AJMI+2.2

Volume 2 Number 2, July – December 2015
Stamford International University

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© Stamford International University 2015
ASEAN Journal of Management & Innovation

Volume 2 Number 2
July – December 2015
PERIODICITY
Twice Yearly
First Issue, January – June
Second Issue, July – December
Website: ajmi.stamford.edu
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ISSN 2351-0307
AJMI Statement of Editorial Policy

The goal of the ASEAN Journal of Management & Innovation (AJMI) is to publish insightful,
original and timely research that describes or potentially impacts management and/or
innovation that has the potential to be applied in the ASEAN context. Topics that are either
distinctly ASEAN-related, or are regional or international in scope are encouraged. AJMI is
multidisciplinary in scope and interdisciplinary in research methodology and content. AJMI
accepts papers that initiate or redirect a line of inquiry as well as papers that provide new
insights into previous work.
Editor in Chief
Dr. Bradley A. Corbett
Director, Research and Development Stamford International University, Thailand
Senior Consulting Editors

Assoc. Prof. Dr. Boonmark Sirinaovakul Stamford International University, Thailand
Editorial Advisory Board

Dr. Ake Choonhachatrachai Stamford International University, Thailand
Dr. Alexander Franco Stamford International University, Thailand
Dr. Bradley Corbett Stamford International University, Thailand
Dr. James Lancaster Stamford International University, Thailand
Dr. Martin Goerlich Stamford International University, Thailand
Dr. Rachaya Pakdeejit Stamford International University, Thailand
Dr. Werayuth Charoenruengkit Stamford International University, Thailand
Reviewers
Dr. Dolly Samson Hawaii Pacific University, USA
Dr. Chompunuch Jittithavorn Kasetsart University, Thailand
Dr. Lavanchawee Sujarittanonta Shinawatra University, Thailand
Dr. Pacapol Anurit Siam University, Thailand
Dr. Sid Suntrayuth National Institute of Development Administration, Thailand
Asst.Prof. Dr.Prasert Sitthijirapat Sripatum University, Thailand
Dr. Kanyarat Tirathanchaiyakun Sripatum University, Thailand
Dr. Ake Choonhachatrachai Stamford International University, Thailand
Dr. Alexander Franco Stamford International University, Thailand
Dr. Apitep Saekow Stamford International University, Thailand
Dr. Bradley Corbett Stamford International University, Thailand
Dr. James Lancaster Stamford International University, Thailand
Dr. Supatcharajit Jitpraphai Stamford International University, Thailand
Dr. Werayuth Charoenruengkit Stamford International University, Thailand
Managing Editor
Kullawan Satitsuppamart Stamford International University, Thailand
Editorial
Dear reader,
It is my pleasure to present this edition of the AJMI. As the new Editor-In-Chief it is an
hounor to build on the legacy that was built by Dr. Dolly Sampson. It is also an honor to
work with the amazing authors that have contributed to this edition of the journal. Each and
every one has dedicated a tremendous amount of time and energy into the works they present
to you here. Good research takes a lot of work to conduct and present. Each and every one of
the authors should be commended for the efforts they have given to these articles. I am very
proud of the authors who undertook the challenges I put forward to improve their work. They
did not shrink back but accepted the challenge and even exceeded my expectations.
Going forward I hope the AJMI can become a place for nation building. Thailand is an
amazing country with so much to offer the world. Looking forward I hope to help bring some
of my professional experience to improve the quality of research papers that are submitted to
the AJMI. To promote and build this country it is important to have proper comminications
so others can understand the message. I encourage others to submit to the AJMI with a
commitment to work with me to achieve excellence in our research products.
During the six-months I have lived in Thailand it is apparent that there is a thirst for
knowledge and for doing things in the right way. When people from different cultures come
together and work together amazing things can happen. Common understanding often leads
to better understanding. Together we can capitalize on the strengths of each other to provide
something that is better than the product we could create on our own—the synergy effect.
In this edition we are also introducing a Book Review section. Please contemplate the
submission of a book review for consideration in future AJMI publications. We look forward
to your good suggestions and recommendations.
Finally, a word of congratulations to Dr. Alexander Franco. His paper was selected as the
Editor‘s Choice from our 2015 Natioal Conference in October. The paper provides some
interesting insights into cultural differences and cause for critically thinking about how
cultural difference can influence the business culture.
Thank you for your continued support of the AJMI.
Sincerely yours,
Bradley A. Corbett, Ph.D.
Editor in Chief
Contents
1 Caudillismo as a Business Leadership Model: A Critical Assessment
Alexander Franco
13 Impact of Debt Leverage on Thai Property Funds‘ Performances

Natkawin Jiamchoatpatanakul and Kawisara Thisadrondilok
24 Motivation and Decision Making in Choosing Medical Tourism Service in Thailand

Nutworadee Kanittinsuttitong
37 Post Operating Performance and IPO Issuance Timing: The Developing Country
Experience
Nareeporn Kongthon and Nipawan Thirawat
48 Commodity Investment: An Analysis on Expected Utilty Theory

Budsabawan Maharakkhaka
65 Learning Organization Factors Affecting the Quality of Learners in Schools Under

Chanthaburi Primary Educational Services, Area Office 1
Pattrawadee Makmee and Pongsatean Luengalongkot
73 Does CSR Branding Matter to Young Consumers in Thailand? The Mediation Effect
of Product Brand Attitudes
Lokweetpun Suprawan
86 Localization of Human Resources in Subsidiaries of Japanese MNCs in Thailand

Agnieszka Wang and Peraset Chompuming
Book Review
101 A History of the Thai-Chinese
Alexander Franco
Vol. 2 No. 2, 1 – 12
July – December ©2015 by Stamford International University
ASEAN JOURNAL OF MANAGEMENT & INNOVATION DOI: 10.14456/ajmi.2015.8
2015 ajmi.stamford.edu
Caudillismo as a Business Leadership

Model: A Critical Assessment
Alexander Franco
Graduate School of Business, Stamford International University
[email protected]
Abstract
Caudillismo has been a dominant cultural manifestation within Latin nations. It is grounded
in fundamental value premises of Hispanic culture, derived from traditional Spain. Much has
been written about how caudillismo has impacted in the political sphere, but little research
has been done to assess its impact in the world of commerce and, specifically, as a model for
leadership in business. This study created a literature review that highlights the fundamental
value orientations and cultural dimensions of caudillismo in order to assess its worth as a
model for leadership in the business world. Recommendations are made, based on this critical
assessment, and suggestions are provided for future research.
Keywords: Caudillismo, caudillo, Latin America, business leadership, leadership, culture,

cultural theory, cross-cultural management, cross-cultural communications, pyramidal
management, power structure, Kluckhohn, Hofstede
1. Introduction
Article type: Literature review. Very little has been written about caudillismo as a business
leadership model or how caudillaje characteristics impact on the managerial decision-making
of a business. This study sought to explore the fundamental value orientation and cultural
dimensions of caudillismo in order to assess its strengths and weaknesses and to provide
recommendations as to the implementation of this leadership model.
2. Literature Review
Cultural Theory and the Definition of Culture

In the early 1960s, Clyde Kluckhohn at Harvard and Alfred Kroeber at Berkeley, considered
the twin deans of American anthropology at the time, set out to create an objective science of
culture that would allow for scientific cross-cultural analysis. Applying the works of prior
scholars, Kluckhohn and Kroeber concluded that ―culture had to be treated as an integrated
and structured whole, made up of connected parts‖ and that it needed to be defined ―as a
matter of ideas, rather than of acts and institutions‖ (Kuper, 1999).
Kluckhohn (1951) defined culture as follows:

Culture consists in patterned ways of thinking, feeling and reacting, acquired and
transmitted mainly by symbols, constituting the distinctive achievements of human
groups, including their embodiments in artifacts: the essential core of culture consists
of traditional ideas and especially their attached values.
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2015
Exhibit 1: The iceberg model as a metaphor to illustrate that the most important aspects of culture are hidden
and often quite difficult to measure. Source: The Training Management Corporation (1992). Doing business
internationally: The cross-cultural challenges. Princeton, NJ: Training Management Corporation.
Thus, culture is essentially a matter of ideas and values, a ―collective cast of mind‖ (Kuper,
1999) whose metaphysics, epistemology, morality, cosmology, and aesthetics are expressed
in symbols such as language, rituals, and within common business practices.
Kroeber and Kluckhohn believed that values provided ―the only basis for the fully intelligible
comprehension of culture, because the actual organization of all cultures is primarily in
terms of their values‖ (Kuper, 1999). These values are relative, variable, and subject to
change by a variety of internal and external influences due to the porous nature of culture
itself. Ideas and values are internally contested and, therefore, fragmentation can develop
(including the creation of subcultures) as a consequence.
In order to facilitate a scientific study of cultural variation, Florence Kluckhohn and Fred
Strodtbeck designed a framework of value orientations that would provide quantitative
distinctions between different cultures. This concept of value orientations was based on four
assumptions (Kluckhohn & Strodtbeck, 1961):
1. Because of the givens of biological human nature, ―there is a limited number

of common human problems for which all peoples at all times must find some
solution. This is the universal aspect of value orientations because of the
common human problems to be treated arise inevitably out of the human
situation.‖
2. Though ―there is variability in solutions of all the problems, it is neither

limitless nor random but is definitely variable within a range of possible
solutions.‖
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3. ―[A]ll alternatives of all solutions are present in all societies at all times but
are differentially preferred.‖
4. A ranking order of preferences of the value-orientations alternative will exist

amongst cultures. Thus, value orientations vary from culture to culture but
the variation is only in the ranking order and not in their presence since such
value orientations are considered to be cultural universals.
Value orientations are complex principles reflecting core ideas that constitute a
weltanschauung or worldview. It is from these orientations that certain values are chosen
over others and then operationalized. Kuckhohn and Strodtbeck (1961) designed a framework
consisting of five orientations that addressed the most fundamental problems common to all
cultures (summarized in Szapocznik, Scopetta, Aranalde, & Kurtines, 1978):
1. Human nature orientation. This ―pertains to a society‘s perception of innate

qualities in terms of good and evil; (a) good – the human being is perceived as
being basically good but corruptible; (b) evil – the human being is perceived as
being basically evil but perfectible; (c) neutral – the human being is perceived as
neither good nor evil and subject to influence.‖
2. Man-Nature orientation. This ―refers to the perceived relationship of people

to natural and environmental phenomena: (a) subjugation to nature – the person
is helpless and at the mercy of nature‘s forces (worldly or other worldly); (b)
mastery over nature – the person is seen capable of controlling nature, mainly
through technology; (c) harmony with nature – person and nature are one,
working in harmony.‖
3. Activity orientation. This ―refers to the nature of the behaviors through which
a person is judged or judges himself or herself; (a) doing – the person is judged
by what he or she achieves and emphasizes success-oriented activities usually
including externally measurable activities; (b) being – this variation emphasizes
activities that are in expression of existing desires (spontaneous expression), and
activity is perceived existentially; (c) being in becoming – the emphasis in this
variation is on mediation about one‘s self, which leads to understanding and
self-development.‖
4. Time orientation. This ―refers to the meaning or emphasis placed on a particular

time period: (a) past – the traditions of the past ought to be maintained or
re-captured; (b) present – emphasis is on present times and problems; (c) future –
emphasis is on a consideration of the future in solving present problems.
5. Relational orientation. This ―refers to the nature of a person‘s relation to other

people: (a) lineal – the way people relate to each other is determined by their
relative positions within a hierarchy; (b) collateral – people‘s relations to each
other are determined by a horizontal network. In this network, all persons are at
the same level and relate to each others as ‗equals‘ having a place in the network;
and (c) individualistic – people relate to other autonomously, not by hierarchical
or lateral networks.‖
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The Kluckhohn and Strodtbeck framework has been used to study differences between many
value orientations including those between Americans and Latin cultures. Table 1 provides an
example, showing results involving American mainstreamers, Cuban exiles, and pre-Castro
Cuba.
The creation of constructs such as ―value orientations‖ has allowed for cultural factors to be
treated in different fields of social science on an empirical basis. Such empirical analyses
have been applied in the field of psychology (Rokeach, 1973; Triandis, 1972, 1980),
sociology (Pettigrew, 1979), work beliefs (Buchholz, 1978), and international business
management (Adler, 2008; Dorfman & Howell, 1988; Hofstede 1980, 1985, 1997).
Table 1: Review of Value Orientation Studies as per the Kluckhohn-Strodtbeck Model
American
Orientation Pre-Castro Cuba (1) Cuban Exiles (2) Mainstreamers
Human nature Neutral Neutral Neutral
Man-Nature Subjugation Subjugation Mastery
Activity Being Being Doing
Time Present Present Future
Relational Lineal Lineal Individualistic
(1) Based on research by Sandoval (1976, 1986).

(2) Based on research by Szapocznik, Scopetta, Aranalde, & Kurtines (1978).
(3) Based on research by Kluckhohn & Strodtbeck (1961) and Szapocznik et al (1978) and Szapocznik,
Kurtines, & Hanna (1979).
Note: The Cuban exile community in Miami in the 1970s was very slow in acculturating since they saw
themselves as waiting for political change in their homeland as opposed to being immigrants.
Inspired by the pioneering work of Kluckhohn and Strodtbeck (1961), Hofstede (1980)
enhanced the role of quantification in cultural theory by providing a conceptual framework
for the identification and comparison of work-related dimensions in different national
cultures. Hofstede developed four primary constructs (referred to as ―cultural dimensions‖)
which he believed to be universal constructs and key to understanding how a culture resolves
basic problems within the existence of organizations (Hofstede, 1993):
1. Power Distance: ―defined as the degree of inequality among people which

the population of a country considers as normal: from relatively equal (that
is, small power distance) to extremely unequal (large power distance).‖
2. Uncertainty Avoidance: ―the degree to which people in a country prefer

structured over unstructured situations. Structured situations are those in
which there are clear rules as to how one should behave. These rules can be
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written down, but they can also be unwritten and imposed by tradition. In
countries which score high on uncertainty avoidance, people tend to show
more nervous energy, while in countries which score low, people are more
easy-going. A (national) society with strong uncertainty avoidance can be
called rigid; one with weak uncertainty avoidance, flexible. In countries
where uncertainty avoidance is strong, a feeling prevails of ‗what is
different, is dangerous.‘ In weak, uncertain avoidance societies, the feeling
would rather be ‗what is different, is curious.‖
3. Individualism: ―the degree to which people in a country prefer to act as

individuals rather than as members of groups. The opposite is collectivism
[therefore] collectivism is low individualism.‖
4. Masculinity: ―the degree to which tough values like assertiveness,

performance, success and competition, which in nearly all societies are
associated with the role of men, prevail over tender values like the quality
of life, maintaining warm personal relationship, service, care for the weak,
and solidarity, which in nearly all societies are more associated with
women‘s roles. Women‘s roles differ from men‘s roles in all countries,
but in tough societies, the differences are larger than in tender ones.‖
The cross-cultural comparisons in Hofstede‘s (1980) work between the United States and
Latin America is worth examining as it will help to enhance understanding caudillismo’s
business model of leadership:
__________________________________________________________________________
Table 2: Hofstede’s Cultural Dimensions: United States v. Latin American Nations
United States Latin American Nations (1)

small power distance large power distance
weak uncertainty avoidance strong uncertainty avoidance
high individualism low individualism
high masculinity low to high masculinity (2)
(1) The actual countries tested were Argentina, Brazil, Chile, Colombia, Mexico,
Peru, Spain, and Venezuela.
(2) This construct includes the influences of machismo. However, it was also
constructed to measure assertiveness in achievement, particularly in wealth,
advancement, and recognition, and an emphasis on the centrality of work
and independent decision making. These are key values of the Protestant
Work Ethic, which may explain why the United States rated high while
some Latin American countries rated low. Overall, Venezuela, Mexico,
and Colombia rated high while the rest rated lower. Hofstede suggested
that Latin American countries located around the Caribbean tend to be more
machista and that this may account for the scoring differences. There is no
empirical evidence for this observation. In fact, an argument can be made
that machismo (which is heavily tied to social class) is less strong in Cuban
culture than in Brazilian culture. A more appropriate answer may be that
this construct attempts to measure two variables (machismo and achievement)
that can be distinct from one another.
___________________________________________________________________________
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Table 3: Hofstede’s Cultural Dimensions and Organization Development
(1) (2)
Small Power Distance Large Power Distance
Weak Uncertainty Avoidance Strong Uncertainty Avoidance
Countries: Anglo, Scandinavian Countries: Latin, Mediterranean, Islamic,

The Netherlands Japan, China; other Asian nations
Organization type: implicitly structured - Organization type: full bureaucracy –

neither relationship nor work processes are relationships between people and work
rigidly prescribed processes are rigidly prescribed
Implicit model of organization: market Implicit model of organization: hierarchical pyramid
(3) (4)
Small Power Distance Large Power Distance
Strong Uncertainty Avoidance Weak Uncertainty Avoidance
Countries: German-speaking, Finland, Countries: Southeast Asian

Israel
Organization type: workflow bureaucracy - Organization type: personnel bureaucracy

workflow processes are prescribed but not relationships among people are prescribed
relationships among people but not the work processes
Implicit model of organization – a well-oil Implicit model of organization: family

machine
Hofstede argued that the high power distance organizations found in Latin cultures usually
have greater centralization and tall organization pyramids. Changes in a bureaucratic
organization of this sort ―must come from the top down and must be universalistic, i.e.,
encompass the whole organization en bloc,‖ thus making crisis ―a distinctive and necessary
element of the bureaucratic system‖ (Magalhaes, 1984). Regarding Latin culture, Hofstede
(1980) identified certain impacts on society and business based on its dominant cultural
dimensions:
1. ―a world in which everyone has his rightful place; high or low are protected
by this order‖
2. ―hierarchy means existential inequality‖
3. ―superiors consider subordinates as being a different kind, and vice versa‖
4. ―powerful people should try to look as powerful as possible‖
5. ―the way to change a social system is by dethroning those in power‖
6. ―power is a basic fact of society which antedates good or evil. Its
legitimacy is irrelevant‖
3. Caudillismo and its Characteristics as a Business Leadership Model
Caudillismo is primarily an autocratic and personalistic form of leadership based on dyadic

relationships of dominance and submission, and a symbiosis of patron and client involving
the distribution of power and status (Beezley, 1969; Hicks, 1971; Franco & Ventura, 1996).
Profit motive is often subordinated to the personal prestige of the boss as subordinates give
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their loyalty and obedience to the person who rules rather than the office or position he holds.
In Latin American nations, the rule of law, which was rarely legitimized with the consent of
the governed, becomes superseded and, instead the prevailing impact of caudillismo creates a
social elasticity with regard to rules and laws in general.
Under caudillismo, the focus is on the leader, not society or the firm. From the political and
macro-economic perspective, it breeds caudillos (strong man leaders) and political parties
that are anthropomorphized with followers identifying themselves as, for example, Peronistas
or anti-Peronistas, Fidelistas or anti-Fidelistas (Maingot, 1994). Political parties suddenly
appear at election time (―ad hoc parties‖) to back a particular caudillo and then disappear
when the vehicle has served its purpose. Those parties that do not survive often lack an
ideological base and experience frequent party switching among politicians (Blanksten, 1959;
Dominguez, 1998). As with political parties, the rule of law is seen in personalistic terms.
Since the rule of law is a personal instrument of the caudillo, breaking rules is seen, not as a
violation of ethics or civility, but as a political act against a particular person.
Caudillismo permeates throughout Latin American culture, including the business world and
the family. Within the household, highly authoritarian relationships are created with the
father playing the role of the caudillo and the sons are raised to emulate the father (Harrison,
1992). This type of familism in Latin American culture is an expression of particularism, that
is, a state of mind that believes you don‘t need to pay attention to those who are beyond the
extended family (Ortega y Gasset, 1937) and reinforces caudillaje thinking by elevating
―family and kinship ties above other sorts of social obligations‖ including profit (Fukuyama,
1999). Resources are given to those whom one has a personal obligation, especially family
and friends, and ―[n]epotism is its most visible expression‖ (Lipset & Lenz, 2000). Therefore
productivity is hampered by the sabotage of meritocracy regarding issues such as competitive
bidding and effective hiring practices.
―Social capital,‖ a concept determined to be vital for commerce, is inhibited by the values
underlying caudillismo (Fukuyama, 1999, 2000; Gregory 1999; Putnam, 2000; Seligson,
2006). Social capital consists of ―a set of informal values or norms shared among members of
a group that permits cooperation among them‖ (Fukuyama, 1999). Key to this cooperation is
the range of a ―radius of trust,‖ that is, the degree of honesty and reciprocity that is practiced
within a specific group. Fukuyama (1999) argues that family ties are an important source of
social capital, however, such ties may also impact adversely as to a community‘s radius of
trust and overall structure of social accountability:
…the strength of family bonds differs from society to society, and varies
relative to other types of social obligation. In some cases, there appears to
be something of an inverse relationship between the bonds of trust and
reciprocity inside and outside of the family; when one is very strong, the
other tends to be weak. In…Latin America, families are strong and cohesive,
but it is hard to trust strangers, and levels of honesty and cooperation in
public life are much lower.
A consequence of this is nepotism and corruption in both government and the business world.
Empirical research suggests a direct correlation between caudillaje cultures and corruption.
Transparency International‘s Corruption Perception Index, which scales 175 countries and
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territories from 100 (very clean) to 0 (highly corrupt), found that 18 countries from Latin
America rated an average score of 39 against the global average of 43 (Transparency
International, 2015).
Caudillismo, though transnational, is not monolithic and, like culture itself, is subject to
change. Indeed, it has experienced deterioration throughout Latin America, especially in the
last thirty years. The degree of caudillismo’s presence and practice depends on many factors
including intensity of ties to the traditional culture of Spain (another nation that has
undergone significant cultural changes) as well as the impact of globalization and other
foreign influences. Scholars have identified four value premises from traditional Spain that
are fundamental to the caudillaje worldview (Dealy, 1992; Harrison, 1985, 1992; Ortega y
Gasset, 1937; Wells, 1969):
1. Fatalism. This ―is the belief that life is shaped by forces beyond human
control. Nature, fate, luck, the will of God are the determining influences
of human existence‖ (Wells, 1969). Within the framework established by
Kluckhohn and Strodtbeck (1961), this reflects a man-nature orientation of
subjugation to nature.
2. Hierarchy. Society ―is naturally hierarchical and…one‘s place in the social

pyramid depends mainly on the stratum to which birth consigns one. Every
person in the traditional culture tends to accept his station in life. Inherited
or ascribed social superiority and inferiority are among the unalterable facts
of human existence‖ (Wells, 1969). Under Kluckhohn and Strodtbeck (1961),
this reflects a relational orientation of lineality; under Hofstede (1980), this
is reflected in a large power distance and a strong uncertainty avoidance,
leading to a pyramidal organizational structure.
3. Personalism. This value premise argues that each person ―has intrinsic
worth or integrity. In this view of man,…it is the uniqueness of each human
being that counts. One‘s own innate individuality entitles one to the respect
of others and, by the same logic, one accords respect to every other person in
recognition, not of his common humanity, but of his equally worthy but
inevitably different individuality‖ (Wells, 1969). People have an intrinsic
dignity or integrity. However, this has nothing to do with rights, enterprise,
initiative or equality of opportunity. ―In the United States, the average
individual is seen in terms of his equality with others – equality, either of
right or opportunity. In Latin American culture, however, the individual is
valued precisely because he is not exactly ‗like‘ anyone else. He is special
and unique‖ (Wells, 1969).
4. Male Superiority. This ―is the belief that men are inherently superior to
women‘ (Wells, 1969). From this stems machismo, paternalism, and
authoritarianism.
The organization of the caudillaje structure is characterized by a tall pyramid that is highly
centralized (but not well-organized authority), by fear of responsibility, and by constant
referrals to higher officials. ―One should not question the superior‘s wishes, for promotion
and job security largely hang on loyalty and the communication of deference within the
pecking order‖ (Duncan, 1976). In studying the managerial style in Mexican companies,
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Stephens and Greer (1995) found that it was primarily autocratic and paternalistic. Mexican
subordinates were more deferential than American workers and far less likely to challenge or
oppose the directives or ideas of supervisors:
…the authoritarian style of many Mexican managers does not encourage

upward communication of subordinates‘ misgivings about a course of
action… [Mexican managers, in turn] try to keep others from learning of
mistakes. All of these factors can heighten the commitment to a poor course
of action, with devastating effects. Managers may view long-term projects
as temporary setbacks or continue to pour resources into a project long
after it has become irrational to do so, in the hopes that the additional
resources will bring about success.
4. Conclusion and Recommendations
The primary characteristics of the caudillaje model of business leadership provide

disadvantages that may have strongly contributed to slow economic growth and overall
development within Latin America (Harrison, 1985, 1992; Sachs, 2000). It is a strong-man
power structure that is hierarchical and pyramidal over being democratic and pluralistic in
decision-making. The leadership is autocratic and personalistic, forming dyadic relations
based on personal ties of dominance and submission. Communications consists of orders
from the power apex of the pyramid flowing downward. What flows upward is usually
sycophantic and lacking in crucial information if that information can be interpreted as
critical of or challenging to the caudillo. This lack of honest feedback and freedom of
expression leads to inefficiency and ineffectiveness.
The caudillo operates a business as a kind of spoils of war. Meritocracy is replaced with
favoritism and pervasive nepotism. Clientelism, based on symbiotic relationships between the
caudillo and different parties, replaces the professionalism and objectivity required for
dealing with competitive bidding controls and credit policies that limit risk. The caudillo
rules in an arbitrary fashion that creates an elastic code of ethics, destroys structural
accountability (both horizontal and vertical) and breeds systemic corruption. Finally,
caudillismo’s present time orientation discourages vitally needed long-term strategic thinking
and planning.
Much has been written about the impact of culture on management and, specifically, how to
deal with cross-cultural managerial considerations (Adler, 2008; Avruch 1998; Browaeys &
Price, 2015; Chaney & Martin, 2011; Earley, 2006; Elashmawi, 2001; Hofstede & Hofstede,
2005; Kawar, 2012; Parhizgar, 2002; Peterson, 2004; Reynolds & Valentine, 2011;
Trompenaars & Hampden-Turner, 1998; Weaver, 1998). Not much, however, has been
written about caudillismo as a management model in the private sector. This is unfortunate
since Latin America consists of twenty-one nations with a combined population of close to
six hundred million (Central Intelligence Agency, 2014). More research is needed in this
area, including within a comparative context between Latin nations and non-Latin nations
which Hofstede identified as having characteristics of large power distance and strong
uncertainty avoidance with an organizational model preference of a tall, hierarchical pyramid
(see Table 3). Such comparative and dialectical analyses can be useful in determining trends
and developments from economies and business environments based on caudillaje values.
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5. References
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Ohio: South-Western.
Avruch, K. (1998). Culture and conflict resolution. Washington, D.C.: United States Institute
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Blanksten, G. I. (1959). Political groups in Latin America. The American Political Science
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Browaeys, M., & Price, R. (2015). Understanding cross-cultural management (3rd ed.).
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Buchholz, R. A. (1978). An empirical study of contemporary beliefs about work in American
society. Journal of Applied Psychology 63(2), 219-227.
Chaney, L. H., & Martin, J. S. (2011). Intercultural business communication (5th ed.).
Upper Saddle River, NJ: Prentice Hall.
Central Intelligence Agency (2014). World factbook. Langley, VA: Central Intelligence
Agency.
Dealy, G. C. (1992). The Latin Americans: Spirit and ethos. Boulder, CO: Westview Press.
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Vol. 2 No. 2, 13 – 23
Impact of Debt Leverage on

