Category: Free Essays

INTRODUCTION

1. What is a nurse-led clinic?

As the coined term suggests, a nurse-led clinic is a health care centre in which nurses are involved in high level specialist procedures and assessments. In such centres, nurses are the critical decision makers, being involved in patient care at the micro-, meso-, and macro-levels. While the role of the physician in the provision of health care is undisputable, the deity-like status that medical practitioners typically have in the mind of patients, coupled with the limited time available for individual patient consultations, make it hard for these group of health care professionals to tackle the ‘softer’ side of patient care. Nurses, on the other hand, defined by the Oxford Medical Dictionary as health care professionals that are trained and experienced in nursing matters and entrusted with the care of the sick and the carrying out of medical and surgical routines, are better placed to provide this essential follow-up, especially in the care of patients with chronic diseases.

According to Hatchett (2003), a nurse-led clinic is a clinic in which nurses have their own patient case loads of whom they take complete charge. Hatchett broadly describes the components of such a clinic. There would be an increase in autonomy associated with the nursing role in the nurse-led clinic, with the power to admit, discharge or refer patients, as appropriate. In Hatchett’s own words, the roles which nurses adopt in these revolutionary settings can be broadly classified as follows (Hatchett, 2003):

Education
Psychological support
Patient monitoring

The initiation of nurse-led initiatives probably owes its origins to the rise in nursing specialties in the United Kingdom. Throughout primary and secondary care, nurses are taking senior positions in health care institutions, such as nurse specialists, nurse practitioners, nurse consultants, nurse prescribers, etc, leading to a marked change in service delivery and the profile of the nursing profession. In addition to the usual registered nurse training, nurses working at higher levels of practice receive training to acquire a range of other medical skills such as physical examination and medical history taking in order to recognise abnormal clinical findings.

In a two-phase exploratory study to evaluate the domains of structure, process and outcome of nurse-led clinics in supporting intermediate care after the acute phase of disease, Wong et al (2006) interviewed nurses from 34 clinics and 16 physicians and observed 162 nurse-led clinic sessions. Their findings demonstrated the high level of skill and experience of the nurses who ran the clinics. Their work involved skills such as adjusting medications and initiating therapies, and diagnostic tests according to protocols. Interventions included assessments and evaluations, and health counselling. All patients studied showed improvement after the nurse clinic consultation, with the best rates reported in wound and continence clinics; satisfaction scores for both nurses and clients were high. However, although physicians valued their partnership in care with the nurses, they were concerned about possible legal liability resulting from the advanced roles assumed by these nurses.

Ultimately, nurse-led clinics provide an integral and invaluable patient-centred approach to the management of chronic disease which build upon skills such as counselling, teaching and health promotion which are key to contemporary nursing practice, as well as newly acquired medical skills. The advent if nurse-led clinics provides an opportunity for nurses to develop enhanced roles in which they can achieve more autonomy in their practice. This can be made a reality if adequate training and education, as well as effective leadership are in place (Wiles et al, 2001).

2. The general roles of nurses in chronic care management

The chief nursing officer, Sarah Mullally has proposed ten key roles for nurses in autonomous patient care. These are outlined below as cited by Hatchett (2003):

Order diagnostic interventions: just like a medical practitioner would, the present-day nurse is able to ask for laboratory or clinical diagnostic tests to aid the process of diagnosis. Furthermore, a well-trained nurse will also be able to read and interpret laboratory results effectively
Make and receive referrals directly: while the all-important roles of nurses are recognised, the need for a multidisciplinary approach to patient care remains key in order to optimise patient outcomes. Accordingly, nurses should be able to recognise the patients’ needs and refer them to the appropriate health care service as required. Similarly, nurses should be ready to accept referrals from other health care disciplines as necessary.
Admit and discharge patients for specified conditions, within agreed protocols: in order to make the best use of the often limited hospital resources, a nurse should have the power to recommend patients for hospital admission and subsequent discharge
Manage patient case loads: in nurse-led clinics, nurses are also responsible for managing their individual case loads. It is important to delegate patient cases to other members of the team, when necessary to ensure that patients receive the best care possible.
Run clinics: the autonomous role of the nurse in a nurse-led clinic includes all aspects of the management and day-to-day running of the clinic.
Prescribe medications and treatments: nurse prescribers are able to advise patients on appropriate treatment, based on diagnosis of ailment and individual characteristics and laboratory findings.
Carry out a wide range of resuscitation procedures, including defribillation
Perform minor surgery and outpatient procedures: especially in injury clinics. While nurses are probably not equipped to carry out full-fledged surgical operations alone, they are trained to conduct emergency processes as appropriate.
Triage patients, using the latest information technology, to the most appropriate health care professional
Take a lead in the way local health services are organised and in the way they are run

Nurses have always been considered as a supplement to the fundamental care provided by medical doctors. In fact, in some geographical regions, nursing roles are limited to menial tasks such as changing bedpans etc. In the new age, the nursing role as we know it is becoming increasingly important with nurses taking on infinitely more clinical roles. This has led to controversial debates with critics arguing that nurses cannot replace doctors in the provision of health care services. As Richard Hatchett very astutely pointed out (2003), the increased autonomy being acquired by nurses is not a bid to compete with medical doctors. Instead, “it is a case of considering who can provide the most appropriate service to the patient” (Hatchett, 2003).

Thus, it is clear that the roles of nurses in chronic care management is very diverse and can be integrated into any nurse-led clinic intervention to the utmost benefit of the patient and all stakeholders. There have been numerous studies on the role of nurses in the care of patients with chronic diseases. In addition, and more specifically, the feasibility and benefits of implementing nurse-led clinics in practice have also been investigated to some extent. In the subsequent sections, we will review the evidence to support these innovative nursing interventions in an attempt to make the best use of health care resources.

3. Nurse-led clinics in the management of chronic care diseases: the evidence

The World Health Organization (2002) defines chronic diseases as health care problems that require ongoing management over a period of years or decades. The nature of these disease conditions make it necessary to provide long term care and follow-up for the afflicted patients. Nurse-led interventions have been investigated a wide range of chronic diseases. It could be a logical, user-friendly, cost-effective and practical approach to improving long-term patient outcomes and should be explored fully to maximise the contributions of nurses to the chronic care management.

Although this review aims to analyse the effectiveness of nurse-led clinics in the treatment of respiratory diseases, a prior look at the role of these interventions in the management of other chronic care diseases will provide an insight to the general contributory roles of nurses and will serve as a foundation for complete understanding of this state of the art intervention.

3.1 Nurse-led interventions in the management of diabetes

Numerous studies have evaluated the benefits and practicalities of nurse-led clinics in the long-term management of diabetes. The renal diabetic nurse specialist is described as an “essential player” in organising the management of, and to meet, all aspects of need of this group of patients (Marchant, 2002). An unintended benefit of a nurse-led clinic to reduce cardiovascular risk is improved glycaemic control, HbA1c (Woodward et al, 2005). In particular, nurse-led diabetic clinics have been shown to benefit specific ethnic groups. Matthias et al (1998) identified the needs of diabetic patients from minority ethnic groups, such as blacks and Asians and postulated that nurse-led clinics were of particular benefit in this patient group. As epidemiological data show that diabetes is most common in minority ethnic groups (Carter et al, 1996), the importance of these innovative interventions is further emphasised.

3.2 Nurse-led interventions in the management of cardiovascular disease

Care of patients with cardiovascular diseases is broad and involves many aspects, from risk factor management (non pharmacological interventions), primary and secondary prevention of clinical events, pharmacological therapy, surgical procedures, etc. Through a large well-designed randomised controlled trial in Scotland, Campbell et al (1998) showed that nurse-led clinics were practical to implement general practice and led to an significant increase in various aspects of the secondary prevention of coronary heart disease. Significant improvements were noted in aspirin management, blood pressure management, lipid profile management, diet and physical activity, regardless of the individual patient’s baseline cardio performance or status. However, surprisingly, there was no recorded improvement on smoking cessation, which would have been a beneficial intervention in most acute and chronic disease states, including respiratory diseases.

In addition to the apparent effectiveness of the nurse-led clinics in the long-term primary and secondary prevention of coronary heart disease, the optimal use of nurses in the care of these patients has been shown to be cost-effective in terms of quality adjusted life years (QALYs) (Raftery et al, 2005). In this large cost-effectiveness analysis, although the cost of the nurse-led clinic intervention was ?136 higher per patient, the differences in other National Health Service (NHS) costs was not statistically significant. Furthermore, there were 28 more deaths in the non-intervention group leading to a gain, in the intervention group, in mean life-years per patient of 0.110 and of 0.124 QALYs.

3.3 Nurse-led interventions in rheumatology

The role of clinical specialist medical doctors in the care of their patients is unquestionable; however, the role of nurses in the therapy area of rheumatology (i.e. in patients with rheumatoid arthritis) is also well documented. Hill and colleagues (1994) clearly demonstrated the effectiveness, safety and acceptability of a nurse practitioner in a rheumatology outpatient clinic. Although this was a small study with a sample size that only included 70 patients, the statistical significance of the findings of this randomised controlled trial cannot be ignored. In patients managed in the Rheumatology Nurse Practitioner clinic, pain, morning stiffness, psychological status, patient management and satisfaction all improved significantly (p = 0.001; p = 0.028; p = 0.0005; p<0.0001; p<0.0001, respectively). It is worthy of note that these improvements were not mirrored by patients who were managed in the Consultant Rheumatologist clinic.

In addition, patient satisfaction is frequently higher in patients who are allocated to nurse care than those allocated to standard medical care (Hill, 1997). In yet another study by Dr Jackie Hill, a registered nurse at the Academic and Clinical Unit for Musculoskeletal Nursing in the Chapel Allerton Hospital in Leeds, the researchers concluded that a nurse-led clinic is effective and safe and is associated with additional benefits, such as greater symptom control and enhanced patient self-care, compared with standard outpatient care.

3.4 Nurse-led interventions in cancer care

The effectiveness of nurse-led care in different common cancer afflictions has been researched variously. An extensive review article by Loftus and Weston (2001) discussed the patient needs that could be met by nurses working in nurse-led clinics and highlighted the experience and skills of advanced nursing practice that make such innovative care a reality.

The types of nurse-led interventions are as varied as the different types of cancers for which they are used. These range from nurse-led telephone clinics in patients with malignant glioma (Sardell et al, 2001); nurse-led follow up in patients receiving therapy for breast cancer (Koinberg et al, 2004); and nurse-led screening programmes in Hong Kong Chinese women with cervical cancer (Twinn and Cheung, 1999).

In a randomised controlled trial in a specialist cancer hospital and three cancer units in southeastern England, Moore et al (2002) assessed the effectiveness of nurse-led follow-up in the management of patients with lung cancer. The findings of the study showed high levels (75%) of patient acceptability. This negates the possibility of patients’ reduced confidence in nurses’ ability and preference for standard medical doctor care. Clinical outcomes were also greatly improved as shown by less severe dyspnoea at three months (p=0.03), better scores for emotional functioning (p=0.03), and less peripheral neuropathy at 12 months (p=0.05).

3.5 Nurse-led interventions in the management of HIV infection

Using a rigorous model of comprehensive care nurse-led clinic in genitourinary medicine to compare nurse-led and doctor-led clinics at a central London medicine clinic, Miles and colleagues (2003) reported reliable and valid results to support the use of the nurse-led variety as an acceptable alternative to the existing doctor-led clinics. More specifically, the British HIV Association (BHIVA)/British Association for Sexual Health and HIV (BASHH) advocate the benefits that can be accrued from a nurse-led educational intervention in the care of patients with HIV infection (Poppa et al, 2003). A small pilot study that investigated the effects of a 6-month nurse-led educational programme reported that improved virological responses were seen in treatment-experienced patients (Alexander et al, 2001).

While a majority of the studies on nurse-led clinics in other chronic diseases can be broadly applied to nurse-led care in patients with respiratory diseases, differences in the nature of these diseases and the necessary care pathways mean that the extent to which these tested interventions can be applied to other therapy areas is, in actual fact, limited. Government policies that advocate the clinical and economic effectiveness of nurse-led interventions frequently pool together evidence from all therapeutic areas. Indeed, it can be hypothesised that, if nursing interventions are shown be practical alternatives for medical care in complex diseases with poor prognoses, such as cancer, HIV and coronary heart diseases, care of patients with respiratory diseases which generally have better prognoses should be easily, effectively and safely undertaken by qualified and well-trained nurses.

Nevertheless, these findings of the effectiveness of nurse-led interventions in the numerous chronic diseases explored in previous sections, should be applied to the different patient population with respiratory diseases. As much as possible, research findings from similar patient groups should be applied in clinical practice in order to ensure that evidence-based practice in this case is relevant.

4. Government policies influencing the establishment of nurse-led clinics

Government health policies in the United Kingdom actively support the extension of nurses’ skills into areas such as nurse prescribing and the development of nurse practitioner posts (NHS Plan 2000; Department of Health). Government initiatives that that strive to reduce consultation waiting times and optimise the use of medical practitioners indirectly support the establishment of nurse-led clinics. The Government has endorsed the implementation of nurse-led clinics as a means of increasing access to specialist health care and treatment more quickly and also as an effective way to manage chronic conditions (Hatchett, 2003).

In the Department of Health (1999) document, ‘Making a difference’, government plans for strengthening nursing contribution to health care is presented. The Government has launched an ambitious programme of measures to improve the National Health Service and the health of the public, and the role of the nursing profession in this initiative cannot be overemphasised.

The key nurse-related points of the document are outlined below:

To extend the roles of nurses, midwives and health visitors to make better use of their knowledge an skills – including making it easier for them to prescribe
To modernise the roles of school nurses and health visitors in supporting the new health strategy and other policies
To see more nurse-led primary care services to improve accessibility and responsiveness

The document highlights numerous nurse-led initiatives that have been effectively implemented all around the United Kingdom. A nurse-led minor injury service in rural Cornwall has provided patients with a number of benefits: easier accessibility, reduced waiting times, reduced need for on-site medical; attendance, increased patient satisfaction and reduced need for transfers to local Accident and Emergency departments. Similarly, a nurse-led rapid response team in Peterborough responds to acute crisis cases and allows patients to be nursed at home. Evaluation has shown that 71% of patients referred to this ‘hospital at home’ service would have been admitted to hospital if the service did not exist. Other effective live nurse-led services include a nurse-led rheumatology service in Merseyside and a nurse-led intermediate care unit in Liverpool.

Furthermore, several nurse interventions are advocated in the document for contributing to the management of cardiovascular disease. Several of these are also applicable to respiratory diseases; these include:

Smoking cessation clinics using national smoking cessation guidelines
Healthy lifestyle clinics in collaboration with other health professionals to address factors such as diet, nutrition and exercise, thus improving overall health
Care for patients with congestive cardiac failure under ‘home-based’ initiatives
Nurse-led chest pain clinics or risk factor screening and reduction clinics
Nurse-led blood pressure clinics to identify and help manage blood pressure disorders and medication adherence

5. Review objectives

The objectives of this review are:

To briefly summarise various studies on effectiveness and cost-effectiveness of nurse-led interventions in common respiratory diseases
To critically appraise the methods employed by these studies
To evaluate, interpret, and where possible, compare the findings of the various studies
To explore the applicability and generalisability of the results to practice in the appropriate patient population
To make suggestions for future studies in this area.

METHODS

Literature search

A search of two major databases, MEDLINE and EMBASE, was conducted to identify articles published from 1990 through 2008. Search terms that were used include nurse, nurse-led clinic, nurse-led interventions, respiratory diseases, asthma, chronic obstructive pulmonary disease, bronchiectasis, tuberculosis, cystic fibrosis, cost-effectiveness analysis, cost-benefit analysis, and economics. A secondary search of the reference lists was then conducted to identify relevant articles, editorials, and other unoriginal reports that may have been missed in the primary search.

