Ijfbvol 3

Volume 3, 2006
ISSN 1550-5812
INTERNATIONAL
JOURNAL OF
FAMILY BUSINESS
Shawn Carraher, Editor

Cameron University
Volume 3, 2006
ISSN 1550-5812
_____________________________________________________________________________________________
iii
The International Journal of Family Business
Shawn M. Carraher, Editor

Cameron University
Samuel Lane, Associate Editor
Lane Import
Sherry E. Sullivan, Associate Editor
Bowling Green State University
Sponsored by the International Family Business Center & the Special Interest Group in
International Research of the International Division of the U.S. Association for Small Business
& Entrepreneurship
International Journal of Family Business, Volume 3, 2006 iii
iv
Authors retain copyright for their manuscripts. Any omissions or errors are the sole
responsibility of the individual authors. The Editorial Board is responsible for the selection of
manuscripts for publication from among those submitted for consideration. The Publishers
accept final manuscripts in digital form and make adjustments solely for the purposes of
pagination and organization.
Copyright 2006 by the International Family Business Center

iv International Journal of Family Business, Volume 3, 2006
_____________________________________________________________________________________________v
EDITORIAL REVIEW BOARD

Shawn M. Carraher, Editor
Cameron University
Samuel Lane, Associate Editor
Lane Import
Sherry E. Sullivan, Associate Editor
Bowling Green State University
Zafar U. Ahmed
Texas A & M University
Terrence Paridon
Cameron University
M. Ronald Buckley
University of Oklahoma
John Parnell
University of North Carolina - Pembroke
Sarah C. Carraher
Consolidation Enterprises
George Puia
Saginaw Valley State University
Chester Cotton
Steve Schwiff
Madeline Crocitto
SUNY-Old Westbury
Cuthbert Scott
Indiana University, Northwest
Michael Harvey
University of Mississippi
Howard Tu
University of Memphis
Johnathon R.B. Halbesleben

University of Missouri
Rosalie L. Tung
Simon Fraser University
Lanying Huang
National Changhua University of Education
Howard Van Auken

Iowa State University
Frank Hoy
University of Texas El Paso
Dianne Welsh
University of Tampa
Jorge Mendoza
Daniel A. Wren
International Journal of Family Business, Volume 3, 2006
vi
INTERNATIONAL JOURNAL OF
FAMILY BUSINESS
CONTENTS
EDITORIAL REVIEW BOARD...............v
LETTER FROM THE EDITORviii
AN EXAMINATION OF THE POWER OF THE DARK SIDE OF ENTREPRENEURSHIP ..1
Frank S. Lockwood, Western Carolina University
Russell Teasley, North Georgia College and State University
JoAnn C. Carland, Western Carolina University
James W. Carland, Western Carolina University
ENTREPRENEURSHIP AND LEADERSHIP: WHY WE HAVE AN ETHICAL
OBLIGATION TO ASSESS CHANGE IN ENTREPRENEURIAL
RESEARCH...19
Shawn M. Carraher, Cameron University
M. Ronald Buckley, University of Oklahoma
William Mea, U.S. Department of Labor
Sarah C. Carraher, Consolidation Enterprises
Charles E. Carraher, Jr. Florida Atlantic University
THE COMPENSATIVE RELATIONSHIPS OF EAST ASIAN ENTERPRISES..32
Shaw Foong Chan, Cameron University
THE ROLE OF SOCIAL ENTREPRENEURSHIP.50
Andrew Svilokos, U.S. Army
DIRECT SELLING WORLDWIDE: THE MARY KAY COSMETICS STORY..61
Dianne H.B. Welsh, University of Tampa
Yvonne Pendleton, Mary Kay, Inc.
FROM THE ARTISTS HAND: MANAGING ARTS AND CRAFTS BUSINESSES 69
Karrie Karsteter, Cameron University
Natascha Brown, Cameron University
THE CASE OF THE ELEGANT SHOPLIFTER SHUWAIKH, KUWAIT ..79
vi International Journal of Family Business, Volume 3, 2006
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vii

Peter Raven, Seattle University
Faisel Al-Bisher, Eastern Washington University
CHANIAN CHOCOLATE: ETHICAL LEADERSHIP IN NEW BUSINESS START-UPS. .81
Shaw-Foong Chan, Cameron University
SHOPPING FOR SUNGLASSES AT THE BURJAMAN CENTER: THE CASE OF A
SHADY BUYER.98
Ibrahim Al-Fahim, Al-Faheem General Trading Company
International Journal of Family Business, Volume 3, 2006 vii
viii
LETTER FROM THE EDITOR

Ethical Issues in Entrepreneurship Education
Welcome to the first third volume of the International Journal of Family Business. It was in
May of 2002 that the journey towards the creation of this journal began. Hal Langford, the Dean
of the College of Business & Technology at Texas A & M University - Commerce came back
from China and announced that the creation of the new International Family Business Center
which was a joint center with China University of Geosciences. This journal was then created in
order to promote the examination of international entrepreneurship in Chinese sense [in China all
non-governmentally owned businesses could be considered to be "family businesses"]. It is out
of this that the name of the journal was created. The IJFB is a peer-refereed journal with both
hard copy and on-line versions of the journal. Currently we are planning to have two issues of
the journal per year starting with the 4th volume.
In terms of orientation we have a strong bent towards empirical articles - although we also do
consider literature reviews and theoretical papers. For the first issues we had a 25% acceptance
rate and currently have an acceptance rate of under 20% [8 of 45 submissions]. We plan to
continue to have a rigorous review process. All reviews are done double-blind with papers sent
to 3 reviewers. Reviews and paper submissions are done electronically. In addition to the
International Family Business Center we have also received support from the U.S. Association
for Small Business & Entrepreneurship, the SouthWest Academy of Management, the Academy
of Management and the Special Interest Group in International Research of the International
Division of the U.S. Association for Small Business & Entrepreneurship. We open this issue
with the Best Paper award winner from the 2006 Association for Small Business &
Entrepreneurship and include papers which have received recognition at the Small Business
Institute conference, the International Council for Small Business, the SouthWest Academy of
Management, the Academy of Entrepreneurship, and the Association for Small Business &
Entrepreneurship.
On behalf of the editorial review board and our sponsors we trust that you shall find these
articles to be of value to you and that you may consider submitting some of your work to the
journal in the future. For teaching cases the teaching notes are available from the first author.
Shawn M. Carraher, Brewczynski Endowed Chair in Entrepreneurial Studies, Director & Editor
viii International Journal of Family Business, Volume 3, 2006
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ix
Manuscripts
International Journal of Family Business, Volume 3, 2006 ix
_____________________________________________________________________________________________1
AN EXAMINATION OF THE POWER OF THE

DARK SIDE OF ENTREPRENEURSHIP
Frank S. Lockwood, Western Carolina University
Russell Teasley, North Georgia College and State University
JoAnn C. Carland, Western Carolina University
James W. Carland, Western Carolina University
ABSTRACT
"Never underestimate the power of the Dark Side!" Luke Skywalker learned that lesson
well in a galaxy far, far away and long, long ago, but modern entrepreneurship theorists may be
less well informed than the characters in Star Wars. Like the Force, Entrepreneurship is a
tremendous power for good. But, like the Force, Entrepreneurship does have a Dark Side and
it is powerful, indeed.
With rare exceptions, the literature about entrepreneurship is positive and supportive and
implies that uniform benefits accrue to the economy, to businesses, and to individuals as a result
of entrepreneurship. This is only half the story. A small number of researchers have examined
the dysfunctional aspects of entrepreneurship and pointed out that a Dark Side definitely exists
(Kets de Vries, 1985; Solomon & Winslow, 1988; Winslow & Solomon, 1987; 1989).
This paper will look at those who turned to the Dark Side for their very existence. The
authors have surveyed prisoners who have been convicted of a felony and who are serving
sentences in a Federal Prison in the Midwest. The participants were enrolled in a continuing
education course involving entrepreneurship and small business startup ideas and they all
espoused a desire to go straight when their sentences had been served. How did they become
criminals? Did they view their criminal activities as entrepreneurial ventures? Will they
become legitimate entrepreneurs in the future? Can entrepreneurship education alleviate the
problems faced by these offenders when released and is there a greater or lesser chance of
recidivism when these inmates are given the opportunity to study entrepreneurship while still
incarcerated? If they exist, are Dark Side Entrepreneurs different from main stream
Entrepreneurs? These were the questions which drove our research.
INTRODUCTION
A major problem facing society today is the impact that the growing number of inmates
serving sentences have on the economic vitality of our nation. The problem has been
exacerbated because our jails are not only filled with first time-offenders but with a large
population of repeat offenders, those returned to prison because they were unable to maintain a
crime-free lifestyle after being released. According to the Bureau of Justice (2000), in the
United States released prisoners were re-arrested at an average rate that was greater than 60%.
The high percentage of re-arrested former prisoners is a clear indication that just serving ones
sentence is not a deterrent to committing more criminal acts. The economic cost to society and to
International Journal of Family Business, Volume 3, 2006 1
those directly affected by criminal activity is tremendous. According to the Bureau of Justice
(2000), one of every fifteen people in the U.S. will be incarcerated. That figure is staggering.
During the past 25 years, the penal system in the United States has implemented a strategy of
lock em up and throw away the key. As a result, there has been an unprecedented growth in
the prison population in the number of incarcerated inmates even though the crime rate has been
decreasing. Further exacerbating the situation is that incredibly high rate of recidivism.
According to the Three State Recidivism Study (Steurer, Smith, and Tracy, 2001) released
inmates reported that less than half had a job awaiting them after they were freed from prison.
While most (about 87% of those who had received training while in prison and 83% of those
who did not participate in training) believed that they had a place to stay after they were released,
the remainder were released as homeless, left to roam the streets, mostly in urban areas.
The economic cost of incarceration and the cost to society of criminal activity, plus the
lost wages due to imprisonment of convicted workers and the cost of providing welfare for their
families is creating a substantial burden on local, state and federal budgets. The combination of
rising costs multiplied by an ever greater number of incarcerated inmates is putting pressure on
the penal system to find an alternative, better strategy for success after release. Is there a
strategy that can lead to a lower prisoner population through a decrease in recidivism? Is there a
strategy that can help released inmates generate income to support themselves and their families?
RECIDIVISM RESEARCH
Mounting evidence is demonstrating the potential for education and training programs to
reduce the number of incarcerated inmates by reducing the rate of recidivism among those
inmates released to return to society. One example of such evidence is the well regarded ThreeState Recidivism Study published through a partnership between the Correctional Education
Association and the Management and Training Corporation. In this study, Steurer, Smith, and
Tracy (2001) demonstrated empirical support for educating incarcerated offenders. Their
conclusions were that: 1) although the effect of education on recidivism varied across states, all
states showed a reduction in recidivism for prisoners participating in education; and, 2) that postrelease, the earnings of the education participants were higher than non-participants, implying
that higher wages result in higher standards of living for the released inmates and their families.
The pressure ensuing from increased costs of incarceration relative to a growing prisoner
population, as a result of high rates of recidivism has led to a new effort to learn about postrelease behavior and employment of former inmates. The hypothesis would be that increased
exposure to training and educational programs will result in a lower rate of recidivism, thus a
lowering of the repeat offenders in the prison system. Several studies over the last twenty five
years have had significant results. Table 1 recaps the results of some of these research efforts.
Table 1: Research Results of the Effect of Education and Training on Recidivism

Name of Study
Type of Training
Employment Potential
College Education No Data

University of Victoria
(Acers, et al, 1980)
Program
(Duguid, Hawkey &
Participants
2 International Journal of Family Business, Volume 3, 2006
Effect on
Recidivism
14% Recidivism
_____________________________________________________________________________________________3

Name of Study
Type of Training
Effect on
Recidivism
Knights, 1981)
College Education
Non Participants
No Data
51% Recidivism
Illinois Study
(Anderson, Anderson &
Schumaker, 1988)
Vocational
Training
High Employability
Lower Re-Arrest
Rate
High Employability
Vocational
Training and
Academic Training
Lower Re-Arrest
Rate
No Vocational
Training
Low Employability
Highest Re-Arrest
Rate
Academic Training Lower Employability

Only
Higher Re-Arrest
Rate
Five Year Outcome

Study:
Factors Associated with
Recidivism
(Eisenberg, 1991)
GED Completers
Lower Recidivism
than Non
Participants
Alabama Corrections
Education Research
(Gainous, 1992)
No Data
Post-Secondary
Course Completers
Post-Secondary
Course Non
Participants
No Data
35% Recidivism
Post-Release
Employment Project
(Saylor & Gaes, 1992)
Vocational
Program
72% Employed
7% Recidivism
No Program
(Control Group)
63% Employed
10% Recidivism
Texas Department of
Corrections
(Glenn, 1995)
Post-Secondary
Vocational
Training
Graduates
Greater Employability
Lower Recidivism
Than Non
Participants
Maryland Study
(Jenkins, Steurer, &
Pendry, 1995)
Formal,
Post-Secondary
77% Employed
Estimated Minimum
Wage
No Data
No Data
5% Recidivism

Name of Study
Louisiana Study
(Elbert, 1999)
Virginia Department of
Correctional Education
(Hull, et Al, 2000)
Type of Training
Effect on
Recidivism
Vocational
Program
Completers
No Data
Lower Recidivism
Vocational
Program Noncompleters
No Data
Higher
Recidivism
No Program
(1,307 of 3,000)
55% Employed
for at Least 90 Days
49% Recidivism
Did Not Complete

Program
(786 0f 3,000)
61% Employed
38% Recidivism
Program
Completers
(907 of 3,000)
78% Employed
20% Recidivism
Three State Recidivism

Study
(Steurer, Smith, & Tracy,
2001)
Education Program No Data

Participants
31% Recidivism
Education Program No Data

Non-participants
37% Recidivism
Hamden County House

Of Corrections Study
(Burke & Vivian, 2001)
Community
College (Complete
at Least 3 Hrs)
No Data
22% Lower
Recidivism
Than Non
Participants
The Three State Recidivism Study issued in 2001 by the Correctional Education
Association, and noted above, is an excellent example of the quality of current
recidivism/education research. The methodology of the Three State Recidivism Study was welldesigned. This study collected data on about 3,200 inmates who were released from prisons in
the states of Minnesota, Ohio, and Maryland. The participants in the study were divided into two
groups: prisoners who had participated in education and training programs while incarcerated
(1,373 prisoners); and prisoners who did not participate in education and training while in prison
(1,797). Each prisoner who participated in the study completed a pre-release survey that
included information about his family life, education and training background, criminal history,
and work experience. Three years of follow-up data were collected to measure rates of released
prisoners being re-arrested, re-convicted, and returned to jail. The study found that three years
after being released, the group that had participated in education and training programs had a
4
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significantly lower rate of recidivism. Also, the wages earned by this same group were higher
than those earned by non-participants.
As described in Table 1, other such studies over the period of 1980 to 2001 also indicated
that some type of educational intervention resulted in lower rates of recidivism. The Federal
Bureau of Prisons has found that there is an inverse relationship between education and
recidivism (Harer, 1994). Another study found that prisoners who had two-years or more of
college education had only a 10% re-arrest rate as compared to the average 60% rate (Marks,
1997). As such, there is promise that an education directed at helping prisoners to become
specifically employed and at a higher level should result in even higher levels of success on the
outside. This leaves us to wonder whether entrepreneurship education, which is directed toward
the creation of businesses, might be utilized for even greater levels of success.
CRIMINAL ENTREPRENEURS
Do Dark Side Entrepreneurs exist? If so, are they different from the entrepreneurs that
we normally study? To explore this question, the authors administered established instruments
to a convenience sample of convicted felons incarcerated in a Federal Prison in the Midwest. All
of the participants were male, and all were participating in a continuing education course
involving entrepreneurship. Every participant in the course, 34 men, agreed to participate in the
study. The instrumentation included demographic questions dealing with the traditional data, but
also included questions about the participants criminal activities and criminal history. We also
wanted to know whether any of the participants were actually involved in ownership of a
legitimate business prior to incarceration, and we specifically addressed whether the participant
considered his criminal activities to be a business. The entrepreneurship courses were taught by
an inmate instructor who has extensive experience as an entrepreneur, using textbooks and
educational material obtained from academic institutions.
As indicated, the authors were particularly interested in knowing if the inmates viewed
their criminal activities as entrepreneurial ventures: were they Dark Side Entrepreneurs? As we
will discuss later, these criminals described their activities in terms of sources of supply,
channels of distribution, effect of supply and demand on price, the value of creating a brand
identity, and efforts to obtain competitive advantage. They clearly had a firm grasp of the
concepts of first mover advantage and the value of working capital. Therefore, the perceptions
and activities of the surveyed inmates were clearly similar to those of entrepreneurs, small
businessmen, and business managers.
PERSONALITY TRAITS AND THE DARK SIDE
Personality traits of entrepreneurs have been examined by many researchers citing such
attributes as a need for power (Peay & Dyer, 1989); and, the pursuit of freedom of expression
and of spirit (Cole, 1989). Entrepreneurs have been characterized as confident, optimistic, not
prone to take great risks or to be reckless, unwilling to have their performance judged by others,
especially willing to be independent and self-reliant, and, as more than non-conformist, in fact,
mildly sociopathic (Solomon & Winslow, 1988; Winslow & Solomon, 1987; 1989). At least one
author has posited that entrepreneurship can be hazardous to ones health (Buttner, 1988).
Many characteristics of entrepreneurs such as risk taking propensity (Mill, 1848;
McClelland, 1961; Mancuso, 1975; Timmons, 1978; Brockhaus, 1982; Watts, 1989; Carland &
Carland, 1991) have been explored. Innovation has also oft been cited as a central characteristic
of the entrepreneurial endeavor (Schumpeter, 1934; McClelland, 1961; Williams, 1981; Martin,
1982; Drucker, 1985; Carland & Carland, 1991). Other researchers have studied the need for
achievement in entrepreneurs (Hornaday & Aboud, 1971; Liles, 1974; DeCarlo & Lyons, 1978;
Carland & Carland, 1991) and cognitive influences have been examined as well (Carland &
Carland, 1983, 1987, 1991, 1992; Barbato & Durlabhji, 1989). In most of the literature in which
a portrait of the entrepreneur is drawn, only the positive aspects are vigorously outlined; and yet
for every burst of brilliance, there is a negative or dark aspect: a Dark Side.
Few have examined the aspects of the Dark Side of entrepreneurship. Osbourne (1991)
identified the Dark Side as the "corrupting power of ownership" and cited examples of situations
in which the power of ownership corrupted the organization. Cole (1989) described the
entrepreneurial self and alluded to the reality that often entrepreneurs are displaced persons
who are entering the pursuit of ownership for less than sterling goals.
INSTRUMENTATION
Several instruments were utilized to determine the characteristics of the sample
employing traditional constructs of the entrepreneurship literature. We employed tests which
measured the entrepreneurial psyche involving cognitive or managerial style (i.e., Hoy &
Boulton, 1983; Ginn & Sexton, 1989; 1990; Brodzinski, Scherer & Wiebe, 1990; Dugan, Feeser
& Plaschka, 1990; Carland, Carland & Stewart, 1996; Pollard, 2006; Brice 2006). Carland,
Carland and Hoy (1992) combined that stream of research with more traditional research on
entrepreneurial personality traits, a body of literature which includes many contributions (i.e.,
Hartman, 1959; Davids, 1963; Hornaday and Aboud, 1971; Palmer, 1971; Liles, 1974; Borland,
1974; Mancuso, 1975; Gasse, 1977; Timmons, 1978; Sexton, 1980; Vesper, 1980; Welsh and
White, 1981; Williams, 1981; Dunkelberg and Cooper, 1982; Carland, 1982; Carland, Hoy,
Boulton & Carland, 1984; 1988; Ginn & Sexton, 1990; Stewart, 1996; Stewart, Watson, Carland
& Carland, 1999; Gaulden, Jackson & Gaster, 2002; Envick & Langford, 2003; Brockman,
Becherer & Finch, 2006). They concluded that entrepreneurship was best understood as an
individual drive: the drive toward entrepreneurial behavior. In that same vein, Carland, Carland
and Stewart (1996) described the entrepreneurial psyche as a gestalt of multiple personality
factors including the need for achievement, the propensity for risk taking, the preference for
innovation, and cognitive style. They suggested that the varying strengths of the traits in an
individual entrepreneur combine to affect that individuals behavior. It is this gestalt of drives
which produces differences in entrepreneurial behavior (Carland, Carland & Stewart, 1996).
Achievement Scale of the Personality Research Form
The instrument used to measure the need for achievement is the Achievement Scale of
the Personality Research Form (Jackson, 1974). The instrument has been shown to have
reliability (Jackson, 1974), to display convergent and discriminant validity, and to possess high
correlations with self and peer ratings (Jackson & Guthrie, 1968). It consists of 16 forced choice
questions which may be scored by untrained people. Odd-even reliabilities for two groups (N =
83 & N = 84) were .57 and .66 after the Spearman-Brown correction had been applied (Jackson,
1974). In a test for validity, Jackson and Guthrie (1968) reported correlations with self ratings
and peer ratings of .65 and .46 respectively, and reported that the form possessed convergent and
discriminant validity.
6
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Risk Taking Scale of the Jackson Personality Inventory

The instrument selected to measure risk taking propensity was the Risk Taking Scale of
the Jackson Personality Inventory (Jackson, 1976). The instrument consists of 20 forced choice
questions, may be scored by untrained people, and has been reported to display high reliability
and validity and to exhibit high correlations with self and peer ratings (Jackson, 1976). Jackson
(1976), in a test involving two samples (N = 82 & N = 307), reported internal consistency
reliability values of .93 and .91 using Bentler's coefficient theta and .81 and .84 using coefficient
alpha. In a test for validity, Jackson (1976) reported (N = 70) correlations with the completion of
an adjective checklist, with self rating and peer rating of .75, .77 and .52, respectively.
Innovation Scale of the Jackson Personality Inventory
The instrument selected to measure preference for innovation was the Innovation Scale of
the Jackson Personality Inventory (Jackson, 1976). This instrument also consists of 20 questions
in a forced choice format and can be scored by untrained people. It has been reported to display
high reliability and validity and to exhibit high correlations with self and peer ratings (Jackson,
1976). Jackson (1976), in tests involving two samples (N = 82 & N = 307), reported internal
consistency reliability values of .94 and .93 using Bentler's coefficient theta and .83 and .87
using coefficient alpha. In a test for validity, Jackson (1976) reported (N = 70) correlations with
the completion of an adjective checklist, with self rating and peer rating of .79, .73 and .37,
respectively.
Myer-Briggs Type Indicator
The instrument selected to measure cognitive styles was the Myers-Briggs Type Indicator
(Myers & Briggs, 1962). The MBTI is an objective instrument with four dimensions measuring
dichotomous preferences derived from Carl Jung's (1923) theory of psychological types. These
preferences measure how one employs perception of people, problems and environment in a
cognitive process which is intricately involved in decision making and in managerial style. The
MBTI classifies people into four temperaments, comprising 16 typologies. It enjoys wide
acceptance and use, excellent test-retest correlation, internal consistency and reliability
(Mendelsohn, 1965; Buros, 1970; Keyser & Sweetland, 1984) and has been shown to have
satisfactory content, predictive and construct validity (Carlyn, 1977).
The Carland Entrepreneurship Index
The Carland Entrepreneurship Index (Carland, Carland & Hoy, 1992) is a forced choice
format instrument which deals with the four constructs evolved from the elements of
entrepreneurship espoused in the literature explicated above: personality, preference for
innovation, risk-taking propensity, and strategic posture. A principal component factor analysis
using varimax rotation resulted in 33 elements. Self ratings produced a score of .417 for a
probability of <.001 and a test-retest correlation of .80 was obtained with a probability of <.001,
indicating that the index was consistent over time in producing unique scores for respondents.
The split-half, odd-even reliability examination resulted in a correlation of .78 and was
statistically significant at the <.001 level as well (Carland & Carland, 1996). The KuderInternational Journal of Family Business, Volume 3, 2006 7
Richardson test for inter-item reliability was .73 (Carland & Carland, 1996) which means that the
test was accurately measuring some characteristic of the people taking it and that the individual
items in the test were producing similar patterns of response in different people (Nunnally &
Bernstein, 1994).
To test the convergent and discriminant validity of the Carland Entrepreneurship Index,
the findings were compared with established personality instruments. Tests for discriminant and
predictive validity as well as normality indicated that the CEI performed as expected, and an
application employing a sample of inc. 500 entrepreneurs supported the power of the index to
discriminate among growth oriented entrepreneurs (Carland, Carland & Ensley, 2001).
RESULTS OF THE STUDY
The demographics of the sample employed in this research are displayed in Table 2. The
table also displays the distribution of the sample with regard to the type of crime for which the
prisoner was incarcerated, and whether the inmate had previously been arrested. The
demographics contained several surprises for the researchers, the first of which was the
educational attainment level of the sample. Six of the respondents did not have high school
educations, but 8 did hold high school diplomas, and a surprising 19 of the 34 had more than a
high school education. These included two baccalaureates and one JD. Most of the participants
were incarcerated for drug related crimes, 23 of the 34, while 6 of the 34 had committed violent
crimes. Fifteen of the participants reported that they had been self employed at some point in
time, but only 9 of these were self employed at the time of arrest.
Table 2: Sample of Study
Respondents (N=34)
Age
20-29
30-39
40-49
50-59
60+
3
12
11
6
1
Education
<12
12
12+
6
8
19
Race
White
Black
Hispanic
9
21
4
Crime
Violent
Drug
Fraud
Other
6
23
2
3
Previously Self Employed at some point
15
_____________________________________________________________________________________________9
Table 2: Sample of Study

Respondents (N=34)
Prior Arrests
None
18
6
8
2
1 prior arrest
2 prior arrests
3 or more prior arrests
To investigate whether the sample of inmates displayed any of the traditional

characteristics of entrepreneurs, we administered an abbreviated version of the Myers-Briggs
Type Indicator (MBTI), the Carland Entrepreneurship Index (CEI) and the Jackson Personality
Inventory (JPI). The results of that survey are displayed in Table 3, and these results were
startling to the researchers. The results could have been expected in any sample of
entrepreneurs, managers, or other stalwart members of society.
Table 3: MBTI Distribution

