Cross-Cultural Challenges When Doing Business in China

COPYRIGHT 2004 Singapore Institute of Management Cross-cultural challenges when doing business in China.(Research Note) Abstract With the globalisation of world business, China has become an appealing æÅ"‰å  ¸Ã¥ ¼â€¢Ã¥Å â€ºÃ§Å¡â€žmarket for foreign investors. The problem of cross-cultural management arises as the cooperation between China and its culturally different Western partners continues to increase at an unprecedentedæâ€"  Ã¥â€° Ã¤ ¾â€¹Ã§Å¡â€ž rate. This paper presents an understanding on the general cultural differences between America and China by applying the cultural dimensions of Hofstede and Bond. It also discusses the impact of these cultural differences on their management practice from five aspects: cooperative strategies, conflict management, decision-making,†¦show more content†¦By comparing some Western countries and China along these five dimensions according to their cultural dimension scores (Data source: Hofstede, 1991), some tentative conclusions may be drawn. First, Western countries seem to be generally lower (United States of America 40, Canada 39, United Kingdom 35, Germany 35, and France 68) than China (80) in power distance. Second, in terms of individualism, Western countries are generally much higher (United States of America 91, Canada 80, United Kingdom 89, Germany 67, and France 71) than China (20). Third, Western countries seem to have short-term orientation while China is considered to be long-term oriented. Among these Western countries, America is frequently investigated in cross-cultural research, partly because of its economic power, partly because of its cultural representativeness. To a certain degree, the United States is considered as representing the so-called Western culture. Therefore, a comparison between USA and China seems to help clarify the cultural differences between the West and China and related cross-cultural challenges. China and USA differ greatly with regard to their economic systems, political systems, social values, and laws, despite the substantial changes that have occurred in China during recent years. Table 1 shows the cultural dimension scores of USA and China (Data source: Hofstede, 1993).Show MoreRelatedExpanding to China Essay1583 Words   |  7 PagesExpanding to China The purpose of this proposal is to explore the potential challenges involved in expanding business activities in China. 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Australian Indigenous Knowledge And Culture - 1381 Words

Australian indigenous knowledge and culture in education In the last 60,000 years Australian indigenous knowledge has advanced through generations. Unlike western culture where knowledge becomes known through written text s,Indigenous knowledge is developed by images, words, patterns, sounds, smells and tastes on different canvases such as sand, soil, the body and rocks (Blair 2008). Furthermore, Since British colonisation in 1788 threats to traditional indigenous knowledge existed then and more now in modern society. Main threats include agricultural and industrial developments, territorial pressures including deforestation, social and economic pressures including assimilation, poverty, education, loss of languages,political pressures,the recognition and standing of indigenous traditional knowledge including involvement in policy and legislative development, cultural integrity and globalisation. 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Food Retailers Target - Wal-Mart - Albertson and Rosauers

Question: Compare specific products of these four retailers supercenters limited Target, Wal-Mart, Albertson and Rosauers? Answer: There are many types of food retailers that became popular in the U.S., such as supercenters, limited assortment supermarkets, and warehouse clubs. When we compare the retailers food products, we will see that these retailers are different. For example if we compare some food products of four food retailers like Target, Wal-Mart, Albertson, and Rosauers we find that each one of these food retailers have their unique strategy and approach. The best way to understand alterations between these strategies is to compare specific products of these four retailers. The products that we will compare are milk, beef, bread, and yogurt. Target: Target is the second biggest supercenter in the U.S. They are able to provide high quality products with good prices. Based on their image and strategy, people go to buy milk from Target. They provide a wide variety of milk and milk alternatives. Their dairy milk offerings are whole milk, low fat milk, and fat free milk. They also offer organic milk, lactose free milk, and flavored milk having chocolate or strawberry flavor. For milk alternatives they provide soy milk, rice milk, and coconut milk. These categories have deep collection that specifies flavors, and vitamin enhancement. They have a big variety of milk products compared to other food retailers and a wide assortment that covers every type of milk people would normally buy from the market. Another product to analyze at Target is fresh beef products. They sell a variety of fresh beef that are divided into ground beef; beef steaks or other cuts, and combined with meat combination packs. Each category has different fat levels, and different kinds of beef. For example, sirloin, and flank are types of beef steaks that they offer. Although they offer adequate varieties of beef products, but a lot of organic or grass-fed beef options were not offered. In addition, we see wide varieties of bread products being offered by Target. They sell sandwich breads, bagel, French breads, hamburger buns, hotdogs buns, English muffins, corn tortillas, flour tortillas, dinner rolls, country rolls, and pita bread. These breads have wide assortment that like wheat or white, and it can be with added grains cinnamon, raisins, or blueberries. Furthermore, yogurt is another good example in Target. They have whole fat, low fat, and fat free yogurt options. Some of the products have flavors like strawberries, blueberries, or added honey. Moreover, they sell a few options of organic yogurt, and they have some yogurt sizes that are bigger than 32oz. Target sells a distinctive type of product brands that will be limited to their stores. According to Margulies, Ron, BecauseTargethas exclusive rights to sell these items; it's able to create its own niche in the grocery category. They have a special supply chain that will provide them exclusive milk products that is considered high quality. In consequence, their prices are slightly higher than other supercenters. For example, a whole milk is selling for $3.99 which is high compared to the other food retailers, and they have some sandwich bread that sells for $5.79 which is higher compared to the others. Target is a self-service retailer, but they try to provide a great shopping experience with friendly staffs that are willing to help and assist customers. Target is focusing on hiring diverse employees with different backgrounds