Some studies were excluded based on the following criteria:

They were not conducted in patient populations with respiratory diseases
Independent nurse-led interventions were not investigated
The study populations being investigated were mixed in terms of diagnosis, which would affect the integrity of the study findings for respiratory diseases
The methodology and/ or statistical analysis methods were not clearly elucidated

6. Nurse-led clinics in the management of respiratory diseases: a review of the evidence

The role of the specialist respiratory nurse has evolved since the early 1980’s with the support of the Royal College of Physicians (RCP 1981). The possible complexity of respiratory patients’ regimens necessitates support with various aspects of their care plans, such as:

Supervising nebuliser and inhaler techniques
Monitoring progress, i.e. by periodical assessment of lung function and exercise capacity
Education on the specific disorder, medications, potential adverse events, etc
Counselling and education on positive lifestyle, or non-pharmacological, changes
Adherence support and monitoring

The role has developed further with nurses providing nurse-led clinics in chronic obstructive pulmonary disease (COPD) and asthma along with nurses providing early supportive discharge and ’hospital at home’ for patients with COPD (French et al, 2003). Some schools of thought argue that nurse-led clinics would culminate in the neglect of the more traditional nursing roles, as nurses focus on a more medical-focused aspect of patient care. However, research in other therapy areas, such as rheumatology (Hill et al, 1994) and mental health (Reynolds et al, 2000) shows that nurses can effectively combine the medical role with the traditional nursing approach. Nursing care strives to provide a holistic approach to care through practical management of disability, education and counselling and referral to other health care services as required (Rafferty and Elborn 2002).

6.1 Bronchiectasis

Nurse-led clinics have been evaluated, compared with regular doctor-led clinics, in a single randomised controlled trial in patients with bronchiectasis, a respiratory condition in which there is widening of the bronchi or their branches (Sharples et al, 2002). The study was a randomised controlled crossover trial including 80 patients in a bronchiectasis outpatient clinic. Patients received 1 year of nurse led care and 1 year of doctor led care in random order, and were followed up for 2 years. Various outcome indicators were used in the comparison, including lung function and exercise capacity, infective exacerbations, hospital admissions, quality of life and cost-effectiveness of the intervention. The results of this study are illustrated in Table 1 below.

Table 1: Nurse-led and doctor-led care in care of patients with bronchiectasis (Sharples et al, 2002)

Measurement outcome

Nurse-led

Doctor-led

Mean difference

(95% CI)

p-value

Forced expiratory volume in one second (FEV1) (%)

1.87

1.86

0.01 (-0.04 to 0.06)

–

Forced expiratory volume in one second (FEV1) (L)

69.7

69.5

0.2 (-1.6 to 2.0)

–

Forced vital capacity (FVC) (%)

87.6

87.6

-0.02 (-1.5 to 1.4)

–

12 minute walk distance (m)

765

746

18 (-13 to 48)

–

Infective exacerbations (patient years of follow up)

262 (79.4)

238 (77.8)

–

0.34

Hospital admissions attributable to patient’s bronchiectasis

43

23

–

0.22

As the table above clearly shows, there was no statistical difference in FEV1/FVC percent predicted or distance walked between nurse led and doctor led care in the

two treatment periods. Furthermore, 262 episodes of infective exacerbations were recorded by patients in the nurse practitioner-led care group in 79.4 patient years of follow up, compared with 238 in 77.8 years in the doctor-led care group. Thus, nurse practitioner-led care is associated with a relative rate of exacerbations of 1.09 (95% CI 0.91 to 1.30), p=0.34.

Using the St Georges Respiratory Disease questionnaire to assess differences in health-related quality of life between the two groups, there was no statistically significant differences in each of the scores for Symptoms, Control, Impact or total score. Also, the study showed that nurse-led care resulted in significantly higher costs per patient compared with doctor-led care; this was largely due to the difference in the number of hospital admissions and intravenous and nebulised antibiotic costs. The

authors concluded that nurse practitioner-led care for stable patients within a chronic chest clinic is safe and is as effective as doctor led care, but may use more resources.

This study has several potential limitations which could invalidate the findings. As the study relied on patient report to record the prescriptions issued by general practitioners, these may have been underestimated and could grossly affect the cost analysis. Conversely, the nurse practitioner was required to record prescriptions and tests issued at the clinic, and thus these records are probably more reliable and she would be more likely to have ensured that patients left with supplies of routine treatment. Another possible drawback of this study is the use of a crossover design in the methodology. Unless a wash-out period is incorporated in the study design, there is the possibility of a carryover effect with crossover study designs, with the danger that the effects of the earlier treatment is falsely attributed to the final experimental

treatment. In this study, there was no allowance for a washout period and thus this could affect the reliability and validity of the study results. This order and time effect needs to be checked for within the analyses but it can rarely be excluded as potential biasing factors (Pocock 1983). However, as recruited patients received the interventions in random order, this may negate the carryover effect.

Despite the possible limitations of the study that could potentially hinder its applicability in practice, the findings support the implementation of a nurse-led clinic in patients with chronic cases of bronchiectasis as an alternative to the standard rigid medical care.

6.2 Asthma

Similar to the findings in the study by Sharples and colleagues (2002) in patients with bronchiectasis, Nathan et al (2006) more recently compared the effect of follow-up by a nurse specialist with follow-up by a respiratory doctor following an acute asthma admission. In a single centre prospective randomised controlled trial, 154 patients admitted with acute asthma were randomly assigned to receive an initial 30-min follow-up clinic appointment within 2 weeks of hospital discharge with either a specialist nurse or respiratory doctor. The intervention comprised a medical review, patient education, and a self-management asthma plan. Further follow-up was then arranged as was deemed appropriate by the corresponding doctor or nurse, and all patients were asked to attend a 6-month appointment.

Despite hospital outpatient follow-up, there was a significant proportion of patients in both groups who had exacerbations. However, there was no statistically significant difference between the two groups (Table 2). In the same manner, there was no statistically significant difference in quality of life assessed with two different validated questionnaires, the Asthma Questionnaire and the St George Respiratory Questionnaire. Mean change in peak flow at 6 months was similar between the two groups, probably indicating equivalence of the two tested interventions. Nathan et al (2006) concluded that follow-up care by a nurse specialist for patients admitted with acute asthma can be delivered equivocally with comparable safety and effectiveness to that traditionally provided by a doctor practitioner.

Table 2: Nurse-led and doctor-led care in follow-up care of patients admitted with acute asthma (Nathan et al, 2006)

Measurement outcome

Nurse-led

Doctor-led

Odds ratio

(95% CI)

Mean difference

(95% CI)

p-value

Change in peak flow

–

–

1.39 (-3.84 to 6.63)

0.122

Infective exacerbations (%)

45.6

49.2

0.86 (0.44 to 1.71)

–

0.674

Quality of life

87.6

87.6

-0.02 (-1.5 to 1.4)

–

Asthma Questionnaire

–

–

0.78 (-0.64 to 2.19)

0.285

St George Respiratory Questionnaire

–

–

1.08 (5.05 to 7.21)

0.891

The possible limitations associated with this study is the large amount of missing data for some outcomes, especially peak flow and quality of life

Nobes (1998) classifies the German financial reporting system as a ‘Type B (weak equity)’ and The Netherlands as ‘Type A (strong equity)’. Compare the financial reporting systems of Germany and The Netherlands.

National differences have all become stereotypical. Indeed the differences between countries may be vast. Influences such as family origin, or attitudes towards business culture are inherently reflected in the way businesses are run, managed and owned. There are also many reasons as to why there are differences in financial reporting. These depend on the character of the national legal system, the type of industry financing, the interrelationship between tax and finance reporting systems, the extent of accounting theory progression and even language.(Elliott, 2006)^[1]

In terms of the legal system between Germany and the Netherlands, it is clear tat they both follow a civil law system which is different to the common la procedure of the United Kingdom contained within the Companies Act 1981.^[2] However, for the purposes of this essay, I will focus on the comparisons between the financial supporting systems of German and the Netherlands with regards to the Nobes’ (1998) classification of Germany being a weak equity (Type B) while the Netherlands in a strong Equity (Type A).

I will consider Nobes’ theory by considering equity figures for both Germany and the Netherlands in respect of their types of equity and will briefly compare the financial reporting systems of the two countries.

Although equity is represented in many different forms, it is generally defined as “the value of a company which is the property of its ordinary shareholders (the company’s assets less its liabilities, not including the ordinary share capital)^[3]

In terms of financial accounting reporting, considerations of which is the relevant way of financing a business, i.e. the information required by equity investors are different to those of load creditors. Strong equity can be defined as a high ratio between equity market capitalisation and Gross Domestic Product (GDP) whilst weak equity is a low ratio between market capitalisation and Gross Domestic Product (GDP).^[4] I, Germany had the lowest equity of 5 countries which were studied. (49%). This shows that unlike America, France or presumably the Netherlands, Germany does not rely heavily on individual investors.

Specifically, Nobes (1998) develops a frameork that seek to explain the differences in international accounting. Nobes catagorises accounting systems into two types: Class A (accounting for outside shareholders) and Class B (accounting for tax and creditors). Two variables determine whether a country will have a Class A or a Class B accounting system: (1) the type of culture and (2) the strength of the equity-outsider financing system. According to the model, countries with Type A cultures have developed strong outsider-equity financing systems that have led to the development of a Class A financial reporting system. Therefore, like America and the UK, the Netherlands has relied on a Type A accounting system that is relaint on a high ratio of equity investment as oposed to loan creditors.

Conversely, countries with Type B cultures have weak outsider-equity financing (i.e. weak equity) systems that have led to the development of a Type B financial reporting system . This model is comonly known to be widespread practice within continenatl Europe including Germany.

Nobes (1998) stsudies the link between the financing system and accounting, but also believes that a Type A system in terms of equity financing is not entirely dependant on Type A accounting, but instead external or outsider equity financing is imperative.

By drawing on examples, Nobes (1998) examines Japan. Japan is a country with many listed companies as well as large equity market, but instead of the market being supported externally, most of the shares are owend by Janpanese banks or other companies, investors etc). According to the model, financial reporting in Japan should exhibit the characteristics of a Type B accounting system. Nonethelss, Nobes (1998) in explaining why Germany is substantialy different to the Netherlands claims that differences in culture, i.e. countries that have altered their culture through war will usually adopt the culture and accounting system imported from the dominating country. This explains, for example, why some post colonial African countries possess a type A system despite having very weak accounting systems.

As noted earlier, Nobes focuses his discussion on the link between financing systems and accounting. He assumes that some cultures lead to strong equity-outsider financing systems and others do not, but he leaves the examination of this assumed relationship for others. Nobes appears to assign a very broad view of culture to this variable in his model. In a simplified model presented earlier in his paper he refers to this variable as “culture, including institutional structures”^[5] A brief examination of the differences betweent the culture of institutional structures is examined below.

While a Type A classification separates accounting and tax rules, Type B does not.^[6] Type A in comparison to Type B also has an extensive auditing system. This is true for the Netherlands in comparison to Germany. In US, UK and Netherlands, link between taxable income and accounting income is much weaker, with separate tax accounts and financial accounts. The information is prepared with external investor information in mind thereby focusing on a large equity market (Type A). In comparison a Type B taxation system such as that of Germany tax accounts which are published financial accounts are not usually prepared for investors, but instead internal forces such as company investors, shareholders etc.

In sum, the Type A system such as that in practice in the Netherlands and as proposed by Nobes is one of dynamic accounting formulated with the external investor in mind thereby creating increased demand for external investment. On the other hand, Germany experiences the converse of this, with taxation and accounting system which is interlinked and an intention of financial reporting for internal investors rather than external investors in mind.

Bibliography

Classification based on Corporate Finance, http://www.people.ex.ac.uk/wl203/BEAM011/Materials/Lecture 10/IA1 Lecture 10.pdf

Elliott et al, Financial Accounting and Reporting, (2006 10^th ed)

Dictionary of Accounting, Collin Publishing (2001)

Nobes (1998)

The French Revolution is synonymous with nationalism. In fact, there can be little doubt that the concept of a nationalist revolution was born from the discord that built up in and around the periphery of France during the 1780’s. There was, however, little cohesion or malice aforethought with regards to events that took place after the storming of the Bastille in 1789. Rather than being a planned experiment in nationalism, the French Revolution should instead be interpreted as the result of pent up forces and frustrated political ambitions that had been fermenting in France and throughout Europe for the previous one hundred years. The nationalism of the revolution era was thus rare; a total kind of nationalist ideology that in theory was concerned with furthering the ambitions of ‘la patrie’ (the nation) but which in reality was too dynamic for its own good. The various modes of political office that dominated France over the forthcoming decades were wholly unprecedented and unable to be contained within the national borders of France alone. As Bouloiseau declares, “the regime’s intentions were pure, but it lacked the means to put them into practice.”^[1]

For the purpose of perspective, the following examination of the role that nationalism played in the French Revolution and Napoleonic Wars must adopt a chronological approach, attempting first to trace the genesis and subsequent evolution of the nationalist uprising before attempting to draw a definitive conclusion as to why the nature of the revolution was far too complex to be explained in simple ideological terms. First, however, a definition of nationalism within the specific historical context in which it was formed must be ascertained in order to establish a conceptual framework for the remainder of the discussion.

Nationalism could not have emerged as a populist form of political ideology without there first having been the introduction of the paradigm of the ‘nation?state’, which was first institutionalised after the Peace of Westphalia in 1648. France, Spain, Prussia, Switzerland, Holland and Sweden all signed treaties during the course of 1648 bringing to an end a variety of international conflicts that had beset the European continent for the previous eighty years. The treaty acknowledged the political legitimacy of states on the European mainland, giving rise in the process to the idea of international relations – the foundation of modern foreign policy. This was an important break with the past where relations between countries had been conducted via the historical continental monarchies and the ‘ancien regime’ that had governed feudal, pre?industrial Europe for centuries. After 1648 the watershed notion had been implanted which suggested that the rule of the old continental monarchies was coming to an end and that it would be the nation?state that would become the determining factor in political affairs in Europe in the future. It is a significant point and one that should be borne in mind throughout the remainder of the discussion: without the Peace of Westphalia there could not have been a nationalist revolution, neither in France or anywhere else. Before it, it is difficult to conceive of nationalism in the modern form that is talked of today.

The revolution itself was the result of a century of frustration that had built up around the inability to turn this new concept of the nation?state into a political reality. For instance, despite the increasing urbanisation and industrialisation of the country the monarchy, nobility, aristocracy and the landowners continued to economically and politically dominate France throughout the opening decades of the eighteenth century. Moreover, as was the case with the last days of the Roman Empire, the behaviour of the traditional elite in France appeared to get more lavish and decadent with each passing year so that, by July 1789, France was absolutely ripe to experience what Marxists would understand as a ‘revolution from below’. The intellectuals and the bourgeoisie were able to use a variety of oratorical and politically inflammatory means of inciting the disaffected French masses into open rebellion at this time. One of these means was nationalism. By constantly claiming that the monarchy and the nobility were destroying the cultural fabric of France, the leaders of the revolution (bourgeois men such as Maximilian Robespierre) were able to quickly turn a large?scale riot into a wholesale nationalist revolution. In this sense, the dictatorship of Robespierre and The Terror that took effect from July 1793 to July 1794 should be seen as marking the birth of political modernity.

