36Vol. 18 No. 2ISSN 0872-84969 7 7 0 8 7 2 8 4 9 0 0 7ISSN 0872-8496EURO ASIA JOURNAL OF MANAGEMENT 36 Vol. 18 No. 2DECEMBER 2008submission_OLD guidelines.tifInternationalisation of Business Education:A Comparison of Eastern and Western UniversitiesOrganizational Culture and Innovation: An ExploratoryStudy of Sri Lankan Gift and Decorative-WareSector FirmsEmployee Loyalty: Lessons from a Non-GamingMultinational Company in MacauThe Ethics of Tax Evasion: A Co parative Study ofGuangzhou (Southern China) and Macau OpinionsThe Relationship between Emotional Intelligence,Leader-Member Exchange and OrganizationalCommitment

AIM AND SCOPE Euro Asia Journal of Management (EAJM) is devoted to provide a forum for discussion over a wide range of management issues defined in the broad sense. However, particular emphases are placed on the advancement of management theory and practice in Asia, especially China, and the European continent. Published twice yearly by the Macau Foundation, EAJM welcomes submissions in the following areas: Accounting and finance, information technology management, strategic management, cross-cultural and international management, organizational behavior and learning, human resources management, public sector management, corporate governance, quality management, and tourism management. EAJM will include scholarly peer-reviewed papers in the form of empirical studies, qualitative inquiries, case studies, as well as critical literature reviews. From time to time, special sections are opened for debates, interviews, and commentaries. EDITORIAL BOARD Nelson António, Instituto Superior de Ciências do Trabalho e da Empresa, Portugal Virgínia Trigo, Instituto Superior de Ciências do Trabalho e da Empresa, Portugal Carlos Noronha, University of Macau, Macau Tiffany Lam, University of Macau, Macau EDITORIAL ADVISORY BOARD Tetsuo Abo, Teikyo University, Japan Douglas Allen, University of Denver, USA Robert Boyer, Centre D’etudes Prospectives D’economie Mathematique, France Eduardo Gomes Cardoso, Instituto para o Desenvolvimento da Gestão Empresarial, Portugal Su Mi Park Dahlgaard, Linköpings University, Sweden Harukiyo Hasegawa, University of Sheffield, UK Hideo Inohara, Sophia University, Japan Jorge Correia Jesuino, Instituto Superior de Ciências do Trabalho e da Empresa, Portugal Ekkehard Kappler, University of Innsbruck, Austria Martin Kenney, University of California at Davis, USA Mário Murteira, Instituto Superior de Ciências do Trabalho e da Empresa, Portugal Terutomo Ozawa, Colorado State University, USA Sung Jo Park, Free University of Berlin, Germany Tanya Phonanan, ASEAN Human Resource Management Federation & Thompson Television Thailand Wan Ahmad Shaffie, Malaysian Association of Human Resources Management & Menara Maybank Malaysia Hannes Streim, Bochum University, Germany Kay-Chuan Tan, National University of Singapore, Singapore Robert Terpstra, Monash University, Sunway Campus, Malaysia Ingemar Torbiörn, University of Stockholm, Sweden Tadashi Umezawa, Toyko Keizai University, Japan Nick Bowen, European Business School, UK Youmin Xi, Xian Jiaotong University, China Oliver Yau, City University of Hong Kong, Hong Kong Shuming Zhao, Nanjing University, China Note: The views of articles may not be those of the Journal.

36 Vol. 18 No. 2, December 2008http://www.geocities.com/eajm2002CONTENTSIndexed in Ulrich’s Periodicals Directory andCabell’s Directory of Publishing Opportunities in Management1. Internationalisation of Business Education: A Comparison of Eastern and WesternUniversities ........................................................................................................................................................... 85-101Graham Elkin, Otago Business School, University of Otago, New ZealandAndrew Templer, Odette School of Business, University of Windsor, Windsor, Ontario, CanadaRadha R. Sharma, Management Development Institute, IndiaJianqiao Liao, School of Management, Huazhong University of Science and Technology, Wuhan, China2. Organizational Culture and Innovation: An Exploratory Study of Sri Lankan Gift andDecorative-Ware Sector Firms ...................................................................................................................... 103-122S.W.S.B. Dasanayaka, Department of Management of Technology, University of Moratuwa,Moratuwa, Sri LankaGuru Datt Sardana, Institute of Management Technology, Ghaziabad, India3. Employee Loyalty: Lessons from a Non-Gaming Multinational Company in Macau .................. 123-132Au Ieong Un Nam, Faculty of Business Administration, University of Macau, Macau, ChinaZenon Arthur S. Udani, Faculty of Business Administration, University of Macau, Macau, China4. The Ethics of Tax Evasion: A Comparative Study of Guangzhou (Southern China) and MacauOpinions .............................................................................................................................................................. 133-152Robert W. McGee, Andreas School of Management, Barry University, Miami ShoresCarlos Noronha, Faculty of Business Administration, University of Macau, Macau, China5. The Relationship between Emotional Intelligence, Leader-Member Exchange andOrganizational Commitment ........................................................................................................................ 153-171Jahanvash Karim, Institute d’Administration des Entreprises d’Aix-en-Provence, Clos GuiotPuyricard, FrancePDF created with pdfFactory Pro trial version www.pdffactory.com

www.ift.edu.mo The Institute For Tourism Studies (IFT), the first WTO-Themis TedQual certified institution in tourism education, is a public institution of higher education, offering tourism, heritage, hospitality and tourism event management degree programmes, as well as professional training. The mission of IFT is to become a higher education institution of choice for tourism and hospitality studies with European characteristics. Not only for the benefits of Macao, but also for the Asia Pacific region, IFT equips students with professional knowledge and technical competence in preparation for their future leadership responsibilities in the industry. Colina de Mong-Há, Macao, China Tel : (853) 2856 1252 Fax : (853) 2851 9058 registry@ift.edu.mo The Tourism College offers Bachelor Degree and Higher Diploma Programmes in: Tourism Business Management Heritage Management Hotel Management Tourism Event Management TOURISM COLLEGE

Euro Asia Journal of Management Issue 36, Vol. 18, No.2, December 2008, pp.85-101 INTERNATIONALISATION OF BUSINESS EDUCATION: A COMPARISON OF EASTERN AND WESTERN UNIVERSITIES GRAHAM ELKIN1 ANDREW TEMPLER2 RADHA R. SHARMA3 and JIANQIAO LIAO4 ABSTRACT Internationalisation has become a strategic focus for many universities worldwide, however there are differing explanations as to what internationalisation actually means. In order to try to define the phenomenon and examine the effects of cultural background on internationalisation strategies we studied the internationalisation aspirations and achievements of a set of universities in a ‘Western’ cultural setting and a set in an ‘Eastern’ cultural setting. Data were gathered through a survey of 70 business schools in which respondents were asked to rate their school’s ideal and current level of performance in nine aspects of internationalisation. There were 1 Otago Business School, University of Otago, P.O. Box 56, Dunedin 9054, New Zealand. Email: gelkin@business.otago.ac.nz 2 Odette School of Business, University of Windsor, Windsor, Ontario, Canada N8X 1P3. Email: templer@uwindsor.ca 3 Management Development Institute, P.O. Box 60, Gurgaon 122001, India. Email: radha@mdi.ac.in 4 School of Management, Huazhong University of Science and Technology, Wuhan, China. Email: jimliao@mail.hust.edu.cn

Graham Elkin, Andrew Templer, Radha R. Sharma and Jianqiao Liao significant differences in the strategic aspirations of the two sets. These differences in aspirations led to differing internationalisation outcomes in which institutions typically performed better in those aspects of internationalisation upon which they were focused. Explanations for the differences between Western and Eastern universities are suggested in terms of economics and strategy, government action, supply and demand, perceived quality issues, academic career opportunity costs, professional accreditation and prevailing world view. INTRODUCTION In recent years universities throughout the world have sought a more international focus. Universities in first the West and latterly in the East, have sought to raise their level of internationalisation. International linkages have become an important source of institutional status, pride and of economic returns. Most universities have claimed they are world-class institutions offering international education (Mestenhauser, 1998), citing student exchange and international student numbers in their promotional literature. Internationalised universities have been seen as a force for global peace and shared discovery and innovation, as enhancing diplomatic ties and reinforcing international relations (Campbell, 2007). Knight (2004) suggested that while internationalisation was changing higher education; globalisation was changing internationalisation. Knight (1999) had earlier pointed to different motives for internationalisation including political influence, economic or academic advantage, and social-cultural relationships. These different reasons for adopting an internationalisation strategy are, however, inevitably linked to changes in the international environment. Indeed Knight (1999) referred to internationalisation as the response to globalisation. Ahlawat and Ahlawat (2006) argued that success in the evolving global knowledge economy required global competencies which business schools could supply. The increasing interdependence of national economies has increased the demand for graduates who can understand and comfortably interact in a multi-cultural, globalised society and in the different parts of that society. This interdependence has been accelerated by the rapid development and growth in newly-industrialised countries such as India and China. These changes have led universities to equip students with the necessary knowledge and skills in preparation for the job market (Sporn, 1999). Overall the changing environment required universities to aim for a significant transformation in the organisation of research, training, and administration in higher education (Cohen, 1997), as part of a search for intercultural competence (Cant, 2004). This need for internationally focused education has been described as a pervasive and inescapable reality present on a world-wide basis (Bartell, 2003). Consequently, there has been a substantial amount of literature urging universities to adopt an internationalisation strategy (Marsella, 2001; Mittelman, 1996; Sporn, 1999). In a recent exhaustive analysis of management education, Engwall (2007) pointed out that, in Western Europe and North America in particular, 86

Internationalisation of Business Education: A Comparison of Eastern and Western Universities this drive had been especially influenced by the growth of professional management education associations and institutional accreditation. Enthusiasm for internationalisation is not enough. Those responsible for a university’s internationalisation strategy need to be clear about what internationalisation is in order to achieve it. Horn et al. (2007) cautioned that the fervour to internationalise has focused more on developing internationalisation in practice and less on the evaluation of the concept. This focus has limited the advancement of academic internationalisation and failed to maximise the potential educational outcomes. There is currently no clear consensus on what a strategy of internationalisation actually involves. Some see it as teaching an internationally-focused curriculum. Others see it as involving opportunities for trans-national research agendas and exchange at the staff level. Still others cite student exchanges and the acceptance of international students as part of an internationalisation strategy. Some internationalisation strategies will use all of these methods. Excellent summaries of the range of different activities that constitute internationalisation were given by Engwall (2007) and Knight (1999). A university’s understanding of what constitutes internationalisation may be dependent upon the cultural milieu in which the university is situated. However, there have been few systematic attempts to describe how the cultural background of the university influences the university’s conception of internationalisation. This paper addresses this gap in the literature through a comparative study of internationalisation at ‘Eastern’ and ‘Western’ universities. INTERNATIONALISATION The adjective ‘international’ and the verb to ‘internationalise’ are widely used by business schools in course titles and prescriptions. In practice, however, as noted previously there is no agreement about what internationalisation means. A common result can be people using the term to mean different things when they engage in discussion. As Bartell (2003) noted, internationalisation conveys a variety of understandings, interpretations and applications. At one end of a spectrum there could be a minimalist, instrumental and static view extending solely to admitting overseas students and perhaps securing funding for study abroad programmes. A more proactive philosophy might lead to adding activities such the international exchange of students and joint research conducted internationally. At the other end of the spectrum internationalisation is a complex, all encompassing, strategic and policy-driven process, integral to, and permeating, the life, culture, curriculum, instruction and research activities of the university and its members. Every part of the institution and its life can be internationalised. The language of internationalisation is itself confusing. Bond and Bowry (2002) noted the term has been used broadly in a way that hampers our understanding of the phenomenon. Knight (2004) added that the term is interpreted and used in different ways in different countries and by different stakeholders. She also pointed out that the realities of the world today present 87

Graham Elkin, Andrew Templer, Radha R. Sharma and Jianqiao Liao new challenges in developing a conceptual model that could help develop a basis for policy and action. The terms internationalisation and internationalisation of the curriculum are sometimes used as if they were synonymous, but they have different meanings. Curricula are but part of the larger concept of internationalisation. The OECD (IDP, 1995) defined internationalisation of the curriculum as curricula with an international orientation in content, aimed at preparing students for performing in an international and multicultural context and designed for domestic as well as foreign students. This implied the inclusion of overseas ideas and content in the programs for domestic students and an infusion of different (probably overseas) cultural ideas. Other authors have argued that internationalisation needs to extend beyond the curriculum to the life of the university as a whole. Knight (1999) defined internationalisation as the process of integrating international, intercultural, or global dimensions into the purpose, functions or delivery of post-secondary education. Ellingboe (1998) had seen internationalisation in similar terms as the process of integrating an international perspective into a college or university system. Internationalisation can be seen as a process that includes more than content. Knight (2004) remarked that internationalisation of higher education had been a complex, multifaceted, diverse, controversial, changing and challenging activity. It continued to evolve on many fronts. We have previously suggested (Elkin et al., 2005) that internationalisation is not something that is either achieved or not achieved: rather it is an engagement with a range of dimensions that may make up internationalisation. It is an ongoing, future-oriented, multi-dimensional, interdisciplinary, leadership-driven vision. Achieving such a vision involves more than just internationalisation of curriculum (content). Burn (2002) noted that study abroad programs and student exchanges can be very effective at promoting a universities internationalisation strategy beyond content. Internationalisation of faculty is another factor sometimes cited as important for internationalisation strategy (Sangari & Foster, 1999). The experience of another way of life may be more powerful in its effects on students and faculty than just studying a distant land and meeting a few of the local people who are visiting our institution. If faculty had little knowledge or interest in international business; even an internationalised curriculum is unlikely to be implemented. It would best a set of ideas with a distant perspective. To this end Oltjenbruns and Love (1998) suggested that university management and faculty needed to critically examine their own ideas and beliefs about race and ethnicity and to connect these to beliefs about the underlying purpose of the institution. For example is Internationalisation just a cover for Western led globalisation or do Western institutions have a need and a willingness to learn form Eastern people and institutions. The literature showed that internationalisation is most successful when undertaken as part of an institution wide strategy. A strategic focus should involve the alignment of three things - a strategic mission, a set of strategic objectives and an iterative strategic planning process (Conway et al., 1994; Johnson et al., 2006). Recent research (Elkin et al., forthcoming) has found a close alignment between strategic focus and the achievement of internationalisation. 88

Internationalisation of Business Education: A Comparison of Eastern and Western Universities DIFFERING INTERNATIONAL PERSPECTIVES Universities in all parts of the world have addressed the importance of internationalisation, but in the management education field, Western (American) universities continue to dominate. As Engwall (2007) puts it, inspiration between Europe and the United States seemed to flow mainly one way! As a result there are sufficient commonalities to allow ‘Western’ universities to be treated as one group. Inspiration flows largely from the West to East and represents globalisation rather than internationalisation. There has been research showing a sharply increased focus on internationalisation in universities in Australia (Harman, 2004), Canada (Bond & Bowry, 2002), Europe (Callan, 2000) and Japan (Horie, 2002). Internationalisation goals are even evident at universities where they are still in the early stages of implementing an internationalisation strategy (Webb et al., 2000). As Knight (1999) pointed out, there are distinct differences in the motivation for internationalisation from academic competitiveness to direct economic advantage. In particular, she pointed to Australia’s need to offset budget cuts by foreign student fees as the key motivator for the significant growth in international students entering that part of the world. Another study that highlights the differences in approaches to internationalisation around the world comes from a survey of 150 universities in 47 countries carried out by a French marketing firm (Noir sur Blanc, 1999). They suggested American and Australian universities have a more pro-active approach, while universities in Northern Europe have a more academic approach. Universities in Eastern Europe are divided between a desire for recognition based on an entirely academic model and a pro-active approach. Universities in Latin America are extremely open with a highly academic approach at the local level, but adopt a pro-active approach at a regional level. In Germany, Spain and Canada pro-active approaches are slowly developing and the situation in France somewhat mixed in orientation. The report also mentioned the barriers to internationalisation. Most prominent among these was finance. Lack of funds was cited as an obstacle by 32% of responding universities. This finding has been supported by other research. Lambert (1995) noted that within the US, institutional and external funding providers were becoming increasingly less willing to fund internationalisation programmes. It is worth noting that in some cases a lack of funds was a spur to internationalisation; as universities located in economically underdeveloped areas seek to gain financial and institutional security through an international focus. Administration concerns such as difficulties with accommodation of foreign students, government bureaucracy, quotas of international students and credit recognition were also cited as barriers to internationalisation. Prominent among the obstacles to internationalisation were issues of language and culture. Many people in Eastern societies learn English as a second language but few Westerners learn Eastern languages. Such barriers may hinder the willingness of students and faculty to go to foreign universities; especially when those universities are in very different cultural milieus. 89

Graham Elkin, Andrew Templer, Radha R. Sharma and Jianqiao Liao Ahlawat and Ahlawat (2006) pointed out that this is a particular problem in US business schools which often lack genuine international curriculum and the acquisition of foreign languages. The challenges occur on both sides of foreign exchanges. Thorstensson (2001) outlined the considerable struggles on the part of Asian international students to adapt in a US business school and the need for more genuine international interest. On the other hand, Kim (2005) found that Western faculty struggle to find acceptance in Korean universities. Moreover, faculty members who travelled abroad for teaching and research developed family complications, a decrease in income and an increase in personal expenditure (Hser, 2005). Their career advancement also suffered (Harari & Reiff, 1993). Some university administrators discouraged their staff from research overseas, seeing it as creating problems with teaching and of questionable scholarly merit (Goodwin & Natch, 1991; Hser, 2005). Students face similar problems, with many faculty complaining that study abroad programs lower the academic quality of the student’s education, interfere with their personal lives, and delay their professional development. (Hser, 2005). MODELLING INTERNATIONALISATION The ‘star’ model of internationalisation (Elkin & Devjee, 2003) was developed initially as a result of discussion with those involved in internationalisation at the University of Otago (New Zealand). This involved International Office staff, Exchange Program Coordinators and Exchange Advisors. These discussions demonstrated there was some agreement as to what might, in combination with other dimensions, constitute internationalisation and form the basis for a definition as an aid to further research. A search was conducted of the websites of overseas universities regarded as exemplars in internationalisation to seek evidence about what was meant by internationalisation. In addition, a literature search concerning the meaning of internationalisation was conducted. The initial model of internationalisation was presented as a series of 13 radiating spokes. The 13 dimensions are Likert scaled ranging from 0 = little to 10 = a lot. Participants were asked to plot the ideal extent of internationalisation on each dimension. The current extent of internationalisation on each item was plotted in a similar fashion. The model created a picture of the extent of current and desired (ideal) internationalisation. A pilot study to examine and explore the framework of internationalisation was sent to 70 international partner universities of the University of Otago, School of Business via email. Participants were requested to plot actual and desired levels of internationalisation on all 13 scales using the framework. This created a picture of the extent of current and desired (ideal) internationalisation. Participants were also asked to define internationalisation, thus allowing for the addition of factors that may be missing from the framework. Further comments about the concept of internationalisation were encouraged. Participants were also asked if the mapping was a useful activity. Seventeen institutions responded – a success rate of 24%. Participants reported 90

Internationalisation of Business Education: A Comparison of Eastern and Western Universities no difficulties in using the model. Responses were uniformly encouraging, with all 17 responding institutions reporting it a useful means to understand and clarify their intentions. Considerable further discussion took place with colleagues and staff at the University of Otago who were involved in the international activities of the university. This revealed some duplication in the contents of the scales. The framework was therefore modified to include 11 of the original 13 dimensions. Further field testing of the framework led to a consolidation to nine dimensions. This eliminated double counting of dimensions that were too similar to each other such as staff interaction in international context and attendance at international conferences. The analysis showed that some dimensions were overrepresented, e.g. internationally recognised research activity and international research collaboration, both of which related to international research. The paper by Elkin et al. (2005) summarises the earlier studies and illustrates a more detailed use of the model. The nine dimensions used for the next stage of the study were: 1. Undergraduate international students 2. Postgraduate international students 3. Student exchange programs 4. Staff exchange programs 5. Staff interaction in international context/ attendance at international conferences 6. Internationally focused program of study 7. International research collaboration 8. Support for international students 9. International institutional links The model of internationalisation developed incorporated enough dimensions for people to be confident they are speaking in the same conceptual space as each other. METHOD For this study we expanded the sample size considerably, including a number of faculty responses from a Business and Economics International Conference held in Florence in July 2006. Consequently the whole data set as expanded from the 17 responses recorded in the 2003 study to 70 responses in this one. These business schools were from 11 countries, with significant clusters in Canada, China, India, U.K, US and Egypt. It proved extremely difficult to obtain large numbers of responses from Asian institutions. We divided the set into two groups, Western universities (Europe, North America, Australia and New Zealand) and Eastern universities (which were in a broadly defined Asia). The majority of Eastern responses were from India and China. We then compared the mean scores and standard deviations for each of the nine factors. T test were carried out to test for the significance of differences between means. 91