in U.S., which is considered a melting pot country; to enjoy their shopping experience and to build a strong relationship with customers from every background. When Target focus on this direction, they will create a socially responsible image around the nation. They also have a multichannel retailing through advanced website and mobile application that is useful for browsing their products or buying online grocery goods. Their app won an award for the best in design, easiness, and efficiency. Target has three locations in Spokane area in the north, south and valley area. Their intention is to cover most of Spokane area neighborhoods. Moreover there are not many stores in Spokane because their target customers are adequate for these chosen locations. Besides the great services they offer, Target has an exciting design of their stores that is unique and distinctive. Their purpose is to create enjoyable, simple and comfortable design that differentiates them from others. Blackwelder said, More than 80% praise Target's layout, agreeing that they never have trouble finding products they are searching. This shows that Target is a very organized food retailer. Target used various promotions. The most popular was advertisements. They have intended to promote their brand especially in special events such as Christmas, and Thanksgiving holidays. They have offered special deals and offers for these events. Targets advertisements focused on young professional people who are looking for high value products. Hiesy declared, It may not sell $20 extra-extra-virgin olive oils, but it may offer several flavored olive oils at $6.(Hiesy) That means Target is trying to sell products that is considered high quality with reasonable prices. They can provide value to their customers when they established a youthful and fun environment in their stores. Wal-Mart: Walmart is considered the biggest retailer in the United States. Their revenue in 2014 was $476,294 million with 1.8% growth from 2013. Their strategy is to help customers save money by selling discounted products. According to Levy and Weitz the writes of Retailing Management book Walmart operates more than 3,000 supercenters in the United Sates. This show how big their business is and how they are serving a huge number of U.S population. When we compare their products with other retailers we find that they have the biggest variety and assortments of products. They provide a huge range of milk and milk products in stores, such as whole fat milk, low fat milk, and fat free milk. These types of milk can be offered in special flavors, and characteristics, such as lactose free, gluten free, or organic. In addition, they provide lots of milk alternatives products such as rice milk, coconut milk, soya milk, and vegan milk. They also sell varieties of fresh beef products like ground beef, beef bone in steaks, beef boneless steaks, beef ribs, beef filet, and roast beef. Some of these beef varieties can be organic or grass fed. Besides they vary in fat percentage and cut styles. The third product of comparison is bread. They have a big section for sandwich bread which comes in different sizes and tastes. They also provide roll bread, hamburger bun bread, hotdog bun bread, croissant, artisan bread, tortillas, and pita wraps. Th ese breads are offered in wheat, white, multi- grained, with added raisins, low fat, or dairy free and gluten-free bread to satisfy people who follow the gluten-free diet. Furthermore, yogurt selections at Walmart are massive. They provide low fat, fat free and whole fat yogurt. They can be Greek, organic, kosher (satisfy Jewish requirements); gluten free, natural, and low sodium which satisfy many different needs of the society. When people go grocery shopping at Walmart, they expect a self-service which they get. The employees do not ask customers if they need help or have any questions; however, they are always willing to help customer when they need assistance. They offer phone service where they answer question about products and prices. They have a Website and an App for e-commerce shopping. They provide information about products prices, varieties, and brands. They also assort offers and deals for sales and coupons. Doug McMillon the President and chief executive of Walmart stated, Were also intent on creating transformative growth by adding capabilities in e-commerce and mobile commerce.(Doug McMillon, 5). Walmart is focusing on e- commerce shopping in recent years. They want to have a great Internet service for people who prefer shopping online by satisfying different needs and wants, and allowing people to get more information about products. When it comes to their promotion, Walmart offers many dea ls that help customers to save money. Besides the Internet service, Walmart offer 24hours shopping which is one of the fewest that offer this type of service around the U.S. In Spokane area, Walmart is located in 5 locations that are distributed between north, west, south, and Spokane valley area. Their goal is to cover most areas in Spokane to serve the mass market. Additionally, Wal-Marts design is simple and basic. They do not focus on colors or decoration. All Walmart supercenters are organized and clean. They tend to go for practical designs that are good enough for their business goals. From the products comparisons, Wal-Marts target market is middle to low class people who care about saving money and evaluates the alternatives. Wal-Marts target peoples lifestyle is different from other retailers. Most of them thinks about saving for the future and are financially insecure. The annual report of Walmart indicates, Customers choose Walmart for our broad assortment, including national brands and locally relevant merchandise, at everyday low prices (EDLP). Customers shop from Wal-Mart because they want to get decent products with great prices, and Wal-Marts deals help them feel smart about spending money, they have created EDLP strategy for spending less money in grocery shopping. This strategy ensures that their prices are not necessarily the lowest but are somehow low compared to others. Many retailers try to understand their strategy of offering less prices because it have been an advantage for them to offer low prices for same products that is existing in other retailers. Because they have been focusing only on offering best prices their business profit became good, but they have ignored some important business decisions when it comes to social responsibilities and the company image. They can improve their image by increasing employee wage or sponsoring some community events. Albertsons: The first Albertson store was opened in Idaho, and the founder Joe Albertson was working at Safeway before he opened his store. Albertson is a conventional super market that carries about 30,000 SKU. When we compare their milk products they have an average variety and assortments. They offer whole milk, 2% milk, 1% milk and fat free milk. They even have milk alternatives such as soy milk, rice milk, and Almond milk. They tend