A Methodology of Identifying Factors Influencing Foreign ... - IEEE Xplore

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in K'T Industry. Syed Nayyer Abbas Kazmi', Irfan Manarvf. 'Department ofTechnology Management, Faculty ofManagement Sciences, FMS Block 2, International.
A Methodology of Identifying Factors Influencing Foreign Direct Investment in K'T Industry Syed Nayyer Abbas Kazmi', Irfan Manarvf 'Department of Technology Management, Faculty of Management Sciences, FMS Block 2, International Islamic University, Sector H-IO, Islamabad-Pakistan ([email protected]) 2Department of Mechanical Engineering, HITEC University, Taxila, Pakistan ([email protected])

ABSTRACT Information and Communication Technologies have revolutionized the world by facilitating remote learning and education, far distanced social connection, online employment opportunities and marketing products and services online. These and many more benefits leveraged the investment opportunities in ICT industry. This paper is based on results of a questionnaire based survey conducted in Pakistan which determines main factors, government policy, infrastructure, country risk and human resource influencing foreign direct investments in ICT industry. The data was mined for assessment of managerial implications and cluster analysis, scatter diagram and descriptive statistics were determined. It was concluded that company profile, government policy, human resource and infrastructure have positive influence on foreign direct investment in ICT industry whereas country risk is negatively influenced towards foreign direct investments in ICT industry.

Keywords: ICT industry, Foreign Direct Investment, Data Mining, Managerial Implications, 1. INTRODUCTION ICT is the fastest growing sector in the world. According to a study conducted by Gartner and Forester, the current spending estimated on Information technology products and services are us $1.045 trillion out of which US $ 597 billion is on IT services and software. The total spending on Information technology products and services is estimated to grow to US $ 3.31 trillion by the year 2010. The current survey was conducted in Pakistan, in the country, which according to World Economic Forum report 2006-2007 has been rated at 84th position out of 122 nations for opportunities offered by ICT for development and increased competitiveness. According to Pakistan Telecommunication Co. Ltd. website, the share of telecom sector in foreign direct investment is 54% while its share in GDP is 2% in Pakistan. The major share of PTCL in the telecommunication sector is 70%, whereas share of mobile companies is 25% and other companies have only 5%. The methodology discussed in this paper was adopted to determine factors influencing foreign direct investment in ICT industry. 978-1-4244-4136-5/09/$25.00 ©2009 IEEE

2. LITERATURE SURVEY Data mining or knowledge discovery is the process of analyzing data from different perspectives and summarizing it into useful information which can be used to cut cost, increase revenue and both [1]. According to Qi Luo, the tasks of data mining can be classified into summarization as generalization of data, classification in which data can be classified into groups on the basis of some attributes, clustering in which the similarities among groups on the basis of defined criterion can be maximized or minimized, and trend analysis in which time series data can be accumulated over time [2]. The data was mined on the basis of Dunning's model for foreign direct investment and Michael Graf and Susan M.Mudambi's model for Outsourcing of IT enabled services. Dunning identified infrastructure, country risk and government policy for location attractiveness for foreign direct investment [3]. Michael Graf and Susan M. Mudambi identified infrastructure, government polic, country risk and human capital as four main factors for location attractiveness of outsourcing information technology products and services [4]. Mckensey & Company identified infrastructure, financial infrastructure and country risk as important determinants for outsourcing IT products and services [5].

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T a bl e 1: G roup-wise samDie Lucas presumed that the lack of human capital has a negative impact on foreign direct investment flows to less-developed countries [6]. Root, Ahmed and Narula examined the influence of human capital on FDI location in cross country studies[7] . According to Loree and Guisinge, Government sometime competes with other governments to attract specific ~nvestment. Government policy is another very Important factor influencing foreign direct investment in the country . The importance of infrastructure depends on IT and telecommunication infrastructure quality and cost of IT and telecommunication infrastructure is another important factor. Richardson and Marshall emphasized the importance of IT infrastructure to outsource in the call center sector. Research indicated the importance of country specific differences in political and institutional factors as determinants of foreign direct investment flows. According to Manari et aI., generally assessments of country risk involve both economic and political risk. 3. RESEARCH METHODOLOGY The core aim of the research was to find out the affect of company profile, human resources, government policy, infrastructure , country risk on ICT industry in Pakistan . Data from 169 questionnaires for 34 items was entered and tested through SPSS, a statistical tool. There were two types of questions in the questionnaire . There were about 12 Nominal Scale questions in which respondents were requested to select one of the category among assigned categories . Some questions were also included to collect data about demographics. There were 22 five point Likert Scale questions based on given statement and which were to be answered by the respondents on five agreement levels from 1 to 5. The respondents were managerial level employees of the ICT companies like Directors, Project Managers and Marketing Executives . Before sending the questionnaire to the targeted respondents, a very small scale pilot survey was conducted from the selected position levels to check the validity of the formulated questionnaire. Two questionnaires were distributed and filled by two respondents in each company. Response rate is given in Table 1.