Graham Elkin, Andrew Templer, Radha R. Sharma and Jianqiao Liao FINDINGS Table 1 presents the current levels of internationalisation at the Western and Eastern universities, the data from which is presented graphically in Figure 1. TABLE 1 Current Levels of Internationalisation Current International Undergraduates International Grad. & Post Grad. Student Exchanges Staff Exchanges International Research Collaboration Internationally Focussed Study Programmes Attendance at International Conferences Support for International Students International Institutional Links Mean Western mean 5.9 6.5 5.4 3.6 5.2 5.2 6.5 6.1 6.2 5.6 sd 2.4 2.2 2.4 2.5 2.8 2.2 2.4 2.1 2.5 2.4 Eastern mean 2.6 3.0 4.2 5.4 4.8 4.8 6.2 4.0 5.0 4.4 sd 1.7 1.5 1.7 1.9 1.0 2.3 2.0 2.3 2.0 1.8 Difference -3.3 -3.5 -1.2 1.8 -0.4 -0.4 -0.3 -2.1 -1.2 -1.2 92

Internationalisation of Business Education: A Comparison of Eastern and Western Universities FIGURE 1 Current Levels of Internationalisation Figure 2a0246810International UndergraduatesInternational Grad. & Post Grad.Student ExchangesStaff ExchangesInternational Research CollaborationInternationally Focussed Study ProgrammesAttendance at International ConferencesSupport for International StudentsInternational Institutional LinksWesternEastern As can be seen, Western universities have achieved a higher degree of internationalisation on most of the measures. Much internationalisation has likely been driven by the reality of the economic priorities of different locations and also the extent institutions understand the idea of internationalisation and the level of development of a strategy to achieve it. Universities in the West recognise that international students, especially graduate ones, bring in a lot of additional revenue. Many Western universities have graduate programmes; especially in the high-cost technical areas and depend on foreign students in order to survive. The one exception to this is the area of staff exchange, where Eastern universities had a much higher average score of 5.4 compared to Western universities, with an average score of 3.6. It could be argued that Eastern universities may have been driven by the desire for international, mostly Western, credibility and the value of English proficiency and so favour staff exchanges. It seems unlikely that Western academics have a desire for similar outcomes from going to the East. We suggest that the West is more attractive to the East than the East is to the West. The biggest differences in the current level of achievement can be found when considering international undergraduates and international graduate and postgraduate students. 93

Graham Elkin, Andrew Templer, Radha R. Sharma and Jianqiao Liao For the first of these, Western universities had an average score of 5.9, compared to 2.6 for the Eastern universities. For international graduate and postgraduate programmes, Western universities had a score of 6.5, compared to 3.0 for Eastern universities. The demand for post graduate management education is much greater than the supply in the East. For example management education in India is largely offered at Masters and PhD levels. In the West management education is available at the undergraduate level. In India there is huge competition to gain entry to one of the 1,200 places in Indian Institutes of Management (Phillip, 2003). Graduates of these schools gain key roles in Indian and multinational corporations. Those who do not qualify for admission and who have the capacity to go overseas, tend to do so. This is in the context of a rapidly growing middle class with increasing disposable income. In addition, Western government aid and scholarships will facilitate study abroad. A survey of 1,000 students from 10 Asian countries (Hong Kong, India, China, Indonesia, Japan, Singapore, Malaysia, Korea, Chinese Taipei and Thailand) regarding Study Abroad Programmes revealed that students chose overseas programmes for the apparent better quality of foreign education (28%), broadening their experiences (26%), wanting to live overseas (23%), higher respect for foreign education (17%), followed by family desire for foreign education (14%), non availability of courses or problems in local admission (14%) and for desire to improve English (10%) (EduWorld, 2001; OECD, 2004). The US was the most attractive destination for Asian students where in the year 2002-03 Indian students comprised 12.7% of all the international students followed by China accounting for 11%, and Korea 7.8% (Euh, 2007). Some Eastern universities may culturally prefer international knowledge transfer to begin at the staff level and not the student level particularly if it is limited. This would explain their great emphasis on staff-level international exchanges. There may be a perceived career opportunity cost to internationalisation for academic staff in the West. Engwall (2007) and Knight (1999) pointed to the overriding US-orientation of business education and the importance of US-based publications and the location of key multinationals. The career success of academics depends on going to big conferences in the West In this context, international staff exchanges may not be valued by Western university respondents and seen as a real career opportunity cost. The chance of losing one’s place on a career ladder may be seen as too high a price for Western academics to take. The benefits are likely to be long term through relationships that develop. In the West the performance rewards may be remorselessly short-term. In contrast, respondents at universities in the East might see such exchanges as critical for local credibility and would view the acquisition of English language and cultural skills in dominant Western reference points as positive career opportunities Engwall (2007) and Kuchinke (2007) pointed to the growing importance of professional associations and the growth of accreditation in the development of business education. It could be argued that some of the differences in internationalisation efforts tie in with the gap between a relatively matured accreditationalism in universities in the West and a still developing level of internationalisation in the East. 94

Internationalisation of Business Education: A Comparison of Eastern and Western Universities In the West, foreign students are seen as satisfying both economic and strategy needs, as well as the need for global accreditation requirements. As Engwall (2007) pointed out, most of the international rankings of business schools are US based, or to a lesser extent – UK-based. Many students want to go to the US schools and their global rankings are supported by such exchanges. In contrast, universities in the East are still developing, and aspiring towards Western credentials. There were some aspects of internationalisation where Western and Eastern universities had similar levels of achievement. These are international research collaboration; internationally focussed study programmes; and attendance at international conferences. In all of these areas the difference in achievement between Western and Eastern universities was statistically insignificant. TABLE 2 Ideal Level of Internationalisation Aspirations International Undergraduates International Grad. & Post Grad. Student Exchanges Staff Exchanges International Research Collaboration Internationally Focussed Study Programmes Attendance at International Conferences Support for International Students International Institutional Links Mean Western mean 6.9 7.7 7.1 6.2 7.3 7.0 7.7 7.4 7.7 7.2 sd 2.7 2.3 2.6 2.7 2.5 2.3 2.1 2.0 2.2 2.4 Eastern mean 3.9 5.5 6.8 8.1 7.8 7.2 8.2 5.7 8.2 6.8 sd 2.3 1.9 1.2 1.4 1.1 1.9 1.8 1.8 1.3 1.6 Difference -3.0 -2.2 -0.4 1.9 0.5 0.2 0.5 -1.7 0.4 -0.4 95

Graham Elkin, Andrew Templer, Radha R. Sharma and Jianqiao Liao FIGURE 2 Ideal Level of Internationalisation Figure 2b0246810International UndergraduatesInternational Grad. & Post Grad.Student ExchangesStaff ExchangesInternational Research CollaborationInternationally Focussed Study ProgrammesAttendance at International ConferencesSupport for International StudentsInternational Institutional LinksWesternEastern Table 2 presents the differences in ideal internationalisation between Western and Eastern universities. These are also represented graphically in Figure 2. The aspirations of the two sets of universities displayed less divergence than their actual achievements. International research collaboration; internationally focused study programmes; attendance at international conferences and international institutional links were all cited as important goals by both universities. Major differences related to the question of attracting international undergraduates or international post graduates, which Western universities were more likely to regard as more important both strategically and economically. Eastern universities were more likely to see staff exchange as a top priority in their internationalisation strategy. Western universities have adopted a strategy of collaboration with Asian educational institutions which required less commitment and limited direct investment (Dawes, 1995). This strategy provided choice to the collaborating university and involved low risk but access to the local partner’s intellectual resources and market network. To the Asian universities it provided opportunities for collaborative work, international exposure to curriculum and faculty and student exchange. Participation in international conferences was also felt necessary to share the research 96

Internationalisation of Business Education: A Comparison of Eastern and Western Universities at international level and create opportunities for professional development and academic networking. FIGURE 3 Ranked Ideal Internationalization Figure 4012345678910InternationalinstitutionallinksAttendance atInternationalConferencesInternationalGrad. & PostGrad.Support forInternationalStudentsInternationalResearchCollaborationStudentExchangesInternationallyFocussed StudyProgrammesInternationalUndergraduatesStaff exchangeRank OrderWesternEastern Comparing these results with those displayed in Figure 1, we can see that the aspects of internationalisation the two sets of universities favour are generally also the ones they are most successful at. This would suggest that the form internationalisation takes is intimately connected with the goals and aims of the internationalisation strategy. The differences between the two sets of universities’ aspirations can be more clearly seen in Figure 3. This presents how the universities ranked the importance of each of the nine aspects of internationalisation. Those that were ranked first received a score of 9; while those that were ranked last received a score of 1. The most noticeable discrepancy is over international graduate and postgraduate students. Western universities considered them the most important part of an internationalisation strategy, whereas Eastern universities considered them the second-least important. In addition to the large and growing number of Asian students who travel to the West, some other trends are emerging within the East. India provides a good illustration of increasing 97

Graham Elkin, Andrew Templer, Radha R. Sharma and Jianqiao Liao government intervention to encourage internationalisation including flows of students to the East. In 2002 the Indian University Grants Commission (UGC), adopted a plan for the promotion of internationalisation and the export of higher education. This included the Study India Abroad programme (UGC, 2002). It has funded this project with a view to promoting the free flow of students from other nations to India and vice versa (UGC, 2002). With government encouragement some Indian universities have set up centres abroad. Indira Gandhi National Open University a distance learning university has been offering its business and management programmes in more than half a dozen countries in the Middle East, Africa, Indian Ocean Islands and South East Asia. Few Western students enrol, however, and this is a kind of regional internationalisation. Similar arrangements exist for the Management Development Institute, (MDI) Gurgaon, the University of Delhi, Manipal Academy of Higher Education, and others (Prakash, 2005). The leading business schools in India have begun arrangements for joint degree programmes and student exchanges with leading business schools in Europe, USA and Canada. There is every indication that the flow of students may increase from the West to the East. An additional explanation for the differences between East and West may lie in the different world views held in the West and the East. The West tends to see the world as known and knowable. This leads to a mechanistic or spectator view of the world, with the human world being in some ways a transcendent reality. In the West it is possible to have an unconscious assumption that we know the way - or understand the model and nature of reality. Those in the West wish to share the knowledge for the benefit of all. They may also misunderstand how much more there is to know, and so be less energetic about or open to learning outside the West. A more common Eastern approach would be to accept that as a given the world cannot be known as a spectator, but has to be known by being in the world and learning from experience. This pragmatic view requires turning to experience and relationships in the other world in order to gain knowledge and construct reality. The world is largely experienced through people in relation with others as individuals and in collective experience. This means that to know, requires people to relate together in culturally informing settings. Hence the emphasis on staff exchange, personal links, institutional arrangements, face to face conferences and research collaboration in the East. The presence of Western students at Eastern universities would be seen as a poor substitute for having contacts in the West with whom to collaborate. CONCLUSION We have suggested that there are several underlying factors that may account for the differences found between eastern and Western universities. These include differing strategic priorities, economic imperatives, inertia, supply and demand and perceptions of reputation and contrasting world views. 98

Internationalisation of Business Education: A Comparison of Eastern and Western Universities The most noticeable difference between the internationalisation of Western and Eastern universities are in their respective attitudes towards students - both undergraduate and postgraduate. Eastern universities do not seem to consider attracting them a high priority in their internationalisation strategy; a goal that is shown in the low number of Western students such universities attract. The reasons for this discrepancy may simply reflect reality – both economic and cultural. Western students face greater barriers in going to Eastern universities. These barriers are more than just language and culture, they also relate to the relative prestige of the two types of universities and perhaps to a different world view and understanding about what it means to know and how to learn. A long history of Western domination has led Western universities to be more highly regarded than their Eastern counterparts. The Western student may be less motivated to attend universities in the East than the Eastern student wishing to go to the West. Eastern universities focus on staff exchange. This, combined with a focus on building international institutional links and attendance at international conferences, suggests that Eastern universities look at internationalisation as a means of enhancing their university’s research strength. This leads us to conclude that Western and Eastern universities have different purposes in mind when they embark on a strategy of internationalisation. For Eastern universities internationalisation is about enhancing the research strength of the university and building on-going relationships within which long term learning can occur. For Western universities, the focus is more on the ability to attract students. It is important not to overstate the differences found in this exploratory study, as the two sets of universities also had goals in common, such as enhancing institutional links and attendance at international conferences. Significant variations in how Western and Eastern universities approach internationalisation were found. This research suggests that these variations should be further investigated to enhance our understanding of the nature of the internationalisation of business education and the most effective ways to implement a strategy of internationalisation. Caution is needed when using sweeping categorisations such as Western and Eastern. Variations between different Eastern countries (for example India and China) and between varying Western countries (e.g. Canada and Italy) may be very large. Much more research is required to improve the sample size and to take account of cultural differences. More targeted research is needed to be sure who we are talking about when we reflect a range of views. Is an institutional view or a personal one that we recorded. However the use of the model of internationalisation for a fourth time gives growing faith in the usefulness of the model and the measure. 99

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Euro Asia Journal of Management Issue 36, Vol. 18, No.2, December 2008, pp.103-122 ORGANIZATIONAL CULTURE AND INNOVATION: AN EXPLORATORY STUDY OF SRI LANKAN GIFT AND DECORATIVE-WARE SECTOR FIRMS S.W.S.B. DASANAYAKA1 and GURU DATT SARDANA2 ABSTRACT The prime objective of this paper is to investigate the impact of organizational cul-ture on innovations in Sri Lankan gift and decorative-ware sector. This study be-gins with assessing dominant cultural types in characteristics of Clan, Adhocracy, Hierarchy and Market by using Cameron & Quinn’s Competing Values Framework among selected 45 Sri Lankan giftware firms. The study moreover, assesses innova-tiveness of the Sri Lankan giftware manufacturing sector and the types of innova-tions predominant among these firms. Furthermore, it investigates whether there is a significant correlation between scale of culture dimensions and degree of innova-tiveness. Finally, it identifies most dominant cultural dimensions that need to be strengthened in giftware manufacturing firms in Sri Lanka to enhance their innova-tiveness thereby making them more competitive in the global marketplace. 1Department of Management of Technology, University of Moratuwa, Moratuwa, Sri Lanka. Email: wimalasur_888@yahoo.com 2 Institute of Management Technology, Ghaziabad, India. Email: gdsardana@imt.edu

S.W.S.B. Dasanayaka and Guru Datt Sardana INTRODUCTION The gift and decorative-ware sector is an important constituent of both urban and rural econo-mies of Sri Lanka. The Sri Lanka Export Development Board (SLEDB, 2004) points out that most of the firms engaged in this sector are small and medium scale employing a large work force of over 170,000 direct and indirect employees and generate a sizable amount of exports. Industries of this sector range from simple cottage type operating units to factories with state-of-the-art technology. Most of the production facilities in rural areas are elementary and are not far from self-employed backyard operations. In Sri Lanka’s rural economy these constitute the sec-ond most important economic segment next only to the agriculture based industrial sector. As a general rule, the giftware sector has low capital intensity but high skills with lim-ited need for sophisticated technologies. For the very same reasons the entry barriers to the in-dustry are low and therefore continued innovation is a must for withstanding the increasing competition in the market place. Sri Lanka’s cultural heritage and skilled craftsmanship passed down through the ages by generations have had a great influence on the giftware sector. The craftsmen mostly use locally available raw materials such as wood, clay, reed, bamboo, coconut fiber, cane, brass, handloom fabric for the production. Availability of natural raw materials in abundance and presence of easily trainable work force are deemed to be the key positive factors for this sector. The SLEDB’s studies on giftware have revealed that the main constraints of the indus-try are in areas such as the lack of new designs and markets, high production costs, low produc-tivity, lack of sufficient research and development and lack of new technology infusion. Inade-quate competitiveness of local gift and decorative-ware manufacturing firms in the international market has indeed emerged a major issue before the political leadership and the planners in the country. For a developing economy like Sri Lanka, solution to its peculiar problems of rising unemployment, jobs for the educated youth, reducing disparities of income, regional develop-ment and creating self reliance lies in encouragement to its rich heritage in the forms of crafts-manship, skills as reflected in traditional gift and decorative hardware manufacturing. The small scale sector dominates in these areas. Innovation is a winning proposition in this sector of econ-omy and in this trade. The primary focus of this paper is to explore the influence of organizational culture, particularly dominant culture types, on innovativeness in firms of this sector. The focus of this study centers on why some organizations adopt a given innovation(s) more quickly than others. It is proposed to study the issues and investigate the relationship through an empirical analysis. The study seeks responses to the following research questions. Q1: What are the most dominant cultural types among the Sri Lankan giftware manufacturing industry in terms of Clan, Adhocracy, Hierarchy and Market types? 104

Organizational Culture and Innovation: An Exploratory Study of Sri Lankan Gift and Decorative-Ware Sector Firms Q2: How innovative is the Sri Lankan giftware manufacturing industry and what types of inno-vations are predominant among the firms? Q3: Is there a significant correlation between dominant culture type and metrics of innovative-ness of giftware manufacturing firms? Q4: What are the most dominant cultural dimensions that need to be strengthened in giftware manufacturing firms in order to enhance their innovative activities? The theoretical framework guiding this study evolves from two fields of organizational inquiry - organizational innovation and organizational culture. Before constructing the overall study framework, these two key concepts must be examined. ORGANIZATIONAL INNOVATION Technology is considered a branch of knowledge that deals with industrial arts, applied science, or engineering covering both products and processes for transformation of inputs into outputs. From this perspective, technology includes the machinery and equipment, the layout of the work, the methods, the processes, the techniques and the productive activity. Narayanan (2001) ex-plains that management of technology focuses on the principles of strategy and organization involved in technology choices, guided by the purpose of creating values for investors. Man-agement of technology focuses on creating competitive advantage for firms finding effective and efficient means and methodologies to fulfill the wants and needs of customers. Technologi-cal change is thus essential for a firm and the same comprises of two closely linked processes, innovation and diffusion. Rogers (1995) defines innovation as an ‘idea, practice or object that is perceived to be new by an individual or other unit of adoption’. Narayanan (2001) refers to innovation as both the output and the process of arriving at a technologically feasible solution to a problem by a technological opportunity or customer need. Process, in this context of innovation refers to the means or methodology that leads to a technical solution. Innovation then represents a problem-solving model. Innovation as output refers to a product or a service. Output again can be a hardware component as well as a software component. Keeny and Reedy (2007) point out that innovation involves the adoption of new products and/or processes to increase competitiveness and overall profitability and it involves new ways of identifying the needs of new and existing clients. Measuring innovativeness of a firm is a complicated process as it stretches into differ-ent dimensions. The Oslo Manual based model was published by OECD in 1992 to standardize the data collection methodology. This provided guidelines on how to conduct an innovation survey and detailed different innovation indicators, the issues to be tackled and the methodology considerations to be taken into account. EUROSTAT together with OECD launched a standard-ized questionnaire, the Community Innovation Survey (CIS) in 1993 that was to be used in most 105

S.W.S.B. Dasanayaka and Guru Datt Sardana EU countries. It surveyed the types of innovation activities a firm was engaged in, the objectives pursued, the information sources employed, the cooperation agreements and the hampering fac-tors. Other survey methodologies have been developed in Japan, Canada and the US. In the late 1990s another objective, the identification and measurement of the competencies that play a role in the firms’ innovation process attracted attention. Muller et al. (2003) have developed a framework to explain the innovative capacity within a firm. This framework goes much beyond the traditional Oslo Manual based models. The framework suggested by Muller et al. is the most appropriate and comprehensive model which is capable of capturing all possible dimensions of innovativeness. The framework (de-picted in Figure 1) combines three views, resource view, capability view, and leadership view on innovation. These views accommodate a suite of metrics that help assess and develop a com-pany’s capacity for innovation. FIGURE 1 Innovation Framework (Adapted from Muller et al., 2003) Resource view: Companies must balance optimization (tactical investment in the existing busi-ness) and innovation (strategic investment in new businesses). The resource view addresses the 106