to cover most of peoples needs, but they dont offer a lot of assortments to choose from each milk category. They lean towards small packs of milk rather than large 1-gallon milk. Beef is another product to look into. They provide an average variety and assortment of beef products compared to supercenters. They provide fresh ground beef, sirloin, beef steaks- boneless or with bones. Their beef offers are not so many to choose from. They can cover household needs but maybe not wants. Indeed, that is also the situation when it comes to their bread collections. They have sandwich bread, Focaccia bread, artisan bread, and English muffins. Their bread selections can be wheat, white, or multigrain. Even their yogurt choices are not big either. They have Greek yogurt, flavored yogurt, and fat free yogurt. They do not offer a lot of sizes and flavors. Albertsons prices are considered reasonable. For example the highest price for Albertsons sandwich bread is $4.99 and other retailer are above $5. Also, gallon organic milk is $3.49 which is a reasonable price compared to Target $4.49. Albertsons is also a self-service retail food store. Customers can ask questions and get help only if they ask employees. Besides their store service, Albertson conduct a multichannel retailing for customers. They have a great website and mobile application so customers can search for information and buy products from them. In their website they illustrate deals, sales, and coupons options for customers, and the website has advertisements and whats new in their store. When it comes to their store design, customers find it clean and basic and have a unique and special design. They go for a more comfortable laid back design. In Albertsons, it is easy to find needed products because of its size and its clear and simple design. Moreover, there are 6 Albertsons stores in Spokane which cover many neighborhoods in Spokane area. When analyzing their vision statements, it is clear that they have a geographic target market. They directed their business to serve many neighborhoods and be their best choice for easy weakly grocery shopping. They satisfy their customers when they provide a decent size store. Customers can find it easier and faster to find what they need. Offering an average variety of products for customers can be a disadvantage. Many customers will go to supercenters where they can have more options especially they have comparable prices and qualities to supercenters. Albertson can overcome their challenges by offering either lower prices or better qualities. Their business position in customers minds will be more understandable when they improve their qualities or lower prices by that way they will be known either for these two characteristics. Rosauers: Rosauers is a unique retail store offer mostly food products, they have 21 stores around the U.S, and its headquarter is in Spokane WA. It is considered a conventional food retailer that offers high quality food products. Their milk product varieties are average. They provide whole milk, 2% milk, 1% milk, and fat free milk. And they have chocolate milk flavor, organic, and lactose free. Their milk varieties are sufficient, but they are in scarcity when it comes to wide assortments. The beef products they offer are of high quality, with fewer varieties compared to supercenters. They have ground beef with different fat percentage, and different kinds of beef steaks such as sirloin and chuck beef stakes. Their bread quality is high but variety is not much available. They provide a delicious selection of bread such as, sandwich bread, bagel, English muffins, burger buns, hot dog buns, and many styles of French bread. They also offer some bread crisps that are flavored or plain. The breads can be wheat, white, or multigrain. They dont provide many options of organic bread or gluten free bread. Also, Rosauers have a decent selection of yogurt. They have different sizes Form less than 5.3oz to 32oz, and they can be whole fat, low fat, fat free, flavored, Greek or organic. Rosauers prices are the highest. Looking at one product example, they sell a flavored 5.3oz yogurt for 1.29-3.99, whereas Targets sell it for $1.14 and Albertsons for $1.33. Rosauers is also a self-service retailer, but their employees are always willing to help customers to find products and ask questions. According to their website, Our knowledgeable staff is happy to answer any question our customers might have and are always willing to assist with searching for the right product.Rosauers also have an online website service to provide information about their products. Their website specifies sales promotion like coupons, gift cards, and loyalty cards. Furthermore, they have advertised their company on T.V to promote their business and inform people about their products. When people visit Rosauers they get excited about their unique and classy design inside the store. The store design helps them to protect Rosauers image and position. In addition, it helps them to satisfy the target market who is looking for a high quality and sophisticated food retailer. Rosauers target market is middle to upper class people who have a higher income than average American. Also, their target markets lifestyle is different from others because they have certain opinion and behaviors about food and food qualities. Rosauers will provide value to their customers when they provide best food quality as promised, it is stated in their website, We pride ourselves on providing our customers with only the highest quality products. Because they offer high quality food products, their prices are high compared to other food retailers and this can be a disadvantage for them. To cover this problem, they can try to lower their costs by changing their supply chain, or produce a private label brand that offers an organic or natural food products. Milk Target Walmart Albertsons Rosauers Whole 3.99 1.99 3.89 1% 3.99 1.99 3.79 Fat free 3.99 1.99 2.79-3.79 Almond 3.04 2.99 g organic 4.49 3.49 Beef Target Walmart Albertsons Rosauers Ground beef per pound 4-6 4.99 4.50/4.55 Chuck 6.99 5.99-6.99 5.99per pound Sirloin 7.99 9.99 5.99 per pound Yogurt Target Walmart Albertsons Rosauers Organic 3.69 Flavored 5.3oz .99-1.14 1.33 1.29-2.29 32-35oz 6.49 3.69 2.29-3.99 Bread Target Walmart Albertsons Rosauers Sandwich 1.3-5.79 1.99-4.99 1.39-5.29 Burger bun 1.49-3.49 2.99 4.29 Bagel 2.99 4.69 English muffins 2.49 3.49 Reference Hisey, P. (2003). A glimpse of target's food strategy.Progressive Grocer,82(1), 19. Retrieved from https://search.proquest.com/docview/220963153?accountid=7305 Blackwelder, J. (2006). Why customers keep coming back to target.Retailing Today,45(22), 3-3,26. Retrieved from https://search.proquest.com/docview/228487221?accountid=7305 Margulis, R. (2012). Here comes TARGET.Canadian Grocer,126(9), 38-42,44. Retrieved from https://search.proquest.com/docview/1223377259?accountid=7305 Gallagher, J. (2014). Walmart, target neck and neck in SN price check.Supermarket News,Retrieved from https://search.proquest.com/docview/1494679003?accountid=7305 https://cdn.corporate.walmart.com/66/e5/9ff9a87445949173fde56316ac5f/2014-annual-report.pdf https://www.albertsons.com/our-company/traditions-history/ https://www.albertsons.com/our-company/our-mission/ Rosauers supermarkets, inc - company capsule.(2013). (). Basingstoke: Progressive Digital Media. Retrieved from https://search.proquest.com/docview/1552674190?accountid=7305