Group No

I

Questionnaire Distributed

60 60 60

56 55 58

180

169

Karachi Lahore Islamabad

2 3

Total

Questionnaire Received

Response Rate

93% 92% 96%

4. DATA ANALYSIS AND INTERPRETITION 4.1 Scatter Diagrams The scatter diagram was developed so that intuitive and qualitative conclusions could be drawn between two variables . The scatter diagram is a useful tool for identifying a potential variation between variables . The shapes of diagram provide useful information about the graph that it provides the level of variation which may be occurring between variables. Th; scatter diagrams of independent variables human resources, government policy, infrastructure , country risk and a moderating variable company profile with the dependent variable ICT industry attractiveness are shown.. The scatter diagrams exposed data collected on selected variables are positively skewed and variation in data before doing further analysis, its better to further analyze the data by using cluster analysis . The aim of cluster analysis is to organize the observation into similar group. Cluster analysis is a commonly used, appealing and conceptually intuitive statistical method. 26 ; -

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Company profile is positively skewed towards ICT location attractiveness for FDI as shown in Fig 1.0. 24~------------------,

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Fig 4.0 depicts that government policy is also positively skewed towards ICT location attractiveness for FDI.

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Fig 5.0 Country risk and ICT location Fig 5.0 depicts that country risk is negatively skewed towards ICT location attractiveness for FDI. So political instability, poor law and order situation in the country can have adverse impact on ICT location attractiveness for FDI.

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Fig 3.0 Infrastructure and ICT location The availability of quality and cheap technological infrastructure is also positively skewed towards ICT location attractiveness for FDI as shown in Fig 3.0.

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Hierarchical clustering is suitable for smaller samples. Hierarchical clustering generates all possible clusters of size 1... K, and used only for small samples, where K is the number of clusters. The clusters are nested rather being mutually exclusive in hierarchical clustering, as is the usual case. That is in it the smaller clusters created at earlier stage of analysis. The idea to use the hierarchical cluster for a smaller sample «200) is to inspect result for different clusters. The optimum numbers of clusters depends on the research purpose. This analysis suits our sample because of the sample size. The method applied was "between group linkages". The clusters with their homogeneous subgroups and variation among groups for all 169 samples. By the hierarchical cluster analysis in Fig 6.0 we can identify that survey of Title Development Pvt. Ltd. (Case 4) and survey of Pearl Consulting (Case 10) are homogeneous and they can be grouped together whereas Integrated System Research (case 24) and Computer Research (pvt) Ltd (Case 75) are relatively heterogeneous.

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Fig 4.0 Government policy and ICT location

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4.3 DESCRIPTIVE STATISTICS

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Data about company names, location of their head offices, starting year, number of branches, number of employees and cities of their branches based on nominal questions in the questionnaire were collected. Frequency distributions were obtained for all the classification variables and the questions based on nominal scales (12 questions) in the questionnaire. Results are explained below: a)

46% of the companies are being outsourced from the United States and almost 24% are getting their outsourcing business through a third party Whereas 12% companies have their front offices in foreign countries to have access to foreign customers.

b) Almost 71% of ICT companies have their established marketing department. The ICT firms must have their well-established marketing departments to attract investment opportunities in the country. c)

Most of the ICT companies are associated with Pakistan Software Export (about 85%). Pakistan Software Export Board provided infrastructure, capacity development and marketing support for their registered ICT companies.

d) IT and ITES constitute main share of ICT which is about 87%. Remaining 13% includes Call centers, Finance and Accounts, Engineering and Design and Transcription services. e)

Most of the ICT companies respondents are ISO 9000 certified (58%), 8% are CMM certified and 8% are in process to get quality certification. But a significant number of are not interested to start the quality certification process.

t)

Human Resources in ICT sector ranges from 6 employee to 5000+ employee. So the number of employees varies with the size of the companies.

g) 70% of the ICT firms respondents have their established HR departments but a few of those conduct trainings to improve their employees managerial and technical skills. If they can conduct frequent trainings to enhance their employees they can meet quality of customer's requirements and can get more ICT share.