Thai Property Funds’ Performances
Natkawin Jiamchoatpatanakul
Doctor of Philosophy in Management Science, School of Management,
Shinawatra University, Bangkok Thailand
[email protected]
Kawisara Thisadrondilok
Master of International Business, Latrobe University, Melbourne, Australia
[email protected]
Abstract
Thai property fund is limited to a maximum debt usage at 10% of net asset value,
which differ from many international REITs with more flexible regulation. The two largest
REIT market also exhibit different relationships of positive and negative coefficients between
debt use, and returns of Australia and US REITs respectively. Regarding debt use and the
property fund‘s returns, the research conducts not only a quantitative research to find a
statistical relationship, but also a qualitative research to understand rationales. Similar to
Australia REIT, return of Thai fund exhibits statistically positive relationships to debt in both
full and sub–period analysis. The only supporting reason is that the large fund can access to
debt funding to secure commercial loan, which is consistent to other studies with findings of
positive relationships between size and liquidity, and degree of debt leverage. Under
regulatory constraints of debt payback after 90% dividend payment and no collateral, Thai
property fund is not usually discussed in terms of yield spread and level of debt leverage like
other international REITs. Unlike other REITs, the results of the interviews conducted did not
corollate with the pecking order theory owing to low debt allowance. Thai property funds
show dissimilar rationales of debt use compared to other international REITs; therefore they
might benefit from converting to be REIT because of positive leverage from higher degree of
debt use.
Keywords: Debt Use, Property Fund Return, Leverage, Fund Regulation Constrain, REIT
Conversion
1. Introduction
In the 1960s, a new form of real estate investment named Real Estate Investment
Trust (REIT) was initiated in the United States. In 2014, such an investment vehicle has been
globally recognized in 37 countries which includes similar asset type of Property Fund for
Public Offering (PFPO) in Thailand. Exhibiting a potential growth, Thai property funds‘
market capitalization grew to approximately 2.3% of the Thai stock exchange market‘s
capitalization, and 5.1% and 0.7% of Asian and global REIT markets, respectively (APREA,
2015; Stock Exchange of Thailand, 2015a).
Interestingly, the indirect real estate asset represents significant value and ratio of
REIT market capitalization to economic value in some developed countries, such as USD
929.3 Billion in the US (worth approximately 5.3% of GDP), USD 91.8 Billion in Australia
(approximately 6.4% of GDP), USD 28.8 Billion in Hong Kong (approximately 10.0% of
GDP) and USD 51.3 Billion in Singapore (approximately 16.6% of GDP) in 2014. In
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Thailand, it represents approximately 2.6% of GDP at USD 9.7 billion, which might
potentially grow (National Economic and Social Development Board, 2015).
Regarding its benefits, development of the investment asset and capital market is
found to have a positive relationship regarding growth of national economies (Barna & Mura,
2010). Since Thai economy has heavily and increasingly relied on an exporting sector from
40% of GDP in early 90s‘ to 71% in the next decade (SCB EIC, 2009), growth in other
businesses (e.g. a private investment and real estate sectors) might mitigate risk to the
country‘s economy (Marc, 2004; Villanueva, 1993). Almost one million jobs have been
supported through operations and facilities using real estate held by REITs in the US
(NAREIT, 2015).
The international REITs are found to help developers not only raise capital for their
business expansions, but also scale down their balance sheets from diverting the capital
locked in the investment assets into high service content businesses and to gain a trust
management income (Ooi, Newell & Sing, 2006). Since Thai society will become an ―aged
society‖ with over 20% over 60 years old in the 2020s (World Health Organization, 2013),
the property fund might also be used as a saving and investment alternative for both retail and
institutional investors (Newell, Yue, Wing, & Kei, 2010).
Figure 1 Global REIT Market Capitalization by Country in 2014

Monetary Unit: USD (% to GDP value of each country)
Source: APREA (2015)
Regardless of investor types, relevant information is sine qua non in terms of

providing market insights for investment decisions so that such market understandings create
sustainable growth within the financial sector and industry in general (Buranasiri, 2012;
Cheong, Wilson & Zurbruegg, 2009; Yong, Allen & Lim, 2009). By comparison, some
attributes of such indirect real estate differ from those of the traditional indirect real estate,
for instance, liquidity from trading in the stock market (Ciochetti, Craft, & Shilling, 2002;
Jiamchoatpatanakul & Tangchitnob, 2014), having professional property management and
co-ownership with the property sponsor (Stevenson & Lee, 2007; Jiamchoatpatanakul &
Tangchitnob, 2015a), and obtaining the stock market impact (Clayton & MacKinnon, 2001;
Hoesli & Serrano, 2007; Jiamchoatpatanakul & Tangchitnob, 2015b).
One of the interesting aspects to understanding Thai property fund is debt usage since
regulations allow a 10% maximum debt level of the fund‘s Net Asset Value (NAV) which
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does not align with those of other international REITs with have much more flexible
permission for their debt leverage. In 2012, the Thai Securities and Exchange Commission
(SEC) employed a regulation of new indirect real estate vehicles called REIT to substitute the
property fund, and allowed a conversion of the existing funds. The SEC provided the reasons
for employing new REIT regulation: to develop Thai real estate investment vehicles to be in
line with international practices, to offer alternatives of real estate investment to the public
and to provide more flexibility in establishment and management of real estate investment
(SEC, 2007). These funds, however, are not enforced to convert to become REITs with
different attributes, includes 35% maximum debt level of NAV (capped at 60% of NAV with
disclosed credit rating). Therefore, the finding about how debt usage affects the existing fund
might help support a decision for the REIT conversion.
Table 1: Key Differences in Attributes between Thai PFPO and REIT

Issue Property Fund for Public Real Estate Investment Trust
Offering (PFPO) (REIT)
Legal Mutual Fund Trust
Structure
Fund A licensed mutual fund A licensed REIT management
Management management company company, includes potential sponsor
company
Holding Persons in the same group shall Persons in the same group shall not
Restrictions not hold more than 1/3 of NAV hold more than 50% of the total trusts
Investable Not allow to invest in oversea Allow to invest in oversea property
Asset property
Borrowing Not more than 10% of NAV Not more than 35% of NAV (capped at
Restrictions 60% of NAV with disclosed credit
rating)
Source: Stock Exchange of Thailand (2015b)
Debt usage relates to a credit risk which implies a financial liability for the borrower
to pay back a loan principal and an interest to the lender. Use of debt funding at higher debt
cost than the asset performance leads to a negative leverage and vice versa (Allen, Madura &
Springer, 2000; Poorvu, 2003). In this regard, there are two theories which relate with a debt
capital structure: trade–off theory and pecking order theory. The former theory considers a
tax benefit of debt expense deductibility from debt funding (Anderson & Betker, 1995). The
latter explains the firm with a status of financial deficit resort to debt choice, which suggests
high growth firm with high business sensitivity towards a lower leverage ratio (Shyam–
Sunder & Myers, 1999).
In terms of debt use, there is some research regarding debt usage by the international
REITs. However, since regulation about debt use has been employed in a dissimilar approach
in each country, debt leverage by REITs are affected differently by their respective national
restrictions.
Table 2: Debt Use Regulation of the International REITs

Country Debt Use Regulation
US There are no leverage restrictions on REITs
Australia Unlimited, subject to general thin capitalization rules
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Country Debt Use Regulation

Japan No restriction
Singapore* 35% of total assets (capped at 60% with disclosed credit rating)
Hong Kong Capped at 45% of gross asset value
Thailand** Not more than 10% of NAV
Note: *Monetary Authority of Singapore (MAS) employed new guidelines for Singapore REITs to
have single tier leverage at 45% of NAV.
** Thai Property Fund vehicle is allowed to change to be REIT with debt use not over 35% of
net asset value or 60% in case of being investment grade.
The international REITs have generally applied debt as a source of the investment
capital, such as relatively high debt at 49.1% of NAV of US REIT and 45.0% of NAV of
Japanese REIT (J–REIT). The average leverage of overall US REITs is approximately 46.0%
between 1990 and 2012 (Giacomini, Ling & Naranjo, 2015). However, Thai Property Fund
applied low debt level at approximately 0.7% of NAV.
60%
49.0%
50% 45.0%
40% 33.6%
27.8%
30%
18.9%
20%
10%
0.7%
0%
Thai PFPO HK-REIT A-REIT S-REIT J-REIT US REIT
Figure 2 Debt–to–Total Asset Ratio of International REITs by Country in 2013
Since Thai property funds are regulated to limit maximum debt use at 10% of NAV,
there are only three funds with debt use: TLGF, CPNRF and CPNCG.
Table 3: Term Loan of Thai Property Fund, 2014

TLGF CPNRF CPNCG
Loan Value (mil THB) 2,591.26 1,955.00 370.00

Loan–to–Value (%) 9.8% 7.1% 7.2%
Loan Cost (%) BIBOR +1.25% MLR-2.00% MLR-2.00%
Source: Stock Exchange of Thailand (2015a)
There is a linkage between market interest rate and the real estate asset because such
rate change might impact a borrowing cost and their performances (Ibbotson & Siegel, 1984;
Liow, 2006). REIT performances are found to be sensitive to a financial leverage (Delcoure
& Dickens, 2009). In addition, the discount rate for valuating income property can be
considered from adding real estate risk premium to risk free rate (Sharpe, 1964).
Debt leverage is negatively related to profitability, growth opportunity, and
operational risk of REITs (Chikolwa, 2009). In general, REIT vehicles tend to behave like
income stock rather than growth stock because of a regulatory requirement of minimum 90%
dividend payout and consequently low retained earnings to reinvest in the new properties
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without capital increases (Chan et. al., 2003). In terms of size, the larger REITs tend to use
slightly more leverage than smaller REITs (Giacomini et al., 2015). There is a positive
relationship between liquidity degree of real estate asset and of debt financing (Benmelch,
Garmaise & Moskowitz, 2005; Giambona, Harding & Sirmans 2008).
In the US, REITs showed significantly negative relationship with debt leverage levels
(Buranasiri, 2012; Harrison, Panasian & Seiler, 2011). US REITs with high leverage in
comparison with the market average tend to underperform those with less debt in their capital
structure (Giacomini et al., 2015). One of the supportive reasons is that share prices of US
REITs with higher debt ratios and shorter debt maturities suffered larger declines during the
global financial crisis, especially during 2007–2008.
In Australia, debt funding has played a significant role in the growth of Australia
REITs (A–REITs), increasing from 10% in 1995 to 35% in 2007 (Newell, 2008). A low
interest rate situation provides a supporting rational for debt leverage of A–REITs, especially
those investing in the underlying commercial properties with 50–55% leverage (Allen et al.,
2000). A–REITs exhibit a significantly positive relationship with debt level between 2004
and 2007 (Yong et al., 2009).
3. Research Methods
In this research, both quantitative and qualitative approaches were conducted to
understand effects from debt usage on Thai property funds.
3.1 Quantitative Approach

The quantitative research applied the ordinary least square (OLS) regression to find an
existence of the relationship between the debt–to–total asset and return of the property fund.
Source of the research data were derived from a Bloomberg database. It should be noted that
the first Thai REIT was listed in October 2014; the analysed data would not include the later
period to avoid effect from REIT existence in this study. Since this research concentrates on
understanding the debt use effects, the data of monthly return of the Thai Property Fund
index (SETPFund index) and debt–to–total asset ratio from November 2003 to September
2014 were analysed via a generalized linear regression model. Because the first debt use of
Thai property fund started in November 2009, the sub period between November 2009 and
September 2014 was also analysed in this study.
Thai Property Fund Monthly Return = B0 + B1 Total Debt to asset ratio
3.2 Qualitative Approach

The qualitative approach was conducted by interviewing 41 experts in the property
fund business in order to comprehend their views whether the debt use or implied credit risk
is a major risk of concern for the fund and how it affects the property fund performance.
Selecting interviewee samples required a predetermined set of criteria to obtain experience–
based opinions from them who have had active roles in the property fund business and
possessed three years, minimum, of practical experience. The samples include 11 property
fund managers, 8 security analysts, 14 institutional and sophisticated retail investors, and 8
real estate and financial professional consultants (average age: 41 years old with 9 years of
working experience in the field). Applying the data triangulation technique, different sources
of information from various groups of the interviewees would enhance the credibility of
scientific knowledge and validity of a study (Hussein, 2009).
For this study, an approach of the semi–structured interview was applied. Afterwards,
a method of summative content analysis was used for analysing data. This approach helped
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increase understanding about the rationale of the debt use effects from experience–based
opinions. The interview method helped clarify the answer of the complex issues based on
opinions of the interviewees (Ebrahim, 1995). To understand about effects on the
performance of the property fund, the interview results were rated as ―agree‖ or ―disagree‖
opinions in each subcategory of short and long term market effects. Both short and long term
factors concluded ―accept,‖ ―fail‖ and ―partially accept‖ when the subcategories are all
agreed, all disagreed and partly agreed respectively.
Property Fund Manager (F)
8, 19.5% Security Analyst (A)

11, 26.8%
Institutional and sophisticated retail
14, 34.1% 8, 19.5% investor (I)
Real Estate and Financial
Professional Consultant (P)
4. Results and Analysis

Results of both quantitative and qualitative researches were analysed in this section.
4.1 Quantitative Approach

This research analysed effect of debt use to the fund‘s performance over two time laps
of full period (Nov 2003 – Sep 2014) and sub period (Nov 2009 – Sep 2014) as follows:
Table 4: Descriptive variables of the monthly total returns of Thai Property Fund index and
debt–to–total asset ratio
Dependent TOT_RETURN_INDEX_NET_DVDS
Variable (Y) Monthly total return of Thai Property Fund (Bloomberg)
Independent TOT_DEBT_TO_TOT_ASSET
Variable (X) Monthly debt level to total asset of Thai Property Fund (Bloomberg)
Period Nov 2003 – Sep 2014 Nov 2009 – Sep 2014
Sample N = 130 N = 58
Average 0.49% 1.09%
Std. Dev. 0.59% 0.34%
Minimum 0.00% 0.59%
Maximum 2.21% 2.21%
Table 5: Regression result of the monthly total returns of Thai Property Fund index and total
debt to asset ratio
Variable Nov 2003 – Nov 2009 –
Sep 2014 Sep 2014
Constant 0.00 -0.00
(0.51) (-0.36)
Total debt to asset ratio 0.99 1.42
(2.42)* (1.71)
R Square 0.04 0.05
Adjusted R Square 0.04 0.03
F 5.89 2.94
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Correlation 0.20 0.22

The t-statistics are reported in parentheses
*denotes significance at p<0.05 level
As shown in Table 5, statistic results exhibited the impact of the debt use on the
property fund‘s performance. The results found 0.04 and 0.03 adjusted R–square for models
of full and sub–period analysis; both time laps did not exhibit high explanatory power of
single factor model of debt use variable. The full and sub–period models, however, showed
relatively similar results of being positively correlated between these variables with
statistically significance levels of p<0.05 and p<0.10 respectively. For the formal model, the
regression result implies that every 1% change in debt level leads to a 0.99% increase in the
monthly returns of the Property Funds.
4.2 Qualitative Approach

From the interview research, there were 41 experts‘ comments about debt use. Most
of them provided disagreeing opinions to support significance of such factor to performance
of the property fund (agreed freq. = 4, 5.6%; disagreed freq. = 67, 94.6%).
- Significant Loan Amount from Leverage at 10% of NAV

Almost all interviewees commented about insignificant debt use from maximum debt
use at 10% of NAV. They discussed that a concept of debt use at lower cost than yield of the
property fund is reasonable, but mostly commented about too low amount to enhance return
on equity (ROE) from 10% debt leverage. Only do 10% loans make property funds raise
enough capital for new property acquisition, especially those with small sizes or implied low
NAV. One interviewee suggested that debt use at 10% level might insignificantly enhance
return on equity. Similar to a comment of another interviewee, 10% maximum debt use for
the property fund is deemed too low when compared to traditional loans to commercial
property.
Result: The majority disagreed
- Easiness to pay back the loan principal under regulatory constraint

Some interviewees disagreed on the easiness of paying back the loan principal under
regulatory constraint. One interviewee pointed out that structural requirements to provide a
dividend at 90% minimum of taxable income to the unit holder caused difficulty for the fund
to pay back the loan principal since the commercial bank typically granted 10-year loan terms
to the debtor. Although the fund may be able to afford paying interest of the loan, the
remaining amount of net profit, after paying dividend to the unit holder, might not be enough
to serve debt payback within the loan term period.
Result: Disagreed
- Low regulatory burden to request loan approval

Some interviewees disagreed that there is a low regulatory burden to request loan
approval. One interviewee suggested that loan applicants be required to request an approval
from the SEC, including supporting reasons, source(s) of debt, loan terms and other
information. The implication here was that the more processes and regulations required, the
more disincentives for the fund manager and investment banker to avoid using a debt option.
Result: Disagreed
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- Low risk for leasehold property to utilize debt

Some interviewees discussed about high risk for leasehold property to utilize loan.
One commented that a limited ownership period of leasehold interest may expose more risk
in failing to meet the loan principal and interest payback because the shorter ownership
makes it difficult for such a property to refinance or exit. Another interviewee suggested that
a leasehold property should fundamentally provide a higher return from higher risk exposure
than the freehold property.
Result: Disagreed
- Low risk for some property types with relatively short lease term to utilize debt
Some interviewees commented on high risk for some property types with relatively
short–term agreement to use leverage. One interviewee pointed out that some properties with
more volatile revenue from relatively short lease term on a daily, weekly or monthly basis,
(such as hotel and service apartments) might be perceived to be high risk in terms of failure
to pay back the loan principal and its interest when compared with office and retail properties
with, generally, three-year lease agreement.
Result: Disagreed
- Significant spread between debt cost and property yield

Some interviewees discussed that a significant spread between debt cost and property
yield is required to make a debt funding attractive. Interviewee no. 15 mentioned that the
property fund generally provide yield at approximately 6–7%; therefore debt cost should be
at 4.5% or less (or implied MLR-1.5% or less) to have enough spread to generate leverage
benefit. In practices, it may not be easy for some small funds to gain low debt cost due to
high risk exposure. Interviewee no. 26 suggested that spread between debt cost and the
property fund yields is expected at approximately 2–3%, otherwise it might impact market
price of the fund.
Result: Disagreed
- Lower WACC and discount rate to cause higher property value

Some interviewees suggested that an income property valuation might use a discount
rate developed by WACC with composition of debt cost. This issue was mainly discussed by
the property consultancy experts. Interviewee no. 37 commented that value for the investment
properties can be summarized into two cases of market value and market value subject to
specific terms and conditions of the fund. Assuming the fund gain lower debt cost than equity
return, discount rate or WACC for the income valuation may decrease and the property value
may increase. Interviewee no. 38 informed that an appraiser would typically conduct an asset
valuation without considering debt cost for a discount valuation. In addition, some suggested
that the 10% maximum debt leverage tends not to affect discount rate much.
Result: Major disagreement
- Fitting for the large fund to secure commercial loan

Few discussed that 10% debt use is relatively low amount for funding. Interviewee
no. 12 suggested that large fund might raise enough loan to acquire new asset at 10% debt
gearing. For instance, fund size below THB 5 billion would request for debt below THB 500
million, which is less than minimum fund size for the property fund. Interviewee no. 15 also
commented that the lender would perceive a lower risk from multiple assets in large fund,
since the underlying property of the fund is not permitted to be used as the collateral.
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Table 6: Findings and conclusions of the qualitative research

Major concerned risks to the stakeholders Agreed Result
Result
- Significant loan allowance of 10% NAV maximum (1/36) 2.8% Disagree
debt use
- Easiness to pay back the loan principal and interest (0/9) 0.0% Disagree
under regulatory constraint
- Low regulatory burden to request loan approval (0/6) 0.0% Disagree
- Low risk for leasehold property to utilize debt (0/5) 0.0% Disagree
- Low risk for some property types with relatively short (0/5) 0.0% Disagree
lease term to utilize debt
- Significant spread between debt cost and property (0/4) 0.0% Disagree
yield
- Lower WACC and discount rate to cause higher (1/4) 25.0% Disagree
property value
- Fitting for the large fund to secure commercial loan (2/2) 100.0% Agree
Debt Use (4/71) 5.6% Partially
accept
4.3 Discussion
Debt use exhibits a statistically significant, positive relationship to performance of the
property fund in a quantitative research, and shows a partially–accepted result to be one of
the major risks in a qualitative research. Since findings of the qualitative approach include a
reason to support the debt leverage from fitting for the large fund to secure commercial loan,
the outcome is consistent to that of the quantitative approach from positive coefficient but
low explanatory power of a regression model.
5. Conclusion
The research results show partial supports for Thai property fund to the debt leverage.
Similar to other studies, the larger REITs tend to use slightly more leverage than smaller
REITs (Giacomini et al., 2015). There is a positive relationship between liquidity degree of
real estate asset and of debt financing (Benmelch, Garmaise & Moskowitz, 2005; Giambona,
Harding & Sirmans 2008).These findings relate to a positive relationship of A-REIT returns
(Yong et al., 2009), but contradicts to US REIT returns with a negative relationship
(Buranasiri, 2012; Harrison et al., 2011). Different result of relationship between REITs and
debt use was discussed in terms of debt level, and spread between yield and debt cost
(Atchison & Yueng, 2014). In addition, US REIT with short debt maturity suffered during the
global financial crisis (Giacomini et al., 2015).
For Thai property fund, low debt level at 10% of NAV might diminish an opportunity
of positive leverage. Only can large property fund access to the debt funding because the
commercial bank may not easily provide a commercial loan under regulatory constraints of
debt payback after 90% dividend payment and no collateral. Unlike other REITs, the result
does not relate with the pecking order theory owing to low debt allowance. Thai property
fund show dissimilar rationales of debt use compared to other international REITs, therefore
it might benefit from converting to be REIT because of positive leverage from higher degree
of debt use.
21
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2015
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23
Vol. 2 No. 2, 24 – 36
Motivation and Decision Making in Choosing

Medical Tourism Service in Thailand
Nutworadee Kanittinsuttitong
College of Innovation Management,
Rajamangala University of Technology Rattanakosin, Nakhonpathom, Thailand
[email protected]
Abstract
The objectives of this research were to discover the motivations and factors that influence
customers in making decisions for medical tourism service in Thailand. This research also
aimed to study the nature of medical tourism service in different areas of Thailand. Under this
study, samples were collected from tourists who traveled and used health service in Thailand.
Three main theories applied in this study included (1) the competitive advantage of the nation
theory (2) the hierarchy of need theory and (3) push-pull factors of tourism theory. Both
qualitative and quantitative methods were adopted in this study via in-depth interviews and
survey questionnaires. The results showed that medical tourist can be classified into two
groups, which are medical-focused tourists and tourism-focused tourists. Medical-focused
tourists are those who come to the country with the major purpose of having medical
treatment to cure their illness, undergo cosmetic surgery, or to learn prevention from illness.
They focused mainly on factors associated with medical treatment and service such as cost,
quality and reputation of hospital and physician. Tourism-focused tourists are those who
come for tourism but also took the opportunity to undergo a health check, dental care or
wellness treatments. This group of tourists mainly emphasized factors such as the
attractiveness of the location and the convenience of hotel and transportation as well as
entertainment and leisure opportunities.
Keywords: Thailand, Medical tourism, Health tourism, Diamond model, Influencing factors,
Tourist motivation
1. Introduction
The phenomenally fast growing market of the medical tourism business is respectively
gaining more attention from both academics and business field. Medical tourism consists of
new types of services that integrate tourism business and medical services together, which is
known as a multi-disciplinary service. The scope of services is very broad because this is
desirable from an international perspective. The main point of medical tourism business is
that people travel outside of their home country to another country for medical or health care
services and travel within that country (Weaver D. and M. Oppermann, 2000). The global
medical tourism market in 2006 was estimated at 20,000 million dollars (USD) and increased
to 35,000 million dollars in 2009 (Keckley, 2009). The global medical tourism market is
estimated to be 32.5 billion dollars by the end of 2019 (IBM, 2006; TMR, 2015). Thailand is
within the top ranking of countries that have been popular over the world regarding medical
tourism, making it a national, major industry, that generates increasing revenue for the
country each year. More than 3 million foreigners come to Thailand for medical service in
Thai hospitals and other healthcare facilities in 2012 while generated approximately 70,000
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2015
million baht to the nation (National Statistical Office, 2013). Thailand medical tourism
market is estimated to exceed 100 billion baht in 2015 (KResearch, 2015). It is not only
Thailand, however, that focuses on the medical business. India, Singapore, Malaysia and
many countries around the world have also announced a clear policy to be centers of medical
tourism in this global industry (Gan & Frederick, 2013). Therefore, in order to maintain its
strong position and increase competitive advantage in the global arena, Thailand must be
aware of this intense competitive situation by retaining existing strengths and creating
competitive advantages over rivals.
In addition, Thailand must prepare for the Asian Economic Community in 2015 as the
integration is very beneficial to the medical tourism industry of Thailand. The population of
the AEC is larger than 600 million people with more than 1.5 trillion dollars of international
trade value. Besides, this market will play a greater role and gain more bargaining power in
the world economy as such as the European Union (Department of Asean Affairs, 2015).
Moreover, the medical tourism is also expected to be a primary source of income for the
country. The government aims to draw more than 2 million medical tourists into the nation
each year, the result of which will flow money into the country in the amount of over 4
hundred billion baht in 5 years. Such income can be divided into medical care services over
2.8 hundred billion baht, Wellness service 7.8 hundred billion baht, traditional medicine and
alternative medicine 2.8 hundred billion baht, and herbal products over 4 hundred billion
Baht. Therefore, it is necessary to know the motivations and factors that influence customers
in making decisions regarding medical tourism service in Thailand in order to gain greater
competitive advantage and also maintain a leadership position in the global medical tourism
industry (Tourism Authority of Thailand, 2012).
2. Conceptual Frameworkand Literature Review
Medical tourism means patients traveling abroad to receive medical treatment or people
who take the opportunity to get medical treatment and take the vacation abroad at the same
time (Cohen, 2008).‫ ‏‬The concept of medical tourism is formed by two main theories,
including theories of tourism and medical services. This research aims to determine the
motivations and factors that can affect the decisions to undertake medical service by tourists
in Thailand. This would create competitive advantages and help Thailand to compete in the
global market. Research applied to the Diamond Model (Porter, 1990) describes the main
theory of how to study the competitive advantages of a nation in the following fashion:
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Firm Strategy,
Structure, and
Rivalry
Factor Demand
Conditions Conditions
Related and
Supporting
Industries
Figure 1 Determinants of National Competitive Advantage
1) National Competitive Advantage

The theory argues that the competitiveness and success of companies in the industry of a
given nation depend on the efficient use of production factors‫ ‏‬such as labor, capital, and
natural resource. Therefore, each country must compete by creating a business environment
to gain the highest possible level competitiveness. Even though government agencies have
different roles from private organizations, they can also work together with the private sector
to strengthen national competitiveness. The synthesis of a national competitive advantage
theory can be applied to the medical tourism business in Thailand as follows:
(1) Factor conditions can be considered as pulling factors. This consists of beautiful
landscapes, warm climate suitable for physical rehabilitation, economic development with a
low cost of living, political tranquility, health laws that are less restrictive than many
countries, and general friendliness to foreigners.
(2) Demand Conditions are a push factor‫‏‬s that cause people travel to get medical services
outside their home country along with tourism. It can be divided into two major parts:
medical need and tourism need. Medical need involves the reputation of the hospital, the
expertise of doctors and therapists, quality and medical standards, the speed of service,
modern medical technology, a wide range medical services, affordable/cost-effective price,
privacy, and excellence of care (Enderwick & Nagar, 2011). Tourism needs consists of
interesting destinations, comfortable hotels, the availability of quality food, recreational
facilities and entertainment.
(3) Related and supporting industries consist of tour agencies, hotels, airlines,
transportation, entertainment businesses, restaurants leisure businesses, embassies, and other
related businesses.
(4) Firm strategy, structure and rivalry consist of quality and medical standards, hiring
medical professionals, providing fast service, focus on service excellence, providing value
added services such as interpreters, visa extension, money exchange, offering special
promotion, publicity through various media, opening overseas branches, contracting business
partnerships with international hospitals, insurance companies, foreign governments
agencies, and co-marketing with partners such as airlines and tourism agencies.
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2) Hierarchy of Health Care Needs

Optimum
Health
Health Enhancement
Medically-neccessary Treatment
Basic Healthcare
Figure 2 Hierarchy of Health Care Needs (Runnels & Carrera, 2012)
A review of the scholarly literature on medical tourism (Runnels & Carrera, 2012)
revealed a hierarchy of health care needs based on Maslow's hierarchy of needs theory.
People with different levels of health care need will seek different forms and characteristics
of healthcare providers. Analysis of the hierarchy of healthcare need in conjunction with the
medical tourism comprises four levels (a to d) as follow:
(A) Basic Healthcare for medical tourists who want basic medical care such as health
checkups, dental care, immunization and preventive screening. Medical tourists who have the
health needs at this level will focus primarily on tourism. For medical services, they seek
standard medical service, affordable price, specifically a promotion or special packages and
they often choose those health providers that are located in the tourist area. (B) Medically-
Necessary Treatment is for medical tourists who are required to obtain medical treatment,
such as treatment, surgery, and treatment of various diseases. Medical tourists with health
care needs at this level will mainly focus on medical treatment and other relating services.
For the issue of tourism, they most likely take a short trip to a nearby hospital or choose
travel destinations that are suitable for their recuperation. (C) Health enhancement is for
medical tourists who need additional medical service. Whether to remove, to fill, to modify
or to receive minor surgery, lose weight, or sex reassignment surgery. A medical tourist who
has healthcare needs at this level will primarily consider the conditions of medical services
while they will arrange the tourism portion of their trip to be during or after receiving medical
treatment. (D) Optimum Health is for medical tourists who have good health conditions but
may wish to manitain or improve their current condition. This group of tourists would be
more likely to take an extra service, for instance, spa, massage, acupuncture, traditional
medicine, detoxification, and holistic healthcare treatment. The primary focus of these
particular medical tours is to enjoy the tourism aspects of their trips while also taking
advantage of health care services located in tourist areas.
3) Push-Pull factors in Tourism