Organizational Culture and Innovation: An Exploratory Study of Sri Lankan Gift and Decorative-Ware Sector Firms allocation of resources to achieve this balance. The resource inputs are capital, labor and time. Output is the return on investment in strategic innovation. Capability view: The capability view assesses the extent to which the company’s culture sup-ports the conversion of innovation resources into opportunities for business renewal. The inputs of this capability view are the preconditions for innovation, that is, the extent to which a com-pany’s skills, tools, and values are adapted to innovation. Outputs include growth platforms and strategic options. Leadership view: The leadership view assesses the degree to which a company’s leadership supports innovation. As such, it evaluates leaders’ involvement in innovation activities, the es-tablishment of formal processes to promote innovation, and dissemination of innovation goals. Processes: Innovation processes are an additional element of the framework. According to the original model these comprise of organizational structure such as incubators, innovation markets, venture funds, and innovation incentives. However, the model adopted is modified to include idea generation, idea implementation and motivation/attitudes of the people, as well. As Figure 1 suggests, innovation processes interlink the resource view and the capability view. Innovation, at the level of the organization has been the main focus of a majority of theoretical and empiri-cal studies of innovation. ORGANIZATIONAL CULTURE Organizational culture has been variously defined. In its simplest form, Deal & Kennedy (1982) refer that culture is the way things are done in the organization. It is seen as a set of meanings created within the organization but influenced by broader social and historical processes. Geertz (1973) explains that culture is a system of shared symbols. Schein (2004) provides an elaborate definition that culture represents ‘a pattern of basic assumptions that was learned by a group as it solved its problems of external adaptation and internal integration, that has worked well enough to be considered valid and therefore, to be taught to new members as the correct way to perceive, think, and feel in relation to these problems.’ A related issue concerns the ways culture has been studied in an organization. Some of the earlier studies are rooted in understanding organizational climate. Miner’s (1979) Limited Domain Theory provides a basis for organizational culture. This theory supported by ample re-search identifies hierarchic, professional, entrepreneurial and group domains. Each of the do-mains requires different types of behaviors, leaders, control systems and organizational designs. Smircich (1983) points out that culture can be explored in two major ways. The variability ap-proach focuses on causality. Culture is considered to be predictable and thus causes outcomes. The second approach refered to as Root Metaphor, considers culture as a process rather than as a product or a variable. Driskill and Brenton (2005) mention that the root metaphor approach has three research traditions to consider culture: as shared cognition, as systems of shared symbols and as the expression of unconscious processes. Organizational cultural profile comprises of 107

S.W.S.B. Dasanayaka and Guru Datt Sardana various types of traits which influence organizational effectiveness. Denison and Mishra (1995) identify four cultural traits namely, involvement, consistency, adaptability and a sense of mis-sion. Sinha (2000) mentions values, behaviors, relationships, technology, structures, procedures and goals and objectives as the components of organizational culture classified as soft culture, work-centric nurturant culture, and technocratic culture. Schein (2004) advocates the study of culture under the levels of Artifacts (visible organizational structures and processes), Espoused beliefs and values and Underlying assumptions. The competing values framework, as developed by Cameron and Quinn (1999) has been used in constructing an organizational culture profile. Through the use of the ‘Organiza-tional Culture Assessment Instrument (OCAI)’, an organizational culture profile can be drawn by establishing the organization’s dominant culture type characteristics. In this respect, the overall culture profile of an organization is identified as: Clan: an organization that concentrates on internal maintenance with flexibility, con-cern for people and sensitivity for customers. Hierarchy: an organization that focuses on internal maintenance with a need for stabil-ity and control. Adhocracy: an organization that concentrates on external positioning with a high de-gree of flexibility and individuality. Market: an organization that focuses on external maintenance with a need for stability and control. CONCEPTUAL FRAMEWORK OF THE STUDY The conceptual framework for the study is based on the premise that there is a link between organizational culture and innovation. The sections that follow refer to various studies con-ducted by researchers to establish this linkage and endeavour to show that the organizational culture causes a great impact on innovation. Based on these findings, a model has been proposed and a framework advanced with hypotheses for testing through empirical data. Linkage between Innovation and Organizational Culture Tushman and O’Reilly (1997) point out that successful organizations have the capacity to ab-sorb innovation into the organizational culture and management processes and that organiza-tional culture lies at the heart of organizational innovation. Kenny and Reedy (2006) emphasize that organizational culture affects the extent to which creative solutions are encouraged, sup-ported and implemented. Martins and Terblanche (2003) explain that a culture supportive of creativity encourages innovative ways of representing problems and finding solutions. Unlike operations where the activities are formalized and pre-specified, innovation is a non-routine 108

Organizational Culture and Innovation: An Exploratory Study of Sri Lankan Gift and Decorative-Ware Sector Firms activity where there is a fair amount of uncertainty around the tasks to be performed. Organiza-tional culture in absence of laid down rules of the game, can both hinder creativity as well as stimulate innovation. Russel (1989) takes the view that as entrepreneurial organizations grow through the successful application of creative ideas, they experience a ‘crisis of leadership’. Increase in number of employees makes it rather difficult for an entrepreneur to manage effi-ciently through informal communication channels. Zaltman et al. (1973) mention that innovation is a highly complex social process which requires the effective interaction of a large number of individuals and sub-units within the inno-vating organization. There is thus a need to provide directive leadership through professional managers. Besides, innovation by definition deals with uncertain problems. In such an environ-ment, structural solutions such as formalized procedures are often ineffective. Russel (1989) explains that culture supports innovation by creating an organizational climate which institu-tionalizes innovation as an important activity and further, by focusing attention on and legiti-mate innovation, a supportive culture helps to motivate and sustain the complex, interactive process of social exchange necessary for successful innovation. Yeung et al. (1991) refer that organizational culture is important as a vehicle for implementing organizational change. King (1990) points out that though not all organizational change involves innovation, all organiza-tional innovation involves change. Christensen (1997) suggests that an organization’s resources, processes and values (its culture) contribute to its ability to adopt innovations. Kanter (1988) stresses the importance of a ‘pro-innovation’ culture. It is evident that not all the cultures prevailing in the organization would facilitate the innovation process and thereby building the innovative competency within the organization. Ouchi (1981) and Peters and Waterman (1982) note that within the same national culture con-text some organization level cultural dimensions are essentially important for sustained competi-tiveness in the market. Others who have studied the relationship between culture and innovation including Raelin (1987), Abey and Dickson (1983), Jones and James (1979), Pritchard and Karsick (1973), Oldham and Cummings(1996) and Conway and MacMakin (1997) also suggest the presence of a relationship. Kotter and Heskett (1992) record that only a few empirical studies on the impact of organizational culture on organizational innovation exist. Angle (1989), Kimberly (1981), Kanter (1988), Tesluk et al.(1997) support these claims. Besides, most of these studies concern large organizations positioned in developed economies. Roberts et al. (1989) make an important observation that smaller organizations are not necessarily less capable of implementing advanced technologies. However, it is also true that small firms have their own environment and limitations not found in large organizations and it requires an investigation if the research findings are equally applicable in small industry. 109

S.W.S.B. Dasanayaka and Guru Datt Sardana The Framework In complying with the research questions articulated and by integrating the two different models of Innovativeness and Organizational Culture as discussed, an overall conceptual model of the study has been developed and is described as below (see Figure 2). FIGURE 2 Conceptual Framework of the study Hypotheses The Competing Values Framework (CVF) has been used in defining distinctive culture types in studies relating organizational culture and organizational effectiveness. Eight hypotheses were built for this study – two dedicated to the classification of dominant culture type, two others dedicated to the classification of innovation types and the rest dedicated to the relationship be-tween dominant culture type and the organizational innovativeness. The initial focus of this study is to test general hypotheses 1 and 2 and identify the dominant organizational culture type within a sample of giftware manufacturers. Hypothesis 1 flows from the basic objectives of the study to determine the dominant culture type in the Sri Lanka decorative ware industry. Organizational structure lays down the foundations of decision-making in a large organization. Hierarchy, associated so strongly with the organizational struc-ture thus has a large influence on decisions related to innovations. In the present study hypothe-sis 2 proposes to test the same in the context of small industry as decorative ware. 110

Organizational Culture and Innovation: An Exploratory Study of Sri Lankan Gift and Decorative-Ware Sector Firms Hypothesis 1 (H1): Within a sample of giftware manufacturing firms in Sri Lanka there will be a clear difference in the mean scores assigned to the Organization Culture types based on Com-peting Values Framework (i.e. Clan, Hierarchy, Adhocracy and Market) Hypothesis 2 (H2): Majority of the Sri Lankan giftware firms tends to have highest mean score for the culture type Hierarchy At a general level, innovation types are broadly classified into four categories that is, Offerings, Processes, Structural and Strategic. Each category is classified into sub-dimensions namely, Radical or Incremental. The focus is on manufacturing and product innovation only. The following hypotheses are to be tested in response to research questions 2 and 3. Hypothesis 3 (H3): Sri Lankan giftware firms tend to focus more on product innovations than on process, strategic and structural innovations Hypothesis 4 (H4): Sri Lankan giftware firms tend to focus more on incremental innovations than on radical innovations The firm must continuously assess the four types of innovations whether they involve the creative process, produce distinctive results, make an impact and cultivate those that have the potential to be meaningful innovations. The following two hypotheses purport to support the study related to research questions 2 and 3. Hypothesis 5 (H5): There is a significant relationship between dominant organizational culture types and the degree of innovativeness within a sample of giftware manufacturing firms in Sri Lanka. Hypothesis 6 (H6): The dominant culture types will have a relationship with the type of innova-tion activities performed within the firm. The following two additional hypotheses emerge to seek response to research Question 4. Hypothesis 7 (H7): Adhocracy is the single most important culture type to determine the fre-quency of innovative activities of the firm. Hypothesis 8 (H8): External positioning is the most important dimensions in the organizational culture to determine the frequency of innovative activities of the firm. METHODOLOGY AND DATA A quantitative empirical research approach has been used to indicate the degree of various pa-rameters within the organization to assess its type of culture and to measure their innovativeness. In both assessments, A five-point Likert scale has been used. Respondents were asked to indi-cate the frequency for each type of innovation that their businesses have introduced in the last three years. For each type, the respondents were asked to state the percentage values for the 111

S.W.S.B. Dasanayaka and Guru Datt Sardana level of innovation (radical/incremental) and degree of newness (new to company/to the local market/to the world). Sample The questionnaire was posted to a sample of 65 firms in the gifts and decorative-ware industry mainly consisting of small and medium size companies. The sample was selected in random. Geographical distribution of these firms covered seven districts of Colombo, Kurunegala, Galle, Kalutara, Matara, Negombo and Kandy. Number of employees in a firm ranged from a mini-mum of 10 to 1,500. The group of firms in the sample was diverse in terms of legal status, firm age, annual turnover, number of employees, raw material base and functionality of products. Table 1 illustrates the structure of the sample in terms of these characteristics. TABLE 1 Descriptive statistics of sample characteristics N Min. Max. Mean SD Local equity (%) 42 50 100 98.571 7.831 Firm’s age (Years) 42 2 37 13.860 8.230 No. of years exported 41 0 33 11.660 8.390 No. of employees 42 10 1,500 159.570 313.810 Annual turnover (Million Rs) 38 0.5 3,000 362.466 765.571 Data Collection A single key informant was used as a proxy for the organization to report on the culture of the organization and opinion based questions were used to assess firm’s innovativeness. In most cases the informant was the CEO, owner, main partner or the senior executive of the company. Figures and values were also supplied by the same informant with the assistance of the finance department and other relevant officers where necessary. A modified version of the tailored de-sign method adopted by Dillman (2000) was employed as the mail survey process. Of the 65 survey questionnaires mailed, 42 individual responses were received. Fifteen of these needed personal interviews with the respondents to clear the discrepancies. On comple-tion, the overall response rate of 64.6% was considered satisfactory. 112

Organizational Culture and Innovation: An Exploratory Study of Sri Lankan Gift and Decorative-Ware Sector Firms Descriptive Statistics on Aspects of Organization Culture Primary emphasis was placed on classifying firms by their dominant culture type (i.e. clan, hier-archy, adhocracy and market). Firms reporting identical scores on two or more dominant culture types were assigned the designation of ‘no dominant’. Thus, five classifications of dominant culture types were identified and reported. Descriptive analysis of dominant organization culture type is depicted in Table 2. Twenty (n = 20) institutions, representing half of the population se-lected Clan as the dominant culture type. Adhocracy (n = 9) came to be projected next. Seven chose a dominant culture type of Market and three companies in each category projected Hier-archy and ‘No Dominant’. These results are detailed in Table 2. TABLE 2 Dominant organization culture types Dominant Culture Type No. of Firms Percentage Clan 20 47.6 Adhocracy 9 21.4 Market 7 16.7 Hierarchy 3 7.1 No dominant 3 7.1 Table 3 provides the descriptive statistical analyses for each culture type. The mean scores for the culture types range from 3.49 to 4.02 suggesting that the respondents, as a group, believe each culture type to be at least moderately descriptive of their organization. Among the four culture types, the mean score for the Clan type (mean = 4.02) is the highest followed by Adho-cracy (mean 3.63, Market (mean = 3.52) and Hierarchy (mean = 3.49) respectively. TABLE 3 Mean scores of culture type for overall Giftware industry Culture Type Mean % Mean Rank Range SD Clan 4.02 27.42% 1 1.0 - 5.0 .7029 Adhocracy 3.63 24.75% 2 1.0 - 5.0 .9242 Market 3.52 24.04% 3 1.0 - 5.0 .9786 Hierarchy 3.49 23.78% 4 1.0 - 5.0 .8440 113

S.W.S.B. Dasanayaka and Guru Datt Sardana Descriptive analyses were carried out for frequency of different types of organizational innovations, innovation levels (Radical/Incremental) and the degree of newness in each category. Organizational innovation categorized as Product, Process, Organizational and Strategy in two groups, Radical and Incremental, by Baker (2002a, 2002b) have been considered. The study has also estimated the overall degree of newness of these innovations by sorting them into three different groups: ‘new to the company’, ‘new to the local industry’ and ‘new to the world’. Ta-ble 4 provides the descriptive analyses conducted. The category ‘New to the company’ was not recorded as it was an apparent and universal response of all the firms. Out of all innovation types, Product innovations recorded the highest average fre-quency of 63.86 for the industry which accounts for 83.16% of total number of innovations. Strategy and Process innovations show the next highest values of 5.93 and 5.33 respectively, while Organizational innovations provide the lowest frequency. The findings are summarized in Table 4. It is interesting to note that the average frequency of product innovations is more than four times of the combined frequencies of the other three subgroups. TABLE 4 Innovation types summary Average Frequency Level of Innovation Degree of newness Innovation Type No. of occurrence Percentage Radical Incre-mental New to local industry New to the world Product 63.86 83.16% 44.36% 55.64% 61.86% 29.84% Process 5.33 6.95% 34.52% 65.48% 49.81% 15.20% Organization 1.67 2.17% 52.05% 47.95% 22.50% 2.50% Strategy 5.93 7.72% 41.25% 58.75% 48.57% 13.52% Total 76.79 100.00% 43.05% 56.95% 45.69% 15.27% As a major single dependent variable, the number of times that all four types of innova-tion were implemented during the three-year period was aggregated to obtain the total frequency of organizational innovation. The assessment indicated that the mean frequency of total organ-izational innovation was 76.79 for the industry in general. In terms of level of innovation, In-cremental innovations represent the higher percentage (56.95%) of total number of organization innovations. This implies that there exists a relatively longer time span for organizational changes and slow execution of such innovations by the Sri Lankan giftware firms. In terms of degree of newness, nearly half of all the innovations are new to the local industry while only 15.27% are entirely new to the world. Product innovations show fairly high percentages in both 114

Organizational Culture and Innovation: An Exploratory Study of Sri Lankan Gift and Decorative-Ware Sector Firms categories. However, there is no hard evidence to authenticate these figures as in many cases companies do not possess patents or licenses for such innovations. ANOVA Analysis and Testing of Hypotheses Testing of the hypotheses was mainly performed through a series of one-way analyses of vari-ance (ANOVA). Hypothesis 1 speculated that there will be a difference in the mean scores assigned to the 4 culture types of clan, hierarchy, adhocracy and market within a sample of giftware manu-facturing firms in Sri Lanka. One-way analysis of variance (ANOVA) of these data produced the results given in Table 5. With a sufficiently large F value of 8.753, analytical data suggest that there is a statistically significant difference between the groups at the 0.05 level. The results show that the average scores for the different culture types of clan, hierar-chy, adhocracy and market are not the same. Therefore, Hypothesis 1 is validated. This finding is in line with the findings of the similar studies carried out by Cameron and Quinn (1999) pre-viously in different country contexts to investigate whether organizations can be classified by their dominant operating values. TABLE 5 One way ANOVA for mean scores assigned to the four culture types Organization Culture Type Sum of Squares df Mean Square F Sig. Between Groups 437.029 3 145.676 8.753 0.000 Within Groups 2729.442 164 16.643 Total 3166.471 167 Hypotheses 2 posted that majority of the Sri Lankan giftware firms tend to have the highest mean score for the culture type Hierarchy. However as shown in Table 2, the Clan cul-ture was reported as the most dominant type among Sri Lankan giftware firm with a majority of 47.6% (n = 20). Additionally, a post-hoc analysis carried out using Turkey’s Honestly Signifi-cant Difference (HSD) reported a statistically significant difference between the mean score of Clan culture with all other types. Therefore Hypothesis 2 is not supported by the data. Hypotheses 3 suggests that Sri Lankan giftware firms tend to focus more on product innovations while Hypothesis 4 signifies that they tend to focus more on incremental innova-tions vis-à-vis other types. As shown in Table 4, Product Innovations and Radical Innovations show clearly the highest mean score. Particularly, Product innovations show four fold higher value as against the combined value of all other types. Therefore, Hypotheses 3 and 4 are vali-dated. 115

S.W.S.B. Dasanayaka and Guru Datt Sardana Through Hypotheses 5 and 6, it was posited that a relationship existed between domi-nant organizational culture type and innovative activities. Hypothesis 5 examined the influence of dominant organizational culture type on the metrics of the firm’s innovativeness, while Hy-pothesis 6 examined the influence of dominant culture type on the frequency of four types of innovations. As shown in Table 6, the average scores of only two metrics namely Resources-Out and Capabilities have shown statistically significant difference among the five dominant culture types (e.g., Clan, Hierarchy, Market, Adhocracy and ‘no dominant’) while other three metrics appeared to have no significant difference. Therefore, Hypothesis 5 is only partially validated. TABLE 6 One way ANOVA analysis for dominant culture types on the metrics of organizational innovativeness Sum of Squares df Mean Square F Sig. Resources In Between Groups 410.604 4 102.651 0.293 .881 Within Groups 12615.528 36 350.431 Total 13026.131 40 Resources out Between Groups 196358.218 4 49089.554 10.655 0.000 Within Groups 170470.854 37 4607.320 Total 366829.071 41 Capabilities Between Groups 30532.531 4 7633.133 3.041 0.029 Within Groups 90374.608 36 2510.406 Total 120907.139 40 Leadership Between Groups 1101.725 4 275.431 0.352 0.841 Within Groups 28138.263 36 781.618 Total 29239.988 40 Process Between Groups 8944.432 4 2236.108 1.803 0.150 Within Groups 44655.088 36 1240.419 Total 53599.520 40 Results of the ANOVA conducted in order to test Hypothesis 6 are shown in the Table 7. The average scores for the four innovation types are clearly not similar for the five dominant culture types. It is noted that the most significant difference is recorded for Product innovations while Process and Strategy innovations too reported acceptably significant differences at the 0.05 level. However, Organization innovations failed to exhibit any significant difference among the dominant culture types. Since Product innovations contribute more than 80% of the total, a clear difference in the total innovations among different culture types could also be 116

