HC is also significant and positive with FP in almost all markets.
Furthermore, the results revealed that IC efficiency remained unchanged
during the 2008 financial crisis. The final results, though endorsing RB, RD
and OL theories, posit that IC increases FP in all types of economy
(developed, emerging and frontier) and that investment in IC should be
on-going process.
Rahim, Atan and Kamaluddin (2017) examine the relationship
between human capital efficiency and firm’s performance in Malaysian
technology industry. The study applied Value Added Intellectual Coefficient
(VAICTM) methodology developed by Pulic (1998, 2000) to measure
human capital efficiency. The results showed that both Main Market
and Ace Market show no difference in reporting their human capital
efficiency. Also correlation analysis result indicates that human capital
efficiency has significant and positive relationship with firm’s performance.
The findings of the study may be as a result of the nature of the
environment in which the study was conducted. Ozkan, Cakan and
HUMAN CAPITAL EFFICIENCY AND PROFITABILITY OF QUOTED INTEGRATED OIL AND GAS COMPANIES …
69
Kayacan (2017), examine the relationship between the intellectual
capital performance and financial performance of 44 banks operating in
Turkey between 2005 and 2014. The intellectual capital performance of
banks was measured through the value added intellectual coefficient
(VAIC) methodology. The results showed that there is a statistically
significant positive relationship between HCE and ROA.
Theories of Human capital and profitability
Resource Based Theory
The resource based (RB) theory is considered the pioneer that
focused on the importance of intangible assets for firms (Barney, 1991).
The basic argument in this theory is that the competitive advantage of
the modern firm should lie in its use of tangible as well as intangible
assets. The intangible assets included in this theory should be unique
and inimitable which and can build a sustainable competitive advantage
for the firm.
Resource Dependency (RD) Theory
The advocates of this theory, Pfeffer and Salancik (2003), argue
that every firm depends on several stakeholders such as other firms
that hold strategic resources necessary for the operations of the firm.
They argue that every firm cannot hold all strategic resources so they
have to build long term relationships with those stakeholders who can
assist the firm in terms of necessary resources. This necessity actually
motivates the firms to engage with the external environment, which
forms the basis of social and relational capital for the firms. Linking this
theory with the human resources of firms, Abeysekera (2010) argues that
firms’ effective engagement with the external environment is possible only
when a firm holds efficient internal resources such as human capital and
learning environment. This argument is also consistent with Williams
(2000) who argues that firms should utilize their available human
resources effectively to increase the value creation capabilities of the firm.
The resource dependency theory recognizes the importance of efficient
human resources, which can help the firm to achieve the objective of
building relationships with stakeholders.
TAJUDEEN LAWAL, DANIYA ADEIZA ABDULAZEEZ, MOHAMMED YABAGI IBRAHIM
70
Organizational Learning (OL) Theory
Njuguna (2009) argues that a firm should follow a continuous
learning process to build a sustainable competitive advantage. This
continuous learning is necessary for a firm for many reasons. Firms,
for example, can get more know-how about their customers’ demands
and changing preferences about products. A firm should invest in its
resources such as research and development and human resources,
which enable a firm to innovate with products.
The underpin theories of this study is resource Dependency
theory. This study fill existing gap in literature by examining the impact
of HCE on profitability of quoted integrated oil and Gas firms in Nigeria
from 2008 to 2017 using VAIC model.
Methodology
This study adopted ex-post facto research design because the
data are available and the researcher has no control over it. The
population of the study is the integrated oil and Gas firms quoted on the
Nigerian stock exchange (NSE) as at 31st December 2017. A detail of the
population is shown in Table 1. However, for firms to be part of the
sample, there are some criteria which have to be met as follows: therefore,
two point filters were employed to arrive at the working population of the
study: i companies must have been quoted on the Nigerian Stock Exchange
as at 1st January 2008 ii. Companies must not have any omission in its data
during the period of the study. After the above filters, five firms made our
population and were selected as sample of the study which is shown in
Table 2. The sampling technique used in this study is census sampling
technique because it allows all the elements in the population to be
represented. Multiple regression technique was applied on data to draw
inferences using STATA Version 13.
Due to the panel data used in this study, the models of the study
were subjected to other regression models (Fixed and Random Effects)
in addition to OLS, because of the uncertainty as to the conformity with
the classical assumptions of the OLS regression model, as indicated by
the normality test. The study therefore applied robust GLS regression in
model 1 and robust-OLS regression for model 2 as suggested by the
HUMAN CAPITAL EFFICIENCY AND PROFITABILITY OF QUOTED INTEGRATED OIL AND GAS COMPANIES …
71
relevant tests conducted on the data. For the purpose of conducting the
research, Return on Asset (ROA) and Return on equity is used to
measure profitability. The value added intellectual co-efficient (VAIC)
methodology developed by Pulic (1998; 2000) formed the underlying
measurement basis for the human Capital efficiency in this study.