This theory states that the factors that affect the rise of tourism consists of two main
factors (Weaver D. and M. Oppermann, 2000). First are the push factors that make people
travel out of their home country, They consist of: a good economy of the home country that
makes their purchasing power high in a foreign market, a society that values or is infatuated
with tourism, demographic changes such as smaller family size, thus making it easier to
travel together, the advancement of technology especially communication technology like the
internet, and the home country allowing its citizens to travel aboard.
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Second are pull factors that attract tourists to come to the destination country. This
includes a good image of the destination country, beautiful landscapes, good transportation,
few legal limitations, the variety of services, low or affordable costs, and political stability.
When applying this theory to medical tourism, the following can be stated: (1) Push factors
consist of the long waiting time, high cost, unavailable or forbidden treatment such sex
reassignment surgery, and lack of confidence, and (2) Pull factors consist of a country‘s
reputation in both tourism and medical service, a variety of medical and tourism services,
affordable/valuable costs.
3. Research Methodology
This research is conducted by using both qualitative and quantitative methodologies. In-
depth interviews and questionnaires were used as qualitative and quantitative tools,
respectively. The research framework is presented in Figure 3. Researchers have synthesized
and integrated a theory of the competitive advantage of the nation with a hierarchy of
healthcare need theory and tourism push-pull factors theories. A conceptual framework for
this research consists of independent variables which include factos of the competitive
advantage of a nation: factors condition, demand condition, related and supporting industry
and firm strategy, structure and rivalry.
Factor
Condition
Medical
Focus
Demand
Condition
Hierarchy of Health Need
Related &
S upport Industry
Tourism Focus
Firm S trategy,
S tructure &
Rivalry
Figure 3. Research Framework
The findings indicate that medical tourists who have different levels of health care needs
decide to choose differing medical tourism services. Therefore, the researcher took the
hierarchy of health care needs as a mediating variable in the framework of this research.
Research has integrated push-pull factors in tourism theory with factor condition and
demand condition of a diamond as the independent variable. Dependent variables in this
research framework are groups of medical tourists who are motivated and decided to use a
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different medical tourism. This study found that it can be divided into two groups (1)
Medical-focused tourists who come to Thailand to receive medical treatment as the main
purpose. (2) Tourism-focused tourist who comes into Thailand to travel as the main purpose.
1) Population, sample and data collection

The population of the qualitative research consisted of executives, owners, markets,
managers and administrators of healthcare service providers in Thailand. The researcher
collected a total 60 samples by using the snowball sampling technique. The population of
quantitative research are foreigners who travel and use healthcare services in Thailand. The
researcher collected total 400 samples by the using selective sampling method. Both
qualitative and quantitative data was collected from the five main cities in Thailand that are
the major tourist attraction areas: Bangkok, Chiang Mai, Pattaya, Koi Samui, and Phuket.
2) Research limitation
The conceptual limitation of this research focused only on medical tourists who came to
Thailand for both healthcare service and tourism. This excluded foreigners who are
expatriates, retirements, students, and teachers. The scope limitation of this research aimed to
study the motivation of and decision-making regarding medical tourism service choices made
while in Thailand.
3) Research tools
This research used in-depth interviews as a research tool for qualitative research. The
content of the interview was divided into two major components. First, questions were asked
for his/her opinions toward factors and motivations that caused the medical tourist to come
for medical treatment in Thailand. Second, questions were asked about organizational
strategy, structure, and marketing direction. On the other hand, questionnaires were used as a
research tool for quantitative research to gather primary data.
Qualitative data analysis consisted of identifying, coding, and categorizing patterns or
themes found in the data. The quantitative data analysis consists of factor analysis, linear
regression, and ordered-probit regression.
4. Results
Qualitative Results
The synthesis and integration of three theories (1) The competitive advantage of the
nation theory (Diamond Model), (2) Hierarchy of healthcare needs which is adapted from
Maslow's hierarchy of need theory, and (3) Push-pull factors in tourism theory can be applied
to medical tourism business. Thus, the result shows that motivation and decision of medical
tourism depend on the major purpose of the journey, which can be divided into two groups.
The first group consists of tourists who come for medical treatment as their main purpose.
The second group consists of tourists who come for travelling as their primary purpose.
These results of this study are consistent with these three theories. Push factors in tourism
theory and Maslow‘s hierarchy of need theory are the driving factors that make foreigners
leave their country. Pull factors in tourism theory and in the Diamond Model are the factors
that attract foreigners in Thailand.
(1) Medical-focused tourists come for health solution as the main purpose. In reference to
the hierarchy of healthcare needs in Figure 2, this group includes those who are at the level of
medically-necessary treatment and health enhancement. They focus primarily on medical
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2015
factors, including the speed of the service, the reputation of the hospital, expertise of
physicians and therapists, medical standards at an international level, modern medical
technology, a wide range of medical services, the privacy of the service, excellence of
recuperation treatment, and affordable/valuable costs. They also consider transportable
distance, affordable travel price, and climate that is suitability for rehabilitation. Many
healthcare service providers coordinate with overseas insurance companies and hospitals.
Furthermore, having additional services such as interpreters, visa extension, and money
exchange help facilitate and create a quicker procedure for medical treatment.
These findings indicated that foreigners with a need for health treatment and beauty
surgery leave their country due to push factors such as costly medical services and long
waiting periods. This information allows Thai health service providers to determine the
precise target and marketing easier. The result also shown that medical-focused tourists
mainly consider medical treatment factors. Therefore, all relevant parties should focus on
developing the potential of medical treatment factors.
(2) Tourism focused tourist comes from tourism as the main purpose. Refer to hierarchy
of healthcare needs in Figure 2, this group needs a basic healthcare and optimum health. They
focus primarily on tourism factors, including good country image, famous and beautiful
landscape, suitable weather, the convenience of a hotel, the availability foodservice, a place
of recreation, entertainment service, affordable cost of travel and living, no political situation,
and the society and culture of quality service and hospitality.
These findings indicated that the foreigners leave their country due to push factors such as
stress from work, social trend, and world exploring. This information also allows health
service providers to determine the precise target and marketing easier. The result also shown
that tourism focuses tourist mainly consider tourism factors. Therefore, all relevant parties
should focus on providing suitable health service at nearby tourist attractions.
This study found needs for lifestyle transformation that expand from toptimum level
treatment (See Figure 4). Medical tourists wanted to change their lifestyle in order to be in
physical and mental harmony with nature. Services included weight loss by changing lifestyle
eating habits, the synchronization between the body, mind, and nature, body detoxification
and emotional detoxification. This range of treatments takes approximately 5-7 days. These
treatments were often combined with usually sightseeing near the healthcare service location.
The significant factors for this group were the variety of services, the reputation of the center,
and positive references from reputable sources.
5.Lifestyle
transformation
4.Optimum
3.Surgery+Cosmetic
2.Medical/Illness
1.Basic Healthcare+Dental
Figure 4 Hierarchy of Medical Tourism Health Care Needs
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2015
Quantitative Results
(1) Factor Loading and reliability
STATA was carried out to test the construct validity of the instrument in order to
conceptualize the latent variables. Factor analysis was performed to describe variability
among observed, correlated variables in terms of a potentially lower number of unobserved
variables called factors. The results of principal component factors in Table 1 indicated that
the scales were not only reliable but also valid for the factors under study such as the
attractiveness of the country, the convenience during travel, the limitation of healthcare in
their country, standard and quality of healthcare provider, service of healthcare provider,
related business, and marketing activity (see Table 1).
Factors Items/Statements Factor Common Variance Cronbach‘s

Loadings -ality alpha
C1: The beauty of the landscape 0.8018 0.6429
and attractions.
C2: The warmth of the climate for 0.7792 0.6072
relaxing.
C3: Appropriateness of the living 0.6436 0.4142
The costs.
attractiveness C4: The stability and security in 0.7914 0.6263 0.5584 0.8568
of the country the country.
C5: The austerity of the law in the 0.7184 0.5161
country.
C6: Thailand culture regarding 0.7384 0.5452
services mindset.
C7: Reputation of Thai food. 0.7465 0.5573
C8: Distance of travel to Thailand. 0.8230 0.6773
The C9: The affordablity of traveling
0.6453
convenience to Thailand. 0.8033 0.6902 0.7708
during travel C10: The ease of travel to
0.7479
Thailand. 0.8648
H1: The period of waiting for
treatment relative to the home
country. 0.7206 0.5193
H2: Cost of medical service
The limitation
cheaper than home country. 0.6322 0.3997
of healthcare
H3: Variety of health services, 0.4636 0.7043
in their
some of which are not available in
country
the home country. 0.6508 0.4235
H4: Treatment is legal. 0.6743 0.4547
H5 The confidentiality of the
treatment. 0.7216 0.5207
H6: The quality and standards of
the service provider. 0.7717 0.5955
H7: Reputation and expertise of
the service provider. 0.8742 0.7642
Standard and
H8: Technology and medical
quality of
equipment is modern. 0.7629 0.5820 0.5876 0.7736
healthcare
H9: The quality of service is good
provider
and friendly. 0.6820 0.4651
H10: The hospital/clinic offers
accommodations during their
treatment. 0.6972 0.4861
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Factors Items/Statements Factor Common Variance Cronbach‘s

Loadings -ality Alpha
H11: The available of healthy food
/Halal food. 0.7483 0.5600
H12: Reference from world class or
Service of well-known person. 0.8417 0.7085
healthcare H13: Results of treatment 0.6771 0.8769
provider (Testimonial) 0.8717 0.7599
H14: Advice from a doctor / Agency
/ acquaintances 0.8325 0.6931
H15: After treatment service(s) 0.8151 0.6644
R1: The availablility of public
0.6496 0.4220
transportation
R2: The hospital/clinic has pick-up
Related 0.8371 0.7007
service
Business 0.5705 0.7476
R3: There is entertainment and
0.7320 0.5358
recreation near the hotel / hospital.
R4: Hospital/clinic is located near
0.7896 0.6235
the tourist attraction
MKT1: International branches. 0.8451 0.7142
MKT2: There is contact with the
hospital /doctor in the home country. 0.8779 0.7707
Marketing MKT3: There is cooperation
0.7392 0.8824
Activities between the government and the
health service 0.8863 0.7855
MKT4: International exhibition or
trade fair 0.8285 0.6864
Table 1 Factor Loading and Reliability
The communalities of the 33 variables ranged from 0.3997 to 0.7855 suggesting that the
variances of each original variable (from 39.97% to 78.55%) were reasonably explained by
the seven-factor solution. Factor loadings of the variables ranged from 0.6322 to 0.8863,
above the suggested threshold value of 0.30 for practical and statistical significance (Hair et
al., 1998). The Cronbach‘s alpha for the nine factors varied from 0.7043 to 0.8824,
suggesting high internal consistency. The seven factors were labeled based on the core
variables that constituted them: the attractiveness of the country, the convenience during
travel, the limitation of healthcare in their country, standard and quality of healthcare
provider, service of healthcare provider, related business, and marketing activity.
(2) Model testing: Linear and ordered probit regression

Table 2 indicates a summary of the linear testing. Results of the study found that the
attractiveness of the country, the convenience during travel, the limitation of healthcare in
their country, standard and quality of healthcare provider, service of healthcare provider,
related business, and marketing activity variables were significant. Correspondingly, the
robustness testing confirms that each variable was significant by using order probit
regression.
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Factors Linear OProbit

The attractiveness of the country 0.9022 *** 1.6907 ***
The convenience during travel 0.4048 * 0.8169 **
The limitation of healthcare
-1.0796 *** -2.0395 ***
in their country
Standard and quality
0.9138 *** 1.8399 ***
of healthcare provider
Service of healthcare provider -0.4517 ** -0.7421 *
Related business(es) 0.9672 *** 1.7304 ***
Marketing activities 0.7756 *** 1.4498 ***
Constant 1.6308 ***
cut1 0.1871
cut2 1.8667 ***
cut3 3.4263 ***
N 220 220
RSS 84.4980
log likelihood -206.9075 -196.3277
F-test 15.6099 ***
Chi-square 91.9570 ***
R2 0.3401
2
Psuedo-R 0.1898
log likelihood -206.9075 -196.3277
F-test 15.6099 ***
Chi-square 91.9570 ***
R2 0.3401
Psuedo-R2 0.1898
Table 2 Linear and ordered probit regression
5. Discussion And Conclusion
The study found that medical tourists who came to Thailand can be divided into two
major groups: medical-focused tourists and tourism-focus tourists. The first group mainly
focuses on medical treatment and other factors related to medical services while only
focusing secondary, sometimes not at all, on tourism factors. In contrast, tourism-focused
tourists mainly pay attention to tourism factors and focus far less on medical or healthcare
factors. The study‘s findings will enable healthcare providers, travel service providers, and
other related businesses as well as government agencies to formulate policies, create
marketing strategies, and establish operational plans to effectively satisfy the needs of each
these two tourist groups.
The limitations of healthcare in a foreigner‘s home country that influence customers in
making decisions to obtain medical services in Thailand are: period of waiting for treatment,
costs of medical service, the variety of health services, legality of treatment, and the
confidentiality of the treatment. Medical treatment factors were the main factors that
influenced medical-focused tourists for using medical tourism in Thailand. Medical
treatment factors can divide into two factors. The first factor is standard and quality of the
healthcare provider. This consists of quality and standards of the service provider, reputation
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2015
and expertise of the service provider, modern of technology and medical equipment,
friendliness of service provider, and acceptable accommodations. The second factor is service
of healthcare provider. This consists of the available of healthy food or Halal food, references
from reputable sources, result of treatment, advice from others, and after treatment service.
Tourism factors are the main factors that influence tourism-focused tourists for using
medical tourism in Thailand. Tourism factors can divide into two factors. A important factor
is the attractiveness of the country. This consists of the beauty of the landscape and
attractions, the warmth of the climate for relaxing, the appropriateness of the living cost, the
stability and security in the country, Thai culture, and the reputation of Thai food. A
secondary factor is convenience during travel. This consisted of distance of travel to
Thailand, the affordability of the trip, and the ease of travel to Thailand.
Other businesses that relate to medical tourism also influence customers in decision
making for medical tourism services in Thailand. This consists of the availablility of public
transportation, pick up services, and the hospital/clinic being located near tourist
entertainment and recreation.
Marketing activities of service providers also influence customers in making decisions for
medical tourism services in Thailand. This consists of the existence of international branches,
contact with the hospital in the home country, cooperation between the government and the
health service providers, and international exhibitions or trade fairs.
Moreover, there are several issues of concern: (1) Although Thailand is the leader of
medical tourism in the world, there are only a few medical tourism agencies in the nation; (2)
There are still gaps in the medical tourism cluster that need to be a filled in such as
transportation, interpreters, and quality food service providers, and; (3) The connection
between medical providers and tourism providers is not as good as it should be. Therefore,
opportunities are being lost in many cases.
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36
Vol. 2 No. 2, 37 – 47
Post Operating Performance and IPO Issuance

Timing: The Developing Country Experience
Nareeporn Kongthon
The Stock Exchange of Thailand, Bangkok, Thailand
[email protected]
Nipawan Thirawat
Business Administration Division
Mahidol University International College, Nakhon Pathom, Thailand
[email protected]
Abstract
This research aims to examine the post-issuaunce operating performance of newly
issued stocks of small and medium companies. The research found a significant decline in
operating performance after listing. It is evident that issue timing affects risks and volatility
of operating performance. Issuing initial public offering (IPO) stocks prior to the 2008
financial crisis demonstrated the lowest performance compared to other scenarios, whereas
issuing IPOs during the crisis illustrated a high volatility of operating performance.
Keywords: post operating performance, initial public offerings, small and medium
enterprises, issuance timing, financial crisis, developing country
1. Introduction
Several past studies documented operating performances of IPO companies, both
before and after a new listing, and the relationship with market return. This research
investigates the operating performance changes of 42 companies before and after IPOs during
2000 to 2012. The analysis of operating performances are based upon three areas:
profitability, efficiency and leverage (Aussenegg and Ranko, 2007). Additionally, this study
also identifies differences between post operating performances of IPOs issued at different
timings including the normal period before the 2008 financial crisis and then during the crisis
itself. According to Mishkin (1992), a financial crisis is defined as a ―disruption to financial
markets in which adverse selection and moral hazard problems become much worse, so that
financial markets are unable to efficiently channel funds to those who have the most
productive investment opportunities.‖ It was postulated that the volatility of operating
performance in each period would be different.
The most recent economic crisis started in July 2008, resulting from the credit crunch
of the US banking system. The crisis spread rapidly throughout the US economy and the
effects were continued across the globe (Earle, 2009); Thailand was one of many countries
that felt the effects (Green, 2010). The graphs in Figure 1 represent Thailand‘s GDP and the
sales growth of the Market for Alternative Investments (MAI) from 2002 to 2012. The peak
of the US crisis was evident in periods during 2008 and 2009 (Rapoport and Gerts, 2010).
During this time, Thailand‘s GDP growth dropped to negative values (Figure 1). Operating
performances of private and public companies dropped accordingly, with some companies
resulting in the complete shut down of some businesses. The stock market also felt the
impacts from the economic recession. Sales growth of listed companies in the MAI showed
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the lowest point in year 2009 at -12 percent, which was the first negative rate of sales growth
since the establishment of the MAI. Although the market conditions in Thailand were not
strong at the time, there were 14 new IPO companies during 2008 to 2009. This reflects the
high level of confidence to go public amongst SME entrepreneurs, in order to benefit from
future growth opportunities.
Figure 1.Thailand‘s GDP growth and MAI listed companies‘ sales growth in year
2002-2012.
Sources: World Bank and SET databases
In the Thai capital market, the MAI is one channel for SMEs to raise capital. The
MAI was established under the Stock Exchange of Thailand (SET) in the year 1998 and plays
a significant role in supporting and providing access to SMEs within the Thai capital market.
The MAI also provides long-term capital for SME business expansions and development,
facilitating the opportunity to strive for global competitiveness.
The number of companies listed in the MAI, which transitioned from being a small
firm to becoming a larger organization and moving on to the SET market, increased from
only 3 listed companies in 2001 with an IPO issued size of 131 million Thai Baht to a total of
92 listed companies in 2013 accounting for 19,826 million Thai Baht (SET database). This
information illustrates that the MAI presents high growth opportunities for investors.
As a result of the transition from private to public ownership through the initial public
offering (IPOs), the changes of operating performance should be examined. Most IPO
companies have incentives to report the best operating performance prior to the IPO offering,
in order to increase the expectations of investors and to increase the offering price of the firm.
Although several researchers investigated the performance of IPO firms, they
typically focused on the firms' post issue price performances. The motivation for this study
stems from the lack of evidence on operating performance of small and medium enterprises
that are listed on the MAI. Most Thai studies on stock performance have typically focused on
the SET and pricing performance rather than operating performance.
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As companies seek multiple benefits to go public, it becomes difficult to pinpoint a
single reason. Hansen and Jorgensen (2010) explained the reasons to go public as the pecking
order theory. They said that companies usually prefer internal equity and debt financing as
sources of financing, with the last option being external capital. Lower cost of capital is an
advantage of external financing. The value of the firm also increases as a result of lower costs
of capital. Pagano, Panetta and Zingales (1998) analysed the decision to go public of Italian
private companies. Their study found that larger sized firms with higher firm values within
the industry were likely to go public in order to rebalance their account due to high
investment projects. Latham and Braun (2010) found that CEO ownership, companies‘ debt
levels and leverage are key factors influencing IPO decisions. Some investigations mentioned
non-financial reasons in the decision to go public. According to Ritter and Welch (2002),
market conditions are included in the initial factors, whereas the stage of the business cycle
proved to be a minor factor for stock market listing.
Another important factor is higher bargaining power on bank credit after IPO,
whereby newly listed companies can access added sources of funds. Mikkelson, Partch and
Shah (1997) found the reasons for private companies to list in the stock market from the
prospectus of their IPO sample. The information showed that 85 percent intended to raise
working capital, 64 percent to invest on capital expenditure and, lastly, 58 percent to payout
liabilities. The stock issues of newly established companies have major reasoning for raising
capital. However, some companies may not want to go public as examined by Brau and
Fawcett (2006) due to the dilution of ownership, uncertainty in the market and industry
condition. High personal risk burden of decision makers and firms‘ debt levels contribute to
IPO withdrawals (Latham and Braun, 2010).
Several papers that studied new IPOs after the listing year reported a decline in the
IPO firm‘s operating performance. As stated in Jain and Kini (1994), the decline of operating
performance cannot be claimed by the increase of assets and equity after listing. They
investigated that the first day of trading for IPO companies would have a high initial public
offering price per earnings ratio due to the investor‘s high expectations that companies will
have future growth opportunities. They recommended that the cause of under-performance
after listing is consistent with agency costs as a result of ownership structure, window-
dressing on pre-IPO performance and timing their issuances on periods of unusual over
performance.
Agency costs are the most common obstacle for companies that transition to a public
company in the stock market. Wong (2012) studied the post-operating performance of Hong
Kong‘s listed companies. He found that IPO companies peak on earning performance in the
IPO year and then decline continuously thereafter. The root of inferior performance issues
results from changes in the ownership structure after the firm‘s IPO. The agency cost
problem is a main factor that impacts the operating performance after private companies
become public. Agency costs arise due to self-interested CEO behavior and conflicts of
interest between executives and shareholders leading to misallocation of resources (Jensen
and Meckling, 1976). During the period of first offering, managers usually show the best
performance, but are then are unable to maintain original performance levels after listing.
Some companies attempt to ―window-dress‖ their financial performance before listing, in
order to maximise investor attraction and IPO prices. Limpaphayom and Ngamwoutikul
(2004) also supported the issue of post operating performance decline after listing by agency
cost in the Thai stock market.
Ritter (1991) indicated three psychological factors of IPOs‘ under-performance in
operation: the error of risk measurement, wrong timing and over-optimism. Furthermore, Jain
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and Kini (1999) stated that companies going public prematurely in the business cycle are at
more risk of becoming an unsuccessful public company. IPO companies in the early stages of
the business growth cycle are generally not profitable. IPO companies that have higher pre-
operating performance can usually survive in the long term due to the ability to maintain
original levels of operating performance.
Mikkelson, Partch and Shah (1997) supported another reason for the decline in
operating performance after IPO, which can be explained by the age and size of the firms.
Smaller and newly established companies present the result of decline in operating
performance below the industry average. On the other hand, larger and longer established
companies can generate better operating performance compared to the industry average.
The questions that are addressed in this research are as follows;
(1) Does the transition of Thai small and medium enterprises (SMEs) to a public
company affect the operating performance?
(2) Are there any differences or changes in post operating performance based on the
three scenarios of IPO issue timing?
The result of this research will lead to a better understanding in pre and post issue
operating performances of companies in the Market for Alternative Investment (MAI).
Improvement in operating performance of listed companies are essential, as when investment
decisions are made, most investors study operating measures to value stocks. Understanding
the key method to improve financial performances of listed companies after listing them, will
help develop the potential of stock markets and boost the company‘s business performance in
the long run.
3. Methodology
This study consists of a sample size of 42 companies out of 60 companies that are
listed on MAI. The primary criteria for choosing sample data was that the company needed to
be listed on MAI market since initial public offering. Additional criteria included the
necessity for companies to have pre and post operating performance data for at least a period
of 3 years between 2000 and 2012. For the industry data to calculate industry-adjusted
changes on operating performance, the operating performance of all companies (SET and
MAI companies) for each industry by SET standards were calculated.
Data was divided into three sub-groups based on three scenarios. The first scenario
included subsamples of small and medium companies that issued IPOs within the normal
period, which did not relate to the financial crisis years throughout 7 years, both before and
after listing. The period used in this scenario was in year 2003 and 2004. IPO companies in
year 2005 to 2007 were the subsample for the second scenario which included companies
issuing IPOs before the economic crisis. The last scenario was IPOs that were issued in year
2008 and 2009. This period represented the peak of the US economic crisis which sent
domino effects around the world.
In this study, the Wilcoxon Signed-Rank Test was used as the statistical tool, because
this distribution free approach was suitable for the small sample size. Hansen and Jorgensen
(1996) stated that the Wilcoxon Signed-Rank Test was better than the parametric test because
it was distribution free and did not assume normality in the data. The test is able to identify
the significance of changes for this non-parametric statistical test (Shieh, Jan and Randles,
2007).
The variations in performance from year to year were examined and the medians of
each proxy were tested by the Wilcoxon Signed-Rank Test that the null hypothesis of median
changes equals zero.
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Factors explaining operating performance

This research chose four measures to explain operating performance of initial public
offering companies. Definitions of terms are as follows:
Sales-growth rate (SG) (percentage): total sales in the current year minus total sales in
the previous year, divided by total sales in the previous year.
Return on assets (ROA) (percentage): an indicator of how efficient management is at
using its assets to generate earnings.
Return on equity (ROE) (percentage): measures a corporation's profitability by
revealing how much profit a company generates with the money shareholders have invested.
Asset turnover (AST) (times): A measure of a company's ability to generate revenue
from its total assets invested.
Debt-to-Equity ratio (DE) (times): A measure of a company's financial leverage
calculated by dividing its total liabilities by stockholders' equity. It indicates what proportion
of equity and debt the company is using to finance its assets.
The first was the output measurement where the output performance from sales and
the sales growth rate was measured. The profitability measurement included the return on
asset (ROA) and return on equity (ROE), both of which are important proxies in measuring
the profitability of newly listed company. Return on asset (ROA) is the measurement of the
ability to generate sales from the company‘s assets. When private companies make the
transition to become listed in the stock market, newly listed companies gain more from
shareholder‘s equity which enables them to raise funds and invest in new projects; therefore
their assets increase from the new projects. If newly listed companies cannot generate more
earnings to maintain the original ROA and ROE, they will fail to survive in the capital market
which will affect the company‘s stock price.
Asset Turnover (AST) was used as a measurement for efficiency. AST is the most
important component of the asset management ratio, as it analyses how effectively and
efficiently a newly listed company manages their assets. It incorporates the same concept
with ROA and ROE for newly listed companies, that they will have higher assets after listing
and how they manage their assets to generate more sales. The last measurement for operating
performance is leverage changes, to which we used the debt to equity ratio as a measure.
Debt ratio is one of the proxies that shows the capital structure of the company and illustrates
how companies finance their capital. In normal practice, newly listed companies should have
a low debt to equity ratio as a result of more fund raising from equity. If the debt ratio of
newly listed companies continues to grow, it signals to investors that the company holds high
leverage.
After the data was retrieved from each measure as detailed above, the median from
the companies in each type of empirical proxies over a seven-year period were computed
first; this included three years before through three years after listing (from year –3 to year 3)
to investigate the median changes (See Figure 2). We then used the Wilcoxon Signed-Rank
Test to report the significance of the difference between medians of operating performance
changes before and after listing.
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2015
Figure 2. The study time conversion
Source: Wong (2012)
We chose one year before listing (year –1) as the benchmark, and used the Wilcoxon
Signed-Rank Test to compare the difference between the median of the benchmark year and
that of each year after listing, in order to study changes in the operating performance before
and after listing. Additionally, the test helped the examination of continuing trends of change
after listing. The study conducted by Jain and Kini (1994), adjusted industry effects from
operating performances by measuring the industry-adjusted change. The industry-adjusted
change in operating performance can be calculated by the difference between newly listed
companies‘ changes in performance and median change in industry performance of newly
listed companies.
4. Results and Discussion

Analysis on IPO companies’ operating performance changes: pre and post operating
performance.
Table 1 presents the development in the operating performance both before and after
listing. The significant estimation shows that the change of the median in sales in year 0, +1,
+2, +3 relative to year -1 are all positively significant at a level of 1 percent. After companies
became public, there was an expectation that listed companies would generate more sales and
grow at a faster rate because of more capital being raised from the stock market and the
increased company‘s capacity. Sales increased continuously from year -1 to year +3. The
median changes of sales growth after IPO year were all negatively significant (at 1 percent,
except in the second year which was at the 5 percent level). There was a similar trend of
declining sales growth rate after adjustments were made to the industry effect as shown in the
median industry-adjusted change figures.
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Table 1. Z-statistic testing the significance of the operating performance median change after
companies listed in MAI market.
Year Relative to Completion of IPO

Measure of Operating Performance From From From From
-1 to 0 -1 to +1 -1 to +2 -1 to +3
Number of observations 42 IPOs
Sales
Median Changes (%) 4.7889*** 5.4266*** 5.4776*** 5.3891***
Sales Growth
Median Changes (%) 0.1375 -3.0634*** -2.1756** -3.1259***
Median Industry-adjusted change (%) 0.9003 -3.2009*** -1.7755** -2.6883***
ROA
Median Changes (%) -0.2626 -0.9628 -0.6377 -1.9007*
Median Industry-adjusted change (%) -0.15 -0.7127 -0.3251 -1.0378
ROE
Median Changes (%) -4.1012*** -3.7761*** -2.9759*** -4.0137***
Median Industry-adjusted change (%) -3.9512*** -3.3385*** -2.3507** -2.9634***
Asset Turnover
Median Changes (%) -4.9515*** -4.4763*** -4.2262*** -4.4013***
Median Industry-adjusted change (%) -4.3763*** -4.4388*** -3.9011*** -4.2262***
D/E
Median Changes (%) -5.0890*** -4.2637*** -2.7758*** -2.9884***
Median Industry-adjusted change (%) -5.4891*** -4.9389*** -3.7636*** -4.3513**
After listing, companies are expected to gain more asset and shareholder equity; thus
ROA and ROE are also expected to reduce in a listing year (year 0). The median change in
ROA shows a decline from year -1 to year 0, 1, 2, 3. Table 1 shows clear evidence of
reduction in ROE, whereby the median changes of ROE from year -1 to year 0, +1, +2 and +3
were all negatively significant (at a 1 percent level).The industry-adjusted figures show same
results that ROE declines after IPO.
The Wilcoxon Signed-Rank Test shows the results of asset turnover which are all
negatively significant (at 1 percent level). This evidence supports the fact that companies
increase their assets but are not able to boost their sales in order to maintain original levels of
efficiency. For leverage changes, a leverage proxy that we used to examine the change in
operating performance was the debt to equity ratio. The Z-score also supported the declining
result of debt ratio from year -1 to year 0, +1, +2, +3 (significant at 1 percent level).
In summary, IPO firms showed inferior post-IPO operating performances relative to
the year prior to going public (year -1). Sales gradually increased but all profitability proxies
(sales growth, ROE and ROA) showed declining trends. Even after adjustment for industry
effects, IPO firms showed similar trends of significant under performance. The results were
similar to previous studies about the post operating performance after listing in other
countries. Jain and Kini (1994) studied the decline of operating performance after companies‘
listing of US IPOs from 1976 to 1998. They also found reasons to support the inferior post
IPO operating performance. Firstly, they found that the conflict of interest between
management and shareholders increased agency costs to IPO companies as a result of
ownership structure adjustments. The second reason was the window dressing of financial
statements on pre IPO operating performance. Finally, it was found that the timing of issuing
could also lead to substandard performance.
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Analysis on IPO companies’ operating performance changes: economic crisis in year 2008-
2009
Table 2. Z-statistic testing the significance of the sales median changes after companies listed
in MAI market between three scenarios of IPO issue timing.