Organizational Culture and Innovation: An Exploratory Study of Sri Lankan Gift and Decorative-Ware Sector Firms noted. Therefore Hypothesis 6 is validated, confirming that the dominant culture type has a definite impact on the frequency of innovation types. TABLE 7 One way ANOVA analysis for dominant culture types on Innovation types Sum of Squares df Mean Square F Sig. PROD Between Groups 136609.994 4 34152.499 7.994 0.000 Within Groups 158077.149 37 4272.355 Total 294687.143 41 PROCESS Between Groups 1396.260 4 349.065 4.250 0.006 Within Groups 3039.074 37 82.137 Total 4435.333 41 ORG Between Groups 24.467 4 6.117 1.443 0.239 Within Groups 156.867 37 4.240 Total 181.333 41 STRATEGY Between Groups 1832.740 4 458.185 4.584 0.004 Within Groups 3698.045 37 99.947 Total 5530.786 41 TOTAL Between Groups 196358.218 4 49089.554 10.655 0.000 Within Groups 170470.854 37 4607.320 Total 366829.071 41 Since ANOVA itself does not indicate where differences exist, a descriptive ANOVA procedure was carried out and the results are depicted in Table 8. Organizations having Adho-cracy as the dominant culture type, have recorded the highest frequency for total innovation (190.62) as well as for each innovation type separately. This is followed by the second highest value (137.71) for Market type and comparatively low scores for Clan (25.6) and Hierarchy (37.25). The above results support Hypothesis 7 which suggests that Adhocracy is the single most important culture type to determine innovation performance. 117

S.W.S.B. Dasanayaka and Guru Datt Sardana TABLE 8 Descriptive results of the one way ANOVA analysis for dominant culture types on different Innovation types 95% Confidence Interval for Mean N Mean Std. Deviation Std. Error Lower Bound Upper Bound Product Clan 20 21.2500 16.9018 3.7794 13.3397 29.1603 Adhocracy 8 152.1250 126.0912 44.5800 46.7101 257.5399 Market 7 125.1429 81.4359 30.7799 49.8272 200.4585 Hierarchy 4 28.5000 15.8008 7.9004 3.3573 53.6427 No Dominant 3 16.6667 20.2073 11.6667 -33.5309 66.8643 Total 42 63.8571 84.7791 13.0817 37.4381 90.2762 Process Clan 20 1.6000 1.8468 0.4129 .7357 2.4643 Adhocracy 8 17.0000 19.9213 7.0432 .3454 33.6546 Market 7 3.8571 2.0354 0.7693 1.9747 5.7396 Hierarchy 4 4.7500 5.9090 2.9545 -4.6526 14.1526 No Dominant 3 3.3333 5.7735 3.3333 -11.0088 17.6755 Total 42 5.3333 10.4009 1.6049 2.0922 8.5745 Org. Clan 20 1.2000 1.5079 0.3372 .4943 1.9057 Adhocracy 8 2.5000 2.1381 0.7559 .7125 4.2875 Market 7 2.0000 1.5275 0.5774 .5873 3.4127 Hierarchy 4 0.5000 .5774 0.2887 -.4187 1.4187 No Dominant 3 3.3333 5.7735 3.3333 -11.0088 17.6755 Total 42 1.6667 2.1030 .3245 1.0113 2.3220 Strategy Clan 20 1.5500 2.7621 0.6176 0.2573 2.8427 Adhocracy 8 19.0000 21.4343 7.5782 1.0805 36.9195 Market 7 6.7143 6.5756 2.4853 0.6329 12.7957 Hierarchy 4 3.5000 4.5092 2.2546 -3.6752 10.6752 No Dominant 3 1.6667 2.8868 1.6667 -5.5044 8.8378 Total 42 5.9286 11.6145 1.7922 2.3092 9.5479 TOTAL Clan 20 25.6000 18.7964 4.2030 16.8030 34.3970 Adhocracy 8 190.6250 132.9296 46.9977 79.4931 301.7569 Market 7 137.7143 78.5827 29.7015 65.0374 210.3911 Hierarchy 4 37.2500 14.3149 7.1575 14.4718 60.0282 No Dominant 3 25.0000 34.6410 20.0000 -61.0531 111.0531 Total 42 76.7857 94.5888 14.5954 47.3098 106.2617 118

Organizational Culture and Innovation: An Exploratory Study of Sri Lankan Gift and Decorative-Ware Sector Firms Hypothesis 8 suggests that external positioning is the most important dimensions in the organizational culture to determine the firm’s innovation performance. In the concept of the Competing Values Framework (CVF), external positioning is determined by the operating val-ues of both Adhocracy and Market culture types. According to our results, those two culture types are the reporters of highest values of innovation performance. As such, Hypothesis 8 is also validated. DISCUSSION The findings of the study support the logic provided by the Competing Values Framework (CVF) which suggests that the Adhocracy culture type emphasizes operating values for innovation (Cameron & Quinn, 1999). The mean frequency of total innovation for institutions reporting Market as the dominant culture type is significantly different from the mean frequencies for those reporting dominant culture types of Hierarchy and Clan. The literature on organizational culture type supports this finding, suggesting that the Adhocracy and Market culture types share similar operating values. It could be expected, therefore that the Market culture type might be associated with higher innovation. Since the Clan and Hierarchy culture types share the operat-ing value for internal focus, it is not surprising that these cultures have lower mean scores on innovation than the other culture types. The different ANOVA results obtained for the organiza-tional type of innovations could be attributed to the fact that these are more internally oriented than externally oriented. The participating firms reported higher average frequency of Product innovations, multi-times than the combined value of other innovations. This requires serious attention. De-veloping new products is comparatively easy. But new strategies and processes always carve a niche in the market. In the light of cost versus quality alias value for money formula, product innovations enhance value addition while organization and process innovations encourage pro-ductivity, efficiency and sometimes total rewriting of rules resulting in high quality goods pro-duced at very low costs. Incremental innovations are dominant over radical innovations. It is to be noted that radical innovations are rather important in the present context, as the window of opportunity remains open for very short period of time. In terms of the degree of newness, 45.69% of the total innovations are new to the in-dustry while only 15.27% are new to the whole world. In the context of booming ICT, e-commerce practices and mobility of people, geographical boundaries of global markets are dis-appearing, making the world as one massive single market. So the ‘new to the local market’ no longer has significant value. Being ‘new to the world’ is a critical factor in the winning strategy. Innovation performance of the Sri Lankan gift and decorative-ware manufacturing firms is associated with their dominant organizational culture type. Adhocracy is affiliated with higher innovation performance than the other dominant culture types. A statistically significant difference has been noted between the mean scores on Product, Strategy and Process innova-119

S.W.S.B. Dasanayaka and Guru Datt Sardana tions for each of the dominant culture types. However, the dominant culture type of Adhocracy is associated with higher levels of innovation for all innovation types followed by the type of Market. The prospect of innovation implementation is associated with the characteristics of the Adhocracy and Market culture types, implying that external positioning with the operating val-ues of competition and differentiation is important for a company to perform innovatively. MANAGERIAL IMPLICATION AND FURTHER RESEARCH The present analysis suggests that amongst Sri Lankan gift and decorative-ware firms Clan is the most dominant culture type followed by Adhocracy, Market and Hierarchy respectively. Also in the overall culture profile of the industry, Clan records the highest mean score. This demonstrates the overall inclination of the industry towards people-oriented operating values such as cohesiveness, participation, teamwork, loyalty, commitment, morale, etc. rather than being oriented externally. It is to be noted that contemporary strategic management practices warrants a more proactive approach in order to withstand the current violently competitive busi-ness environment. It further prescribes adapting business practices in the light of one’s internal strengths and weaknesses and opportunities and threats of the external environment. In the present context the opportunity is much short-lived. Invasion of the international market by countries like China with gigantic economy of scale in production has made the battle in low cost markets virtually a losing proposition. As a result, new ideas, new strategies, new processes, new practices are in high demand. Fast changing trends and short product life cycles have pressurized manufacturers for continuous innovation in line with the changes take place in the external environment. Based on the results it could be advocated that Adhocracy and Market are the key cultural dimensions that need to be strengthened within Giftware manufacturing firms in Sri Lanka in order to enhance their innovativeness. A firm’s innovativeness is only one aspect of a business operation. Other culture traits may have different significant roles in determining other facets of the organization. Managers should therefore be extremely careful in keeping the right mix of culture characteristics in order to optimize the overall operation and performance of the firm. Findings of this research may help organizations to identify specific cultural traits which they need to develop for better performance in innovation. Companies which envision to championing the international market may use the findings of this research for constructive changes in their organizational culture. The study provides a valuable set of new notions and tools for future research. There is a need to perform similar studies on other industrial sectors and further validation of these findings. This study is unique and a first attempt in the Sri Lankan context for a systematic study on the gift and decorative-ware industry which essentially lies in the small scale sector. The research examined innovativeness and its possible relationships with organizational culture. It also investigates the dominant cultural dimensions and the most common cultural types avail-120

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Euro Asia Journal of Management Issue 36, Vol. 18, No.2, December 2008, pp.123-132 EMPLOYEE LOYALTY: LESSONS FROM A NON-GAMING MULTINATIONAL COMPANY IN MACAU AU IEONG UN NAM1 and ZENON ARTHUR S. UDANI2 ABSTRACT In a region with a burgeoning gaming industry, retaining employees in non-gaming companies could be a nightmare. Losing a few employees to high-paying casinos may be tolerable. But losing an entire service department could spell bankruptcy for a company. Amid the ongoing commotion in the employment scene in Macau, some employees have found an oasis in their company and have decided to stay on. This study looks into the drivers of employee loyalty in a multinational company in Macau. From this case, the findings show that job security is a major factor in enhancing employee loyalty. When jobs are stable and secure, employees think hard before considering another job which promises a better pay, but the risk of losing it is higher. Affiliation is also an important emotional driver in keeping employees loyal to the company. Having a good superior and working in a harmonious workplace are influential factors in an employee’s decision to remain in the company. Lastly, attractive tangible rewards are a basic requirement in retaining loyal employees. 1 Faculty of Business Administration, University of Macau, Taipa, Macau, China. 2 Faculty of Business Administration, University of Macau, Taipa, Macau, China. Email: zudani@umac.mo

Au Ieong Un Nam and Zenon Arthur S. Udani INTRODUCTION Macau is an open city with an economy anchored on the tourism and gaming industries. Various service businesses serve as the backbone which propel overall economic development in the region. Its phenomenal economic growth over the past few years has been attributed to the hefty investments poured into the gaming and tourism industries, robust increase in gaming revenues and visitor arrivals, and huge infrastructure projects in the region. The boom in the gaming and tourism sectors has caused a decline in unemployment rate, a surge in median employment earnings, and a very volatile labor market. Since the liberalization of Macau’s gaming industry in 2002 and the operation of foreign-owned casinos in 2004, many companies have been adversely affected by the movement of employees to better-paying jobs. Job switching has become a habit of a number of employees causing a setback for businesses which cannot match the salary offered by recruiting companies. As indicated in the employment survey of 2005 conducted by the Macau Statistical Bureau (2005), out of 248,006 labor supply, 17,200 people changed their jobs, or 6.9% of the working population. The four key reasons for job change were: (a) dissatisfaction with the remuneration conditions/ better conditions of current jobs, (b) extinction of establishment/ lay-off/ end of temporary job/ end of contract, (c) incompatibility with working hours/dissatisfaction with the work environment and (d) dislike the nature of job/interpersonal issues. In order to grow, non-gaming companies have to improve their ability to attract and hire new staff. Moreover, they have to devise ways to retain their employees and look into the reasons behind the loyalty of their present employees. LITERATURE REVIEW Employee loyalty is a popular research topic (Allen, 1989; Cole, 2000; Drizin, 2003; Futurist, 2000) because it is seen to be linked to employee productivity (Futurist, 2000). Employee loyalty is reflected on the number of years employees have served the same company (Finnie & Randall, 2002). Staying with the company for a longer period indicates a form of loyalty. Moreover, employee loyalty is highly related to the commitment of employees (Cappelli, 1992; Leininger, 2004). Employee commitment affects one’s decision to stay or leave the company, influencing one’s loyalty. When loyal employees are committed, they exhibit behaviors that contribute to company success (Walker Information Loyalty Report, 2005). Loyal employees may have skills which are specific to the company and difficult to replace (Cappelli, 1992). Thus, it may be worthwhile tapping the talents of older employees than banking solely on new flighty recruits. This, however, 124

Employee Loyalty: Lessons from a Non-Gaming Multinational Company in Macau does not preclude the company from hiring people who bring in bright ideas, requisite skills and experience, and the essential values and attitudes for the workplace. Employers gain a number of benefits from nurturing employee loyalty. Cost savings result from minimal turnover and recruiting expenses (Drizin, 2003). Loyal employees guarantee company growth, product quality and an increase the number of loyal customers. They work harder, and they strive to meet and exceed customer expectations (Drizin, 2003). Their sense of responsibility toward the company and its customers improves with time. Not all employers are enthusiastic about employee loyalty. Some employers suppose loyalty to have died (Samuelson, 1999). Loyalty does not mean much to employees who come to work for pay only (Stokely, 1997). An employee may seem committed but could actually be giving just enough in his work. Woolard (2005) and Recruiters World Special Report (2004) agree that in this age of viable economy and plenty of career opportunities, even though employees feel positive about their present jobs and their employers, they may still be tempted to scout around for better job offers. Walker Information Loyalty Report (2005) cites five factors influencing employee loyalty: the company’s care and concern for employees, fairness experienced at work, daily satisfaction on the job, sense of accomplishment among employees, and compensation and benefits. Aon Corporation (2001-2006) carried out several researches on employee loyalty for their clients and eventually came up with a 5-level Performance Pyramid™ to elicit commitment among people. The 5-level Performance Pyramid™ suggests that employers should try to meet basic needs first before moving up to higher-level needs. The five levels are: 1. Safety and Security – a work environment which is safe and where jobs are secure 2. Rewards – compensation and benefits given to employees in recognition of their hard work. Such rewards should match or even exceed the market standard. 3. Affiliation – a relationship with the company which includes a keen sense of belonging, and an affiliation with people in the company which motivates employees to feel committed and devoted to their work. 4. Growth – a chance to learn and improve knowledge and skills. This refers to employee’s advancement in his career either within the same company or elsewhere. 5. Work/Life Harmony – a company’s policies and programs which support employees’ total self-development and a healthy balance between work and family life. Acumen’s Employee Relationship Index (ERI) (Acumen Research Group Inc., 2006) recognized that an employee’s loyalty and satisfaction are based on pragmatic rational drivers (e.g. pay, benefits, work process, company policies) and intangible emotional drivers (e.g. culture, involvement with decisions, feeling valued). Comparing ERI index and the 5-level Performance Pyramid™, we noted that levels 1 and 2 of the Pyramid’s Safety/Security and Rewards are similar to those of ERI’s pragmatic rational drivers. Whereas, affiliation, growth and work/life harmony of the Pyramid™’s levels 3 to 5 correspond to the intangible emotional drivers of the ERI. Job security is a major and fundamental factor in the 5-level Performance Pyramid™. A 125

Au Ieong Un Nam and Zenon Arthur S. Udani number of factors affect one’s perception on job security. The company itself must be financially stable with very strong prospects for growth and expansion. Employees should also be persistent in developing and enhancing their knowledge, skills and attitudes in order to keep their jobs. And owners and employees must collaborate productively and harmoniously to attain and surpass corporate goals and objectives. Tangible rewards or the company’s compensation package affects employee loyalty. Paying employees well minimizes job switching and retains needed talent (Battey, 2000; Cappelli, 2000; Clarke, 2001). Moreover, a competitive package can effectively motivate employees and improve their work performance (Hincewicz, 1998). Employees should have reinforcing rewards because employee compensation directly reflects their significant contributions to service, quality and corporate profit. Attractive tangible rewards are essential in enhancing the overall performance of employees. Loyal employees also need intangible rewards. A strong affiliation with the boss keeps employees from leaving the company (Wessel, 2003). A superior’s influence on employees can affect turnover (Battey, 2000). As such, an employee’s decision to stay or leave a company is influenced by the boss. Employees quit a boss, not a company necessarily. Open and honest communication between managers and employees is also an important indicator that builds affiliation (Drizin, 2003). Frederick Herzberg, in his motivation-hygiene theory, cites supervision and relationship with the boss among factors external to the employee which can cause dissatisfaction if not dealt with properly (NetMBA, 2008). In addition, Katz-Stone (1999) mentioned that if corporations have shown little loyalty to their workers, it is hard for them to ask for loyalty in return. Surveys done by the Management-Issues (2002) and Hudson Institute (2000) agreed that employees are generally more confident and positive toward their superiors than their organizations. Employees perceive that managers are responsible for creating a trusting environment which enhances their commitment to work and stay in the company. Experiencing personal growth and development in the company also attract people (Management-Issues, 2002). When employees are given training and development, they see a better future for themselves and are willing to stay in that company (Battey, 2000; Drizin, 2003; Leininger, 2004). Opportunities perceived by employees in the company give them more challenges, motivation and possibilities for a long term career and professional advancement (Katz-Stone, 1999). When there is a lack of growth or new things to learn in the workplace, employees may choose to leave (Clarke, 2001). A challenging and purposeful work, and a learning environment where employees can acquire new knowledge and skills help retain staff and keep them loyal to their employers (Cole, 2000; Richards, 2002). Mulling (1998) stated that employers can successfully retain employees by creating a learning environment that gives employees career development and advancement within the company. Employers need to address seriously the training and development needs of their staff. Moreover, training should be viewed as an investment instead of an outright expense (Katz-Stone, 1999). Well-equipped employees contribute to the success of the company. And they also ensure the development of a learning organization. Cole (2000) stated that while benefits could attract a number of job applicants, they are 126

Employee Loyalty: Lessons from a Non-Gaming Multinational Company in Macau not prepared to show their real loyalty unless they feel a sense of pride in their work or in their organization. David Stum (Cole, 2000), president of the Loyalty Institute, highly recommended that employers should instill pride and a sense of spirit in the organization, increasing their commitment. An employee’s tendency to stay with the same employer and to recommend the company to potential employees become much higher than it is expected. Employees are also ready to sacrifice for the good of the company. Moreover, a more meaningful work perks up commitment (Leininger, 2004). ‘Being happy’ is one of the emotional elements that makes employees stay in the same company, and also a predictor for employee loyalty (Market Metrix, 2004). RESEARCH OBJECTIVES AND METHODOLOGY In such a tense labor market like in Macau with abundant job opportunities, employees, especially residents, are easily persuaded to seek jobs with attractive compensation packages or better prospects. However, there are still employees who choose to stay with their company year after year. Noting the various reasons that elicit employee loyalty, it is worth exploring the factors that contribute to employee loyalty. We adopted the 5-level Performance Pyramid™ and ERI index as theoretical framework for studying loyalty. Since this research is descriptive rather than predictive, as well as an inductive type of research, qualitative method is employed. This is useful in drawing insights and generating theory from this case study (Eisenhardt, 1989). The purpose of this case study is to find out the various drivers of employee loyalty in a non-gaming multinational company (MNC) located in Macau. We focused on an 11-year-old multinational company in Macau’s service industry which has more than 600 employees. The company is prominent in the industry given the nature of its service outside the much bigger gaming industry. The company’s culture and climate are generally harmonious. And team spirit is evident among the staff members. The company promotes an initiative of the head office which is aimed at enhancing staff commitment and loyalty. While a good number of employees hired between 2003 and 2006 had left the company for jobs in the casinos, those whose service were from eight years onwards have decided to stay on. Knowing the employee loyalty drivers, given their implications on retention strategies, will be useful for multinational companies in the region. The sample consisted of 30 employees with eight years of service and above. Their positions included lower operational level (OP), mid-level operational posts (MM), and senior management posts (SM). They were of different nationalities, either holding Macau ID cards or work permits, but mostly local Macau residents. Face-to-face interviews using semi-structured questions were employed to collect data from the employees. Interview questions were prepared in both English and Chinese. Before conducting the interviews among the target respondents, a pre-test involving four employees with eight years of service in the company was performed to ensure the validity of the interview 127