Respondents (N=34)
NT
SJ
INTJ
ISTJ
12
INTP
ESTJ
ENTJ
ISFJ
Total 24%
Total 62%
21
SP
NF
ESTP
ENFJ
ISTP
INFJ
Total 9%
Total 6%
Carland Entrepreneurship Index Scores

Average CEI Score
23 out of a possible score of 33

Jackson Personality Inventory
Risk Taking Propensity
Preference for Innovation
Need for Achievement
Note that Table 3 shows the primary characteristics of our sample as being SensingJudging SJs, with 62% of the sample displaying that temperament. Contrast that with the
expected distribution of SJs in the national population, 38% (Keirsey & Bates, 1984), and one
can see how striking the results truly were. Further, the group was dominated by the ISTJ
10
typology, with 35% of the group displaying those traits in contrast to the expected distribution of
5% (Keirsey & Bates, 1984). Keirsey and Bates (1984) describe the SJ as:
being a traditionalist or stabilizer;
liking to establish policies, rules, schedules, and standards and create company rituals;
being patient, thorough, steady, reliable, orderly;
having a strong sense of social responsibility;
having a need to serve, to be needed, and to do one's duty;
being resistant to change and being decisive;
having common sense;
being a hard and steady worker, thorough and loyal; and,
known to be pessimistic.
Further, Keirsey and Bates (1984) describe the ISTJ as:
driven by a sense of responsibility;
focused inwardly, concentrating on the objective and concrete;
extremely demanding;
doing what should be done;
neat and orderly, tasteful and reserved, believing that there is a place for everything and
that everything should be in its place;
dutiful in work and play, believing that an idle mind is the Devils playground and that
honest work is good for all; and,
exhibiting a sense of duty and responsibility that is greater than any other type.
The typology descriptions of the SJ and the ISTJ certainly did not fit the stereotype which
we had possessed relative to incarcerated prisoners prior to this study. The results of this survey
painted a picture of a group of men who should have been law abiding citizens.
As Table 3 further indicates, the prisoners scored high on the CEI, with scores well above
the mean (16 out of 33), suggesting that the group displayed a high drive toward
entrepreneurship. Scores on the subsets of the Jackson Personality Inventory were also
surprising. Table 3 indicates that the group scored high on the need for achievement, and high
on preference for innovation, but barely above the mean on risk taking propensity.
None of these findings are consistent with our preconceived ideas about the group, and,
we suspect, are not consonant with the expectations of the majority of readers. We turned to an
examination of a series of open ended questions which we had included in the survey. The most
important of these questions dealt with whether the prisoner considered his criminal activities to
be a business, and if so, why. Seventy-five percent (75%) of the respondents did, in fact,
consider their criminal activities to be a business. They provided such illuminating comments as
the following:
I employed the same logistics as WalMart
Selling drugs is like a business because you have employees
Business is anything that has supply and demand
My involvement was for profit
I used organizational skills
_____________________________________________________________________________________________
11
I was selling a product

I used bookkeeping and management principles
Location is key and I had a targeted market
Its like selling any other product
I advertised and distributed
There was supply and demand
The principles are the same:
supply and demand;
management and staffing;
minimize the costs; and,
maximize the profits
At the very least, these felons used the language of business to describe their activities;
consequently, we are left with the conclusion that our research identified this group of felons as
strongly oriented toward entrepreneurship. Darkside Entrepreneurs truly do exist, and the
participants in the study truly are in every sense of the phrase.
Are Darkside Entrepreneurs different? The participants in our study are certainly
different from successful entrepreneurs in society in only one respect: the activities in which they
engaged were illegal and detrimental to our economy.
IMPLICATIONS OF THE FINDINGS
How can the most responsible and dutiful of all typologies turn to crime and openly
describe their activities as business ventures in every sense of the word? The answer could lie in
the society to which the SJ feels that traditional sense of duty and responsibility. Fifty percent
(50%) of the respondents reported that a member of their family had previously served time in
prison, and 47% of the group had a close friend who had previously served time in prison. Forty
seven percent (47%) had been arrested for a felony prior to the current conviction, and 37% had
served time in prison previously. Further, 10 of the respondents, 29%, reported that their first
arrest came before the age of 20 years. Our anecdotal conclusion is that a heartbreaking number
of the prisoners in this study grew up in a society in which criminal activity was normal.
If our findings are at all typical, then anecdotally we must learn how to demonstrate to
our children and youth that the society to which one owes ones duty is the dominant society of
our world, not some criminal subset of society. We greatly fear that until we learn how to do
this, our subcultures will continue to breed Darkside Entrepreneurs and our dominant culture
will suffer for it.
CONCLUSION
There is a strong ray of hope in this study. One final question which we asked the
participants had to do with their plans for the future upon their release from prison. Twenty three
of the respondents, 68%, indicated that they intended to start a legitimate business in the future.
Nineteen of these, 58%, had taken previous courses in prison that they believed would help them
achieve this goal. The dreams of starting a venture were more fully formed than one might
believe as indicated by the listing of businesses that the prisoners provided.
A carwash or shoe store
12
I would like to start a small restaurant and plan for future growth
Disaster relief - removal of debris
Financial consultant
Import auto parts
I'm planning on starting up a marketing or advertising company in Poland
Auto repair, used car sales, and auto financing
Aviation oriented
I am going to trade equities, buy several businesses, and invest in real estate
Professional personal trainer business; also, real estate holding company
Trading stock options
Real estate
Store or gas station, some real estate
Mail order pharmaceuticals, incentives, import/export
Talent promotions
Real Estate and Investment firm I plan to buy, sell, and rent affordable housing
Real estate development and building
Hope to process exportable raw materials before export
An electronics manufacturing or information brokerage business
Trucking and real estate development
Restaurant, entertainment and clothing business
Construction
Musician after a lifetime of working as a musician, I'll do what comes naturally to a 66
year old person just released from prison sing the blues
In fact, one young man was released shortly after our survey was completed and made
good on his dreams. He wrote a letter to the instructor of the program one year later. He had
relocated to Florida and established a real estate business. Here is an excerpt from his letter.
When I got to Florida I started doing the things that I learned from you. Though
I did not actually initially get into the project I wanted, it got me noticed and in
position to meet like-minded individuals. I remember you telling me how
investors with greater insight than me would sometimes try to shape or reshape
the plan and my need to be ready and willing. That is exactly what took place.
No, I didnt learn how to acquire and sell vacant property, but I did learn the
etiquette of business. I learned from a wise man how to present a plan and, more
importantly, myself. I learned about developing a reputation for good returns and
so much more. I really want to emphasize those mock presentations [required as
part of the program of study].
In my first year in business I made over $1.4 million in sales and over 20%
gross profit. I started to look into rehab housing. I asked a guy to finance me as I
cannot pay interest for personal reasons [his religion prohibits this]. He thought
that this would be a risky investment with someone that had no previous
experience, so he suggested I buy a vacant piece of property. He knew the
property here appreciated quickly and he thought it would help me get on my feet
after a few months. Problem was I didnt know that I wasnt supposed to turn the
_____________________________________________________________________________________________
13
property around immediately. I sold the first property in about a week for 50%
more than what I bought it for. Then I got two more. The rest is history. I
developed several techniques to acquire properties and several categories of
buyers.
We are not naive enough to believe that this young man was typical in any way, but his
story is certainly encouraging. The authors understand that this is a convenience sample of small
size; consequently, the results cannot be extrapolated to any larger population. Nevertheless, the
study did give us a kernel of hope that through entrepreneurship education, we can change lives
as well as provide for a lower rate of recidivism and higher economic success for people who all
too often are completely forgotten. We completed our research hoping that many members of
this group would find success in legitimate entrepreneurial ventures: that more of these Darkside
Entrepreneurs would be turned to the light.
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19
ENTREPRENEURSHIP AND LEADERSHIP: WHY WE

HAVE AN ETHICAL OBLIGATION TO ASSESS
CHANGE IN ENTREPRENEURIAL RESEARCH
M. Ronald Buckley, University of Oklahoma
William Mea, U.S. Department of Labor
Sarah C. Carraher, Considation Enterprises
Charles E. Carraher, Florida Atlantic University
ABSTRACT
This paper reviews the constructs and assessment of alpha, beta, and gamma changes.
We suggest that there is an ethical imperative that more research in entrepreneurship should
seek to assess beta and gamma change rather than assuming that all change is alpha (real)
change when looking at interventions and other research with longitudinal designs. We provide
an example with actual data from training in new business start-ups on the assessment of gamma
and beta change.
INTRODUCTION
Imagine that you are studying the influence that an intervention has on the effectiveness
of various strategies for the successful development of a new business venture (Goldberg,
Cohen, & Fiegenbaum, 2003) or the effectiveness of training small business owners to design
profitable websites (Auger, 2005). You have just collected a longitudinal series of data that
indicate that there has been changes over the course of time and you are pleased that the changes
are going in the right direction, or, on the other hand, you are frustrated that the data seem to
indicate that there has not been the desired change. What is the next step in this process? Many
look at this type of data and conclude that the program has been efficacious or that there has been
a failure to reach the state intended by a change program (Sastry, 1997). However, there is an
interim step that should be taken and rarely is considered by those who assess the effectiveness
of organizational changes and interventions in entrepreneurial organizations - assessing alpha,
beta and gamma change. Change, and the accurate assessment of change, is a complex
procedure---not the simple comparison of pre- and post- measures.
The research paradigm used to assess the effectiveness of an organizational change is
usually a pretest-posttest design (Mitchell & James, 2001). When post-test measures indicate
that a change has occurred, the observed change can be categorized using a change typology
developed by Golembiewski, Billingsley and Yeager (1976). They categorized change into a
typology labeled as real effects (alpha change), scale recalibration (beta change) and concept
redefinition (gamma change). The objective of the current paper is to provide an empirical
example of how to test for beta and gamma change utilizing a data set relatively typical of what
is used in entrepreneurship research and which was collected to examine the efficacy of
training methods for the development of new businesses.
Concept redefinition (gamma change) occurs when respondents redefine and change their
understanding of the concept of interest over the course of a measurement period. For example,
20
overtime at Time-1 (T-1) can be easily compared with overtime at Time-2 (T-2) (Clayton,
Mawhinney, Luke, & Cook, 1997). When using soft criteria such as leadership skills (Stavrou,
Kleanthous, & Anastasiou, 2005), job satisfaction (Bradley & Roberts, 2004) or perceptions of
internal organizational factors such as the perception of total quality management (Lee, 2004)
which are often used to evaluate the effectiveness of a change, a researcher cannot be certain that
such concepts retain a stable meaning over measurement periods. This is especially so if,
included in the intervention, the respondents undergo training designed to increase their
understanding of these concepts (Mitchell & James, 2001; Rodwell, 2005). If the concept of
interest is redefined (i.e., gamma change) by the respondents during the course of an
organizational change or intervention as is often done with entrepreneurship training (Ladzani
and Van Vuuren, 2002) and small business assistance programs (Chrisman & McMullan, 2002),
pre-change questionnaire responses - or even interview responses - may not have the same
meaning as post-change questionnaire or interview responses. After a concept is redefined,
comparisons of these responses may be meaningless and potentially misleading----resulting in
inaccurate assessments of the utility of change efforts.
Scale recalibration (beta change) occurs when respondents recalibrate the measurement
scale over repeated administrations or exposures to the measurement instruments. This is best
described as a lengthening or shortening of the intervals between points on a rating scale---it has
been called scale interval stretching and sliding (Alderfer, 1977). For example, on a five-point
equal-interval scale, if the degree of work group effectiveness was perceived as a 4 at T-1 and
if at T-2 the same behavior was perceived as a 3, then the respondent has recalibrated the
measurement scale. In fact, due to the different responses at T-1 and T-2 one may incorrectly
infer that a change has been effective or ineffective. Real effects (alpha change) are changes
which are detected along a consistent measurement scale (no scale recalibration) and for which
concept redefinition can be ruled out - neither the respondents understanding of the concept nor
the measurement scale points have changed.
Differentiating between the types of changes is intimately related to the objectives of
entrepreneurial research. Scale recalibration and concept redefinition may actually be the stated
objectives in a program which is intended to train the employees in an entrepreneurial
organization in the use of a performance appraisal system such as Management by Objectives or
in proper financing strategies (Van Auken, 2000, 2001, 2004, 2005). Training may be designed
to facilitate the understanding and recognition of certain subordinate behaviors (concept
redefinition) and to facilitate the consistent assessment of these behaviors using performance
rating scales (scale recalibration). It should be apparent that objectives such as these could be
essential to the equitable administration of wage and salary programs that are important for
reinforcing shifts in organizations missions (Carraher & Buckley, 1996; Hart & Carraher, 1995)
that may lead to increases in performance within new business ventures (McConaughy &
Mishra, 1996, 1997).
21
It is those instances in which concept redefinition and scale recalibration are not intended,
but are detected, that become problematic. Herein lies the important contribution of the change
typology; it has created an awareness of potential errors that can be made when diagnosing the
need for and evaluating the results of organizational changes and interventions. Further, a
knowledge of this typology is essential for any entrepreneurial researcher who intends to
consciously establish objectives for organizational changes or interventions and who also has an
interest in accurately determining whether or not the objectives are accomplished as should be
the objective of research in entrepreneurship (Mishra & McConaughy, 2004; Sarasvathy, 2004).
Among the core difficulties facing entrepreneurial researchers is deciding how to assess
the effectiveness of organizational changes and interventions is a lack of precise definitions
applied to managing change (Cady & Hardalupas, 1999). Constructs may be ill defined and
there may be a lack of experimental evaluations of change management methodologies in
entrepreneurial research. While a voluminous literature proposes sets of best practices which
could be adapted to any situation, without a literature of solid research evidence with which we
are familiar, researchers in entrepreneurship are left with little guidance in the evaluation of
organizational interventions and changes. A frequent occurrence among researchers is the use ad
hoc measures shortly after a major change effort has been announced. Such measures are often
ill defined, lack acceptable psychometric qualities which make them stable across time, tend to
focus on assessing early anticipated barriers to change, and are narrow in focus (Carraher &
Whitely, 1998; Roach & Bednar, 1997).
An interesting but challenging phenomenon in some organizational change efforts is that
an instrument itself may become the focal point for conflict among stakeholders. On the positive
side, discussion of the instruments use often presents an opportunity for building collaborative
understanding (Carraher, 1993; Raelin, 1997). In many cases, operations-oriented or information
technology managers tend to be overly willing to accept the premises used by consultants
because they have little familiarity or confidence in their own understanding of human processes.
Moreover, some leaders seem willing to hand over responsibility for people change to
consultants when they should be focusing on the human interaction issues that are needed to
inspire transformation. We have learned of numerous projects, where a misapplication of
methodologies has focused solely on measuring various forms of resistance in the culture
(Carraher, Buckley, & Cote, 2000; Carraher & Whitely, 1998; Langan-Fox & Tan, 1997). Many
times findings are reported to leaders, who in turn craft messages to sell to front-line staff. In
the end, use of methods focused on measurement indices often fail and result in increased
resistance to new changes (Armenakis, Harris, & Mossholder, 1993). We suggest that
researchers familiarize themselves with the change typology and the suggested methodologies
for recognizing the existence of beta and gamma change.
Measuring Change Effectively and Accurately
A substantial amount of progress has been made with the methodology used to evaluate
change efforts but has been done outside of the field of entrepreneurship (Burke, 1997; Shaw &
Barrett-Power, 1997). The incorporation of this methodology with the Golembiewski et al.
(1976) change typology has led to a substantial literature that is concerned with measuring these
different types of changes. Previous analyses of this literature (Armenakis & Bedeian, 1999;
Armenakis & Zmud, 1979; Bedeian, Armenakis & Gibson, 1980; Golembiewski et al. 1976;
Schmitt, 1982; Thompson & Hunt, 1996; Zmud & Armenakis, 1978) reveals that numerous
methodological differences exist in the measurement of these changes. Obviously, the
22
evaluation of a change attempt is not complete unless the three different types of change (alpha,
beta and gamma) are assessed. Change efforts which are assessed without due diligence to the
change typology are, at best, inaccurate, and at worst, incorrect (Mitchell & James, 2001).
It has been suggested that concept redefinition (gamma change) be assessed by
comparing underlying factor analysis patterns of data over time (Golembiewski et al. 1976). A
statistically significant difference between pre-test and post-test factor analysis output would
suggest that concepts have been redefined (Armenakis & Zmud, 1979) and the results of change
efforts must be interpreted cautiously.
There are several potential problems associated with the assessment of concept
redefinition using factor analysis: 1) an assumption of this analysis is that scale recalibration has
not occurred (Lindell & Drexler, 1980) -- if scale recalibration has occurred this analysis
becomes problematic; and 2) factor analysis requires a large data base often difficult to obtain
whether using questionnaires or interviews. For example, a 30-item change assessment
questionnaire requires at least 300 respondents in order to satisfy the often suggested 10-to-1
subject to item ratio (Kaiser, 1976). It is, in fact, not always possible or practical to collect the
data required to assess potential concept redefinition in the evaluation of a change intervention if
factor analysis is to be used.
Most of the available literature concerns the assessment of scale recalibration. To date,
scale recalibration has been defined and measured in three different ways: (1) statistically; (2)
methodologically; and (3) by utilizing actual and ideal ratings. First, there have been a number
of authors who propose a statistical solution to the problem (Randolph, 1982; Schmitt, 1982).
Randolph (1982) reasoned that the scale recalibration concept could be measured by examining
variance shifts in data. It was argued that scale recalibration could be determined using a
statistical approach that compared Time-1 variance with Time-2 variance. If a significant
difference were obtained, scale recalibration had been detected.
Schmitt (1982) provided a different statistical methodology to assess the different types
of change. Using a technique developed by Werts, Rock, Linn and Joreskog (1977), Schmitt
proposed a LISREL approach. The approach compared the variance at Time-1 with the variance
at Time-2. If a difference between the two variances was detected, it was concluded that scale
recalibration had occurred. Although this methodology does not require the user to assume that
scale recalibration or concept redefinition has occurred (as evidenced by procedures which
purport to measure both types of change) it minimizes the need to generate a large data base in
order to perform the required calculations.
In assessing the change typology, Terborg, Howard and Maxwell (1980) proposed the
second approach to assessing scale recalibration. Terborg et al. (1980) utilized retrospective
measures in order to assess scale recalibration. In addition to the traditional pre- and post-change
measures, their procedure requires that after the organizational change, respondents are asked to
recall their pre-intervention level of the characteristic how they now perceive themselves to
have been just before the intervention was conducted (p. 112). Scale recalibration is defined as
the difference between the pre-organizational change measurement and the post-measure (the
recollection, which has theoretically been changed by the organizational change). The Terborg
et al. findings are, in general, contrary to other published results on using retrospective designs to
collect data. As Armenakis and Bedeian (1982) point out, the retrospective procedure is subject
to respondent rhetoric. Further, a series of laboratory studies by Armenakis, Buckley and
Bedeian (2001) that empirically tested the retrospective design led these authors to conclude that
the retrospective design is not an effective methodology for evaluating interventions.
23
The third and final approach to measuring scale recalibration has been suggested by
Armenakis and his colleagues (Armenakis & Zmud, 1979; Bedeian, Armenakis & Gibson, 1980;
Zmud & Armenakis, 1978). Their approach suggests that both pre-change (T-1) and post-change
(T-2), respondents indicate their perceptions of both actual and ideal conditions. Ideal conditions
are perfect or model conditions existing in the form of an idealized mental image. These
responses are then used to assess any change that has occurred. For example, a change in the
post-ideal (I-1) response versus the pre-ideal (I-2) response indicates that scale recalibration has
occurred. The intent of this type of methodology is to obtain evidence that is helpful in
determining if scale recalibration has occurred. Using the logic of the ideal scale, Bedeian,
Armenakis and Gibson (1980) proposed a methodology to develop a recalibration function that
could be used to transform pre- and post- change responses so that they were comparable. This
procedure utilizes two conceptually different measurements. Actual scale responses are
expressions of the respondents perceptions of existing or present conditions as they pertain to
the observed behavior. On the other hand, ideal scale responses are articulations of the
respondents perceptions of the idealized, perfect, or model performance. As Bedeian et al.
(1980) have noted, an ideal scale perception may be regarded as exemplifying an ideal or
standard of absolute perfection.
The logic of using both actual and ideal perceptions in examining the utility of
organizational changes over time is as follows: actual conditions may change over time. This
change may reflect real change that may be confused with both scale recalibration and concept
redefinition. Conversely, because an ideal scale represents a respondents perception of the
perfect or model performance of the observed behavior, any change in the ideal scale over time
cannot, by definition, exhibit any real changes.
The objective of the current paper is to provide an empirical example of how to test for
beta and gamma change utilizing a data set relatively typical of what is used in entrepreneurship
research. We believe that it is important for researchers in Entrepreneurship to examine the
possible existence of beta and/or gamma change when examining longitudinal data.
METHOD
Data
Data from 159 adults in a large urban area in the Southwest involved in new business
start-ups training were collected. The participants average age was 34 with 54% of them being
females. The instrument used was designed to assess the effectiveness of training and had 14
items. Respondents filled out the questionnaire with actual and idealized ratings at two points in
time during the middle of the training and after the training had been concluded. This data
was collected as part of a larger longitudinal study designed to examine the influence that
instructional methods (class room lecture, large projects, and a combination of lecture and large
real world projects) would have on student learning and on the outcome of whether or not
the participants would open a new business. A summary of the content of the items is included
in Table 2.
Table 1 - Factor Analyses for T1 & T2
Time 1
FACTOR 1
FACTOR 2
T1I1
.71372
.31941
T1I2
.90429
.06517
24
T1I3
T1I4
T1I5
T1I6
T1I7
T1I8
T1I9
T1I10
T1I11
T1I12
T1I13
T1I14
Time 2
T2I1
T2I2
T2I3
T2I4
T2I5
T2I6
T2I7
T2I8
T2I9
T2I10
T2I11
T2I12
T2I13
T2I14
T2I1
T2I2
T2I3
T2I4
T2I5
T2I6
T2I7
T2I8
T2I9
T2I10
T2I11
T2I12
T2I13
T2I14
.58369
.72448
.67427
.44218
.83166
.75055
.69152
.52209
.01167
.19101
.45163
.27978
FACTOR 1
.77113
.79955
.66501
.71356
.35045
.32787
.57607
.28861
.08932
.55517
.31280
-.20278
.73207
.21959
FACTOR 1
.70133
.79846
.64988
.52999
.25827
.20176
.81433
.54256
.52612
.45439
.21109
-.05213
.79421
.51682
.29819
.21187
.25715
.56538
.09621
.28502
.31980
.51170
.83629
.79681
.56043
.74603
FACTOR 2
.13393
.28396
.16915
.28525
.75455
.67148
.05824
.46260
-.08852
.49219
.77121
.71989
.10711
.44373
FACTOR 2
.21932
.37499
.24445
.35926
.78955
.70273
.13349
.50468
-.06098
.55086
.80148
.70105
.19325
.47963
FACTOR 3
.13541
.29796
.20926
-.06231
.08054
-.00406
.62483
.64035
.81046
.07897
.05459
.34765
.35981
.69474
In Table 1 the results of factor analyses are shown for the Time 1 and Time 2 data. As
should be clear two factors were significant for Time 1 while 3 factors were significant for Time
2 indicating that gamma change has occurred (we used the parallel analysis criterion rather
than the eigenvalue greater than one criterion for this paper as it is a sample based adaptation of
the population based eigenvalue greater than one criterion and thus allows the utilization of
factor analysis with smaller sample sizes the two methods were, however, in agreement as to
the number of factor to retain). For instructional purposes within Table 1 a two-factor solution
for the Time 2 data is also shown [this would not have been appropriate if this were not an
instructional paper but then the assessment of the beta change would have also been impossible
25
as gamma change has occurred]. As can be seen with the second factor analysis of the Time 2
data, even if a two factor solution were appropriate for both factors then gamma change would
have occurred as the pattern of factor loadings was not the same for the Time 1 and Time 2 data
with three items changing factors items 5, 13, and 14 being parts of different factors in Time 1
and Time 2. If no gamma change were observed then the next step would be the assessment of
possible beta change.
In Table 2 the results of t tests for the idealized scale were compared from Time 1 to
Time 2 and three items were found to have recalibrated. Items 2, 12, and 14 dealing with the
activities reinforcing learning objectives, the positive attitude of the instructor, and the
presentation skills of the instructor had changed indicating that beta change has occurred for
those three items. It would be after the assessment of gamma and beta change that alpha (real
change) would be able to be assessed by examining the differences in actual scores from Time 1
to Time 2. Thus within this sample both gamma and beta change were observed using the
idealized scores method.
Table 2 - t-test results for Ideal Scale T1
Item
1 Objectives clear
2. Learning Activities achieve objectives
3. Preparedness
4. Assessments of Learning appropriate
5. Evaluation system appropriate
6. Evaluation timely
7. Increased understanding
8. Methods increase learning
9. Current topics integrated in to training
10. Instructor receptive to questions
11. Instructor accessible
12. Positive attitude
13. Knowledge of material
14. Presentation skills
* = significant at .05 level
& T2
t
-1.62
-4.20*
-1.36
-.83
.83
.93
-1.16
-.53
1.47
-.59
.56
2.37*
-1.12
3.97*
DISCUSSION
Interestingly, the concept of an idealized image does not owe its origin to present-day
theorists (Havinghurst & MacDonald, 1955; Horney, 1945; Rosenberg, 1979). Horney (1945)
posited that everyone possesses an idealized self-concept that is invariably the reference point
against which our actual self-concept is viewed and judged. One creates an imagined picture of
someone who is the ultimate in beauty, intelligence, kindness, goodness, etc. This becomes the
type of person one would like to see as him/herself. According to Horney, the idealized
self...becomes a measuring rod with which to measure his actual being (p. 110). However,
these concepts have not been examined extensively with respect to research in entrepreneurship.
Research by Havinghurst and MacDonald (1955) has demonstrated that as one grows
older the idealized self-image undergoes considerable change. The authors contend that this
transpires because a person tends to incorporate different elements or components into his/her
idealized self-image as he/she advances in age. This is to say, experience changes this
idealized view. As such, the ideal image is relatively stable but readily changeable. This may
even be desirable in terms of training and wisdom.
26
Further, Rosenburg (1979) points out that although it is meaningful to distinguish

between the actual-self and the ideal-self, an individual is not always successful in
compartmentalizing these constructs. Therefore, they are not independent of each other and
actual perceptions probably influence ideal perceptions and vice versa. Relating this back to the
ideal scale concept in entrepreneurship research, it appears as though the concept is a relatively
stable notion, but can change as further information or experience dictates. Changes in actual
perceptions of observed behavior probably lead to changes in expressions of ideal perceptions.
Conversely, changes in ideal perceptions, as they are used as standards of judgment (Horney,
1945), probably lead to changes in articulations of actual perceptions (Armenakis, Fredenberger,
Giles, & Cherones, 1996). Armenakis, Bedeian and Niebuhr (1979) found that ideal perceptions
were closely related to perceptions of existing (actual) conditions, i.e., ideal ratings were affected
by the prevailing socio-psychological conditions. So, the two concepts (actual and ideal) are
probably not independent of each other, rather they influence each other.
We can ask ourselves to what degree these results might differ if we looked at
dimensionality at the individual level as opposed to the group level (Sturman & Carraher, 2007)
or if we were to examine these same issues across cultures (Carraher, 2006; Carraher &
Carraher, 2006; Huang & Carraher, 2004), industries (Carraher, Parnell, Carraher, Carraher, &
Sullivan, 2006) or research areas (Carraher, Sullivan, & Carraher, 2005; Paridon, Carraher, &
Carraher, 2006).
CONCLUSIONS
Overall, we would suggest that anyone interested in the accurate assessment of change
use the ideal scale methodology. This is a relatively simple process, but it provides insight into
whether concepts of interest have changed over longitudinal measurement periods. Our analysis
of the literature has led us to conclude that, of the possible methodologies, this is the one most
likely to be easily applied to most intervention and change programs. Changes in ideal scales
over time indicate that the frame of reference of those in the change process has changed. This
change in frame of reference has the potential to mask any true changes (alpha change) that may
have occurred. Excluding ideal scale methodology (or some methodology designed to assess
beta and gamma change) is, in our opinion, a potentially fatal shortcoming in change and
intervention programs as is needed when working in entrepreneurship.
If there is going to be any confidence in assessing the effectiveness of entrepreneurial
training programs (Ravasi & Turati, 2005), interventions (Chrisman & McMullan, 2002), or
organizational changes in the future, entrepreneurs, academics, and consultants should cooperate
to identify well-defined constructs, develop stable measures for those constructs, and assess the
conditions under which procedures function most effectively. Deference should be paid to the
change typology by researchers studying changes within entrepreneurial environments. If one
ignores the change typology, one should be suspect of any conclusions with respect to the
assessment of organizational changes in research and therefore as suggested by Mitchell and
James (2001) we believe that researchers have an ethical imperative to perform more studies
seeking to assess types of change (alpha, beta, and gamma change) when doing organizational
interventions in entrepreneurship and small business management.
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32
THE COMPENSATIVE RELATIONSHIPS OF EAST