“Robespierre is not so much the heir of Enlightenment as the product of the new system called Jacobinism, the beginning of modern politics.”^[2]

Modern politics in this instance is a pseudonym for nationalism, which after the French Revolution became the defining concept in European politics until the end of World War Two and the destruction of the Nazi State in 1945. Indeed, the link between the revolution, nationalism and what the twentieth century would come to understand as fascism must at this point be underscored. Fascism, much like the political dictators of the French Revolution, was only able to come to power via a protracted period of liberal decadence having taken place beforehand. Thus – in much the same way as the leaders of the French Revolution – right wing fascist leaders used nationalism as a means of highlighting the need to undergo a revolutionary national re?birth; to attempt to form a phoenix from what they perceived as the ashes of political ineptitude and cultural decadence.

“Fascism is a genus of political ideology whose mythic core in its various permutations is a palingenetic form of populist ultra-nationalism.”^[3]

The association with fascism is also useful for the way in which it spreads light on how the revolution was unable to be contained with the sovereign national borders of France alone. Like Nazism, nationalism in the context of the French Revolution was a highly unstable ideological solution to a long-term socio?political problem. The revolution likewise required an external enemy in order to maintain popular support and political legitimacy. Thus, war became the lifeblood of the revolution as, during the course of the 1790’s the leaders of the French Revolution decided that it was no longer enough to have successfully removed from power the former political elite from France; rather, an expansion of the ideology and the means of putting that ideology into practice abroad became the raison d’etre of the regime.

“During the 1790’s the policies pursued by France undoubtedly contributed to mass political mobilisation elsewhere in Europe.”^[4]

The Napoleonic Wars which followed should be seen as the wars of nationalism which raged across the European continent over the following two decades. Yet there was a tangible sense of a facade appearing whereby the French claimed to be conquering foreign territory in order to transfer the libertarian, enlightened principles of the revolution to lands that had hitherto not been afforded such a valuable political and social insight when in fact the struggles that Napoleon embarked upon across the continent were simply a means of affirming the French nationalists’ belief that they alone were the superior European race. Nowhere is this better illustrated than in the invasion of Russia – again a move that strikes immediate comparisons with Hitler and Nazi Germany. By crossing the Urals and moving into the realms of Russian authority, Napoleon finally discarded the mask of the revolution that he had so far been sporting. In no way could the take over of Russia be seen as anything other than the expression of nationalism over political theory. Russia at the time was still an almost entirely feudal country with no industrialisation to speak of even in the major towns and cities such as St. Petersburg. In addition, there was no sophisticated social class system to speak of which could have proved to be a launch pad for a nationalist revolution taking place in Russia on anything like the same scale that had happened in France. Therefore, the invasion was, in the final analysis, simply due to the will of Napoleon and the nationalistic French to increase the revolutionary empire by overcoming the historical pariah of European politics. Furthermore, just like all the other nationalist leaders who went before and came after him, Napoleon was ultimately proved to be incorrect: nationalism (as manifested by the Tsar and the Russian civilian population) was a force that was just as capable of defending a sovereign border territory as it was of invading and conquering it.

Nationalism was clearly a double?edged sword so far as France and Napoleon were concerned. Essentially, the more land the French army seized, the more the Prussians and the English revelled in their own forms of nationalism which were ignited in the first place by French aggression and sustained by the military ambitions of its dictatorial leader. It remains within the realms of conjecture as to whether or not the British Empire would have been established as rapidly and successfully as it was without the experience of the Napoleonic Wars to both inspire as well as crystallise it. There can be little doubt that the rivalry of the two (which had been meted out in the colonial wars that took place at the same time in North America and Canada) had been the result of a growing sense of tension due to the nascent nationalism of both countries. The French Revolution proved to be the catalyst behind the ultimate expression of this nationalistic warfare between the United Kingdom and France – a potent political concoction whose reside is still very much in evidence in the modern era.

Mention at this point must be made of the ideological and philosophical impetus behind the French Revolution in order to manufacture an argument against the idea that the uprising was solely the revolt of nationalistic fervour, which it clearly was not. No seizure of power by a people over a ruling government can be anything other than the combination of a number of highly complex social, cultural, economic and political processes.

The build up to the storming of the Bastille has been described as the golden age of Enlightenment – an epoch that oversaw the signing of the Declaration of the Rights of Man in America (July 1776), which signalled the notion of all men being born equal and of human beings having been born with certain rights that must be upheld by national and international law. This vision of liberalism that was sweeping across the early modern western world was not initially a vision that was inspired solely by nationalism. Certainly in the United States it is not possible to speak of a nationalist revolution simply because the thirteen colonies at that time consisted of such a mixture of European immigrants as to make the concept of a nation?state wholly inadequate for the newly conceived ‘Americans.’ The ideal was, rather, a child of ideological and philosophical writings that emanated predominantly from France via contemporary cultural commentators such as Rousseau and Voltaire. Again, these ideals did not accentuate the nationalism inherent within Enlightenment. Instead they promulgated an essentially socialist view of a new European order that was designed upon a kind of meritocracy rather than values pertaining to inheritance; where ability was seen as more important than historical connection.

“Anyone who excels in something is always sure to be sought after, opportunities will present themselves and merit will do the rest.”^[5]

This inexorably socialist, libertarian seed that was first planted in what would become the French Revolution is a vital tool for understanding how nationalism alone cannot be seen as responsible for the events of 1789 and the ensuing wars which followed. The ideological impetus behind the revolution was one that genuinely envisaged a utopian new world order that would not be dictated by corrupt and inadequate people the likes of which had conspired to ruin France since the Middle Ages. The reasons as to why this ideal of a revolution from below turned into a large scale international war is entirely due to the make up of mankind, which is especially inclined to be corrupted by power and to look towards routes of making profit out of the conquer and subjugation of alien races. The point has been made before and it must be made again: this kind of overt nationalism that took control of France during the late eighteen and early nineteenth century was the driving force behind all intercontinental relations over the following one hundred and fifty years. The French Revolution thus oversaw the beginnings of the reign of realpolitik when military might became the only means of maintaining dominance in a Europe increasingly influenced by cultural intolerance and overt political nationalism.

Conclusion

“1789 meant a revolution in ideas, in institutions and individual opportunities, which a quarter of a century of upheaval and war made irreversible.”^[6]

As the above quotation suggests, the revolution that took France by storm during the final years of the eighteenth century was an extremely potent political process that seemed to gather intensity as the success first of the bourgeois dictatorship of The Terror and second of the military dictatorship of Napoleon cemented the ideals of the Enlightenment upon the European mainland. However, although this process might have began as an expression of egalitarian views pertaining to the freedom of all men, the reality of the revolution was one that spoke volumes about the essentially violent nature of the human condition and the extent of the socio?political frustrations that had been steadily rising since the middle of the previous century. The greatest beneficiary of this volatile mixture was without doubt nationalism – the only ideological force that was able to hold together the disparate aims and ideals that conspired to make up the French Revolution. Nationalism and the defence of la patrie were used as rallying cries by the petty bourgeoisie, the revolutionary instigators of the Terror and the imperial machinations of the Napoleonic war machine.

To what extent these people were successful in their aims of inciting a nationalist revolution remains an issue that still resides predominantly within the realms of conjecture. There certainly appears to be a major schism between the nationalism that gripped the streets of Paris and the other chief urban centres of France and the relative tranquillity of the rural areas of the country that largely retained their bonds both to the nobility and to the ancien regime in the years that immediately followed the revolution^[7]. In the final analysis, the concept of la patrie meant very little to the uneducated proletariat working on the rural estates in the agrarian parts of the country where economic necessity took precedence over revolutionary rhetoric and nationalistic uprisings. This then suggests that nationalism is inexorably tied to industrialisation, urbanisation and the ability to wage mobile industrial warfare across a large land mass. This is exactly what happened one hundred and fifty years after the defeat of Napoleon at Waterloo when the distorted vision of nationalism that inspired the French Revolution came back to haunt Europe and the world on an unimaginable scale.

BIBLIOGRAPHY

Andress, D. (2005) The Terror: Civil War in the French Revolution London: Little, Brown & Co.

Bouloiseau, M. (1983) (translated by J. Mandelbaum), The Jacobin Republic, 1792?1794 Cambridge: Cambridge University Press

Dann, O. and Dinwiddy, J.R. (1988) Nationalism in the Age of the French Revolution London: Continuum

Furet, F. (1981) (translated by E. Forster), Interpreting the French Revolution Cambridge: Cambridge University Press

Griffin, R. (1991) The Nature of Fascism London: Pinter

Merriman, J. (2004) A History of Modern Europe Volume 2: From the French Revolution to the Present London: W.W. Norton & Co.

Pilbeam, P.M. (1995) Republicanism in Nineteenth Century France, 1814-1871 Basingstoke: Macmillan

Rousseau, J-J (1971) (introduction and translated by J.M. Cohen) The Confessions London: Penguin

Voltaire (1964) (introduction and translated by J. Butt) Zandig London: Penguin

Zeldin, T. (1980) France 1848-1945: Intellect and Pride Oxford: Oxford University Press

Selected Articles

Biddis, M. (October 1994) Nationalism and the Moulding of Europe, in, Journal of the Historical Association, Volume 79, No. 257 London: Blackwell

Introduction

The Capital Asset Pricing Model developed by William Sharpe has significant similarities with Harry Markowitz’s Portfolio theory. In fact, the later is rightly considered as the next logical step from the latter, with both based on similar foundations.

There are also differences in how each model/theory is calculated, pertaining to risk considerations.

This paper’s main objective is to identify these differences while highlighting the similarities as well to put things into perspective.

The report will open with an overview of Markowitz’s portfolio theory and explain it further by means of describing the efficient frontier, the Capital Market Line, risk free asset and the Market Portfolio.

The report will then switch its attention to the Capital Asset Pricing Model and explain it further through the Security Market Line.

The report will then close by outlining the differences between the two with a view of answering the main objective.

What will come through in this report is that Markowitz’s portfolio theory uses standard deviation as its risk measure and takes into account all risk in an efficient portfolio, while the Capital Asset Pricing Model uses the beta co-efficient to measure risk and takes into account both efficient and non-efficient portfolios – further more it measures the risks of individual assets within the portfolio.

Modern Portfolio Theory

Modern Portfolio Theory (MPT) was introduced by Harry Markowitz, way back in 1952. At a high level it proposes how rational investors use diversification to optimise their investment portfolios and give guidance on pricing risky assets.

MPT assumes that investors are risk averse, i.e. given two assets A and B offering the same expected return, investors will opt for asset A if it is less risky. In effect, an investor who expects higher returns would need to accept more risk. The expected trade-off between risk and return depends on the individual’s level of risk aversion. The implication of this is a rational investor (a risk averse investor) will not invest in a portfolio if another one exists offering a better risk-return profile (Fabozzi & Markowitz, 2002).

For any given level of risk, investors will opt for portfolios with higher expected returns instead of those with lower returns.

Another assumption under MPT is that investors are only interested in the expected return and the volatility of an investment, as measured by the mean and standard deviation respectively. Investors do not consider any other characteristics, for example, charges.

In effect, based on the assumptions above, investors are concerned about efficient portfolios.

To explain portfolio theory further, let us consider the formula for the expected return and risk of a portfolio under MPT.

Suppose two assets A and B formed a portfolio in proportion (X) each, the expected return for that portfolio would be:

R(p) = X(a)R(a) + X(b)R(b), where:

R(p) = expected returns from portfolio

R(a) = expected returns from asset A

R(b) = expected returns from asset B

The standard deviation or risk of that portfolio would be:

SD(p) = v(X?aSD?a + X?bSD?b + 2XaXbRSDaSDb), where:

SD(p) = standard deviation of expected returns of portfolio

SDa = standard deviation of expected returns of asset A

SDb = standard deviation of expected returns of asset B

R = correlation coefficient between the expected returns of the two assets

The efficient frontier

Under MPT, Markowitz examined the efficient frontier curve. The efficient frontier curve gives a graphic presentation of a set of portfolios that offer the maximum rate of return for any given level of risk (McLaney, 2006). According to Markowitz, an efficient investor will opt for an optimum portfolio along the curve, based on their level of risk aversion and their perception of the risk and return relationship (Fabozzi & Markowitz, 2002).

Figure 1: Efficient Frontier Source: www.riskglossary.com

The curve in the diagram above illustrates the efficient frontier. Portfolios on the curve are efficient – i.e. they offer maximum expected returns for any given level of risk and minimum risk for any given level of expected returns. The shaded region represents the acceptable level of investments when risk is compared against returns. For every point on the shaded region, there will be at least one portfolio that can be constructed and has a risk and return corresponding to that point (www.riskglossary.com)

As aforementioned, each portfolio on the efficient frontier curve will have a higher rate of return for the same or lower level of risk or lower risk for an equal or better rate of return when compared with portfolios not on the frontier.

It is important to note that the efficient frontier is really made up of portfolios rather than individual assets. This is because portfolios could be diversified, i.e. investors can hold assets which are imperfectly correlated (Fabozzi & Markowitz, 2002). This will help to ensure that investors can reduce their risks associated with individual asses by holding other assets – a kind of set-off.

The Capital Market Line

The Capital Market Line (CML) is a set of risk return combinations that are available by combining the market portfolio with risk free borrowing and lending (www.lse.co.uk/financeglossary). The CML defines the relationship between risk and return for efficient portfolios of risky securities. It specifies the efficient set of portfolios can investor can obtain by combining the portfolio (which contains risk) with a risk free asset.

The formula for CML is:

E (r_c) = r(f) + SD(c)*[E(r_m)-r(f)]/SD(m)

Where:

E(r_c) = expected return on portfolio c

R(f) = risk free rate

SD(c ) = standard deviation of portfolio c

E (r_m) = expected return on market portfolio

SD(m) = standard deviation of market return

The CML indicates that the expected return of an efficient portfolio is equal to the risk-free rate plus a risk premium. Both risk and return increase in a linearly along the CML.

Figure 2: Capital Market Line Source: www.riskglossary.com

In Figure 2 above, the CML is the line touching the efficient frontier curve. It passes through the risk free rate (assumed to be 5%). The point where the CML forms a tangent with the efficient frontier curve is the point called the super-efficient portfolio.

The Risk free asset, Sharpe ratio and the Market Portfolio

The risk free asset pays a risk free rate and has a zero variance in returns, e.g. government short-term securities. When combined with a portfolio of assets the change in return and risk is linear.

The Sharpe Ratio is a measure of the additional return to be obtained about a risk free rate for a given portfolio compared with its corresponding risk. On the efficient frontier the portfolio with the highest Sharpe Ratio is known as the market portfolio.

The CML is the result of a comparison between the market portfolio and the risk free asset. The CML surpasses the efficient frontier with the exception of the point of tangency.

The Capital Asset Pricing Model

While the CML focuses on the risk and return relationship for efficient portfolios, it would be useful to consider the relationship between expected return and risk for individual assets or securities. The Capital Asset Pricing Model (CAPM) would be used for this.

CAPM is an extension of Markowitz’s Portfolio Theory or MPT. It introduces the notions of systematic and specific risks. Let us define each:

Systematic risk – this is the risk associated with holding the market portfolio of assets
Individual assets are affected by market movements
Specific risk – this risk is unique to an individual asset and represents that portion of an asset’s return which has no correlation with market movements.

CAPM assumes the following (McLaney, 2006, 199):

Investors are risk averse and maximise expected utility of wealth
The capital market is not dominated by any individual investors
Investors are interested in only two features of a security, its expected returns and its variance or standard deviation
There exists a risk free rate at which all investors may borrow or lend without limit at the same rate
There is an absence of dealing charges, taxes and other imperfections
All investors have identical perceptions of each security

This lends credence to the assertion that CAPM follows a natural progression from MPT. The assumptions are identical with the main difference being how risks are categorised and treated. This will be explored in detail in a later section.