Au Ieong Un Nam and Zenon Arthur S. Udani questions. Amendments included an adjustment in the flow of the questions, and a few more questions added as suggested by the interviewees. Each interview averaged around 45 minutes. Its main focus was on the interviewee’s perception on employee loyalty and the key factors that have kept them with the same company for at least eight years. The 14 questions covered issues on job security and tangible rewards as pragmatic rational drivers, and affiliation, personal growth and work/life harmony as intangible emotional drivers. In order to avoid discomfort among the respondents, recording devices were not used during interviews while only detailed notes were taken and later composed into transcripts for further analyses. Observation was also used to corroborate research data. The interviewer, who was a staff member of the company, had a good relationship with most of the target employees. Even if she did not know all the respondents in person, they were willing to help. The interviewer also told the interviewees that the study was solely for academic purposes, and personal information derived from the interviews will not be divulged to the management. FINDINGS AND DISCUSSION Most of the respondents equated a loyal employee with someone who is responsible in doing his best for the company and supporting its objectives. He is a person who shows a strong sense of belonging indicated by his length of service with the company. They think that being attached to the company for a long period of time nurtures loyalty. The quotes below reflect these ideas: MM: ‘Employees stay with the same employer for a long time because they build a sense of belonging and loyalty as time goes by. They could have left if they didn’t want to cultivate their relationship with the company.’ OP: ‘It is very important for employees to support their company. They should be working for the same goal. This makes the company successful and in turn it will be good for us too.’ The interviewees agreed that the level of loyalty among employees in their company is above average. They believe that most of their colleagues are loyal and committed to the company. The senior managers, in particular, thought highly about the level of employee loyalty in the company. The comments below express this: SM: ‘Maybe they have different reasons for their loyalty; I still see a high level of loyalty in this company. Obviously we need to know what these reasons are so that we can work on them.’ MM: ‘You can see from their working attitude whether they are loyal or not. Not everyone here is loyal, but most of them are.’ Respondents thought that the loyalty of employees to the company is principally due to job security, affiliation and the tangible rewards that they receive. In a company where firing is perhaps unheard of, people felt secure with their jobs. Employee affiliation was particularly strong 128

Employee Loyalty: Lessons from a Non-Gaming Multinational Company in Macau towards the department or the immediate boss. Employees may not readily identify with their company, but they are happy working for a good superior and a harmonious department. The comments below are indicative of these observations: SM: ‘Team spirit is shown in every department. I have been working in many companies all over the world. This is the company that I see the highest coordination among staff.’ MM: ‘It is not hard to see the high level of job security in this company. Most employees are staying in a highly protected and a comfort zone.’ More than half of the interviewees considered their tangible rewards comparable to what employees in other companies receive. They thought their compensation package was better than other non-gaming companies. This view, however, was not shared by the lower level employees who said that their compensation package was not competitive enough. They hoped for a higher salary level commensurate to their work experience and length of stay in the company. Moreover, operations staff also felt trapped in the company given their circumstances. The feedback below reflects the concerns of the latter: SM: ‘It is hard to compare (compensation packages) with casinos. They need to attract people to leave their current positions and join them; the most powerful tool is attractive salary. We could only offer our employees other benefits like trainings, education allowance, etc., to compensate them for the relatively low salary.’ OP: ‘I am already aged 40 plus. I don’t want to start my career all over again or to gain trust and affiliation with others in another company. And I don’t have to be scared of being fired. Here is a place where I have a stable job and develop my network of friends.’ OP: ‘Salary level is not competitive but the company offers a high level of job security that keeps people.’ In general, the respondents thought of the company as a stable enterprise where layoffs have been extremely few and salary delays are very rare. Most of them felt that their jobs were very secure. Asked about what satisfied them most in the company, the interviewees mentioned tangible rewards, job security and stable salary, personal advancement and professionalism, and affiliation. Operations level employees were relatively satisfied with their tangible rewards and job security, which are pragmatic rational drivers. They realize, however, that the company’s compensation package is not as attractive as those in the gaming industry. Middle level employees and senior managers, on the other hand, found satisfaction in personal advancement and professionalism exhibited in the company. Here are some relevant quotes from the employees: SM: ‘I have chosen [this field] as my lifetime profession. I am grateful to what is given here.’ SM: ‘The biggest attraction of this company is job security and stability. I don’t want my staff to worry about their job.’ MM: ‘I was promoted 2 years ago. I know my ability; I am 36 and graduated from junior high school, I am afraid that I cannot get similar position and salary elsewhere with this qualification.’ MM: ‘We are lucky that there was no layoff or salary cut during hard times like outbreak of SARS in 2003. However, I am not sure whether this level of security can sustain if there will be other crises. 129

Au Ieong Un Nam and Zenon Arthur S. Udani OP: ‘I don’t want to worry about my job too much; I want stability. If my job or salary is not secured, what should I rely on? I am the breadwinner; I need to raise my children!’ OP: ‘I am not afraid of being fired. I don’t steal, I don’t cheat; even the staff who damaged the [machine] when operating an equipment was not fired.’ A great majority of the respondents rated their affiliation towards their own department, more than the company, as excellent. This shows that their attachment or loyalty to the company has its roots anchored on their immediate work environment with its given culture and climate. The following comments clearly reflect this point: SM: ‘I am not confident enough to say there is a high level of affiliation in the whole company but I am sure that team spirit within my department is very high.’ MM: ‘Everyone works together like family members. We work as one team.’ OP: ‘For sure it is better to be friendly and build affiliation with your peers at work provided that my salary and job are secured.’ Most of the interviewees, however, were not optimistic about careers prospects and growth in the company. They saw obstacles such as their personal qualifications, limitations of company expansion, their age, and advancement as a question of luck. Here are some comments explaining these observations: SM: ‘Next year is my 60th birthday. Managers in the mother company are only 35 to 40 something at age. They think I am too old.’ MM: ‘Frankly, I think I am lucky to be promoted because I know my qualifications. I also know that this is my limit and there is little chance to go further.’ OP: ‘I don’t care much whether I get a promotion. I only care for my yearly salary increase. This is more tangible.’ Operations personnel were also concerned about equitable salary levels across departments while middle level employees and senior officers were perceived by some to be engaged in office politics. Despite some dissatisfaction with certain matters related to their job and the company, most of the interviewees saw themselves retiring in the same company. They considered the company as part of their comfort zone or their present job as their lifetime profession. Those that entertained the possibility of switching jobs in the future thought that tangible rewards and affiliation were factors to deal with. The interviewees suggested that the company should retain talented staff and build employee loyalty. They recommended a much better compensation package to make it more competitive, building trust and commitment to enhance affiliation, openness in communication, continuous training, and significant improvements in the workplace. CONCLUSION AND IMPLICATIONS Employee loyalty is an essential element of a successful company. Enhancing it helps to retain staff, reduce costs, and improve the productivity and profitability of the company. The findings of 130

Employee Loyalty: Lessons from a Non-Gaming Multinational Company in Macau this study show that job security is a major factor in enhancing employee loyalty. When jobs are stable and secure, employees think hard before considering another job which may promise a better pay but the risk of losing it is higher. Secure jobs are especially attractive for people who are eyeing a long-term career or employees who have very slim chances for another career shift. Affiliation is also an important emotional driver in keeping employees loyal to the company. Having a good superior and working in a harmonious workplace are influential factors in the employees’ decision to remain in the company. The excellent demeanor and social skills of a leader give his subordinates a very good reason for remaining in the company. Good tangible rewards are also a fundamental requirement in retaining loyal employees. They satisfy both the basic needs of employees and their desire for recognition. On the other hand, growth and work/ life harmony are not seen as major concerns of the interviewees in this study, although they are recognized as valuable elements in the workplace. Job security in the company is highly recognized by the respondents. Some employees prefer staying at this comfort zone until retirement because of job stability and the reluctance to trade a punctual salary, stable job and good peer relationship for an uncertain working environment. Tangible rewards keep people in the company. But the growing pressure coming from the gaming industry signals the need to review the current compensation package of the company. An attractive compensation package, which is benchmarked regularly with what is offered by other companies, gives employees a stronger reason for remaining in the organization. Affiliation to the department or team also promotes employee loyalty. Employees value friendships within departments which, in turn, strengthen their loyalty and attachment to the company. The affiliation towards the company needs to be nurtured among employees in order to ensure their decision to stay. In general, people would prefer a peaceful and harmonious work environment where they can attain both personal and professional development. Overall, pragmatic rational drivers are the most important reasons for being loyal to the company. While the intangible emotional driver – affiliation – is perceived as very valuable to an employee’s decision to remain in the company. Findings of this study are a useful reminder for non-gaming multinational companies in Macau and similar regions to constantly review their recruitment, retention, compensation, and career development strategies. In-depth studies of employee attitudes towards loyalty and commitment to the organization are also needed. Insights from such studies will be useful in nurturing a corporate culture that enhances the sense of belonging and loyalty to the company. Such loyalty found among older employees should be harnessed and rewarded in order to retain them. Ultimately, a company’s drive for performance and profitability must be matched by a more palpable concern for employees’ tangible and intangible needs. 131

Au Ieong Un Nam and Zenon Arthur S. Udani 132 REFERENCES Acumen Research Group Inc. (2006). Employee Loyalty. London. www.acumen research.com Allen, G.. (1989). Employee loyalty: Dead or just different? International Association of Business Communicators. Available at: http://findarticles.com/p/articles/mi_m4422/is_n9_v6/ai_7734732/pg_2?tag=artBody;col1 Aon Corporation (2001-2006). 5-level performance pyramid. Available at: http://www.aon.com/hc_consulting/loyalty_institute/at_work/research /performance.jsp Battey, J. (2000). Retaining your most valuable assets. InfoWorld. Available at: http://www.infoworld.com/articles/ca/xml/00/07/24/000724caretain.html Cappelli, P. (1992). Examining managerial displacement. Academy of Management Journal, 35, (1), 203-217. Cappelli, P. (2000). Managing without commitment. Organizational Dynamics, 28, (4), 11-24. Clarke, S.R. (2001). Employee retention strategy varies with the employee. American City Business Journals. Available at: http://www.bizjournals.com/washington/stories/2001/03/12/focus12.html Cole, C.L. (2000). Building Loyalty – motivating and keeping employees. ACC Communications Inc. Available at: http://findarticles.com/p/articles/mi_m0FXS/is_/ai_64694300 Drizin, M. (2003). The ROI of employee loyalty. The LifeCare Connection, Work/ Life Trends, 1, (27). Available at: http://www.lifecare.com/connection/1q03_7.html Eisenhardt, K.M. (1989). Building theories from case study research. Academy of Management Review, 14, (4), 532-550. Finnie, W. & Randall, R. (2002). Loyalty as a philosophy and strategy: An interview with Frederick F. Reichheld. Strategy & Leadership, 30, (2), 25-31. Futurist (2000). Loyalty fuels increases in productivity. The Futurist, 34, (3), 15. Hincewicz, M. (1998). Look beyond salaries to keep employees on job. American City Business Journals. Available at: http://www.bizjournals.com/washington/stories/1998/07/06/focus5.html Hudson Institute (2000). Employee Loyalty Survey. Work & Family Connection Inc. http://www.workfamily.com/ Katz-Stone, A. (1999). True blue HP professionals say no, but companies claim employee loyalty still counts. American City Business Journals. Available at: http://www.bizjournals.com/washington/stories/1999/04/26/focus1.html Leininger, J. (2004). The key to retention: Committed employees. China Business Review, 31, (1), 16-39. Macau Statistical Bureau. (2005). Employment Survey 2005. Macau: Author. Market Metrix. (2004). Employee’s sense of stature strong driver of retention, loyalty. Hotel & Motel Management. Available at: http://www.hotelmotel.com/hotelmotel/article/articleDetail.jsp?id=106706 Management-Issues (2002). Satisfied with the job, but not with the management. Management-Issues. Available at: http://www.management-issues.com/2006/8/24/research/ satisfied-with-the-job-but-not-with-the-management.asp Mulling, E. (1998). Give employees a challenge and a reason to stay. American City Business Journals. Available at: http://www.bizjournals.com/washington/stories/1998/08/24/smallb2.html NetMBA (2008). Herzberg's motivation-hygiene theory. Available at url: http://www.netmba.com/mgmt/ob/motivation/herzberg/ Recruiters World Special Reports. (2004). Employee loyalty: Earned not bought. Available at: http://www.recruitersworld.com/articles/rw/special/loyalty.asp Richards, L.J. (2002). Workplace loyalty: It’s time to let go of old concepts. American City Business Journals. Available at: http://www.bizjournals.com/washington/stories/2002/07/29/focus6.html Samuelson, R.J. (1999). We aren’t all free agents. Newsweek, 133, (24), 47. Stokely, J. (1997). Happy employees want six questions answered. American City Business Journals. Available at: http://washington.bizjournals.com/washington/stories/1997/04/07/focus4.html Walker Information Loyalty Report. (2005). Loyalty in the workplace. Available at: http://www.walkerinformation.com/walker-loyalty-reports.asp Wessel (2003). Companies, bottom lines benefit from worker loyalty. Knight Ridder Tribune Business News, 1-4. Woolard, C. (2005). Employee loyalty increases slightly. Walker Information. Available at: http://www.walkerinfo.com/

Euro Asia Journal of Management Issue 36, Vol. 18, No.2, December 2008, pp.133-152 THE ETHICS OF TAX EVASION: A COMPARATIVE STUDY OF GUANGZHOU (SOUTHERN CHINA) AND MACAU OPINIONS1 ROBERT W. MCGEE2 and CARLOS NORONHA3 ABSTRACT The ethics of tax evasion has been discussed sporadically in the theological and philosophical literature for at least 500 years. Martin Crowe wrote a doctoral thesis that reviewed much of that literature in 1944. The debate revolved around about 15 issues. Over the centuries, three main views evolved on the topic. But the business ethics literature has paid scant attention to this issue, perhaps because of the belief that tax evasion is always unethical. This paper reports the results of a survey of students in Guangzhou, a city in Southern China, and Macau. The arguments that have been made over the centuries to justify tax evasion were ranked to determine which arguments are strongest and which are weakest. Male scores and female scores were not significantly different. However, Guangzhou and Macau scores were significantly different in five of 15 cases. 1 This paper is an extension of McGee, R., Noronha, C. & Tyler, M. (2007). The ethics of tax evasion: A survey of Macau opinion. Euro Asia Journal of Management, 17, (2), 123-150. 2 Andreas School of Management, Barry University, 11300 NE 2nd Avenue, Miami Shores, FL 33161-6695. Email: rmcgee@mail.barry.edu 3 Faculty of Business Administration, University of Macau, Taipa, Macau, P.R. China. Email: fbacn@umac.mo

Robert W. McGee and Carlos Noronha INTRODUCTION The vast majority of articles that have been written about tax evasion have been written from the perspective of public finance. They discuss technical aspects of tax evasion and the primary and secondary effects that tax evasion has on an economy. In many cases there is also a discussion about how to prevent or minimize tax evasion. Very few articles discuss ethical aspects of tax evasion. Thus, there is a need for further research, which the present study is intended to partially address. A survey instrument was developed based on the issues that have been discussed and the arguments that have been made in the tax evasion ethics literature over the last 500 years. Similar survey instruments were used to test sample populations in China (McGee & An, 2006; McGee & Guo, 2006), Hong Kong (McGee & Ho, 2006), Macau (McGee, Noronha & Tyler, 2006), Taiwan (McGee & Andres, 2007), Romania (McGee 2005b) and Guatemala (McGee & Lingle 2005). The survey was also distributed to professors of international business (McGee 2005a). The present study reports on the findings of a survey that was distributed to students at universities in Guangzhou, a city in Southern China, and Macau. The survey instrument consisted of 15 statements that reflect the three views on the ethics of tax evasion that have emerged over the centuries. Participants were asked to rate the extent of their agreement with each statement by placing a number from 1 to 7 in the space provided to indicate the extent of agreement with each statement. Male and female scores were also compared to determine whether the female responses were significantly different from the male responses. Comparisons were made between the Guangzhou and Macau scores to determine if any significant differences in opinion existed. REVIEW OF THE LITERATURE Although many studies have been done on tax compliance, very few have examined compliance, or rather noncompliance, primarily from the perspective of ethics. Most studies on tax evasion look at the issue from a public finance or economics perspective, although ethical issues may be mentioned briefly, in passing. The most comprehensive twentieth century work on the ethics of tax evasion was a doctoral thesis written by Martin Crowe (1944), titled The Moral Obligation of Paying Just Taxes. This thesis reviewed the theological and philosophical debate that had been going on, mostly within the Catholic Church, over the previous 500 years. Some of the debate took place in the Latin language. Crowe introduced this debate to an English language readership. A more recent doctoral dissertation on the topic was written by Torgler (2003), who discussed tax evasion from the perspective of public finance but also touched on some psychological and philosophical aspects of the issue. 134

The Ethics of Tax Evasion: A Comparative Study of Guangzhou (Southern China) and Macau Opinions Walter Block (1989; 1993) sought in vain to find a justification for taxation in the public finance literature. He examined a number of textbooks but found all justifications for taxation to be inadequate. Leiker (1998) speculates on how Rousseau would have viewed the ethics of tax evasion. Alfonso Morales (1998) examined the views of Mexican immigrant street vendors and found that their loyalty to their families exceeded their loyalty to the government. McGraw and Scholz (1991) examined tax compliance from the perspective of self-interest. Armstrong and Robison (1998) discuss tax evasion and tax avoidance from the perspective of an accounting practitioner and used Rawls’ concept of two kinds of rules to analyze how accountants view the issue. Oliva (1998) looked at the issue from the perspective of a tax practitioner and commented on the schism that exists between a tax practitioner’s ethical and legal obligations. There have been a few studies that focus on tax evasion in a particular country. Ethics are sometimes discussed but, more often than not, the focus of the discussion is on government corruption and the reasons why the citizenry does not feel any moral duty to pay taxes to such a government. Ballas and Tsoukas (1998) discuss the situation in Greece. Smatrakalev (1998) discusses the Bulgarian case. Vaguine (1998) discusses Russia, as do Preobragenskaya and McGee (2004) to a lesser extent. A study of tax evasion in Armenia (McGee, 1999b) found the two main reasons for evasion to be the lack of a mechanism in place to collect taxes and the widespread opinion that the government does not deserve a portion of a worker’s income. A number of articles have been written from various religious perspectives. Cohn (1998) and Tamari (1998) discuss the Jewish literature on tax evasion and on ethics in general. Much of this literature is in Hebrew or a language other than English. McGee (1999a) comments on these two articles from a secular perspective. A few articles have been written on the ethics of tax evasion from various Christian viewpoints. Gronbacher (1998) addresses the issue from the perspectives of Catholic social thought and classical liberalism. Schansberg (1998) looks at the Biblical literature for guidance. Pennock (1998) discusses just war theory in connection with the moral obligation to pay just taxes, and not to pay unjust or immoral taxes. Smith and Kimball (1998) provide a Mormon perspective. McGee (1998c; 1999a) comments on the various Christian views from a secular perspective. The Christian Bible discusses tax evasion and the duty of the citizenry to support the government in several places. Schansberg (1998) and McGee (1994; 1998a) discuss the biblical literature on this point. When Jesus is asked whether people should pay taxes to Caesar, Jesus replied that we should give to Caesar the things that are Caesar’s and give God the things that are God’s [Matthew 22:17, 21]. But Jesus did not elaborate on the point. He did not say that we are only obligated to give government 10 percent or 5 percent or any particular percent of our income. There are passages in the Bible that seemingly take an absolutist position. Romans 13, 1-2 supports the Divine Right of Kings, which basically holds that whoever is in charge of government is there with God’s approval and anyone who disputes that fact or who fails to obey is subject to damnation. It is a sin against God to break any law. This interpretation is rather 135