Measurement
From From From From
of Sales
-1 to 0 -1 to +1 -1 to +2 -1 to +3
Normal Period 2.9810*** 3.0594*** 3.05941*** 3.0594***
Before Crisis 3.3316*** 3.3316*** 3.2881*** 3.2245***
During Crisis 2.7456** 2.1181 1.2551 0.7060
The Z-statistical test presents the significantly positive trend of sales during the
normal period of IPO issue timing scenario. Z-values of scenarios before and during the crisis
slowly decreased during IPO years, resulting from the impact from the crisis on companies‘
earnings. The crisis scenario presented the lowest Z-value at year +3, with a value of 0.706.
Although sales in the normal period showed the best performance after listing by the
continued increase of sales, the impact of the economic crisis reduced the output of
companies during the same period. Sales of MAI IPOs during the crisis were at a very
abnormal value due to the impact from Thailand‘s economic recession, as a result of the
global crisis.
Table 3. Z-statistic testing the significance of the sales growth median changes after
companies listed in MAI market between three scenarios of IPO issue timing.
Measurement Year Relative to Completion of IPO

of Sales From From From From
Growth -1 to 0 -1 to +1 -1 to +2 -1 to +3
Normal Period -3.059** -2.629** -1.726 -2.237
Before Crisis -0.850 -1.024 -2.505* -2.113
During Crisis -2.197 -1.726 -1.961 -2.589**
The Z-test statistic values showed negative values for all scenarios (Table 3), where
the rate of sales growth decreased after listing. Companies that issued IPO before the
economic crisis faced the problem of a rapidly decreasing sales growth rates on post issue
year, as the Z-statistic test results presented a higher negative value from year 0 until year +2.
Overall, the data presented the effect of the global crisis on the operating performances of the
sample companies.
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Table 4. Z-statistic testing the significance of the ROA changes after companies listed in
MAI market between three scenarios of IPO issue timing.

Measurement
From From From From
of ROA
-1 to 0 -1 to +1 -1 to +2 -1 to +3
Normal Period -0.235 -0.941 -0.471 -0.863
Before Crisis -2.309 -2.396* -2.417* -2.344*
During Crisis -0.314 -0.157 -0.392 -1.334
As shown in Table 4, Z-test values in the pre-crisis scenarios supported the decline of
ROA after listing (above -2.000). On the other hand, z-values of other scenarios were around
-1.000. The trend of ROA after listing exhibits clear evidence of ROA reducing regardless of
IPO issue timing. The subsample group from before crisis issuing showed the lowest median
ROA after being listed among the three scenarios. After listing year, the subsample group
from issuing an IPO before the crisis, reached the bottom line of operating performances due
to the impact of economic recession during that time period.
Table 5. Z-statistic testing the significance of the ROE changes after companies listed in MAI
market between three scenarios of IPO issue timing

Measurement
From From From From
of ROE
-1 to 0 -1 to +1 -1 to +2 -1 to +3
Normal Period -2.667** -2.432* -1.490 -2.197
Before Crisis -0.828 -0.071 -0.174 -0.480
During Crisis -2.197 -1.726 -1.961 -2.589**
The Z-values of companies‘ ROE that went to the stock market before the economic
crisis dropped less than in other scenarios (Table 5). All scenarios showed that the Z-values
were negative throughout 3 years after listing as a result of equity increasing and the inability
for companies to generate more earnings.
Table 6. Z-statistic testing the significance of the AST changes after companies listed in MAI
market between three scenarios of IPO issue timing

Measurement From From From From
of AST -1 to 0 -1 to +1 -1 to +2 -1 to +3
Normal Period -3.059** -2.472* -2.432* -2.589**
Before Crisis -2.940** -2.896** -2.679** -2.831**
After Crisis -2.589** -2.353* -2.353* -2.197
The Z-statistic test results of asset turnover also showed a negative value which meant
the reduction of asset turnover after listing. The result of the Z-statistic also showed
significance levels at 5 percent and 10 percent in Table 6. The pre-crisis scenario
demonstrates the highest Z-value after listing. Newly listed companies before the crisis were
affected by the US crisis more than in other scenarios. Although newly listed companies tried
to reduce their assets, they were still unable to generate more profit and manage operation
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expenses in that period. As a result, asset turnover was reduced after listing and became even
lower when the crisis occurred in the post issue year.
Table 7. Z-statistic testing the significance of the DE changes after companies listed in MAI
market between three scenarios of IPO issue timing.

Measurement
From From From From
of DE
-1 to 0 -1 to +1 -1 to +2 -1 to +3
Normal Period -3.059** -2.629** -1.726** -2.237**
Before Crisis -3.114*** -2.700*** -1.677 -1.938
During Crisis -2.476** -2.118 -1.255 -0.706
The results showed a significant decrease of DE ratios after being listed during the
normal period scenario. Before and during the crisis scenario, the Z-value had reduced after
listing in year +1 and +2. Companies often withdraw more bank loans during economic
recessions, therefore debt increases after 2 to 3 years of being listed for companies that issue
IPO during the crisis period compared to companies issuing an IPO in normal conditions.
5. Conclusions
The first part of the study analyzed the change of operating performance from 1 year
before listing and throughout 3 years after small and medium companies have listed. The
operating performance was tested based on three measurements; output profitability,
efficiency and leverage measurement. The overall result presented the decline in operating
performance after listing, with the representation of sales and sales growth as output
measurements. The result illustrated that sales continued to increase after listing, as expected.
In contrast, sales growth was significantly lower compared to the pre-issue year. Thus, the
conclusion of output estimation is that sales can increase after listing, but at a declining rate.
The forecast of profitability after listing is that there would be higher earnings after
listing. However, the study shows a decreasing trend in ROA and ROE. Prior research
indicated the reason for lower ROA and ROE when companies become public, which was
due to higher assets as a result of capital expenditure increasing. Most companies aim to be a
public company in order to find additional sources of funds to invest in new projects.
Therefore, increasing ROA and ROE is a challenge for such companies. With regards to
efficiency measurement, asset turnover was used as indicator in this test. The large increase
in assets after listing was a problem of decreasing asset turnover. Companies are usually
unable to maintain the growth of sales to remunerate the growth of assets and maintain initial
levels. Most studies also mentioned the increase in leverage changes but MAI companies
presented a slow declining trend after listing. It is a positive sign for newly listed companies
as the proportion of equity is higher as a result of raising funds in the MAI market, which
subsequently reduces debt. Companies also have a tendency to borrow less from banks after
listing.
The different timing of IPO issuing between normal, before crisis, and during crisis
period is tested to support the decline in operating performance. Operating performance
decreased after listing but the volatility was different based on issue timing. Companies that
issued IPOs before the US economic crisis in year 2008 received higher pressure on earning
management after listing. The evidence of issuing IPOs before the crisis showed more
inferior performance than other scenarios, whereby issuing IPOs during the crisis also
presented high risks on operating performance after listing.
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2015
The limitation of this research should be considered. Firstly, the period of post-
operating performance in this study is three years after listing and the result from this period
may not be able to explain gains and losses of IPO companies in the long term. Secondly,
MAI companies are mainly small and medium companies. These companies are more likely
to change their business models. Finding matching firms or industry benchmarks to compare
with them is very difficult and may lead to abnormal results.
6. References
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firms in Central European transition economies. European Financial Management,
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Earle, T. C. (2009). Trust, confidence, and the 2008 global financial crisis.Risk Analysis,
29(6), 785-792. DOI: 10.1111/j.1539-6924.2009.01230.x.
Green, D. J. (2010). Southeast Asia‘s policy response to the global economic crisis. ASEAN
Economic Bulletin, 27(1), 5-26. DOI: 10.1355/ae27-1b.
Jain, B. A., and Kini, O. (1994). The post-issue operating performance of IPO firms. Journal
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Jain, B. A., and Kini, O. (1999). The life cycle of initial public offering firms. Journal of
Business Finance & Accounting, 26(9-10), 1281-1307.
Jensen, M. C., and Meckling, W. H. (1976). Theory of the firm: managerial behavior, agency
costs and ownership structure. Journal of Financial Economics, 3(4), 305-360.
Latham, S., and Braun, M. R. (2010). To IPO or not to IPO: risks, uncertainty and
the decision to go public. British Journal of Management, 21(3), 666-683. DOI:
10.1111/j.1467-8551.2010.00707.x.
Limpaphayom P., and Ngamwutikul A. (2004). Ownership structure and post-issue operating
performance of firms conducting seasoned equity offerings in Thailand. Journal of
Economic and Finance, 28(3), 307-332.
Mikkelson, W. H., Partch, M., and Shah, K. (1997). Ownership and operating performance of
companies that go public. Financial Economic, 44(1), 281-307.
Mishkin, F. S. (1992). Anatomy of a financial crisis.Journal of Evolutionary Economics,
2(2), 115-130.
Pagano, M., Panetta, F., and Zingales, L. (1998). Why do companies go public? an empirical
analysis. Journal of Finance, 53(1), 27-64.
Rapoport A., and Gerts, A. (2010). The global economic crisis of 2008-2009. Problems of
Economic Transition, 53(6), 45-62.
Ritter, J. R. (1991). The long-run performance of initial public offerings. Journal of Finance,
46(1), 3-27.
Ritter, J. R., and Welch, I. (2002). A review of IPO activity, pricing and allocations. Journal
of Finance, 57(4), 1795-1828.
Shieh, G., Jan, S., and Randles, R. H. (2007). Power and sample size determinations for
the Wilcoxon signed-rank test. Journal of Statistical Computation and Simulation,
77(8), 717-724.
Teoh, S. H., Welch, I., and Wong, T. J. (1998). Earnings management and the long-run
market performance of initial public offerings. Journal of Finance, 53(6), 1935-1974.
Wong, J. (2012). Operating performance of initial public offering companies in Hong Kong.
Journal of Modern Accounting and Auditing, 8(1), 46-65.
47
Vol. 2 No. 2, 48 – 64
Commodity Investment: An Analysis on Expected

Utility Theory
Budsabawan Maharakkhaka
Martin de Tours School of Management and Economics. Assumption University
[email protected]
Abstract
This study expanded the boundary of researches in commodity investment to the area
of Expected Utility Theory. It examined the attractiveness and benefits of commodities when
portfolios are estimated based on expected utility maximization. The optimal portfolios that
include and do not include commodity were estimated using full scale optimization as an
alternative to mean-variance approximation. The resulting portfolios were evaluated to see
how an addition of commodities can improve portfolio performance. The findings indicated
that futures contract on gold, physical gold investment and futures contract on light sweet
crude oil were very attractive as alternative investments. An addition of these commodities to
the traditional portfolio raised investors‘ welfare in term of expected utility. The sub-sample
analysis showed that commodities were more attractive during inflationary period. Both
physical gold and futures contract on gold were desirable as a hedge against inflation. They
represented large proportion of the optimal portfolio and significantly raise investors‘
expected utility. An analysis of optimization premium suggested that portfolios with
commodities were superior to portfolios of traditional assets during recession. Investors who
hold portfolio of traditional assets required certain amount of optimization premium in
compensation to equate their welfare to the amount achieved by investors whose portfolios
include commodities.
Keywords: Alternative investment, Commodity, Expected Utility, Full scale optimization,

Opportunity cost, Risk aversion
1. Introduction
Starting from the beginning of 2000s, commodities have become a popular asset class
for both individual and institutional investors. Institutions as well as mutual funds have
increased their position in the commodity investments. The massive capital flows to
commodity market have been remarkable and several new products have been developed
during the past decade to allow investors to add one or more commodity assets into their
traditional portfolios. This rapid growth of commodity investment was prompted by the
recognition of its potential diversification benefits. By its definition, commodity is a
marketable item produced to satisfy wants and needs (Froot, 1995). The commodity returns
have recently exhibited low or negative correlation with the returns of traditional asset such
as stocks and bonds because most of the drives behind commodity prices are related to
weather conditions as well as demand and supply of physical production which are different
from the demand and supply that define the value of financial securities (Daskalaki &
Skiadopoulos, 2011). An early work by Bodie and Rosansky (1980) showed that the average
return on a well-diversified portfolio of commodity futures contracts was greater than the
average risk free rate and commodity futures can be a very effective hedging tool against
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inflation. It had good performance when stocks were doing badly. Jensen, Johnson, and
Mercer (2000) and Gorton and Rouwenhorst (2006) showed that diversification benefits of
commodity futures contract have arisen from their low or negative correlation with equity.
The low correlation was driven by unique performance of commodity futures contracts
during inflationary periods. As increasing commodity prices were typically one element of
heightened inflation and higher interest rates, both of which negatively affected equities, long
positions in commodity futures could, then, work as inflation hedge when included in the
traditional portfolio (Conover, Jensen, Johnson, & Mercer, 2010).
Most of these previous researches in the area of commodity investments explored the
characteristics and benefits of commodities in terms of risk and return (Ankrim & Hensel,
1993; Erb & Harvey, 2006; Greer, 2000; Hoang, 2011; Jensen, Johnson, & Mercer, 2000,
2002; Nijman & Swinkles, 2003; Rzepczynski, Belentepe, Feng, & Lipsky, 2004;
Satyanarayan & Varangis, 1994; Smimou, 2010). Their portfolio approximations considered
the two moments of return distribution which were subjected to constraints of normal return
distribution and quadratic utility function. These conditions are not plausible in realistic
portfolio implication. Therefore, there has been a need to search for a more general portfolio
approximations that allow for higher moments of distribution and various types of return
distribution. The researchers in financial economics have long recommended the Theory of
Expected Utility as an appropriate model to express individual behavior. It has been a major
paradigm in decision making and has been used prescriptively in management science,
predictively in finance and economics, and descriptively by psychologists (Schoemaker,
1982). The theory has been popular as a superior model of decision making under uncertainty
with assumptions that individuals place subjective utility on monetary unit of an outcome and
they will make a decision based on the axioms of rationality described by Neumann and
Morgenstern (2004).
This research expanded the extant studies in the area of commodity investment to a
new boundary based on Expected Utility Theory. The objective of this paper was to examine
whether the benefits of commodity investment exist when portfolios are constructed with an
objective to maximize expected utility. The paper also evaluated how an addition of
commodity investment into portfolio of traditional assets improves portfolio performance and
identified the optimization premium that the investors who hold portfolio of traditional assets
would require to compensate them for not investing in commodities. Lastly, the paper
reexamined the attractiveness and benefits of commodities in the sub-sample period between
2002 and 2008, the time of rising inflation and expansive commodity market. The rest of the
paper is organized as follows: The next section discusses related literature and the third
section explains research methodology. Results are discussed in the fourth section. The last
section concludes the study and offers recommendation on future research.
Expected Utility Theory
The Theory of Expected Utility was developed byBernoulli (1954) who arrived at the
idea that ―The value of an item must not be based on its price, but rather on the utility it
yields. The price of the item is dependent only on the thing itself and is equal to everyone.
The utility, however, is dependent on the particular circumstances of the person making the
estímate.‖ Therefore, when people are asked to decide on a gamble, they will make decisions
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based on the value of expected utility resulting from the outcome but not on the expected
value of the outcome. The theory was revived by Neumann and Morgenstern (2004) who
extended the expected utility hypothesis by introducing the axioms of rationality which
describe the modest conditions when expected utility hypothesis suggested by Bernoulli
(1954) holds. They proposed that an individual is rational if every preference of that
individual is characterized by maximization of expected utility.
For an expected-utility-maximizing individual, let U (W ) be the total utility of wealth

(W ) and E U (W ) be the expected utility of wealth for an individual in the sense of
Probability Theory. The utility of wealth is twice differentiable and the differentiations of
utility function describe marginal utility of wealth and rate of change of marginal utility
respectively as
U (W ) = marginal utility of wealth
U (W ) = rate of change of marginal utility with respect to wealth
(Second derivative of total utility)
Rational individual who is confronted with a choice of lotteries will maximize his expected
utility by choosing the policy that makes E U (W ) larger. The wealth (W ) is always
assumed desirable, making marginal utility of the wealth always positive and U (W ) strictly
increasing (Pratt, 1964; Arrow, 1965).
U (W )  0
However, the marginal utility corresponding to equal changes in wealth are

decreasing as the wealth increases. Utility resulting from any small increase in wealth will be
inversely proportionate to the amount of wealth the individual possesses. This explains why
the decision maker‘s utility from deriving $4 is less if he already has $2 in his pocket than if
he instead has nothing. This property can be described as
U (W ) is strictly decreasing as W increase
Therefore, the rate of change in marginal utility with respect to wealth is always decreasing
or strictly concave
U (W )  0
Arrow (1965) suggested that there are two simple measures of risk aversion;
Absolute risk aversion

RA (W )  U (W ) / U (W )
Relative risk aversion
RR (W )  WU (W ) / U (W )
The absolute risk aversion directly measures individual persistence for more-than-fair
odds. To measure bets in proportion to wealth W, the absolute risk aversion is replaced by
relative risk aversion which is an elasticity of marginal utility. Both types of risk aversions
are described in general function of wealth W. An individual‘s degree of absolute and relative
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risk aversion can be described as decreasing, constant, and increasing risk-averse as his/her
wealth changes.
Portfolio Optimization - Expected Utility Maximization
An expected utility maximization approach for portfolio approximation has

outstanding properties to consider a function of all moments of the probability distribution
and ability to fit into a wide range of investor risk preference. It combines together Expected
Utility Theory and Theory of Diversification by assuming that each dollar of return from the
well-diversified portfolio is associated with utility, the measure of investor‘s happiness
regarding the total return received in a certain investment horizon (Sharpe, 2007). Risk-
averse rational investors were said to diversify in their portfolio selection if they have
maximized the expected utility of the returns from their portfolio in each state of the world
with respect to their own preferences (Pye, 1974). To consider how investor maximizes his
expected utility in a simple portfolio model consists of two assets, let a and b be the two
assets in the portfolio where meua and meub are marginal expected utility of assets a and b
respectively. Portfolio‘s return is simply a weighted average of assets‘ return and portfolio‘s
expected utility is a weighted average of assets‘ expected utility. If the marginal expected
utility of additional $1 investment in a is greater than marginal expected utility of additional
$1 investment in b - meua  meub - and it is possible to acquire additional units of a and
forego some units of b, rational investor will maximize his expected utility by buying more of
asset a and selling off some amount of b.
Let there be an investor with fixed initial wealth Wt who is given N-asset universe
that pay off at time t  1 . His utility function is assumed to be continuous, increasing,
concave and differentiable ( U (W )  0 and U (W )  0 ). Let X i stands for the proportion of
wealth assigned to asset i over the next period. The optimal portfolio can be constructed at
time t by maximizing the investor‘s expected utility of wealth at time t  1 with respect to the
portfolio weights, i.e.
max E U (Wt 1 )
Let ri ,t 1 be the rate of return on individual asset i and rp ,t 1 be the rate of return on portfolio.
The end-of-period wealth is given by:
Wt 1  Wt (1   i 1 X i r i ,t 1 )  1   i 1 X i ri ,t 1  1  rp ,t 1
N N
N
Subject to X
i 1
i 1
Since the utility maximization problem requires the utility functions of wealth, it has
allowed researchers to take into account individual behavior toward risk and the degree of
risk aversion by quantifying an individual‘s risk preferences into mathematical forms.
McEntire (1984) was among the early works to present portfolio problems where investor
maximizes the expected value of Neumann and Morgenstern‘s (2004) utility function.
Aizenman (1999) compared the diversification pattern of investors who maximize a
generalized expected utility with the diversification patterns of investors who follow the
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CAPM and found that the superiority of generalized expected utility preference arise from the
inclusion of degree of risk aversion to portfolio decision because risk aversion accounts for
the observed diversification patterns. Jondeau and Rockinger (2006) computed the optimal
portfolio allocation that maximizes investor‘s expected utility numerically. The three-moment
and four-moment optimal portfolios overcome inability of mean-variance portfolio to
approximate expected utility under large departure from normality. In other studies the
expected utility maximization was extended to included additional factors related to portfolio
allocations. Best and Hlouskova (2005) included transaction cost into the expected utility
optimization problem while Pang (2006) considered an infinite time horizon approximation.
Jones and Stine (2010) applied general expected utility into portfolio rebalancing strategies to
demonstrate that portfolio strategies considering all moments of the distribution of terminal
wealth according to the general expected utility functions usually have contradiction to the
mean-variance ranking strategies and the agents can be misleading in their portfolio strategies
if they depend completely on traditional mean-variance statistics.
Data
The sample data consisted of 263 monthly returns on traditional assets and
commodity investments. The proxies for stock, bond, and risk-free investment were S&P 500
Total Return Index, Barclay U.S. Aggregate Bond Index, and three-month U.S. Treasury bill
respectively. The return sample for commodity investments included two future indices, DJ-
UBSCI and S&P-GSCI, because they have been easy and most widely used way investors
can get exposed to commodity price movement. The papers included individual commodity
futures contracts on light sweet crude oil, gold, copper, corn, and live cattle. Each individual
contract is the one with largest open interest from each of the five main sectors according to
the U.S. Commodity Futures Trading Commission (CFTC). The return on London Gold
Fixing was selected to represent physical commodity investment since gold has traditionally
been used as a store of value and a medium of exchange. London Gold Fixing is a benchmark
for pricing the majority of gold products and derivatives throughout the world‘s market. The
data set covers the period from January 1991 to December 2012. It does cover the early stage
of financialization of commodity market when commodity was not popular and the time it
was at its peak. It also includes the time of financial crisis during 2007-2009.The time period
during 2002-2008 was selected for sub-period analysis to determine the attractiveness and
benefits of the commodity during the inflationary period. This was the time period when
commodity market has had a dramatic rise before it reached its peak in 2008. It is the same
period when U.S. economy had been in recession and the inflation was rising (Campbell,
1980; Cecchetti, 2009; James, Park, Jha, Jongwanich, Hagiwara, & Sumulong, 2008).
Full Scale Optimization
This paper introduced a full scale portfolio optimization, the more general approach
of portfolio approximation proposed by Cremer, Kritzman, and Page (2005) and Adler and
Kritzman (2007) as an alternative to mean-variance portfolio approximation. With
computational efficiency, the full scale optimization depends on sophisticated search
algorithms to allow us to calculate portfolio‘s utility for every period, considering as many
asset mixes as necessary to identify the weight that yield the highest expected utility, given
any description of utility. In this study, full scale optimization was applied in solving for
optimal portfolios with and without commodity. The optimization was based on static
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allocation problem. From the total sample of 263 monthly returns on each asset, one
computedmaximum expected utility in each period and shift the assets‘ weights using a
numerical search procedure until one found the combination that maximizes total utility of all
periods.
Let there be an investor with fixed initial wealth Wt who faces an asset universe of N
assets that pay off at time t  1 . Let X i stand for the weight of wealth invested in the risky
asset i over the next period. The optimal portfolios were constructed at time t to maximize the
investor‘s expected utility of wealth at time t  1 with respect to the portfolio weights, i.e.
max E U (Wt 1 ) (1)

N
where Wt 1  1  ( X i ri )
i 1
N
Subject to X
i 1
i 1
In this study, investors‘ utility functions were described by power function, negative
exponential function, and logarithmic function. Power utility function has been assumed by
economists to represent the decreasing absolute risk aversion (DARA), the behavior that is
believed to express the most natural behavior of investors (Arrow, 1965; Bell 1995;
Campbell, 1980). LetU (W ) be the utility of wealth(W ) . The power utility function was
written as
W 1
U (W )  ,  1 (2)
1 
where  is the coefficient of relative risk aversion. The value were set to 2, 4, 6, 8, and 10
with 2 indicating the lowest level of relative risk aversion and 10 represented the highest.
They were estimated by Markowitz, Reid, and Tew (1994) and Halek and Eisenhauer (2001)
and revisited by Kostakis, Panigirtzoglou, and Skiadopoulos (2011) based on the implied
probability density function (PDF). These values of relative risk aversion parameters were
employed by several literatures in expected utility and were believed to cover sufficient range
of behavior. Therefore, let ri be the return on each assets and Xi be the portfolio weight
assigned to each asset. The expected utility maximization problem with power utility function
was written as
  N
 
T  
1  (  X i ri )1  1 
max E U Wt 1    max     i 1   (3)

t 1  1   263 
  
  
where t  1, 2,3,........, T and i  1, 2,3,........, N
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It was also assumed by Stearns (2000) that the investors do demonstrate the behavior
of constant relative risk aversion (CRRA). This risk preference is the case when coefficient of
relative risk aversion  takes the value of one. In this special case, utility is assumed to be
equal to the natural logarithm of wealth and resides in a broader family of power utility
functions (Arrow, 1965; Cremers et al., 2005; Meyer, 2010). The function was expressed by
U (W )  ln(W ) (4)
And the utility maximization problem with log utility function was described as:
T 
  N
 1 
max E U Wt 1    max   ln 1  ( X i ri )     (5)
t 1    i 1   263 
where t  1, 2,3,........, T and i  1, 2,3,........, N
The last utility function assumed in this study was negative exponential. It presents
the functional form for a utility function which represents constant absolute risk aversion
(CARA) (Arrow, 1965; Daskalaki & Skiadopoulos, 2011; Pratt, 1964; Meyer, 2010). The
functional form was written as
U (W )  eW (6)
where  is a measure of absolute risk aversion and W is a measure of relative risk

aversion. The paper also followed Markowitz et al. (1994) and Kostakis et al. (2011) in
setting the coefficient of absolute risk aversion  equal to 2, 4, 6, 8, 10 to indicate the degree
of risk aversion from the lowest to the highest, respectively. Thus, the maximization problem
of negative exponential utility function was expressed as
   1( iN1 Xiri )   1 