Under CAPM, the market place will compensate an investor for taking a systematic risk but not a specific risk. The rationale for this is that specific risks can be avoided or minimised through diversification.

The formula for CAPM is as follows:

r = Rf + Beta x (RM-RF), where:

r = expected return on an asset

Rf = rate of risk free investment

RM = return rate of the appropriate asset class

Beta is the relative risk contribution of an individual security to the overall market portfolio. It measures the security risk relative to the market portfolio and ignores the specific risk. The beta equation is as follows:

Cov (i,M)/(SDm)?, where:

Cov (i,M) = covariance between market portfolio and security i

(SDm)? = variance of the market’s return

The betas for all assets are measured in relation to the market portfolio beta which is 1. In effect, if individual beta is greater than 1, then individual asset has a higher risk than the market risk. If individual beta equals 1, then individual asset risk and market risk are the same. If individual beta is less than 1, then the risk of that individual asset is less than the market risk.

The value of beta provides an idea of the level or size of the change in an asset’s return when a corresponding change in the returns of an overall portfolio is experienced (McLaney, 2006).

Beta has come under criticism from academics and investors who do not appreciate the value of beta as an appropriate risk measure. However, this is somewhat challenged by actual performance of the betas of portfolios and mutual funds. These are regarded as stable and can be used to predict future betas.

Security Market Line

CAPM can be applied by using the Security Market Line (SML). SML is a graphical representation showing the linear relationship between systematic risk and expected rates of return for individual assets. In the case of the SML, risk is measured by beta. It plots the expected returns on the y axis and the risk as denoted by beta on the x axis.

In other words, the SML expresses the linear relationship between the expected returns on a risky asset and its covariance with market returns. Its formula is:

Figure 3: CAPM and SML

The line in the diagram above is the SML.

Differences relating to MPT (CML) and CAPM (SML)

To explain the differences, it is useful to consider the relationships between risk and return in the perspective of CML and SML. CML compares the relationship from an MPT perspective, while SML does from a CAPM perspective.

The main difference pertaining to MPT’s relationship with CAPM is pertaining to risk.

Under Portfolio theory, CML gives an indication of expected returns in comparison with risk. Here the risk is measured in terms of standard deviation of returns. The rationale for this is CML represents the trade-off for efficient portfolios, i.e. the risk is all systematic risk (McLaney, 2006).

The SML on the other hand, indicates the risk/return trade-off, using beta as the measure of risk. In this case, only the systematic risk element of the individual asset is taken into consideration.

The reason why CML shows no individual security’s risk profile is because all individual securities have an element of specific risk, implying that they are inefficient. CML only looks at efficient portfolios.

The table below summarises the main differences between CML and SML

CML

SML

Scope

Covers efficient portfolios which consist of one risky asset and risk-free assets

Covers all capital assets

Measuring Asset Risks

Standard deviation is used

The beta coefficient or covariance is used

Objectives

CML aims to identify the optimum portfolios for investors

SML seeks to describe how assets are priced by efficient markets in equilibrium

Table 1: Tabular difference between CML and SML

Summary

As has been shown above, CAPM has been developed along the lines of Markowitz’s Portfolio theory. They both use expected returns and risk as the investor’s main determinant of their investment decisions. They both assume that investors are risk averse and do not consider anything else other than risk and returns.

However, there are some subtle differences which will now be summarised below:

Under Portfolio theory, the CML measures risk by standard deviation or total risk. The SML measures risk by beta or systematic risk under CAPM – it ignores specific risks
The CML graph is interested in providing information on efficient portfolios only. The SML graph on the other hand provides insight into both efficient and non-efficient portfolio and securities

REFERENCES AND BIBLIOGRAPHY

Books

Bodie, et al (2006) ‘Investments’ (7^th edition), McGraw-Hill/Irwin, London
Elton, E et al (2003) ‘Modern Portfolio Theory and Investment Analysis’, Wiley, London
Fabozzi, F. & Markowitz, H. (2002) ‘Theory and Practice of Investment Management’, Wiley, London
McLaney, E. (2006) ‘Business Finance – Theory and Practice’ (7^th edition), Prentice Hall, London
O’neill, W.J. (2002) ‘How to Make Money in Stocks’, (3^rd edition), McGraw-Hill, London

Internet Sources

www.lse.co.uk

www.riskglossary.com

www.wikipedia.com

In medieval times, the royal will was signified in documents bearing royal seal and was applied by one of the King’s ministers. Maitland has described this practice as being “the foundation for our modern doctrine of ministerial responsibility – that for every exercise of the royal power some minister is answerable”^[1]. This essay will consider the modern doctrine of ministerial responsibility and examine the extent to which it forms, in modern political times, the cornerstone of accountability in the UK constitution.

The convention of ministerial responsibility has been described by Loveland as “perhaps the most important non-legal rule within our constitution”^[2]. The convention may be said to be concerned with regulating the conduct of government activities, both in respect of Ministers’ relations with each other, and with the two Houses of Parliament^[3]. Ministerial responsibility comprises of two branches: collective responsibility and individual responsibility^[4].

Collective ministerial responsibility may be further reduced into three main rules: the confidence rule; the unanimity rule, and; the confidentiality rule^[5]. Through the operation of these rules, Ministers of the Government all appear to others to share the same policy opinions, whatever their own personal views. They are therefore collectively responsible for any decisions made by the Government and the Government as a whole should resign if it loses confidence. The doctrine of collective responsibility was stated in 2005 in the following form:

“Collective responsibility requires that Ministers should be able to express their views frankly in the expectation that they can argue freely in private while maintaining a united front when decisions have been reached. This in turn requires that the privacy of opinions expressed in Cabinet and Ministerial Committees should be maintained.”^[6]

It therefore follows that where a Minister does not wish to be publicly accountable to Parliament and the electorate for a Governmental decision, he should resign from the Government. This occurred, for example, when Robin Cooke resigned over the Labour Government’s decision to invade Iraq in 2003^[7].

Collective ministerial responsibility allows all members of Government to be accountable as a whole, thus avoiding arguments and blame-shifting between different Ministers and Departments. In this way, collective responsibility enhances the accountability of Government.

Individual ministerial responsibility is the convention that a Minister answers to Parliament for his department, with praise and blame being addressed to the minister and not civil servants^[8]. It has been said that “the fundamental purpose of the convention of individual ministerial responsibility is that it provides an important means of drawing information into the public domain”^[9] The principle has often been associated with the idea that ministers must resign in cases of official wrongdoing^[10] but it also encompasses Ministers’ on-going obligations to account to Parliament for their departments’ work^[11].

However, in 2000, Jowell and Oliver suggested that ministerial responsibility to Parliament had been “significantly weakened over the last ten years or so… so that it can no longer be said, in our view, that it is a fundamental doctrine of the constitution”^[12]. Their opinion may have been influenced by the structural changes in government. During the 20^th century tasks of the state expanded and vast Whitehall departments were created, with the effect that ministers could not oversee all aspects of the departments’ work^[13]. Executive ‘Next Steps’ agencies created since 1988 had the specific purpose of delegating managerial power. Indeed, as Turner states: “Ministerial responsibility, however, is a different matter in the modern era. It has shrunk, it seems, almost to nothing, thanks, in no small part, to the creation of “independent” agencies to undertake the work of government.”^[14]

Where civil servants have great authority, the question arises as to what extent a Minister is responsible for any acts of maladministration, and whether maladministration results in a duty to resign. Is it fair to hold the Minister responsible? If not, who should be and how does this affect accountability?

As Tomkins notes, during the Major Government’s office from 1990 to 1997 “Ministers and senior civil servants… proposed a number of initiatives that sought significantly to undermine the tenets of individual responsibility”^[15]. It was claimed that Ministers were responsible only for those decisions in which they were directly and personally involved. Michael Howard claimed, after serious failings leading to Prison escapes, that Ministers were responsible to Parliament only for policy matters, with “operational” failings falling outside the scope of individual responsibility^[16]. Furthermore, it was argued that where Ministers had misled Parliament, they should resign only if they had done so knowingly rather than inadvertently^[17].

In this way Ministerial responsibility was weakened, with accountability becoming more prominent. A minister may be said to be accountable to Parliament for everything which occurs in a department, having a duty to inform Parliament about the policies and decision of the department and to announce when something has gone wrong. However, this does not bring with it responsibility in the sense that the Minister takes the blame.

In 1997 the Ministerial Code reformulated ministerial responsibility to the effect that:

Ministers must uphold the principle of collective responsibility; (b) Ministers have a duty to Parliament to account, and be held to account, for the policies, decisions and actions of their departments and agencies; (c) it is of paramount importance that Ministers give accurate and truthful information to Parliament, correcting any inadvertent error at the earliest opportunity. Ministers who knowingly mislead Parliament will be expected to offer their resignation to the Prime Minister; (d) Ministers should be as open as possible with Parliament, refusing to provide information only when disclosure would not be in the public interest…; (e) Ministers should similarly require civil servants who give evidence before Parliamentary Committees on their behalf and under their direction to be as helpful as possible in providing accurate, truthful and full information…^[18]

This new formulation would suggest that it is now ministerial accountability rather than responsibility which forms the cornerstone of accountability in the UK constitution. Unless there is fully open Government, there may be situations which arise where no person will take responsibility for actions and Ministers’ relationship with the Civil Service will be fundamentally changed. As Hennessy points out: “For the Civil Service the buck-stopping question is of crucial importance. Under the doctrine of ministerial responsibility, ministers are the ultimate can-carriers for everything done by the civil service in their name”^[19]. This will no longer be the case where a Minister’s responsibility ends with alerting Parliament to a problem.

Bibliography

Allen, M. & Thompson, B., Cases and Materials on Constitutional and Administrative Law, 9^th Edition, (2008), OUP

Bamforth, N., “Political accountability in play: the Budd Inquiry and David Blunkett’s resignation”, (2005), Public Law, 229

Bradley, A.W. & Ewing, K.D., Constitutional and Administrative Law, 14^th Edition (2007), Pearson Longman

Brazier, R., “It is a Constitutional Issue: Fitness for Ministerial Office in the 1990s”, (1994), Public Law, 431

Cooke, R., The Point of Departure (2003), Simon and Schuster

Hansard, HC cols 31-46 (January 10, 1995)

Hennessy, P., Whitehall, (1989), Secker & Warburg

Hough, B., “Ministerial responses to parliamentary questions: some recent concerns”, (2003), Public Law, 211

Jowell, J. & Oliver, D., The Changing Constitution, 4^th Edition, (2000), OUP

Lewis, N. & Longley, D., “Ministerial Responsibility: The Next Steps”, (1996), Public Law, 490

Loveland, I., Constitutional Law, Administrative Law, and Human Rights: A Critical Introduction, 4^th Edition, (2006), OUP,

Maitland, Constitutional History,

Marshall, G., Constitutional Conventions, (1984)

Ministerial Code: a Code of Ethics and Procedural Guidance for Ministers (reissued, July 2005)

Tomkins, A., The Constitution after Scott: Government Unwrapped, (1998), Clarendon

Tomkins, A., Public Law, (2003), OUP

Turner, A., “Losing heads over the lost data”, (2007), 171, Justice of the Peace, 841

1

BACKGROUND AND INTRODUCTION

The All England Lawn Tennis and Croquet Club (“Club”) located at Wimbledon, is a private club founded in 1868. Its first ground was situated off Worple Road, Wimbledon, and the first Wimbledon Lawn Tennis Championship was instituted in 1877. By the turn of the century, Wimbledon, as the event had become known had grown in popularity and reputation, acquiring international status as the premier tennis event. By 1920, a company was formed to acquire and equip the present site at Church Road. A complex agreement governs and defines the relationship between the Club, the Lawn Tennis Association (LTA), the company, and Wimbledon as a self financing event. Profits from Wimbledon, held during June and July of each year, accrue to the LTA after meeting expenses of the Wimbledon tournament. LTA in turn utilises the surplus funds to develop tennis as a sport in Great Britain. A second company to exploit trademarks and brand opportunities was established in 1993, whereby any profits would accrue for the benefit of Wimbledon to improve the quality of the event for spectators, players, officials, and stakeholders. Surplus funds from Wimbledon that have been made available to LTA were 25.8 million in 2003. Wimbledon does not disclose revenue or sponsorship figures but it is estimated that it had a net income of ? 34 million during 2004. (Wimbledon 2005 and Schwartz, 2004)

Wimbledon, as an event does not appear to have a vision statement defined by Johnson and Scholes (2005) p13 as a “desired future state” or “aspirational statement.” Wimbledon has equally not published a mission statement, or “overriding purpose in line with the values or expectations of stakeholders.” (Johnson and Scholes, 2005, p13) However, given the close association with the LTA described above, it can be argued that the event’s underlying vision and mission are aligned and it is appropriate to quote the LTA’s vision, “to make Britain a great tennis nation,” and the mission statement, “more players, better players,” to give context to Wimbledon. (LTA, 2005) Wimbledon is marketed as an international event rather than a British event although British tennis derives the economic benefit. (Cambridge Econometrics, 2003)

Essentially a small business employing less than 100 full time staff, the club is a local tennis facility in South West London, with a web site, clubhouse, museum, and a shop for 50 weeks of the year. Its distinguishing feature is a seating capacity of 35,500 spectators to accommodate Wimbledon. The total area of the club including courts, premises, and car parks is 42 acres. There are 375 full members plus a number of honorary members (including past singles champions) and approximately 100 temporary members elected annually. The workforce increases to 6000 during the period of the tournament. (Wimbledon, 2005)

This report focuses on Wimbledon as a discrete, ring fenced event. It proposes an marketing communications strategy to the Club and the LTA committee, after due consideration of the macro, micro and market influences.

MACRO-ENVIRONMENT ANALYSIS

The environmental context of Wimbledon encompasses a number of driving or restraining forces that have the capacity to influence the effectiveness of the communication strategy.

PESTEL

A common framework is that of PESTEL comprising political, economic, socio-cultural, technological, environmental, and legal influences. (Johnson and Scholes, 2005.) Fill (2002) suggests that seasonality is an additional factor in an event environment. The framework provides broad data from which the key drivers of change can be identified.

Mega events on the scale of Wimbledon, which target an international market, and the success of which influences urban logistics such as transport and security, requires significant political support. (Bull, 2004) The United Kingdom government has established a set process for government involvement and investment that requires a clear assessment of benefits. This should also be seen in the context of post September 11^th security concerns that may affect Wimbledon. (Strategy Unit, 2002) The positive economic benefits in terms of tourism expenditure and promotion of London as a destination highlight the interdependence of the PESTEL influences and the host city. Socio-cultural influences such as changing population demographics in Wimbledon’s target audience needs to be considered in terms of media access and viewing patterns. (Fill, 2002) Emerging technologies were used during 2004 as innovative mediums for the first time to expand the audience reach. These included a combination of online media, video on demand, interactive television, and live coverage to Personal Digital Assistants (PDA) and mobile phones.