ASIAN ENTERPRISES
Shaw Foong Chan, Cameron University
ABSTRACT
The economic center moved from the ancient Asian civilizations, particularly in the
ancient China, to the Western world that had been dominating the world in politic, economic,
and diplomatic for more than 175 years, since the Western industrialization took place from the
year of 1770 in British Empire. Recently, the economic center is moving back to Asia, especially
the newly industrializing economies (NIEs) of South Korea, Taiwan and China. China is now
playing an important role for economic growth of South Korea, Taiwan and Japan. Their
economic growths depend upon mainly Chinas market demands.
Countries are rising one by one in different time periods at East Asia; Japan is a
technological advanced country that is industrialized earlier (dated back to 1950s) than South
Korea (dated back to 1960s), Taiwan (dated back to late 1960s), and China (since 1979). Since
they are so close to each other in the region, disregarding political factor and focusing on the
commercial activities, what interception do they have between them? They cannot commit
commercial activities without each other; in other words, I am going to examine their
compensative relationships in this paper. I believe the compensative relationships they have
between them are depending on the commercial activities their entrepreneurs engage. This
paper is designed to focus on family businesses from a Chinese sense [all non-governmental
owned enterprises].
INTRODUCTION
Xu & Chiang (2005) found that the poor countries benefits from foreign patents such as
the African countries import of Russian-style weapons, or the western companies for petroleum
recovery and natural gas taping, or American automobiles in Mexico manufactured by low-skill
Mexican labors. I am going to leave out the poor countries in this paper. Xu & Chiang (2005)
found that the rich countries benefit from domestic technology and foreign technology embodied
in imported capital goods, such as Ford (U.S.), Honda Motor Co. (Japan), Toyota Motor Co.
(Japan), Koninklijke Philips Electronics N.V. (Netherlands), Thomson Multimedia (U.S.), Sony
Corporation (Japan), and Matsushita Electric Industrial Co. (Japan) are from the rich countries.
Xu & Chiang (2005) also found that the middle-income countries enjoy technology diffuse from
foreign patents and imported capital goods such as Koreas Samsung (Japanese patent), and
Malaysias Proton Berhad (Mitsubishis auto patent).
The NIEs emerge in different time period, but they share the similar pathway as
following of their technological development even the country like Japan shares the same
experience during its early technology stage. In order to have readers better knowing my whole
idea of this paper, I have to start from the very beginning. The term Technological Trajectory
Framework (Kim, 1997a) is introduced here. The framework refers to the evolutionary direction
of technological advances that are observable across industries and sectors. Utterback &
Abernathy (1975) assume that industries and firms in advanced countries develop their
33
technologies pathways along a technology trajectory, and that made up of three stages: fluid,
transition, and specific. These three terms (fluid, transition, and specific) show the flexibility of
production system engaged. At the same time, on the lower part, these stages will be referred to
emerging technology; intermediate technology and mature technology stages to reflect the
newness of product technology engaged in the NIEs technology evolutions (Kim, 2002).
In fluid stage, firms in a new technology will show a fluid pattern of a high rate of radical
product innovation. The new product technology is often rough, expensive and unreliable that
performs a function that to satisfy some market niche. The production system remains fluid and
firms organizational structure needs to be flexible in order to respond quickly and effectively to
deal with the challenges in the market and technology, so the product changes are as frequent as
changes in the market (Abernathy & Utterback, 1978; Utterback, 1994). In this emerging stage,
the first-mover entrepreneurs in advanced countries preserve first-mover advantage in the market
on the basis of radical product innovation (Kim, 2002).
In transition stage, a transition commences toward a dominant product design and mass
production methods. Cost/ price competition leads to radical change in processes, rapidly
pushing down costs. Production capability and scale assume greater importance to harvest
economies of scale. Firms in advanced countries gain advantage from the global competition on
the basis of their continued innovation in both products and processes (Kim, 2002).
In specific stage, highly standardized product are formed as the production process will
turn to be more automated, integrated, systematic, specific and rigid due to the industry and its
market mature and price competition grows more intense. The concentrate on innovation shifts
to incremental process improvement, seeking greater efficiency (Kim, 2002). When the mature
technology stage of industry is reached, firms are less likely to undertake R&D aimed at radical
innovations, will be increasingly vulnerable in their competitive position, which will lead them
an adoption of defense marketing strategies to preserve their market position and sales volume,
due to new entrants (Anderson & Tushman, 1990; Cooper & Schendel, 1976; Utterback & Kim,
1985) introduce their radical innovations into the market in term of invasions. The production
will be typically relocated to low-labor-cost developing countries in order to minimize the costs
of production. However, this part is not universal to apply all of the countries (Pavitt, 1987;
Nelson, 1994), it depends on the significantly technological change that impact the economy
(Freeman & Perez, 1988).
Kim (1980) came out with a three-phase model: acquisition, assimilation, and
improvement, to extend Utterbacks three-stage technological trajectory model. During the early
stage of industrialization, developing countries acquire mature foreign technologies from
industrially advanced countries. Short of local capability to build up production operations, local
entrepreneurs develop production processes through the acquisition of foreign technology, which
includes assembly processes, production specifications, production knowledge, technical
personnel, and components. In this stage, production is just an assembly operation of foreign
inputs to produce fairly standard undifferentiated products.
Once the acquisition task is completed, production and product design technologies will be
rapidly spilled over within the country. Increasing competition from new entrants will stimulate
local entrepreneurs with their local technical efforts in the assimilation of foreign technologies to
create produce slightly differentiated products. The relatively successful assimilation of
imported technology and increased emphasis upon export promotion, together with the improved
capability of local scientific and engineering personnel, transform the gradual improvement into
mature technology. In this stage, the technological focus on copied emulation to produce strikes
and duplicates.
34
The technology trajectories of Utterback & Abernathy (1975) and Kim (1980), Lee. Bae.
T. & Choi. K. (1988) assumes that the three-stage technology trajectory in developing
countries (Kim, 1980) happens in the mature technology and also in the intermediate technology
stage. While experiencing of rising wages and increasing competition from the second-tier
NIEs, the entrepreneurs in the first-tier NIEs, which have successfully acquired, assimilated and
sometimes improved mature foreign technologies, target to repeat the same process with higherlevel knowledge in the intermediate technology stage; which means the entrepreneurs in the firsttier NIEs, are now targeting technological goal at creative imitation, generating duplicative
products but with new performance features. In this creative imitation stage, the first-tier NIEs
involve not only the activities such as technology transfer and benchmarking, but also activities
such as significant learning through sufficient level of investment in local R&D. Taiwan and
South Korea have arrived at this stage (Kim, 2002).
If the first-tier NIES entrepreneurs have successfully made it, some of these industries
may eventually gather up sufficient local technological capacities to generate emerging
technologies and create threat to firms in advanced countries. When a sufficient number of
industries arrive at this stage, the country may be considered to be a member of the advanced
countries. In other words, developing countries reverse the direction of technology trajectory in
advanced countries (Kim, 2002).
In 1960s to 1970s, when the local South Korean and Taiwanese technological base was
very primitive, the enterprises first acquired and assimilated mature technologies to work on
duplicative imitation of existing foreign technologies (products) with their skilled but cheap
labor force. The accumulation of technological capacity through learning by doing, together
with quality upgrading of the educational system, enabled South Korean and Taiwanese to work
on creative imitation in the face of rising labor costs and increasing competition from the secondtier NIEs.
Koreas Low-Level Technologies and Low Value-Added Products with Shadow of Japan
The entrepreneurs in Korea (or in Taiwan or other NIEs) entered the mature technology
stage in the 1960s and 1970s via the process of acquisition, assimilation and improvement of
mature foreign technology through different mechanisms and transformed into the intermediate
technology stage in the 1980s and 1990s through their own efforts to strengthen their
technological capabilities. But they show the differences on their paths that largely come from
production complexities and scale. In order to transform themselves, the Korean entrepreneurs
(so do the Taiwanese entrepreneurs) relied heavily on foreign sources, mainly from Japan, which
is technology transfer in the forms of foreign direct investment (FDI), foreign licensing and
technical consultancies for the initial installation of production processes and for the design of
their products, and capital goods imports. However, some of them established their initial
production facilities with their own primitive technologies and then upgraded product quality
through the imitative reverse engineering of imported products and processes. As these
entrepreneurs gained more and more experience in production and product design, they have also
increasingly developed their own R&D to seek out foreign technologies and to increase product
design capabilities in order to minimize their dependence on foreign licensors for later product
development. The entrepreneurs also learned international standards, technical specifications,
and international market via subcontracting arrangement.
35
The South Korean entrepreneurs can be a good example here. In electronics industry, LG
Electronics began with its radio assembly by licensing technology from Japan to build up
production processes, but has rapidly evolved itself in gathering its own technological abilities
through learning and R&D. In automobiles industry, Hyundai Motor licensed technologies from
multiple sources and independently integrates them into a workable mass production system.
But this forced Hyundai to assimilate foreign technologies as rapidly as possible throughout the
process because it was Hyundai alone to take risk bearing all costs. It heavily invested in R&D
in order to strengthen design and innovation abilities. That is how Hyundai came out with its
own model Pony with 90% local content in 1975.
In addition, Japan is South Koreas most important source for license imports, capital
goods imports, and FDI. There were 2647 projects invested by Japan with total amount of $5.3
billion engaged between 1962 and 1996. These 2,647 Japanese investments contain 2,025 in
machinery manufacturing (418 cases), and electricity/ electronics manufacturing (411 cases). In
terms of value, electricity/ electronics manufacturing was highest, followed by chemicals,
machinery, and transport equipment (Drifte, 1997).
The more South Korean expands its
industrial capacity, the more it has to import Japanese intermediate goods, equipment, parts, and
technologies, because of the weakness of South Korean small- and medium-sized firms and lack
of R&D. In this case, South Korean technologies of production and products should have
contained shadow of Japanese technologies.
Japans High-Level Technologies and Value-Added Products
What could Japan do for its neighbors? Japan is the second larger economic entity in the
world that is among worlds largest and technologically advanced producers of very high-tech
products such as motor vehicles, electronic equipment, semiconductors, electrical machinery,
machine tools, steel and nonferrous metals, ships, chemicals, textiles, processed foods, and these
products are globally competitive (CIA The World Factbook, May 2, 2006).
Under pressures coming from these newcomers such as China and India, in order to strengthen
its products competitiveness in the globe, Japans Ministry of Economy, Trade and Industry
(METI) officials announces to release new policy to seek for development of specific areas
needed to strengthen its international competitiveness of strategic industries. According to
METI, Japan is going to place much stronger emphasis on closer cooperation between
government and industries especially for the small and medium-sized businesses and creates
seven new strategic industries (digital home appliances, robots, health and welfare, environment
and energy, business support services, entertainment software, and fuel cells) in technologically
service sectors as essential for future high growth. Japanese government is going to foster
entrepreneurial skills and business skills that are more service-oriented and high-tech,
knowledge-based society that are needed by start-up entrepreneurs and those in charge of
managing technology, as well as continued support for training scientists and engineers.
Japanese government is also going to invest science and technology to stimulate the capability of
Japanese R&D. Japanese government is constructing the eco-energy society by enhancing safety
of nuclear power plants, expanding use of on-site power generation, the development of a
hydrogen economy, expansion of the use of and production of environmental technologies and
goods such as recycling, and low-emission cars and trucks (Yoshida & Genther, 2004).
Chinas Shortage of Talent
36
China is a huge market for the world, especially for the Western firms, so they have
rushed into China recently in order not to miss any opportunity in this huge market. But Fred
Foulkes, a professor of management policy, and Susan McEwen-Fial, his senior research
associate have found that these Western companies biggest challenge is assembling an effective
team of managers in China. The two researchers at the Boston Universitys School of
Management who are now conducting a research on human resource practice in China.
According to their finding, these companies have ignored the hardest part of doing business in
China, which is the people part. Ignoring this factor results in the failure of performance in the
long-run (Harvard Business Review, 1997).
According to the research of McKinsey Global Institute (MGI), China had about 8.5
million professional graduates with up seven years works experience and additional 97 million
people that would qualify for support-staff positions in 2003. However, despite of this pool of
human resources, there were less than 10 percent of the Chinese job candidates, on average,
fulfilled the job requirements working in a foreign firms in the nine occupations: engineers,
finance workers, accountants, quantitative analysts, generalists, life science researchers, doctors,
nurses, and support staff. Three common factors constitute the shortage of talent in China:
educational systems bias toward theory, poor English, and talent dispersion (Farrell and Andrew
MGI, 2005).
Through the Chinese educational system, for instance, the MGI found that China has 1.6
million young engineers which is 33 percent of the university students in China study
engineering, more than other country compare to 20 percent in Germany, and only 4 percent in
India. But main drawback for the engineering jobs is the Chinese education focuses on
theoretical perspective instead of practical solutions in project or teamwork, which require in
Europe and North America. As a result, the number of young engineers considered to fit for
work in multinationals is just 160,000 that is no larger than the United Kingdoms (Farrell and
Andrew MGI, 2005).
Through the English problem, for instance, poor English speaking was the major reason
for being rejected while interviewing a job. There only 3 percent of the job applicants can be
considered for generalist service position, which do not require a degree in any particular subject.
The overall communication style and cultural fit are also difficult barriers for them. Although
some Chinese employees might willing to work long hours, it may be true to some extent in
manufacturing, it make only a marginal difference in service, because of the shortage of the
specific skill that is required (Farrell and Andrew, MGI, 2005).
Through the talent dispersion, for instance, the generally low suitability of Chinese
graduates is widely diffused. There were 1.7 million students had graduated from over 1500
colleges and universities in 2003, but just of all them live in the city or region close to a major
international airport, which is a requirement of most multinationals setting up offshore facilities.
Only 1/3 of all graduates are willing to move to other provinces for work. In contrast in India,
almost half of all Indian graduates are close to a major international hub, such as Bangalore,
Delhi, Hyderabad, and Mumbai, and mostly are willing to move. As a result, the world-class
companies want to hire service labor in China experience difficulty reaching as much as 50
percent of the total population of the graduates. In addition, firms that wish to set up offshore
operation in China experience more competition for talent than they would in other low-wage
location. Because serving the rapid-growing in China, domestic and multinational companies
have already provided attractive job opportunities for suitable Chinese graduates (Farrell and
Andrew MGI, 2005).
37
According to MGIs study [1], the demand for worker from just the large foreign firms
and joint-ventures that currently operate in China from 1998 to 2002, employment increased by
12 to 23 percent per year respectively to about 2,700,000 workers. MGI assumes that 30 percent
of these workers must have at least a college degree [2] and that the labor demands of such firms
continue to grow at the same rates, they will have to hire an extra 750,000 graduates from 2003
through 2008. MGI estimates that China will produce 1,200,000 graduates to match for
employment in world-class service companies during that period.
So large foreign
multinationals and joint-ventures alone will take up to 60 percent of China's suitable graduates
before demand from smaller multinationals or Chinese companies even enters the picture
(Exhibit 1).
Exhibit 1: A Shortage of Suitable Candidate
Protected Supply of Chinese University Graduates, [1] 2003-08, millions
Graduates suitable for employment in multinational
corporations (from total of 15.7 million graduates)
1.2
Graduates required by large multinational corporations

in China [2] to meet [brands of growth
0.75
Remaining supply of suitable graduates
0.45
Inaccessible [3] but otherwise suitable graduates
0.39
Remaining supply of suitable and accessible graduates
0.65
1 Includes all university degrees except MDss; figures do not sum to total, because of rounding.
2 Enterprises with revenue over $604,000 in 2002 and workforce of >1,000 full-time equivalents (FTFs);
excludes employment in those companies whose parents are based in Hong Kong, Macao, and Taiwan.
3 Because of geographic dispersion and lack of mobility; assumes strong growth in accessibility,
from 51% in 2005 to 83% in 2008 (India's 2005 level).
(Source: McKinsey Global Institute labor supply database)
A shortage supply of effective managers is found in China. According to the estimation,

MGI researches that given the strong global ambition of many Chinese firms, over the next 10 to
15 years they will need 75,000 leaders who can work effectively in global environments and they
have only 3,000 to 5,000 recently [3]. Usually, management talent comes from off-shoring
companies that provide training for lower-level workers; industries that provide managers with
relevant knowledge and skills; and expatriates who have worked or studied in developed
countries. However, the human resources from all of these sources are scarce in China.
Moreover, with so high levels of foreign direct investment (FDI) this country, the foreign firms
have often no choice but to poach valuable personnel from each other (Farrell and Andrew MGI,
2005).
Taiwans Managerial Talents
The Nationalist Republic of China, ROC (Taiwan) politically has separated from the
mainland communist China. However, Taiwan historically is part of Fujian province of the
38
ancient China, so it will not be allowed to independence. Taiwan and the Mainland China have
developed respective advantage and specialties in science and technology in high-tech industry
following 57 years of separation. Taiwan created numerous elites and job opportunities that
exerted some very positive effects on international trade and making, and both sides are playing
significant role in the global market.
In Taiwan, the Taiwanese government imposes policy to create a high-tech industry.
Based on that, an incentive system and a system of science-based industrial parks such as
Hsinchu Science-based Industrial Park have been set up for this purpose. Until 2003, there were
274 companies located at Hshinchu Science-based Industrial Park, which are collectively divided
into integrated circuits (IC), opto-electronics, computer peripheries, information, and etc (Lee &
Chen, 2005) for the information technology industries at Hsinchu area.
The industrial development history in Taiwan underwent three stages:
During the first stage from 1949 to 1968 (since 1949 the communist Chinese party overrun the
Mainland China forced the original Nationalist government withdrew to Taiwan, until 1968) the
primary objective was to foster R&D human resources (Lin, 2002).
During the second stage from 1969 to 1980, the primary objective was to improve the
scientific research foundations.
During the last stage from 1981 until now, the primary objective is to technologically
keep up with advanced western countries. Setting up clear and systematic technology
development policies, and strengthen the incubation and hiring of high-tech talent (Lin, 2002).
Taiwans high-tech industries focused on contract manufacturing, it took advantage from
process improvement, high yield and low-cost operation. To improve resource use efficiency
and specialize in specific produces, the high-tech industry had being reconstructed and adopting
a unique highly specialized vertical division of labor system operation model in the global
industry (Lee & Chen, 2005); which means Taiwan is strengthening what it has, which its mass
production technology management skills, and quality of (commercialization) marketing and
management capabilities.
The Compensative Relationships between Taiwan, South Korea and Japan
Taiwan and South Korean entrepreneurs have been massively investing in China these
years. If both NIEs engaging production expansions in China, they have to purchase the
Japanese high-tech intermediate goods, machinery, components, equipment, and parts, that can
provide value-added to their productions and products. On the other side, Japans high-tech
value-added capital goods can be sold to the NIEs such as Taiwan and South Korea, which are a
good match. Meanwhile, Taiwan, of course, can also import cheaper, low-value-added but easyto-use machinery and equipment products from South Korea, instead of the expensive Japanese
capital goods. There of them are geographically closer to each other than the other Western
providers.
39
Further, according to the Bureau of East Asian and Pacific Affairs, South Koreas major
markets of exports are China (including Hong Kong) (19.6%), U.S. (16.9%), Europe (12.8%),
Japan (8.5%), while the markets of imports are Japan (20.6%), China (13.1%), U.S. (12.8%),
Europe (10.8%), and Saudi Arabia (6.4%) (Bureau of East Asian and Pacific Affairs, April
2006). From here, South Korea is having trade surplus with the U.S. but having trade deficit
with Japan these years (at least from 2000 to 2005). So I have reason to believe that South Korea
is using a sort of pass-through economy between itself, the U.S. and Japan; this means South
Korea transforms the amount of trade surplus from the U.S. to purchase high-tech value-added
capital goods from Japan for its automotive, machinery, and electronics industries development,
which causing its trade deficit with Japan for years. So we can see the success of South Korean
enterprises in China is based on (1) deeply mastered Japanese capital goods since 1960s nonetheless, South Korean technologies contain Japanese shadows, and (2) their American-style
rapidly decision-making management model. The rise of Samsung is a good example of this
mixture of model.
The Compensative Relationship between China and Japan
Recently the reason for Japans recovery from deflation is because of China. Firstly, as
Japans foreign direct investment (FDI) before shifted to China (BOJ & USDIA) and after
shifted to China (UNCTAD), its return on FDI in China (BOJ & USDIA) jumped from 0.1
(2000) to 6.4 percent (2001) and 8.2 percent (2002). Japanese companies such as automobile
manufacturers, electronic equipment producers, machine tools producers, steel and nonferrous
metals companies, ships manufacturers, and chemical company are investing in China. Japan is
on the right track. The strong market demand in China and its cheap-labors could support
Japanese companies to survive during Japans deflation. But low-wages of local labors will be
increasing one day, Japan should not ignore this.
Secondly, this could be just for Japanese enterprises survivals and does not bring any
help for Japans domestic economy much. What the Japanese investors gain from China,
perhaps, is just an amount of unexpected income that gained accidentally. Chinas economic
growth might be slowing down five years later that would affect their sales revenues, and also
China might be entering the stage of production surplus. Steel industry, for instance, Chinas
raw steel output in 2005 was projected to grow to 344 million tons (Reuters, 2005), while
domestic steel consumption in 2005 from eight major industries (construction, machinery, light
industry, automobile, coal, shipbuilding, container and petro-chemistry) was 326.82 million tons,
and raw steel output in 2006 is expected to reach 392 million tons (Metallurgical Industry of Russia,
2006). The rest of the steel products will flood into other global markets that spur South Korea
and Taiwan to purchase in low-price, which might indirectly impact Japans steel industry. In
this case, the unexpected income of Japanese companies will be gone.
So changing is necessary as Japans new policy of fostering entrepreneurial skills and
business skills that are more service-oriented and high-tech, knowledge-based society and
increasing investment of science and technology to boot up capability of Japanese R&D is an
excellent idea for strengthening its products competitiveness in the globe.
But at last, I have reason to believe that the growth of China benefit to Japans industries
through its national economy.
The Compensative Relationship between South Korea and China
40
South Koreas exports destinations are mainly toward the Western markets and Chinese
market. Because in the U.S. and European markets, Samsung, LG Electronics, and Hyundai
products contain similar function but the prices are comparatively lower than the competitors,
while in Chinese market, the majority of lower class and a small middle Chinese cannot afford to
buy luxury and Western products. Although Korean products generally are not technological
advanced or superior quality, they tend to be a reasonable good deal and reasonably high quality.
For example, Orions Chocopie brand has been quite successful in China, because many middleclass Chinese cannot afford to purchase expensive Western chocolates. This brand originally
developed in South Korea in 1974 was an inexpensive choice to chocolates, but it is now one of
the most successful Korean products in East Asia and Russia (Han 1999).
According to Jain (1989) and Szymanski, Bharadwaj, and Varadarajan (1993) study, the
desired level of marketing standardization is largely determined by the similarity in market
environments and consumer characteristics among countries. The market environments in China
must be showing greater similarity with the current or not-so-distant past environment in Korea
than with market environments in the West. So the Korean enterprises in China might have
unique competitive advantages that enable them to compete with local firms as well as with
Western MNCs.
China needs South Korea not only Korean consumers goods. The Western MNCs
machinery and equipment might not suitable for China. For example, a photocopier with
collating features might not be greatly desired in China because collating can be processed
manually; hiring an additional worker might be more economical than purchasing an expensive
Western Multinational Corporations (MNCs) machine with collating functions. In addition, a
simple photocopier with basic functions has the advantage of requiring low maintenance and
little service. But Western MNCs specialize in complex, high precision machinery and
equipment (Yeung 1998) and hence often ignore addressing the needs of many small and
medium-sized industrial buyers in developing countries, especially in NIEs.
According to the Technological Trajectory Framework, the NIEs obtain sophisticated
product technology via licensing and joint-venture from the MNCs. The NIEs then modify and
customize the technology come out of its own technology. As a result, the NIEs including
Korean capital products have competitive over Western MNCs, because the technology might be
more suitable to local market conditions. For example, Todaro (1994), in his study of the
Brazilian aircraft manufacturer Embraer, notes that the company specializes in producing simple,
inexpensive, and reliable aircraft that are especially well suited for local conditions. By
modifying product technology, NICs can convert proprietary technology from Western MNCs to
their own firm-specific advantage.
Compare to the Western MNCs, Korean machinery and equipment is simple, easy-to-use,
stripped-down, non-highly automated, and inexpensive that might be much more suitable for
China.
And China itself can obtain the technology and further modify and customize it, turning
others technology into its own. In facts, Chinese have been doing these that have the nightmare
of the FDI corporations.
The Compensative Relationship between Taiwan and the Mainland China
41
Taiwan has something that the Mainland China needs, which is skills of management and
marketing, and skill of commercialization. But Taiwanese has to purchase the Japanese hightech intermediate goods, machinery, components, equipment, and parts that can provide valueadded to its productions and products. Taiwanese entrepreneurs can implement Japanese
machines and equipments in factories they constructed in China, manage the Mainland Chinese
labors in Chinese-Mandarin, and communicate with and negotiate with the global buyers in
English, these is what the key comparative advantages that Taiwanese entrepreneurs posse so far.
Today Taiwan gains a strong position in the world economy because of it smart enough for the
implementation of its East Asian neighborhoods Japan, South Korea, and China. Meanwhile,
South Korea has problem with the Chinese. Although the South Korean has very high exposure
investments concentrate on the east coasts, their Chinese speaking is not as fluent as Taiwanese,
plus they have a very strong patriotism. In contrast, Taiwanese are more globalizing than the
Koreans. Also turn to the opposite side to look at China, China has something that Taiwanese
entrepreneurs needs. Their products took advantage from high produces and low-cost
production, the small scale of Taiwanese domestic market limits the size of enterprises, altars
their development and market share. A best solution for these enterprises to grow is to westward
on the Mainland China. Because of the following reasons:
1. Both sides speak common language, Chinese-Mandarin, and they are same race, Han,
which accounted 92 percent in China. So Taiwanese entrepreneurs and enterprises have a
great opportunity than the Korean, Japanese and others Western MNCs who do not speak
this language.
2. Taiwan has comparative advantage at technical innovation, while China has comparative
advantage at implementation.
3. Taiwan is faster than China in upstream new product development. From OEM to ODM
in the electronic industry indicates that Taiwan is good at commercialization ability.
Meanwhile it has no fundamental research ability, while China has put more effort and
resources into fundamental research, but has short of high-tech talent, as well as no
commercialization skills and infrastructure such as communication and transportation
facilities.
4. China can provide knowledge about fundamental research to Taiwan, while Taiwan can
help China in commercialization.
5. Since China has comparative advantages in low production cost and market potential,
while Taiwan has comparative advantages in industrial structure, talent, administration
efficiency, and so on, the ideal model for the future to both sides can be the best R&D
design remains in Taiwan, while the low-cost production remains in China. Both sides
together are positioned in Global market to diffuse production base.
6. Taiwanese enterprises have main economic power in China, because they can use rapid
R&D capacity development, basic infrastructure, market potential and human resources
to ally with local Chinese firms develop a complete competitive advantage.
7. With many Taiwanese enterprises having operated to China, the overseas Chinese talents
and personnel would be attracted to return back to this country, and the Chinese
aggressively promotes suitable business environment, minimizing both side differences.
As a result, regarding capital markets, industrial intelligence and system, Taiwan
preserves a very good position.
42
8. The low-labor cost in the Mainland China will no longer an advantage one, it will
increase 5 to 10 years from now. The future of Taiwanese enterprises so and Taiwan
itself must transform into a high-tech and services-oriented products and economy to
compete with the enterprises in the rest of the world, includes South Korea and Japan.
Secondly, Taiwan is a major foreign investor since it has transform to capital-intensive
and technology-intensive products for export in 1980s, and toward developing its service sector.
But raw materials and machineries are needed to manufacture its high-tech products. According
to the U.S.s Bureau of East Asian and Pacific Affairs April 2006, Taiwans major import
partners are Japan $43.6 billion, China $22 billion, and U.S. $21 billion. Taiwans imports are
mainly by raw materials and capital goods that account for more than 90 percent of the total
import. The raw materials are coal, oil and gas to meet most of its energy needs, and the capital
goods are electronics, optical & precision instruments, information & communications products,
machinery & electrical products, chemicals, basic metals, transport equipment.
The U.S. is Taiwan's third-largest trade partner, taking 15 percent of Taiwan's exports
and supplying 11.6 percent of its imports. Other than agricultural raw materials, imports from
the U.S. are industrial raw materials, but exports to the U.S. are mainly electronics and consumer
goods. On the other side, Japan is Taiwan's second-largest trading partner with 16 percent of
total trade, including 25 percent of Taiwan's imports. China has replaced the U.S. as Taiwan's
largest trade partner in 2003. In 2005, China (including Hong Kong) accounted for over 25
percent of Taiwan's total trade and almost 38 percent of Taiwan's exports. The U.S., China
(including Hong-Kong), and Japan account for nearly 60.5% of Taiwan's exports, and the U.S.,
Japan, and China provide almost 50% of Taiwan's imports (Bureau of East Asian and Pacific
Affairs, April 2006). So from the report, we learn that Taiwan buys industrial raw materials such
as chemicals, basic metals from the U.S., buys capital goods such as electronics, optical &
precision instruments, information & communications components, machinery & electrical
products, and transport equipment from Japan, and bring the capital goods to the factories that
allocated in Mainland China for its production and operation.
I have reason to believe on both side entrepreneurs can cooperate together gain comparative
advantage among other NIEs and Japan MNCs. China needs Taiwans high-tech talents and
marketing & management skills, while Taiwan needs Chinas cheap labors, fundamental
research, and raw materials.
Problem with the Local workers
Something has to been mentioned between South Korea, Taiwan and China. In fact,
South Korean and Taiwanese enterprises have problems with local Chinese labors, but the
Koreans are even harsher and more unscrupulous in their treatment of workers. Working
conditions, illegally overworking, and unpaid wages. Firstly, they impose militaristic
management methods. In South Korea and Taiwan, all young men have to undergo military
training, and until recently an unusually rigid discipline was instilled by regimes that considered
themselves besieged. It is an experience shared by almost all of the South Korea and Taiwan
managers now working in China. In South Korean and Taiwanese owned factories the owners
fly in retired army officers to impose a similar martinet discipline on both mainland workers and
43
Taiwanese staffs. Corporal punishment such as physical punishment is common to the