T
max E U Wt 1    max    e   (7)
t 1    263 
  
where t  1, 2,3,........, T and i  1, 2,3,........, N

For each optimization problem, the study added one type of commodity investment to
the portfolio at a time and switched from one type of commodity to another until it covered
the entire eight commodity investments in each of the functions being analyzed.
Portfolio Performance Evaluation
After a construction of optimal portfolios that include commodity, the study estimated
optimal portfolios of traditional assets which contain stock, bond, and risk free-asset. This
paper avoided the classical performance measurements which based on Capital Asset Pricing
Model (CAPM) since they do not take into account the higher moments of the asset returns
distribution and can be misleading when returns distributions are non-normal (Bernado &
Ledoit, 2000; Getmansky, Lo, & Makarov, 2004; Goetzman, Ingersoll, Spiegel, & Welch,
2005; Leland, 2002; Lo, 2002). The focus was on percentage changes in maximum expected
utility when commodities were added to the optimal portfolios. It was expected that when
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commodities were added to the portfolio, the expected utility associated with portfolio returns
should increase to represent greater happiness of investors.
This paper also examined an optimization premium required by an investor whose

portfolios do not include commodities. The Theory of Opportunity Cost was developed by
Simann (1993) as a tool to assess an economic significance of differences in performance of
two optimal portfolios based on the concept of expected utility (Tew, Reid, Witt, 1991;
Daskalaki & Spkiadopoulos, 2011). The Opportunity Cost Theory suggested that when one
portfolio is superior to another in term of expected utility, the superior portfolio is referred to
as optimal and another is referred to as suboptimal. Since the paper examined whether an
investor is better off with portfolio that include commodity, the optimization premium here
was defined as the premium required by an investor whose portfolio contains only traditional
assets in order to bring his welfare to the level achieved by an investor whose portfolio
includes commodities. Let Rnc be the return of the portfolio of traditional asset (no
commodity) and Rwc be the return of the portfolio that includes commodity. To reach a
welfare or expected utility level identical to the one achieved by portfolio that includes
commodity, the investor who has no commodity in his asset universe should require an
optimization premium,  , such that
E U 1  Rnc      E U 1  Rwc   (8)
The optimization premiums was calculated for each utility functions. Positive
optimization premium would imply that when investors hold portfolio of traditional assets,
they are holding suboptimal portfolio offering less expected utility and they will require
certain amount of premium to equate their expected utility to the level achieved by optimal
portfolio that include particular commodity investment.
4. Results
This research paper applied the Theory of Expected Utility into portfolio estimation
with an intuition that utility is a measure of happiness or satisfaction. Unlike the more
popular method of mean-variance approximation, utility maximization problem considers
individual risk preference and satisfaction as criteria in decision making. The approach
allows researcher to search for the optimal portfolios that are tailored to serve individual‘s
need of investment and offered a unique mean to consider all moments of asset return
distributions.
Full Scale Optimization
The results of portfolio optimization problems are exhibited in Table 1. The table
reports the proportion of optimal portfolio when each commodity investment is available.
The optimal portfolios are shown for investors with different utility functions and various
degrees of risk aversion. Panel A shows that, for the whole sample period of study, when the
two commodity indices were available for investment, investors with power utility function
who maximize their expected utility did not include them in the optimal portfolios. Futures
contracts on commodities were more attractive than commodity index as there were larger
proportions of optimal portfolios assigned to commodity.When investors could invest in
commodity futures contracts, especially futures contract on goldlight and sweet crude oil, the
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futures contracts represented a certain proportion of their optimal portfolios. Physical gold
represented as much as 28 percent of the portfolio when it was available for investment. The
proportions of investment in the commodity decreased as the degree of relative risk aversion
increased from 2 to 10.
Table 1: Optimal Portfolio Proportion
Panel A: 1991-2012
Optimal Portfolio Proportion

Power Negative Exponential
1991-2012
RRA Log ARA
2 4 6 8 10 2 4 6 8 10
DJUBS Stock 0.26 0.16 0.12 0.11 0.1 0.46 0.26 0.16 0.12 0.11 0.1
Bond 0.74 0.84 0.88 0.89 0.9 0.54 0.74 0.84 0.88 0.89 0.9
T-bill 0 0 0 0 0 0 0 0 0 0 0
DJUBS 0 0 0 0 0 0 0 0 0 0 0
SPGSCI Stock 0.26 0.16 0.12 0.11 0.1 0.46 0.26 0.16 0.12 0.11 0.1
Bond 0.74 0.84 0.88 0.89 0.9 0.54 0.74 0.84 0.88 0.89 0.9
T-bill 0 0 0 0 0 0 0 0 0 0 0
SPGSCI 0 0 0 0 0 0 0 0 0 0 0
Crude oil Stock 0.15 0.1 0.08 0.08 0.07 0.25 0.15 0.1 0.08 0.08 0.07
Bond 0.6 0.77 0.83 0.85 0.87 0.27 0.6 0.77 0.83 0.85 0.87
T-bill 0 0 0 0 0 0 0 0 0 0 0
Crude oil 0.25 0.13 0.09 0.07 0.06 0.48 0.25 0.13 0.09 0.07 0.06
Gold Stock 0.24 0.15 0.12 0.1 0.09 0.4 0.25 0.15 0.12 0.1 0.09
Bond 0.44 0.68 0.76 0.81 0.83 0 0.43 0.68 0.76 0.81 0.83
T-bill 0 0 0 0 0 0 0 0 0 0 0
Gold 0.32 0.17 0.12 0.09 0.08 0.6 0.32 0.17 0.12 0.09 0.08
Copper Stock 0.13 0.08 0.07 0.06 0.06 0.22 0.13 0.08 0.07 0.06 0.06
Bond 0.7 0.82 0.86 0.88 0.89 0.46 0.7 0.82 0.86 0.88 0.89
T-bill 0 0 0 0 0 0 0 0 0 0 0
Copper 0.17 0.1 0.07 0.06 0.05 0.32 0.17 0.1 0.07 0.06 0.05
Corn Stock 0.21 0.13 0.1 0.09 0.09 0.35 0.21 0.13 0.1 0.09 0.09
Bond 0.68 0.81 0.86 0.88 0.89 0.42 0.68 0.81 0.86 0.88 0.89
T-bill 0 0 0 0 0 0 0 0 0 0 0
Corn 0.11 0.06 0.04 0.03 0.02 0.23 0.11 0.06 0.04 0.03 0.02
Live cattle Stock 0.26 0.16 0.12 0.11 0.1 0.46 0.26 0.16 0.12 0.11 0.1
Bond 0.74 0.84 0.88 0.89 0.9 0.54 0.74 0.84 0.88 0.89 0.9
T-bill 0 0 0 0 0 0 0 0 0 0 0
Live cattle 0 0 0 0 0 0 0 0 0 0 0
Gold fix Stock 0.25 0.15 0.12 0.1 0.09 0.45 0.25 0.15 0.12 0.1 0.09
Bond 0.47 0.7 0.77 0.81 0.83 0.01 0.47 0.7 0.77 0.81 0.83
T-bill 0 0 0 0 0 0 0 0 0 0 0
Gold 0.28 0.15 0.11 0.09 0.08 0.54 0.28 0.15 0.11 0.09 0.08
Investors with logarithmic utility function invested a larger proportion of their

portfolio in commodities than investors with power utility function. When commodity futures
were available as an alternative investment, futures contract on gold represented as much as
60 percent of the portfolio and futures contract on sweet crude oil accounted for 48 percent of
the portfolio. When investors with logarithmic utility function could invest in physical gold,
gold represented almost half of the optimal portfolio. For investors with negative exponential
utility function, the proportions of investment in commodities were mostly similar to those of
investors with power utility function. There were certain proportions of investment in futures
contract on gold and light sweet crude oil, as well as physical gold investment.
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Panel B: 2002-2008
Optimal Portfolio Proportion

Power Negative Exponential
2002-2008
RRA Log ARA
2 4 6 8 10 2 4 6 8 10
DJUBS Stock 0 0 0 0 0 0 0 0 0 0 0
Bond 0.61 0.79 0.85 0.88 0.9 0.26 0.61 0.79 0.85 0.88 0.9
T-bill 0 0 0 0 0 0 0 0 0 0 0
DJUBS 0.39 0.21 0.15 0.12 0.1 0.74 0.39 0.21 0.15 0.12 0.1
SPGSCI Stock 0 0 0 0 0 0 0 0 0 0 0
Bond 0.78 0.87 0.91 0.92 0.94 0.59 0.78 0.87 0.91 0.92 0.94
T-bill 0 0 0 0 0 0 0 0 0 0 0
SPGSCI 0.22 0.13 0.09 0.08 0.06 0.41 0.22 0.13 0.09 0.08 0.06
Crude oil Stock 0 0 0 0 0 0 0 0 0 0 0
Bond 0.5 0.74 0.82 0.86 0.88 0.04 0.49 0.73 0.82 0.86 0.88
T-bill 0 0 0 0 0 0 0 0 0 0 0
Crude oil 0.5 0.26 0.18 0.14 0.12 0.96 0.51 0.27 0.18 0.14 0.12
Gold Stock 0 0 0 0 0 0 0 0 0 0 0
Bond 0.01 0.01 0.35 0.52 0.63 0.01 0.01 0.01 0.34 0.52 0.62
T-bill 0 0 0 0 0 0 0 0 0 0 0
Gold 0.99 0.99 0.65 0.48 0.37 0.99 0.99 0.99 0.66 0.48 0.38
Copper Stock 0 0 0 0 0 0 0 0 0 0 0
Bond 0.51 0.74 0.82 0.86 0.89 0.05 0.5 0.74 0.82 0.86 0.89
T-bill 0 0 0 0 0 0 0 0 0 0 0
Copper 0.49 0.26 0.18 0.14 0.11 0.95 0.5 0.26 0.18 0.14 0.11
Corn Stock 0 0 0 0 0 0 0 0 0 0 0
Bond 0.54 0.77 0.85 0.89 0.91 0.09 0.54 0.77 0.85 0.89 0.91
T-bill 0 0 0 0 0 0 0 0 0 0 0
Corn 0.46 0.23 0.15 0.11 0.09 0.91 0.46 0.23 0.15 0.11 0.09
Live cattle Stock 0 0 0 0 0 0 0 0 0 0 0
Bond 0.99 0.97 0.95 0.94 0.94 0.99 0.99 0.96 0.95 0.94 0.94
T-bill 0 0 0 0 0 0 0 0 0 0 0
Live Cattle 0.01 0.03 0.05 0.06 0.06 0.01 0.01 0.04 0.05 0.06 0.06
Gold fix Stock 0 0 0 0 0 0 0 0 0 0 0
Bond 0.01 0.02 0.35 0.52 0.62 0.01 0.01 0.01 0.35 0.52 0.62
T-bill 0 0 0 0 0 0 0 0 0 0 0
Gold 0.99 0.98 0.65 0.48 0.38 0.99 0.99 0.99 0.65 0.48 0.38
However, the attractiveness of commodity investment was particularly remarkable

between 2002 and 2008. Table 1 Panel B shows that the optimal portfolios estimated from
sub-sample data included significant proportion of commodities. The proportions were much
larger when compared to optimal portfolio constructed using the whole sample period data.
All types of commodities in this study are chosen as alternative investments. Equity
investments decreased during 2002-2008 and the assets were diverted to the expanding index-
linked commodity products as well as precious metal. Between 2002 and 2008, the two
commodity indices, DJ-UBSCI and S&P-GSCI, represented 39 percent and 22 percent of the
portfolio, respectively, at the lowest degree of relative risk aversion for investor with power
utility function. At the highest degree of relative risk aversion, they still accounted for 6-10
percent of the optimal portfolios. DJ-UBSCI can be more attractive than S&P-GSCI to
investor because it has no concentration in any commodity sector. The value of DJ-UBSCI is
computed according to the economic significance and market liquidity while the value of
S&P-GSCI is calculated from the weighted price of world commodity and influenced by
high-priced energy sectors. The futures contracts on commodity were also very attractive.
Their proportions in the optimal portfolios during 2002-2008 were substantially larger than
during 1991-2012. When futures contracts on gold and physical gold were available for
investment, they represented as much as 99 percent of the optimal portfolios at the lowest
degree of relative risk aversion.
Investors with logarithmic utility function invested significant proportion of their

portfolio in commodity in the sub-sample analysis. As with the investors whose behaviors
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were described by power utility function, investors with logarithmic utility function invested
almost their entire portfolio in gold or gold futures when they were available. These results
confirm attractiveness of physical gold and gold futures among rational investors whose goals
are to maximize their expected utility. For rational investors whose preferences were
represented by negative exponential utility functions, the investors with lowest degree of risk
aversion had largest proportion of their portfolio invested in commodities. Largest
investments were made in gold futures, physical gold, and light sweet crude oil.
The larger investment in commodities between January 2002 and December 2008
than during the time between January 1991 and 2012 can be explained by the expansion of
commodity market and the rise in U.S. inflation. The period between 2002 and 2008 was the
time when commodity market was rapidly expanding together with the rise in inflation. As it
is well accepted that commodity prices are component of inflation, it is possible that investors
who anticipate negative inflationary pressure in financial markets will switch their investment
from traditional assets such as stock and bond to commodities to preserve their wealth in the
meantime.
Portfolio Performance Evaluation
The performances of optimal portfolio were evaluated based on percentage change in

portfolio‘s expected utility and the optimization premium investors would require if they
cannot invest in commodities. Table 2 shows the percentage changes in maximum expected
utility. At the lowest degree of risk aversion, the expected utility increased when commodity
futures were selected as a portfolio component. The futures contract on light sweet crude oil
offered the highest maximum expected utility when added to the optimal portfolios followed
by futures contract on gold and physical gold. In panel A, an inclusion of futures contract on
light sweet crude oil to the portfolio drove the expected utility up by 8.35 percent for the
whole sample period of the study. Physical gold investment increased expected utility by 2.8
percent while futures contract on gold and copper raised the expected utility by
approximately 2.3-2.4 percent. An investment in commodity index have not raised the
expected utility of the portfolios since when they were available for investments, the rational
investors did not include them in the optimal portfolios.As the degree of relative risk aversion
increased, rational investors invested less in commodity and the expected utility derived from
optimal portfolios that include commodities gradually returned to the expected utility derived
from optimal portfolio of traditional assets.
During the sub-sample period between 2002 and 2008, the inclusion of commodities
to the portfolio significantly raised expected utility. As mentioned earlier, during this period
of rising inflation, investors in stock market were looking for a safe place to keep their
wealth. The prosperity of commodity market at the same moment unquestionably
accommodated their transfer of assets as a hedge against inflation. Therefore, expected utility
rose remarkably when the commodities were added to the portfolios. An inclusion of futures
contracts on gold and physical gold investment into the portfolioinduced largest changes in
expected utility. The two commodity indices, DJ-UBSCI and S&P-GSCI, also raised
portfolio‘s expected utility. Changes in expected utility were particularly large for investors
whose preference were described by logarithmic utility function when commodities were
added to the portfolio because the logarithmic utility function itself is the preference
description of investors with power utility function when the degree of relative risk aversion
equal to one. This is the preference of an investor with lowest degree of relative risk aversion.
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The expected utility increased most when futures contract on gold and physical gold were
added to the optimal portfolios.
When investor‘s preference was described by negative exponential utility function,

the rise in expected utility when commodities were added to the portfolio were less than those
exhibited when investor‘s preference was described by power and logarithmic utility
functions. However, the largest increase in expected utility occurred when futures contracts
on gold and physical gold were added to the portfolio. The smaller changes in expected utility
exhibited for negative exponential utility function can be explained by the strong risk
aversion behavior displayed by investors since the negative exponential utility function was
chosen to describe constant absolute risk aversion (CARA) behavior, where the dollar
amount of investment is constant as individual wealth is increasing.
Table 2: Percentage Change in Expected Utility

Panel A: 1991-2012
Change in Expected Utility
1991-2012
DJUBS SPGSCI Crude oil Gold Copper Corn Live cattle Gold fix
Power RRA=2 0.000000% 0.000000% 8.347662% 2.312815% 2.374096% 0.000000% 0.000000% 2.792715%
RRA=4 0.000000% 0.000000% 0.038786% 0.016598% 0.014515% 0.006130% 0.000000% 0.013524%
RRA=6 0.000000% 0.000000% 0.023964% 0.010046% 0.009855% 0.003426% 0.000000% 0.008701%
RRA=8 0.000000% 0.000000% 0.018434% 0.007593% 0.008201% 0.002407% 0.000000% 0.006926%
RRA=10 0.000000% 0.000000% 0.015565% -0.073367% 0.007346% 0.001803% 0.000000% 0.005998%
Log 0.000000% 0.000000% 28.341329% 11.564934% 8.395927% 5.529636% 0.000000% 9.117676%
Negative ARA=2 0.000000% 0.000000% 0.014446% 0.006373% 0.004847% 0.002542% 0.000000% 0.004864%
exp. ARA=4 0.000000% 0.000000% 0.000288% 0.000121% 0.000119% 0.000041% 0.000000% 0.000105%
ARA=6 0.000000% 0.000000% 0.000043% 0.000018% 0.000019% 0.000006% 0.000000% 0.000016%
ARA=8 0.000000% 0.000000% 0.000006% 0.000003% -0.000092% 0.000001% 0.000000% 0.000002%
ARA=10 0.000000% 0.000000% 0.001943% 0.000834% 0.000732% 0.000307% 0.000000% 0.000681%
Panel B: 2002-2008
Change in Expected Utility
2002-2008
Power RRA=2 10.215642% 6.996323% 56.688488% 165.234181% 49.882419% 35.510594% 0.488740% 163.265196%
RRA=4 0.042732% 0.031125% 0.212478% 0.741927% 0.187093% 0.122451% 0.004331% 0.735007%
RRA=6 0.027722% 0.021106% 0.126895% 0.397980% 0.111810% 0.067626% 0.005507% 0.398195%
RRA=8 0.021997% 0.017224% 0.094483% 0.268408% 0.083221% 0.046602% 0.007159% 0.271263%
RRA=10 0.018801% 0.015086% 0.076836% 0.199350% 0.067654% 0.035151% 0.008954% 0.203535%
Log 17.771102% 11.656350% 105.215638% 190.334788% 92.775747% 69.384302% 0.455964% 187.747059%
Negative ARA=2 0.014870% 0.010156% 0.082461% 0.238664% 0.072578% 0.051074% 0.000706% 0.236007%
exp. ARA=4 0.002156% 0.001569% 0.010681% 0.037420% 0.009432% 0.006114% 0.000217% 0.037151%
ARA=6 0.000335% 0.000255% 0.001527% 0.004795% 0.001351% 0.000810% 0.000066% 0.004806%
ARA=8 0.000051% 0.000040% 0.000219% 0.000623% 0.000194% 0.000108% 0.000017% 0.000601%
ARA=10 0.000008% 0.000006% 0.000031% 0.000081% -0.000054% 0.000014% 0.000004% 0.000083%
Table 3 shows the optimization premiums required by an investor who holds portfolio
of traditional assets for the whole sample period and the sub-sample analysis. For investors
whose preference were described by power utility function at the lowest degree of risk
aversion, if they were holding traditional portfolio, they required a premium of 0.09 percent
to increase their expected utility to the level achieved by investors who were holding optimal
portfolios that include futures contract on light sweet crude oil. This is because the welfare or
the expected utility of the investors was higher when portfolios included futures contract on
light sweet crude oil. At the same level of risk aversion, investors who hold portfolio of
traditional assets required approximately 0.04 and 0.03 percent to equate their utility to the
level achieved by investors who hold portfolio that include futures contract on gold and
physical gold investment respectively. As the degree of risk aversion rose, changes in
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expected utility became smaller when commodities were added to the portfolio. Thus, the
highly risk-averse investors who hold portfolio of traditional asset required less optimization
premium because they did not want to invest in commodities and their expected utilities were
closer to the utility achieved by those of investors who hold commodities.
The table clearly shows that for investors with logarithmic utility function, an investor
was better off with investment in futures contract on light sweet crude oil because an investor
who holds traditional portfolio required the large premium of 0.16 percent to increase their
expected utility to the level achieved by an investor who holds portfolio that includes futures
contract on light sweet crude oil. For the whole sample analysis, investors did not include
commodity index in their portfolio. Therefore, investors who hold portfolio of traditional
asset required nothing to compensate them for not investing in commodity indices.
Table 3: Optimization Premium

Panel A: 1991-2012
Optimization Premium
1991-2012
Power RRA=2 0.000000% 0.000000% 0.087514% 0.037529% 0.026263% 0.015892% 0.000000% 0.027667%
RRA=4 0.000000% 0.000000% 0.045288% 0.019986% 0.015172% 0.008455% 0.000000% 0.014458%
RRA=6 0.000000% 0.000000% 0.031474% 0.014662% 0.011091% 0.005636% 0.000000% 0.011177%
RRA=8 0.000000% 0.000000% 0.024567% 0.010212% 0.008946% 0.003835% 0.000000% 0.008361%
RRA=10 0.000000% 0.000000% 0.020721% 0.008990% 0.007586% 0.002818% 0.000000% 0.007345%
Log 0.000000% 0.000000% 0.168120% 0.068603% 0.049804% 0.032802% 0.000000%
0.054086%
Negative ARA=2 0.000000% 0.000000% 0.087514% 0.038313% 0.026263% 0.015892% 0.000000%
0.027667%
exp. ARA=4 0.000000% 0.000000% 0.045288% 0.019986% 0.015172% 0.008455% 0.000000%
0.014458%
ARA=6 0.000000% 0.000000% 0.031474% 0.014662% 0.011091% 0.005636% 0.000000%
0.011177%
ARA=8 0.000000% 0.000000% 0.024567% 0.010212% 0.008946% 0.003835% 0.000000% 0.008361%
ARA=10 0.000000% 0.000000% 0.020721% 0.008990% 0.007586% 0.002818% 0.000000% 0.007345%
Panel B: 2002-2008
Optimization Premium
2002-2008
Power RRA=2 0.083407% 0.054139% 0.492767% 1.027401% 0.431816% 0.330281% 0.002031% 1.011535%
RRA=4 0.046155% 0.033093% 0.257532% 1.027401% 0.230391% 0.166487% 0.000704% 1.001344%
RRA=6 0.033738% 0.023740% 0.179120% 0.675482% 0.160331% 0.109516% -0.000623% 0.665064%
RRA=8 0.027529% 0.021401% 0.139914% 0.499522% 0.125300% 0.081030% -0.001287% 0.491829%
RRA=10 0.023390% 0.016724% 0.120312% 0.385665% 0.099028% 0.066787% -0.001287% 0.389926%
Log 0.155843% 0.098569% 0.943634% 1.027401% 0.834665% 0.650746% 0.002031% 1.011535%
Negative ARA=2 0.083407% 0.054139% 0.502569% 1.027401% 0.440574% 0.330281% 0.002031% 1.011535%
exp. ARA=4 0.046155% 0.033093% 0.267333% 1.027401% 0.230391% 0.166487% 0.000040% 1.011535%
ARA=6 0.033738% 0.023740% 0.179120% 0.675482% 0.160331% 0.109516% -0.000623% 0.665064%
ARA=8 0.027529% 0.021401% 0.139914% 0.499522% 0.125300% 0.081030% -0.001287% 0.491829%
ARA=10 0.023390% 0.016724% 0.120312% 0.396016% 0.099028% 0.066787% -0.001287% 0.389926%
During 2002-2008, investors were more willing to invest in commodities during the
sub-sample period. They needed to be compensated if they could not invest in commodity.
They required largest optimization premium when they compared their traditional portfolios
with the portfolios that include futures contract on gold and physical gold investment.
Investors with low degree of risk aversion required larger premium. The positive
optimization premium suggested that investors had a desire for investment in commodities.
The frustration of investors with lower degree of risk aversion was higher when they could
not invest in the commodity market.
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5. Conclusion
Commodity investments have become one of the most popular assets among investors
since 2000s because they offer reliable diversification against downturns in stock markets and
exhibiting low correlation with traditional assets. This study expanded the boundary of
research in commodity investment by examining the attractiveness and benefits of
commodities when portfolios are estimated with an objective to maximize investors‘
expected utility. Optimal portfolios with and without commodities were constructed. They
were compared to see how addition of commodities to the portfolio can improve portfolio
performance.
It was found that an investment in futures contract on gold, physical gold investment
and futures contract on light sweet crude oil are very attractive as alternative investments.
These three types of commodity instruments represented largest proportion of the optimal
portfolios when they were available for investment. The investment in commodity decreased
as the degree of risk aversion increased. Investors with low degree of risk aversion invested a
larger proportion of their portfolio in commodities and when investors added commodities
into their optimal portfolios their expected utility increased. Thus, the expected utility gained
from commodity investment was highest for investors with lowest degree of risk aversion.
This is contrary to the findings of Anson (1999) which show larger investment in
commodities as degree of risk aversion increases. The futures contracts on light sweet crude
oil allowed the greatest positive changes in expected utility when being added to the optimal
portfolios followed by futures contract on gold and an investment in physical gold.
The analysis for sub-sample period between 2002 and 2008 supports the prior studies
where the investments in commodities are very attractive during the inflationary period
(Greer, 2000; Fuertes, Miffre, & Rallis, 2010; Jensen, Johnson, & Mercer, 2002, 2003). Our
results show that, during the sub-sample period, risk-averse investors included larger
proportions of commodities in their optimal portfolios. During 2002-2008, all commodity
investments included in this study represented significant proportion of the optimal
portfolios. Futures contract on gold and physical gold investment represented as much as 99
percent of the optimal portfolio when they were available for investment and they offered
greatest percentage of rise in expected utility. These results lend support to the benefits of
physical gold and futures contract on gold as suggested by Jaffe (1989), Hillier, Draper, and
Faff (2006), Hoang (2011), and Daskalaki and Skiadopoulos (2011).
The analysis of optimization premium supports the superiority of portfolios that

include commodity during inflationary period. For the whole sample study, investors required
only small amount of premium to compensate them when commodities are not part of their
optimal portfolios. Investors with higher degree of risk aversion were less willing to invest in
commodities. Thus, they required less optimization premium to compensate them for not
investing in commodities. Larger amount of optimization premium required by investors
during the sub-sample period time implies that investors were happier to invest in
commodities during inflationary period. Between 2002 and 2008, investors who hold
traditional portfolio required large optimization premium to bring his welfare up to the level
achieved by investors who include commodities into their optimal portfolio.
This research has explored the benefits of commodity investment in a new perspective
and has offered a multidisciplinary implication to both academic and financial industry.
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Future research can put forward the study of commodity investment in several dimensions.
The study can be extended to include the recently launched alternative commodity products
or to apply new performance measurement in order support the benefits of commodities
found in this study. Finally, further research can consider expected utility of commodity
inclusive portfolio in dynamic or tactical asset allocation as well as other alternative portfolio
setting.
6. References
Adler, T. & Kritzman, M. (2007). Mean-variance versus full-scale optimization; in and out of
sample. Journal of Asset Management, 7(5), 302-311.
Aizenman, J. (1999). International portfolio diversification with generalized expected utility
preferences. Canadian Journal of Economics, 32(4), 995-1008.
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Vol. 2 No. 2, 65 – 72
Learning Organization Factors Affecting the

Quality of Learners in Schools under Chanthaburi
Primary Educational Services, Area Office 1
Pattrawadee Makmee
College of Research Methodology and Cognitive Science
Burapha University, ChonBuri, Thailand
[email protected]
Pongsatean Luengalongkot
Graduate School of Public Administration
Burapha University, ChonBuri, Thailand
[email protected]
Abstract
The objectives of this research were to study the relationship between learning
organization factors affecting the quality of learners in schools under Chanthaburi Primary
Educational Services (Area Office 1) and to develop a multiple regression model to predict
the quality of learners in such schools. The research instrument was the 5-scale questionnaire
with its reliability of .918. The sample consisted of 452 school directors, heads of academic
affairs, heads of education quality assurance, and heads of personnel affairs in schools under
Chanthaburi Primary Educational Services (Area Office 1). The sample was chosen by using
simple random sampling. The results of this research showed that learning organization
factors were related with the quality of learners in schools under Chanthaburi Primary
Educational Services (Area Office 1). Two factors that could predict learning organization
factors affecting the quality of learners were Knowledge and Technology. Both factors had
impact on the quality of learners at statistically significance levels of .05 and .01, respectively.
Keywords: Quality of Learner, Learning Organization, Chanthaburi Primary Educational