Robert W. McGee and Carlos Noronha strong, of course, and not many people have such a view these days, but some individuals still do believe it. A few other religious views are also addressed in the literature. Murtuza and Ghazanfar (1998) discuss the ethics of tax evasion from the Muslim perspective. McGee (1998b, 1999a) comments on their article and also discusses the ethics of tax evasion under Islam citing Islamic business ethics literature (McGee, 1997). DeMoville (1998) discusses the Baha’i perspective and cites the relevant literature to buttress his arguments. McGee (1999a) commented on the DeMoville article. Many studies have been conducted that compare ethical attitudes of men and women. Some studies found that women are more ethical than men (Akaah, 1989; Boyd, 1981; Hoffman, 1998) while other studies found that there is not a significant difference between the ethics of men and women (Browning & Zabriskie, 1983; Harris, 1990; Nyaw & Ng, 1994). Some studies found that men are more ethical than women (Barnett & Karson, 1987; Weeks et al., 1999). A survey of international business professors found that some arguments justifying tax evasion are stronger than others but none of the arguments were very strong, since most of the professors who responded to the survey were strongly against tax evasion. This survey also found that women were significantly more opposed to tax evasion than were the men (McGee, 2005a). A survey of business and law students in Guatemala reached a similar result. However, the law students felt less strongly about condemning tax evasion on ethical grounds than did the business students and female students were more opposed to tax evasion than were male students (McGee & Lingle, 2005). A survey of Romanian business students (McGee, 2005b) found that respondents often felt tax evasion was ethically justified. Males were slightly more opposed to tax evasion than were women. A survey of German business students also found that respondents were strongly against tax evasion, although some arguments were stronger than others. A comparison of male to female responses was inconclusive, in the sense that it could not be clearly determined which group of respondents was more opposed to tax evasion (McGee, Nickerson & Fees, 2005). Several studies were also conducted of various Chinese populations. McGee and An (2006) surveyed business and economics students in Beijing and found no significant difference between male and female scores. McGee and Guo (2006) surveyed law, business and philosophy students in Hubei. They found that females were slightly more opposed to tax evasion than were males and law students were significantly more opposed to tax evasion than were the other two groups. McGee and Ho (2006) surveyed accounting, business and economics students in Hong Kong. They found no significant difference between male and female opinions on tax evasion, but accounting students were significantly more opposed to tax evasion than were business and economics students. McGee et al. (2006) surveyed business and economics students in Macau. They found males to me significantly more opposed to tax evasion in three of 15 cases. McGee and Andres (2007) surveyed students in Taiwan and found that females were significantly more opposed to tax evasion in six of 15 cases. Over the centuries, three basic views have emerged on the ethics of tax evasion. View One takes the position that tax evasion is always, or almost always unethical. There are basically three underlying rationales for this belief. One reason is the belief that individuals have a duty to 136

The Ethics of Tax Evasion: A Comparative Study of Guangzhou (Southern China) and Macau Opinions the state to pay whatever taxes the state demands (Cohn, 1998; DeMoville, 1998; Smith & Kimball, 1998; Tamari, 1998). This view is especially prevalent in democracies, where there is a strong belief that individuals should conform to majority rule. The second rationale for an ethical duty to pay taxes is because the individual has a duty to other members of the community (Crowe, 1944; Cohn, 1998; Tamari, 1998). This view holds that individuals should not be freeloaders by taking advantage of the services the state provides while not contributing to the payment of those services. A corollary of this belief is the view that if tax dodgers do not pay their fair share, then law-abiding taxpayers must pay more than their fair share. The third rationale is that we owe a duty to God to pay taxes, or, stated differently, God has commanded us to pay our taxes (Cohn, 1998; DeMoville, 1998; Smith & Kimball, 1998; Tamari, 1998). This view holds no water among atheists, of course, but the view is strongly held in some religious circles. View Two might be labeled the anarchist view. This view holds that there is never any duty to pay taxes because the state is illegitimate, a mere thief that has no moral authority to take anything from anyone (Block, 1989; 1993). The state is no more than a mafia that, under democracy, has its leaders chosen by the people. The anarchist literature does not address the ethics of tax evasion directly but rather discusses the relationship of the individual to the state. The issue of tax evasion is merely one aspect of that relationship (Spooner, 1870). There is no such thing as a social contract according to this position. Where there is no explicit agreement to pay taxes there also is no duty. All taxation necessarily involves the taking of property by force or the threat of force, without the owner’s permission. Thus, it meets the definition of theft. Stated as an equation, TAXATION = THEFT. A corollary equation is that FAIR SHARE = 0. View Three holds that tax evasion may be ethical under some circumstances and unethical under other circumstances. This view is the prevalent view, both in the literature (Ballas & Tsoukas, 1998; Crowe, 1944; Gronbacher, 1998; McGee, 1998a, 1999b; and according to the results of some of the surveys (McGee, 2005a&b; McGee & Lingle, 2005). THE PRESENT STUDY A survey was constructed and distributed to university students in Guangzhou, a city in Southern China, and Macau. The survey consisted of 15 statements that were based on the Crowe (1944) study. Using a seven-point Likert scale, respondents were asked to place the appropriate number in the space provided to indicate the extent of their agreement or disagreement with each statement. Arguments were ranked from strongest to weakest for each group. Male and female scores were compared to determine if opinions toward tax evasion differ by gender. Statistical data for the study is given below. 137

Robert W. McGee and Carlos Noronha Guangzhou: Questionnaire version: Translated into simplified Chinese characters from the Chinese version used for the Macau sample. Small changes were made in wordings to accommodate differences in mainland and Macau Chinese usage. Total questionnaires administered: 200 Total useable questionnaires returned: 186 Respondents: Undergraduate students of Zhongshan University, China Macau: Questionnaire version: Translated into Chinese characters from the original English version. Total questionnaires administered: 200 Total useable questionnaires returned: 187 Respondents: University of Macau undergraduate and graduate students Table 1 shows that the 15 items included in the survey were highly consistent. TABLE 1 Reliability Analysis Macau (N = 181) Guangzhou (N = 172) Macau & Guangzhou (N = 355) Cronbach’s alpha 0.896 0.889 0.891 In all three instances, the 15 items in the questionnaire indicated high consistency. The scale is highly reliable. Table 2 shows student specialization for each sample. TABLE 2 Student Specialization Guangzhou Macau Business/economics 14 187 Philosophy 1 0 Law 1 0 Social Science 82 0 Others 75 0 Unknown 13 0 138

The Ethics of Tax Evasion: A Comparative Study of Guangzhou (Southern China) and Macau Opinions Table 3 shows the statistics on student gender. TABLE 3 Student Gender Guangzhou Macau Male 110 70 Female 67 117 Unknown 9 0 Table 4 shows the mean scores for each sample and each statement. TABLE 4 Mean Scores (G: Guangzhou, M: Macau) G Mean G Standard deviationM Mean M Standard deviation Tax evasion is ethical if tax rates are too high 4.5484 2.03226 5.0481 1.51793 Tax evasion is ethical even if tax rates are not too high because the government is not entitled to take as much as it is taking from me. 5.6022 1.70303 5.7433 1.25655 Tax evasion is ethical if the tax system is unfair 3.7849 1.94436 3.9519 1.71735 Tax evasion is ethical if a large portion of the money collected is wasted 4.1129 2.05417 4.0376 1.73476 Tax evasion is ethical even if most of the money collected is spent wisely 5.8564 1.54248 5.7568 1.45597 Tax evasion is ethical if a large portion of the money collected is spent on projects that I morally disapprove of 4.7796 1.91433 4.6774 1.60514 Tax evasion is ethical even if a large portion of the money collected is spent on worthy projects 5.4919 1.83895 5.7957 1.34814 139

Robert W. McGee and Carlos Noronha TABLE 4 (continued) Mean Scores (G: Guangzhou, M: Macau) G MeanG Standard deviationM Mean M Standard deviation Tax evasion is ethical if a large portion of the money collected is spent on projects that do not benefit me 5.4402 1.68786 5.5775 1.21732 Tax evasion is ethic even if a large portion of the money collected is spent on projects that benefit me 5.7946 1.59175 5.7433 1.27777 Tax evasion is ethical if everyone is doing it 5.4699 1.89212 5.2473 1.63182 Tax evasion is ethical if a significant portion of the money collected winds up in the pockets of corrupt politicians or their families and friends 4.1135 2.21974 3.5806 1.92184 Tax evasion is ethical if the probability of getting caught is low 5.7419 1.63676 5.4064 1.41633 Tax evasion is ethical if some of the proceeds go to support a war that I consider to be unjust 4.2688 2.14421 3.6310 1.87447 Tax evasion is ethical if I can't afford to pay 4.6230 2.03403 4.3209 1.76700 Tax evasion is ethical even if it means that if I pay less, others will have to pay more 5.8495 1.49555 5.5430 1.31551 Average mean score 5.0318 4.9374 Table 5 shows the results of the test for differences in mean scores. 140

The Ethics of Tax Evasion: A Comparative Study of Guangzhou (Southern China) and Macau Opinions TABLE 5 Test for differences in mean scores between Guangzhou and Macau respondents (G: Guangzhou, M: Macau) Place N Mean t-value p-value Tax evasion is ethical if tax rates are too high G 186 4.5484 -2.689 .008 M 187 5.0481 G 186 5.6022 -.911 .363 Tax evasion is ethical even if tax rates are not too high because the government is not entitled to take as much as it is taking from me. M 187 5.7433 G 186 3.7849 -.879 .380 Tax evasion is ethical if the tax system is unfair M 187 3.9519 G 186 4.1129 .382 .703 Tax evasion is ethical if a large portion of the money collected is wasted M 186 4.0376 G 181 5.8564 .635 .526 Tax evasion is ethical even if most of the money collected is spent wisely M 185 5.7568 G 186 4.7796 .558 .577 Tax evasion is ethical if a large portion of the money collected is spent on projects that I morally disapprove of M 186 4.6774 G 185 5.4919 -1.814 .071 Tax evasion is ethical even if a large portion of the money collected is spent on worthy projects M 186 5.7957 G 184 5.4402 -.898 .370 Tax evasion is ethical if a large portion of the money collected is spent on projects that do not benefit me M 187 5.5775 G 185 5.7946 .342 .732 Tax evasion is ethic even if a large portion of the money collected is spent on projects that benefit me M 187 5.7433 141

Robert W. McGee and Carlos Noronha TABLE 5 (continued) Test for differences in mean scores between Guangzhou and Macau respondents (G: Guangzhou, M: Macau) Place N Mean t-value p-value Tax evasion is ethical if everyone is doing it G 183 5.4699 1.211 .227 M 186 5.2473 G 185 4.1135 2.471 .014 Tax evasion is ethical if a significant portion of the money collected winds up in the pockets of corrupt politicians or their families and friends M 186 3.5806 G 186 5.7419 2.117 .035 Tax evasion is ethical if the probability of getting caught is low M 187 5.4064 G 186 4.2688 3.058 .002 Tax evasion is ethical if some of the proceeds go to support a war that I consider to be unjust M 187 3.6310 Tax evasion is ethical if I can't afford to pay G 183 4.6230 1.524 .128 M 187 4.3209 G 186 5.8495 2.098 .037 Tax evasion is ethical even if it means that if I pay less, others will have to pay more M 186 5.5430 The independent sample t-tests for each of the 15 items for male and female samples are presented in the above table. The Levene’s tests for equality of variances are not reported here although they have been performed before reporting the t-values. All 15 items showed no significant difference between Guangzhou and Macau mean scores at the 5% level except five items: 1. Tax evasion is ethical if tax rates are too high (M>G) 2. Tax evasion is ethical if a significant portion of the money collected winds up in the pockets of corrupt politicians or their families and friends (G>M) 3. Tax evasion is ethical if the probability of getting caught is low (G>M) 4. Tax evasion is ethical if some of the proceeds go to support a war that I consider to be unjust (G>M) 142

The Ethics of Tax Evasion: A Comparative Study of Guangzhou (Southern China) and Macau Opinions 5. Tax evasion is ethical even if it means that if I pay less, others will have to pay more (G>M) When all 15 items are considered together, the samples from the two places showed a statistically significant difference (Wilk’s Lambda = 0.885, F = 2.928, p = 0.000). Table 6 shows the results of the tests for differences in mean scores between males and females. TABLE 6 Test for differences in mean scores between male and female respondents Gender N Mean t-value p-value Tax evasion is ethical if tax rates are too high male 110 4.4818 -0.886 0.377 female 67 4.7463 male 110 5.7000 0.738 0.461 Tax evasion is ethical even if tax rates are not too high because the government is not entitled to take as much as it is taking from me. female 67 5.5075 male 110 3.9545 1.039 0.276 Tax evasion is ethical if the tax system is unfair female 67 3.6269 male 110 4.3364 1.621 0.107 Tax evasion is ethical if a large portion of the money collected is wasted female 67 3.8209 male 110 6.0000 0.935 0.351 Tax evasion is ethical even if most of the money collected is spent wisely female 66 5.7879 male 110 5.0364 1.606 0.110 Tax evasion is ethical if a large portion of the money collected is spent on projects that I morally disapprove of female 67 4.5672 male 110 5.6000 0.252 0.802 Tax evasion is ethical even if a large portion of the money collected is spent on worthy projects female 66 5.5303 143

Robert W. McGee and Carlos Noronha TABLE 6 (continued) Test for differences in mean scores between male and female respondents Gender N Mean t-value p-value male 108 5.4630 -0.291 0.772 Tax evasion is ethical if a large portion of the money collected is spent on projects that do not benefit me female 67 5.5373 male 109 5.6881 -1.833 0.069 Tax evasion is ethic even if a large portion of the money collected is spent on projects that benefit me female 67 6.0896 Tax evasion is ethical if everyone is doing it male 109 5.5596 0.335 0.738 female 65 5.4615 male 109 4.1193 -0.476 0.635 Tax evasion is ethical if a significant portion of the money collected winds up in the pockets of corrupt politicians or their families and friends female 67 4.2836 male 110 5.6909 -0.882 0.379 Tax evasion is ethical if the probability of getting caught is low female 67 5.9104 male 110 4.4818 1.646 0.102 Tax evasion is ethical if some of the proceeds go to support a war that I consider to be unjust female 67 3.9552 Tax evasion is ethical if I can't afford to pay male 108 4.8148 1.442 0.151 female 67 4.3582 male 110 6.0000 1.383 0.169 Tax evasion is ethical even if it means that if I pay less, others will have to pay more female 67 5.6866 The independent sample t-tests for each of the 15 items for male and female samples are presented in the above table. The Levene’s tests for equality of variances are not reported here although they have been performed before reporting the t-values. All 15 items showed no significant difference between male and female mean scores at the 5% level. 144

The Ethics of Tax Evasion: A Comparative Study of Guangzhou (Southern China) and Macau Opinions Table 7 shows the ranking of the various arguments for the Guangzhou sample, from strongest to weakest. TABLE 7 Ranking of Arguments for Guangzhou Sample (1 = strongest; 15 = weakest) Rank G Mean 1 Tax evasion is ethical if the tax system is unfair (3) 3.7849 2 Tax evasion is ethical if a large portion of the money collected is wasted (4) 4.1129 3 Tax evasion is ethical if a significant portion of the money collected winds up in the pockets of corrupt politicians or their families and friends (11) 4.1135 4 Tax evasion is ethical if some of the proceeds go to support a war that I consider to be unjust (13) 4.2688 5 Tax evasion is ethical if tax rates are too high (1) 4.5484 6 Tax evasion is ethical if I can't afford to pay (14) 4.6230 7 Tax evasion is ethical if a large portion of the money collected is spent on projects that I morally disapprove of (6) 4.7796 8 Tax evasion is ethical if a large portion of the money collected is spent on projects that do not benefit me (8) 5.4402 9 Tax evasion is ethical if everyone is doing it (10) 5.4699 10 Tax evasion is ethical even if a large portion of the money collected is spent on worthy projects (7) 5.4919 11 Tax evasion is ethical even if tax rates are not too high because the government is not entitled to take as much as it is taking from me. (2) 5.6022 12 Tax evasion is ethical if the probability of getting caught is low (12) 5.7419 13 Tax evasion is ethic even if a large portion of the money collected is spent on projects that benefit me (9) 5.7946 14 Tax evasion is ethical even if it means that if I pay less, others will have to pay more (15) 5.8495 15 Tax evasion is ethical even if most of the money collected is spent wisely (5) 5.8564 145

Robert W. McGee and Carlos Noronha Chart 1 shows the range of scores for Guangzhou. CHART 1 Range - Guangzhou 0 1 2 3 4 5 6 7 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 RankScore The strongest arguments for the Guangzhou sample were in cases where the tax system is perceived as being unfair, where a large portion of the collected funds is wasted, where a significant portion of tax funds wind up in the pockets of corrupt politicians, their family or friends, if proceeds go to support an unjust war, or if the taxpayer cannot afford to pay. The weakest arguments were in cases where most of the tax funds are spent wisely, where the taxpayer’s failure to pay causes others to have to pay more, where tax funds are spent on projects that do not benefit the taxpayer, where the probability of getting caught is low and where there is a perception that the government is not entitled to take so much in taxes. Table 7 shows the ranking of the various arguments for the Macau sample, from strongest to weakest. 146

The Ethics of Tax Evasion: A Comparative Study of Guangzhou (Southern China) and Macau Opinions TABLE 8 Ranking of Arguments for Macau Sample (1 = strongest; 15 = weakest) Rank M Mean 1 Tax evasion is ethical if a significant portion of the money collected winds up in the pockets of corrupt politicians or their families and friends (11) 3.5806 2 Tax evasion is ethical if some of the proceeds go to support a war that I consider to be unjust (13) 3.6310 3 Tax evasion is ethical if the tax system is unfair (3) 3.9519 4 Tax evasion is ethical if a large portion of the money collected is wasted (4) 4.0376 5 Tax evasion is ethical if I can't afford to pay (14) 4.3209 6 Tax evasion is ethical if a large portion of the money collected is spent on projects that I morally disapprove of (6) 4.6774 7 Tax evasion is ethical if tax rates are too high (1) 5.0481 8 Tax evasion is ethical if everyone is doing it (10) 5.2473 9 Tax evasion is ethical if the probability of getting caught is low (12) 5.4064 10 Tax evasion is ethical even if it means that if I pay less, others will have to pay more (15) 5.5430 11 Tax evasion is ethical if a large portion of the money collected is spent on projects that do not benefit me (8) 5.5775 12 Tax evasion is ethical even if tax rates are not too high because the government is not entitled to take as much as it is taking from me. (2) 5.7433 12 Tax evasion is ethic even if a large portion of the money collected is spent on projects that benefit me (9) 5.7433 14 Tax evasion is ethical even if most of the money collected is spent wisely (5) 5.7568 15 Tax evasion is ethical even if a large portion of the money collected is spent on worthy projects (7) 5.7957 147

Robert W. McGee and Carlos Noronha Chart 2 shows the range of scores for Macau. CHART 2 Range – Macau 7 6 5 4 3 2 1 0 1 2 6 7 14 15 3 4 5 8 9 10 11 12 13RankScore The strongest arguments to justify tax evasion for the Macau sample were in cases where a significant portion of the money collected winds up in the pockets of corrupt politicians or their families and friends, where the proceeds to go support an unjust war, where the tax system is perceived as unfair, where there is a lot of waste and where the taxpayer cannot afford to pay. The weakest arguments justifying tax evasion for the Macau sample were in cases where tax funds are spent on worthy projects, where most of the money is spent wisely, where the taxpayer does not benefit by the tax expenditures, where there is a perception that the government is not entitled to the tax funds it collects and where the taxpayer does benefit by the expenditures. Table 9 compares the rankings for the Guangzhou and Macau samples. As can be seen, the rankings are similar in most cases, not varying by more than a few places. 148

The Ethics of Tax Evasion: A Comparative Study of Guangzhou (Southern China) and Macau Opinions TABLE 9 Ranking of Arguments Guangzhou and Macau Compared (1 = strongest; 15 = weakest) G Rank M Rank Tax evasion is ethical if the tax system is unfair (3) 1 3 Tax evasion is ethical if a large portion of the money collected is wasted (4) 2 4 Tax evasion is ethical if a significant portion of the money collected winds up in the pockets of corrupt politicians or their families and friends (11) 3 1 Tax evasion is ethical if some of the proceeds go to support a war that I consider to be unjust (13) 4 2 Tax evasion is ethical if tax rates are too high (1) 5 7 Tax evasion is ethical if I can't afford to pay (14) 6 5 Tax evasion is ethical if a large portion of the money collected is spent on projects that I morally disapprove of (6) 7 6 Tax evasion is ethical if a large portion of the money collected is spent on projects that do not benefit me (8) 8 11 Tax evasion is ethical if everyone is doing it (10) 9 8 Tax evasion is ethical even if a large portion of the money collected is spent on worthy projects (7) 10 15 Tax evasion is ethical even if tax rates are not too high because the government is not entitled to take as much as it is taking from me. (2) 11 12 Tax evasion is ethical if the probability of getting caught is low (12) 12 9 Tax evasion is ethic even if a large portion of the money collected is spent on projects that benefit me (9) 13 12 Tax evasion is ethical even if it means that if I pay less, others will have to pay more (15) 14 10 Tax evasion is ethical even if most of the money collected is spent wisely (5) 15 14 149