Table 1. Population of the study
S/NO NAME OF FIRMS YEAR OF QUOTATION
1 OANDO PLC 1992
2 ETERNAL OIL PLC 1997
3 FORTE OIL PLC 1978
4 JAPAUL OIL AND MARITIME SERVICES PLC 2005
5 11 OIL PLC 1979
6. SEPLAT OIL 2014
Source: author compilation
The table represents the total population of firms that engage in
mid-stream activities in the Oil and Gas companies in Nigeria.
Table 2. Sample size
S/NO NAMES OF FIRMS
1 OANDO PLC
2 ETERNAL OIL PLC
3 FORTE OIL PLC
4 JAPAUL OIL AND MARITIME SERVICES PLC
5 11 OIL PLC
Source: author compilation
The table represents the sample of firms selected for the study.
One firm was omitted because it was quoted in year 2014.
MODEL SPECIFICATION AND VARIABLE MEASUREMENTS
This study adopted Pulic (1998) VAIC model to obtain the value
of human capital efficiency.
FPit(ROA, ROE) = β0 +β1VAICit +β2Control+ εit
TAJUDEEN LAWAL, DANIYA ADEIZA ABDULAZEEZ, MOHAMMED YABAGI IBRAHIM
72
The model is further subdivided into two as follows:
FPit(ROA) = β0 +β1HCEit + Sizeit+ εit - (Model 1)
FPit(ROE) = β0 +β1HCEit + Sizeit+ εit - (Model 2)
INDEPENDENT VARIABLES
Value Added Intellectual Capital
The VAIC calculations involve a two-step process (Pulic, 1998;
2000) where value added is calculated in the first step and VAIC is
calculated in the second step.
In the VAIC model, total Value Added (VA) by the business can be
calculated as:
VAt = OUTit- INit= Opit+SCit+Dit+Ait
Where VAt= value added in year t, OUT= net revenue IN= cost of
raw materials, energy, water, gas, services and other similar resources
for the year t
HCit= Staff cost, both salaries and related contributions of firm i
in year t
Value Added intellectual Capital can be further refined to express
human capital efficiency as follows:
HCEt = VAt/HCt
CONTROL VARIABLE
Size =Natural Log of Total Assets
DEPENDENT VARIABLES
Return on Asset
Return on Assets (ROA) is the ratio of pre-tax profit divided by
average total assets as reflected in the annual report. ROA is a
comparison of net income over total assets. This accounting measure
of performance is generally accepted as a valid measure of overall
HUMAN CAPITAL EFFICIENCY AND PROFITABILITY OF QUOTED INTEGRATED OIL AND GAS COMPANIES …
73
company performance (Core, Holthausen and Larcker1999). The ROA
provides information about the value added to the company that lead to
better performance of that company.
ROA = Profit before Tax/ Total Assets
Return on Equity
The Return on Equity (ROE) is the after tax profit divided by book
value of equity. It considers profit rates and not profit size. It represents
the ultimate measure of how well the companies serve the economic
interest of the shareholders. ROE reveals how much profit a company
earns in comparison to the total amount of shareholders fund. ROE is a
typical performance benchmark in many empirical studies (Abowd
1990; Main, Bruce and Buck1996; Kern & Kerr 1997; Core et al1999).
ROE = Profit after Tax/ Shareholders Equity
RESULTS AND DISCUSSIONS
The aim of this section present is to present, analyze and interpret
the results gather for the study.
Table 3. Descriptive statistics
VARIABLES MEAN STD.DEV MINIMUM MAXIMUM observation
ROA 0.1296 0.1383 -0.1750 0.6689 50
ROE 0.1538 0.3099 -0.6992 0.9076 50
HCE 10.9790 7.2787 3.3902 33.7757 50
FSIZE 17.1343 0.9279 15.511 18.8482 50
Source: Output of Descriptive Statistics by Authors using STATA
Table 3 presents the descriptive statistics of the study. The table
reveals that ROA has an average of 0.12, standard deviation of 0.13,
minimum of -0.18 and maximum of 0.67.ROE has an average of 0.15,
standard deviation of 0.31, and a minimum of -0.69 and a maximum of
0.91. The table also reveals that HCE has an average of 10.9, standard
deviation of 7.27, a minimum of 3.39 and a maximum of 33.77. Size has
an average of 17.13, standard deviation of 0.93, a minimum of 15.51
and a maximum of 18.84.
TAJUDEEN LAWAL, DANIYA ADEIZA ABDULAZEEZ, MOHAMMED YABAGI IBRAHIM
74
Table 4. Correlation analysis
VARIABLES ROA ROE HCE FSIZE
ROA 1.0000
ROE 0.3648*
0.0092
1.0000
HCE 0.2619
0.0662
-0.2453
0.0860
1.0000
FSIZE -0.0721
0.6189
0.0991
0.4935
0.6539*
0.0000
1.0000
Source: Output of Correlation Analysis by authors using STATA
* Correlation is significant at 1% level of significance; **Correlation is significant at
5% level of significance; ***Correlation is significant at 10% level of significance
Table 4 shows the correlation results among the variables. The
table revealed that HCE is correlated with performance the firms using
ROA and ROE based on coefficients of 0.2619 and -0.2453 and
significance value of 0.0662 and 0.0860 respectively. Firm size which is
used as control variable also has no correlation with performance.