Services (Area Office 1)
1. Introduction
The development and progress of the nation relies on talented people. Therefore, the
personal development precedes the national development. This can be achieved through
education. Education is the key mechanism and procedure for training and educating people
to possess knowledge, capability, intelligence, good health, and readiness to efficiently stay
in the rapidly dynamic world (KlinSathongnian, 2000).
The Ministry of Education has announced a policy of educational reforms with the
ultimate aims of maximizing the public‘s self-development potential, to provide the public
better quality of life, and to further develop the country. The aim of educational reform is to
create learning persons, learning organizations, and a learning society and the reforms are
directed at four operational approaches, including: schools and educational institutions
reform, teacher and educational personnel reform, curriculum and instruction process reform,
and educational administration reform.These reflect the drive and need for changes in
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educational management at the national level to comply with globalization and the world's
knowledge society where knowledge and intelligence is used as a key tool to strengthen
potential and international competitiveness (Office ofthe National Education Commission,
2001).
A learning organization is the new concept that is applied to the management of a
human resource development oriented organization. Such an organization tends to provide
knowledge and capability to human resources in order to cope with changes over time.
Personnel within an organization need to have knowledge, ability and expertise. It is
important for personnel to have self-development, to enhance their knowledge and skills
through lifelong learning. Basic educational institutions need to place an emphasis on
learning organization by managing institutions according to the approach of a learning
organization. Wirot Sanrattan (2001) stated that among all types of organizations, an
educational institution should become a learning organization because it is an organization
related to instruction and learning. The most important goal of an educational institution is to
provide education to students by relying on the approach of a learning organization so that
educational institutions achieve quality.
Chanthaburi Primary Educational Services (Area Office 1) is an educational
organization focusing on developing efficient organizational potential and learner‘s physical,
emotional, social, and intellectual health so that a learner can achieve good citizenship
according to the National Education Act B.E. 2542 (1999) and amendments to The
Second National Education Act B.E. 2545 (2002)) This study was interested in the learning
organization factors affecting the quality of learners in schools under Chanthaburi Primary
Educational Services (Area Office 1) and hopes that the results of this research will provide
beneficial information and empirical evidence to support educational reforms in Thailand and
to further develop educational organizations. Objectives for this research were to study the
relationship between learning organization factors affecting the quality of learners in schools
under Chanthaburi Primary Educational Services and to develop multiple regression models
to predict the quality of learners in schools under Chanthaburi Primary Educational Services.
2. Hypotheses
Learning organization factors can predict the quality of learners in schools under
Chanthaburi Primary Educational Services (Area Office 1)
3. Theory/ Conceptual Framework

The theory of Learning Organization (Marquardt, &Reynolds, 1994; Marquardt,
1996) states that an organization has an atmosphere that encourages learning process
of individuals and group through a process of thinking, criticizing and understanding
what will happen. A way of learning within an organization involves dynamics
depending on learning, management, and knowledge use as a key to success, coupled
with the use of modern technology. The system of learning organizations consists of
five major sub systems: 1) Learning, which is characterized by Learning Dynamics, 2)
Organization, which focuses on Organization Transformation, 3) People, which
implies People Empowerment, 4) Knowledge, which means Knowledge Management,
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and 5) Technology, which is Technology Application. Information technology is

applied to knowledge management and organizational learning for all levels of
members and involving people.
The conceptual model of this research is shown in the diagram below.
Learning
subsystem
Organization
subsystem
People
Quality of Learners
subsystem
Knowledge
subsystem
Technology
subsystem
Figure 1 Conceptual framework model
4. Methodology and Sample

The population of this research consisted of 1,076 school directors and teachers in
schools under Chanthaburi Primary Educational Services (Area Office 1).
The sample of this research consisted of 452 school directors, heads of academic
affairs, heads of education quality assurance, and heads of personnel affairs in schools under
Chanthaburi Primary Educational Services (Area Office 1). The sample was obtained by
simple random sampling.
5. Instruments
This research used the questionnaire developed by the researchers as the research
instrument to collect data. The self-administered questionnaire was developed based on
related documents and researches and consisted of three parts as follows.
Part 1 Demographic characteristics
Part 2 Learning organization level. According to Marguardt and Reynolds (1994)
and Marquardt (1996), a learning organization consists of five subsystems: 1) Learning
subsystem, 2) Organization subsystem, 3) People subsystem, 4) Knowledge subsystem, and
5) Technology subsystem. The 41-item questionnaire used in this study utilized a 5 rating
scale based on Likert‘s concept: highest (5), high (4), moderate (3), low (2), and lowest (1)
levels.
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Part 3 Educational institution‘s success on quality of learners. This part consists of

six criteria: 1) Learner has well-being and aesthetics, 2) Learner has moral and desirable
value, 3) learner has self-learning skills, eagerness for learning and self-development, 4)
Learner has systematic, creative, rational thinking skills, 5) Learner has necessary
knowledge and skills required by the curriculum, and 6) Learner has working skills,
teamwork skills and good attitudes towards honest profession. The 26-item questionnaire
used a 5 rating scale based on Likert‘s concept: highest, high, moderate, low, and lowest
levels of learner quality, and had a reliability of .918.
6. Methods of Data Analysis

1. Quantitative data collected from the research questionnaire was analyzed by
SPSS (Statistical Package for the Social Sciences) using percentage, means, and standard
deviation.
2. The conceptual framework model of learning organization in schools under
Chanthaburi Primary Educational Services Area (Office 1) developed by the researcher was
discussed and commented by five specialists in terms of its appropriateness for actual
practices. Descriptive statistics was used for data analysis; SPSS for relational analysis; and
Mplus (Muthén, & Muthén, 2012) for validity of the model.
7. Data Collection
Data were collected from the sample schools. The researchers collected the
questionnaires from the schools and then checked and eliminated incomplete questionnaires.
Finally, 430 copies of completed questionnaires were obtained from a total of 452 copies,
accounting for a response rate of 95%.
8. Results
1. The relationship between learning organization factors affecting the quality of learners in
schools under Chanthaburi Primary Educational Services (Area Office 1) shown in
Table 1as follows:
Table 1 The relationship between learning organization factors affecting the quality of
learners in schools under Chanthaburi Primary Educational Services (Area Office 1)
YQ UA LITY X
1 Leaning
X 2 Organization X3 People X4 Knowledge X 5Technology
YQUALITY 1.000
X1 Leaning .368** 1.000
X 2Organization .479** .379** 1.000
X3 P eople .581** .448** .480** 1.000
X4 Knowledge .482** .524** .335** .430** 1.000
X 5Technology .544** .345* .668** .561** .253** 1.000
Note: * represents p=<0.05; ** represents p=<0.01
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According to Table 1, the results indicated that independent variables (learning

organization factors) were related to quality of learners in the schools examined.
2. The results showed learning organization factors affecting quality of learners in

the schools examined.
2.1 The results of learning organization factors affecting quality of learners in
sample schools were shown in Table 2 as follows.
Table 2 Multiple regression analysis of learning organization factors affecting quality of

learners in the schools examined.
Sources of variance SS df MS F Sig
Regression 32.30 5 6.46 57.45** .001

Residual 47.68 424 .11
Total 79.99 429
Note: * represents p=<0.05; ** represents p=<0.01
According to Table 2, learning organization factors affecting quality of learners in

the sample schools had linear relationship with criterion variable at statistical significance
level of .05. Linear prediction equation could be developed. Multiple regression analysis
calculated multiple correlation coefficients
Table 3 Multiple regression analysis of learning organization factors affecting quality of

learners in schools examined.
Variable B SE t Sig
Constant 1.942 .128 15.172 .000

Leaning .064 .065 0.985 .332
Organization .059 .073 0.808 .417
People .097 .064 1.516 .126
Knowledge .144 .058 2.483 .014
Technology .162 .038 4.263 .000
R = 0.636 Adjusted R Square = 0.397
R2 = 0.404 SE = 0.335
χ = 0, df = 1, p = 1.000, χ / df = 0 , CFI = 1.000, TLI = 1.003,
2 2
RMSEA =0.000, SRMR = 0.000
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According to Table 3, independent variables that could predict learning organization

factors affecting quality of learners were Knowledge subsystem and Technology subsystem.
Both factors had an impacto on the quality of learners at statistical significance level of p<0.05
and p<0.001, respectively with the coefficient of determination (R Square) = 0.404 (total
40.40 percent).
3. Knowledge subsystem and Technology subsystem were positively related to quality
of learners at statistical significance level of p<0.05 and p<0.001, respectively and could be used
to develop prediction equation. Multiple correlation coefficient and weight of predictor
variables were calculated in score form. The obtained multiple regression model is below.

YQUALIT Y = 1.942 +.144* X4 + .162**X5
According to the multiple regression model, as X4 increases by one unit, the value of y
increases by .144 units. The raw score will be equal to 1.942. Alternatively, as Knowledge

subsystem increases by one unit, the value of YQUALIT Y increases by 0.144 units. As

Technology subsystem increases by one unit, the value of YQUALIT Y increases by .162 units
4. Approaches to the development of learning organization affecting quality of
learners include as follows.
4.1 Building concrete learning activities to the school members thoroughly. The
school administrators hold workshops to analyze operational problems. The Teachers offer a
variety of choices.
4.2 Enhancing the knowledge and learning potential to members. Alternatively this
is a process that teachers learn in seeking knowledge.
4.3 Building the discipline of knowledge sharing conversation exchange within an
organization. This includes conversation to exchange knowledge and attitudes. Personnel
naturally absorb knowledge and values of their friends.
4.4 Making development plans to develop the organizational members. The school
should make a development plan as a master plan for assigning the responsibility to each
teacher who plans to do self-development.
4.5 Preparing the self-development budget to member for the annual budget.
4.6 Building learning skills of the team.
4.7 Reinforcing the practice of systematic thinking to members.
4.9 Encouraging members to admit and learn the different ideas, culture and
universality.
4:10 Holding meetings of future plans to create a learning vision to an organization.
4.11 Promoting the school as a learning organization and teachers‘ learning as top
priority.
4:12 Building a cooperative atmosphere of continuous learning.
4:13 Building a team that can do self-management.
4:14 Reinforcing members to learn and create new things.
4:15 Creating a balance between the needs of learning and development of both
individuals and organizations.
4.16 Promoting and providing opportunities to clients to participate in the school‘s
learning
4:17 Creating an expectation that all members have the responsibility to collect and
pass on the knowledge to the organizational members.
5.18 Building strategy, way of thinking and learning to the members.
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5:19 Creating management system through knowledge, values of need for learning
for the entire personnel.
5.20 Promoting knowledge gathering and storage system.
5.21 Encouraging all members to use the electronic networks.
5.22 Building learning centers by using multimedia and other advanced
technologies.
5:23 Sourcing and developing learning technology to each member of the team.
5:24 Building awareness and appreciation of technology that has the potential to
create a network of learning.
5.25 Promoting the use of technology in department and human resources
management.
Discussions
Independent variables that could predict learning organization factors affecting the
quality of learners were Knowledge subsystem and Technology subsystem. Both factors had
impact on the quality of learners at statistical significance level of p<0.05 and p<0.01
respectively, with the coefficient of determination (R Square) = 0.404 (total 40.40 percent).
Knowledge subsystem and Technology subsystem were positively related to quality of learners
at statistical significance level of p<0.05 and and p<0.01 could be used to develop prediction
equation. Multiple correlation coefficient and weight of predictor variables were calculated in
score form. The obtained multiple regression model is below.

YQUALIT Y = 1.942 +.144* X4 + .162**X5
According to the multiple regression model, as X4 increases by one unit, the value of y
increases by .144 units. The raw score will be equal to 1.942. Alternatively, as Knowledge

subsystem increases by one unit, the value of YQUALIT Y increases by .144 units. As

Technology subsystem increases by one unit, the value of YQUALIT Y increases by .162 units.
This was consistent with Wirot Sanrattana and Anchali Sanrattana (2000) findings on
management factors and learning organization in primary schools under the Office of the
National Primary Education Commission, Education Region 9. The results of Wirot
Sanrattana and Anchali Sanrattana (2000) study showed that 10 management factors
including: 1) Development of professional organization, 2) creative motivation, 3) culture
and climate of creative organization, 4) curriculum and instruction management, 5) human
resources development, 6) development of self-management and communication, 7)
Transformational leadership, 8) change and innovation management, 9) development of
school effectiveness, and 10) shared decision and vision. Moreover, all 10 factors were highly
and positively correlated. All factors together could predict 46.30% of the variation in
learning organizations. Three factors affecting learning organization at statistically
significance were: development of school effectiveness, curriculum and instruction
management, and development of self-management and communication. Moreover, this was
consistent with the work of Buntham Boranmun (2005) studying factors affecting learning
organization in municipal schools under KhonKaen Municipality, KhonKaen Province. The
findings showed that factors predicting learning organization included management practice,
academic leadership, team and team management. The next section describes suggestions for
future studies about learning organization.
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Suggestions for Future Research

1 .Suggestions for future research
1.1 Future research should investigate other work factors affecting learning
organization.
1.2 Causal factors influencing the change to learning organization should be
studied in future research.
References
Klin Sratongnium. (2000).20 Years of ―SorPorChor‖ with Determination of Basic Education

Improvement. Prachasuksa, 51(1), 3.
Office of the Education Council. (2010). National Education Act B.E. 2542(1999),
Amendment (No. 3) B.E. 2553(2010). Bangkok: The Prime Minister ‘s Office.
Boontham Boranmoon. (2005). Factors Affecting the Learning Organization in the Municipal
Schools under Khon Kaen Municipality. Khon Kaen Province. Khon Kaen University.
Wirot Sanrattana. (2001).School: Learning Organization Theoretical Conceptual Framework
for Educational Administration. Bangkok: Thipwisut LTD., Part.
Wirot Sanrattanaand AnchaliSanrattana. (2000). The management factors with the learning
organization is in the elementary school affiliated with the Office of the national
primary school. District 9 education administration Conference documents associated
with 26 times at Department of the Faculty of education, Chulalongkorn University
study and the October 12, 2002.Presented at the International Symposium on
Research in Education 2003, College of Education, Washington State University,
U.S.A., April 14, 2003.
Marquardt, M., & Reynolds, A. (1994). The global learning organization. Burr Ridge,
IL:Irwin Professional.
Marquardt, M.J. (1996). Building the Learning Organization.New York: McGraw-Hill
Muthén, L. K., and Muthén, B.O. (2012). Mplus: The Comprehensive Modeling Program for Applied
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72
Vol. 2 No. 2, 73 – 85
Does CSR Branding Matter to Young Consumers in

Thailand? The Mediation Effect of Product Brand
Attitudes
Lokweetpun Suprawan
School of Business Administration, Bangkok University, Bangkok, Thailand
[email protected]
Abstract
This study investigates the relationship between CSR branding and product brand
attitudes, and the mediation effect of product brand attitudes on the relationship of CSR
branding and purchase intention. The research was conducted on the 220 young Thai
consumers asking about a single well-known product. The statistical analysis used for
hypothesis testing was multiple regression with mediation testing included. The finding
suggests that only employee concern and financial fairness dimensions of CSR branding
influenced both utilitarian and hedonic product brand attitudes, while there is no evidence
shown for environmental awareness and community commitment dimension. In the light of
product brand attitudes, the research found its role is fully mediating the relationship of CSR
branding and purchase intention.
Keywords: CSR Branding, Product Brand Attitudes, Purchase Intention, Stakeholder

Theory, Theory of Planned Behavior
1. Introduction
While the concept of corporate social responsibility (CSR) is continue debating
among academia about its definition, different perspectives (economic vs. altruistic),
similarity of terminologies (e.g., corporate social performance, corporate social
responsiveness, and corporate citizenship), and its effects on various firm performances
(financial performance, firm‘s market value, and behavior intention) (de Bakker,
Groenewegen, & den Hond, 2005; Godfrey & Hatch, 2007; Lantos, 2001; Luo &
Bhattacharya, 2006; Margolis & Walsh, 2003), practitioners in various disciplines continue to
incorporate its concept and activities to gain competitive advantage (McCormick, 2012;
O'Riordan & Fairbrass, 2014). The most common use of the CSR approach is for impression
management, that is, the company attempts to incorporate CSR approach as a symbolic
representation to influence the perceptions of stakeholder on the company. Thus, the
information about CSR activities can be seen as a complement to the firm performance,
particularly financial performance (Sandberg & Holmlund, 2015). Basu & Palazzo (2008)
emphasizes that CSR should not be employed solely for impression management, but on the
other hand, a company should implement authentic practice of CSR by embedding its
activities in the organization‘s daily operations. The difference between impression
management and authentic intention of CSR is the way in which an organization presents its
actual identity. Hatch and Schultz (1997) explains that it is harmful for an organization to
misalign its image (how others view an organization) with its actual identity (organizational
culture) because eventually when any groups of stakeholder found out, the organization will
lose its credential as in the classic case of Enron which involved in financial fraud (Basu
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&Palazzo, 2008; Laufer, 2003). Enron was named by the Fortune as "America's Most
Innovative Company" until it was exposed by the end of 2001 for hiding its financial
obstacles and was filed bankrupted in the end (Laufer, 2003). A more recent case of VW,
German Carmaker Company, involved in a scandal of the U.S. emission test by installing
cheat devices in 11 million diesel cars by the end of 2015. This incident caused the former
CEO of VW to resign in order to show his responsibility (Hotten, 2015). Enron and VW are
good examples of how a company can present itself differently than what it actually is. In
other words, disseminating about CSR merely to enhance stakeholder impression or image
but not truly practicing or implementing throughout the company‘s operations may cause
company to face business failure. Thus, it is important to differentiate those organizations
who practice CSR in authentic manner—i.e., those that truly practice CSR as the
organization‘s actual identity—from those that merely use CSR approach for window
dressing.
Amongst marketing academia, the concept of CSR has been investigated for its effect
on various marketing outcomes such as firm‘s market value, product evaluation, reputation,
and behavior intention (Berens, van Riel, & van Bruggen, 2005; Luo & Bhattacharya, 2006;
Wang, 2011). Although, the CSR studies in this manner are not new and were conducted
widely, yet the studies were largely done in Western context (Alexander, 2009; Du,
Bhattacharya, & Sen, 2010). Srisuphaolarn (2013) points out that CSR activities are
implemented differently for each countries based on factors such as national policy,
regulation, and economic development stage. As for less developing countries, it was found
that the research tends to be delayed compared to the developed countries as well as less
relevancy to company strategies (Jamali, 2014).
With the Western influence through an increase of FDI, entrance of MNEs, and
international trade (imported brands), large corporations in Thailand has started to
incorporate the CSR practice into their operations (Srisuphaolarn, 2013). Nevertheless, only
specific activities of CSR are highlighted in Thailand including activities relating to
community engagement (e.g., in-kind and in-cash donations, community volunteer) and
environmental protection (e.g., recycling, carbon footprint reduction) (Chappel & Moon,
2005; Srisuphaolarn, 2013). The concept of CSR is not so new for Thai corporation, in fact,
it has been promoted by the Stock Exchange of Thailand (SET) since 1995 issued under a
Code of Conduct for corporate governance (Srisuphaolarn, 2013). By the year 2007, the
concept of CSR has become well-known and commonly practiced by a number of Thai
companies. In this regard, the shifting of CSR activities has moved from simply making
donations to higher involvement by the companies. Total Access Communication (DTAC)—
a major mobile phone service provider in Thailand—is a good example of a company who
engages in CSR initiatives aiming to improve living standard and environments
(Srisuphaolarn, 2013). With an extensive research on CSR practice in Thailand, its
interpretation and how companies disclose CSR information are largely highlighted
(Kraisornsuthasinee & Swierczek, 2006; Srisuphaolarn, 2013). However, as the practice of
CSR has increasingly become important for strategic management planning and how it
positively influences the company‘s performances in Thailand (Wattanasupachoke, 2012),
the effect of CSR on the consumer response is called for investigation. Although extant
studies has examined the effect of CSR on consumer responses in Western context (Sen &
Bhattacharya, 2001; Wang, 2011), the particular study seems to be limited in Thailand. Thus,
it is interesting to investigate Thai consumer‘s reaction in terms of product brand attitudes
and behavior intention in order to understand how Thai consumers associate CSR information
to their consumer behavior. In specific, young consumers (i.e., Generation Y, who was born
between the years 1980-2000) were targeted for this research as they significantly contribute
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to the area of marketing and specifically their responses on social cause were found to be
positive (Cui, Trent, Sullivan, & Matiru, 2003).
In sum, the aim of this research is to evaluate how strategic CSR—the embeddedness
of CSR activities throughout company‘s daily operations, also referred to as CSR branding in
this study—influences young Thai consumer attitude and behavior intention of young
consumers in Thailand (Suprawan & de Bussy, 2011). Thus, this paper identifies two main
research objectives including (1) to investigate the relationship between CSR branding and
product brand attitudes of the young Thai consumers; and (2) to investigate the mediation
effect of product brand attitudes on the relationship of CSR branding and purchase intention.
The concept of CSR has been introduced since 1950‘s by Howard R. Bowanwho is
considered the father of CSR (Carroll, 1979). The concept of CSR has been discussed
thereafter under different terminologies such as social responsibility (Frederick, 1960),
public responsibility (Preston & Post, 1975), corporate social responsiveness (Frederick,
1994; Wartick & Cochran, 1985), and corporate social performance (Wood, 1991; Wood &
Jones, 1995). During this time, the most prominent of CSR definition was proposed by
Carroll (1979, pp., 500) as ―the social responsibility of business that encompasses the
economic, legal, ethical, and discretionary expectations that society has of organizations at a
given point in time.‖ Besides, the different terminologies of CSR, there different perspectives
that set the tone including economic, socio-political, and managerial perspectives (Suprawan
& de Bussy, 2011). While the perspectives of economic (self-interest of the firm) and socio-
political (altruistic activities to the society) are contradicted to one another, a strategic or
managerial CSR seems to compromise between both perspectives (Lantos, 2001). The
strategic CSR allows a firm to extend its activities beyond narrow self-interest by including
broader stakeholder intereststogether with a strategic focus in its operations (Lantos, 2001;
McWilliams & Siegel, 2001). In this regard, many organizations interpret the concept of CSR
in the strategic manner, similarly to the academia in this area who adopted the strategic
approach in order to create differentiation in enhancing its business performance of the firm
(Basu & Palazzo, 2008; Lee, 2008; Vaaland, Heide, & Grønhaug, 2008; Windsor, 2001).
By conceptualising the concept of CSR in the strategic approach, operational
definition of CSR adopted in this research is referred to as ―actions that appear to further
some social good, beyond the interest of the firm and that which is required by law…going
beyond obeying the law.‖ In other words, an organization engages in additional activities
which might not be required as normal business operations to become a part of the society.
However, in the business world, society can be translated in a wider range of stakeholder
groups including those affected by the organization and those that can influence the outcomes
of the organization. (Backhaus, Stone, & Heiner, 2002; Berman, Wicks, Kotha, & Jones,
1999; Freeman, 1984; Jones, 1995). Through the concepts of strategic CSR and stakeholder
theory, Suprawan and de Bussy (2011) developed CSR branding scale aiming to investigate
the embeddedness of CSR activities to firm‘s daily operations. The scale was categorized
into four dimensions including emplyee concern (e.g., promise to achieve work/life balance
for employees), environmental awareness (e.g., focus on reducing energy consumption),
community commitment (e.g., focus on making donations in kind to the local community)
and financial fairness (e.g., promise to pay suppliers a fair price in all cases). By incorporate
stakeholder group into the consideration, it is suggested by an instrumental stakeholder
theory which explains that the ―connections between certain practices and certain end states‖
(Jones, 1995, pp., 406). This indicates that a firm employing strategic CSR in their
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operations can expect desired corporate outcomes (e.g., financial performance, behaviour
intention). Accordingly, a number of research has been conducted to examine the effect of
CSR on firm performance,with more emphasis on firm‘s financial outcomes (e.g., Abbott &
Monsen, 1979; Aupperle, Carroll, & Hatfield, 1985; Cochran & Wood, 1984; Griffin &
Mahon, 1997; Hull & Rothenberg, 2008; McWilliams & Siegel, 2000, 2001; Waddock &
Graves, 1997). However, mixed results of the relationship between CSR and financial
performance were found (Margolis & Walsh, 2003).
While the relationship between CSR and financial performance is inconclusive, there
are various firm performances that were investigated as the effects of CSR including
organizational identification, firm‘s market values, behavioral intention (Luo & Bhattacharya,
2006; Sen & Bhattacharya, 2001; Wang, 2011). Creyer and Ross (1997) explain that in
making the decision about a product or brand, customers often use reference point such as
ethical behavior or social responsible actions of the firm as the criteria. In other words, if
customers acknowledge that a company is acting in an unethical manners, they might decide
to discontinue their supports for the company‘s products or brands. On the other hand, if the
consumer‘s reference point is evaluated as favorable, consumers will reward the firm with the
willingness to buy the products or even pay the premium price. Moreover, Wang (2011)
suggests that once consumers assign positive information on CSR, it will also enhance the
positive attitude evaluation of the firm. In the same line-of-reasoning, if consumers reveal
the strategic CSR of the firm to be positive, it is more than likely that a positive attitude
towards product brand will occur. Another study by Sen and Bhattacharya (2001) also
supports that there is a positive relationship between CSR and company-customer (C-C)
congruence—consumer attitudes toward a company. Thus, this research proposes that CSR
branding affects the consumer attitudes towards product/brand—the tendency for consumer
to respond with some degree of favorableness and unfavorableness to buying behavior
intention (Chung, 2015). Consumer attitudes can be conceptualized in two-dimensional
construct, i.e. hedonic and utilitarian dimensions. Whilst hedonic dimension of consumer
attitudes can be explained as the result of sensational experience consumers derived from
products/brand association, utilitarian dimension as the second dimension of consumer
attitude is derived from the performance of product‘s functions (Voss, Spangenberg, &
Grohmann, 2003). This research proposed that a strong CSR branding leads to a greater
degree of consumer attitude towards a product/brand; thus, the following hypotheses are
formulated and research conceptual model is illustrated in Figure 1:
H1a: At least one of the CSR branding dimensions will influence utilitarian product
brand attitudes
H1b: At least one of the CSR branding dimensions will influence hedonic product
brand attitudes
The relationship between consumer attitudes and purchase intention has been
extensively investigated in various research in which its relationship is supported by the
theory of planned behavior (TPB) (Ajzen, 1991; Ajzen & Madden, 1986; Creyer, 1997;
Hartmann & Apaolaza-Ibáñez, 2012). The TPB explains the individual‘s intention to perform
certain behavior. Although intention is not one of the same with behavior, but the greater
degree of intention can predict the likelihood of performing a behavior (Ajzen, 1991; Creyer,
1997). One of the key antecedents to predict behavior intention is consumer attitudes which
measures the belief about an object by associating it with a certain outcome (Ajzen, 1991). In
other words, the higher degree of consumer attitudes toward a product or brand, the higher
degree of behavior intention is predicted. While the TPB explains the relationship between
consumer attitudes and purchase intention, prior research of Sen and Bhattacharya (2001)
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suggested that CSR information can predict the degree of purchase intention. With the
missing link between CSR branding and consumer attitudes towards product/brand, this
research propositions that CSR branding will predict purchase intention when the mediation
effect of consumer attitudes is in place. Thus, the following hypotheses are proposed and
research conceptual model is illustrated in Figure 1.
H2: The relationship between CSR branding and purchase intention will be mediated
by the degree of product brand attitudes
To summarize all the proposed hypotheses investigated in this study, Figure 1
illustrates the research conceptual model accordingly. The theoretical underpinning these
relationships are explained in the previous section.
In order to examine the proposed hypotheses, closed-ended and scale type
questionnaires were distributed to college students at a private university in Thailand. The
questionnaires were asked about a well-known mobile phone brand merely to associate
respondents with a particular brand in mind (Wang, 2011), with no intention to examine
mobile phone industry in specific. Convenience sampling technique was employed and
questionnaires. The research measurements used in this research were established scales
including CSR branding, product brand attitudes, and purchase intention. In terms of CSR
branding scale, embeddedness of CSR incorporated in the firm‘s daily operations were
investigated; composed of four dimensions including employee concern, environmental
awareness, community commitment, and financial fairness (Suprawan & de Bussy, 2011).
Another established scale used in this study is product brand attitudes which composed of
two dimensions including utilitarian (the attitudes toward the performance of the product‘s
function) and hedonic (the sensational experience of the consumers) (Voss et al., 2003).
Finally, an established scale of purchase intention was employed asking about the willingness
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of consumer to purchase the products (Schlosser, White, & Lloyd, 2006). The Likert scales
ranging from 1 (strongly disagree) to 5 (strongly agree) were employed for each of the
question in the questionnaire. The measurements used in this research are as illustrated in
Table 1 with acceptable Cronbach‘s alpha coefficient of .70 indicating these scales are
reliable to be repeated (Nunnally & Bernstein, 1994):
Table 1: Measurements and Their Cronbach‘s Alphas

Number Cronbach’s Alpha
Variable
of Items Coefficient (α)
CSR Branding (Suprawan & de Bussy, 2011)
Environmental Awareness 5 0.914
Community Commitment 4 0.860
Employee Concern 4 0.873
Financial Fairness 4 0.723
Product Brand Attitudes (Voss et al., 2003)
Utilitarian 5 0.950
Hedonic 5 0.950
Purchase Intention (Schlosser et al., 2006) 3 0.910
Once the questionnaires were distributed to college students, 220 questionnaires were
returned. The data were analyze using a number of statistical tools include reliability test,
Pearson‘s correlation coefficient, and multiple regression. The hypothesized relationships
were tested using multiple regression, specifically method for mediation effect testing was
employed. Prior to hypothesis testing, a reliability analysis was performed for each of the
dependent and independent variables as illustrated in Table 2.
Table 2: Reliability Analysis