Non Interest Income free essay sample

Overview Of Banking Project Title: Comparative study of non interest income of the Indian Banking Sector Submitted by: Gaurav Sharma BBA(Finance, Gold Medal),MBA(Finance) [emailprotected] com Electronic copy available at: http://ssrn. com/abstract=1431288 Index Introduction Methodology SBI Associates Nationalized banks(Public sector banks) Private sector banks Foreign banks Findings Conclusion Literature review References 1 3 5 10 15 20 25 26 26 26 Electronic copy available at: http://ssrn. com/abstract=1431288 Introduction There are two broad sources of bank revenues: 1. Interest income 2. Non-interest income. Interest income is generated from what is known as â€Å"the spread. † The spread is the difference between the interest a bank earns on loans extended to customers, corporate etc and the interest paid to depositors for the use of their money. It is also earned from any securities that the banks own, such as treasury bills or bonds. Non-interest income is earned by providing a variety of services, such as trading of securities, assisting companies to issue new equity financing, securities commissions and wealth management, sale of land, building, profit and loss on revaluation of assets etc. We will write a custom essay sample on Non Interest Income or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page As compared to the developed world, the Indian banking sector, apart from the relying on traditional sources of revenue like loan making are also focusing on the activities that generate fee income, service charges, trading revenue, and other types of noninterest income. While noninterest income plays an important role in banking revenues in the developed world, its contribution to the total income of the Indian banking was 25% as on 31st March 2008. Components of non interest income The major components of non interest income in our banking sector are as follows: 1. 2. 3. 4. 5. 6. Commission/ exchange and brokerage Profit or loss on Sale of investments Profit or loss Sale of land buildings Profit/loss on revaluation of investments Profit or loss on Exchange transaction etc. Miscellaneous income source which includes advisory, trading etc. Share of various sources of non interest income The share of various sources of non interest income to the total income of banking sector as on 31st march 2008 is shown in the pie chart below: In the above figure we find that the highest contribution to the non interest income has been of the commission followed by sale of investments, miscellaneous income and exchange transactions. Movements of interest and non interest income of the Indian banking sector (1994-2004) Methodology Under this I have done a comparative study of non interest income of the Indian banking sector by classifying banks into four categories: 1. SBI and associates which includes State bank of India, State bank of Bikaner and Jaipur, State bank of Hyderabad, State bank of Mysore, State bank of Patiala, State bank of Saurashtra and State bank of Travancore. 2. Nationalized banks: (Public sector banks) which includes Allahabad bank, Andhra bank, Bank of Baroda, Bank of India, Bank of Maharashtra, Canara bank, Central Bank of India, Corporation bank, Dena bank, Indian bank, Indian Overseas bank, New bank of India, Oriental bank of Commerce, Punjab Sind bank, Punjab National Bank, Syndicate bank, UCO bank, Union bank of India, United bank of India, Vijaya bank. Total 19) 3. Other scheduled banks: (Private sector banks) which includes Development credit bank, Times bank, Axis bank, Indus land Bank, ICICI bank, Bank of Rajasthan, Catholic Syrian bank, Lakshmi Vilas bank, HDFC bank, Centurion bank, Bank of Punjab, Tamilnad Mercantile Bank, Federal bank, Punjab Cooperative bank, Lord Krishna bank, ING Vyasya bank, IDBI bank, Dhanlaks hmi bank. (total 18 banks) 4. Foreign banks: which includes Barclays bank, ING bank, ABN Amro bank, Bank of America, BNP Paribas, Standard Chartered bank, DBS bank ,Citibank, HSBC, Deutsche bank, Mashreq bank, Bank of Nova Scotia, Bank of Bahrain Kuwait, American Express bank (total 14 banks) The banks used under private sector and foreign sector category are reflective of major portion of their respective market/category. Moreover data was not available for other banks within that category. The period of study taken was 11 years i. e. 994-2004. The period of study was taken as 11 years because, for the above mentioned period the data was available for all the bank and to ensure uniformity. Objectives of the study: 1. To analyze the growth of non interest income as a source of revenue for the Indian banking sector over a period of 11 years (1994-2004). 2. To analyze the contribution of major components of the non interest income over a period of 11 years (1994-2004). 3. To find out statistically that how much of the profits of the banking sector over a period of 11 years is determined by non interest income and interest income. 4. To find out statistically the contribution of various components of Non interest income towards the profits of the bank over a period of 11 years. 5. To find out the contribution of interest and non interest income towards the total income in each of the 11 years (1994-04). 6. To find out the correlation between the non interest income and the total income of the banking sector over a period of 11 years. . To find out the reasons for the increase in the non interest income and what are the challenges involved to generate non interest income. Tool used: Data regarding the interest income, non interest income, profits, various components of non interest income, total income of the banking sector has been collected from the RBI website. To find out the influence of interest and non interest income on the profits of the bankin g sector, I have made use of multiple regression tool in E-views software. The interest and non interest income were independent variable and the profits of the bank was the dependent variable Two Multiple Regression equation was used for the study: Equation 1 Profits=a+b1*interest income+b2*noninterest income Where b1 and b2 were coefficient and a is the intercept term which shows the profits of the bank had been c if interest and non interest income had been 0 Equation 2 Profits: a+b1*commission+b2*profit/loss on sale of land+ profit/loss on sale of investment+ profit/loss on revaluation of investment profit/loss on exchange transactions+ Miscellaneous income Where profits was the dependent variable and various components of non interest income were independent variable and a is the constant term The equation 2 was used to find out the influence of various components of non interest income on the profits of the bank. SBI and Associates (Rs‘000) In the above table we see the following: Column1: Average Column 2: Year Column 3: Other income or the non interest income of the bank Column 4: Commission, exchange and brokerage Column 5: Net profit/loss on sale of investment Column6: Net profit/loss on revaluation of investment Column7: Net profit/loss on sale of land, building and other assets Column 8: Net profit/ loss on exchange transactions Column 9: Miscellaneous income Column 10: Total income of the bank Column 11: Profit/loss of the bank Column 12: Interest income of the bank Column 13: Noninterest income as a percentage of total income Column 14: Interest income as a percentage of total income Influence of interest and non interest income on profits of SBI Associates The above output is of the multiple regression equation where we have tried to find out that how much of the profits of the SBI and its associates are determined by interest and non interest income. 