The impact on promotion strategy in the lead up to and during the championship requires careful analysis to maximise audience reach. (Schwartz, 2004) The environmental impact of Wimbledon is substantial, albeit over a short period, in terms of noise, traffic, waste management and other influences. The Merton borough in which the event is located is revenue dependant on Wimbledon’s success as part of its urban regeneration programme and hence supports the event upon which it in turn derives a benefit. An emerging influence is that of corporate social responsibility and re-investment back into the community. This has a positive impact on legal influences such as council regulations and bylaws. (Gratton et al, 1999) Seasonality affects Wimbledon in terms of weather and the time of year in which the event is held. (Fill, 2002 and Wimbledon, 2005)

Porter’s Five Forces

Inherent to the theory of marketing communication strategy is the notion of competitiveness and gaining advantage over competitors. Porter’s development of generic strategies and a five forces model of analysis of competition within an industry are useful in understanding Wimbledon as a unique event. (Johnson and Scholes, 2005) Wimbledon’s prestige and history allows it to follow a differentiated premium pricing strategy in which the objective is to “maintain the quality and character of the tournament and not to maximise income.” (Wimbledon, 2005) Although Wimbledon is a profitable venture in the event industry, the barrier to entry to a rival wishing to compete is high and the prestige of Wimbledon not substitutable in terms of world attention and focus. Buyer power is limited by the spectator facilities and hence access in high demand, whilst are suppliers fragmented without a single dominant player. Competitive rivalry between Wimbledon and other events is not material and hence unlikely to threaten Wimbledon. Arguably Wimbledon’s position may be threatened in the future if the dynamics of the macro environment change. However a marketing communication strategy that builds on the successes of the past that continues to capitalise on innovative, leading edge communication strategies will ensure an image re-invention for future audiences.

Product Life Cycle

Wimbledon has changed its strategy from the garden party approach of the early 20^th century through the skilful use of technology for its target audience in the 21^st century, demonstrating that whilst in a mature phase of the life cycle model as a brand, it can maintain market share through re-invention of its product delivery. (Czinkota, Ronkainen, and Tarrant, 1995)

MICRO-ENVIRONMENT ANALYSIS

Strategic Resources

The analysis of the macro-environment has indicated Wimbledon’s positive base for competitive advantages. The sustainability of competitive advantage in terms of capability is based on strategic resourcing that reflects the distinctive resources which allow the Club and its partners to generate a superior product at a premium price. This is based on Wimbledon’s tangible resources such as facilities and grounds as well as intangible resources such as information, reputation, and knowledge. Wimbledon’s competencies are represented by the activities and processes whereby it deploys its resources year on year, building, and learning from successes of the past and ensuring that they cannot be imitated, thus sustaining its competitive advantage. The path dependency of Wimbledon’s resources has evolved through its culture and history that is influenced by causal ambiguity implying that worldwide perception of Wimbledon would be difficult to replicate. (Johnson and Scholes, 2005)

Marketing Mix

The marketing mix is a key element of an integrated marketing communications plan. The concept has evolved from McCarthy’s 4P’s (product, price, place, and promotion) into different models that depend on their context. Recent developments have been the addition of personnel, physical assets, and procedures to the marketing mix forming the 7P’s in Booms and Bitner’s extended marketing mix model. This has especially reached acceptance in the discipline of services marketing and arguably Wimbledon’s combination of tangible and intangible resources, falls within that category. (Goldsmith, R. E. 1999) Goldsmith, 1999, p178 proposes an eighth P, “personalisation” in terms of individual needs and wants of the consumer. Wimbledon’s product offering is based on a combination of tangible cues represented by its physical offering, and intangible attributes such as prestige and status of the event.

Premium brands such as Rolex have for example endorsed Wimbledon in their capacity as the “official timekeeper of the tournament” for over 25 years at a cost of approximately ?7 million. (Schwartz, 2004) Direct pricing is represented by the gate price for access, and indirect pricing through the sale of television rights to channels such as the BBC and NBC TV, to attract worldwide viewer audiences. The personnel or people component is represented by pride with which employees and volunteers provide quality services to the public and players. (Schwartz, 2004) The top players themselves compete for the privilege of playing and hence are frontline line actors both directly and indirectly in the service space. Personalisation can be demonstrated by the clever use of technology. For example the BBC has provided interactive television coverage allowing five simultaneous live matches on one screen that allowed viewers to personalise their choice of matches thus capturing 4 million viewers in 2004. (Schwartz, 2004)

Competitors

The Davis Cup is an international team competition introduced in 1900 by American player Dwight Davis. Originally called the International Lawn Tennis Challenge Trophy, while initially only two teams participated (the USA and Great Britain), the competition has grown into an event in which over 100 nations now participate. It is a roving event and has been hosted at the Wimbledon grounds from time to time. The event itself has the same target market as Wimbledon but complements rather than competes with the championship event. Wimbledon therefore arguably has no competitors in terms of its positioning. (Wimbledon, 2005)

SWOT Analysis

A SWOT analysis (Strengths, Weaknesses, Opportunities, Threats) illustrated below in Table 1, is often used as a convenient summary of key issues from the business environment that may potentially impact on an organisation’s marketing communication strategy. (Johnson and Scholes, 2005.) The purpose is to identify the strategic options available to Wimbledon. A detailed analysis is beyond the scope of this report but Table 1 below illustrates focal elements that will be discussed in the creative proposal.

Table 1: SWOT Matrix

STRENGTHS

WEAKNESSES

Prestige brand-considered heritage and cultural symbol

Limited spectator space

Extremely popular

Small retail space

Loyal following internationally

Limited space for expansion

Well organised

Increasing visitor numbers

Attended by top ranked players

Spectator demographics

OPPORTUNITIES

THREATS

Joint promotion and marketing with London as a destination.

Weather: visitor number dependant on good weather.

Increased retail opportunities via the Internet

Security

Commercial use of brand

MARKET ANALYSIS

This section of the report considers key figures and statistics relevant to Wimbledon as a basis for a creative proposal.

Attendance

Figures from the early 20^th century are not available but in 1932 219,000 spectators attended the event. The 400,000 barrier was broken in 1986 and a record attendance of 490,081 in 2001 when play was extended into a fourteenth day. (Wimbledon, 2005)

Table 2: Daily Attendance 2000-2004

2000

2001

2002

2003

2004

Monday

39,330

38,561

38,561

38,500

35,335*

Tuesday

41,320

40,995

40,995

41,929

34,312*

Wednesday

41,146

42,457

42,457

40,787

29,156**

Thursday

41,440

41,410

41,410

41,976

36,130

Friday

40,834

41,440

41,440

39,833

39,659

Saturday

40,043

41,595

41,595

38,913

32,746**

Sunday

22,155*

First Week

244,113

244,740

244,740

241,938

229,493

Monday

38,247

41,236

38,764

39,389

39,229

Tuesday

34,083

38,375

34,448*

34,696

34,041

Wednesday

31,789

36,969

32,367*

35,911

33,703*

Thursday

29,718

30,120

33,560

30,237*

29,404*

Friday

28,303

28,813

28,016*

29,872

28,254*

Saturday

27,542

27,770*

27,857

28,216

27,956

Sunday

29,806*

29,315

29,762

30,543

29,128

Monday

9159

13,370

TOTAL

455,752

490,081

469,514

470,802

451,208

* Bad Weather (more than 2 hours lost) ** Entire Day Rained Off

(Source: Wimbledon, 2005)

The table above clearly illustrates the effect of bad weather with significant decreases in spectator numbers due to cancelled matches. The wet weather refund policy to spectators attempt to compensate spectators who are an important element of Wimbledon theatre. Weather negatively influences viewers when coverage is not available which in turn may affect sponsors through loss of on-sold advertising revenues. However, plans for the remodelling of Centre Court at Wimbledon were unveiled in January 2004 and included a transparent, retractable roof over the centre court as well as an increase in spectator capacity.

Revenue

Wimbledon derives revenue from entrance tickets, “official suppliers,” or sponsors, media distribution and broadcasting rights. Ticket sales are not the primary source of revenue with a maximum income estimated at ?20 million using average ticket prices. The 15 official suppliers contribute an estimated gross income of ?120 million. Wimbledon does not publish revenue or sponsorship figures and the aforementioned figures are estimates. NBC TV for example pays an estimated ?7 million for broadcasting rights. (Schwartz, 2004 and Wimbledon, 2005)

Official Suppliers provide goods and services, which are both essential for the staging of Wimbledon, and which meet the Club’s objective of improving the quality of the service provided to the players, spectators and the media. For example, Rolex appears on court scoreboards as the official timekeeper and Hertz provides transport for the players. (Schwartz, 2004 and Wimbledon, 2005)

Demand for Wimbledon tickets has for decades exceeded supply. Tickets are also sold through the LTA and to their affiliated tennis clubs, schools, membership scheme and to foreign tennis associations. Wimbledon remains one of the very few major UK sporting events for which one can still buy premium tickets on the day. Each day (excluding the last four days, approximately 500 are specifically reserved for sale at the turnstiles. Ground tickets may also be purchased on the day of play on every day. Costs of pre-booked tickets range from ?24 to ?59 or ?4 or ?16 sold on the day. Every five years centre court Wimbledon debentures are sold. The issue of 2,300 debentures for the 2006-2010 Championships inclusive has already been oversubscribed. Each debenture, priced at ?23,150 (nominal value ?2,000, a premium of ?18,000 and VAT of ?3,150), entitles the holder to a reserved seat in Centre Court on each day of the tournament during the five year period. (Schwartz, 2004, and Wimbledon, 2005)

The lack of detailed financial information does not allow a realistic or accurate comparison with Wimbledon’s competitors in the international arena.

Target Market

Wimbledon has an 82.4% adult television reach in Britain during the tournament. UK Sport suggests that tennis tournaments and Wimbledon in particular to the younger ABC1 income group with a gender bias towards a women audience for British success in sport. Accurate figures for the world audience are not readily available. (Taylor Nelson and Sofres, 2002)

Hassan, Kraft, and Kortam, (2003) suggest that the scale and reach of an event such as Wimbledon requires rethinking in terms of a converging commonality of a global consumer’s interest in the event. They recommend an avoidance of over complex marketing plans that rise above domestic or micro buyer attitudes, motivation, and behavioural demographics commonly used for segmentation in local markets.

CREATIVE PROPOSAL

The proposal to Wimbledon’s committee is to leverage the existing brand equity associated with the tournament in order to improve perceptions of tennis in the broader international environment as basis for entrenching Wimbledon’s position as the premier international tennis event. The concept is a natural extension of the LTA’s British vision to that of the international arena and represents an affirmation of Wimbledon’s commitment to the principles of corporate social responsibility. It is suggested that the current “tennis ace” campaign of identifying talented, but economically disadvantaged players be extended to the third world whereby winners would be invited to celebrity matches during the tournament hence leveraging off the existing promotional mix of the event. (LTA, 2005, and Wimbledon, 2005)

Brand equity is a measure of a number of differing components including beliefs, images, and core associations that consumers have about a particular brand such as Wimbledon. A brand with strong equity has the capacity to strengthen barriers to entry and ensure sustainable competitive advantage, and in so doing, maintain premium pricing. (Johnson and Scholes, 2005) An integrated marketing communication strategy has an important role to play to ensure consistency of message across domestic and international marketing initiatives. (Fill, 2002)

The marketing communication objectives will be to raise levels of awareness amongst stakeholders with respect to Wimbledon’s commitment to developing tennis as a sport internationally and more particularly in potential future markets in the developing world. In order to achieve this objective, Wimbledon will have to maintain its position as an important contributor to the LTA and hence it’s commitment to Britain, but at the same time extend the awareness of its developmental commitment to tennis globally. Suitably credible spokespersons representing tournament winners will be important balance the possible conflicting interests of LTA domestically and Wimbledon internationally.

CAMPAIGN

A campaign is a unique combination of advertising, promotional events, public relations and other marketing communication activities that all express the same consistent message. When implemented effectively, they present a cumulative strategic message to the target markets under a collective symbolic umbrella whilst enhancing the emotional connection to a brand. (Robinson and Hauri, 1991) The proposed campaign methodology for Wimbledon is a gentile form of ambush marketing in that the official suppliers and television broadcasters will provide the communication channel for the initiative. A programme definition, scope, and schedule of activity will be constructed for the “tennis ace” project to coincide with the promotional strategies that lead up to the tournament. (Arens, 1999)

The indirect endorsement by mega brands such as American Express, Hertz, and Rolex will add to the strength of the message. It is Wimbledon’s stated objective that free-to-air television, and radio access across the world should be made available for all or part of the tournament and by default, to the developing world and emerging markets. (Wimbledon, 2005) This will ensure accessibility to talented players participating in the scheme and arouse local country interest in the programme.

Campaign scheduling would automatically align with the promotional activities of official suppliers and broadcasters. The profile and push strategy defining the campaign is estimated at ?1.2 million, including concept, creative and limited internal marketing with a ?500,000 budget for control and evaluation. Important to note is that an estimated 1.8 billion people in 164 countries watched 5,700 hours of Wimbledon coverage in 2004 through existing channel arrangements. (Schwartz, 2004)

Control and evaluation would be affected partly through external agencies such as the sponsors and broadcasters, but Wimbledon would be responsible for overall message delivery and control. Focus groups, tracking studies of awareness and perception and recall tests will be used to monitor the impact of the campaign. In particular the marketing communication objectives will be assessed regularly as the main form of evaluation. (Fill, 2002)

CONCLUSION

This reported has reviewed the external and internal environments of a highly successful event with the objective of leveraging off existing competitive advantages to entrench an already strong position as a means of expansion into potential new markets. It takes cognisance of the emerging importance of corporate social responsibility in terms of itself and its official suppliers and establishes a cost efficient programme to meet international requirements whilst contributing to its own future success.

REFERENCES

Aarens, W. F. (1999) Contemporary Advertising, International Edition. Irwin, McGraw Hill.

Bull, A. O. (2004) “Mega Or Multi-Mini? Comparing The Value To A Destination Of Different Policies Towards Events.” Unpublished paper presented at Third DeHaan Tourist Management Conference, 14 December 2004.

Cambridge Econometrics. (2003) “The Value of the Sports Economy in the Regions: the Case of London.” Sports England.

Czinkota, M. , Ronkainen, I. A. and Tarrant, J. J. (1995) The Global Marketing Imperative. Lincolnwood, Illinois, NTC Business Books.

Fill, C. (2002) Marketing Communications: Contexts, Strategies and Applications. London, Financial Times, Prentice Hall.

Getz, D. (1997) Event Management and Event Tourism. New York, Cognizant Communications.

Goldsmith, R. E. (1999) “The Personalised Marketplace: Beyond the 4P’s.” Marketing Intelligence and Planning. Volume 17, 4.

Gratton, C., Shibli, S. and Coleman, R. (1999) The Economic Benefits of Hosting Major Sporting Events. Insights.

Hassan, S. S., Craft, S. and Kortam, W. (2003) “Understanding the New Bases for Global Market Segmentation.” Journal of Consumer Marketing. Volume 20, 5.

Johnson, G., and Scholes, K. (2005) Exploring Corporate Strategy Seventh Edition. Harlow, Pearson Education Ltd.

LTA. (2005) Lawn Tennis Association. www.lta.org.uk Accessed 21 April 2005.

Robinson, W. A. and Hauri, C. (1991) Promotional Marketing. Lincolnwood, Illinois, NTC Business Books.

Strategy Unit. (2002) “Game Plan: A Game Plan for Delivering Government’s Sport and Physical Activity Objectives.” www.number-10.gov.uk. Accessed 19 April 2005.

Schwartz, J. A. (2004) Wimbledon’s Marketing Grand Slam. www.imediaconnection.com. Accessed: 21 April 2005.

Taylor, Nelson and Sofres (2002) UK Sporting Preferences. UK Sport.

UK Sport

Wimbledon. (2005) “All England Lawn Tennis and Croquet Club: the Official Web Site.” www.wimbledon.org. Accessed: 20 April 2005.

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A discussion of the factors that contribute to lower life expectancy in

the west of Scotland as compared to other parts of the U.K

Life expectancy, the number of years that a person can expect to live on average, is a single measure of population health which is used to monitor public health, health inequalities, and the outcome of health service interventions and to allocate resources.

Life expectancy in Scotland

The relationship between health and wealth is complex. One as yet unexplained paradox in Scotland is that, even when matched with their English counterparts of comparable socio-economic status, Scots are relatively less healthy over a range of indicators from age standardised mortality to specific disease outcomes (Figure 1).