Cronbach’s Alpha
Construct Dimension
Coefficient (α)
CSR Branding Community Commitment 0.833
Employee Concern 0.765
Environmental Awareness 0.848
Financial Fairness 0.804
Product Brand Attitudes Hedonic 0.901
Utilitarian 0.877
Purchase Intention 0.919
Accordingly, Cronbach alpha coefficient for all scales exceeded 0.80 which indicate
excellent reliability, except the dimension of employee concern which obtain Cronbach alpha
coefficient of above 0.70 which still considered to be acceptable according to Nunnally and
Bernstein (1994), illustrated in Table 2.
Research Findings
According to demographic characteristics of the respondents, 64.5% of young Thai
consumers aged between 18-34 years olds are female, with majority of the of respondents
aged between 18-24 years old (98.2%). With the 220 respondents, only 6.8% of them are
non-users of the well-known mobile phone brand. Out of those users, 55.3% of them owned
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on the average of 2-3 well-known mobile phones and 51.1% of the users still currently own
on average of 2-3 products.
Table 3: Pearson‘s Correlation Coefficient
Environmental Community Employee Financial Utilitarian Hedonic Purchase

Aware Commit Concern Fairness Attitude Attitude Intention
Environ-
mental 1 .840** .706** .800** .325** .315** .214**
Aware
Community
Commit
.840** 1 .691** .823** .352** .351** .255**
Employee
Concern
.706** .691** 1 .727** .433** .404** .308**
Financial
Fairness
.800** .823** .727** 1 .433** .426** .311**
Utilitarian
Attitude
.325** .352** .433** .433** 1 .881** .764**
Hedonic
Attitude
.315** .351** .404** .426** .881** 1 .735**
Purchase
Intention
.214** .255** .308** .311** .764** .735** 1
Prior to the hypothesis testing, the Pearson correlation coefficient was performed to
examine for multicollinearity. It found that there was no multicolinearity between any of the
predictors (R>0.9) (Field, 2005), as illustrates in Table 3. It also found that there are were a
number of variables that are correlated significantly at r >0.8, p< 0.05, but multicollinearity is
not problematic as a supplement of Tolerance and VIF were tested in the following sections.
Table 4: The Relationship Between CSR Branding and Utilitarian Product Attitudes
R R2 Adj. R 2 Std. Error
0.475 0.225 0.211 0.833
Construct B SE B ß Tolerance VIF
Environmental Awareness -0.159 0.124 -0.155 0.246 4.057
Community Commitment -0.010 0.122 -0.010 0.229 4.366
Employee Concern 0.324 0.101 0.295** 0.424 2.358
Financial Fairness 0.369 0.125 0.351** 0.256 3.910
p = .000, F = 15.641
Illustrated in Table 4, the hypothesis testing on a relationship between CSR branding

and utilitarian product brand attitude (H1a) was examined using multiple regression. The
results show that the four predictors explained 22.5% of the variance and only the dimensions
of employee concern (ß = 0.295, p<0.001) and financial fairness (ß = 0.351, p<0.001) of CSR
branding significantly influenced on the utilitarian product brand attitudes. In addition, the
correlation between the dimensions of CSR branding and utilitarian product brand attitudes
were tested with the maximum variance inflation factor (VIF) and Tolerance. Thus,
multicollinearity was not a problem as VIF is no greater than 10 and tolerance is greater than
0.2 in any of the dimensions (Hair, Black, Babin, & Anderson, 2010). Therefore, hypothesis
H1a was accepted.
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Table 5: The Relationship Between CSR Branding and Hedonic Product Attitudes
R R2 Adj. R 2 Std. Error
0.456 0.208 0.193 0.831
Construct B SE B ß Tolerance VIF
Environmental -0.167 0.123 0.246 4.057
-0.166
Awareness
Community Commitment -0.027 0.121 0.028 0.229 4.366
Employee Concern 0.259 0.101 0.240** 0.424 2.358
Financial Fairness 0.375 0.125 0.361** 0.256 3.910
F = 14.119, p = .000
Similarly as shown in Table 5, the hypothesis testing on a relationship between CSR

branding and hedonic product brand attitudes (H1b) was examined. The results showed that
the four predictors explained 20.8% of the variance and only the dimensions of employee
concern (ß =0.240,p<0.001) and financial fairness (ß =0.361,p<0.001) of CSR branding
significantly influenced on the hedonic product brand attitudes. In addition, the correlation
between the dimensions of CSR branding and hedonic product brand attitudes were tested
with the maximum variance inflation factor (VIF) and Tolerance. Thus, multicollinearity was
not a problem as VIF Tolerance is generally accepted (Hair et al., 2010). Therefore,
hypothesis H1b was accepted.
As illustrated in Table 6, the results found that there were significant relationships in
steps 1-3 with the level of significant at 0.05, presumably mediation effect exists. In the Step
4 model, it indicated that the relationship between CSR branding and purchase intention is
fully mediated by product brand attitudes as CSR branding is no longer significant when
product brand attitude is controlled (Baron & Kenny, 1986; Frazier, Tix, & Barron, 2004).
Thus, hypothesis H2 was accepted.
Table 6: The Mediator Effects of Product Attitudes

Testing Steps in Mediation Model B SE B 95% CI ß
Testing Step 1:
Dependent: Purchase Intention
Predictor: CSR Branding 0.406 0.088 0.232, 0.298**
0.580
Testing Step 2:
Dependent: Product Attitudes
Predictor: CSR Branding 0.471 0.067 0.339, 0.430**
0.603
Testing Step 3:
Predictor: Product Attitudes 0.961 0.053 0.856, 0.773**
1.066
Testing Step 4:
Mediator: Product Attitudes 0.983 0.059 0.867, 0.791**
1.100
Predictor: CSR Branding -0.057 -0.065 -0.185, -0.042
0.07
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4. Discussion
According to the research findings, only employee concern and financial fairness
dimensions of CSR branding influenced both utilitarian and hedonic product brand attitudes.
Since both of these dimensions involved stakeholder groups—employees, customers, and
suppliers—which are extensively important to the firm‘s performance (Jones, 1995; Sen &
Bhattacharya, 2001), its influence will be assigned to both utilitarian (product‘s functions)
and hedonic (sensational experience) dimensions of product brand attitudes of consumers. In
addition, the research findings suggest that young Thai consumers will respond to each
dimensions of CSR branding differently based on how the dimensions important to them (de
Bussy & Suprawan, 2012). In other words, the embeddedness of environmental awareness
and community commitment dimensions of CSR branding to the firm‘s daily operations
might not translate into product brand attitudes due to the detachment of this information in
the mind of consumers when making purchasing decision.
Although some dimensions of CSR branding might influence on product brand
attitudes of consumers, the concern of this research lies on the likelihood of CSR branding
effect on purchase intention. Thus, it was found that CSR branding influences purchase
intention when product brand attitudes is fully mediated. According to TPB, product brand
attitudes relates significantly to purchase intention (Ajzen, 1991). This research contributes to
TPB by suggesting that the source of consumer attitudes can come from various aspects
particularly the firm‘s authentic performance of CSR branding. However, by being aware
about the firm engagement in CSR branding will not respond immediately to purchase
intention, the consumer needs to assign attitudes to the particular product brand. The findings
also implies that CSR branding can be strategically implement depending on the outcomes
that a firm intend to obtain. For instance, if a firm aims to increase buying behavior, then the
focus of employee concern and financial fairness aspects of CSR branding must be
highlighted in the implementation procedures.
5. Implication, Limitation and Future Research
The finding of this research contributes to practitioners in which the firm can
incorporate the concept of CSR branding in order to enhance positive consumer attitudes
about product/brand which lead to purchase intention. However, in the Thai context, specific
components of CSR branding should be prioritized, especially for a firm with limited
resources. It is important for the manager to realize that the effectiveness of CSR crucially
based on authentic/actual involvement in CSR activities in order for consumers to respond
positively to such practice.
This research acknowledges the quality of the data which was drawn from student
samples which were responded to by a single well-known product brand. Thus, future
research should consider broaden the data collection to include different respondents with
various demographic characteristics in order to generalize the research findings. Future
research should also consider conducting a similar research in different countries to enhance
cross-national comparisons, while the extant research suggests diverse effect of CSR
initiatives among countries (Maignan & Ralston, 2002). Indeed, research from other regions
should increasingly be prioritized as most of the current research conducted in the Western
context (Bhattacharya & Sen, 2004; Bhattacharya, Sen, & Korschun, 2008; Sen &
Bhattacharya, 2001; Suprawan & de Bussy, 2011).
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Vol. 2 No. 2, 86 – 100
Localization of Management Posts in Subsidiaries of

Japanese Multinational Corporations in Thailand
Agnieszka Wang
Business School, Thammasat University, 2 Prachan Road, Bangkok 10200
Thailand, [email protected]
Dr. Peraset Chompuming

Lecturer, Business School, Thammasat University, 2 Prachan Road, Bangkok 10200
Thailand, [email protected]
Abstract
This paper aims to provide new empirical evidence on the localization of human resources in
the subsidiaries of Japanese Multinational Corporations (MNCs) in Thailand. Data was
collected from 24 subsidiaries of Japanese MNCs in Thailand through a questionnaire
supplemented by interviews (including telephone and face-to-face interviews) and desk
research on publically available information (such as websites, brochures and annual
publications). Statistical analysis and qualitative approach were adopted for data analysis.
This paper reveals that the localization of human resources in Japanese subsidiaries in
Thailand has taken place especially at junior and middle management levels, often on an ad-
hoc basis without a long-term guiding strategy. On the other hand, some senior posts were
reserved for Japanese managers for the long term because assigning Japanese managers
overseas, including Thailand, is part of the human resource management strategy of many
Japanese MNCs. This paper contributes to the existing literature by providing new empirical
evidence on localization of human resources in the subsidiaries of Japanese MNCs in
Thailand. Despite the fact that Japan has been Thailand's largest foreign direct investor since
1980s, studies on a similar topic in the context of Japanese subsidiaries in Thailand have been
very limited with only a few notable exceptions.
Keywords: Localization, multinational corporation (MNC), cross-cultural management,

expatriate assignment, Thailand, Japan business
1. Introduction
Japan has a long history in investing in Thailand. Some pioneer companies such as
Marubeni set up branches in Thailand as early as the 1950s. Japan has remained one of
Thailand's premier trading partners since the 1980s (Ichikawa, Cusurmano and Polenske,
1990; Suehiro and Yabushita, 2014). Today, Japan is Thailand's largest foreign direct
investor with a total investment value of over US$9 billion by 2013 (Thailand Board of
Investment, 2014), covering a range of industries such as automotive, electronics and
chemical manufacturing sectors. In 2013, the Japan-Thailand trade value reached over US$63
billion (Thailand Board of Investment, 2014). Japanese investment in Thailand will certainly
continue to be active in the future. A recent report from the United Nations (2014) revealed
that Japanese investment in manufacturing in Thailand had risen significantly during the past
few years and was likely to continue to drive up FDI to the country.
Such active investment yields a large number of Japanese companies in Thailand,
which are often the overseas subsidiaries of parent Multinational Corporations (MNCs) in
Japan. Among other matters, the MNCs have to decide the human resource strategies for their
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overseas companies. Traditionally, Japanese MNCs have often adopted a strategy to dispatch
a large number of Japanese expatriates to fill their overseas managerial positions (e.g., Kopp,
1994; Oddou et al, 2001). On the other hand, some Japanese MNCs also implement strategies
called ‗localization‘ (Petison and Johri, 2008a) which in simple terms refers to filling some
senior management posts, which had traditionally been occupied by Japanese managers, with
local hires.
This paper aims to investigate the latest developments in staff localization in the
selected subsidiaries of Japanese MNCs in Thailand and examines the main reasons for
expatriate assignments, the key motives for staff localization, as well as the most important
measures for retaining and developing local managers. In so doing, the paper will provide
managerial insights on how to better manage staff localization in Thailand.
The topic on localization has been widely studied in other countries such as China
(e.g., Bjorkman and Lu, 1999; Wong and Law, 1999; Fryxell, Butler and Choi, 2004;
Kuhlmann and Hutchings, 2010), Papua New Guinea (e.g., Bhanugopan and Fish, 2007) and
Singapore (e.g., Tait, De Cieri and McNulty, 2014). However, studies on a similar topic in
the context of Japanese subsidiaries in Thailand have been very limited with a few notable
exceptions such as Johri and Petison (2008), and Petison and Johri (2008a; 2008b).
2. Literature review
2.1 Localization of human resources in Japanese subsidiaries in Thailand
Existing studies directly relevant to the topic are very scant with the following notable
exceptions.Petison and Johri (2008a and 2008b) and Johri and Petison (2008), using the same
case study and interview methodology, examined the staffing arrangements in four Japanese
automobile manufacturers: Toyota Motor (Thailand); Hino Motors (Thailand); Honda
Automobile (Thailand) and Isuzu Motors (Thailand) and three international companies in
Thailand: BMW (Thailand), DaimlerChrysler (Thailand), and Auto Alliance (Thailand). Johri
and Petison (2008) revealed that the companies under study implemented a wide range of
localization strategies to achieve multiple benefits and identified nine areas of localization:
localization of strategic decision making, building and exploiting the local knowledge pool;
deployment of local human resources; localization of R&D; localization of products; use of
local supplier networks; adaptations to manufacturing processes; local deployment of
subsidiary profits; and localization of corporate image. Petison and Johri (2008a) identified
four drivers for automobile manufacturers to adopt localization strategies: host country
characteristics, industry characteristics, company characteristics, and market characteristics.
Petison and Johri (2008b) summarized four types of expatriate roles in the companies
under study: commander, conductor, coach, and connector. As a ‗Commander‘, the expatriate
monitors and controlsthe behavior of local employees or subordinates. As a ‗Conductor‘, the
expatriate is in charge of managing employees to run their assigned tasks effectively and
ensure collaboration among all involved parties in performing tasks. As a ‗Coach‘, the
expatriate trains and develops local employees‘ potential, ability, and knowledge; and finally
as a ‗Connector‘, the expatriate plays a role in building relationships between involved parties
in order to promote good understanding and to create and enhance commitment and long-
term relationships between the subsidiary, parent company, local suppliers, and local
community.
Although it was not intended to directly address the issue of localization, Jackson
(2002) critically reviewed the Japanese management and pointed out that ―subsidiaries are
more likely to take positive steps to 'Japanize' themselves in South East Asia than in Germany
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or the United States‖. Swierczek and Onishi (2003), employed a combination of data
collection methods, such as questionnaires and interviews, to review the conflicts between
Japanese managers and Thai subordinates in 50 Japanese companies in Thailand and argued
that the localization of management could be a solution to such conflicts. Similarly,
Sriussadaporn (2006) reported useful findings on cultural conflicts and management issues in
4 Japanese companies in Thailand (together with 4 other international companies) although
localization was not discussed in the paper.
2.2 Literature on localization of Japanese MNCs in other countries
The first batch of literature analyzes the general localization strategies and practice of
Japanese MNCs vis-à-vis their international counterparts especially from the US and Europe
based on survey data (Tung, 1982; Beamish and Inkpen, 1998; Kopp, 1994; Oddou et al,
2001; Pudelko and Harzing, 2010). A common finding of these studies is that Japanese
companies were more likely to use parent country nationals in their overseas operations at the
senior and middle management levels than the European and US firms. Kopp (2000)
pinpointed a ‗rice-paper ceiling‘ phenomenon, meaning that non-Japanese employees have
often been excluded from enjoying successful careers and rising to key managerial positions
in Japanese companies.
The second batch of literature reviews the key role of Japanese managers in their
subsidiaries. Harzing (2001) found that Japanese and German companies regard coordination
and control as primary objectives for expatriate assignments, while the MNCs from US and
Europe attached importance to other objectives such as position filling and management
development. Similarly, Rose and Kumar (2007) found that ‗control‘ seems to be the key
function of Japanese managers in Japanese subsidiaries in Malaysia.
Another stream of research has examined the reasons for success and failure of the
localization of Japanese MNCs. For instance, Wong (2010), by studying the Japanese MNC
Yaohan in Hong Kong, argued that the ‗home country effect‘ is the fundamental reason for
the failure to localize management. The ‗home country effect‘emphasizes and perpetuates the
distinction between Japanese and non-Japanese staff in the company‘s overseas operations,
with the former being the ‗in-group‘ and the latter being the ‗out-group‘.
2.3 Literature on pros and cons of localization
A large body of literature exists on the pros and cons of the localization of MNCs
internationally, therefore, it is almost impossible to provide an exhaustive literature review.
Nevertheless, apart from the studies mentioned in sections 2.1 and 2.2, a number of other
studies on localization in Asian countries such as China (Bjorkman and Lu, 1999; Wong and
Law, 1999; Fryxell, Butler and Choi, 2004; Groenewald, 2008; Kuhlmann and Hutchings,
2010),Singapore (e.g., Tait, De Cieri and McNulty, 2014) and Papua New Guinea (e.g.,
Bhanugopan and Fish, 2007) are also reviewed in this paper in order to summarize the key
pros and cons of localization, as summarized in Table 1.
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Table 1. Pros and Cons for Expatriate Assignments and Local Hires
Key reasons for expatriate assignments:

 Successful implementation and attainment of global business strategies of MNCs
(e.g., Kühlmann and Hutchings, 2010)
 Easy communications with headquarters (e.g., Bjorkman and Lu, 1999)
 Maintaining expatriate positions can promote a global perspective among senior
managers (e.g., Wong and Law, 1999)
 Expatriates can better control overseas subsidiaries (e.g., Harzing, 2001; Bhanugopan
and Fish, 2007)
Potential disadvantages for expatriate assignments:
 Expatriates experience a significant rate of failure on international assignments (e.g.,
Harvey, Novicevic and Speier, 1999).
 Dual-career couples can be a serious family problem for the expatriate (e.g, Collings,
Scullion and Morley, 2007).
 Higher remuneration costs for expatriates compared with local hires (e.g., Bjorkman
and Lu, 1999)
Key reasons for local hires:
 Total compensation costs will drop after localization (e.g., Fryxell, Butler and Choi,
2004)
 Local managers can easily help to build local business networks (e.g., Tait, De Cieri
and McNulty, 2014)
 Localization can enhance the morale of local employees (e.g., Wong and Law, 1999)
Potential disadvantages for local hires:

 Local managers may not be conversant with the MNC values and norms (Kühlmann
and Hutchings, 2010)
 High turnover rate among local managers (Groenewald, 2008)
 Local managerial and technical skills are in short supply (Wong and Law, 1999)
Source: edited by the authors
2.4 Key Findings from Literature Review
The literature review shows that the localization of the subsidiaries of Japanese MNCs
in Thailand has received very limited study. It seems that only three articles addressed the
issues directly (Petison and Johri, 2008a; 2008b and Johri and Petison, 2008).
In terms of data collection methods in the existing studies, data are mainly collected
through questionnaire survey (or mail survey), interview and field visit, or a combination of
different data collection methods. In terms of the samples included in the existing studies,
most studies cover less than 40 Japanese companies. In a few studies, the samplescover 1 to 4
Japanese companies, together with other international companies.
According to the literature review and under the overarching research objective, the
following research questions will be answered in this paper.
1. What is the current status of staffing arrangements in selected subsidiaries of Japanese

MNCs in Thailand?
2. What are the key motivations for localization?
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3. What are the key reasons for not localizing some posts?
4. What are the key measures for keeping and developing local managers?
5. What issues may the company need to address in order to further enhance
localization?
3. Data collection
Data was mainly collected through a survey questionnaire which comprised both
close-ended and open-ended questions according to the literature review. A pilot study had
been carried out to test and improve clarity of the questions before the questionnaire was sent
out.
The initial questionnaires (and the cover letters) were sent to the selected 50
companies by post, Email and fax, with follow-up phone calls. The response was extremely
low mainly because the questionnaires could not reach the right people in the company. For
example, even though the companies have a unit or persons who were in charge of receiving
letters or post, or there was a generic email of the company, no one seemed to know what to
do with the questionnaire.
The lesson learnt was that the questionnaire must be sent to the right persons directly.
In this regard, the authors tried alternative ways including mobilizing social networks to get
contact details of 187 Japanese and Thai managers from 148 major Japanese companies in
Thailand. The questionnaires were sent to these people during November 2014-March 2015
and all of them were assured that their response would remain anonymous. Extensive follow
up by Email and phone calls were carried out to increase response rate.
In the end, 29 individuals from 24 companies completed the questionnaire during
November 2014-March 2015. All participants were senior managers in their companies such
as president or vice president, managing director, CEO, HR manager and finance manager
from Japanese subsidiaries in Thailand and have in-depth understanding of the topic. The
time periods they have worked in the company ranged from 1 to 26 years, with an average
time period of 7.3 years. Among the respondents, 11 were female and 18 were male. Such
gender imbalance can be explained by the fact that in most companies, senior management
posts are filled more by male than female managers.
Follow-up emails, telephone calls or interviews were arranged during the first half of
2015 to verify the data and information and to collect additional insightful information which
generally cannot be captured by questionnaire survey. Desk research was also carried out to
gather publically available information (such as websites, brochures and annual publications).
The dataset was finally grouped according to the companies rather than individuals,
covering 24 Japanese companies in Thailand including 14 major automobile and electronics
manufacturing companies and 10 companies from other industries. The time periods for
which the companies have operated in Thailand ranged from 3 years (since 2012) to 62 years
(since 1953), with an average time period of 27 years. The primary markets of the 11
companies were Thailand, 8 companies re-export products to overseas markets, and the
remaining 5 companies‘ markets were both Thailand and overseas.
4. Research findings
4.1 Current status of localization and the prospects

One-half of the companies surveyed reported that the percentage of Japanese
managers relative to the total number of employees has been decreasing over time, while the
other 12 companies reported that the percentage has been quite stable over time. It is
interesting to note that there is not a single Japanese manager working at a Japanese company
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in Thailand, although the managing director is not Thai either. The company hires
approximately 240 Thai staff.
Respondents were asked if they had plans to replace Japanese managers. Eighty
percent of the companies asserted that there would be no definite plan or strategy to replace
Japanese managers with Thai managers. Among them, 12 companies indicated that
localization actually took place in their companies largely on an ad-hoc basis. On the other
hand, 20% of the companies indicated that there are some loosely defined policies for
localization in their companies. A Japanese manager mentioned during the interview:
‘Strictly speaking, we (the company) do not have a stand-alone localization policy, at
least I am not aware of it. However, our company HR policy did mention the company places
great emphasis on the career development of local talents.’
Respondents were asked which jobs should be reserved for the Japanese employees.
Fifty-four percent of companies indicated that at least one senior management job (such as
president or vice president, managing director, or country head) should be reserved for a
Japanese manager in order to conduct planning and strategy, to ensure effective
implementation of the corporation strategy, or to communicate with the headquarters. Three
companies indicated that the officer responsible for liaison with the Japanese headquarters –
which can be at the vice president or general manager level - should be reserved for a
Japanese employee. Three companies indicated that at least one post related to quality
assurance and control should be reserved for a Japanese employee. Two companies indicated
that marketing and sales posts should be reserved for Japanese staff as some clients of the
companies are actually Japanese. The remaining three companies indicated there should be
no particular job reserved for Japanese staff.
The study also examined the availability of local talent that can be employed in senior
posts. Figure 1 shows that approximately half of the companies surveyed indicated that
talented, multi-lingual managers with managerial know-how are nearly always in short
supply, and therefore it is difficult to recruit qualified Thai people for the top management
positions of the company. On the other hand, approximately 30% of companies either
disagreed or strongly disagreed with this statement.
Figure 1. Availability of Local Talent for Management Posts in Japanese Subsidiaries
Talented, multi-lingual local managers with managerial

know-how have been nearly always in short supply
It is difficult to recruit qualified local Thai people for top

management positions in the company
The companys salary and promotion package is not

attractive enough to attract best local talents
The technical and managerial skills of local managers

have improved substantially over recent years
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Strongly agree Agree Neither agree nor disagree disagree Strongly disagree
Source: the authors
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Approximately 45% of the companies indicated that it is difficult to recruit qualified

Thai people for top management positions in the company, while nearly 40% of the
companies disagreed or strongly disagreed with this statement.
Over 30% of the companies surveyed indicated that the company‘s salary and
promotion package is not attractive enough to attract the best local talent. On the other hand,
nearly 40% of the companies believed their salary and promotion package is attractive
enough to attract the best talent.
Finally, it seems there is some level of consensus that the technical and managerial
skills of local managers have improved substantially over the recent years – which was
agreed with by over 60% and disagreed with by slightly over 10% of the companies
surveyed.
4.2 Key reasons for localization of management posts

In terms of the benefits of localization, as shown in Figure 2, over 70% of the
companies surveyed indicated that local managers help the company to promote products and
services to the Thai market, and over 50% of the companies surveyed indicated that local
managers have been more effective than Japanese managers to expand the market in Thailand
because they have better local connections and potential business partners. Most companies
agreed that Thai staff prefer to interact with Thai managers.
Interestingly, only 45% of the companies surveyed indicated that localization reduced
the operation costs of the company. Over 20% of the companies stated that localization did
not actually reduce the costs. Results from interview revealed that there were other related
costs such as the cost of training local managers. There is also an opportunity cost if local
managers cannot get the job done.
Figure 2. Potential Benefits from Localization
Local managers help the company to adapt products and services

to the Thai market
Local managers have been more effective than Japanese

managers to expand the market in Thailand because they have
better local connections with potential business partners
Thai staffs prefer to interact with Thai managers
Increasing the proportion of local managers has reduced the

operation costs of the company
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Strongly agree Agree Neither agree nor disagree Disagree Strongly disagree
Source: the authors
The companies were further requested to rank the key reasons for localization. The
results from the survey show that primary reason for localization is that local managers can
easily build business relationships because they have better connections. 15 out of the 24
companies surveyed ranked this as the most or the second most important reason for
localizing some posts.
The second important reason for localization, according to the survey, is that
localization is an effective way to boost the morale of Thai managers and therefore to keep
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local talent in the company. 12 companies ranked this as the important or the second most
important factor.
Cultural differences and communication between managers and junior staff are also
important factors for localization. Many Japanese managers, to some extent, have marginally
adapted to Thai culture, so cultural conflicts still exist in the work place; localization is
regarded as a useful solution as Thai managers can easily communicate with Thai
subordinates.
Interestingly, to reduce the operation costs does not seem to be the key reason or
motive for localization according to the companies surveyed; only 4 out of 24 companies
surveyed indicated that cost is the primary reason for localization. Even though companies
recognize that one of the benefits of localization is reduced operation cost, they feel payment
to Japanese managers is marginal compared with the total operations costs in Thailand and
therefore, this factor should not be regarded as a matter for deciding localization strategy.
Results from the survey shows that the high failure rate of expatriates does not seem
to be the case for Japanese subsidiaries in Thailand. Not a single company ranked this as one
of the important factors for localization. Results from interviews reveal that the common key
reason is that Japanese managers are guaranteed to get a job either back at headquarters or at
another country office after their assignment in Thailand. Importantly, many Japanese
managers also indicated that they and their families actually enjoy living in Thailand because
the remuneration packages enable them to live in big apartments and receive excellent
medical care. Therefore, they do not feel it difficult to work and live in Thailand.
Information gathered from interviews shed more light on the motivations for
localization which do not always appear in the literature. One manager shared his
observations:
‗... certainly, appointing local Thais to senior posts can be very important. Most
boards of directors include Thais. This is a genuine value-added by having Thais as
senior staff as they can help in making strategic plans. In the meantime, Thai local
communities are also concerned about how many senior posts are occupied by Thai
managers, which can be an indicator of how the companies are dedicated to Thai
society in developing local talent.‘
4.3 Key reasons for not localizing specific posts

Figure 3 shows the potential reasons for not localizing specific posts. Over 30% of the
companies indicated that local managers normally do not understand the parent corporation‘s
culture and management. In contrast, approximately 55% of the companies disagreed with
this statement.
Less than 20% of the companies surveyed believe local managers lack the
management knowledge or skills to move to the top level of management. On the other hand,
almost 60% of the companies disagreed with this statement. Over 50% of the companies
surveyed agreed that local managers cannot communicate well with the headquarters in
Japan. On the other hand, over 30% of the companies disagreed with this. Finally, nearly
30% of the companies agreed that localization of management has reduced the control of
overseas headquarters over the companies, while nearly 40% of the companies disagreed with
this statement.
It seems that there are no prevalent reasons for the companies not to hire local
managers. When the companies were asked to rank the key reasons for not localizing some
posts, ‗to assign Japanese managers to Thailand is part of the strategy of the MNCs to enable
the managers to have global work experience‘ was the most frequently mentioned reason; 14
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out of 24 companies surveyed ranked this as either the most important or the second most
important reason why some posts are reserved for Japanese employees.
Figure 3. Potential Reasons for not Localizing Specific Posts
Local manager normally do not understand parent

corporation'™
s culture and management
Local managers lack management knowledge and skills

to move to the top-level management
Local managers cannot communicate well with the

headquarter in Japan
Localization of management has reduced the control of

our overseas headquarter over the company in Thailand
0% 10% 20% 30% 40% 50% 60% 70% 80% 90%100%
Source: the authors
An equally important reason is that Japanese MNCs believe Japanese managers can
better exert control over the most important posts (such as managing director, financial
director). 14 out of 24 companies surveyed ranked this as either the most important or the
second most important reason why some posts are reserved for Japanese staff. This finding is
consistent with (Kühlmann and Hutchings, 2010) who observed that German and Australian
companies in China exert some control over the most important posts by expatriate
assignments.
The third important reason for sending Japanese managers is to facilitate
communication with the Japanese headquarters. One of the most frequently mentioned
reasons is the language barrier. Several managers mentioned that not everyone in Japanese
headquarters can speak English; unless the Thai managers speak good Japanese, it is difficult
to keep regular communication.
Interview with some Japanese managers yielded additional insights. One Japanese
manager commented that
‗My company is pragmatic about localization. If would like to open a new local
market, very likely we can appoint a local Thai manager. However, if my company
decides to preserve some core technology, we may decide to appoint a Japanese
operation manager.‘
4.4 Measures for the retention and development of Thai managers