1. We find non -interest income to be a significant variable in explaining the profits of SBI as the prob value is less the . 05 (. 0095)and the value of t stat is more than 2(3. 386)[ Rule: an independent variable is said to be significant is its prob value is less than . 05 or the t-stat is more than 2). 2. We find that in our regression model the percentage of variation in the profits of SBI and its associate that is explained by interest and non interest income is 92. 81% ( Rule: for a regression model to be efficient the r-square shall be at least . 6) 3. From the above output we find that Noninterest income had a significant influence on the profits of SBI and its associates over a period of 11 years. Influence of non interest components on profit of SBI Associate Model Summary Std. Error of the Estimate 4040785. 5 . 981 . 943 5743 a Predictors: (Constant), misc, plland, plexchange, pllinvest, plreav, comm Mode l R 1 . 990(a) Adjusted R Square R Square Coefficients(a) Mode l Standardized Coefficients Unstandardized Coefficients t Sig. B Std. Error Beta 1 (Constant) 20565743. 52 10099548. 868 -2. 036 . 135 6 comm 2. 109 . 603 1. 153 3. 495 . 040 pllinvest . 970 . 255 . 944 3. 805 . 032 plreav 27. 569 76. 257 . 100 . 362 . 742 plland 76. 158 97. 743 . 221 . 779 . 493 plexchang -1. 077 . 815 -. 135 -1. 322 . 278 e misc -4. 728 2. 151 -1. 042 -2. 198 . 115 a Dependent Variable: profit In the above regression output the independent variable used were various components of non interest income i. e. commission/exchange /brokerage, profit/loss on sale of investment, profit and loss on revaluation of investment, profit/loss on sale of land/building, profit/loss on exchange transaction and miscellaneous income. And the dependent variable used was the profits of the SBI associates The objective is to find out that which one of the non interest component had a major influence on the profit of SBI associates over a period of 11 years. We find the following: 1. The percentage of variation in the profits of the SBI associates explained by the 6 independent variables is 98. 1% which is significant(as R square shall be more than . 6) 2. We find that commission/exchange/brokerage and profit/loss on sale of investment had a major influence on the profits of the SBI and its associates over a period of 11 years. As they are having a prob values less than . 05(level of significance) and is having a t-stat more than 2. This means that SBI and its associates shall focus more on commission exchange and brokerage for its non interest income. Contribution of various components of non-interest income of SBI Associate(94-04) The above pie graph has been prepared by taking into account the average values of non interest income components over a period of 11 years (94-04). From the above graph we find that commission/exchange and brokerage had around 59% (highest) contribution to the non interest income followed by sale of investment (20%). Exchange transaction was having a contribution of 12% and miscellaneous income was having an influence of 9%. The sale of land/buildings, revaluation of investment was having a very negligible influence on the non interest income. Movements of interest and non interest income of SBI Associates(94-04) If we look at the movement of interest and non interest income of SBI and associates over a period of 11 years we will find that the non interest income has grown at a CAGR of 18. 46% and the interest income has grown at a CAGR of 13. 15%. The noninterest income over a period of 11 years has grown by 444. 563% whereas interest income has increased by 244. 14% which shows how aggressively the bank is working on its non interest income. Contribution of interest and non interest income of SBI Associate From the above table we find the contribution of interest and non interest income as a percentage of total income in each of the 11 years period. We find the share of non interest income has increased over a period of time from 14% to 21% and share of interest income has decreased from 85% to 78%. On an average over a period of 11 years the contribution of non interest income as been 15% and interest income has been 85% to the total income of the SBI and its associates. Correlation between non interest income and total income 0. 935642 There is a very positive correlation between non interest income and the total income of SBI and its associates which shows that higher the non interest income higher the total income of the SBI associate. Nationalized banks: Public sector banks (Rs‘000) In the above table we see the following: Column1: Average Column 2: Year Column 3: Other income or the non interest income of the bank Column 4: Commission, exchange and brokerage Column 5: Net profit/loss on sale of investment Column6: Net profit/loss on revaluation of investment Column7: Net profit/loss on sale of land, building and other assets Column 8: Net profit/ loss on exchange transactions Column 9: Miscellaneous income Column 10: Total income of the bank Column 11: Profit/loss of the bank Column 12: Interest income of the bank Column 13: Noninterest income as a percentage of total income Column 14: Interest income as a percentage of total income Influence of interest and non interest income on profits of Public sector banks (94-04) The above output is of the multiple regression equation where we have tried to find out that how much of the profits of the public sector banks are determined by interest and non interest income. Non interest and Interest income are independent variables and profit is the dependent variable From the above output we find: 1. We find non -interest income to be a significant variable in explaining the profits of public sector banks as the prob value is less the . 05 (. 0268) and the value of t stat is more than 2(2. 7056) [Rule: an independent variable is said to be significant if its prob value is less than . 05(level of significance) or the t-stat is more than 2]. 