management style of many of the factories owned by South Koreans and Taiwanese. They see
military-like control as a quick solution to the problem of a Chinese migrant labor force. The
common underlying beliefs that the Taiwanese and Korean managers shares, is not in the
Confucianism but militarism and authoritarianism (Chan, 1996).
Secondly, is illegally
overworking. A study of Chan & Wang (2004) told that the Chinese labors were required to
averagely work for 11 hours daily; that is, almost 80 hours a week that more than the legal
maximum. During the busy seasons, the labors had to work for a few months without any days
off (once a fortnight days off). Sometimes they had to work until 1:00 am or 2: 00 am. Next
morning, they still had to get up at 6:00 am. Thirdly, is the unpaid wages. The worst factories in
south China disallow workers to leave the factory compound after work. In extreme cases the
isolation and iron discipline are prison-like. The official press has reported cases of unpaid
workers enslaved in heavily guarded compounds who have staged escapes. A Taiwanese-run
joint-venture factory hires more than 100 guards for 2,700 workers, one of who recently died in
an escape attempt (Chan, 1996).
The South Korean-run factories are even worst. In north China that is where almost all of
Korea's investments are concentrated, South Korean employers who resort to beatings, tight
military control and public humiliation to cow workers. In one case a woman worker was locked
inside a dog cage with a large dog and placed on public display in the factory compound. So bad
are the conditions that, according to a Chinese newspaper, nine out of 10 of the spontaneous
strikes that broke out in the large northern city of Tianjin in 1993 occurred in Korean managed
enterprises (Chan, 1996, 2004).
The foreign investors might think about can do successful business if they could be a
magnanimous employers to the local workers in terms of culture and respect instead of exploit
cheap labor that treating them even worse than treating their own pets. Currently, there will not
be trouble for South Korean and Taiwanese investors in China, because the local people need to
work in urgent. But 10 years later, when the Chinese technologies have been improved and the
economy is more prosperous, the local people would prefer a better job rather being treated
worse than pets, then these inhuman investors would hard to get find human capitals in China.
Problem of Japan with the U.S.
Due to historical issue that can date back before the World War II, Chan and Japan (even
Japan and South Korea) has an unsolved point of view. So I may consider why should Japan
helps China instead, since it has very close relationship to the U.S. politically and militarily
against China. But think in other way that Japan and the U.S. might have a real problem as the
same as Taiwan with the U.S. The key issue is the Section 301, which is the U.S. government
is always threatening Japanese and Taiwanese governments to fulfill its demands such as
depreciate the Japanese Yen or open their market for the U.S.s products for the prevention of
trade sanction, Section 301, imposed by the U.S. These products opened for the U.S. include
from Washington apples, beefs, Ford car and others brands of American cars, car parts, and
electronics. If the Section 302 were imposed, the industries of semiconductors, electronics,
game products, and cars and related products would be deeply impacted through Japan and
Taiwan.
44
In 1980s, the American afraid of buy America and frequently threatening with trade
sanction, and now the U.S. and Japan look like partners. The only reason for this is that the
Mainland China has replaced Japan as a primary enemy in the future. Actually, Japan exports
products to the U.S. is not too smaller than China; Japan exports to the U.S. posses 22.7 percent
of its total exports while only 14 percent for its total imports from the U.S. (CIA The World
Factbook, May 2, 2006). The so called alliance and partnership between this two world
largest economic powers of the world are very vulnerable.
From here I have reason to believe partnering with China and the rest of the NIEs would
be much better in terms of strategic profits, actual profits, influence powers as well as respect in
the Asian region.
Problem of Taiwanese Products in the Future Competition
In the future, the wages in China will rise rapidly with 10 years; Taiwanese products will
not gain any advantage in cheap labor cost (very low-skill African do not fulfill the tasks, the
Latin American might be fine). What Taiwanese entrepreneurs can do is to construct their own
brand images and take the brand image to the world market. The Korean have three would class
brands that if I am not wrong, then should be Samsung, LG, and Hyundai, while Taiwanese has
nothing on the world class list. The famous computer company in Taiwan, Acer, or the famous
laptop and motherboard producer, ASUS, or the cell-phone producer, Ben Q, which had acquired
the cell-phone division of German Siemens, they have not reached the level yet. In the future,
who would like to spend money on any Taiwanese product which the selling price is one time
higher than the Chinese and India products? So the innovation on production line, product, and
production process, as well as marketing techniques, customer relationships, brand image, and
product design, are important for the own model development. In order to do so, The
entrepreneurs have to invest the 25 percent income of what they earned from the U.S. market
toward these innovations. Maybe Taiwanese entrepreneurs might think about gain profit on
OEM or ODM is much easier in short-term. But what if the local wages increase or the Chinese
Yuan suddenly appreciate, could the short-term profit gone?
Co-operations between the Three East Asian NIEs and Japan
They either reply on Chinas potential market demands for capital goods and equipments,
cars, cell phones, computers, information and communication products, foods and drinks,
machinery components and parts; or especially rely on Chinas cheap labor for minimizing
production costs purpose for the products global competition, which mainly in the Western
countries, just as the foreign trade statistic (US Census Bureau, May 2006) shows that all of the
NIEs, Japan, South Korea and China, and Taiwan are having trade deficits against the U.S. of 6
1/2 years from 2000 to 2006. Chinese, Taiwan, Japan, and South Korea are the Para-genesis,
forming a strong global production headquarter launch on the global beach especially in the
Western world. Based upon this, reason, the cooperation is required. Without Japanese
technologically advanced machinery and equipments, and other value-added capital goods, South
Korean and Taiwanese enterprises are not be able to produce competitive products to sweep the
Western markets. Without Japan, South Korean technologies and their investment, Chinas
economy will not be able to grow faster. Without those 2 millions Taiwanese managers and their
45
management and marketing skills, who will be going to rule those no less than 1 billion local
employees effectively and efficiently in Mainland Chinese-Taiwanese joint-ventures (Taiwanese
entrepreneurs mostly join-venture with local government owned businesses)?
So I have reason believe that China will not attack Taiwan if Taiwan does not announce
itself goes independency. Because the Mainland China knows how important the Taiwanese
investments contribute to the dynamic and explosive of its economic growth it is. Only the
Taiwanese President, Mr. Chen, Shui-bian does not get the idea of the interaction and
interrelation between both side, and still preserving an out-of-date Cold War idea imagining the
Taiwanese firms were helping the enemy to harm Taiwan, and thus impose hostile policy against
China.
CONCLUSION
Non-border conformity between China, Taiwan, South Korea and Japan is a perfect
match for a strong production base toward the global challenges, thus, I have reason to believe
they can not leave out anyone of them. Japan provides machinery and equipments, South Korea
provides easy technology and simple tools, and fund, Taiwan offers valued human resources,
while China can supply low-cost labors and other resources includes support of fundamental
science and technology. This non-border conformity could be powerful than others in the globe.
Notes:
1. The authors considered only companies with more than 1,000 employees. Foreign-owned
companies in Hong Kong, Macao, and Taiwan were excluded.
2. This estimate is based on MGIs study of the global automotives industry, where 48 percent
of all jobs requirement a college education. Since the estimate includes headquarters
functions, MGI reduced it into 30 percent.
3. Andrew Grant and Georges Desvaux, Narrowing Chinas corporate-leadership gap, China
Daily, May 18, 2005.
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50
THE ROLE OF SOCIAL ENTREPRENEURSHIP