Robert W. McGee and Carlos Noronha CONCLUDING COMMENTS The study has several interesting findings. The fact that the average mean scores were around 5.0 and 4.9 on a scale of 1 to 7 indicates both that there is a general perception that tax evasion is unethical and also that there is a widespread feeling that tax evasion is justifiable in certain cases. The ranges – 3.7849 to 5.8564 for Guangzhou and 3.5806 to 5.7957 for Macau – indicate that some arguments for tax evasion are stronger than others and some arguments are fairly persuasive. Views toward the ethics of tax evasion did not vary by gender, which confirms some other studies and is at variance with other studies. The views of the Guangzhou and Macau samples were similar in 10 of 15 cases but different in five cases. This study has policy implications, not only for China but also for any country that has difficulty collecting taxes because of tax evasion. If China wants to collect a larger portion of the taxes that are legally owed, it should make a concerted effort to eliminate or reduce the reasons why the people believe tax evasion is ethical. It should eliminate perceived unfairness in the tax system, avoid waste and corruption, spend tax funds on projects that benefit taxpayers and keep tax rates low. REFERENCES Akaah, I.P. & Riordan, E.A. (1989). Judgments of marketing professionals about ethical issues in marketing research: A replication and extension. Journal of Marketing Research, 26, (1), 112-120. Armstrong, M.B. & Robison, J. (1998). Ethics in taxation. Journal of Accounting, Ethics & Public Policy, 1, (4), 535-557, reprinted in McGee, R.W. (ed.) The Ethics of Tax Evasion. Dumont, NJ: The Dumont Institute for Public Policy Research. Ballas, A.A. & Tsoukas, H. (1998). Consequences of distrust: The vicious circle of tax evasion in Greece. Journal of Accounting, Ethics & Public Policy, 1,(4), 572-596, reprinted in Robert W. McGee (ed.), The Ethics of Tax Evasion. Dumont, NJ: The Dumont Institute for Public Policy Research. Barnett, J.H. & Karson, M.J. (1987). Personal values and business decisions: An exploratory investigation. Journal of Business Ethics, 6, (5), 371-382. Block, W. (1989). The justification of taxation in the public finance literature: A critique. Journal of Public Finance and Public Choice, 3, 141-158. Block, W. (1993). Public finance texts cannot justify government taxation: A critique. Canadian Public Administration/Administration Publique du Canada, 36, (2), 225-262, reprinted in revised form under the title ‘The justification for taxation in the economics literature’ in McGee, R.W. (ed.) (1998). The Ethics of Tax Evasion. Dumont, NJ: The Dumont Institute for Public Policy Research. Boyd, D.P. (1981). Improving ethical awareness through the business and society course. Business and Society, 20, 27-31. Browning, J. & Zabriskie, N.B. (1983). How ethical are industrial buyers? Industrial Marketing Management, 12, (4), 219-224. 150

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Euro Asia Journal of Management Issue 36, Vol. 18, No.2, December 2008, pp.153-171 THE RELATIONSHIP BETWEEN EMOTIONAL INTELLIGENCE, LEADER-MEMBER EXCHANGE AND ORGANIZATIONAL COMMITMENT JAHANVASH KARIM1 ABSTRACT The purpose of this paper was to hypothesize the mediating impact of leader-member exchange (LMX) on the relationship between emotional intelligence (EI) and organizational commitment. A total of 98 participants voluntarily participated in the study. They represented four different organizations located in Balochistan province, Pakistan. Hypothesized relationships were examined using partial least squares (PLS) structural equation modeling. Results indicated that EI was positively related to LMX, which in turn was positively related to organizational commitment. In addition, the results indicated that LMX fully mediated the relationship between EI and organizational commitment. INTRODUCTION Since the early 1990s we have been witnessing a particular growing body of research regarding the importance of emotional intelligence (EI) within the organizational setting. Underlying this research interest is the view that people with high EI competencies are more likely to gain success in the workplace (Goleman, 1995, 1998). Although there is accumulating evidence that EI abilities and traits influence various work attitudes, behaviors and outcomes (e.g., Carmeli, 2003; Daus & Ashkanasy, 2005) but there is still a need for rigorous research to underpin 1 Institute d’Administration des Entreprises d’Aix-en-Provence, Clos Guiot Puyricard – BP 30063, 13089 Aix en Provence cedex 2, France. Phone : 33-643055276, E-mail: j_vash@hotmail.com

Jahanvash Karim various unknown relationships between EI and other organizational variables. One such variable that could not get considerable attention in the EI literature is Leader-Member Exchange (LMX) (Smith, 2006). Although, in the literature, considerable attention has been paid to the overall understanding of the LMX concept, but there is still little evidence of personal or interpersonal attributes associated with these relationships (Phillips & Bedian, 1994) and EI could be one such personal attribute preceding the LMX relationships. As Bernerth and Walker (2007) suggest, ‘If our understanding of the LMX relationship and its formation are to advance, research is needed on the antecedents associated with the leader-member exchange process’. In line with Bernerth and Walker’s (2007) suggestion, this study empirically tested EI as one of the antecedent associated with the LMX process within organizational setting. The present study is a follow-up to the research on EI and LMX and contributes to the existing literature in three ways. First, this study attempts to narrow the gap which exists in the EI and LMX literature by empirically testing the degree to which emotionally intelligent employees develop high quality exchange relationships with their supervisors. In this way, we move beyond the simple exploration of demographic variables that have been cited as important variables in the formation of LMX relationships (Dienesch & Linden, 1986). Second, this study is a follow up to the research on the EI-organizational commitment relationship by examining the mediating effect of LMX on the relationship between EI and organizational commitment. Third, since most studies on EI, LMX and attitudinal outcomes have been conducted in the West, there is a need to validate these findings in other cultural contexts. In other words, if EI or LMX plays an important role in influencing various outcomes in the West (e.g., organizational commitment), does this potential exist in eastern cultures? To our knowledge, to date, no empirical investigation has been conducted to study the relationship of EI and LMX with each other or with other outcome variables in the Pakistani context. As cultural differences have profound impacts on attitudes and behaviors (Hofstede, 2001), the need to examine the organizational issues (i.e., relationship between EI, LMX, and organizational commitment) in a cultural context cannot be underemphasized. Various studies have already revealed the importance of cultural differences in the underlying dimensions of EI, such as emotion display, emotional expressivity, and emotional recognition (Edelmann et al., 1989; & Nowicki et al., 1993; Mastsumoto, 1991). In this regard, it is expected that in a relationship oriented and collective society like Pakistan (Hofstede, 2001), EI would play a vital role in the formation of the high quality LMX relationships. Also, the quality of leader member relationships would demonstrate a strong influence on employees’ attitudes and behaviors, such as organizational commitment. 154

The Relationship between Emotional Intelligence, Leader-Member Exchange and Organizational Commitment CONCEPTUAL BACKGROUND AND HYPOTHESES Emotional Intelligence (EI) Salovey and Mayer (1999) were first to utilize the term ‘emotional intelligence’ to represent the ability to deal with emotions. They defined EI as ‘the subset of social intelligence that involves the ability to monitor one’s own and others’ feelings and emotions, to discriminate among them and to use this information to guide one’s thinking and actions’. They drew on relevant evidence from previous intelligence and emotion research and presented the first comprehensive model of EI. Their model included three distinct components: Appraisal and expression of emotions, regulation of emotions, and utilization of emotional information in thinking and acting. Later, Mayer and Salovey refined their 1990s model, as reflected in a number of their publications (e.g., Mayer & Salovey, 1997; Mayer et al, 2000). In sum, they conceived EI as an ability to process the information contained in emotions to determine the meaning of emotions and their connections to one another; and to use emotional information as the basis for thought and decision-making. Salovey and Mayer’s (1990) model of EI was followed by a number of EI conceptualizations and operationalizations. Goleman’s (1995) book titled ‘Emotional Intelligence’ provided an impetus for the popularization and broadening of the field of EI. He based his model on the early ideas of Salovey and Mayer (1990). He elaborated Salovey and Mayer’s (1990) model by incorporating many other personality traits like, zeal, persistence, and social skills. In fact he brought together cognitive abilities and personality traits in one model. Goleman (1995) was responsible for bringing the EI concept before the mass media and business world. Soon after the publication of his book, organizations began to consider the application of emotional intelligence in the workplace by enhancing the EI of current employees and the selection of potential employees (Goleman, 1998). Mainly based on Gardner’s (1983) conceptualization of the social intelligence, Reuvan Bar-On (1997) presented his model of Emotional Social Intelligence (ESI). He was the first to coin the term ‘Emotional Quotient’ or ‘EQ’. He stated that emotional intelligence plays an important role in how well one succeeds in life, copes with daily situations and gets along in the world. He defined EI as all non-cognitive abilities, knowledge, and competencies that enable a person to successfully deal with various life situations. Bar-On (2006) presented his framework by grouping 15 facets into five distinct areas: Interpersonal, Intrapersonal, Adaptability, Stress Management and General Mood. During the subsequent years, other models appeared as well that depicted somewhat similar views as already presented by Salovey and Mayer (1990), Goleman (1995), and Bar-On (1997) (e.g. Dulewicz & Higgs, 1999; Petrides & Furnham, 2001). Ciarrochi et al. (2000) assert that these alternative models do not contradict, but rather complement one other. 155

Jahanvash Karim Various studies have already examined the relationship between EI and several life criteria like, life satisfaction, depression, positive affectivity, negative affectivity, and anxiety (e.g., Brackett & Mayer, 2003; O’Connor & Little, 2003; Livingstone & Day, 2005). More interestingly, empirical studies demonstrating the predictive role of EI within organizational setting are also growing (e.g., Carmeli, 2003; Daus & Ashkanasy, 2005; Kafetsios & Zampetakis, 2008). Leader-Member Exchange (LMX) LMX theory describes how leaders develop different exchange relationships over time with various subordinates of the same group. Further, the relationship between a leader and a member contained within the work unit are different and each leader-member relationship is a unique interpersonal relationship. LMX theory has its roots in Blau’s (1964) social exchange theory and Graen’s (1976) role making theory. Social exchange refers to the voluntary actions of individuals that are motivated by the returns they are expected to bring and typically do in fact from others (Blau, 1964) and role-making refers to the process of role augmentation for the voluntary actions of individuals that are motivated by anticipated mutually rewarding work relationships (Graen, 1976). Dienesch and Linden (1986) delineated how both social exchange and role making are involved in developing the leader-member relationship. According to them, a supervisor (during initial interactions) asks a subordinate to complete a task or duty by delegating him various resources and adequate responsibility. Those subordinates who perform well are perceived by the supervisor as more reliable, more trustworthy and in turn will be asked to perform more demanding roles. Making reference to social exchange theory, Sanchez and Byrne (2004) assert that accepting something of value from another person obligates the receiver to the giver. In order to fulfill this obligation and continue the relationship development, the receiver eventually supplies something of equal or greater in return. Further, since one member of the relationship offers benefits to another without any explicit guarantee of reciprocation, trust and fairness become fundamental attributes of the social exchange relationships, particularly in well-developed leadership relationship. In other words, LMX theory suggests that leaders develop different quality of relationships with each of their members within the group setting. According to Linden and Graen (1980), high quality LMX is a characteristic of in-group and low quality LMX is a characteristic of out-group. In-group is characterized by high trust, support and high information sharing. Due to these characteristics, in-group members make contributions that go beyond their formal job duties (Linden & Graen, 1980). On the other hand, out-group is characterized by low trust, support and information due to which out-group members make little contribution that go beyond their formal job duties (Linden & Graen, 1980).The relationship between a leader and his/her subordinate(s) has been shown to be important for a variety of individual and organizational outcomes. For example, the quality of LMX influences organizational commitment (Kinicki & Vecchio 1994; Nystrom, 1990), job satisfaction (Scandura & Graen, 1984) and turnover (Ferris 1985). 156

The Relationship between Emotional Intelligence, Leader-Member Exchange and Organizational Commitment EI and LMX From the perspective of employees, there are various EI abilities that are vital for developing a leader-member dyad into a high quality exchange relationship (Smith, 2006), that is, more social and less economic as proposed by Graen and Uhl-Bien (1995). Smith (2006) proposed a conceptualized model where he asserted that EI abilities are related to high quality LMX relationships. He conceptualized this relationship by relating various EI competencies, identified by Goleman (1995), with LMX. In line with Smith’s (2006) propositions, this study also conceives that various EI abilities are related to high quality LMX relationships. For the purpose of this research I relate LMX with one of the most widely studied model of EI presented by Mayer & Salovey (1997). This model consists of four general EI abilities: (1) Identifying emotions, which involves the ability to recognize emotions in oneself and others, as well as the ability to express emotions; (2) Using emotions, to facilitate thinking, which involves using emotions to improve thinking processes and harness the power of positive moods; (3) Understanding emotions, including the complexities and subtleties of emotions as well as their interrelationships; and (4) Managing emotions, which involves skills in regulating and controlling felt emotions in a positive fashion. Identifying and expressing emotions contribute to developing high quality LMX relationships. People who are high in this ability are good at recognizing their own feelings and feelings of those with whom they are interacting. Because we must know how we feel and be able to label our feelings appropriately if we wish to better understand ourselves and others (Caruso & Salovey, 2004: 40-41). Additionally, building trust and strong bond with the supervisor requires employees to be aware of the verbal and nonverbal messages they send to the supervisor. For example, if an employee is calm and at ease but communicates a message that says something different about his emotional stage, another person (supervisor) may perceive him as a threat and will take action against the perceived threat (Caruso & Salovey, 2004: 42-43). In sum, identifying emotions is a key to successful interpersonal interactions and ultimately to high quality LMX. Emotionally intelligent employees use their emotions to improve thinking processes and harness the power of positive moods (Mayor & Salovey, 1997). Because people in positive moods tend to be better at inductive problem solving (Caruso & Salovey, 2004: 47-48), people high on this ability can easily swing their moods from negative to positive which in turn enhance and assist their thought processes in some meaningful manner. This enables them to be more creative and more initiative. This ability contributes to the stage of ‘Role making’ in the LMX development process, where employees make an offer to engage in an effort that goes beyond their formal employment contract. According to Caruso & Salovey (2004: 49-50), this mood-generating ability may also play an important role in empathy (feeling what other people feel). In order to relate genuinely to others, whether they are employees, bosses or customers, we need to be able to understand them and their feelings. Empathy allows subordinates to sense the emotions of their supervisors and to understand their perspective on various matters which led them to develop a high quality LMX relationship (Smith, 2006). 157

Jahanvash Karim Emotionally intelligent employees are good at understanding the emotions of other people. They make correct assumptions about people and can predict what people may feel (Caruso & Salovey, 2004: 54-57). Understanding the causes of emotions enables a person to judge the situation in appropriate manner. If an employee understands the ebb and flow of his supervisors’ emotions, then he can know about the future: he can predict perhaps with some accuracy, how his supervisor will feel next, if certain events unfold in certain ways (Caruso & Salovey, 2004: 58-59). Since, during the role making stage of LMX development, the leader and member decide how each will behave in various situations and begin to define the nature of their dyadic relationship (Graen & Scandura, 1987), this EI ability enables a subordinate to predict the behavior of his supervisor and mould his behavior to the expectations of his supervisor. Moreover, these employees have a sophisticated emotional knowledge and they have the information what makes people tick, they always meet the expectations of their supervisors by making contributions that go beyond their formal job duties. Finally, people with a strong ability to manage emotions can be passionate, but they also have good emotional self-control, tend to be even-tempered, think clearly when they are experiencing strong feeling, and make decisions based on their hearts and their heads and generally reflect on their emotions often (Caruso & Salovey, 2004; Baumeister et al., 1994). Managing emotions is a key element for the quality of social interaction and this has been indicated by a study conducted by Lopes et al. (2004). In their study (conducted on college students) they found positive relationships between the ability to manage emotions and quality of interactions with friends. This clearly demonstrates that effectively managing emotions is a basic ingredient for the growth of any social relationship. Employees who demonstrate this EI ability in their ongoing interaction with their supervisors are likely to perceive the LMX relationship as one of high quality because of two main reasons. First, the ability to manage emotions may influence employee’s motivation and expectations for social interaction (Cunningham, 1988). Second, this may help them to effectively use their interaction strategies (Furr & Funder, 1998). H1: Emotional intelligence is positively related to LMX Emotional Intelligence, LMX and Organizational Commitment Organizational commitment refers to an employee’s loyalty to the organization, identification with the organization (i.e., pride in the organization and internalization of organizational goals), and involvement in the organization (i.e., personal effort made for the sake of organization) (Mowday et al., 1979). Organizational commitment is the bond between an individual and his/her organization (Mathieu & Zajac, 1990). Several studies have demonstrated the importance of LMX as an antecedent to organizational commitment satisfaction (e.g., Kinicki & Vecchio 1994; Nystrom, 1990). Employees who experience low-quality exchanges with their leaders tend to feel little organizational commitment, whereas, employees with high-quality exchanges express high organizational commitment (Nystorm, 1990; Hassan & Chandaran, 2005). H2: LMX is positively related to organizational commitment 158

The Relationship between Emotional Intelligence, Leader-Member Exchange and Organizational Commitment According to Baron & Kenny (1986), a given construct functions as a mediator to the extent that it accounts for the relationship between the predictor and criterion. This study predicts that LMX will mediate the relationship between EI and organizational commitment. As discussed earlier, within the organizational setting the primary value of understanding EI lies in the prediction of various outcomes. EI has a positive impact on attitudinal outcomes such as organizational commitment (e.g., Carmeli, 2003; Langhorn, 2004). The discussion about the relationship between LMX and organizational commitment shows that employees’ perceptions about LMX quality may affect their attitudes and interactions at work. Thus, EI is related to work-related outcomes, such as organizational commitment, because EI affects an employee’s perceptions of LMX quality, in that emotionally intelligent employees will be able to form high quality LMX relationships with their supervisors. This high quality LMX may prompt the employee to reciprocate with increased organizational commitment. The above discussion suggests that perceptions of LMX quality will mediate the effects of EI on work-related outcomes, such as organizational commitment. H3: LMX mediates the relationship between EI and Organizational Commitment METHOD Participants and Procedure To test the relationships between the variables, data was collected from different government, private and semi-government organizations in Quetta, Balochistan province in Pakistan. Employees from four different organizations formed the population from which this sample was selected. The sample was collected using non-probability purposive sampling methods in order to obtain the appropriate number of participants for the study. Purposive sampling involves collecting any cases that contain the most representative attributes of the population. Before the distribution of questionnaires, permission was obtained from each of the organizations. Attached to the survey instrument was a letter that explained the objective of the survey in general terms, assured respondents of the confidentiality of their responses, and notified them that participating in the survey was voluntary. Of the 300 questionnaires distributed, 98 usable questionnaires were returned, which corresponds to a return rate of 32.6%. Fourteen cases contained missing data: three cases with one item missing, six cases with two items missing, two cases with four items missing and three cases with five items missing. Little’s MCAR test revealed that the missing data were missing completely at random (MCAR). When the missing data is MCAR, any imputation method can be used (Hair et al., 1998). For our data we preferred to use the expectation–maximization (EM) method in SPSS. The EM approach is an iterative two-stage process where the E-stage makes the best estimates of the missing data and the M-stage makes parameter estimates assuming the missing data are replaced (Hair et al., 1998). This process resulted in a complete data set of 98 responses. 159