Presentation of Regression Results and Hypotheses Testing
This section presents and analyses the regression results of the
models of the study. The hypotheses formulated for the study are also
tested in this section based on the results, as presented in table 5 and 6.
Table 5. Summary of GLS Regression Results
Model One (GLS-Robust Random) Model Two (Robust-OLS)
Variables Statistics Variables Statistics
R
2 0.1556
R
2 0.1779
Chi2(F-Stat) 5.91 Chi2(F-Stat) 3.54
P-Value 0.0522 P-Value 0.0369
Source: Output Regression Analysis by authors using STATA
Table 6. GLS regression estimators (coefficients)
Model One (GLS-Robust Random) Model Two (Robust-OLS)
Variables Coefficients P-Values Variables Coefficients P-Values
HCE 0.0141 0.018 HCE -0.0231 0.011
FSIZ -0.0605 0.269 FSIZ 0.1514 0.039
CONSTANT 1.0113 0.270 CONSTANT -2.1875 0.068
Source: Output Regression Analysis by author 2018 STATA
HUMAN CAPITAL EFFICIENCY AND PROFITABILITY OF QUOTED INTEGRATED OIL AND GAS COMPANIES …
75
The results in Table 6 shows that human capital efficiency has a
significant positive impact on the performance of quoted integrated oil
and Gas firms in Nigeria using ROA as indicated by the coefficient of
0.0141 which is significant at 5% level of significance (from the P-value
of 0.018). Based on this, the study rejects the null hypothesis one which
state that, human capital efficiency has no significant impact on
performance of quoted integrated oil and Gas firms in Nigeria using
ROA. Therefore, the study infers that the more the firms increase her
spending on its human resources, the more; it increases its performance
using ROA. The study is in line the study of Danjuma et al. (2016); Nadeem
(2016); Gigante (2013). The finding of the study however contradicts the
finding of Yusuf (2013). On the other hand, the results shows a negative
but significant impact between human capital efficiency and performance
using ROE as indicated by the coefficient -0.0231 which is significant at
5% level of significance (the p-value of 0.011). Based on this, the study
rejects the null hypothesis one which state that, human capital efficiency
has no significant impact on performance of quote oil and Gas firms in
Nigeria. Therefore, the study infers that the more the firms increase her
spending on its human resources, the more; its performance decreases
using ROE. The study is in line the study of Kamal et al. (2012). The
finding however contradicts the findings of Danjuma et al. (2016);
Kharal et al. (2014)
Firm size is used in this study as a control variable, shows a
negative and insignificant impact on the performance of studied firm
using ROA based on coefficient of -0.0804 and p-value of 0.209. The
implication of this finding is that size of the firms has no significant
impact on the performance of the firms. On the other hand, from the
table, firm size has no significant impact on the performance of the
firms using ROE based on coefficient of 0.1514 and p-value of 0.039.
The results from table also indicate that the independent
variables of the study (human capital efficiency and the control variable
firm size) explained 15.58% of the variations in the performance
(ROA) of quoted Oil and Gas firms in Nigeria, from the coefficient of
determinations (R2 value of 0.1558). The table also shows that the
model is fitted as evident by the Wald Chi2 of 5.92 which is significant
at 10% level of significance (as indicated by the P-value of 0.052).
TAJUDEEN LAWAL, DANIYA ADEIZA ABDULAZEEZ, MOHAMMED YABAGI IBRAHIM
76
Also, the table shows that the independent variables of the study
(human capital efficiency and the control variable firm size) explained
17.79% of the variations in the performance (ROA) of quoted Oil and
Gas firms in Nigeria, from the coefficient of determinations (R2 value of
0.1779). The table also shows that the model is fitted as evident by the
Wald Chi2 of 3.54 which is significant at 5% level of significance (as
indicated by the P-value of 0.0369).
CONCLUSION AND REOMMENDATIONS
Conclusion
This study examines the impact of human capital efficiency on
the profitability of five Integrated Oil and Gas firms in Nigeria between
2008 and 2017. This was examined by means of VAIC model and it
analyses how human capital efficiency affects the profitability of these
firms measured by ROA and ROE. The findings of the study suggest that
human capital efficiency has positive and significant impact on the ROA
of the firms under study. However, a negative but significant impact is
found with ROE.
Recommendations
Based on the finding of the study, which shows that HCE has
significant impact on ROA, it is therefore recommended that oil and Gas
firms in Nigeria should continue to invest more on their employees in
order to improve their performance since employees have been seen as
assets that can generate revenue and enhance the performance of an
organization positively. The study also recommends that Human Capital
should be treated as the most valuable assets of integrated oil and Gas
firms in Nigeria. To ensure improvement in employees’ productivity and
performance, organizations should be committed to regular training and
development of their employees and ensuring the working environment
is conducive to enhance their productive capacity.
HUMAN CAPITAL EFFICIENCY AND PROFITABILITY OF QUOTED INTEGRATED OIL AND GAS COMPANIES …
77
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