Andrew Svilokos, U. S. Army
ABSTRACT
Entrepreneurs of the past have greatly impacted societies, economies, and industries into
what they are today. The mission of the entrepreneur has been to create wealth and business
growth. Accomplishments of these missions result in additional benefits to members of society,
whether intended by the entrepreneur or not. For instance, customers benefit because they are
able to fill a need through the purchase of a product or service. Second, venture capitalists,
lenders, and shareholders benefit by attaining returns on investments or interest through the
entrepreneurs business. Third, employees benefit by earning income through the businesss
growth and prosperity. As a result, employees then become customers that have purchasing
power to buy goods and services that entrepreneurs produce. Over time, many entrepreneurs
began to focus on a new, specific mission towards improving society. This new mission helped to
develop and define social entrepreneurship.
INTRODUCTION
Although social entrepreneurship is virtually a new concept with no clear and concise
definition, Johanna Mair and Ignasi Marti (2006) propose a broad, working definition: Social
entrepreneurship is a process involving the innovative use and combination of resources to
pursue opportunities to catalyze social change and/or address social needs (p.37). In todays
society, the role of social entrepreneurship is vastly increasing through both, nonprofit and forprofit businesses. Societys desire for philanthropy has created many new opportunities for
entrepreneurs. Ethics and a focus toward the common good are key concepts that are vital in
todays business world.
Success of entrepreneurs such as Andrew Carnegie, Henry Ford, and Bill Gates created
both personal wealth and public wealth. Although these were not social entrepreneurs their
innovations greatly enhanced society. Their products aided in the progress and advancement of
an improved society. In this paper, I will examine what differentiates social entrepreneurs from
other types of entrepreneurs. Entrepreneurship enables one to become both wealthy while
improving society at the same time. Therefore, what motivates one to become a social
entrepreneur instead of an entrepreneur for a profit seeking venture? Can social entrepreneurship
invigorate society in ways that conventional entrepreneurship cannot? The intention of this
paper is to answer these questions and to invoke a better understanding of the differences
between an entrepreneur and a social entrepreneur.
As we enter into a new hypercompetitive global economy, there becomes a greater need
to focus on society. The fast pace of the business world has left behind much of society with
unyielding hurdles and relentless struggles. Furthermore, the gap has widened between those
that have wealth and those that do not. The intention of social entrepreneurship is to aid in
solving such problems with a direct approach. Social entrepreneurs pursue goals and objectives
that relate to solving specific problems within the social economy. Although they possess
similar characteristics to conventional entrepreneurs, they are more concerned with satisfying
51
social needs rather than commercial needs (Roberts & Woods, 2005). Similar to conventional
entrepreneurs, social entrepreneurs must be innovative, creative, and motivated to pursue their
venture. Characteristics between the two types of entrepreneurs are very similar; however,
differences fall in the purpose and motivational aspects. While the conventional entrepreneur is
concerned with making money and growing their business, the social entrepreneur is concerned
with satisfying a social need and helping society to be better than it was yesterday. Social
entrepreneurs believe there is more to life than business and making money. Caring for people
and providing them opportunities are critical components towards the progression of a better
world.
Social entrepreneurs face many of the same challenges that conventional entrepreneurs
face. They must develop a business plan and execute it successfully. In addition, they must
attain the necessary resources to start their venture. If they are unable to do this, then failure will
be imminent. Essential to the founding and establishing of any social venture are the
individuals and groups with the vision, drive, and perseverance to provide answers to social
problems and needs, whether educational, welfare, environmental or health related (Sharir &
Lerner, 2006, p.7). These individuals or groups must spend a considerable amount of time and
energy towards defining the vision, mission, and strategies of the social venture. They must also
outline specific goals and objectives for the social venture. Social entrepreneurs must pursue
proper strategies in order to provide answers to specific societal problems or needs. They must
formulate the strategies in a clear and effective manner. In addition, they must gather sufficient
resources to start and operate the new venture. Society must be able to easily comprehend the
entrepreneurs offerings so that it may realize the potential benefits. Once the social
entrepreneur entertains each of the preceding factors, then initial entry into the market will be the
next critical step. The appropriate timing of initial entry is a key element in attaining the
forecasted results and goals.
Social entrepreneurship has been labeled caring capitalism because the achievement of
relevant social goals relies on competitiveness in the marketplace (Hibbert, Hogg, & Quinn,
2005). Similar to conventional entrepreneurship, social entrepreneurs must first identify their
competition and then develop strategies for competing effectively. Furthermore, they must
realize that competition is not limited to nonprofit or social-oriented competition. For instance,
the YMCA is a nonprofit organization that provides many different programs to its members.
One such program is the opportunity for members to improve their physical fitness through the
use of exercise equipment. The YMCA must compete with other establishments such as Golds
Gym and Powerhouse Gym. The appropriate marketing mix is critical for the YMCA, as it is for
many other social organizations. Social entrepreneurs must consider product, price, promotion,
and place when developing their marketing strategy. These factors will enable the social
entrepreneur to differentiate its offering from that of its competitors.
Currently, the opportunities for social entrepreneurs are increasing relative to increases in
societal needs. Many entrepreneurs are acknowledging these opportunity increases by
establishing themselves in the social arena. Their dreams of benefiting society can become
reality through the establishment of not-for-profit organizations (NFPs). As more and more
entrepreneurs look to enter into the social arena, however, barriers to entry such as competition
become more prevalent. Today NFPs are operating in a highly competitive environment that is
characterized by increasing needs in their target communities, and a generally tighter funding
environment with growing competition for donors and grants (Weerawardena & Mort, 2005,
p.21). Society has a greater social need than ever before; however, society will select the
organization that best suites their needs. Commercial providers, NFPs, and other social
52
entrepreneurs realize that there is a large opportunity for them to accommodate societys needs
and thus, are entering into the market. Their entrance leads to increasing competition and the
unwillingness of consumers to accept products and/or services of social entrepreneurs that are
substandard. The market demands that NFPs are society-oriented similar to the way for-profit
businesses are consumer-oriented. Similarly, donors and providers of grants are tightening their
funding allocations to the organizations that they feel are best suited to satisfy societys needs.
In the past, many NFPs and non-governmental development organizations (NGDOs) depended
on public resources provided through these donors and grantors to help support their mission.
The tightening and diminishing allocations from these providers created a shift in financial
dependence for many social entrepreneurs. Currently, non-profit making organizations are
being challenged to reduce their expectations of tax-based funding for social ends and to
generate more self-finance for their operations (Fowler, 2000, p.645). Although this selfreliance takes away one benefit of entering into a NGDO, it provides social entrepreneurs with a
greater motivation and interest in their organizations future success.
Social service nonprofit organizations are no longer operating in the comfortable
environment that they once knew. Financing, competition, and globalization are all factors that
pressure these organizations to change their strategies and adapt to a new, more challenging
environment. Similarly, trends are changing from a sector once dominated by these traditional
social service nonprofit organizations to one that requires a more entrepreneurial approach.
Barriers are high, but opportunities are higher for those that are creative, innovative, and
resourceful. Social entrepreneurs must respond to the changing environment that affects their
organizations sector by designing new ways to create value for their organization (Lasprogata &
Cotton, 2001). If they are able to create value, then their organization will be better equipped to
meet the growing needs of society. Social entrepreneurs can create value in many unique ways.
Some social entrepreneurs create value by involving those that are less fortunate in the
operations of the organization. For instance, one British publisher sells its magazines to the
public through homeless people. This enables homeless people to earn an income without
receiving a handout. Other social entrepreneurs are searching new untapped markets where they
can contribute to a cause by using information and communication technologies (ICT) or by
breaking through domestic barriers.
Social entrepreneurs are becoming more and more like traditional entrepreneurs;
however, their difference lies in mission. Social entrepreneurs are concerned with creating and
maintaining social value while traditional entrepreneurs are concerned with maximizing profits
and growth.
Furthermore, social entrepreneurs do not establish purely philanthropic
organizations nor do they establish purely commercial ones (Herman & Rendina, 2001). They
establish organizations that are uniquely in the middle of this spectrum. In fact, with the
limitations placed on philanthropic organizations, they tend to lean closer to commercial
establishments at times. Nevertheless, social entrepreneurs remain focused on improving society
and helping those folks that are unable to assist themselves. Whether they establish profit or
nonprofit businesses, social entrepreneurs are willing to forgo profits and growth for a higher
social value.
As stated earlier, the intent of social entrepreneurship is to enhance society; however,
Cook, Dodge, and Mitchell argue that the Social Entrepreneurship movement (SEM) is based on
two major false premises and also has some alarming implications with regards to
unemployment and welfare (2003). They believe that proposals established through the SEM do
not provide solutions to unemployment or welfare but instead threaten potential solutions posed
53
by other entities. Their argument is well organized; however, they seem to interpret social
entrepreneurship as being based on the premise of curing mass unemployment and solving all
welfare problems. Unfortunately, social entrepreneurship is unable to solve all of societys
problems rather its design is to aid in reducing such problems. Additionally, social entrepreneurs
do not necessarily intend to replace government programs but may intend to distinguish
themselves or supplement other programs. Social entrepreneurship establishes a motive for
enhancing society through the innovativeness and resourcefulness of individuals or groups.
These individuals or groups create new and improved ways for tackling societys problems
similar to the way conventional entrepreneurs create new and innovative products that enrich,
advance, and promote an improved society.
The success of a social entrepreneur depends on properly addressing the social need their
organization encompasses. Social entrepreneurs are increasingly adopting the strategies,
concepts, and practices of the business world to better develop their organization (Dees &
Anderson, 2003). Social entrepreneurs realize that their operations must run efficiently if they
are to meet their goals. Reasonable price and quality are key elements that consumers expect
just as they would in the business world. In this day and age, social organizations may not be
able to be run as they were in the past. The distinguishing features between a nonprofit
organization and a for-profit organization are becoming more blurred than they were in the past.
These organizations are crossing lines into each ones sector so that performance and execution
improve. Business entrepreneurs recognize that their ventures success depends on them
becoming more socially vigilant while social entrepreneurs understand they must be more
innovative and aggressive in attracting resources and warding off competitors. Changes in
societal needs, competition, government, supply, and finance have compelled social
entrepreneurs to improve in all operational areas.
In recent years, the government has decreased its role in responding to social problems.
Budget cuts, conflict, and social complexity have led to this diminished role and have created
opportunities for other entities to enter into the sector. The particularly difficult situations where
goals are in conflict and means are in doubt call for entrepreneurs to bring about helpful change
(deLeon, 1996). Fortunately, many entrepreneurs are responding to these situations and focusing
their business efforts towards improving them. Evidence of social entrepreneurship exists in
healthcare, welfare, and environmental relief. Social entrepreneurs deeply involve themselves
within these areas along with many other areas. They may work solely or with government
agencies on solving problems in each area. For instance, slow reaction by the government to
Hurricane Katrina created different problems for many people. Social entrepreneurs worked
with the government and solely in assisting many of the people affected by Hurricane Katrina.
Today, social entrepreneurs are still working on ways to solve problems created by the
devastation of this hurricane.
Entrepreneurs can exist in government; however, such public entrepreneurs differ from
social entrepreneurs in the following manners as depicted by Sandra Waddock and James Post
(1991):
1) the fact that social entrepreneurs are citizens, not public servants, 2) their focus on
raising public awareness of an issue of general public concern, and 3) their hope that
increased public attention will result in new solutions eventually emerging, frequently
from those same organizations already charged with dealing with the issue (p.394).
Social entrepreneurs are responsible for many governmental changes in public policy with
respect to social issues but they are not responsible for the creation of social entities within
54
government. They may, however, work hand in hand with government on solving many of
societys problems. Social entrepreneurs focus on a specific societal issue and attempt to
improve the issue through the most efficient means possible.
Government cannot provide, on its own, all of the services necessary to satisfy societys
needs. The recent government policy changes and cutbacks make this even more prevalent
today. The demands for social entrepreneurs to create initiatives that satisfy societal needs are
greater than ever before. Social entrepreneurs are also necessary to create new needs that society
has not yet realized. The ability of philanthropists or social entrepreneurs to create and develop
value that will gratify tomorrows needs is a feature that further distinguishes these individuals
from the government and others. Their vision on how to improve societys of the future enable
them to lead the way into a new social marketplace. Advancing technologies such as the Internet
enable social entrepreneurs to communicate these new breakthroughs to people world-wide.
Furthermore, globalization enables social entrepreneurs to market and deliver their
breakthroughs world-wide.
Due both to globalization and the increasing ease of access with the Internet, social
entrepreneurship is gaining wider notoriety as a means to assist individuals and societies
adjusting to new circumstances, as well as to promote economic development (Christie &
Honig, 2005, p.1). Social entrepreneurship is not restricted to solving domestic problems rather
it is greatly expanding to solve world-wide problems. The heightened role of entrepreneurship,
business, and technology has advanced much of society; however, it has also widened the wealth
gap between those that have and those that do not. Social entrepreneurs recognize this disparity
and attempt to do their part in narrowing this gap. Many developing and third world countries
are lagging farther and farther behind. Hunger, housing, and healthcare are issues that are not
being resolved by governments or local social organizations. These are issues that need more
attention and resolution. The business world is already aligning itself within a global
marketplace. The Internet and less global barriers enable social entrepreneurs to do the same.
For many years, government has had a large part in assisting other nations. The time has come
for more social entrepreneurs to look at globalizing their organizations.
In order for social entrepreneurs to achieve their goals, they must be able to attain a
viable amount of financial resources. A lack of financial resources or capital can constrain
social entrepreneurship and restrict the ability of social entrepreneurs to create social capital
(Thompson, Alvy, & Lees, 2000, p.330). Similar to traditional entrepreneurs, social
entrepreneurs possess the astonishing propensity for raising financial capital. Many social
entrepreneurs find that they must initially invest much of their own funds or their familys funds
into the new enterprise. If grantors, lenders, and other venture capitalists recognize the
importance and potential social value of the enterprise, than they may be inclined to invest
during the start-up, growth, and/or other phases of organizational development. Once the social
entrepreneur gathers sufficient financial resources the organization can implement its business
plan and begin generating social capital.
As with entrepreneurship, educational facilities play a critical role in developing social
entrepreneurs. Even though it takes certain inherent qualities to become a successful
entrepreneur, education can cultivate one to be better prepared for the challenges that lie ahead.
As Winfield (2005) explains:
The social sciences, as part of a liberal education, can play an important role in
supporting nascent social entrepreneurs by providing a way of seeing the world that goes
55
beyond individual experience and a way of explaining human behavior in the context of
the social, political, economic, and cultural systems of a time and place (p.15).
The highly advanced and complex society that we are quickly becoming deems it necessary that
entrepreneurs are well-educated with respect to the above cited notations. Entrepreneurs are not
born with knowledge concerning changes in laws and policies. Education provides social
entrepreneurs with such knowledge and with a better understanding for what their role may be
and how they will get there. Through lectures, cases, reports, and exams potential social
entrepreneurs can gain real world knowledge and training with respect to operating a social
enterprise. Students are able to gain all this without taking the risk that new entrepreneurs must
take every day. Students will be able to learn what potential risks are and how to overcome them
before they actually occur. As a subject, social entrepreneurship is growing; however, similar to
entrepreneurship in its infancy, social entrepreneurship is still largely phenomenon-driven (Mair
and Marti, 2006).
The influence of education and other matters concerning social entrepreneurship are
increasing and becoming more widespread because society warrants that business acknowledges
its significance. The ecological urgencies of our times and the public outcry in response have
made it impossible to separate the best interest of business from the best interest of society
(Sfeir-Younis, 2002, p.43). Business can no longer concern itself with only revenues and profits.
Business must also consider the community, environment, and employees in its decision-making
process. All businesses, whether for for-profit or not-for-profit, must understand that they have a
large responsibility to a great number of people. Business decisions may affect investors,
government, consumers, employees, and environmentalists. Businesss must recognize the needs
of each group and do its best to concur with those needs. One primary goal of business has been
to maximize shareholders wealth; however, should business maximize shareholders wealth at
the expense of others in society? The answer is no! Perhaps, the goal of business should be to
maximize benefits on society.
Many new business entrepreneurships struggle and eventually fail within the first three to
five years of operation. Unfortunately, social ventures also bear this reputation because of
inefficient management and inadequate planning. Social entrepreneurs must train and prepare
management for their upcoming responsibilities. In addition, social entrepreneurs must
thoroughly plan the entire framework of their venture through a business plan. They must
actively prepare and plan for their venture to enter new markets, pursue new customers, and
combine resources in creative ways (Zietlow, 2002). A good business plan will outline all
elements of the venture so that those involved can develop a clear understanding of the
organization and its purpose. Social entrepreneurs will parallel traditional entrepreneurs in their
development of a business plan; however, reviewers of this plan may differ because of the
ventures social nature.
Certain characteristics, challenges, and the desire to benefit society are motivational
factors that may lead one to become a social entrepreneur. Although social entrepreneurs
possess characteristics similar to other entrepreneurs, they desire to satisfy what they believe is a
higher need. Their motivation is not monetary but instead it is social. Their desire to fill this
need requires them to be more multidimensional than other people. Consequently, social
entrepreneurship is multidimensional in nature because it must simultaneously factor in the
overlapping commonality of different issues that exists within a shared space (Mort,
Weerawardena, & Carnegie, 2002). In other words, social entrepreneurs must actively balance
different issues that are all relative to the organization and its mission in order to enhance
56
societys well-being. Social entrepreneurs must identify social opportunities and create ways to
pursue those opportunities. They must be able to compete effectively and make decisions that
will benefit the organization and society. Decisions that they make regarding a new innovation
can also appear to be multidimensional. For instance, a social entrepreneur may identify a new
need and have an idea on how to satisfy the need. Multiple issues may have to be resolved, but
may or may not be resolved simultaneously. Such decisions to consider include target market,
resource availability, resource requirements, product/service delivery, and time constraints.
Throughout time, the nonprofit sector has contributed greatly towards a strong civil
society. Through their activities, nonprofit organizations have had a leading role in assisting
society with welfare programs, housing projects, humanitarian aid, and disaster relief.
Management, donors, and contributors helped provide guidance and structure for these
organizations. Recently, changes in government, competition, and other environmental factors
have caused nonprofits to look beyond that guidance and become more entrepreneurial in nature.
Consequently, many nonprofits are changing their operational approach and becoming more
adaptable. These nonprofits believe that they can no longer adhere to their strict and structured
past role if they are to be successful in their mission. Marketization and commercialization are
trends that many are considering in an effort to fulfill societys changing needs. Eikenberry and
Kluver believe the following:
For the nonprofit sector, marketization trends such as commercial revenue generation,
contract competition, the influence of new and emerging donors, and social entrepreneurship
compromise the nonprofit sectors civil society roles as value guardians, service providers and
advocates, and builders of social capital such changes will negatively affect society (p. 138).
Their dismal viewpoint of this new, emerging nonprofit sector fails to recognize that such trends
may lead to greater innovations and better solutions to societal problems. Commercial revenue
generation will provide additional resources to nonprofit organizations which could fund more
projects and better services. Ultimately, the development of more projects and the improvement
of services will have a positive impact on society. An increase in contract competition and other
competition in the nonprofit sector implies that nonprofit organizations will need to become
better at what they do. Otherwise, organizations that are able to serve society better will replace
those that cannot. Increases in competition will inevitably cause nonprofits to meet more of
societys needs. Similarly, nonprofits attempting to find a niche will attend to needs and
problems previously unanswered. The influence of new and emerging donors will provide
additional resources to current nonprofits and induce new ones to enter the sector. Finally, social
entrepreneurship would not compromise the nonprofit sectors civil society role but instead will
complement that role. Social entrepreneurship encourages creativeness, innovativeness,
resourcefulness, and change with respect to satisfying societys needs.
As previously discussed, Eikenberry and Cluver believe that organizations should
distinguish themselves with a mission focused towards either economics or sociology. Many
other people understand that the world is rapidly changing and organizations must be flexible if
they are to remain successful in the future. Social entrepreneurs understand this and recognize
an increasing societal need for their visions. They have a social mission and distinguish
themselves from those individuals who participate in community or social groups by initiating
some form of new activity or venture to achieve social objectives towards that mission (Harding,
2004). Social entrepreneurs attempt to pursue their mission through economical and social
means. They do not restrict themselves to what others define them as. They do not see their
57
social cause limited by resources or by the label others place on them. If resources are not
enough through grants or donations, then social entrepreneurs will search elsewhere for
resources. Although their business may be not-for-profit, social entrepreneurs will attempt to
generate revenues if they are unable to attain a sufficient amount of funds elsewhere. Social
entrepreneurs will overcome obstacles and break through barriers to create new value.
Although nonprofit organizations may partake in commercial activities to aid in the
accomplishment of their social mission, they must do so with caution and acknowledge potential
side effects.
A social service nonprofit organization that over-commercializes risks
undermining its legitimacy (Lasprogata & Cotton, 2003, p.100). Social entrepreneurs should
understand that commercializing may cause their organization to lose its nonprofit classification
and tax exempt status. Furthermore, social entrepreneurs must balance commercialization
appropriately so that they do not lose sight of the mission. They must not forget that the social
mission not profits was their principal purpose for initiating the venture. Support they receive
towards the venture is one key element to success. Social entrepreneurs must encourage their
supporters by maintaining focus and showing benefits of their operation. A second key element
of success is resource allocation. Both the emergence of for-profits delivering social goods and
services and the increase of nonprofits generating earned income can lead to better resource
allocation and more effective use of scarce philanthropic funds (Dees and Anderson, 2003,
p.18-19).
Although many social entrepreneurs pursue their visions through nonprofit organizations,
organizational structure does not constrain them. The boundaries are far more blurred,
particularly as commercial businesses become more socially responsible and develop triple
bottom line reporting measures (Roberts and Woods, 2005, p. 50). Social entrepreneurs focus
on a social mission and research the best ways to realize it. Social entrepreneurs may exist in
commercial businesses as individuals that primarily focus on a social mission but achieve profits
simultaneously. They understand that profits will enable them to continue pursuing their social
mission towards the improvement of society. Everyday, more and more commercial businesses
are becoming socially conscious. For instance, we can acknowledge this in numerous
automobile manufactures that produce fuel efficient vehicles. Although we may not categorize
these automobile manufacturers as social entrepreneurs we can concede that they are socially
conscious. As society demands that commercial businesses become more environmentally
friendly, many businesses develop strategies towards satisfying that demand.
Socially cognizant individuals and/or businesses do not constitute them as being social
entrepreneurs; however, the evolution of social entrepreneurs can develop through those that
become more socially cognizant. For instance, as commercial businesses become socially
mindful, employees begin to understand that there is a new type of market progressing. This
new market has unequivocal social needs that present a great opportunity for creative, proactive,
and unrestrained employees. Employees that possess such qualities and are looking for a career
change will surely find these opportunities through social entrepreneurship. Once they decide to
become social entrepreneurs, they must translate the opportunities into reality through planning
and execution.
Regardless of organizational structure, the main focus of social entrepreneurs should be
on benefiting society. An emphasis does not need to be placed on legal forms of organization,
such as nonprofit, for-profit, or governmental, rather emphasis should be placed on communities
of practice that include different organizational forms serving a common purpose (Dees and
Anderson, 2003). Social entrepreneurs should converge with others to further enhance the
offering of their ventures. Decisions on how their venture can benefit society to the greatest
58
extent are inquiries that social entrepreneurs must fully explore. Research and communication
with other businesses serving a similar purpose may give the social entrepreneur greater insight
into this issue. In addition, social entrepreneurs should try to build relationships with others that
have knowledge and experience with the social issue at hand.
Social entrepreneurs have a greater opportunity than ever before because of globalization.
Not only are there more social problems but there are also more opportunities to rectify or reduce
such problems. Advancements in information and communication technologies enable social
entrepreneurs to reach societies that were previously unreachable. Social entrepreneurs in one
nation can communicate ideas with social entrepreneurs in other countries to evoke potential
solutions. The ability to transfer information and resources, throughout the world, at a greater
pace further emphasizes the scope of opportunities. As a result, endeavors towards these
opportunities have become more entrepreneurial in nature. In fact, Drayton (2005) states that
the social half of the worldhealth, environment, human rights, rural development, literally
half of the worlds operationsin a mere two and a half decades has become as entrepreneurial
and competitive as business (p. 8). While true to some extent, the global social market appears
to still be in high demand for socially-focused businesses and social entrepreneurs. Evidence of
this materializes each day through news broadcasters such as CNN, Fox News, and BBC World.
These broadcasters continuously show us people that are not able to find food or shelter; people
with disease that are not receiving healthcare; and people with no relief after a natural disaster.
Neither entrepreneurial activity nor competition has extended its reach with respect to these
folks.
The future of social entrepreneurship will be challenging yet rewarding. Through the
delivery of satellite radio, satellite television, and the Internet, world-wide social problems will
increasingly become our problems at home. New social problems will arise as a result of war,
adverse disruptions in the environment, and policy changes in government. War and
environmental disruptions shall create disasters that will require major relief. Social
entrepreneurs will be in great demand to offer such relief and to uplift societies affected by these
disasters. As the government spends more to finance combat operations and other non-social
projects, society will see fewer contributions made towards social issues. Many other countries
are also adopting a liberal ideology of less government involvement with respect to the economy
and society (Sharir & Lerner, 2006). These factors open up opportunities for individuals to
fulfill dreams of living a meaningful existence and accomplishing something significant.
Consequently, social entrepreneurs will continue to emerge with the motivation to change the
world for the better.
Social entrepreneurship invigorates society in ways that conventional entrepreneurship
cannot by examining specific societal problems and addressing those problems through creative,
innovative, and social-specified activities. While conventional entrepreneurship may aid with
societys problems during its quest for profits, social entrepreneurship facilitates social enterprise
as its chief purpose for existence. Unlike business, public, and spiritual entrepreneurs, social
entrepreneurs will stop at nothing in their pursuit of a world with fewer problems. Social
entrepreneurs will focus on those falling behind from the fast pace set by the business world and
the rapid advances in technology. Social entrepreneurs will develop business plans and secure
resources so that they can execute their venture successfully. Competition from new and
existing social organizations will instill ingenuity in these entrepreneurs. Furthermore,
competition combined with a reduction in government contribution will further create both
59
challenges and opportunities for social entrepreneurs of both nonprofit and profit-seeking
ventures.
Acknowledgement of social entrepreneurship as a contribution but not a solution to
societys problems is critical for understanding its role in the social sciences. The intention of
social entrepreneurship is not to directly solve problems but to spur other efforts at problem
solving by increasing awareness of the problem and beginning to make linkages among
organizations that did not previously exist (Waddock and Post, 1991). Eventually, solutions to
societys problems may transpire through changes that evolve through social entrepreneurs;
however, one must understand that social entrepreneurship is just now beginning to define itself.
Full comprehension will emerge as social entrepreneurs further distinguish themselves and
successfully contribute to societys well-being. Furthermore, contributions will not be limited to
domestic borders. Reductions in global barriers and advances in information and communication
technology (ICT) enable social entrepreneurs to contribute their efforts toward a global cause.
New educational programs with a social emphasis will provide many of these social
entrepreneurs with the foundation they need to be successful.
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Dees, J. and Anderson, B. (2003). Sector-Bending: Blurring lines between nonprofit and forprofit. Society. (pp. 16-27).
deLeon, L. (1996). Ethics and Entrepreneurship. Policy Studies Journal. (Vol. 24, pp. 495510).
Drayton, B. (2005). Everyone a changemaker. Peer Review. (pp. 8-11).
Eikenberry, A. and Kluver, J. (2004). The marketization of the nonprofit sector: Civil society at
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Lasprogata, G. and Cotton, M. (2003). Contemplating Enterprise: The Business and Legal
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entrepreneurship. University of Auckland Business Review.
Sfeir-Younis, A. (2002). The spiritual entrepreneur. Reflections. (3rd ed., Vol. 3, pp. 43-45).
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social entrepreneurs. Journal of World Business. (Vol. 41, pp. 6-20).
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and the potential. Management Decision. (5th ed., Vol. 38, pp. 328-338).
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61
DIRECT SELLING WORLDWIDE:

THE MARY KAY COSMETICS STORY1
Dianne H. B. Welsh, University of Tampa
Yvonne Pendleton, Director, Corporate Heritage; Mary Kay Inc.
ABSTRACT
This case is the story of one entrepreneur, Mary Kay Ash, and how she took her company, Mary
Kay Cosmetics, international. Her basic guideposts on the human spirit and her belief in the
abilities of women, in particular, have made her companys successes worldwide almost
revolutionary. The case encompasses the history of the company, the strategy behind their
expansion around the globe, and the beliefs, norms, values, and culture that has made Mary Kay,
Inc. one of the strongest direct selling companies in history.
INTRODUCTION
Mary Kay Inc. had achieved prominence as a U.S. cosmetics company and direct seller, but the
company had not even reached its 10th year when international opportunities knocked on its
Dallas door. The year was 1971 when a couple of Australian entrepreneurs so impressed by
what they had seen and read of the company persisted to get Mary Kays first international
outpost in this faraway land down under. Thats how it came to be that Mary Kay was in
Australia before it was anywhere else outside the U.S. The company now has a presence in more
than 30 international markets on five continents and the focus for expansion is clearly on those
places where the opportunity will be most appealing to entrepreneurial women.
What has transpired throughout the world is the creation of an interpersonal business model that
seems to translate into a language women understand. Mary Kays history illustrates how an
American company can expertly tailor its marketing plan to emphasize specific market strengths.
In regions where women are even more under-employed than they were in the U.S. of the mid60s, Mary Kay can be the great equalizer, the quintessential micro-entrepreneurial opportunity
that has the potential to bring an entire family up from poverty or dire straits. Even in countries
where infrastructures are far inferior to those of the United States, the company has experienced
the great loyalty of women who once they are exposed to the company philosophy and
possibilities will go to great lengths to make it work for their lives in their market. According
to Tom Whatley, Mary Kays President of Sales and Marketing [now retired], it is the culture
that makes the most difference to Mary Kays successful global development plan. When the
culture is understood and acted upon, Mary Kay has seen success. Where it is not understood or
embraced, the company has experienced difficulty.
The same year that Australia opened was coincidentally also the year that the company took
another measure that would have far-reaching effects on the culture and the companys success.
1
The authors would like to thank Robin Diamond, Direct Selling Educational Foundation (DSEF), the employees of
Mary Kay, Inc., and Joan Gillman, University of Wisconsin, for their assistance. A previous version of this case
was presented at the International Council for Small Business (ICSB) Conference in Washington, DC, in June, 2005.
62
In 1971, it named the first two Mary Kay Independent National Sales Directors establishing an
extremely prophetic leadership role that would come to be viewed as one of the smartest
succession plans in the business world. It has come to be viewed as a strategic move instigated
by Mary Kay Ash herself -- that has fostered female entrepreneurs like few others. It has been
generally accepted that no one would ever replace the dynamic and charismatic company
Founder, but the Founder had embarked in establishing this position upon a program where
she could encourage leaders to create new leaders. The prospect of achieving this pinnacle has
greatly enhanced the appeal of the organization worldwide to entrepreneurial women aspiring to
leadership.
Texas entrepreneur Mary Kay Ash had founded her company on a shoestring in a small Dallas
office center after vowing to create a company where women were provided opportunities long
denied them in the workplace. She always said that she never imagined her cosmetics company
would make it much outside Dallas city limits, let alone to nearly every time zone in the world.
What the illustrious company Founder did realize was that just like in the America of the 1960s
the carving out of opportunity reverberates extremely well throughout every culture and
language. We discovered that all women want the same thing, Mary Kay Ash once said. They
want a better life for themselves, their families and their countries. And they are willing to work
for that.
Perhaps it is that common thread paired with Mary Kays 1963 founding belief that she wanted
to create opportunities for women that has contributed most to the companys fame as well as
its growth as a company whose mission is to enrich womens lives.
Corporate employees of Mary Kay Inc. attest that seeing this mission to fruition in the U.S. is
exhilarating. However, it is in the witnessing of this phenomenon outside the U.S. that they
come to understand the strength, stability and long term possibilities of the Companys mission.
After a 41-year run, the potential for Mary Kay remains huge.
The Americas
By 1976, when the Companys stock was first listed on the New York Stock Exchange, it had
already opened three U.S. distribution centers in the South and on the East and West Coasts
when a major opportunity arose. That was Canada, where in 1978; Mary Kay Ash answered
repeated requests from its neighbor to the north. Canadians love to relate the cosmetic icons first
visit to their country. It was in the midst of a deadly winter storm that the petite dynamo came,
sans boots, to meet and rally the Canadian independent sales force. Despite radio safety warnings
to stay at home because of difficulty traveling, Canadian women came out to meet and greet
Mary Kay in a hotel ballroom. It was said to be so cold there was ice forming inside the ballroom
windows, yet Mary Kays magnetism warmed the crowd. They definitely warmed to her
message. That began a lifelong mutual admiration between the Texan and her Canadian
operation. One employee who traveled with Mary Kay Ash on several subsequent visits said,
She was the consummate hands-on leader and that made a real impression with the women of
Canada. Mary Kay never hesitated to get out from behind her desk and go up close and personal
to disseminate her caring leadership style.
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A Readers Digest article, Mary Kays Sweet Smell of Success, appeared in late 1978, and just
one year later the Company and its Founder were profiled on televisions 60 Minutes. This
latter 1970s media attention would coincidentally set the stage for a continued bright future
for the company, both domestically and globally.
Mary Kay expanded to Argentina in 1980. In 1986 shortly after the company was returned to
private ownership the first European operation, Mary Kay Germany was established.
Expansion to Asia didnt begin in earnest until the 1990s.
Argentina and Mexico offer two great examples in the Americas region that validate and provide
insight into how closely the Companys global success is aligned to its culture. Both countries
have weathered economic crises that rather than rocking them -- only solidified Mary Kays
position in those markets. Argentina came on board in 1980 but it wasnt until 2001 that its
staying power was proved. There was an economic crisis that year that saw a blistering 300
percent devaluation as well as a financial collapse. According to Mary Kay Latin America
President Jose Smeke, even amidst these dire straits, Our sales force count nearly doubled from
12,000 Independent Beauty Consultants to 20,000. There was a 28 percent sales increase in local
currency. Why? How? Smeke says Mary Kay Argentina knew what to do in 2001 during this
economic crisis because one of its most successful sister subsidiaries, Mary Kay Mexico
founded in 1988 had survived and thrived through a similar economic crisis in 1994. In
Mexico that year, there was a currency devaluation of more than 150 percent in one day, a 20
percent unemployment rate, political uncertainty, and price increases of up to 60 percent.
We faced daunting obstacles, but we had a commitment to our independent sales force and their
families, and so we took some risks for them, says Smeke, who believes the appreciation and
support of Mary Kay Inc. to Mary Kay Mexico at that time (and to Argentina seven years later)
provided the trust and confidence that would see sales increase by 80 percent by the end of 1995,
as well as a 35 percent increase in Consultant count. We had, Smeke recalls, a sales force in
very high spirits. Their accomplishments proved that during a crisis a direct selling company can
be a very good option for women who need to help support their families. In Mexico and
elsewhere in the Mary Kay world, one key most certainly makes a huge difference. We always
said to these small business owners, you are in business for yourself, but not alone, explains
one corporate veteran.
The Companys fortunes are closely tied to the performance of its independent sales force. Mary
Kay Mexico had opened in 1988 when the U.S. parent company was 25 years old. By 2004,
Mexico had grown to be Mary Kays second largest subsidiary in numbers, with an independent
sales force of more than 120,000. Among those legions are dramatic and lifechanging stories of
triumph over illiteracy, poverty and even war. Who are the women of this sales force?
Throughout the world, their backgrounds and lifestyles are as varied as they are in the U.S.
Their stories portray the Mary Kay mission to enrich womens lives extremely poignantly. When
Mary Kay Mexico published a call for stories to celebrate its 15th anniversary in 2003, hundreds
of stories poured in. The best of those stories would be published in Readers Digest Mexico.
Among them were numerous stories like that of the fruit store merchant who had worked long
hours with little to show. Without a car, but with the mentoring of her Independent National
Sales Director, she decided to devote as much time to her Mary Kay business as she had to her
fruit stand. She is now a successful Mary Kay Independent Sales Director in Mexico, planting
many more fruitful seeds for growth than her produce stand ever would or could have provided.
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Even husbands of sales force members, on occasion, will testify to the life-changing potential
they have seen this opportunity offers their wives and their families. One of the things they
always express appreciation for is the Mary Kay emphasis on family and balance, which
resonates particularly well in these cultures.
Mary Kay Ash saw the huge potential of changing womens lives in Mexico very early on. Not
only did she enroll in Spanish classes, she often spoke to Spanish-speaking leaders in their native
language. Even though in Mexico she was known to have ordered a grandfather once in a
restaurant when she wanted a glass of milk, Mary Kays love for the language and the culture
was always a source of great pride to her Spanish-speaking daughters as she called them. The
first Independent National Sales Director in the U.S. of Spanish decent was an immigrant who
had been airlifted from Cuba to the U.S. with parental consent in 1961 to prevent her
indoctrination into communism. By 1975, she was enamored with the thought that she could earn
the use of a pink Cadillac like the one she had seen in Mary Kay literature. By 1977, she had her
first of many pink Cadillacs, and in 1991 was named a Mary Kay Independent National Sales
Director.
The seeds of entrepreneurship exist today in Brazil, where an American woman of Brazilian
descent decided to take her knowledge and skills as a Mary Kay Independent Sales Director and
start over in the land of her forebears. With 18 years of Mary Kay business experience in the
U.S., she knew the huge potential Brazil would have for this company and its mission to enrich
womens lives. She took a giant leap of faith, returning to Brazil to begin a new Mary Kay
chapter in her life. It paid off. Only four years after staring over, this woman became Brazils
first Independent National Sales Director in August 2003 just five years following Mary Kays
opening in Brazil.
Mary Kays General Manager in Brazil says that this womans successful journey represents a
true milestone. Other women have started to see everything thats possible. She is, they
reasoned, just like me and so they came to understand how they could do the same.
Europe
The company had celebrated its 30th anniversary and had crossed the threshold as a billion dollar
business at retail by the time Mary Kay Russia opened in 1993. Russia has become a pillar of
strength and it is clearly among the best places on the globe to see the power of success potential
that results from entrepreneurs with a penchant for hard work. Looking at Russia and the
surrounding nations, its apparent that the principles, career path and the products of this Dallas
Company have made the transition into an international opportunity that transcends generations,
language and culture. Mary Kay Russia also symbolizes that it is possible to transcend weather
and wartime.
The story of one Independent National Sales Director from a region in the Far East of Russia
illustrates how enterprising women can overcome economic woes and a severe climate. For this
woman, building her business often necessitated month-long waits for products to arrive when
inclement weather would prohibit air travel to and from the area. She built it anyway. So intent
was another woman to get her products to her market that she would routinely fly in the cargo
hold of an airplane in order to make the nine-hour trek to the distribution center.
65
Another Independent National Sales Director hails from Chechnya, a region torn by wars since
the time of the czars through the Soviet period and even today. This former music teacher left
Chechnya for Moscow to discover the only work she could find was cleaning floors. Her Mary
Kay business brought a radical lifestyle change -- affording her the luxury of owning her first car
in the mid-1990s and the financial ability to unite her family, long separated by poverty and
unrest at home.
Mary Kay has also been an important phenomenon during the second phase of perestroika
the end of the USSR and the start of privatization and reform.
The president of Mary Kays Europe Region, Tara Eustace, resides in Russia where she says she
has seen Mary Kay contribute to a better way of life, a change of thinking and many positive
influences. She recalls how Mary Kay Ash was overjoyed and proud to bring the Mary Kay
opportunity to the former Eastern Bloc countries. Many in the Mary Kay world fondly recall the
Founders visit to Germany shortly after the fall of the Berlin Wall. Germany had come on board
in 1986 but shortly after reunification of East and West Germany, a newly free East German
Independent Beauty Consultant just couldnt contain her enthusiasm when she walked across the
stage to shake the hand of Mary Kay Ash. She grabbed the microphone and proclaimed, First
we get freedom, and then we get Mary Kay!
Eustace says Europe has followed the Mary Kay model very closely. Russia in particular has
adapted to the lack of infrastructure (post, delivery, poor phone lines, emerging bank
infrastructure, lack of personal check or credit card systems) by developing a Customer Service
operation center where placement and payment for orders as well as education can take place.
Some of the largest recognition meetings for Mary Kay Russia have been held at the Kremlin,
which at one time was one of the few venues large enough.
Eustace believes that oftentimes the most effective way to deal with a less than positive
impression of the direct selling model is by careful attention to teaching and focusing first on
quality rather than quantity. A great Mary Kay staff, she concludes, helps the new market
attract and teach those very first vital Independent Beauty Consultants. Together they will build
the opportunity in their country.
Eustace recalls hearing the poignant story of a woman from Odessa who is an Independent
National Sales Director in the Ukraine. The home she lived in had no plumbing and no water.
Today the woman recounts how one hot summer day she and her young son were dust-covered
from hitchhiking along the motorway. I was angry at myself and my miserable life, she writes,
when suddenly in the row of dusty cars, I see a white, clean Mercedes. That Mercedes became
my dream. Today the woman drives a pink Mercedes courtesy of Mary Kay. She and her family
vacation at the best international seaside resorts and her son studies at the most prestigious
school and attends the finest sports club. And owing to Mary Kay, I managed to make my
dreams real, she says.
The entire region is filled with stories of dreams come true and lives changed. Not only did Mary
Kay Russia survive the economic crisis of 1998, but the companys Independent Beauty
Consultant count had almost doubled by the end of 2002 and nearly doubled again at the end of
2003. Currently there are some 100,000 Independent Beauty Consultants third largest of the
international markets behind China and Mexico. Another place where numbers were significant
66
was in sales force leadership. By 2005, Eustace estimates that some 70 women in Russia alone
will be Independent National Sales Directors.
Asia
If the prospect of a recognition and rally meeting of a U.S.-based capitalist company taking place
at the Kremlin isnt enough of a contrast, imagine then that kind of a rally taking place in China.
It is in this ancient land that Mary Kay has seen wonderful success. China, today the eighth
largest consumer of cosmetics, is Mary Kays most profitable subsidiary. It is also recognized by
the business community. Fortune China named Mary Kay one of the top ten companies to work
for in China. Not only is the marketing plan successful, Mary Kay manufactures its products at
its facility in Hangzhou, and was the first cosmetics company that China granted a quality
control and guarantee system certificate in 1998, just three short years after Mary Kay opened for
business in China. Perhaps even more significant is the impact that the venerable culture of this
American company has had on the historic land and its people. K.K. Chua, president of Mary
Kay Asia, says he knew from the beginning that Mary Kay principles would transfer well into
Chinese culture. Confucius taught if you want others to treat you well, you must first treat
others the same. As we examine the various components of what constitutes the Mary Kay
culture, it is closely aligned with the Asian culture.
The region has not been an easy one to excel in. Mary Kay China faced daunting obstacles
including a government ban on direct selling shortly after it opened. During the six months of the
ban, more than 4,000 Mary Kay Independent Sales Force says Chua, refused to go away. By
the time Mary Kay was back in business, these faithful sales force members were ready to carry
China to its current status as the companys largest subsidiary. Mary Kay looks forward to
expanding well beyond its 18 branch offices, as well as set operations in 29 additional cities. A
new manufacturing plant is planned for 2006.
In addition to many inspiring stories, Chua points out that Mary Kay has made its way in China
by following yet another of the founding principles. The belief in giving back to the communities
has taken root in re-investing part of its profits into the lives of the countrys women. There is a
micro credit fund for female workers, schools in mountain regions where female children have
been too poor to attend school, scholarships for female students at two prominent universities,
and youth projects emphasizing skills training. The most telling of the impact of Mary Kay Ash
on a culture so far removed from her own is the small rose garden outside a maternity hospital in
Shanghai. It commemorates Mary Kays life and philosophy and this Mary Kay garden honors
the fact that this American womans legacy is firmly established in China.
Equally heartwarming is a painting that hangs in the Mary Kay Museum at the world
headquarters in Dallas. The Chinese street scene was painted by a renowned Chinese artist as a
thank you to Mary Kay Ash. The artist paid tribute to this American businesswoman who had
provided her a first chance at developing her personality. In the tribute letter, she poured out the
heartwarming story of never having spoken until her teens. Although recognized as an artist she
was extremely uncomfortable around people until her own Mary Kay network gave her the
confidence among people that had eluded her for her entire adult life.
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Another strong testament comes from the woman who ranks first among Independent National
Sales Directors in international operations. In China, she was one of the 15 pioneers in the Mary
Kay Independent Sales Force one whose fierce determination to excel at her Mary Kay
business could not be dampened. By her late 20s, she had attained the prestigious Independent
National Sales Director position and in her mid-30s, ascended to first place among international
Independent National Sales Directors. A medical doctor and National Sales Director told of
never having worn makeup before she was 30 years old. Her mother believed only bad girls
wore cosmetics. She came to know the company through its products and eventually left the
medical profession to pursue a Mary Kay business. She says today, In my mind, Mary Kay is a
footstone. On this base, womens dreams could come true: beautiful appearance, harmonious
family, bright life.
Another National Sales Director in China today has difficulty believing how her life has changed
since she first began her Mary Kay business. She fondly recalls how she would regale her skin
care class participants by telling them about the Texas-based legend and those infamous pink
cars of the Mary Kay world. She went on to qualify, in 2000, for the first pink car in China.
Having gone from being a jobless, homeless and poverty stricken divorced mother to becoming
an international success story is indeed a powerful journey. It is a journey that breathes belief
into other women aspiring for their own brand of Mary Kay success. It is a confidence-inspiring
journey that Mary Kays history has proven others will emulate.
Conclusion
It is the culture of Mary Kay that seems to shape the heart of the Company, no matter its location
worldwide. Mary Kay is intent upon transforming itself to achieve an internal corporate
challenge by the Companys 50th anniversary in 2013- that international sales as well as the
international independent sales force will exceed that of the United States. By 2004, the
international business sales projection was expected to exceed what the entire U.S. did in the
year 2001.
The number one corporate strategy is to amplify the soul of the company. Mary Kay has not
only let the culture be, the Company has gone to extra lengths to make the heart of the
Company the focus of international education and development. While the lucrative nature of the
Mary Kay marketing plan would seemingly be sufficient, thats not enough. Its not enough,
Whatley says, that a woman can earn potentially at 100 times the average per capita income of
her country. This success works so much better and lasts longer when it is applied according to
Mary Kays founding principles. In 1963 when Mary Kay Ash stressed her Golden Rule style of
doing business, it was a foreign concept to even a U.S.-based company. Today, that style is so
celebrated that a recent newsletter took the time to spell out how the Golden Rule translates into
all the major cultures and faiths of the world. There is always the emphasis on what Mary Kay
saw as, belief in the beautiful potential of women that also drives Mary Kays global success.
Once the sales force understands the Mary Kay culture, adapting business systems to the customs
and mores of each new country becomes a much simpler process. But it is never simple.
Mary Kays International staff will talk of a starter kit designed for the tastes of Western women
who drive their cars everywhere and how its size wreaked havoc on women in Asia who
typically walk and take bicycles or buses everywhere. They will allude to how much more
68
global the color palette and formulas of Mary Kay brands are today as they routinely conduct
product focus groups on a multitude of skin tones and in nine languages. Even a recent new
Independent Sales Director education session in Dallas featured fully one tenth of the attendees
needing translation into languages such as Polish, French, Cantonese and Spanish. But more
important than the language is the common and shared experience all women relate to. That
will, in summary, make the difference for this American company. When accepting the
posthumous award given Mary Kay Ash as Greatest Female Entrepreneur in American
History, her grandson Ryan Rogers said, Mary Kay tapped into one of the greatest under-used
natural resources this nation had to offer the hearts and minds of its women. It is much the
same today throughout the more than 30 markets where Mary Kay has a presence, and in those
parts of the world that women have even fewer opportunities.
Direct selling is one of the only forms of retailing that can adapt to virtually any conditions or
circumstances and Mary Kay Cosmetics is a great example of this. Entrepreneurs and capitalists
alike have come to see that when direct selling operates by the highest of standards, it can make
amazing strides in contributing toward solid world economies. Mary Kay, Inc. follows the ethical
standards set by the Direct Selling Association (DSA), and was instrumental in seeing the
document to fruition in the 1970s and strengthening it in the 1990s when one of its corporate
officers was serving as DSA Chair. The DSA is the industry trade organization comprised of
150 direct selling member companies worldwide and has been an advocate of ethical business
practices and consumer services. The DSA Code of Ethics has served the industry well, an
industry now comprised of 49,937,719 sales people as of February, 2004 (R. Diamond, personal
correspondence, March 10, 2005).
The culture of Mary Kay, Inc. reflects today the caring attitude its founder, Mary Kay Ash,
established at the outset. David Holl, President and Chief Executive Officer believes that, A
fiscally sound company can also be a nurturing and caring company. We have a larger goal than
selling a product. I have seen firsthand the stories of self esteem and personal growth that abound
throughout the Mary Kay world. I know nothing would please our Founder more. Holl
continues, We have experienced in more than four decades that the businesses that succeed the
most in Mary Kay are those built and based on the number of lives touched. Having someone in
your market break a belief barrier is extremely important. Having them succeed by following
Mary Kay principles is even more important.
Mary Kay Ash was a role model that truly believed in the human potential, encouraging others
through positive reinforcement, such as praise, recognition, and respect. To instill her point, she
insisted her own board of directors table have round seating with no head. These principles have
greatly enhanced the appeal of the organization to aspiring entrepreneurial women. Today, there
are more than 400 Mary Kay Independent National Sales Directors on five continents that serve
as inspirational leaders for more than 1.3 million women in the Mary Kay independent sales
force.
69
FROM THE ARTISTS HAND: MANAGING ARTS AND

CRAFTS BUSINESSES
Karrie Karsteter, Cameron University
Natascha Brown, Cameron University
Shawn Carraher, Cameron University
Profile Sheet
Business Name: From the Artists Hands
Description of Business: A Jewelry store that specializes in hand- made jewelry from local artists in
Austin, Texas and the surrounding areas
Major Products: One a kind hand-made customized earrings, necklaces, brooches, rings, watches,
and bracelets
EXECUTIVE SUMMARY
I. Areas of Analysis
Five areas were analyzed. These included marketing, accounting, finance,
production/operations, and personnel for the company From the Artists Hands.
II. Methodologies used:
1. For marketing surveys and word of mouth were used.
2. For accounting a professional accountant was used.
3. For finance a small investment broker was used.
4. For production/operations word of mouth, flyers, and surveys were used.
5. For personnel surveys and interviews were conducted.
III. Opportunities/Problems Analysis:
1. The owners of From the Artists Hands would like to expand the floor space of their
shop, lower prices in order to increase sales, and advertise and promote more.
2. The owners would like to increase profits through a reduction in costs, an increase in
sales, and an increase in overall profitability.
3. The owners would like to extend their current investments into more risky endeavors.
They would also like to develop a new budget that is centered toward the needs of the business.
4. The owners were having slower periods with lower sales when the artists were not
delivering new pieces of jewelry during peak selling periods. Also, the owners were not as
accommodative to the artists as they would be by allowing them to discuss and unveil their new
pieces to the customers at the best times available.
5. The owners were experiencing conflicting hours for their employees, the artists and
for themselves. Also, the owners wanted to create an award/incentive program for bringing in
new artists.
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IV. Conclusions Reached

1. The owners need to advertise in more publications that cover the majority of the local
populations small businesses, as well as advertise in the monthly calendar event posting. They
also should start acquiring more information to purchase another building for expansion,
possibly the one that is right next door to their shop.
2. The owners need to analyze the current financial situation of the business in order to
determine which costs can be reduced and which expenses can be completely eliminated.
3. The owners need to determine how much risk they are willing to assume in order to
meet their financial investment goals. They also need to determine what components their
budget should consist of (including their recurring bills and average revenue stream).
4. The owners need to shift their operating hours in order to gain more potential
customers. They also need to accommodate and help organize better timelines for the artists in
order to get their jewelry to the shop for sale during peek selling periods.
5. The owners need to shift their operating hours in order to gain more potential artists
and better accommodate both the owners and their current employees. They also need to derive a
program to reward those employees who bring in more artists to sell more pieces of jewelry.
V. Recommendation(s) (for current implementation):
1. The owners are starting their marketing strategy to advertise in more papers,
especially the ones that we suggested.
2. A cost benefit analysis should be conducted in order to determine the best route
towards higher profitability.
3. Different investment brokers should be researched in order to find the one who best
meets the investment needs of the owners. They also need to determine the guidelines for each
area of the budget, in order to determine the structure of the budget.
4. The owners plan to shift their operating hours to open their store later, in the early
afternoon instead of the morning hours and to remain open until the night hours, instead of the
early evening. This way the artists whose creations are on display in the
shop can actually discuss with potential customers their own work created by them.
5. We recommend the owners shift their hours so their employees have the opportunity to
work more hours since it will not conflict with their classes or other jobs. The same goes for the
shops artists and their customers. The reward/incentive program for employees who bring in
more artists will be by public recognition and employee involvement incentive pay for that
particular month.
VI. Recommendation(s) (for implementation at a later time as dictated by the changing business
situation and resources available):
1. The owners are looking at their financial situation to purchase the building next to
them for expansion of their store.
2. This strategy is to take effect immediately.
3. More investments should be made as the profitability and free cash flow increase.
4. This strategy is to take effective immediately.
5. This strategy is to take effective immediately.
VII. Implementation:
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1. The owners plan to start running new ads in the various papers starting the month of
July. The building purchase is in the planning stage and is set to be complete in October.
2. The owners plan on analyzing their current situation with a professional accountant in
order to make the best financial decisions. Once their analysis is complete, they hope to
implement the results immediately in order to increase profits as soon as possible.
3. The owners plan on meeting with several professional brokers to determine which
financial plans best meet their investment goals. Once the chosen strategy is in place, the owners
will continue to monitor their investments to ensure that they are continuously meeting their
investment goals.
4. Instead of being open from 9 AM to 6 PM on Monday through Friday and 10 AM to 5
PM on Saturdays, the owners are shifting their hours to 12 PM to 9 PM, Monday through Friday
and retaining the same hours on Saturday, in order to accommodate the artists, their employees,
and themselves. The new hours of operation are effective on July 1st.
5. Instead of being open from 9 AM to 6 PM, the owners are shifting their hours to 12
PM to 9 PM in order to accommodate the artists, their employees, and themselves. This will in
turn, better accommodate all parties involved, since they are the ones who benefit from the shop
the most. The new hours of operation and incentive pay are effective on July 1st.
COMPANY BACKGROUND
From the Artists Hands has been in operation since 2003 and specializes in selling one-of-a-kind
hand made jewelry made from the very heart of what makes up Austin, the local artists. Their
mission is to provide authentic hand-made one of a kind jewelry pieces to clients made by their
own artists. Their ethos is Creativity Becomes Art. The co owners came together with the
same passion- the love of jewelry, especially when handcrafted by local artists. They service
many locals, the many visitors Austin attracts, and the various college students that attend the
University of Texas at Austin. They provide a huge range of hand-made jewelry from brooches
to rings, necklaces, earrings, watches and bracelets. They supply the stores in which artists thrive
to have their creations sold and noticed. For many this is a stepping-stone for their own careers
in the future. There are currently 4 employees working for the company. The qualities sought for
in employees are a knack for artistic design and trustworthy ethics. They create a work culture
that thrives in passion for new designs and is always open and willing to try new ventures that
support the ethos. The pieces are solely sold in the local store, for they are all one of a kind with
no manufacturing and thus cannot be sold on the internet or from a catalog. What sets From the
Artists Hand apart from all of its competition is where and how their jewelry is made and their
commitment to give the community high-quality, customized, hand-made jewelry right from its
very own local artists.
II. OBJECTIVES OF THE FIRM
To increase sales by 30% in 12 months.
To expand the store for more jewelry by more artists.
To increase awareness of the store and what it represents.
To continuously attract more and more artists to make jewelry for sale.
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To host Artist Night where the artists who create the jewelry come and talk about their pieces
and what they represent.
To add two more locations within the next three years.
To earn $50,000 in three years from investments in order to meet all of the capital requiring
goals.
III. OPPORTUNITIES/PROBLEMS ANALYSIS
1. Marketing
A. Analysis: From the Artists Hands has definite and ample opportunity for more
clientele and artists to sell and advertise their creations within the shop. Their location is in a
wonderful area that has access to the large majority but their store could stand room for
expansion to meet the diverse demands of customers. One problem is the jewelry costs are
somewhat pricy when compared to other non-specialty jewelry stores. This often results in
fewer and more sporadic sales. Another area they could expand is in their advertising and
promotions area. They could do so by featuring new artists along with new promotions.
B. Discussion: When we went out to visit and discuss opportunities/problems
with the owners, we conducted a survey and asked their customers how they become aware of
From the Artists Hands. The majority surveyed said they either read about it in the local
newspaper or heard about it by word of mouth from a customer who had made a previous
purchase. Others heard about them from one of the artists who made the jewelry, a friend of the
artists, and some just so happened walked by the store and was attracted by the window displays.
We consistently found word of mouth to be the most widely spread source of marketing for the
store.
C. Recommendations: One of the opportunities/problems From the Artists
Hands wanted to see was an increase in clientele. In order for the owners to achieve this, they
have to be able to reach more potential customers. How so? We suggested advertising more in
local areas. For example, they already advertise in the local paper that is distributed on the
University campus. Now they need to explore the local small business forum that is produced
quarterly, which solely advertises locally owned shops and promotes local buying. There are
ample opportunities to advertise in the upcoming events calendar that is produced monthly and it
contains free advertising for local businesses in the area. For example, there is a live music
festival that attracts thousands of people from various locations and is known to draw quite a few
famous names along with it. Once they get their name out there and if the products are
considered high quality, this method may be the only advertising needed to attract more and
more potential customers.
Another area they wanted see expanded was more floor space. Their location is
wonderful (since it is right in the middle of the large mass of people who shop and are out for the
day), but they want a more quaint area to display more artists creations in order to attract and
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meet a more diverse population of buyers. There is a store right next door to their current
location that can be purchased and transformed into their current store to accommodate their
expansion desires. Since they are a specialty jewelry shop their prices are a bit higher when
compared to non-specialty jewelry shops. This causes their sales to be more sporadic than the
traditional stores. They would like to drive the prices down at times and we think they could do
this by having an artists special sale This special sale would be for the jewelry that may have
been in the shop with little to no turnover. They can reduce their prices, thus making room for
newer work, which would help to meet the ever changing demands of customers. Another way
to promote more business would be to invite the artist to come into the shop and be on hand to
discuss their creations with the clientele. They can discuss how they were inspired, what created
their inspiration and what it means to them, especially when they see customers wear their art.
The store can also extend their hours to meet the demand of their customers since the
majorities of their customers (and some of their artists) are university students. In addition to
inviting artists in, they also could set up their website to inform customers of new artists
upcoming creations and what they can expect to see. This would help to reduce the risk of
customers coming into the store and realizing the store had nothing new. The thoughts of the
products not being updated might frustrate customers, thus increase the risk of them not coming
back. The hardest part is getting customers into the store. Once customers come in, sales can
happen.
D. Action taken By Client: The clients are taking our advice on all the issues.
They are looking into acquiring the building next to them for expansion based on their financial
situation. On our marketing advice they are looking into running their ads in the papers, flyers,
and advertising in all the sources that are available both free and paid.
2. Accounting
A. Analysis: From the Artists Hands has a great accounting system in place.
Based upon an analysis conducted by a professional accountant, it has been determined that
certain costs are excessive and could be reduced in order to maximize profits. The client
currently has several unnecessary costs that may even need to be eliminated. Some of the
excessive costs include: the extra materials used in the creation of the jewelry, the commissions
paid to jewelry artists (even if the jewelry does not sell), and the high cost of advertisement.
Several of the jewelry pieces are created with extra materials in order to create a special
touch. These materials are very costly to implement with the creation of jewelry. Although,
several customers may prefer the jewelry due to these added features, the cost may actually
outweigh the benefit of having the extras. Also, the removal of the added features is not likely to
cause a high turnover. Some people may be disappointed, but it was our experience that most
customers preferred the simpler pieces anyway. By eliminating these extras, the cost of
producing the bracelets may actually be cut in half. This could tremendously increase profits to
the desired high level.
The commission expense is also an extremely high cost. The main reason behind this is
the fact that the artists are paid for every design produced, not dependent on if the design sells. It
may be a good idea to encourage a commission for the artists only upon the sale of their product.
This would greatly reduce any unnecessary expenses. Lastly, the advertising has increased
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dramatically in order to increase the customer base. This may contradict what we had as a goal,
but it must be known that the increase in advertising may actually cost more than the benefit of
obtaining new customers. It may actually appear to be more profitable to sustain the current
customer relationships rather than to build completely new ones. This, however, depends on
several factors.
B. Discussion: When we went to discuss the possibilities with the client, we also
used the advice of a professional accountant. This helped to determine the appropriate measures,
based upon a professional opinion. The accountant helped us determine which costs, could in
fact be cut, without having a detrimental effect on the customer retention level. We then used
these measures provided by the accountant to develop our cost reduction plan. We found this to
be very helpful, because without her guidance, we would not have obtained the knowledge that
we did.
C. Recommendations: Based upon the accountants analysis, we determined that
we were correct in our original assumptions. The client would definitely need to cut back on
some of the more costly materials. These materials could still be used, but only on a select
assortment of the jewelry. If the materials were used, the client would need to increase the price
accordingly, to make up for the additional cost of the materials. It was also determined that the
commissions should only be paid once the actual items were sold. This was clear by the
excessive commission costs paid to the artists. Commissions were being paid, even when the
items were not selling. This was causing a burden on the shop owners, when it should be a
burden on the artists. If the artists designs were not selling, then they should not be paid a
commission. However, if the artists creations are selling well, they should be receiving a nice
commission. This way the commission would entice them to create high quality jewelry, which
would be easy to sell.
By cutting back on just paying commissions to anyone who designs the jewelry, the
constraints of actually selling the jewelry would create a strong urge to work harder in some of
the artists. Lastly, the accountant determined that a good mix of advertising and customer
retention should take place. This means that some money should be poured into attracting new
customers, but that some money can be saved by simply retaining existing customers. It is
proven that it costs much more to attract a new customer when compared to keeping an existing
one happy. Because of this, we urged the client to find a happy medium between the two.
D. Action taken By Client: The clients strongly adhered to our suggestions. They
have since found alternative materials to use, which appear to be of higher quality, but cheaper
than the original excess material. Also, the material is only used on select pieces of the jewelry.
This allows the cost to remain low on most of the jewelry. The commission system has switched
to only being paid upon the actual sale of the jewelry. Surprisingly, this urged several of the
artists to try harder. The product appears to be moving much more quickly now due to the
higher effort placed into the product by the artists. A customer retention plan has also been
established since our discussion. They now create special savings and offers for their most loyal
customers. They do attract new customers through advertising, but also build on their customer
base by using existing customer referrals.
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3. Finance
A. Analysis: Before our assessment, the client only had one real investment/
savings tool. They had invested about $10,000 into a money market account. This account was
chosen because of its flexibility and ease of withdrawing money. The client was able to open the
account with little effort and had the comfort of withdrawing money at the nearest ATM if
needed. This account seemed to suit them well until they began considering a newer location.
They knew that with the newer location, meant more required capital. The only way they were
going to obtain this capital was through either store profits or through investments. Being that
the business was fairly new, the profits were not quite at the level required in order to finance the
new location. However, if planned carefully, it appeared that the potential earnings from
investments just might work.
The concept of budgeting was a difficult one for this business. They currently had no
budgeting plan in place. This created havoc for the business plans because no financial
guidelines were set into place. It was difficult to make any type of financial decisions without
having some sort of structure to follow. The way the current system worked was - money was
deposited and any necessary expenses were taken care of with that money. This created financial
duress during certain times when the cash flow was low. If it were better planned, the cash flow
during the stronger times could be set aside for the not so strong times. This would help to tide
the business over during the rough times. After all, the business must go on even during the slow
times.
B. Discussion: The investment decisions were aided with the help of a certified
financial planner. The specialist helped us to analyze the clients current patterns with their
desired goals. Since obviously these goals would not work if the financial planning stayed on its
current track (little to nothing), the planner set up some investing guidelines for the client. The
plan was to set aside a certain percentage of income every month into the money market account.
This would give quick access to funds for any type of short term emergency. Next, a certain
percentage should be set aside into a mutual fund/stock index in order to derive the growth
needed to finance the new location. The remainder of the money could then be used for the
everyday needs of the business in the checking account. By doing this, the client could
determine a budget and an investment plan all at once.
C. Recommendations: Our recommendation to the client was to set aside at least
10-20% percent into the money market account for any type of short term emergencies. This
money would be needed during the slower months, sometimes just to keep the store running.
About 30% of the profits would need to be placed into their investment fund (mutual
funds/stock) in order to generate enough profit for their future goals, including the move into a
new location. The remaining 50-60% could then be used for the everyday management of the
business. This would allow them enough capital to run their business, but would teach them to
set enough aside to reach their short term and long term financial goals.
By setting the specified amounts aside into the other two accounts, they would have
enough to fund the business during difficult times and enough to consider larger business plans.
This also helped them to create a budget. By setting aside certain funds, they were able to begin
the budgeting process. The remainder of the budgeting process included looking into all costs
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and revenues on a monthly basis. All extra costs which were not necessary to the flow of the
business were encouraged to be reduced or eliminated. This would increase their working
capital, which would help the cash flow needed to run the business effectively. Certain
guidelines were set for the costs. This created an ideal barrier for the limits of the costs. The
goal was to remain within the range for costs in order to meet the budgeting goal. As long as the
costs remained in that range, the business would be able to continue to save money and invest in
the future of the business.
D. Action taken By Client: The client readily accepted the budgeting idea. It
really helped them to see where there money was going every month. By using the budgeting
tools, they were able to move closer to setting aside the recommended investment amounts. The
more often they met the investment goals, meant the more often they would meet their business
goals. The budgeting also eased the bill paying process because it showed them how much
capital they had to work with every month.
Productions/Operations
A. Analysis: The hours of operation for From the Artists Hands were in conflict
with the artists and customers schedules. The majority of customers were either in school, at
other jobs, or were too busy doing necessary errands during those hours to shop or browse for
jewelry. We also looked into the artists creation timeline and how long it was before the store
actually received the jewelry pieces for sale.
B. Discussion: We had customers take a survey for us to find out about how they
felt the store was performing. Were they satisfied with the products they were receiving? Were
the hours of operation good for them or did it make it hard for them to come and shop at the store
due to other obligations? We found that the majority of the clientele were either in school or had
jobs that coincided with the operating hours of From the Artists Hands. We asked customers how
a shift in the operating hours would benefit them and their schedules. We noticed an increase of
customers wandering around on the streets that increased the customers awareness of where the
store was located and what it had to offer the artists and customers. These hours also attracted
customers who were university students. They could come straight from class when they were
either waiting to catch the bus home or were out and about in the early evening for dinner.
This increased the awareness for more artists in the future to display and sell their jewelry
in the store that catered to the masses of artists in the area (who were also university students).
Another concern the owners expressed was the timeline for new pieces of jewelry to make it to
the shop for sale. Sometimes the turnaround time was quick for new pieces to arrive from the
artists and other times it was very slow. Either way, it always remained inconsistent. This was a
factor during the peak buying times, for example Christmas, Valentines Day, and the wedding
season. If the owners could not find artists who would deliver the new pieces on-time for
these peak times their sales would drop and thus cause a ripple effect on the future. Customers
would not come back for a while to ensure they will see new pieces on their next trip and not
waste a trip to the store.
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C. Recommendation: We recommend that the owners predict as much as