Figure 1: Directly standardised mortality rates per 1,000 populations, 1990/92, by country and deprivation quintile.

These findings suggest that there are factors at work, other than simply wealth, which are making Scots unhealthier than people in other parts of the UK (Scottish executives 2007).

West of Scotland: A Description

West of Scotland is one of the eight electoral regions of the Scottish Parliament which were created in 1999. In terms of local government areas the region covers:

West Dunbartonshire

East Renfrewshire

Inverclyde

Most of Renfrewshire (otherwise within the Glasgow region)

Most of East Dunbartonshire (otherwise within the Central Scotland region)

Part of Argyll and Bute (otherwise within the Highlands and Islands region)

Part of North Ayrshire (otherwise within the South of Scotland region)

Within Scotland, life expectancy is lowest for people living in the west of Scotland. According to the Scottish household survey, healthy life expectancy at birth is 63.3years and 60.3years in females and males, respectively of greater Glasgow for example. These figures are the lowest in the UK (Scottish Public Health Observatory 2007).

Life in the West of Scotland

While parts of west Scotland have prospered with greater employment and better paid middle-class jobs, in other parts ‘worklessness’ and low income are commonplace. The issue for west Scotland is that greater reductions in disease have been achieved elsewhere and so west Scotland’s health has become worse relatively in comparison to other UK cities. Estimates of life expectancy suggest that people living in west Scotland not only live shorter lives, but succumb to disease and illness earlier in life. An explanation to this is that the health of an individual is largely determined by the circumstances in which he or she lives. Poor health is associated with poverty, poor housing, low educational status, unemployment and a variety of other life circumstances (Tackling Health Inequalities 2007). Health inequalities within Scotland and between the west of Scotland and the rest of the UK appear to be widening. In the 10 years to 2001, average male life expectancy in Scotland increased by 3% but the rate of increase was more rapid in the most affluent parts of the country, with the least affluent west areas falling behind (Whyte and Walsh 2004). The recent decline in death rates from common conditions such as cardiovascular disease has also been more rapid among the more affluent (Krawczyk 2004). Thus, despite the overall improvements, the west of Scotland still lags behind.

Economic factors

A number of trends related to the economy are also notable in West Scotland. There are now more women than men in employment in Glasgow and part-time work has grown to represent more than a quarter of all jobs. The service sector has grown to become the most important sector of the heart of West Scotland’s economy, while manufacturing employment has shrunk (Scottish Public Health Observatory 2007).

Social factors

It is common knowledge that those who smoke, become obese through eating a poor diet or through lack of exercise, and those who drink alcohol in excessive quantities or abuse drugs have poor health. Smoking levels in west Scotland have remained higher than those observed in other parts of the UK. Hanlon and his colleagues (2001) have shown that, by 1991, deprivation appears to explain only 40% of the excess deaths in Scotland (2001). Gillis and his colleagues (1988) have found that, at comparable daily smoking rates and levels of affluence, men in the West of Scotland are more likely to die from lung cancer than other populations in the UK or the US (Gillis 1988) (Figure 2).

Figure 2: Comparison of lung cancer mortality in Renfrew and Paisley with three major cohorts in US and UK.

The increasing impact of alcohol is undeniable: There are estimated to be more than 13,500 ‘problem alcohol users’ resident within Glasgow City, and since the beginning of the 1990s, there has been a striking increase in numbers of alcohol related deaths and hospitalisations especially in west Scotland. Simple projections of alcohol related deaths based on recent trends suggest that the number of alcohol related deaths in Greater Glasgow could double in the next twenty years (Figure 3) (Scottish executives 2007).

Figure 3: Alcohol related mortality in West Scotland: Greater Glasgow

The impact of the use of illicit drugs also serves to further decrease life expectancy in west Scotland in comparison with other parts of the UK. Between 1996 and 2004, drug related deaths in Greater Glasgow for example, rose by a third. There are estimated to be around 25,000 problem drug users in the West of Scotland, of whom more than 11,000 live in Glasgow (Scottish executives 2007). Life expectancy for drug addicts is expectedly very low and these figures will impact negatively on the overall life expectancy for the region.

In Glasgow and other parts of west Scotland, it is predicted that single adults will account for 49% of all households in the next ten years, while lone parent households may rise to make up almost one in two of households with children (Scottish Public Health Observatory 2007).

Obesity levels have risen exceedingly in west Scotland to the extent that in Greater Glasgow, for example, a fifth of males and almost a quarter of females are now estimated to be obese, with well over half classified as overweight. Trends in hospitalisation for diabetes, much of which is associated with obesity, have also risen dramatically in recent years (Scottish executives 2007).

A cultural issue

The ethnic minority population of west Scotland has risen in recent years and looks set to increase further, particularly taking into account the recent rise in the asylum seeker and refugee population. The influence of this trend on life expectancy within the region remains to be determined (Scottish Public Health Observatory 2007).

Provision of services

Despite improvements in overall house conditions and dramatic decreases in levels of overcrowding, housing-related problems persist for considerable numbers of residents of Greater Glasgow and the West of Scotland (Scottish Public Health Observatory 2007).

Recent research suggests other important ways in which the environment and life circumstances can affect biological processes which in turn can make individuals more susceptible to ill health. By following the progress of male civil servants over a 10 year period, Marmot and his colleagues found that mortality was approximately three times greater among the lowest grades than the highest (Marmot et al 1978). When deaths from heart disease were considered, the recognised risk factors of smoking, high blood pressure and elevated cholesterol levels could account for part of the differences between the groups. Other studies have confirmed that higher levels of risk of death in a working population are explained by health-related behaviours (Marmot 2000). There is mounting evidence that at least part of the unexplained increase in risk across the social classes is related to how the body responds to social stress. Available data shows that people are perhaps exposed to a high level of stress factors in west Scotland (Scottish Public Health Observatory 2007). Whether these stress types and levels are more or comparable to what is obtainable in other parts of the UK remains an unanswered question.

.

References

Gillis CR, Hole DJ, Hawthorne VM, 1988.Cigarette smoking and male lung cancer in an area of very high incidence-II Report of a general population cohort study in the West of Scotland. J Epidemiology and Community Health 42: 44-48.

Hanlon P, Walsh D, Buchanan D, Redpath A (2001). Chasing the Scottish Effect. Public Health Institute of Scotland (now NHS Health Scotland) Glasgow 2001.

Marmot MG, Rose G, Shipley M, Hamilton PJ. (1978) Employment grade and Coronary Heart Disease in British civil servants. J Epidemiol Community Health. 1978 Dec; 32(4): 244-9.

Marmot MG (2000) Multi-level approaches to understanding social determinants in Berkman and Kawachi (eds) Social Epidemiology New York. Oxford University Press pp 349-367.

Scottish executives (2007) [Internet] Available at http://www.scotland.gov.uk/Topics/Statistics/Browse/Health/TrendLifeExpectancy

Scottish Public Health Observatory (2007): Healthy life expectancy in Scotland (Internet) (Accessed 15/04/07) http://www.scotpho.org.uk/web/site/home/Populationdynamics/Healthylifeexpectancy/hle_intro.asp

Tackling Health Inequalities – An NHS Response (2007) [Internet] (Accessed 15/04/07) www.sehd.scot.nhs.uk/nationalframework/Documents/TACKLING%20HEALTHINEQUALITIES240505

Whyte B and Walsh D. (2004) Scottish Constituency Profiles 2004.www.phis.org.uk/info/sub.asp?p=bbb

Krawczyk A. (2004) Monitoring Health Inequalities. Scottish Executive Health Department Analytical Services Division 2004.

Key marketing issues facing HSBC Bank in the United Kingdom and globally: How it can be improved for entering in to 2011

Abstract

Today’s global banking environment is highly volatile, but this does not hinder competition from being intense. Consequently, organisations such as HSBC Bank plc, “the world’s local bank”, need to align their marketing strategies to improve on their brand value and positioning. To enter into the year 2011, they need to address both internal and external environment(s) which inevitably affect their competitive advantage, positioning and performance.

In the following, the researcher aims to explore these avenues with the view to propose an extended study on new strategies to improve upon HSBC’s current standing.

Table of contents

Chapter 1: Introduction

Chapter 2: Methodology

Chapter 3: Literature Review

Chapter 4: Evidence

Chapter 5: Conclusion and Recommendations

References

Appendices

Introduction

In the last few years, the banking industry has undergone tremendous change in the face of global transformation. As a result, executives are finding it difficult to meet competitive challenges as the pressure to become global intensifies. HSBC Bank plc, headquartered in United Kingdom, is a global business which faces the same challenge and is being investigated in the following dissertation. The aim is to survey the key marketing issues that challenge the bank, in the UK and globally so that the researcher could further its study in developing solutions for the same. Some of the objectives that the researcher aims to achieve in this dissertation proposal are as follows:

Objectives

1. To explore key external and internal environments to address major issues that plague HSBC to function successfully as a global bank.

2. To identify the marketing mix that should be adopted to be integrated in the bank’s marketing and competitive strategies.

3. To investigate organisational functions like MIS (Management Information System) and CRM (Customer Relationship Management) to align them with the market structure.

4. To evaluate the brand value at HSBC, and perhaps identify new strategies for improving its global positioning.

Background

Today, change catalysts are being integrated by major consolidated organisations to adapt and become flexible to the changing needs of consumers. The banking industry, likewise, has been following the same trend of consolidation through mergers and acquisitions (M&A), despite the fact that these M&As are creating even more complex organisations. This can be gauged from HSBC’s organisational spread. HSBC has over 100 million customer base, spread across the globe through its Customer and Global businesses. With 9,500 offices and 335,000 staff in 85 countries and territories, it is considered to be one of the world’s top financial brands by The Banker Magazine (HSBC Official Web site 2008). While it is regulated by the Financial Services Authority in the UK, the global nature of its operation subjects it to be regulated by 510 central banks and authorities around the world as well (HSBC Official Web site 2008). To ensure that HSBC meets global challenges, the bank has been constantly evolving its strategy. For the past decade, it has focussed on being “the world’s local bank” with a wide network spread to mostly international emerging markets to develop unique cosmopolitan customer base to strengthen its financial standing. The four key business areas – private banking, commercial banking, personal financial services and global banking markets – help HSBC to align its presence with global trends such as fast growing emerging markets, world trade, and longevity in business (See Appendix 1). In line with this focus, is the strategy to leverage brand and network to increase revenues and maximise efficiency (HSBC Official Web site 2008).

This conservative positioning strategy had been adopted for the past decade and has paid off in terms of higher earnings, and improved performance (BBC 2001). However, recently there has been a fall in profit earning (UK Annual Report 2007)(See Appendix 2), which has been translated to low performance. Some of the factors that have afflicted the bank include inflation in developed markets; slow down in emerging economies; and the ongoing credit crunch, especially in the UK and neighbouring Europe (HSBC Annual Results 2007; “Toxic Shock” 2008). The growing importance of globalisation only emphasises on the need for integrating marketing strategies within competitive strategies to leverage future performance. According to a Deloitte report (2007), banks like HSBC, with a global focus, need to understand external and internal factors that affect them, in order to devise comprehensive competitive strategy. While experts (Dietz, Reibestein, and Walter 2008) predict growth in global banking revenues estimated at 7 to 8 percent from 2006 to 2016, how to harness this forecast is dependent on the individual firms’ strategy. For this purpose, HSBC need to revise its strategic orientation.

The purpose of research is to gain new knowledge through logical and systematic methods. According to Smith (1981 qt. Gliner and Morgan 2000), research is a broad discipline which must be carefully examined before adopting methods for evaluation. Whether the researcher chooses the naturalistic, experimental, survey or historical methods, the choice should be consistent with the inquiry defined. Accordingly, research approaches in the social science discipline can be divided into the positivist or quantitative, and constructivist or qualitative approach (Mangan, Lalwani and Gardner 2004). Depending on the quantitative or qualitative paradigm, a researcher must choose the approach of research. A quantitative paradigm is associated with scientific methods in acquiring research results and identifies causal relationships (Phillips 1992; Lincoln and Guba 1985 qt. Gliner and Morgan 2000). On the other hand, the qualitative approach is a constructivist approach that studies humans and physical objects with the meanings inherent in their social roles and symbolism. Considering the qualitative nature of the topic, the researcher proposes to adopt a constructivist approach which would be more appropriate in exploring the issues that affect HSBC. This is a logical proposition as it would allow the researcher to predict the causes and market behaviour based on theoretical frameworks studied through comprehensive literature review, a gist of which shall be explored in the next section. Furthermore, the researcher proposes this choice of research approach based on the premise that social science researches often seek to predict and control (Bryman 1995). Research questions raised are often open-ended and encompass extensive avenues before decisions can be made. Therefore, a qualitative method shall be suitable for the study of key issues challenging HSBC in the future.

To take a brief overview of banking, the researcher has carried out a brief literature review to study the issues that surround the organisation. In the following section, the researcher shall explore the current market environment, as well as attempt to understand it through theoretical frameworks.

Banking Industry

As the world’s banking industry globalises and consolidates, cross border investment barriers have fallen to give way to new and volatile markets. To serve evolving markets, banks have been observed to develop new competitive strategies that capitalise on operations, resources and functionality, and serve new types of customers. The challenge for banks today is the geopolitical risks and structural market challenges which they need to adapt to, for addressing international compliance of standards, demographic shifts, and developing relationships with customers. The diversified nature of the banking environment makes it difficult for global organisations, like HSBC, to focus. A global bank can be defined as having the widest reach in providing services to affiliates, while a local bank has narrower reach in provision of services to institutions in the country. Some of the challenges that affect these organizations are explored below:

1) External Environment

The basic premise for gaining competitive advantage in a global environment according to experts like Porter (1990) and Weihrich (1982), is through formulation of strategies that reflect the conceptual framework of the TOWS Matrix (See Appendix 3). The TOWS (Threats, Opportunities, Weaknesses and Strengths) Matrix is a systematic analysis model which identifies factors that surround the industry, and, thereafter, help identify solutions by maximising opportunities and strengths. By identifying the competitive advantage against competitors, the industry or firm can maximise the attributes it posses at the international level. These competitive advantages can be factor conditions such as skilled labour or infrastructure; demand conditions such as demand of the product or service; related and supporting industries; and firm strategy, structure and rivalry (Porter 1990). However, critics are of the view that Porter’s formula does not provide the key to success (O’Shaughnessy 1996) as it does not address operational and environmental issues like culture, competitive advantage in emerging markets; political and national history; or role of government. In today’s global banking environment, these issues play critical roles (Jones 2005). These are evident from the Deloitte report (2007) on key issues challenging the banking industry, which include off-shoring; local insights for global branching; cost-reduction; emergence of hedge funds; and complex anti-money laundering regulations (Deloitte 2007). Not only is the global business environment of today strived with uncertainty due to emerging markets’ participation (Fahy 1993; Bansal and Penza 2000), but also the technological, political and regulatory environments have heightened competition.

In the past decade, HSBC has focussed its competitive strategy on Europe after the slow down in Asia-Pacific region. Europe is an ideal setting for international integration based on a single market program (Berger, Smith, and Judge 2003; HSBC 2008). There are, however, issues that hinder development and competition including loyalty to local banks, regulatory restrictions, demand for global banking services, and technological advancement of banks. As a result, HSBC needs to rethink its current strategy.

2) Internal Environment

As a result of the above factors, the internal environment of global banks has to be revolutionised. At the forefront is the adage “the customer is king”. Global banks are changing their strategies to alter banking environment congruent to customer’s needs, rights and choices. Services and products are tailored to the living conditions and customer patterns of banking use. These conditions set off alternative marketing strategies that emphasise on individuality and relationship building. Investment in technology, skills and branch networks, for example, has helped traditional banks to grow and profit from new sources of income (Jayawardhena and Foley 2000). In the UK, especially, the scale of investment in knowledge management and technology has helped transform the banking industry to succinctly harness potential businesses and create advantage for organisations. Learning organisations, however, is still a relatively new concept for many to understand and appreciate its implications (Harris 2002).