Jahanvash Karim We also investigated the possibility of non-response bias. We compared early respondents (first 20%) to late respondents (last 20%) for all items in the model. Results (not reported) showed that there were no significant differences for any variables between the groups of early respondents and late respondents. In line with Bido’s (2008) recommendations (regarding power analysis for PLS models), we performed a priori power analysis to find the sample size for our proposed PLS model. The software used was GPower (Erdfelder et al., 1996). A priori power analysis indicated that we needed to have minimum of 84 participants to have 80% power for detecting a medium sized effect (0.30) with traditional 0.05 criterion of statistical significance. Our final sample of 98 respondents well met this standard. In the sample, the age range was 19-66 years (mean = 38.7 years, SD = 13.5). Male respondents constituted 83.5%, 50.5% were employed in government organizations, 33% were in private sector, and rests of the respondents were employed in semi-government organizations. Regarding education level, majority of respondents (66%) had obtained master’s degree. Measures Emotional intelligence. The Wong and Law Emotional Intelligence Scale (WLEIS; Wong & Law, 2002) was used to measure the respondent’s EI. It comprises 16 items measuring four dimensions namely ‘Self-Emotion Appraisal’, ‘Emotion Appraisal of Others’, ‘Use of Emotion’ and ‘Regulation of Emotion’. Sample items in the scale include: ‘I have good understanding of my own emotions’ and ‘I have good understanding of the emotions of people around me’. The response scale is a seven point Likert-type scale ranging from one (strongly disagree) to seven (strongly agree). Prior studies have reported acceptable levels of reliability and validity for the scale (e.g., Wong & Law, 2002).The scores for the four subscales were averaged and utilized for further analysis. Organizational commitment. A nine-item abbreviated version of Mowday et al. (1979) scale was used to measure affective organizational commitment. Sample items in the scale include: ‘I am proud to tell others I am part of this organization’ and ‘I feel that my values and the organization’s values are very similar’. The response scale is a seven point Likert-type scale ranging from one (strongly disagree) to seven (strongly agree). Prior studies report acceptable levels of reliability and validity for this scale (e.g., Angle & Perry, 1981). LMX. The seven-item measure (LMX-7) developed by Scandura and Graen (1984) was used to measure LMX. Results from the meta-analysis of the LMX literature by Gerstner and Day (1997) have shown that LMX-7 has the soundest psychometric properties of all LMX instruments. They examined the reliability and correlates of LMX-7 and other measures of LMX and recommended that LMX-7 be used in future research as the measurement of choice. Moreover, LMX is more reliably assessed from a member’s perspective than from a leaders’ perspective. For the purpose of this survey, items were re-worded from interrogative form to affirmative form. Sample items in the scale include: ‘my supervisor recognizes my potential’ and ‘supervisor understands my job problems and needs’. The response scale is a seven point Likert-type scale ranging from one (strongly disagree) to seven (strongly agree). 160

The Relationship between Emotional Intelligence, Leader-Member Exchange and Organizational Commitment RESULTS The relationships between the constructs were analyzed using the partial least squares (PLS) structural equation modeling approach. Like covariance-based structural equation modeling, PLS models relationships among latent variables and between latent and observed variables. However, PLS is far less restrictive in its distributional assumptions and sample size restrictions as compared to covariance-based structural equation modeling. Furthermore, maximum likelihood models are based on assumptions of a specific joint multivariate distribution and independence of the observations (independently and identically distributed, i.e, iid), PLS does not impose such requirements on data. PLS applies to situations where knowledge about distribution of the latent variables is limited and requires the estimates to be more closely tied to the data compared to covariance structure analysis (Fornell & Cha, 1994). Moreover, the application of PLS requires a minimum sample size of 30 and a minimum sample size that is 10 times greater than (1) the number of items comprising the most formative constructs or (2) the number of independent constructs directly influencing a dependent construct (Wixom & Watson, 2001). With a sample size of 98 in this study, these requirements were well met. The software used was SmartPLS (Ringle et al., 2005). The PLS model was analyzed and interpreted in two stages: the measurement model and the structural model. The measurement model relates to the relations between manifest variables (observed items) and latent variables. The measurement model is tested by assessing the validity and reliability of the construct measures in the model. This ensures that only reliable and valid constructs’ measures are used before assessing the nature of relationships in the overall model (Hulland, 1999). Structural model specifies relations between latent constructs. The structural model is tested by estimating the paths between the constructs, which are an indicator of the model’s predictive ability. Measurement Model The measurement model was tested by assessing the individual item reliability and construct reliability followed by convergent and discriminant validity of the constructs’ measures. Reliability. Reliability is the extent to which an item, scale or instrument will produce the same values when given in different times, places, or populations (Nunnally & Bernstein, 1994). In PLS, individual item reliability is assessed by examining the loadings of respective items on their respective latent construct (Hulland, 1999). The higher loadings imply that there is more shared variance between the construct and its measures than error variance. Whereas, low loadings add very little to the explanatory power of the model while attenuating the estimates of the parameters linking constructs (Hulland, 1999). In line with Hulland’s (1999) recommendations all items with loadings less than 0.50 were dropped from further analysis. The factor loadings from the final PLS measurement models are reported in Table 1. 161

Jahanvash Karim In addition to Cronbach’s (1951) alpha, reliability of each variable was assessed by using Fornell and Larcker’s (1981) measure of composite reliability which is calculated as follows. Composite reliability = (ΣLi)2 / [(ΣLi)2 + Σvar(Ei)] Where Li is the standardized factor loading for a given factor, var(Ei) = 1- Li is the measurement error or the error variance associated with the individual indicator variable(s) for that given factor. This measure is preferred over Cronbach’s alpha because it offers a better estimate of variance shared by the respected indicators and because it uses the item loadings obtained within the nomological network (Hair et al., 2006). In this study the composite factor reliability coefficients of the constructs ranged from 0.87 to 0.96, which met the standard of 0.70 as suggested by Fornell and Larcker (1981) (see Table 1). TABLE 1 Item Loadings and Scale Reliability Block Item Loadings Cronbach's Alpha Composite Reliability AVE LMX 0.8873 0.9176 0.6912 LMX_1 0.9044 LMX_2 0.7452 LMX_3 0.8466 LMX_6 0.7966 LMX_7 0.8552 OC 0.8886 0.9112 0.5634 OC_1 0.7955 OC_2 0.8131 OC_3 0.7207 OC_4 0.6293 OC_6 0.7981 OC_7 0.7349 OC_8 0.7262 OC_9 0.7705 EI 0.7521 0.8379 0.5916 SEA 0.2997 OEA 0.9155 UOE 0.9111 ROE 0.7798 162

The Relationship between Emotional Intelligence, Leader-Member Exchange and Organizational Commitment Construct validity. The construct validation focuses on the extent to which a measure performs in accordance with theoretical expectations. Specifically, if the performance of the measure is consistent with theoretically derived expectations, then it is concluded that the measure has construct validity. On the other hand, if it behaves inconsistently with theoretical expectations, then it is usually inferred that the empirical measure does not represent its intended theoretical concept (Carmine & Zeller, 1979: 19-20). Construct validity of a test can be examined through two most widely used methods: by assessing its convergent validity and by assessing its discriminant validity. Convergent validity. Evidence of convergent validity for EI, LMX, and organizational commitment scales were assessed by inspection of variance extracted for each factor (Fornell and Larcker, 1981). According to Fornell and Larcker (1981), convergent validity is established, if the variance extracted value exceeds 0.50 for a factor. Average Variance Extracted (AVE) = ΣLi2 / ΣLi2 + Σvar(Ei) Where Li is the standardized factor loading for a given factor, var(Ei) = 1- Li is the measurement error or the error variance associated with the individual indicator variable(s) for that given factor. Results showed that the variance extracted for EI, LMX, and organizational commitment ranged from 0.56 to 0.69 (see Table 1). Discriminant validity. Discriminant validity is the extent a concept or construct is different from other concepts or constructs (Carmine and Zeller, 1979: 22-23). In other words, discriminant validity occurs when different instruments measure different constructs, and the correlations among the items of these dissimilar or divergent constructs are low (Straub et al., 2004). Discriminant validity was assessed by the test provided by Fornell and Larcker (1981) in which the pair wise correlations between constructs were compared with the variance extracted estimates for the constructs making up each possible pair. Evidence of discriminant validity occurs when square root of the variance extracted estimation exceed the correlations between the factors making each pair. Results revealed relatively high variances extracted for each factor compared to the inter-scale correlations, which was an indication of discriminant validity of three constructs (i.e., EI, LMX, and organizational commitment). The results are carried in Table 2. TABLE 2 Discriminant Validity M SD EI LMX OC EI 5.43 0.95 0.769a LMX 5.25 1.41 0.559 0.831a OC 5.19 1.32 0.541 0.714 0.750a a Square root of AVE 163

Jahanvash Karim Structural Model: Path Coefficients and Predictive Validity The PLS structural model and hypothesis were tested by computing path coefficients (ß’s). since, the objective of PLS is to maximize variance explained rather than fit, therefore prediction-oriented measures, such as R², are used to evaluate PLS models (Chin, 1998). According to Chin’s (1998) recommendations, a bootstrapping procedure using 1,000 subsamples was performed to evaluate the statistical significance of each path coefficient. Hypothesized path coefficients along with their bootstrap values, t values, and significance levels are presented in Table 3. TABLE 3 Path Coefficients Path coefficients Original sample estimate Mean of resamplesStandard Deviation T Statisticsa EI -> LMX 0.559 0.565 0.084 6.609** EI -> OC 0.206 0.216 0.117 1.758 LMX -> OC 0.598 0.594 0.105 5.692** a T-values are calculated through a bootstrapping routine with 98 cases and 1,000 samples. **p < .05 The results showed that all hypothesized relationships were significant. As predicted, the relationship between EI and LMX was positive (ß = 0.559, t = 6.609, p < 0.05), thus supporting hypothesis H1. Regarding hypothesis H2, LMX had significant relationship with organizational commitment (ß = 0.598, t = 5.692, p < 0.05). Hence H2 was also supported. Additionally, the results showed that the structural model explained 31.3% of variance in the LMX and 53.9% of variance in organizational commitment. The value of multiple R2 may be decomposed in terms of the multiple regression coefficients and correlations between the dependent variable and the explanatory ones (Tenanhaus et al., 2005). This decomposition allows understanding the contribution of each explanatory variable to the prediction of the dependent one (i.e. organizational commitment). LMX contributed to 79.33% of R2 while EI contributed to 20.67% (see Table 4). TABLE 4 The Explanation of Organizational Commitment Variable ßj Correlation Contribution to R (%) EI 0.206 0.541 20.67 LMX 0.599 0.714 79.33 164

The Relationship between Emotional Intelligence, Leader-Member Exchange and Organizational Commitment Contrary to CBSEM (covariance based structural equation modeling); PLS path modeling does not report any kind of fit indices like RFI, RMSEA or CFI. So, it naturally lacks an index that can provide the user with a global validation of the model (as it is instead the case with chi square and related measures in CBSEM) (Tenanhaus et al., 2005). In PLS, the overall model fit is assessed via strong loadings, significant weights, multiple R2, substantial/significant structural paths (Chin, 1998), communality, redundancy and goodness-of-fit (GOF) (Amato et al., 2004). The communality index measures the quality of the measurement model for each block and the redundancy index measures the quality of the structural model for each endogenous block, taking into account the measurement model (Tenanhaus et al., 2005). The indices for redundancy, communality and explained variance (R2) are given in Table 5. As can be seen, the average communality and average redundancy indices for the overall model were quite acceptable (Tenanhaus et al., 2005). The cv-communality (cv stands for cross-validated) index measures the quality of the measurement model for each block. It is a kind of cross-validated R2 between the block MVs and their own LV calculated by a blindfolding procedure. The quality of each structural equation is measured by the cv-redundancy index (i.e. Stone–Geisser’s Q2). It is a kind of cross-validated R2 between the MVs of an endogenous LV and all the MVs associated with the LVs explaining the endogenous LV, using the estimated structural model (Tenanhaus et al., 2005). This index is used for measuring the quality of the path model. For this model, blindfolding was employed using G=30 blocks. The results are presented in Table 5. We may notice that, for this model all blocks had relatively high values for both cv-communality index H2 and cv-redundancy index F2. These values were well above the threshold level of zero (Fornell & Cha, 1994). Goodness-of-fit (GoF) (Amato et al., 2004) was employed to judge the overall fit of the model. GoF, which is the geometric mean of the average communality and the average R2, represents an index for validating the PLS model globally, as looking for a compromise between the performance of the measurement and the structural model, respectively. For this model GoF index was 0.51. TABLE 5 Communality and Redundancy Block R2 Communality Cv-communality H2 RedundancyCv-redundancy F2 EI 0.5916 0.5600 LMX 0.3126 0.6912 0.3489 0.2142 0.1135 OC 0.5391 0.5634 0.2312 0.0998 0.1366 Average 0.42585 0.6154 0.1570 165

Jahanvash Karim In order to test the mediation effect of LMX, we employed product of coefficients strategy (Sobel, 1982; Preacher & Hayes, 2004; 2007). Product of coefficients strategy is preferred over Baron and Kenny’s (1986) casual step approach because of two main reasons. First, causal step approach does not consider the estimate of the indirect effect, nor is there a standard error for this effect that might permit direct investigation of statistical significance. That is, it ignores the central question: Is the indirect effect different from zero? (Preacher & Hayes, 2007). Second, testing the null hypothesis that indirect effect = 0 requires one fewer hypothesis test, and thus type II error in the testing of mediation would be less likely (Preacher & Hayes, 2004). This approach urges to bootstrap the sampling distribution of indirect effect and derive confidence interval with the empirically derived bootstrapped sampling distribution. We followed the procedure identified by Preacher and Hayes (2007) for testing the null hypothesis that indirect effect = 0 (no mediation). First, we bootstrapped the sampling distribution of path a (path coefficient from EI to LMX) and path b (Path coefficient from LMX to OC) and then calculated ab* (indirect effect). The mean of the k values of ab* (indirect effect after bootstrap) can be used as the bootstrap estimate of the size of the indirect effect and their standard deviation functions as an estimate of the standard error of ab. Second, the bootstrap confidence interval for the population indirect effect was derived by sorting the k values of ab* from low to high. Values cutting off the lower and upper 100(1-α)% of the distribution of ab* are then found and taken as the lower and upper limits of the 100(1-α )% for the population indirect effect. As we used 1,000 resamples, the lower limit of the confidence interval was defined as the 25th score and the upper limit was defined as the 976th score. TABLE 6 Bootstrap results for Indirect Effects Mean S,E LL 95 CI UL 95 CI Effect 0.326 0.0629 0.210 0.447 Note. Values are calculated through a bootstrapping routine with 98 cases and 1000 samples. As can be seen from Table 6, the bootstrapped estimate of the indirect effect is similar to the point estimate (0.559 x 0.598 = 0.334) computed from the conventional PLS analysis of the raw data and the true indirect effect is estimated to lie between 0.2101 and 0.4474 with 95% confidence. Because zero is not in the 95% confidence interval, we can conclude that the indirect effect is indeed significantly different from zero at p < 0.05 (two tailed). 166

The Relationship between Emotional Intelligence, Leader-Member Exchange and Organizational Commitment DISCUSSION While a great deal of research is available to examine the link between EI and organizational commitment and between LMX and organizational commitment, but none of the research (to our knowledge) has empirically tested the relationship between LMX, EI, and organizational commitment jointly. Although, some researchers have already examined the role of mediator variables in the link between EI and outcome variables (e.g., Kafetsios & Zampetakis, 2008) but still there are large number of untouched variables which can serve as potential mediators between EI and various outcome variables. In this regard, Smith (2006) directed the researchers to consider the role of LMX as a mediator variable in studying the relationship of EI with various outcomes. Thus, following this call, it was hypothesized that one possible mechanism that could operate between EI and organizational commitments would be LMX. Overall, the stated research hypothesis received considerable support for the data. The results of the study revealed that EI is a positive predictor of LMX (H1). In other words, if an employee is emotionally intelligent, the quality of LMX relationships would be high. This result confirmed the proposition made by Smith (2006) that EI is one of the potential predictor of high quality LMX relationships. Thus, emotionally intelligent people are more likely to be the member of leader’s in-group. In sum, ability to accurately identify emotions, ability to appropriately use emotions, ability to understand emotions, and ability to successfully manage emotions lead to the development of high quality LMX. The results of this study supported the contention that LMX remains a salient dimension of the work environment, shaping employee perceptions of organizational commitment (H2). This result was consistent with the results of previous studies (Kinicki & Vecchio, 1994; Nystrom, 1990). Results suggest that when employees perceive high quality of LMX relationships they tend to be more committed with their organizations. Finally, the results suggest that EI impacts organizational commitment via LMX (H3). This mediation result suggests that, employees who have high EI abilities are more likely to establish high quality LMX relationships with their supervisors leading ultimately to high organizational commitment. In other words, the results show that EI through LMX could promote positive attitudes among the employees. Thus, it has become increasingly vital for modern organizations to learn how to enhance the EI of employees in order to achieve maximum business results. In brief, if LMX quality does indeed predict organizational commitment as indicated by the results, the organization can benefit by encouraging an environment that fosters the development of high-quality LMX relationships between leaders and subordinates. In this regard, incorporation of EI criteria into selection and training and development could serve to ameliorate the LMX quality, leading ultimately to organizational commitment (Smith, 2006). The findings of this study are subject to several limitations which are common in this type of research. First, the results are specific to only four organizations in one geographical area and may or may not be generalizable to other organizations and other areas. Second, the cross- 167

Jahanvash Karim sectional data precludes any inference of causality. The direction of causality (in cross-sectional studies) cannot be established and will have to be examined using longitudinal data (Aryee et al., 2002). Moreover, since LMX and emotional intelligence are developmental in nature (Ansari et al., 2007, Goleman, 1995), only future longitudinal investigations can uncover the stage at which employees develop organizational commitment. Third, since most of the respondents in sample were males (83.5 %), this constrains the generalizability of our findings to women. Fourth, all respondents were full-time employees and these findings may not be applicable to part-time employees. Fifth, this study used a trait (self report) measure of emotional intelligence. Though, studies reported good reliability and evidence of validity, it would be useful to conduct a study which compare results of this study with those employing other ability measures of emotional intelligence such as MSCEIT . Sixth, in this study we used a global measure of LMX, and since LMX is a multidimensional construct (Dienesch & Liden, 1986; Schriesheim et al., 1992; Liden & Masyln, 1998), future research should investigate the relationship of sub dimensions of LMX with emotional intelligence and organizational commitment. Seventh, research has indicated that supervisor LMX (SLMX) and subordinate LMX (LMX) have varying impacts on different organizational outcomes (Gestner & Day, 1997; Schriesheim et al., 1998). In this regard, future studies should employ supervisor LMX (SLMX) measure along with subordinate LMX (LMX). Lastly, this study emphasized only upon the EI of employees. Since, LMX quality depends upon efforts of both parties (i.e., supervisor and subordinate), high quality LMX are more likely to develop when both, i.e., supervisor and subordinate, have high levels of EI. Future research should assess the impact of both supervisors’ and subordinates’ EI upon LMX exchange quality. As proposed by Smith (2006: 182), ‘leaders with high EI signal to subordinates that they understand and care about their concerns. They also signal that they recognize employees’ personal development needs and are willing to assist them in their development efforts. These leaders show that they are concerned about their subordinates as people and not just employees. Individuals with leaders who consistently demonstrate the EI competencies in their ongoing interaction with them are likely to perceive the leader-member exchange relationship as one of high-quality’. REFERENCES Amato, S., Esposito Vinzi, V. & Tenenhaus, M. (2004). A global goodness-of-fit index for PLS structural equation modeling. Oral communication to PLS Club, HEC School of Management, France. Angle, H.L. & Perry, J.L. (1981). An empirical assessment of organizational commitment and organizational effectiveness. Administrative Science Quarterly, 21, 1–14. Ansari, M.A., Mui Hung, D.K. & Aafaqi, R. (2007). Leader-member exchange and attitudinal outcomes: role of procedural justice climate. Leadership & Organization Development Journal, 28, (8), 690-709. Aryee, S., Budhwar, P.S., & Chen, Z.X. (2002). Trust as a mediator of the relationship between organizational justice and work outcomes: test of a social exchange model. Journal of Organizational Behavior. 23, 267-285. Bar-On, R. (1997). The Emotional Intelligence Inventory (EQ–i): Technical Manual. Toronto: Multi-Health Systems. Bar-On, R. (2006). The Bar-On model of emotional–social intelligence (ESI). Psicothema, 18, 13-25. 168

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OBITUARY Professor Gerald Vinten, an active member of our journal’s editorial advisory board, peacefully departed for his heavenly abode on 22nd June 2008 at his residence in London. He will always be remembered and his life will be an ongoing process, be it not by him living it, but by the way he lived it. May his soul rest in eternal peace. 175

176THANK YOU TO REVIEWERS The Editors of EAJM gratefully acknowledge and thank the scholars listed below who have contributed their time and effort to review manuscripts for the 2007 and 2008 issues, in ensuring the high quality of the journal. We regret any inadvertent omissions. Sow Hup Chan Bertha Du-Babcock Keith Goodall Jacky F.L. Hong Roger Hussey Sudhir Kale Pornkasem Kantamara Patrick C.B. Lee Xiaoqin Li Morris M. Liu Glenn McCartney Audra Ong Bernadette Ozorio Timothy A. Simpson Parichart Sthapitanonda António Teixeira Jane L.Y. Terpstra-Tong Jitrapanun Thawatchai Gerald Vinten

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