possible for the upcoming big shopping seasons. They could hold some of the artists new
pieces to present when the big shopping seasons hit. This could cause the customers to feel that
the pieces were created right for that moment. We suggest creating and building up a persona of
certain artists jewelry pieces to be displayed in order to create more sales for the soon to be big
shopping season. Also, we suggest shifting the operating hours to accommodate the majority of
customers and the owners. Everyone will benefit from the shifted operating hours for From the
Artists Hands. The owners could potentially increase their sales, have more artists commit to the
delivery of their creations, and it would benefit them, the owners, to have the flexibility in the
morning hours.
D. Action taken By Client: They are shifting their operating hours and hoping to
gain more potential jewelry creations, artists, and customers.
5. Personnel
A. Analysis: From the Artists Hands currently has 4 other employees working for
them plus the 2 owners (who take turns being in the store during normal operating hours). After
interviewing the employees, we found them to be great for they come in when scheduled and are
ready and able to work. We also found out that the hours are not conducive for them as a whole.
The owners expressed the same concern. They felt that sometimes, particularly in the morning
hours, coverage and sales were lower because the employees were either university students or
artists who might have other jobs.
B. Discussion: The owners recognized they would have a problem attracting
employees during their normal operating hours. This might happen because the majority of their
employees and artists could be university students whose classes took place during normal
business hours. They might have a hard time getting employees to cover the morning shifts. If
this were the case, one or both of the owners would have to cover the store at these times.
Conflicts arise when the owners have to physically be at the store when they have prior plans.
The employees had either school to attend or had other jobs besides working for From the Artists
Hands. They are aware of this issue and have decided not to hire more employees for the short
duration of the morning shift when they cannot be promised any more hours. Most employees
are seeking more hours then just a few here and there because it will not be justified for them to
come to work at all. It turns out to be more of a hassle than it is worth.
C. Recommendation: We recommend having the owners extend their normal
business hours or shift their operating hours. By continuing to keep the same hours nothing is
gained. With no change also comes the possibility of a loss of sales due to the time
inconvenience. By shifting their hours we noticed they had more motivated employees and
artists willing to put in more effort. This would ultimately free up the owners time during the
slow morning hours in order for them to meet other obligations. This also might allow for the
employees and artists to work more hours. They could come to work without it conflicting with
their other schedules. After the interview, we found that the majority of the artists either know
each other or know someone who knows of an artist. We thought that by providing some type of
incentive for those employees who continuously brought new artists to the store, we could
encourage them to continue. On the other hand, the very same thing that drives the train can also
78
cause a train wreck. If the local artists are having a difficult time creating new pieces, the task
could shift towards university students who are studying to be jewelry artists. This can bring in
new creations from other areas of the country (even world-wide) for a fresh new look for the
store. This look might ultimately entice more customers.
D. Action taken By Client: The owners are trying to shift their operating hours to
extend later into the evening. This way they can attract all potential customers. They are also
looking into ways to reward those employees who seek out more artists to make and sell their
creations in the store.
What recommendations do YOU have for the owners of From the Artists Hands that can help
them to become more profitable?
How should their marketing campaigns be changed so that they can be more effective?
What might they do in terms of their cash management and financing?
79
THE CASE OF THE ELEGANT SHOPLIFTER

SHUWAIKH, KUWAIT
Dianne H.B. Welsh, The University of Tampa
Peter Raven, Seattle University
Faisel Al-Bisher, Eastern Washington University
ABSTRACT
The following case concerns a spare parts shoplifter in a Mercedes Benz retail facility.
The student is required to determine the suitable managerial and sales persons actions, while
considering legal implications, security, and cultural and gender issues.
Al-Bisher, Inc. owns the Mercedes Benz franchise in Kuwait. The two largest dealerships
are located in Kuwait City and Shuwaikh, Kuwait. The case in question describes events at the
Mercedes spare parts dealership and showroom in Shuwaikh. Shuwaikh is a large port city,
approximately 3.2 million square meters, which has just been modernized. Many new buildings
have been built in the last few years, and the port has been enlarged greatly. This means that
there are many more visitors and business people coming to Kuwait through the port of
Shuwaikh. There are about 57,000 people living in this city.
The dealership itself is located in a large building on Al-Fares Street, with five other
automobile dealerships located in the same neighborhood. The building is modern, with large
glass windows, and is blue and gray. The sales force consists of 14 men, 25 to 55 years of age,
and 2 managers, Mr. Mahmood and Mr. Fahimi. All salesmen and managers wear gray suits
with blue ties.
The inventory of the spare parts showroom in Shuwaikh had been experiencing shortages
of expensive accessories. In light of this, the management had instructed the salesmen to be alert
regarding suspicious customers. The specific instructions were if the sales people saw anyone
who seemed to be acting strangely, who appeared nervous or asked for unusual requests, then
they should be reported to management. In Kuwait, security alarm facilities are usually installed
in the jewelry shops, but closed circuit television systems are not typically used in Kuwait,
except in banks, as shoplifting and other forms of theft have traditionally been rare. However,
after the liberation of Kuwait from the Iraqi forces, shoplifting incidents and even armed
robberies are on the increase.
One day Nora, an elegant-looking lady and regular visitor of the spare parts and
accessories facility at the Mercedes showroom, visited with her child, aged about 5 years. She
asked to look at a number of accessories, including some models of a Becker car stereo. The
salesman brought the stereos and displayed them as she had requested. The showroom was
unusually busy, and the salesmen were having a difficult time attending all the customers. Mr.
Mahmood, who was the supervisor on duty, was also unavailable because he was managing the
showroom. The lady examined the stereo, and then requested the salesman, Mr. Ahmed, to bring
80
out some other parts, which required him to leave the counter for a short period of time. The
other salesmen were busy attending to numerous other customers. However, Mr. Mahmood,
while completing his routine customer checks, spotted Nora slipping the stereo into her large
bag. This was also noticed by another salesman, Mr. DSouza, who was on alert following the
instructions from management.
After selecting some minor spare parts for her stereo, the woman approached the register
to pay the bill. Mr. Mahmood followed her to the cash counter to see if she was paying for the
stereo and was surprised to note that she did not even mention the item to the clerk.
Mr. Mahmood confronted her, saying he knew she had a stereo in her bag, but she
vehemently denied it. When Mr. Mahmood insisted that he check her bag, the woman started
shouting at him and told him that he had no right to check a womans personal bag. At this
point, Mr. DSouza, came and told her that he too had noticed her slipping the stereo into her
bag, but Nora, the suspected shoplifter, was adamant and refused to allow her bag to be checked.
The security officer hired by Mercedes was also present but was not able to do anything because
in Islamic countries, the law does not allow a male to freely talk to a woman or to touch her
belongings. This law is respected and followed in Kuwait. Breaking this law is a crime, and a
person can be arrested. However, the seriousness of the situation caused the cashier, Mr. Fadel,
to call the police.
As the commotion grew, the other customers gathered around the area, some taking the
womans side and others just observing the commotion. Some of the customers were yelling that
the woman in question was not a thief. Soon, the police arrived on the scene, and after hearing
both sides of the story, decided to have the womans bag checked.
The stereo was found in her bag. Nora strongly defended her innocence and implied that
the stereo may have been put in her bag by her child without her knowledge. The testimony of
Mr. Mahmood and Mr. DSouza that they had seen the woman slipping the stereo in her bag was
sufficient for the police to take her to the police station. Upon interrogation, it was revealed that
she had regularly been lifting valuable items, which she took back with her to Pakistan, her
home. She could get a very good price for the items in Pakistan. The police proceeded to search
her house and recovered a variety of expensive items, such as jewelry and small electronic
devices like the stereo. They were packed in suitcases, as the woman was going to leave for her
country in a couple of days.
Knowing Islamic religious laws, women are aware they usually cannot be stopped,
checked and held by authorities very easily. They feel comfortable in taking items from
shopping malls, and other shopping outlets and leaving the country with their booty, which will
fetch them large amounts of money in their countries.
Discussion Questions
1. Should the law be changed when the accused is a female? Should female police force be
used for females accused of crimes in Kuwait?
2. Should the residency laws be changed to allow only eligible foreign employees with a
substantial salary level to bring their families? Currently, the authorities allow all working
visa holders to bring their families to Kuwait, regardless of financial status. Because of the
good financial standing in Kuwait, many foreign workers and their families are hoping to live
in Kuwait to raise their standard of living. Many come from poor countries like India.
3. Was there another approach that the staff could have adopted in dealing with the shoplifter?
81
CHANIAN CHOCOLATE: ETHICAL LEADERSHIP IN

NEW BUSINESS START-UPS
Shaw-Foong Chan, Cameron University
Shawn Carraher, Cameron University
EXECUTIVE SUMMARY
The entrepreneur, Shaw, is going to introduce his artistic Flagships products (chocolates &
chocolate related products) and Chanians reinforcement of Flankers products (Chinese Deserts,
Chocolates Drinks, Coffees, Asian Drinks, and Aeco Series bottle low alcoholic drinks)
businesses into Estonia. For Shaws start up business, Shaw will push out more creative idea which
will be manipulated in artistic way through Chanians chocolates and chocolates related products in
Estonian temporarily as well as to the Western European region as its capitals growing larger and
stronger. Shaw and his company will listen what customer really wants from Chanians products in
terms of feedbacks and will develop complete solutions for consumers in terms of maximizing of
customers satisfactions. Chanian is a sole-proprietorship; this report presents comprehensive
perspectives at the strengths and weaknesses, and opportunities and threats of this small unborn
business for classroom discussion of it viability.
I.
This report contains analysis of the Chanians chocolates and its related products businesses,
expected management and organization situations, financial situation, the market
opportunity in Estonia, the corporate strategy, business strategy, marketing strategy, and
pricing strategy.
II.
Analysis was completed with online support as Mr. Chan has not traveled to Estonia.
1. INVESTinESTONIA.COM;
2. The World Fact book (2006).
III.
Estonias economy growth provides opportunities and problems to the firm:
1. Lack of financial capitals (problem);
2. Dealing with European competitors in the same industry (problem);
3. Must be very creative through the products and services (opportunity);
4. Take advantage in low production costs (opportunity).
IV.
Conclusions reached:
1. Be much more creative in products and services via reading much more recipes;
2. Gather financial capitals supports from the banks (EEK 600,000) and any possible
investors;
3. Gather reinvestment funds from customers via quality, flexible and warm-heart of
products and services to customers without hurting their feelings;
4. Develops as bigger the size of market share in Estonia (more than 5 percent is great) as
possible via top quality products and services at competitive prices;
5. Control spending.
V.
Recommendations: Recommendation for a Chanian as mentioned above at III.
Background of the Firm and Idea of Chanian
82
Mr. Shaw-Foong Chan has a dream to open up a small chocolate store, Chanian
(companys name and brand name), at Tallinn, the capital city of Estonia. A chocolate store is
chosen to locate at Tallinn because of the capital city contains a large population of 411,600
people include foreigners (consumers) in the capital city, and easier to collect regional business
intelligence.
The reasons he opens this business in Estonia instead of in Asia, because (1) Shaw wishes
to open a chocolate business that is closer to chocolates lovers, the Europeans; (2), taking
advantage in terms of low-cost production with top quality at reasonable prices; (3) taking
advantage in closer to observe the differences of European chocolates and related products; (4)
collecting information in terms of trends and marketing opportunities and threats of cosmetics
and fashions designs and marketing industries in Europe (4) seeking to cultivate Western Europe
market shares and then head toward the US and back to Asia, especially to Japan, to China and
Taiwan after this brand has gained fame in Europe.
As Chanian has successful in its chocolate business and grows stronger, the coffee, lowalcoholic drinks (4% alcoholic sodas and fruit juice sodas), and particularly, the Chanian
Cosmetics & Fashions and Asian real estate products and services that are made of Chanian will
be committed. In addition, the Chanians Cosmetics & Fashions and Asian real estate businesses
will be handed over to his sisters).
Objectives of Chanian are:
Seek investors and Acquires at least 5,350 customers or 1.3 percent of population at
Tallinn, and 8,500 university students out of 18500 in the University of Tartu at the
city of Tartu, or 3.2 percent of market share in the 14.1 percent bakery and other
products industry in 1.37 million population of Estonian total population
Chanians net profit has to be at least EEK 900,000.00 per year to offset its materials
and others unknown costs
Maintain customers through quality products and services
Create brand name that represents quality and companys name that represents fame
ANALYSIS (BY AREA)

1. Marketing:
Currently Chanian has not started its operation in Estonia yet. This business is still in the planning
stage.
A. Opportunities/ Problem(s)
Location: Tallinn (Headquarter, the capital city, the only store). Shaw wishes to open
the store at the commercial area but avoid any restaurant and bars.
Tartu will be the first branch to be opened close to the university soon since it is
an old university town with 100,000 residents in the city. The University of
Tartu contains 18,500 students (Wikipedia.org, 2006).
83
Target market: Tallinn and Tartu. Chanian targets its unique products and services to
the local people (students, price sensitive & less price sensitive working classes and
households) and foreigners. The customers can be any demographic (ages, genders, and
income level) but mainly for the younger couples, students, and for those prefer a lowbudget with top quality chocolates.
Chanian is expected to operate at Tallinn, which contains 411,600 people in the
national capital city. Regardless what kind of them, some of these people would have
tried chocolates once in a while, some of them would frequently purchase chocolates
or related products, and even some of them are chocolate lovers.
Chanian is also targeting to the students at the University of Tartu with the youngpeoples desserts and drinks due to their high consumption habits, low price sensitive,
and night-lives social able habits. The mysterious seldom-seen Asian desserts & sweet
cold Asian drinks, and the unique cold but low alcoholic drinks are the main force and
very suitable to occupy the students hearts. The prices for this will remain low for
preserve student retentions.
Profit: From the offline market, if Chanian possess about 1.3 percent of the total
population (411,600 people) of Tallinn which is 5,350 people, each shopper is
expected to purchase about EEK 5.4 chocolate products for 2.5 times a month, the
profits would be EEK 866,829.60 per year = [(5,350.8 consumers) x (EEK 5.4 per
consumer) x (2.5 times per month) x (12 months)].
If Chanian possess about 8,500 students of University of Tartu (totally 18,500
students) in the Estonias city of Tartu, each student is expected to purchase about
EEK 7 products for 4 times a month with friends, the profits would be EEK
2,856,000.00 per year = [(8,500 consumers) x (EEK 7 per consumer) x (4 times per
month) x (12 months)].
Or if Chanian possess about 3.2 percent market share in the 14.1 percent bakery
industry within 1.37 million of Estonian total population, the profit would be EEK
1,001,393.28 per year = [(6,181.44 people) x (EEK 5.4 spent per customer) x (2.5
times per month) x (12 months)].
Online market will be considered if the orders placed from Eastern and Western
Europe. The delivery could be done via DHL or UPS services.
Purchasing: Purchases and material control are supervised by the owner and his student
worker. The materials, for example, are milk, skim milk, soy milk, cocoa powder, cocoa
butter, sugar, caramel, nuts (almonds, hazelnuts and others nuts), cherry, raisin, coffee
powders, coconut cream, natural and artificial flavors (orange, raspberry, blueberry,
strawberry, mints, peanuts butter), tapiocas, wines such as Bordeaux, Burgundy, O.X.,
Hennessy Cognac, Napoleon, white wines, red wines.
84
So far, the materials costs are unknown, but it is not less than EEK 3,000 per 1.5 month.
Products and Services Differentiations: Chanian will practice its customer-oriented

approach, which reflects its friendliness, efficiency and flexibility executing customer
requests.
Chanian will differentiate itself from the competition with customer focus and
dedication to exceed the customers expectations. Because Shaw believes that
Chanian draws strength from combination of the American style managerial model to
customer satisfaction with friendly and warm-heart that manipulated via the chocolate
products and services; hence, build up long-term relationships between both the
company and chocolate lovers.
Chanian will provide its chocolate and chocolate products, Chinese desserts, and
drinks at the store, and will provide services as preparing chocolate cakes to the
wedding couple or birthday, student couples, other parties as long as they place an
order to the store. But they need to come and pick the items up themselves.
Flagship (chocolate) products: A chocolate bar (Cadbury bar size, 127 gram);
chocolate ball/ heart/ stones (about strawberry size); hand-made chocolate assortment
in a box with various types of multi-shaped chocolates with different fillings are used
(18.9 oz/ 540 g); chocolate truffles (6.25 oz/ 175g); and other creative and artistic
works. Small chocolate toy building, small chocolate toy bus, small chocolate toy
animals, small chocolate toy trees, small chocolate fruits, cakes and others are
available according to customers wants.
Flankers (Chinese Deserts): Chinese Buns (Apple, Blueberry, Carrots, Creamy
Coconuts, Pineapple, Strawberry, Peanuts Butter, Green Bean Paste, Red Bean Paste,
and Egg Yolk), Tart (Apple, Blueberry, Cheery, Carrots, Creamy Coconuts,
Pineapple, pumpkins, Strawberry, Peanuts Butter, Green Bean Paste, Red Bean Paste,
and Egg), Egg Roll, Pot Sticker, Xiu Mai and other items that are to be created. The
desserts prices are from EEK 1.80 to EEK 2.25 (usually it comes for 2 to 3 pieces per
order).
Flankers (Chocolates Drinks): Cold/ Hot Chocolate milk with/ without flavor of
(Cinnamon, Coffee, Dark Chocolate, Hazelnuts, Coconuts Cream, Orange,
Raspberry, Strawberry, and Mints). EEK 2.25 per cup.
Flankers Coffees: Cold/ Hot Coffee with flavor of (Arabica, Cinnamon, Columbian,
Coconuts Cream, Dark Chocolate, Double Chocolate, French Vanilla, Hazelnuts,
Java, Morca, Orange, Raspberry, Strawberry, Mints). EEK 2.25 per cup.
Flankers Asian Drinks: Ice cold drink of Red/ Black/ Green Tea with/ without fruit
flavor of (Apple, Banana, Blueberry, Cat-Melon, Coconuts, Carrots, Grape,
Grapefruits, Lemon, Lime, Mango, Passion Fruits, Pineapple, Raspberry, Strawberry,
85
Watermelon, or Yam) with/ without Milk with/ without Tapiocas. EEK 2.15 per
glass.
*Note: These Chinese desserts and Asian drinks will be altered for local people
tastes, since the Westerners preference of sweetness instead of Asians preference of
salty flavor. These items are to serve the Westerners who like to try the have-not-seen
mysterious Eastern culture as they might have enough for Western desserts -chocolates and cakes.
*Note: The Asian drinks are the main force to occupy students and younger couples
hearts as the mood of these drinks is young, sweet and passionate. These
drinks are the saviors of Chanian businesses.
Flankers, Aeco Series: Low alcoholic drinks, 4 percent alcoholic drinks (12 Fl Oz
per bottle). EEK 1.08 per bottle. Buy 6 gets one free.
AecoKoffee: Cold coffee with flavor of (Arabica, Cinnamon, Columbian,

Coconuts Cream, Dark Chocolate, Double Chocolate, French Vanilla,
Ginseng, Hazelnuts, Java, Morca, Orange, Raspberry, Strawberry, Mints).
AecoCova: Carbonate fruit juice with flavor (Apple, Banana, Blueberry,

Cat-Melon, Coconuts, Carrots, Grape, Grapefruits, Lemon, Lime, Mango,
Passion Fruits, Pineapple, Raspberry, Strawberry, Watermelon, Yam, or
Sodas). Low alcoholic mix drink, lower than the Cova in American
bars.
AecoTea: An alcoholic Black/ Green/ Red Tea with/ without Ginseng

flavor.
AecoTeco: A cold Black/ Green/ Red Tea with fruit flavor (Apple,
Banana, Blueberry, Cat-Melon, Coconuts, Carrots, Grape, Grapefruits,
Lemon, Lime, Mango, Passion Fruits, Pineapple, Raspberry, Strawberry,
Watermelon, or Yam).
* Note: The Aeco series are Shaws most recent creation for being the flankers of
Chanians businesses. Because the Aeco series is suitable for students and
younger couples and for those who like alcohol and love exotic drinks but afraid
to get drunk. So the series will not create any social problem for the students and
young people.
Consumer Services: Chanian will prepare chocolate cakes or other products for
wedding, birthday, or other parties when the order is placed by customers at least
three hours in advance.
Delivery of cakes for parties purposes will not be available due to the cakes is a
vulnerable product. Customers will have to pick their items up at Chanian.
86
Chanian will offer gift such as a small pack of chocolates that is in promotion.
Online orders for chocolate products (exclude cakes) will be considered as the firm
can afford to engage in such marketing activities in the short coming future.
The company will focuses on quality for future business opportunities inside and
outsider Estonia.
Companys Name: The companys name, Chanian, is built upon brand image, and
paper and online advertisings.
Brand Image: The brand image, Chanian, is built upon the unique products and
quality friendly services. Because the brand, Chanian, will not only be limited in
chocolate and its related products and services in the future, but will involve with the
owners, Shaws, visual art exhibition, and (maybe) will engage in other industries
such as cosmetics and fashions, and real estates in Europe, the US and the Asia in the
future.
In this case, Shaw will also design the logo of the package paper himself. Each of the
Chanians chocolate will be given a name that is from the mines, stones, and stars.
Pricing Strategy:
Flagships: Chocolates prices will be from EEK 0.98 per pound (EUR 0.06275, USD
0.08013) to EEK 65.95 (EUR 4.22326, USD 5.39268) per box or per package. Cakes
will be from EEK 7.09 (EUR 0.45395, USD 0.57974) to EEK 55.95 (EUR 3.58274,
USD 4.57498); and other products are dependant on ingredients costs and/ or
products weight that is greater. If customers preference, Chanian can offer a really
finest quality with elegant expensive chocolates of petit desserts with 14 to 64 types
of small chocolate pieces with the prices from EEK 29.95 up to EEK 205 which
depends on what the particular customer wants.
Flankers: Chinese Desserts prices are from EEK 1.80 to EEK 2.25 (usually it comes
for 2 to 4 pieces) per order. Chinese Drinks are all EEK 2.15 per glass. Chocolate
Drinks are all EEK 2.25 per cup. Coffees are all EEK 2.25 per cup. Low alcoholic
drinks are all 2.50 per glass. Aeco series low alcoholic drinks are EEK 1.08 per bottle - Buy 6 gets one free.
* Note: Shaw will adjust the prices at least 10 to 15 percent lower than any competitor
in Estonia, which also includes the foreign competitors in Estonia without altering too
much quality of any of the products for Chanians competition with. Shaw believe that
by absorbing the losses for a while will increase customers and potential customers
confidences of Chanians products and services.
87
Marketing Strategies: Implementation of offensive marketing strategy through (1)

reasonable good deal and reasonable high quality to the price sensitive customers; (2)
top quality with competitive premium prices to less price sensitive chocolate lovers;
(3) coordination of Flagships and Flankers products and services; (4) acquisition of
broad demographics customers groups, especially for students and low-budget group.
Marketing Efforts Contain: (1) delivery of advertising papers to households,
companies, people on the streets, and customers in the stores, this way, Chanian can
acquire customers and lays low; (2) tagging along sample(s) with the products and
services that customers have ordered; (3) asking employees to delivery ads to their
college, university, and friends; (4) offering discounts to the employees and for those
who have been introduced by the employees within a time period; and (5) Buy more
get cheaper and / or buy more gets one free are considered depend on the products
and the relationships between the owner and customers.
Trialability: Small size sample of products will be provided to have customers try
before purchase.
Distribution Channels: Offline channel in store shopping. Online channel through

the DHL or UPS delivery services.
B. Discussion:
Chanians opportunities and strengths: Shaw expects that the growth of Estonias
economy increases households buying powers. Therefore, Chanian:
(1) Will have opportunities and will love to provide its reasonable good deal and reasonably
high quality chocolates and chocolate related products; and
(2) Will enjoys comparatively low-cost of raw materials supplies in this European country as
a headquarter for the investment toward the other European countries.
Chanians threats and weaknesses: The Westerners (European exclude Russian) are
romantic in nature. This natural character enables them to create very delicate and passionate
products as you can find these factors from their classical music, paintings and the beautiful
traditional buildings with various art-styles during periods of Medieval ages, Renaissance,
Baroque, Classical, and Romantic.
The foreign European chocolate, candy and foods companies are threats as they have large
resources to Judo-strike Chanian out of the industry through low-cost competitions as
Chanian might not be capable to adjust prices that are low than these competitors.
C. Recommendations:
The efforts of the business intelligence gathering regarding to other industries for
the rest of the European countries is required, especially this attractive bakery
88
products, because keeping an eye on the changes for Chanians survival in a

foreign country is very important.
Chanian has to put a lot more efforts in delicate and passionate chocolate in
design and flavors, because Chanians artistic chocolate products can be left
behind.
Chanian has to lay low before its business is right on track within 5 years,
because the local competitors, American Hershey, British Cadbury, and German
Milka Alpenmilch Milk Chocolate Confection, these are Chainans threats as
they can mass production in low-cost competitions; and other sole
proprietorships in Belgium, France and Latvian chocolates, and e-commerce of
zChocolat.com, these are in somehow threatening Chanians expansion in the
Central and Western Europe as they produce very good classy chocolates.
Shaw will enforce the tactics of what he stated in terms of brand image,
companys name, marketing efforts, marketing strategy, and pricing strategies
for the survival during the beginning period of the business operation.
A little Estonian language for local communication is required, since the owner
is a friendly and warm-heart person; thus, a fluent Estonian speaking will help
for communication.
2. Accounting:
The accounting is unavailable due to the only online research is being engaged. But Shaw
believes that the wages for two employees will be EUR 400 per person, utilities fees (water,
wastewater, electricity, and gas) will be around EUR 660. Shaw will rent an office (about 250 to
270 m2, EUR 10 per m2) will be EUR 2,700. Shaw prefers Tele2 for telephone line service
(EUR) and will switch to its any competitor for lowing production cost purpose. All these bills
are estimated on monthly based:
Expenditures/ Currencies
Materials and Ingredients Supplies
EEK
EUR
USD
4,000.00
255.658
325.223
Wages (2 employees)
12,500.546
800.000
1,022.159
Utilities:
Elec, Water, WasteWater, & Gas
Rent (about 270 m2, EUR 10/ m2)
10,326.274
660.000
839.585
42,243.850
2,700.000
3,434.668
39.000
2.492
3.170
69,109.670
4,418.150
5,624.806
Communications (Telephone line)