2. We find that in our regression model the percentage of variation in the profits of public sector banks that is explained by interest and non interest income is 88. 86%( Rule for a regression model to be efficient the r-square shall be at least . 6) 3. From the above output we find that noninterest income had a significant influence on the profits of public sector banks over a period of 11 years. Influence of non interest components on profit of Public sector banks(94-04) Model Summary Std. Error Mode Adjusted of the l R R Square R Square Estimate 1 14640946. .974(a) . 948 . 870 95589 a Predictors: (Constant), misc, plland, plreav, pllinvest, plexchange, comm. Coefficients(a) Mode l Standardized Coefficients Beta . 024 . 014 -. 348 . 105 . 276 . 470 -1. 453 . 26 . 035 -1. 651 . 763 . 668 . 458 . 220 . 981 . 974 . 174 . 488 . 541 . 671 Unstandardized Coefficients Std. Error 58218744. 505 5. 866 . 478 8. 434 63. 394 8. 910 7. 536 t Sig. B 1 (Constant) -84595095. 339 comm . 151 pllinvest . 017 plreav -13. 928 plland 48. 353 plexchang 5. 954 e misc 3. 451 a Dependent Variable: profit In the above regression output the independent variable used were various components of non interest income i. e. commission/exchange /brokerage, profit/loss on sale of investment, profit and loss on revaluation of investment, profit/loss on sale of land/building, profit/loss on exchange transaction and miscellaneous income. And the dependent variable used was the profits of the public sector banks The objective is to find out which one of the non interest component had a major influence on the profit of public sector banks over a period of 11 years. We find the following: 1. The percentage of variation in the profits of the public sector banks explained by the 6 independent variables is 94. 8% which is significant(as r square shall be more than . 6) 2. We find that none of the non interest component was individually sufficient in explaining the profits of the public sector banks as we find that none of the non interest component is having a significance value of less than . 5 or having a t-stat of more than 2. Contribution of various components of non interest income of Public Sector banks (94-04) The above pie graph has been prepared by taking into account the average values of non interest income components over a period of 11 years (94-04). From the above graph we find that commission/exchange and brokerage had around 36% (highest) contribution to the non interest income followed by sale of investment (35%). Miscellaneous income was having a contribution of 16% followed by exchange transaction i. e. 12%. The sale of land/buildings, revaluation of investment was having a very negligible influence on the non interest income. Movements of interest and non interest income of Public sector banks(94-04) If we look at the movement of interest and non interest income of public sector banks over a period of 11 years we will find that the non interest income has grown at a CAGR of 19. 85% and the interest income has grown at a CAGR of 12. 68%. The noninterest income over a period of 11 years has grown by 511. 87% whereas interest income has increased by 230. 03% which shows how aggressively the bank is working on its non interest income. Contribution of interest and non interest income of the Public Sector banks(94-04) From the above table we find the contribution of interest and non interest income as a percentage of total income in each of the 11 years period. We find the share of non interest income has increased over a period of time from 11% to 20% and share of interest income has decreased from 88% to 79%. On an average over a period of 11 years the contribution of non interest income as been 13% and interest income has been 87% to the total income of the public sector banks. Correlation between non interest income and total income of Public sector banks 0. 940162 There is a very positive correlation between non interest income and the total income of public sector banks which shows that higher the non interest income higher the total income of the public sector banks. Private sector banks (Rs ‘000) In the above table we see the following: Column1: Average Column 2: Year Column 3: Other income or the non interest income of the bank Column 4: Commission, exchange and brokerage Column 5: Net profit/loss on sale of investment Column6: Net profit/loss on revaluation of investment Column7: Net profit/loss on sale of land, building and other assets Column 8: Net profit/ loss on exchange transactions Column 9: Miscellaneous income Column 10: Total income of the bank Column 11: Profit/loss of the bank Column 12: Interest income of the bank Column 13: Noninterest income as a percentage of total income Column 14: Interest income as a percentage of total income Influence of interest and non interest income on profits of Private sector banks(94-04) The above output is of the multiple regression equation where we have tried to find out that how much of the profits of the private sector banks are determined by interest and non interest income. Non interest and Interest income are independent variables and profit is the dependent variable From the above output we find: 1. We find non -interest income to be a significant variable in explaining the profits of private sector banks as the prob value is less the . 05 (. 0128) and the value of t stat is more than 2(3. 88) [Rule: an in dependent variable is said to be significant if its prob value is less than . 05(level of significance) or the t-stat is more than 2]. 2. We find that in our regression model the percentage of variation in the profits of private sector banks that is explained by interest and non interest income is 95. 95 %( Rule for a regression model to be efficient the R-square shall be at least . 6) 3. From the above output we find that noninterest income had a significant influence on the profits of private sector banks over a period of 11 years. Influence of non interest components on profit of Private sector banks (94-04) Model Summary Std. Error of the Estimate 309483. 83 . 912 . 881 835 a Predictors: (Constant), misc, plreav, plexchange, pllinvest, plland, comm Mode l R 1 . 964 Adjusted R Square R Square Coefficients(a) Mode l Unstandardized Coefficients Std. B Error (Constant) 177724. 775200. 9 748 43 comm . 493 . 252 pllinvest . 623 . 147 plreav 4. 129 2. 209 plland 108. 894 14. 560 plexchang -2. 522 . 513 e misc 3. 314 . 310 Standardized Coefficients Beta -4. 362 . 311 . 672 . 062 . 923 -. 268 1. 114 1. 955 4. 240 1. 869 7. 479 -4. 915 10. 680 . 012 . 122 . 013 . 135 . 002 . 008 . 000 t Sig. 1 In the above regression output the independent variable used were various components of non interest income i. . commission/exchange /brokerage, profit/loss on sale of investment, profit and loss on revaluation of investment, profit/loss on sale of land/building, profit/loss on exchange transaction and miscellaneous income. And the dependent variable used was the profits of the private sector banks The objective to find out w hich one of the non interest component had a major influence on the profit of private sector banks over a period of 11 years. We find the following: 1. The percentage of variation in the profits of the private sector banks explained by the 6 independent variables is 91. 