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Table 2: Descriptive Statistics Human Govt Infrastruct CountrCompa ICT yRisk ny Industry Resour Polic ure ces y Profile attractivene ss

N

Valid Missi ng

Mean Media

163 6

122 47

163 6

156 13

153 16

169 0

3.26 3.33

3.45 3.5

3.32 3.25

3.93 4.0

3.54 3.6

3.4 4.0

3.33 0.67

3.5 0.4

3.25 0.25

4.0 0.433

3.6 0.64

4 1.2

1.37 0.95

1.07

0.6

2.06

1.4

n

Mode Std. Deviati on Varian ce

Descriptive statistics such as mean, median, standard deviation and variance were obtained for the interval scale dependent and independent variables (22 questions). All the variables were measured on 5 point scale. The results given in the table 2 on mean depicts that most of the respondents are bent on relationship of human resources, government policy, and infrastructure and company profile. The situation is same for negatively worded questions for variable country risk. Most of the respondents in country risk, government policy and infrastructure are closer to the mean as compared to company profile, human resources and ICT industry attractiveness. 5. FINDINGS AND IMPLICATIONS FOR MANAGEMENT

Empirical evidence appears to support the view that the major benefits identified by the organizations are productivity improvement, access to expertise, cost savings, increased efficiency and opportunity to focus on core business. a)

The managers should make decision for the capacity building and human resources development in the ICT firms by providing frequent trainings and international certifications to their employees to meet requirements of the foreign direct investment in ICT industry. The availability of skilled HR plays a vital role in the attractiveness of investments in ICT industry.

b) The managers in the ICT industry should improve their company profile by affiliating with some facilitating government body to introduce their products and services in the foreign countries and by getting quality certification to

get competitive advantage. This will not only be helpful to attract foreign investors but will also provide opportunities for joint ventures with foreign companies. c)

The managers should make decision to offer reasonable contract terms and conditions to their employees to control job switching in ICT industry which causes project delay.

d) The managers of the companies in ICT industry and government bodies should have their own representative offices in the foreign countries to attract investments in the country. e)

The managers in collaboration with government cyber law bodies should make decisions to establish trustworthy relationship with foreign investors and partners in ICT industry and ensure data security, copy rights to the ICT companies.

t)

The government policies should be conductive towards providing quality technological infrastructure in the country. Availability of internet service, Internet bandwidth and speed, hardware and software prices and quality play a vital role in foreign direct investment in ICT industry.

g) The managers in ICT companies should register with government bodies and international association to exploit foreign direct investments opportunities in the countries. h) Country risk is a negatively influencing factor for foreign direct investment in ICT industry. This will result in changing government policies for investors and political instability.

6. CONCLUSION

It was concluded that government policy, human resource management, quality of infrastructure, company profile and country risk play a vital role in making decision for foreign direct investment in information communication and technology industry. Mangers should make decision on the basis of availability of skilled human resource, conducive government policy towards ICT, political stability and economic growth of the country and availability and quality of technological infrastructure when deciding about foreign direct investment in ICT industry.

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REFERENCES [1]. Ke Wang, Philip S. Yu, Sourav Cakraborty, "Bottom-Up generalization: A data mining solution to privacy protection", IEEE, 2004. P 1-2. [2]. Qi Luo, "Advancing Knowledge Discovery and Data Mining ". IEEE, 2008, pA . [3]. Dunning, J.H., "Explaining International Production". Unwin Hyman, London, 1988. [4]. Michael Graf, Susan M. Mudambi, "The Outsourcing of IT-enabled Business Processes: A conceptual Model of Location Decision"; May 2005, p.ll. [5]. Lucas, R.E., "Why doesn't capital flow from rich to poor countries?" American Economic Review 80, 1990.92-96. [6]. McKinsey & Company Inc., 'Stimulating Pakistan's IT Sector Growth', 2001 p.l. [7]. Root, Franklin R., Ahmed, Ahmed A.,. "The influence of policy instruments on manufacturing direct foreign investment in Journal of developing countries" International Business Studies, 1978 9(3), 81-93 . [8]. www.pseb.org.pk [9]. www.ptcl.com.pk

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