Total
(Source: Chan, 2006)
89
* (EUR 1 = EEK 15.635, USD 1 = EEK 12.230, USD 1 = EURO 0.7825)

From the above accounting, the yearly budget of production costs and expenses is estimated as
EEK 829,316.00 per year. Due to other unknown expenditures and potential mis-calculating,
these might be just enough for paying off its bills. The costs information is listed below.
Operating Costs Such As:
Wage - The minimum wage in Estonia is EUR 192 per month. In 2004 the average
monthly wage (gross) was EUR 515. The highest gross wage is in financial
intermediation and the lowest in agriculture and hunting sector.
Payment for overtime - additional remuneration of per hour of overtime paid to an
employee shall not be less than 50 percent of the rate of hourly wage. Work during
holidays could be compensated either by offering time off or by extra remuneration of
at least 50 percent of wage rate. Work on public holidays has to be compensated at a
double rate.
Tariffs of Electricity, Gas, Water and Sewage
The price of electricity depends on the time of consumption (there are day-time tariffs
and night-time tariffs) and on the chosen price package. Detailed information is
available on the web site of Estonian National Energy Company Eesti Energia.
The share of natural gas has gradually increased in the Estonian energy structure. AS
Eesti Gaas, a joint stock company owned by the Finnish Fortum Oil and Gas OY,
Russian RAO Gazprom and German Ruhrgas AG performs the purchase and sale of
natural gas and organizes the construction of gas pipeline systems.
Electricity and Gas Tariffs in Estonia

For private consumer
For industrial consumer
Electricity 0,056 0,096 EUR/kWh
0.035-0.066 EUR/kWh +
ampere based fee EUR
0.2/A/month
Gas
~0.14 EUR/m3
0.19 0.3 EUR/m3
(Source: Eesti Energia, Eesti Gaas)

The increase in water and sewage rates has indicated a continuous slowdown, while
certain safety margins granted for providers of these services have been abandoned.
Tariffs on water and gas depend on municipality.
Water and Sewage Tariffs in Estonia (EUR/ m3)

90
Narva
Prnu
Tallinn
Private
consumer
Industrial
consumer
Private
consumer
Industrial
consumer
Private
consumer
Industrial
consumer
Water
0.31
0.58
0.67
0.67
0.8
1.98
Wastewater
0.42
0.77
0.98
0.98
0.66
1.45-3.1
(Source: Narva and Tallinn water companies; VAT included)
Data Communications
The data communications market has always been open for competition in Estonia
and different companies offer the service. The most well known are Elion Ettevtted,
Tele 2 and Microlink.
A wide range of services as dial-up, ISDN, ADSL or permanent and cable
connections are offered. Rapid changes and tight competition on data
communication market influence the price policies. Prices on data communication
are very variable, depending on market situation and concrete needs of clients. For
specific information on data communication companies, visit:
http://www.ee/index.php?Ari/Side/Arvuti-_ja_andmeside&l=2
Note: Shaw prefers to try telephone and the Internet services provide by Tele2.
Tele2 offers its telephone service package as follows:
Tele2.free package call minute rate

Weekends and public holidays
Working days (7.00pm-7.00am)
Working days (7.00am-7.00pm)
0 cents
0 cents
31 cents
(Source: Tele2, 2006)

* Calls are subject to a call start fee of 48 cents.
* The monthly fee for the package is 39 kroons.
*Note: Shaw will negotiate with Tele2 for lowering fees if he applies
telephone, mobile phone, and the Internet services together from Tele2.
Land: Depending on the exact location and the improvement opportunities plots of
land suitable for construction of warehousing and production buildings cost in Tallinn
between 16-32 EUR/ m2.
91
Office, Retail and Industrial Premises: There are neither restrictions for the lease of
buildings and rooms nor are there any procedural peculiarities. Rents are usually
fixed and not indexed; therefore the term of lease is relatively short. Costs for
electricity, heating and others are customarily excluded from rent and have to be paid
separately. Rents in major towns of Estonia, class A and B premises (EUR/ m2 per
month) are shown below:
Type of Space
Office
Retail
Industrial
Tallinn
10 - 15
8 - 45
2 - 6.5
Tartu
4.5 - 12
5 - 32
0.6 - 3
Prnu
5.1 - 10
5 - 16
0.6 - 3.8
Narva
3.2 8.3
6.3 19
1 4.5
(Source: Arco Vara, Tallinn 2006)

* (EUR 1 = EEK 15.635, USD 1 = EEK 12.230, USD 1 = EURO 0.7825)
Indicative cost for construction of new storage or industrial facility ranges
between EUR 300 to 600 per m2 (excluding land cost).
Principal Taxes:
The system of taxation is described in the Law on Taxation. The existing state taxes
are:
Income tax: 23%;

Value-added tax (VAT): 18%;
Social tax (social security contributions - state pension and health insurance):
33%;
Unemployment insurance tax: 0.3% employer + 0,6% employee;
Excise taxes (tobacco, alcoholic beverages, motor fuel, motor vehicles, packages);
Gambling tax;
Land tax.
Property Taxes, Fees, Charges

Property taxes are relatively low, and are likely to remain so. In Estonia the land tax
is the only real property tax; buildings and forests are not taxed separately.
Land Tax is based on the market value of land and ranges between 0.1 to 2.5 percent
of market value of land annually (0.1 to 2.0 for arable land and natural grassland).
Factors that affect the market value are location, land use and environmental
characteristics. Landowners or in some cases land users (Local Government or state
property) must pay Land tax. (Source: Kinnisvaraekspert AS).
In addition, in registering into Land Register, the state duty is applicable. The
following state duty rates apply:
92
Declared Price EEK * (EUR) Full Fee EEK* (EUR)

50,000
(3,195)
260
(17)
100,000
(6,390)
390
(25)
500,000
(31,949)
860
(55)
1,000,000
(63,897)
1,430
(91)
5,000,000
(319,489)
14,500
(926,5)
10,000, 000
(638,977)
40,000
(2,556)
* Exclusive of VAT,
** In case of sums over 10 million, additional fee equaling 0.4 percent
from transaction value is applied.
3. Financing:
For business financing, personal saving is absolutely. For the bank financing, Shaw does
not have much choice. Bank loans that is made from the local Estonian bank, other banks
from the European continental, Hong Kong, or Singapore.
For firms financing issue, bank loan is the only way if Shaw leaves out the private
placements. Personally, I will try Hansapank (Hansa Bank) for the business establishment.
*Note: Shaw hopes to make an amount of EEK 600,000 loan from bank for chocolate
machinery, tools, and equipments for the business starts-up.
4. Production/ Operations:
Company type: a Sole Proprietorship (Fsilisest Isikust Ettevtja or FIE). Under
Estonian laws, a sole proprietor may be entered in the Commercial Register at his/ her
request. A sole proprietor will be entered into the Commercial Register if he or she is
registered with the Tax Board as a taxpayer under the Value Added Tax Act. The law
may provide other cases in which a sole proprietor will be entered in the Commercial
Register.
Shaw has only preferred sole proprietorship so far no matter he will be one of the
winners or losers in this industry.
Production Process: The chocolates and chocolate related products are either hand
made or machine made.
The chocolates are baked, designed, packaged and logo designed by Shaw himself.
Wedding or birthday cakes are baked by Shaw or the employees.
93
For the wedding party, birthday party, or other parties, Shaw and his employees will
start baking the cakes and other items according to the customers order that placed.
Administrative Structure: The owner, Shaw, himself handle the small store. Shaw
will consider hiring at least two students as part-timers.
Control and Use of Raw Material and Manpower: Shaw will be the only one who
deals with these.
Suppliers: Local suppliers are considered. Shaw is still doing research regarding to
reliable suppliers.
B. Discussion: Shaw will handle producing products while the student employees will service
customers and being casher. Shaw and his employees will clean the store.
C. Recommendations:
The reliable suppliers of ingredients are very important. Reliable means the ingredients
are supplied on time.
The prices of ingredients should not be increased in anytime the suppliers want.
Watch out the costs of production.
Knowing how the competitors operate the store.
5. Human Resources:
So far, 2 student part-timers are enough for a small single store.

According to Figure 1, the employees A and B are to report to the Owner, Shaw.
Under Estonian labor laws, at least 4-month pay compensation is required for the
discharged employee. In anytime, an employee is discharged unfairly as
determined by the Labor Board, a stiff penalty will be imposed. To avoid this
penalty, Tim has put in place a non-compensation requirement for termination of
any employee. No compensation is required if the employee quit the job in his/ her
own free will, or was terminated for a valid cause such as theft, drinking on the job,
ongoing neglect of duties, and etc. The managers are required to be vigilant in their
documentation of employee behavior. The Tallinn office will monitor to ensure that
all terminations were done for valid causes.
According to the Foreign Property, Estonian wages is only 20% of the EU

average, while an EU average is currently 2,335 per month. Meaning: An
Estonian wages per month is about 467/ month, EEK 7308.49, or US $548.92
(Foreign Property).
94
Shaw will train them to service customer, package the chocolate products, being
casher, and management skill and knowledge.
Shaw will teach them to make chocolates without releasing any secret formula. This
is to attract the part-timers to love their job. Shaw will encourage these employees
return to Chanian no matter when would they be quitting this job, because Chanian
will need them as the expansion takes place in the future.
B. Discussion: Paying benefits and insurance for each of the employees will be increasing the
cost of production. But there will be a drawback for hiring part-timer as they will take a
week of for studying exam or vacation or for parties.
C. Recommendations:
Shaw needs to train the employees to practice American-style management and

marketing knowledge and skills to handle customer services, to learn product
packaging and for being a casher. Also train the employee to take risks and be
independent for doing their jobs on the basis of not hurting customers feelings.
Hiring part-timers would be cheaper than hiring full-timers as the full-timers

need to be paid for the benefits and insurances.
Most importantly, treat the employees warmly as they are human-beings

regardless they would treating the owner back in the same way or not.
6. Insurance, Taxes, and Zoning:

Insurance coverage needed: In Estonia, there are five types of insurance to cover old
age, disability, and survivors: (a). Social insurance and mandatory individual account
system benefits for all persons currently residing in Estonia who are old age,
disability (loss 40% of capability), and survivors who must be incapable of gainful
activity; (b). Social insurance system for sickness and maternity benefits to insured
employees, insured employers, and insured self-employed persons, the spouse of an
insured person, persons under age 19, schoolchildren or full-time students, disabled
persons, nonworking persons raising a child up to age 3, pregnant women from the
twelfth week of pregnancy, social insurance pensioners, persons registered as
unemployed, and military personnel; (c). Social insurance system for work injury
benefits to insured employees and insured self-employed persons; (d). Social
assistance system for unemployment covers permanent residents aged 16 to
retirement age who are capable of gainful activity; and (e) Social assistance system
for family allowances benefits to permanent residents, non-citizens with temporary
residence permits, and refugees (Social Security Programs Throughout the World:
Europe, 2004 Estonia).
95
Taxes (federal, state, & local): According to the Estonian laws, foreign investors have
equal rights and obligations as local entrepreneurs. All foreign investors may
establish a company in Estonia in the same way as local investors, no special
restrictions are made. Principal of taxation is described in the Law on Taxation.
The existing state taxes are:
o Income tax: 24%;
o Value-added tax (VAT): 18%;
o Social tax (social security contributions - state pension and health
insurance): 33%;
o Unemployment insurance tax: 0.5% employer + 1% employee;
o excise taxes (tobacco, alcoholic beverages, motor fuel, motor vehicles,
packages);
o Gambling tax is implied on companies that offer gambling services;
o Land tax based on the market value of land and ranges between 0.1 to
2.5 percent of market value of land annually from 0.1 to 2.0 for arable
land and natural grassland (VISITinESTONIA.COM).
Timeliness of reporting: Its fiscal year is calendar year. In Estonia, a business entity
can choose a fiscal year ending on 31 March, 30 June, 30 September or 31 December.
7. Other Areas to Concern: Strategies:

The strategies are:
Corporate Strategy:
(1). A green-field company, Chanian;
(2). ISO Series: European corporations prefer to trade with a firm that has achieved
such a quality standard. Chanian should achieve ISO 9000:2000 quality standard and
ISO 14001 environmental standard as a part of its corporate strategies in order to launch
the Western and Asian beaches some days in the future.
Business Strategies: (1) A mixture of low-cost and highly differentiation products and
services business strategy is a wise move. This transnational product-market strategy for
low-cost but best value services as the firms business strategy will bring profit as well as
customer retention to Chanian. (2) Targets to less price sensitive group with premium
products and prices. (3). Targets to low-budget working class and price sensitive groups
with top quality at competitive prices. (4) Targets consumers in the commercial districts.
(4) Also targets students who are high consumption with active night-life around the
university, and Chanians Tartu branch can open the branch until 2:00 AM.
Marketing Strategies: implementation an offensive marketing strategy through (1)

reasonable good deal and reasonably high quality to the price sensitive customers;
96
whereas, top quality with top prices to less price sensitive chocolate lovers. Try to (3)
acquire broad demographics customers groups, (4) be more flexible and friendly to
customers and potential customers. (5) A coordination powers of Flagship and Flankers
to obtain profits and market shares. Must construct high revenue, market share, quality
and fame.
DISCUSSION QUESTIONS:
What else should Mr Chan think about before seeking to open his business?
How important is it that Mr. Chan does not speak Estonian?
How likely is it that Mr. Chan would be successful opening his new business?
Where else might a business such as this operate successfully?
What types of ethical issues are involved when starting a business such as this one?
Sources:
1. American Chamber of Commerce in Estonia
http://www.acce.ee/index.php?millen=lehed&id=25
2. CIA The World Factbook: (Was updated on 20 July, 2006)
Estonia - http://www.odci.gov/cia/publications/factbook/geos/en.html
3. Estonia Official State Web Center, eriik), http://www.riik.ee/en/
4. Goodson, Darren. Twelve Reasons Why Estonian Property Prices Have To Boom, Foreign
Property, 2005. http://www.foreignproperty.com/feature/143.php.
5. Investment Guide, INVESTinESTONIA.COM*:
Labor Market http://www.investinestonia.com/index.php?option=displaypage&Itemid=109&op=page&Sub
Menu=
Operating Costs http://www.investinestonia.com/index.php?option=displaypage&Itemid=110&op=page&Sub
Menu=
Real Estate Market http://www.investinestonia.com/index.php?option=displaypage&Itemid=70&op=page&Sub
Menu=
Taxes http://www.investinestonia.com/index.php?option=displaypage&Itemid=73&op=page&Sub
Menu=
97
*(Please key in investinestonia.com in Google.com, if the links does not work).

6. inyourpocket.com, In Your Pocket Ltd:
Narva - http://www.inyourpocket.com/estonia/narva/en/
Prnu - http://www.inyourpocket.com/estonia/parnu/en/
Tartu- http://www.inyourpocket.com/estonia/tartu/en/
7. infoplease.com:
Narva - http://www.infoplease.com/ce6/world/A0834873.html
8. Map of Central and Eastern Europe, The Regional Environmental Center
http://www.rec.org/REC/Maps/eur_map.html
9. Social Security Programs Throughout the World: Europe, 2004: Estonia http://www.ssa.gov/policy/docs/progdesc/ssptw/2004-2005/europe/estonia.html
10. Tele2.fee package, Fixed, Tele2.ee, 2006*
http://www.editorial.ee-en.tele2.ee/?page=t2i_telefon_tele2free&t2page=telefon_free
11. University of Tartu, Wikipedia.org, 6 August 2006.
http://en.wikipedia.org/wiki/University_of_Tartu#Notable_Students
98
SHOPPING FOR SUNGLASSES AT THE BURJAMAN

CENTER: THE CASE OF A SHADY BUYER
Dianne H.B. Welsh, The University of Tampa
Ibrahim Al-Fahim, Al-Faheem General Trading Company
ABSTRACT
This case describes an alleged shoplifting incident. It requires students to consider
relevant issues in determining an appropriate managerial response. These issues
include: retail store security, shoplifting, employee training, legal regulations, culture,
and gender issues.
A beautiful lady cam into the French Gallery, a small specialty shop located in a large
mall in the United Arab Emirates (U.A.E.) The store sells colognes, cosmetics, jewelry, watches,
sunglasses, and gift items for men and women. There are five employees working at any one
time in the shop. Both men and women are employed as retail clerks in the store. Sales
representatives from cosmetic and perfume companies also work in the shop on a varying
schedule. Most of these representatives work between one and three days per week. A few
representatives work every day buy Friday. Friday is honored as a Holy Day, although retail
stores stay open in the U.A.E. on Fridays since most people are off work. The sales
representatives wages are shared by the local distributors and the retail store.
A salesman, Mr. Ali, believed he saw a female shopper put something under her jacket,
but he was not positive. He told the store manager, Mr. Faheem, about the incident. A couple of
weeks later, the same woman returned to the store! This time the salesman immediately alerted
the manager. Mr. Faheem and Mr. Ali both watched her. She didnt notice. She tried on various
sunglasses. She picked up three at a time to try on instead of trying them individually. She
slipped some pairs of sunglasses in her purse. When the store manager, Mr. Faheem, and the
salesman, Mr. Ali, approached her and accused her of stealing, she started crying. Then she
proceeded to accuse Mr. Ali of sexual harassment in a screaming voice. She said he accused her
of stealing because she refused his advances. When Mr. Faheem attempted to detain her until the
police arrived, she darted to another entrance. The store manager did not want to create a scene
by chasing the woman in front of the customers. This would have created a negative image for
the store because it is against the culture as well as the religious norms of the Middle East to
physically restrain a woman. The manager ran to the door and locked it in time. The mall
security arrived within a matter of minutes and waited for the police. The customers continued
to shop. The door was locked so they couldnt leave anyway. This incident happened on Friday,
the busiest day of the week for the store. There were fewer employees working that day because
some of the cosmetic and perfume company sales representatives were off.
When the police came, they discovered that suspected shoplifter was woman, so they
went back to the station and returned with female police officer. After they completed the initial
investigation at the store, the officers took the suspected shoplifter back to the station. She
vehemently denied stealing any sunglasses even though Mr. Faheem and Mr. Ali had taken them
out of her purse. The police officer searched her purse at the station. He found another pair of
99
sunglasses with the French Gallery price tag on them, a two week tourist visa, and a passport
from Lebanon. The police later searched her hotel room and found more stolen property. The
woman was convicted of theft and sentenced to three months in jail. After serving her time, she
was sent back to Lebanon.
Later, she was identified as part of an organized crime ring. The ring hired beautiful
women with tourist visas to steal. In the Middle Eastern Countries where Islam is the
predominant religion it is morally as well as usually illegal for a woman to be stopped or held.
They leave the country with a large amount of stolen goods when their visas are up. There are
many of these rings operating now.
Note:
Security devices are seldom used in the U.A.E. because most people consider it offensive
to be monitored for theft. Compared to most Western Countries, shoplifting and other
misdemeanor thefts are relatively infrequent. However, in recent years theft has become more
common. Retailers are beginning to explore options available to reduce shoplifting and
employee theft.
Discussion Questions
1. Should the law be changed regarding women? Should a male police office be allowed to
detain a woman suspected of committing a crime? Why or why not?
2. Could the incident been handled differently from a public relations perspective?
3. Should the visa insurance procedures and regulations be more stringent? Currently,
anyone who wants to visit the U.A.E. for two weeks is automatically issued a visa.
4. Could Mr. Faheem, the store manager, done anything differently?
5. Should Mr. Ali or the other retail sales clerks proceeded differently? If so, what type of
training do you recommend?
6. Could the mall security have done anything differently?
7. What could the store do to improve its security and not offend the customers?
Suggested Readings
Al-Harize, Naje. (1994, May 17). Middle East Journal.
Bahnassawi, Salem. (1990). Women between Islam and world legislation, A comparative
study. (no. 2985). Dar-Ul-Qalam, Kuwait.
Living with Islam. (1995, March 18). The Economist 334 (7906), 13-14.
Looney, Robert E. (1994). Industrial development and diversification of the Arabian gulf
economics. In R.J.
Siddique, Kaukab. (1990). Liberation of women thru Islam. American Society for
Education and Religion, Inc.
Thorton, & J.R. Aronson (Eds.), Contemporary studies in economic and financial
analysis: Vol. 70. Greenwich, CT: JAI Press Inc.
100
The International Journal of Family Business would like to

congratulate the authors of the most influential publication
as deemed by the members of the Small Business
Institute
Carland, J.W., Hoy, F., Boulton, W.R. & Carland, J.A. (1984)
Differentiating Entrepreneurs from Small Business
Owners: A Conceptualization. Academy of Management
Review, 9(2), April, 1984, 354-359
was deemed by the 2006-2007 members of SBI to be the most
influential publication published prior to 1990 and the
most influential of all time.
100International Journal of Family Business, Volume 3, 2006

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Volume 3, 2006

Shawn Carraher, Editor

The International Journal of Family Business

Shawn M. Carraher, Editor

International Journal of Family Business, Volume 3, 2006 iii

Copyright 2006 by the International Family Business Center

EDITORIAL REVIEW BOARD

Johnathon R.B. Halbesleben

Howard Van Auken

International Journal of Family Business, Volume 3, 2006

Dianne H.B. Welsh, University of Tampa

International Journal of Family Business, Volume 3, 2006 vii

LETTER FROM THE EDITOR

International Journal of Family Business, Volume 3, 2006 ix

AN EXAMINATION OF THE POWER OF THE

Table 1: Research Results of the Effect of Education and Training on Recidivism

College Education No Data

Table 1: Research Results of the Effect of Education and Training on Recidivism

Academic Training Lower Employability

Five Year Outcome

International Journal of Family Business, Volume 3, 2006

Table 1: Research Results of the Effect of Education and Training on Recidivism

Did Not Complete

Three State Recidivism

Education Program No Data

Education Program No Data

Hamden County House

International Journal of Family Business, Volume 3, 2006

International Journal of Family Business, Volume 3, 2006

Risk Taking Scale of the Jackson Personality Inventory

Previously Self Employed at some point

International Journal of Family Business, Volume 3, 2006

Table 2: Sample of Study

To investigate whether the sample of inmates displayed any of the traditional

Table 3: MBTI Distribution

Carland Entrepreneurship Index Scores

23 out of a possible score of 33

Risk Taking Propensity

12 out of a possible score of 20

Preference for Innovation

16 out of a possible score of 20

Need for Achievement

12 out of a possible score of 16

I was selling a product

14 International Journal of Family Business, Volume 3, 2006

Carland, J. W., F. Hoy, W. R. Boulton, & J. A. Carland (1988). Distinctions between

International Journal of Family Business, Volume 3, 2006 17

18 International Journal of Family Business, Volume 3, 2006

ENTREPRENEURSHIP AND LEADERSHIP: WHY WE

20 International Journal of Family Business, Volume 3, 2006

Further, Rosenburg (1979) points out that although it is meaningful to distinguish

From the editors.

Journal of Small Business

Ravasi, D. & Turati, C. (2005). Exploring entrepreneurial learning: A comparative study of

International Journal of Family Business, Volume 3, 2006 31

THE COMPENSATIVE RELATIONSHIPS OF EAST

Graduates required by large multinational corporations

Remaining supply of suitable graduates

Inaccessible [3] but otherwise suitable graduates

Remaining supply of suitable and accessible graduates

A shortage supply of effective managers is found in China. According to the estimation,

Taiwanese staffs. Corporal punishment such as physical punishment is common to the