2% which is significant(as r square shall be more than . 6) 2. We find that sale of investment , land building and miscellaneous income and exchange transactions have a major influence on the profits of private sector banks over a period of 11 years as these variable are having a significance level of less than . 05 and a t-stat of more than 2. 3. According to the above output miscellaneous income had a major influence o the profits of the as it’s is having the maximum t-stat i. e. 10. 680 so bank shall focus on it for its non interest income. Contribution of various components of non interest income of Private Sector banks (94-04) The above pie graph has been prepared by taking into account the average values of non interest income components over a period of 11 years (94-04). From the above graph we find that sale of investment has around 41%(highest) contribution to the non interest income followed by commission/exchange /brokerage 34% followed by miscellaneous income(17%) and exchange transactions 8%. The sale of land/buildings, revaluation of investment was having a very negligible influence on the non interest income. Movements of interest and non interest income of Private Sector banks(94-04) If we look at the movement of interest and non interest income of private sector banks over a period of 11 years we will find that the non interest income has grown at a CAGR of 43. 50% and the interest income has grown at a CAGR of 33. 95%. The non interest income over a period of 11 years has grown by 3604. 74%% whereas interest income has increased by 1760. 4% which shows how aggressively the private sector banks are working on its non interest income. Contribution of interest and non interest income of Private sector banks (94-04) From the above table we fin d the contribution of interest and non interest income as a percentage of total income in each of the 11 years period. We find the share of non interest income has increased over a period of time from 13% to 23% and share of interest income has decreased from 86% to 76%. On an average over a period of 11 years the contribution of non interest income as been 17% and interest income has been 83% to the total income of the private sector banks. Correlation between non interest income and total income of Private sector banks 0. 87067 There is a very positive correlation between non interest income and the total income of private sector banks which shows that higher the non interest income higher the total income of the private sector banks. Foreign banks (Rs ‘000) In the above table we see the following: Column1: Average Column 2: Year Column 3: Other income or the non interest income of the bank Column 4: Commission, exchange and brokerage Column 5: Net profit/loss on sale of inv estment Column6: Net profit/loss on revaluation of investment Column7: Net profit/loss on sale of land, building and other assets Column 8: Net profit/ loss on exchange transactions Column 9: Miscellaneous income Column 10: Total income of the bank Column 11: Profit/loss of the bank Column 12: Interest income of the bank Column 13: Noninterest income as a percentage of otal income Column 14: Interest income as a percentage of total income Influence of interest and non interest income on profits of Foreign banks (94-04) The above output is of the multiple regression equation where we have tried to find out that how much of the profits of the foreign banks are determined by interest and non interest income. Non interest and Interest income are independent variables and profit is the dependent variable From the above output we find: 1. We find non -interest income to be a significant variable in explaining the profits of foreign banks as the prob value is less the . 05 (. 0006) and the value of t stat is more than 2(5. 59) [Rule: an independent variable is said to be significant if its prob value is less than . 05(level of significance) or the t-stat is more than 2]. 2. We find that in our regression model the percentage of variation in the profits of foreign banks that is explained by interest and non interest income is 94. 64%( Rule for a regression model to be efficient the r-square shall be at least . 6) From the above output we find that noninterest income had a major and significant influence on the profits of foreign banks over a period of 11 years Influence of non interest components on profit of Foreign banks (94-04) Model Summary Std. Error of the Estimate 891916. 79 . 990 . 75 648 a Predictors: (Constant), misc, plland, plreav, pllinvest, comm, plexchange Mode l R 1 . 995(a) Adjusted R Square R Square Coefficients(a) Standardize d Coefficient Unstandardized Coefficients s B 1 (Constant) 2987693. 345 Std. Error 1103189. 29 7 . 245 . 298 9. 845 5. 393 . 384 . 952 Beta t 2. 708 -. 131 . 158 -. 094 -. 123 . 485 . 580 -. 744 1. 248 -1. 534 -1. 776 2. 101 2. 790 Sig. .054 . 498 . 280 . 200 . 150 . 103 . 049 Mode l comm -. 182 pllinvest . 371 plreav -15. 101 plland -9. 579 plexchang . 808 e misc 2. 657 a Dependent Variable: profit In the above regression output the independent variable used were various components of non interest income i. e. ommission/exchange /brokerage, profit/loss on sale of investment, profit and loss on revaluation of investment, profit/loss on sale of land/building, profit/loss on exchange transaction and miscellaneous income. And the dependent variable used as the profits of the foreign banks The objective is to find out which one of the non interest component had a major influence on the profit of foreign banks over a period of 11 years. We find the following: 1. The percentage of variation in the profits of the foreign banks explained by the 6 independent variables is 99. 0% which is significant(as r square sh all be more than . 6) 2. We find that only miscellaneous income have a major influence on the profits of foreign banks over a period of 11 years as it is having a significance level of less than . 05(. 049) and a t-stat of more than 2(2. 790). Contribution of various components of non interest income of Foreign banks (94-04) The above pie graph has been prepared by taking into account the average values of non interest income components over a period of 11 years (94-04). From the above graph we find that commission/exchange /brokerage was having around 48% (highest) contribution to the non interest income followed by exchange transactions 29%. The contribution of sale of investment was 17% followed by miscellaneous income 6% . The sale of land/buildings, revaluation of investment was having a very negligible influence on the non interest income Movements of interest and non interest income of foreign banks (94-04) If we look at the movement of interest and non interest income of foreign banks over a period of 11 years we will find that the non interest income has grown at a CAGR of 19. 57% and the interest income has grown at a CAGR of 13. 