As explained by Wong and Law (1999), localization means multiple stages of
development. To replace expatriate managers with local hires is an important step for
localization. Equally important is the retention of local managers in the companies.
The turnover of local managers can be an important indicator to measure the success
or failure of localization. As shown in Figure 4, approximately 30% of companies stated that
the turnover of local managers has been high. On the other hand, over 40% of companies
disagreed with this statement.
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Figure 4. Measures for Retaining and Developing Local Managers
Turnover of local manager has been high
The company provides local managers with

opportunities for job rotation in Thailand and
overseas
The company provides local managers on-the-job-

training in headquarters or overseas
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Source: the authors
Nearly 30% of the companies provide local managers with opportunities for job rotation
in Thailand and overseas, while 50% companies do not provide such opportunities. Nearly
40% of the companies provide local managers with on-the-job training at headquarters or
overseas, while 50% of the companies do not provide such training opportunities.
When the companies were asked to rank the most important measures they had taken to
keep the local managers in the company, it seems that offering competitive salaries and
remuneration packages was identified as the most important measure to keep local managers;
22 out of 24 companies identified this factor as very important.The second important measure
to retain local managers is to provide local managers with training and development
opportunities, internal promotion and career prospects in the long term; 19 out of 24
companies regarded this as a very important measure.
5. Discussions
5.1 How are the findings of the paper related to the existing literature?
Existing studies often pointed out that the use of Japanese expatriates in a large
proportion of overseas managerial positions, reluctance to consider locally hired employees
for those positions, friction between Japanese expatriates and local employees, and difficulty
in recruiting and retaining high-caliber local employees have been the key weaknesses of
Japanese HR policy and practice (e.g., Kopp, 1994; Oddou et al, 2001). Such conclusions
may not be entirely correct. As shown in this paper, the Japanese subsidiaries under study are
very heterogeneous in terms of staff localization policy and practices. Some senior posts in
some companies have been filled by local hires. In an extreme case, a Japanese subsidiary in
Thailand hired no Japanese managers. Generally speaking, localization has taken place in
most of the Japanese companies under study often on an ad-hoc basis. Nevertheless, most
Japanese subsidiaries in Thailand hire a small number of Japanese expatriate managers. This
finding is in line with Beamish and Inkpen (1998).
In terms of the major motives for expatriate assignments, this paper found that the key
reasons for expatriate assignment in Japanese subsidiaries in Thailand was to enable the
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Japanese managers to gain overseas experience, to exert control over the subsidiaries
and to enhance communication between subsidiaries and headquarters. These findings are
largely consistent with the findings of similar studies in different countries such as Bjorkman
and Lu (1999), Wong and Law (1999), Harzing (2001), Kühlmann and Hutchings (2010) and
Bhanugopan and Fish (2007), as summarized in Table 1.
On the other hand, this paper finds that the possible cons for assigning Japanese
managers to Thailand, such as the high failure rate of expatriate managers and the problem
with dual-career couples as mentioned in some studies, (e.g., Harvey, Novicevic and Speier,
1999; Collings, Scullion and Morley, 2007) are not applicable to Japanese subsidiaries in
Thailand.
In terms of the pros for localization, this paper finds that the key advantage for
localization in Thailand is that Thai managers are more effective in building local business
networks, and localization is regarded as an effective way to boost the morale of Thai
employees. These findings are consistent with Tait, De Cieri and McNulty (2014) and Wong
and Law (1999). On the other hand, no overwhelming evidence was found in this paper to
support the typical disadvantages of local hires such as local managers lacking understanding
of MNCs‘ values and norms (Kühlmann and Hutchings, 2010), a high turnover rate among
local managers (Groenewald, 2008) and the short supply of local managerial and technical
skills (Wong and Law, 1999) as listed in Table 1.
5.2 Will internationalization of senior posts in Japanese companies become a

new norm?
According to Hofstede‘s cultural dimensions, Japan is a nation with a high level of
uncertainty avoidance – Japan is ranked 8th in the world in terms of uncertainty avoidance
(http://geert-hofstede.com/japan.html). This probably explains why Japanese MNCs,
compared with US and European MNCs, tend to send more Japanese staff to their overseas
subsidiaries or reserve some key posts for Japanese staff in order to make sure that each
subsidiary‘s operation is in line with the corporation‘s policy.
In contrast, this paper found evidence of no Japaneese management working in a
Japanese subsidiary in Thailand, although the company hires approximately 240 Thai
employees. Also, interestingly, the top manager of the Japanese subsidiary is neither Thai nor
Japanese. Further investigation reveals that the top manager at the Japanese headquarters is
not Japanese either.
Is this just an exceptional case, or does it indicate that Japanese companies will
increasingly internationalize their staff in the sense that senior managers will be selected
based on the merits of candidates rather than their nationality? It is not the intention of this
paper to answer this question, but the question no doubt deserves further study. In this
respect, a recent article published in The Economist (2015) deserves special attention as it
may point to the future HR policy and practice of Japanese companies. The article, among
others, pointed out that many Japanese companies are abandoning the tradition of always
appointing their next boss from time-serving insiders, and look for outsiders – or even
abroad. It further listed a number of companies, including Takeda, Nissan and Sony that hire
French, Brazilian and Welsh top managers respectively.
6. Managerial implications
In order to maintain the competitive edge of a subsidiary in its host country, it is
important for the subsidiary to harness local advantages and build strong bonds with the host
country. Petison and Johri (2006) argued that companies expanding into other countries need
to place ‗‗local people‘‘ at the core of their subsidiary level strategy, and promote a symbiotic
96
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2015
relationship between local and expatriate employees along all the functions in the value
chain.
This paper reveals that very few Japanese companies surveyed seem to have a
comprehensive strategy for localization including the strategic objective, recruiting process
design, and training and development. Most existing efforts for localization in Japanese
companies in Thailand seem to be ad-hoc and lack long term planning. Indeed, successful
localization is seldom an easy task as there are multiple factors thata company needs to assess
in order to successfully implement a localization strategy. It requires the MNCs not only put a
comprehensive strategy and long-term objective in place, but also to implement such
strategies effectively.
This paper argues that for the Japanese MNCs that have put localization strategies in
place, such strategies should be clearly passed on to Thai staff and the general public. During
the study, the authors noticed that in some cases, some Japanese managers are aware of
localization strategies and plans but local Thais are not aware of them. As discussed in the
paper, the interview results show that many Thai employees attach great importance to career
advancement. If they understand some posts will be localized in the future, they would be
more motivated and dedicated to prove they deserve the posts when the posts are open to
locals. In a broader sense, communication with the general public on localization policies and
practices would no doubt help the companies to be more accepted by the host country and the
community.
Finally, the roles of Japanese managers, especially in coaching roles, in Japanese
subsidiaries in Thailand should be more clearly defined. During the process of research, the
authors noticed that Japanese and Thai managers seemed to be very clear about the Japanese
managers‘ roles as ‗commanders‘ and/or ‗communicators‘. Another important role,
‗coaching‘, has been less emphasized. Kühlmann and Hutchings (2010) argued that the
interactive and iterative learning process is essential to develop local managers. Therefore,
Japanese managers should be more proactive to play coaching roles to pass on their knowhow
to local employees. From the perspective of MNCs, this should be clearly mentioned in the
job description when Japanese managers are assigned to Thailand.
7. Conclusion
This paper, based on data collected from 24 Japanese companies in Thailand, provides
new empirical evidence on the localization policies of Japanese companies in Thailand. It
reveals that these companies are very heterogeneous in terms of localization policy and
practice; some companies only keep the minimum number of Japanese managers for the most
senior posts, while other companies also employ Japanese managers in junior management
posts. Therefore, it may not be totally correct to generalize the localization policy and
practice of Japanese companies in Thailand.
This paper reveals that the key reason for the localization of some posts in Japanese
subsidiaries in Thailand is because local Thai managers are often more effective in building
local business networks than Japanese managers. Another important reason is that
localization is a useful measure to boost the morale of local managers once they know that it
is possible for them to secure senior posts in the company. This paper also found that the
most important measure to keep local talent is through competitive salary and remuneration
packages, as well as opportunities for career advancement in the companies.
This paper also found that very few Japanese companies have actually put a
localization strategy in place. Although localization was evident in half of the companies
under study, it often happened on an ad-hoc basis. This paper concludes that a more
comprehensive strategy needs to be put in place by Japanese MNCs for their localization
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July – December
2015
strategies in Thailand. Such strategy should be long-term, comprehensive and be able to

address alternative aspects of localization such as recruiting, retaining and developing local
managers. In addition, information on such strategies needs to be clearly passed on to Thai
staff and the general public as a measure to motivate internal staff and to harness the civic
relationship with the host country and the local community.
This paper covered 24 Japanese subsidiaries in Thailand. Although it may represent
one of the largest samples in the existing studies, the sample is still small from a statistical
perspective. Further work should be directed towards data collection from more companies to
make the analysis more robust. It is certainly easier said than done in this respect considering
the difficulties the authors faced in data collection for this paper.
This paper only collected data from MNC subsidiaries in Thailand, including
Japanese and Thai managers. It would be useful to collect data from the headquarters in Japan
to better understand the vision and strategic direction of the international human resources
management of MNCs.
Compared with existing studies (such as Tung, 1982; Kopp, 1994), the sample in this
study included only Japanese subsidiaries. It would be very useful to collect more data from
the US and European subsidiaries for comparison, which will further shed light on the
localization policy and practices of Japanese companies in Thailand in an international
context.
Acknowledgements
The authors would like to express deep gratitude to the respondents of the
questionnaire and those who agreed to be interviewed in the process of data collection. The
authors are indebted to Dr. Bradley A. Corbett and anonymous referees for the constructive
advice and Kullawan Satitsuppamart for the timely support. The authors gratefully
acknowledge the financial support provided by Thammasat University under the TU
Research Scholar, Contract No. ทน 2/2558.
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Human Resource Development International, Vol. 10 No. 4, pp. 365-381.
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joint ventures‘, Journal of World Business, Vol. 34 No. 3, pp. 306-324.
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emerging alternatives‘, Journal of World Business, Vol. 42 No. 2, pp. 198-213.
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important element in strategy implementation‘, Journal of World Business, Vol. 39
No.3, pp. 268-282.
Groenewald, H (2008) ‗Maintaining Chinese management talent in Western subsidiaries‘,
Journal of Current Chinese Affairs, Vol. 37 No. 4, pp. 131-146.
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Jackson, T. (2002) International HRM: A Cross-cultural Approach, Sage, London
Johri, L. and Petison, P. (2008) ‗Value-based localization strategies of automobile
subsidiaries in Thailand‘, International Journal of Emerging Markets, Vol. 3 No. 2,
pp. 140-162.
Kopp, R. (1994) ‗International human resource policies and practices in Japanese, European
and United States multinationals‘, Human Resource Management, Vol. 33 No. 4, pp.
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Stone Bridge Press, Berkeley, CA.
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Mendenhall ME, Kühlmann TM and Stahl GK (eds.) Developing Global Business
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Petison, P. and Johri, L. (2006) ‗Driving harmony: philosophy of Toyota Motor Thailand‘,
Strategic Direction, Vol. 22 No. 11, pp. 3-5.
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Wittand M and Redding G (eds) The Oxford Handbook of Asian Business Systems,
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100
Vol. 2 No. 2, 101 – 105
BOOK REVIEW
A History of the Thai-Chinese

Jeffrey Sng and Pimpraphai Bisalputra
Singapore: Editions Didier Millet, 2015. 448 pp. ISBN 9789814385770, (hbk)
Reviewed by: Alexander Franco, Ph.D., Stamford International University, Graduate School
of Business
This is an extremely ambitious book, generous with wonderful illustrations, that

attempts to tell the long story of Chinese immigration to Thailand and the impact of one of
the largest and most influential diasporas in recent history. Indeed, the Thai-Chinese have
made a tremendous contribution to Thailand, particularly in the business world where their
approximately 14% of the country‘s population (more directly - about fifty ethnic Chinese
families) controls 80% to 90% of the overall market capitalization of the country, 90% of its
manufacturing section, 50% of the banking and financial services sectors (including the four
largest private banks) and about 80% of the companies listed in the Thai stock market (Haley,
Haley, & Tan, 2009; Seagrave, 2010; Weidenbaum & Hughes, 1996; Yeung, 2006). The five
top billionaires in Thailand have Chinese blood as well as 17 former prime ministers and at
least one prior king.
The authors, who are acknowledged scholars of the Thai-Chinese community,

structured the book as parallel chronologies between Chinese dynasties and Thai kingdoms,
beginning with the Ayudhya kingdom (1351 to 1767). The two histories are intertwined
throughout by successive waves of Chinese immigration that covered all the socio-economic
strata. This narrative is reinforced throughout the book with a series of individual or family
stories, some ―rags to riches‖ (Thai version is ―mat to riches‖) of immigrants who rose to
some level of prominence.
The immense work conducted by the authors is highly laudable. However, the
structure of the book itself is problematic in two ways. First, there are disparities as to time
periods. Over 140 pages are taken up with the period prior to 1900 when the immigration
numbers and impact was less while only 21 pages are devoted to the period of 1975 and
beyond when the impact was greatest and most profound in terms of cultural impact,
dominance in market capitalization, media influence, and the development of the business
environment in Thai urban centers. Also, problematic is the actual infusion of the individual
or family stories throughout the book which unintentionally served to disrupt the historical
narrative rather than reinforce it.
Another questionable aspect of the book is its methodological approach. Since it

purports to focus on the evolutionary development of an ethnic subculture within Thailand, it
would seem logical to apply an ethnologically based inquiry within the context of social
history. The social history approach, an approach that has become mainstream historiography
with its own investigative techniques and analytical tools, allows for a better understanding of
the dynamics at the street level; the hushed voice of the common man becomes audible and
there arises a richer understanding of history than the top-down orientation and elitist-focused
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2015
approach of traditional history with a narrative emphasizing political and economic high
points.
A social history approach would have highlighted important aspects of the

contributions made by the Chinese in developing the country‘s business environment through
characteristics distinctly found within the overseas entrepreneurial Chinese: family
patriarchic control, simple organizational structure, centralized decision-making, internal
financing, conservative R&D, and the implementation of guanxi, to name a few (Ahlstrom,
Young, Ng, & Chan, 2004; Haley, Haley, & Tan, 2007; Redding, 1995; Yeung, 2006). Yeung
(2006) argues that these imported traits have actually undergone a transformative process
resulting in a hybridization of ethnic Chinese capitalism and global capitalism that has
emerged with prominence within the ―Southeast Asian business landscape.‖ Such discussions
are missing from the book even though so much of the text focuses on the business world.
A social history approach would have also brought out the distinctions between
village-based Thai culture and the imported culture of the Chinese. Some works (Cooper,
2008, Mulder, 2000; Welty, 2004) focus on the rural-based cultural norms of Thailand but do
not explain or prepare foreigners for different norms that are operationalized by Thai-Chinese
in the business and academic settings of Thai urban areas. In reality, Thais from the
countryside, as well as foreigners coming from abroad, have to undergo an acculturation to
succeed in the business world beyond the street kiosk. Hofstede (1980) grouped most
Southeast Asian nations as displaying weak uncertainty avoidance and using the family as an
implicit model of organization. Yet, he characterizes China with strong uncertainty avoidance
and a hierarchical pyramid as the implicit model of organization. Indeed, it is this pyramidal
organizational model that is found in most urban-based institutions where the Thai-Chinese
dominate management. It is unfortunate that this book did not attempt to explore the
possibility (unique or not) of a powerful, ethnic subculture of immigrants succeeding in
having its cultural norms supersede that of its host country in the large urban settings where
most Chinese immigrants chose to reside.
A historiographically different approach might also have explained the dynamics of

the sixty billion baht industry in Thailand of skin whitening products. With the impact of
colonialism or pervasive western media being eliminated, colorism – the discrimination or
prejudice against individuals with a darker skin tone within a given nation state – becomes a
viable, though perhaps not complete, explanation for a skin whitening phenomenon that has
lasted for over a decade and which remains strong. ―Pay tham phiw” (―going to get white
skin‖) usually describes a Thai rural girl going to an urban area to work in an office setting.
In other words, a dark skin tone person going to a business environment dominated by white
skin tone Thai-Chinese, particularly in greater Bangkok where most of the Thai-Chinese
population resides. Perhaps there exists here the possibility that an ethnic subculture has
come to define an aesthetic standard of beauty that runs counter to the aesthetic norms of
most of the country‘s population – and which cannot be reconciled with skin whitening
products.
The most troubling aspect of this book is its hagiographic approach and what can be
perceived as the potential loss of critical distance needed in order for it to be considered a
serious academic work. The critical distance can also be seen as potentially compromised by
the fact that the book had large corporate sponsors including one of Thailand‘s largest private
companies run by a Thai-Chinese family. The family stories told in the book are laudatory in
nature and simply replicate the positive that was provided in interviews. Some similarities
102
July – December
2015
exist between the Miami-based Cuban exile and the story of Chinese immigration to Thailand
since so many of the exiled Cubans consisted of the business class of the island before the
Castro revolution. A book similar to this, Great Miami: Spirit of Cuban Enterprise,
(Gonzalez-Pando, 1996) was written with a similar pattern of family success stories.
However, that book suffered the fate of being ignored in academic citations because of its
hagiographic approach and because of the one-sided presentations of the family ―rags to
riches‖ stories. It deliberately ignored the luck that Cuban exiles had in arriving during a time
that Miami was the main portal to drugs and during which time the city and its county were
the major recipients of capitalization from the proceeds of narcotic sales, mainly cocaine.
When money laundering laws were passed in 1990s, Miami reversed its course towards a
steady and continual decline, and came to reflect the socio-economic dimensions of a third
world city while the Cuban exile rose to its zenith in power in both the private and public
sectors of that city. Yet little has been written about this historical reality thus maintaining the
mythology of the Cuban exile success story despite the huge and growing percentage of
Cuban exiles that are now on government welfare assistance. The legacy of history books are
ultimately determined by their adherence to conveying the objective reality of the past and
not to honor or pay tribute to the subjects under examination as the authors professed to have
done in the preface of this book.
This reviewer is not convinced of the authors‘ assertions that the historical periods of
discrimination against the Chinese community in Thailand were primarily provoked by
foreign influence: that ―cumulative encounters [with] Western civilization‖ (p. 259) was the
primarily reason that the ―Western-educated Siamese‖ exercised their ―racial prejudices‖
against the Chinese (p. 261). No substantive empirical evidence is provided for this in the
book and the linkage of the adoption of theses prejudices at the street level is missing and
quite doubtful. Indeed, this resembles Marxist analysis and its paradigmatic flaw of using a
historiographic approach towards analyzing Thailand in terms of semi-colonialism (Harrison
& Jackson, 2010). The historical evidence indicates that periods of anti-Chinese sentiment
were largely correlated to peaks of Chinese nationalism and/or domestic violence within the
immigrant community itself (Chantavanich, 2008; White, 2009). Over three thousand
Chinese were killed in 1848 and in 1878 when Triads (Chinese organized crime) triggered
confrontations with government authorities and murdered government officials. This resulted
in the passage of the Secret Society Act in 1897. In 1910, the Chinese general strike in
Bangkok, led partly by non-assimilationist secret societies (or angi-yi), provoked violence
and fear while depriving the citizens of inner Bangkok of food and commerce. Throughout
the 1920s and 1930s, Chinese organizations such as the Chinese Club of Bangkok
encouraged immigrants to raise Chinese flags on various occasions throughout the year while
also sponsoring manifestations that dealt with mainland Chinese politics (Chantavanich,
2008). Assassinations and terrorism riddled the immigrant community as anti-Japan angi-yi
targeted Chinese businessmen accused of doing business with the Japanese. Between 1939
and 1940, sixty-one Chinese traders were murdered by the angi-yi (Chantavanich). Fear of
resistance to assimilation, lack of loyalty or ―divided loyalties‖ (p. 279) to the country led to
assimilationist legislation that required private schools to teach the Thai language and
inculcate Thai cultural values and, under Field Marshal Philbun Songkram (during 1939-40),
to close all of the 250 Thai-Chinese community schools and 9 of the 10 existing Chinese
newspapers.
An argument can be made that Thai nationalism was brought about to a great extent in
reaction to Chinese nationalism within Thai borders. The Thai intelligentsia expressed
103
July – December
2015
concern about the slowness or resistance to assimilation. National ideologues felt that
Chinese immigrants were ―sucking Thai blood to the marrow‖ (Baker & Phongpaichit, 2014).
This triggered, among other things, the creation of a nativist newspaper entitled Thai Tae
(true Thai) (Baker & Phongpaichit, 2014). At the street level, the hostility manifested itself in
resentment over competition for jobs and Thai wives (since a majority of early Chinese
immigrants were male) as well as simple human envy regarding the economic climb of
foreigners, especially those seen engaging in the ―Chinese vices‖ (p. 203) of drugs
(particularly opium), gambling, liquor, and prostitution by way of organized crime. It is
interesting that Thai nationalist resentment emerged again in 1972, this time by way of anti-
Japanese protests as a result of fears that Japan was engaging in
―economic imperialism‖ in Thailand as well as cultural domination (Thipakorn, 2014). This
was not inspired by foreign influence but, rather, was a national reaction over what the Thai
academic journal Sangkhmosat Parithat (Social Science Review) perceived to be a ―yellow
peril‖ (Thipakorn).
Clearly, the process of assimilation for many Chinese immigrants in Thailand had
very difficult moments. This process seemed so slow and perilous that it has been recognized
as an important impetus for Thai nationalism. Therefore, it is difficult to accept the authors‘
assertion that ―Chinese immigrants demonstrated a natural tendency to assimilate into the
native populace‖ (p. 235). Organized crime, by way of secret societies, was a sore point for
the native Thai as would be the case for anyone that was suddenly surrounded by foreigners
engaging in criminal behavior on an organized scale that corrupted the local rule of law. The
authors ceased to mention any more Triad activities beyond the 1920s. And yet, they have
never left Thailand and continue to contribute to narcotics, gambling, contraband, counterfeit
goods, prostitution, human trafficking, and the arms trade (Phongpaichit, Piriyara, & Treetrat,
1998; Posner, 1988; Seagrave, 2010).
The last big wave of Chinese immigration to Thailand was in the 1920s. With victory
in 1949 by the communists in the Chinese Civil War, ―Thailand had practically no Chinese
immigrants‖ (Phongpaichit & Baker, 2004). The authors mention that the Thai-Chinese
business community surged in Thailand after World War II. They cited, as one example,
Bangkok Bank – a Thai-Chinese run business – that, by the mid-1950s, had 16 domestic
branches and overseas branches holding declared assets of about $50 million dollars (p. 371).
Since Thailand was cut off from China from the 1950s to 1979 due to the Cold War, this begs
the question of where the immigrant community was receiving its capitalization. This is
where the book may have gone askew in a fundamental way. Perhaps, instead of focusing
primarily on the Chinese mainland, this study should have primarily focused on the relation
between the Thai-Chinese community and the overseas entrepreneurial Chinese network.
This overseas community consists of only 55 million people but holds a ―GNP‖ equivalent to
over $450 billion dollars (Seagrave, 2010). It consists of a transnational network of clans or
extended families creating a nexus of conglomerates and, more importantly, powerful banks
in Taipei, Hong Kong, Singapore, Bangkok, Jakarta, Manila, and other locations. It is a key
financial and political power within ASEAN. It played a substantial role in transforming
China (―reinventing Leviathan‖ p. 404) and guiding the mainland into capitalism while also
competing against it. The two are not the same and the Thai-Chinese, while proud citizens of
Thailand and a major force of development to their country, can also be seen as part of this
network, sharing powerful financial and familial connections as well as distinct cultural
values that differ from the mainland as well as from the rural areas of Thailand.
Unfortunately, the book, for the most part, chose to treat the overseas entrepreneurial Chinese
network as invisible.
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July – December
2015
References
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Hofstede, G. (1980). Culture’s consequences. International differences in world-related
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Mulder, N. (2000). Inside Thai society: Religion, Everyday life, Change. Chiang Mai,
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Phongpaichit, P., & Baker, C. (2004). Thaksin: The business of politics in Thailand. Chiang
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Phongpaichit, P., Piriyarangsan, S., & Treerat, N. (1998). Guns, Girls, Gambling, Ganja:
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Welty, R. (2004). The Thai & I: Thai culture and society. Bangkok, Thailand: Asia Books.
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Volume 2 Number 2, July – December 2015

Stamford International University

© Stamford International University 2015

ASEAN Journal of Management & Innovation

All Correspondence should be addressed to:

AJMI Statement of Editorial Policy

Senior Consulting Editors

Editorial Advisory Board

13 Impact of Debt Leverage on Thai Property Funds‘ Performances

24 Motivation and Decision Making in Choosing Medical Tourism Service in Thailand

48 Commodity Investment: An Analysis on Expected Utilty Theory

65 Learning Organization Factors Affecting the Quality of Learners in Schools Under

86 Localization of Human Resources in Subsidiaries of Japanese MNCs in Thailand

Caudillismo as a Business Leadership

Keywords: Caudillismo, caudillo, Latin America, business leadership, leadership, culture,

Cultural Theory and the Definition of Culture

Kluckhohn (1951) defined culture as follows:

1. Because of the givens of biological human nature, ―there is a limited number

2. Though ―there is variability in solutions of all the problems, it is neither

4. A ranking order of preferences of the value-orientations alternative will exist

1. Human nature orientation. This ―pertains to a society‘s perception of innate

2. Man-Nature orientation. This ―refers to the perceived relationship of people

4. Time orientation. This ―refers to the meaning or emphasis placed on a particular

5. Relational orientation. This ―refers to the nature of a person‘s relation to other

Table 1: Review of Value Orientation Studies as per the Kluckhohn-Strodtbeck Model

Human nature Neutral Neutral Neutral

Man-Nature Subjugation Subjugation Mastery

Activity Being Being Doing

Time Present Present Future

Relational Lineal Lineal Individualistic

(1) Based on research by Sandoval (1976, 1986).

1. Power Distance: ―defined as the degree of inequality among people which

2. Uncertainty Avoidance: ―the degree to which people in a country prefer

3. Individualism: ―the degree to which people in a country prefer to act as

4. Masculinity: ―the degree to which tough values like assertiveness,

United States Latin American Nations (1)

Table 3: Hofstede’s Cultural Dimensions and Organization Development

Countries: Anglo, Scandinavian Countries: Latin, Mediterranean, Islamic,

Organization type: implicitly structured - Organization type: full bureaucracy –

Implicit model of organization: market Implicit model of organization: hierarchical pyramid

Countries: German-speaking, Finland, Countries: Southeast Asian

Organization type: workflow bureaucracy - Organization type: personnel bureaucracy

Implicit model of organization – a well-oil Implicit model of organization: family

3. Caudillismo and its Characteristics as a Business Leadership Model

Caudillismo is primarily an autocratic and personalistic form of leadership based on dyadic

2. Hierarchy. Society ―is naturally hierarchical and…one‘s place in the social

…the authoritarian style of many Mexican managers does not encourage

4. Conclusion and Recommendations

The primary characteristics of the caudillaje model of business leadership provide

Adler, N. (2008). International dimensions of organizational behavior (5 th ed). Cincinnati,

Training Management Corporation (1992). Doing business internationally: The cross-

Impact of Debt Leverage on

Figure 1 Global REIT Market Capitalization by Country in 2014

Regardless of investor types, relevant information is sine qua non in terms of

Table 1: Key Differences in Attributes between Thai PFPO and REIT

Table 2: Debt Use Regulation of the International REITs

Country Debt Use Regulation

Table 3: Term Loan of Thai Property Fund, 2014

Loan Value (mil THB) 2,591.26 1,955.00 370.00

3.1 Quantitative Approach