Besides the above, global banks are also undergoing structural changes. As more and more banks become global, the traditional role of retail banking has to be revisited. (Bansal and Penza 2000).Issues that affect HSBC like credit and market risks, competence and expertise have come to the forefront, as banks diversify their businesses. For these reasons HSBC needs to be prepared for change management in its internal environment.

3) The Marketing Mix

Given the diversified nature of the global banking industry, Jagersma’s report (2006) suggests that banks need to rethink marketing strategies to meet the challenges in the future by improving customer focus, innovating products, pricing products competitively and organising product information for its strategic positioning. The challenge that awaits organisations is to rethink strategic objectives that would align with the new environment. One approach is to develop a visual identity and develop a communication network to establish relationships with customers. The communication strategy would be the life line for the organisation’s strategy in adapting or changing its market context or other environmental alterations, according to Melewar, Bassett, and Simoes (2006). Similarly, Gummesson (2002) is of the view that relationship marketing is the new approach to marketing that focuses on customer, suppliers and organisations in a complex network environment or society. It is only through these new communication frameworks that the banking sector can address the core and brand values it has to develop for successful marketing mix. (See Appendix 4) HSBC needs to re-evaluate its marketing mix in order to generate newer ones.

4) Market Segmentation and Targeting

Indeed, the nature of the marketing mix is no longer simply the 4 Ps of Price, Product, Position and Promotion but involves complex analysis of the target market and its segments. In fact, Papasolomou and Vrontis (2006) are of the view that today’s banking organisations have different sets of customers and expectations. Customers are no longer limited to the walk-in type, but extend to internal customers such as employees, stakeholders and shareholders; service delivery is not limited to providing service, but extends to standards and expectations; development involves training and development in motivation, and inspiration; and employee incentives. To be successful, organisations must adopt alternative strategies. Market segmentation in the banking industry has changed from niche segments to accumulated customer base of corporate, private or commercial customers, although the principles for targeting them remain the same – customer relationship building; ease of access; delivery of service through diverse workforce; and collaborative banking strategies. As a result, banks like HSBC would need to improve upon customer focus, introduce new ideas to customers and drive aggressive campaigns (“Wells Fargo and First Direct” 2007) using a strong communication network (Berner and Kiley 2005) to build brand image.

5) MIS and CRM

What differentiates and establishes brands depends on the power of the brand to communicate its value to the market. According to Sinek (2008), successful communication is dependent on the bank’s ability to offer different products and services reflective of the customers’ needs. Hence, branding alone would not differentiate banks, but the humanness of the bank’s philosophy would. Thus, Umpqua Bank and FirstDirect’s popularity with customers is due to their understanding of the need for convenient banking, need for alternative products and services, and their understanding of the ever-changing world of banking. By harnessing the online banking technology, direct banking has become possible to their customers. The attractiveness of these banks to their customers is inherent in the shift away from traditional transaction-based to customer based banking (“Branching out” 2007).

Furthermore, banks have also capitalised on technological networks to expand globally to bring customers closer to their banks by defying geographical dispersion (Lefton 1997; Branching out 2007). However, in the process, issues like outsourcing labour to foreign regions, which are alien to the customers, and low quality service delivery compromise the overall expectations. Banks, especially, rely on outsourcing companies for their customer service which constitutes a major part of their service/product delivery (Gottfredson and Phillips 2005). This reliance on external organisations for the bank’s success is volatile and, at times, detrimental to its relationship with customers. Whether HSBC should rely on these systems or not shall determine its performance in the future.

6) Brand Positioning

The objective of competitive advantage is dependent on positioning of the product. A firm’s communication strategy and its effectiveness depend on the positioning strategies. In marketing strategies for service-oriented brands, positioning is even more critical as it modifies the intangible perceptions of the service in relation to the competition (Blankson and Kalafatis 2007). For these reasons, strategic implications of brand positioning are critical for the organisation’s competitive strategy. Service positioning differs from tangible product positioning as its characteristics are different from physical goods. Customers differentiate the service from goods through communication, standard of service delivery, and the quality of the benefits reaped. Thus, marketing communication plays a vital role in establishing the marketing positioning of brands. Consequently, Papasolomou and Vrantis (2006) emphasise on the importance of internal marketing throughout branch network to strengthen relationship marketing and the brand. In banking, this could be achieved by launching internal marketing campaigns to sustain the brand through employees and their experiences such as brand proposition, overcoming internal barriers, continual improvement and expansion. These HSBC needs to explore in to incorporate into its future strategies.

From the above brief literature review, the researcher is of the view that HSBC, as a global bank, faces tremendous challenges in the near future to improve upon its marketing strategy. The above literature also suggests that, while the current marketing strategy has been successful in launching the HSBC in the international market, the bank needs to revise and develop its marketing strategies which would sustain HSBC in global environment. Issues that plague the world’s global banking industry need to be evaluated in the future study to understand the extent and breadth to which HSBC has complied with, before competitive strategies can be evaluated.

The brief literature review also indicates that today’s marketing strategies are different from traditional methods adopted, especially for a service-oriented organisation. Consequently, marketing strategies for HSBC needs to be re-valuated to gauge its future performance, and perhaps devise new ones to address current and future issues. Issues like MIS, CRM, brand positioning and marketing mix shall be revisited in this extended dissertation in order to tackle the issues that plague its internal and external environment.

From the above evidence, the researcher proposes an extended study in the form of a dissertation to review HSBC’s performance and how it can improve upon its current marketing strategy in order to develop an integrative competitive strategy for the future. Considering the fast-paced and highly volatile banking environment of the UK and globally, HSBC needs to improve its performance in order to sustain competition. With the extended study, the researcher hopes to achieve the following objectives:

a. A detailed investigation of the external and internal environment of HSBC in order to identify its strengths, weaknesses, opportunities and threats.

b. Identify the marketing mix that it should adopt and integrate within its organizational strategies to enter into 2011.

c. To study the current organisational function such as MIS and CRM to the advantage of HSBC and integrate into its future marketing strategies.

d. Improve on its current brand value and global positioning.

Author not available (2008) Toxic shock: how the banking industry created a global crisis, Guardian [Online] Available at: http://www.guardian.co.uk/business/2008/apr/08/creditcrunch.banking

Author not available, (2007) Wells Fargo and First Direct lead the way in the banking sector. Strategic Direction, Vol. 23, No. 6, pp. 29-31.

Author not available, (June 2007) Branching out. Economist, Vol. 383, Issue 8533.

Bansal, V. and Penza, P. (2000) Measuring Market Risk with Value at Risk, John Wiley and Sons.

BBC (August 2001) HSBC confounds doomsayers, BBC [Online] Available at: http://news.bbc.co.uk/1/hi/business/1475589.stm

Berger, A.N.; Smith, D. C.; and Judge, J. (November 2003) Global integration in the banking industry. Federal Reserve Bulletin.

Berner, R. and Kiley, D. (August 2005) Special Report: The Best Global Brands. Business Week [Online] Available at: http://www.businessweek.com/magazine/content/05_31/b3945098.htm

Blankson, C. and Kalafatis, S. P. (2007) Positioning strategies of international and multicultural-oriented service brands. Journal of Services Marketing, 21/6 pp. 435–450

Bryman, A. (1995) Research Methods and Organization Studies. Routledge: London.

Deloitte Touche Tohmatsu (2006) Global Banking Industry Outlook: Growth Solutions in a Changing World 2006. Deloitte Touche Tohmatsu [Online] Available at: http://www.deloitte.com/dtt/research/0,1015,cid%3D116421,00.html

Deloitte Touche Tohmatsu (2007) Global Banking Industry Outlook: Issues on the horizon 2007. Deloitte Touche Tohmatsu, [Online] Available at: http://www.deloitte.com/dtt/research/0,1015,cid%3D116421,00.htm

Dietz, M., Reibestein, R. and Walter, C. (January 2008) What’s in store for global banking, The McKinsey Quarterly.

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Gummesson, Evert. (2002) Total relationship marketing 2nd ed. Oxford: Butterworth-Heinemann.

Harris, L. (2002) The learning organization – myth or reality? The Learning Organization, Vol. 9, No. 2, pp. 78-88

HSBC Official Website [Online] Available at: http://www.hsbc.com/1/2/investor-relations/strategy

Jagersma, P. K. (2006) Strategic marketing and the global banking industry: elements of excellence, Journal of Business Strategy. Vol. 27 Issue: 4 pp. 50 – 59

Jayawardhena, C. and Foley, P. (2000) Changes in the banking sector – the case of Internet banking in the UK. Internet Research: Electronic Networking Applications and Policy, Volume 10 . Number 1 pp. 19±30

Jones, G. (2005) Multinationals and Global Capitalism: From the Nineteenth to the Twenty-First Century. Oxford University Press: Oxford pp. 137.

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Melewar, T.C.; Bassett, K. and Simoes, C. (2006) The role of communication and visual identity in modern organisations. Corporate Communications: An International Journal, Vol. 11 No. 2, pp. 138-147.

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Papasolomou, I. and Vrontis, D. (2006) Building corporate branding through internal marketing: the case of the UK retail bank industry. Journal of Product & Brand Management, 15/1 pp. 37–47

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Appendix 1

Appendix 2

Appendix 3

Appendix 4

A beneficiary under a trust is a volunteer unless he has provided valuable consideration.^[1] Where a gift is made, the beneficiary will always be a volunteer as it is by definition made without consideration. The traditional equitable maxim is that equity will not assist a volunteer.^[2] This generally means that where a gift is made imperfectly, equity will not enable the intended beneficiary to claim the gift under a trust. However, there are exceptions to the rule. This essay will consider these exceptions and the extent to which the rule has developed from “equity will not assist a volunteer” to a position of “equity will not assist a volunteer if, in doing so, it would repair the consequences of a would-be donor’s folly”.

The leading case in this area is Milroy v Lord^[3] where a voluntary deed which purported to assign 50 shares to Samuel Lord on trust for Milroy. Lord was already acting as Milroy’s agent under a power of attorney. The formalities of the share transfer were not complied with. Milroy therefore sought to establish that a trust had been declared. It was held that an ineffective transfer does not constitute a declaration of trust without there being a clear intention to create a trust. Furthermore, if a voluntary settlement is to be valid and effectual, the settlor must have done everything which was necessary to be done to transfer the property and render the settlement binding upon him.^[4] As the shares had not been transferred, no trust was created and no gift made.

The case of Milroy v Lord thus provides that for the settlement to be binding there must be either an outright transfer, a declaration of self as trustee, or a transfer of property to a third party as trustee.

The facts of Jones v Lock^[5] were that a father produced a cheque payable to himself and said “Look you here, I give this to baby; it is for himself” and placed the cheque in the baby’s hand. He then took the cheque back stating that he was going to put it away for him. It was held that there had been no effective gift because no valid transfer had occurred. Moreover, it was held that a failed gift cannot be construed to be a valid declaration of trust. It was said that the crucial principle is that an owner must not be deprived of his property unless, by making a valid gift or trust, he has demonstrated the seriousness of his intention to dispose of the benefit of his property.^[6]

However, where the property is vested in the trustees in circumstances outside their capacity as trustees, the trust may be constituted, even though the beneficiaries are volunteers^[7] (Re Ralli’s Will Trusts^[8]). Other exceptions include the rule in Strong v Bird^[9] and Donationes Mortis Causa. As these exceptions are uncommon, the main exception and development as set out below will be the focus of this piece.

The case of Re Rose^[10] demonstrates the principle that where a donor has done everything they can to transfer title to another but that outright trust has not been completed, an equitable interest will have passed, even where the donee is a volunteer.^[11] This principle is therefore an exception to the general rule that equity will not assist a volunteer and is based upon the inequity of reneging on a promise once the donor has purported to transfer title by doing everything necessary for him to do.

The principle in Re Rose has recently been extended. In T Choithram International SA v Pagarani,^[12] a man lying on his deathbed sought to declare an inter vivos trust over his property. The settlor’s intention was to become one of nine trustees, but he failed to transfer legal title to all nine trustees and as a consequence, under the ordinary law of trusts, the trust would not have been validly constituted. The Court of Appeal thus held that he had neither effectively vested the property in the trustees, nor did his words of gift render him a trustee. Furthermore “the court will not give a benevolent construction so as to treat ineffective words of outright gift as taking effect as if the donor had declared himself a trustee for the donee”. In the words of Hopkins, the Court of Appeal decided the matter on the basis that “equity will not assist a volunteer” or “perfect an imperfect gift”.^[13]

In allowing the appeal, the Privy Council accepted the maxims but added that “equity will not strive officiously to defeat a gift”. The reasoning for holding a trust was that the settlor had done all that was necessary to constitute a trust, by declaring himself as trustee. His words that he would ‘give’ could only then mean “I give to the trustees of the foundation trust deed to be held by them on the trusts of the foundation trust deed”.^[14]

The case of Choithram may therefore be taken to be support for Hopkins’ statement that that the courts have left behind the well-known equitable maxim “equity will not assist a volunteer” and have reframed it as “equity will not assist a volunteer if, in doing so, it would repair the consequences of a would-be donor’s folly.” This is because, in both Re Rose and Choithram there was no folly in the sense that the donor had not done all that was necessary and therefore, on the basis of the reformulated maxim the trusts were rightly held. Conversely, in both Jones v Lock and Milroy v Lord, the donor had not done all that was necessary, and was therefore acting in folly.

However, this is not the end of the developments. In Pennington v Waine^[15] A owned 1500 of the 2000 shares in C Ltd. She instructed P, a partner in C Ltd auditors, that she wished to transfer 400 shares to her nephew H and that he was to become a director. A signed the share and P placed it “on the company’s file”. A made her will a short time later bequeathing the rest of her shareholding but making no mention of the 400 shares transferred to H.

Under the traditional law, as seen above, the gift would have been complete only once the signed stock transfer form and the share certificate had been handed to the donee. The Court of Appeal in fact held that the gift was to be regarded as completely constituted, despite the lack of delivery and the fact that there was apparently nothing to stop A from recalling her gift.^[16]

The Court of Appeal followed the maxim as stated in Choithram that equity will not assist a volunteer but will not strive officiously to defeat a gift. It was held that at the time it would be unconscionable for the transferor to be able to change their mind, equity should hold the gift to be properly constituted. Per Arden LJ:

“If one proceeds on the basis that a principle which animates the answer to the question whether an apparently incomplete gift is to be treated as completely constituted is that a donor will not be permitted to change his or her mind if it would be unconscionable, in the eyes of equity, vis-a-vis the donee to do so, what is the position here? There can be no comprehensive list of factors which makes it unconscionable for the donor to change his or her mind: it must depend on the court’s evaluation of all the relevant considerations. What then are the relevant facts here? [A] made the gift of her own free will: there is no finding that she was not competent to do this. She not only told [H] about the gift and signed a form of transfer which she delivered to [P] for him to secure registration: her agent also told [H] that he need take no action. In addition [H] agreed to become a director of the company without limit of time, which he could not do without shares being transferred to him.”