49%. The non interest income over a period of 11 years has grown by 497. 394%% whereas interest income has increased by 254. 54% which shows how aggressively the bank is working on its non interest income Contribution of interest and non interest income of foreign banks (94-04) From the above table we find the contribution of interest and non interest income as a percentage of total income in each of the 11 years period. We find the share of non interest income has increased over a period of time from 21% to 31% and share of interest income has decreased from 78% to 68%. On an average over a period of 11 years the contribution of non interest income as been 23% and interest income has been 77% to the total income of the foreign banks. Correlation between non interest income and total income of foreign banks 0. 972437 There is a very positive correlation between non interest income and the total income of private sector banks which shows that higher the non interest income higher the total income of the private sector banks. Findings We have seen that the contribution of non interest income of our banking sector has increased significantly over a period of 11 years. We have also seen that in each type of banks i. e. SBI, public sector banks, private sector banks and foreign banks the contribution of non interest income towards the total income has increased over a period of time and that of the interest income has decreased over a period of time. If we look at the total banking sector we will find that in our banking system the non interest income is having a significant influence on the profits of the banks. On an average the share of the non interest income towards the total income of the banking sector has increased from 12% in 1994 to 20% in 2004. If we look at the components of non interest income of our banking sector we will find that commission/exchange and brokerage earned by the banks had a major contribution i. e. 4% to the total noninterest income of the bank , after the commission the next big contribution to the non interest income had been of the sale of investments which was 28%, followed by exchange transactions having a share of 15%. Miscellaneous income was having the 13% cont ribution to the total noninterest income of the banking sector. The contribution of sale of land, revaluation of investments was having a negative or even a negligible influence on the noninterest income of the banking sector. On an average the non interest income of the banking sector has grown at a CAGR of 25% as compared to interest income which has grown at a CAGR of 18%. The percentage increase in the non interest income of the banking sector has increased by 1264. 64% and interest income has increased by 622%. The private sector banks had seen a significant contribution in the increase of its non interest income over a period of 11 years as compared to other types of banks. Among the various non interest components that had an influence on the profits of the banking sector we find that commission, sale of investment, miscellaneous income had a significant influence on it. We also find that there was a positive correlation between the non interest income and the total income of the banking sector. We also find that in case of public sector banks none of the non interest component was found to be statistically significant enough to influence the profits over a period of 11 years. Reasons for increase in the non interest income Now if we look at the reason for the increase in the non interest income of the banking sector we will find that it has majorly increased due to following reasons: 1. Increased pressure on net interest margins of the banking sector. 2. With economy growing at an unprecedented rate of 9. 4 per cent during 2006-07 and acceleration in the growth rate being attributable to the buoyancy in the industrial and service sector, the demand for fee-based services of banks has gone up and as a result of which the non interest income has also risen up. 3. Noninterest income is an effective way used by banks to respond to its squeezing margins 4. At the bank level, greater reliance on noninterest income, particularly trading revenue, is associated with lower risk-adjusted pro? ts attached to it. Challenges involved 1. Not aggressive direct customer interaction of public sector banks. 2. High cost and less expertise involved in launching of innovative products/services as per the customers’ expectations. 3. Technology requirements. Conclusion After studying the non interest growth pattern of the Indian banking sector over a period of 11 years we can say that it is slowly and gradually becoming one of the important avenues for our Indian banks to generate revenue from. In this respect we see that not only private banks and foreign banks are ahead but also our public sector banks are gradually catching it. We can say that it to be an important source available with our banking sector to respond to the squeezing margins and meeting the shareholders expectations. Literature review 1. Business Efficiency of Public Sector Commercial Banks: A Data Envelopment Approach : Ram Pratap Sinha (2008) The article says that following the nationalization of 20 major commercial banks in 1969 and 1980, the government followed policies of financial repression up to the 1980s. During this period the public sector commercial banks had rapid expansion of branches, especially in the rural and semi urban areas and had reasonable success in the matter of deposit mobilization and disbursement of loans. However, the operating efficiency of public sector commercial banks, declined during the period due to various reasons. In the 1990s, the banking environment was radically transformed by certain bold initiatives taken by RBI including the dismantling of entry barriers, rate deregulation, introduction of prudential accounting norm and the implementation of Basel I capital adequacy norms. The changed competition and accounting environment compelled the commercial banks to provide unprecedented attention to cost cutting and supplementing fund-based income by fee-based income. 2. Product mix and earnings volatility at commercial bank: evidence from a degree of leverage model: Robert De young Karin P Roland(1999) The article says that the commercial banks lending and deposit taking business has declined in recent years. Deregulation and new technology have eroded bank’s comparative advantages and made it easier for non bank competitors to enter these markets. In response, banks have shifted their sales mix towards noninterest income-by selling non bank fee based financial services such as mutual funds, by charging fees for services that used to be bundled together with deposit or loan products . It says that the conventional wisdom in the banking industry is that earnings from fee based products are more stable than loan based earnings and that fee based activities reduce bank risk via diversification. References 1. RBI website 2. Icfai Journal of Banking studies Sept 2008 issue pg 22-26 3. Ideas. repec. org