It has been argued that this decision was based on a misunderstanding of the decision in Choithram where it was held that it would be as unconscionable for a settlor who had declared a trust when he was one of a number of trustees to subsequently resile from his declaration as if he had declared himself to be the sole trustee.^[17] Moreover, it is widely accepted that the decision goes much further than previous law.^[18]

Examining Hopkins’ statement in light of this development, it is unlikely that the maxim can be said to be redefined to incorporate the donor’s folly, as the present position appears to leave plenty of scope for assisting a volunteer where doing so would correct a donor’s folly. Indeed, Pennington v Waine may well be overruled in the future, but at present, the most apt re-statement of the maxim is: “equity will not assist a volunteer unless it would be unconscionable not to do so”.^[19]

Bibliography

Delany, H., and Ryan, D., “Unconscionability: a unifying theme in equity”, (2008) Conv 401

Garton, J., “The role of the trust mechanism in the rule in Re Rose”, (2003) Conv 364

Halliwell, M., “Perfecting imperfect gifts and trusts: have we reached the end of the Chancellor’s foot?”, (2003) Conv 192

Hopkins, J., “Constitution of trusts – a novel point”, (2001) CLJUK 483

Hudson, A., Equity and Trusts, 5^th Edition (2007), Routledge-Cavendish

Martin, J.E., Hanbury and Martin: Modern Equity, 17^th Edition (2005), Sweet & Maxwell

Morris, J., “Questions: when is an invalid gift a valid gift? When is an incompletely constituted trust a completely constituted trust? Answer: after the decisions in Choithram and Pennington”, (2003) PCB 393

Oakley, A.J., Parker and Mellows: The Modern Law of Trusts, 9^th Edition (2008), Sweet & Maxwell

Pettit, P.H., Equity and the Law of Trusts, 10^th Edition (2006), Oxford University Press

Tham, C.H., “Careless share giving”, (2006) CONVPL 411

Watt, G., Trusts and Equity, 3^rd Edition (2008), Oxford University Press

Limitations of Research: the researcher could not use all the internet sources because some of them are written in Chinese, the researcher followed the structure that is provided by you but I have noticed that there is repetition in the points that are mentioned in the objectives and the points that are mentioned in the chapter plan, also there is a repetition in the resources that are mentioned in the data and information needs and the points in relevant literature consulted.

The researcher shall bear no responsibility for any confusion caused by the un-clarity of the attached document.

Introduction:

More than 120 countries have imposed Goods and Services Tax, the only developed country that has not imposed this tax is Hong Kong.

VAT or GST has been introduced by France in 1954(Ministry of Economy, Finance and Industry).

All the developed countries (except Hong Kong) and most of the developing countries have followed France in imposing VAT/GST because this tax is considered:

Fair: VAT/GST is considered a fair tax because it relates the amount of collected tax to the amount of consumption; the more you consume, the more you pay VAT.
Simplicity: unlike any other taxes, VAT/GST is considered a straightforward tax; it is imposed according to a known percentage on the value of the products and services
Efficiency: this tax is very efficient, it is very easy to collect it and it is very difficult to avoid it.

Chapter2: Objectives:

The purpose of this research is to find out whether VAT/GST is a suitable tax for Hong Kong or not.

The research has covered very large material and literature about Hong Kong and similar economies to Hong Kong such as Singapore.

The research also aimed to show that most of the governments of the world are broadening their budgets by imposing VAT/GST on customers while they are trying to reduce income and corporate taxes.

Chapter3: Literature consulted:

The research has covered a large part of literature published by global accredited organizations such as Price Waterhouse coopers, Ernest Young and the government of Hong Kong.

The major text books have been used to give us a broad idea about the issue in research while the specialized working papers, Internet articles and government websites have been used in order to give us a clear idea about the issue in research.

The research consulted working papers published by several universities and bodies in order to explain the theoretical principles behind imposing VAT/GST (Hubbard,G,R(1997)and the impact of VAT/GST on the informal sector in developed countries.

Chapter4: Proposed Methodology:

we can see from the above chart the deficit that have faced Hong Kong from 1997 until 2003, the revenue was very low compared to the spending which proved to be steady.

”During the same year, about 70% of the total revenue collected by the Inland Revenue Department came from profits tax and salaries tax. Nevertheless, the profits and salaries tax nets are very narrow and shrinking. Less than 40% of our workforce of 3.2 million people pay any salaries tax, and only 10,000 people pay the maximum salaries tax rate of 15%. About 5% of the payers of profits tax contribute to 80% of the profits tax revenue. Further loss of profits could occur as a result of globalisation. Besides, the spread of e-commerce will have implications on all governments’ abilities to assess and collect business-related taxes. In this regard, both the Financial Secretary and the Secretary for the Treasury expressed their concerns on the impact of the exponential growth of e-commerce on Hong Kong’s territorial-based tax system. The Government will set up a Task Force to review public finances and an independent committee on new broad-based taxes”, Wong, J(no date given)

The research has depended on major questionnaire that have been distributed to citizens and companies in Hong Kong in order to get their opinion about VAT/GST tax.

The response that I have got from this questionnaire has been used in predicting the change in consumption behavior by the citizens of Hong Kong.

The research has also depended on comparative analysis in order to see how Hong Kong economy will be affected and how the whole tax system will be redesigned.

The research depended on some graphs to illustrate the topic further.

Chapter5: Data and Information needs and sources:

This research needs theortical as well as practical data and comparative analysis.

This research is different because it assesses the potential of something that might happen in the future.

The researcher has conducted a questionnaire in order to measure the acceptance of the people to VAT and their views about the fiscal position of their country.

The researcher tried to make sure that the sample is random, so the results are random too and not biased.

The research required me to use some theoretical concepts in order to assess the impact of VAT.

The research also depended on comparative analysis in order to see what happened to similar economies that have implemented VAT/GST.

Chapter6: Chapter Plan:

Understanding the principles behind using an expenditure tax like GST/VAT:

Definition of GST:

Goods and Services tax is imposed on:

Goods and Services tax is broad-based and equitable and is capable of yielding sizeable and steady revenues.

VAT or GST is a consumption tax, it is paid by the consumer of the product or the service as a percentage of the final price.

It is related to all commercial activities involving the production and distribution of services; it is not charged on companies which mean that companies can deduct from their VAT liabilities the amount of tax they have paid to other taxable persons on purchases for their business activities.

Hong Kong government is considering introducing VAT/GST tax in 2009(Hong Kong’s Inland Revenue).

Difference between VAT and Sales Tax:

VAT is imposed on every stage of production while Sales tax is actually collected in the form of extra charge by the retailer, who remits the tax to the government.

VAT and the Theory of Economics:

There have been a long debate between different economic schools of thought around the world about tax reform.

Some economists prefer income tax to VAT/GST because it provides fair treatment to the citizens of the country while others prefer VAT/GST.

According to Hubbard,G,R(1997), some economists support VAT for the following reasons:

Imposing VAT instead of income tax will encourage capital accumulation and savings.
Removing income and profit taxes will remove distortions in the allocation of capital among different economic sectors.
A broad based consumption tax would avoid potential costly distortions of firm’s financial structures.

Importance of VAT:

Today it is a key source of government revenue in over 120 countries. About 4 billion people, 70 percent of the world’s population, now live in countries with a VAT, and it raises about $18 trillion in tax revenue, Liam E., Michael K., Jean-Paul B. and Victoria S(1991)

VAT has advantages and disadvantages:

Disadvantages of imposing VAT:

VAT discourages specialist economic activity and fragmentation in the production because VAT will be fragmented; VAT encourages integration in order to avoid compounded VAT.
VAT encourages financing big governments: in the 1960s, the size of governments in the US and the UK were approximately equal, in the year 2002, the size of the government in Europe have exceeded the size of the US government, many analysts attribute the difference between the sizes of the two governments to VAT, The expansion of the government will lead to higher prices and inefficient production, the thing that will lead to more taxes in the future.

VAT will reduce the available capital to private businesses and raise interest rates, increasing interest rates will stifle economic growth and reduce the potential growth.

Advantages of imposing VAT:

VAT could finance the debt of the government because it provides stable and steady stream of income that is capable of financing development projects.
VAT could reduce consumption and make the citizens of any country save and invest more money.
By encouraging integration, VAT could push the economy towards mergers that will reduce the stages of production; VAT simply tends to encourage big businesses to get bigger by buying other companies, this could yield economies of scale and generate synergies..
Selectivity: the government can select the products and services that it needs to impose VAT on, for example, most government exclude food from VAT, by using VAT governments could take into its consideration the difficult economic situation of the poor and decide the exclusions that apply to them.
VAT is a secure way to finance the government’s structural deficit, VAT covers most of the economic segments in the economy and it is very difficult to evade it.

Introduce a historical background, economy and tax system in Hong Kong:

The Modern History of Hong Kong:

Hong Kong was a British dependency from the 1840s until July 1, 1997, when it passed to Chinese sovereignty as the Hong Kong Special Administrative Region (SAR), Pannell,C(1998).

The British control of Hong Kong began in 1842, when China was forced to cede Hong Kong Island to Great Britain after the First Opium War. In 1984 Great Britain and China signed the Sino-British Joint Declaration, which stipulated that Hong Kong return to Chinese rule in 1997 as a Special Administrative Region (SAR) of China. The Joint Declaration and a Chinese law called the Basic Law, which followed in 1990, provide for the SAR to operate with a high degree of economic autonomy for 50 years beyond 1997, Reference: China Connection.

In the Fifties of the last century, the threat of the cold world was looming over the world.

Investors were looking for a safe heaven to locate their businesses and investments in a neutral place away from the eastern and the western camps, investors found in Hong Kong a promising country that is able to deliver good business environment that could foster growth and political stability at the same time.

Growth in Hong Kong depends on several other economies such as the growth in the US economy and the growth in China and Southeast Asia in general.

Growth in Hong Kong is related to oil prices and world wide prices; Hong Kong is a small island with very little raw resources, it depends on exporting raw materials from abroad in order to manufacture them on its land and re-export them again to other parts of the world.

Manufacturing:

In 1950s, Hong Kong attracted manufacturing jobs and the vast majority of its work force where working in factories.

In 1980s, Hong Kong had about 905,000 manufacturing workers and manufacturing was the most important economic sector, Economist Intelligence Unit (2003).

Until 1990s, Factories were manufacturing products that depended on labour intensive work force, after that manufacturing jobs started dropping because of the climbing costs of labour and land.

In 1990s, the number of manufacturing jobs was about 575,000 jobs.

In 2001, the manufacturing sector contributed to less than 5% of the GDP, Economist Intelligence Unit (2003).

Like most of the developed nations, Manufacturing in Hong Kong is becoming concentrated on manufacturing hi-tech products and services.

The manufacturing sector has been replaced by rapidly expanding service sector, in 1991; the service sector has generated 72.3% of the GDP in Hong Kong and in 2002, the service sector has generated about 83.9% of the GDP, Economist Intelligence Unit (2003).

Services:

A- Banking:

The banking sector is now the most important economic sector in Hong Kong, Hong Kong is currently the fifth largest banking centre in the world.

Hong Kong offered investors a very good opportunity to invest in a growing emerging economy.

Investors benefited from tax free capital gains and high dividends.

B- Tourism:

Tourism is a significant source of economic growth in Hong Kong; nearly 9 million people visit Hong Kong every year, Tourists spend around $7 billion every year.

Tourism is the third source of foreign exchange reserves in Hong Kong.

The banking and the tourism sectors have delivered a very good growth to the Hong Kong economy.

In 1996, Hong Kong’s per capita gross domestic product (GDP) was second to Japan and Singapore in Asia and exceeded that of the United Kingdom, Canada, and Australia, Reference: internet article: Marimari (no date given).

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Sources of Success:

Hong Kong offered investors business-friendly laws and gave complete freedom to the movement of capital in order to encourage investments and promote growth.

Hong Kong is duty free zone and there are few barriers to trade goods and services; this has made the country an important link ring between the east and the west.

Hong Kong left market forces decide wages and prices; the government did not legislate any minimum wage requirement or anti-trust laws.

Competition in Hong Kong:

The decline of the manufacturing sector has caused the decline of competition in Hong Kong.

Competition is considered an essential part of the market system.

Competition benefits consumers and businesses, it benefits consumer by lowering prices and it benefits businesses by allocating resources in a more efficient ways.

Competition is very important to the health of Hong Kong economy, competition gives world economies the flexibility to adjust its prices in the case of external shock (macro-economic shock) Sturm,P, Jahangir,A, Breuer,P, Nishigaki,Y (2000).

Emerging economies that depend on fixed exchange rates usually suffer from real exchange rate appreciation.

The real exchange rate appreciation could be treated by either:

Switching to a flexible exchange rate: according to the “law of one price” flexible exchange rate will adjust exchange rates in order to make tradable products have the same price everywhere in the world.
Lowering prices: lowering prices of products is an important toll in avoiding international competition, lowering prices could only happen if the structure of the market is competitive.

Having a competitive market structure in lowering prices and keeping international capital flows coming to Hong Kong.

Tax Regime in Hong Kong:

Hong Kong tax regime is based on a territorial-based tax regime; the tax is imposed on incomes that arise from Hong Kong, Hong Kong’ Inland Revenue.

The economy of Hong Kong has gained a competitive advantage because it imposes no taxes on capital gains and dividends; this has encouraged many investors to invest in that country and established an important financial centre in Asia.

Hong Kong has the following simple tax structure:

Property Tax: Property tax is levied on rental income from land and buildings situated in Hong Kong.
Salaries Tax: Salaries tax is imposed on incomes derived from working in Hong Kong or if incomes derived from services rendered from Hong Kong.
Profits Tax: profits that are generated in Hong Kong are subject to taxes, profits of unincorporated business stands at a rate of 15% and corporations at 16.5%.

The relationship between Hong Kong and the foreign exchange rate:

The currency in Hong Kong is Hong Kong dollar which is pegged to the US dollar, if Hong Kong government wanted that peg to continue, it should tighten its fiscal deficit.

The currency of Hong Kong is an investment asset, many investors diversify their currency allocations, this diversified allocation to the funds of the global investors results in an important cash inflow to Hong Kong.

For the Hong Kong dollar to get part of the allocation, Hong Kong should stabilize its budget in order to attract more foreign investment.

Analyze why the government considers launching a broad-based tax;

Narrow tax base:

Hong Kong has very narrow tax base, narrow tax base means that the collected revenues do not provide enough revenue to cover the expenditure of the country.

If we compare TAX/GDP ratio in Hong Kong compared to other Asia Pacific and OECD countries we find out that Hong Kong has the lowest ratio of TAX/GDP.

Hong Kong has a narrow tax base because the tax base is shrinking since 1998; sound tax systems are based on growing and stable (not volatile) tax base.

Hong Kong has the lowest corporate tax rate among the OECD countries, the current corporate tax stands at 16%.

Erosion of Tax Base:

The erosion of tax base is actually a result of several factors, such as: sliding house prices, illegal betting, e-commerce and online stock trading.

In the following section I will explain each of these factors separately:

sliding house prices:

For a long time, Hong Kong depended on land and property transactions to contribute to government revenue of Hong Kong.

Collected tax from property in Hong Kong(stamp duty, rates and shares and estate duties) is well above the international benchmarks as a percentage of GDP, Property from taxes/GDP=24% for Hong Kong against 5% for the OECD and 10% for the Asia Pacific countries), Reference: Hong Kong Government, Tax Base Study.

Hong Kong depends on Land sales revenues in financing its budget, this has made Hong Kong increasingly dependent on non-tax revenues.

In the tax base study that has been conducted by the government of Hong Kong and KPMG consultancy, the study reports the fact that Hong Kong’s non-tax revenue is about 80% of its tax revenues against 16% for OECD benchmark.

Because Hong Kong has enjoyed a buoyant business environment for years, banks started granting credit very easily to businesses, the expansion of credit was accompanied by rising house prices, land prices started going up sharply from 1984 to 1997, Gerlach, S & Peng, W(2002).

Many companies found working in the construction sector very profitable because they can make profit from two sources:

Net profits from building new houses and buildings.
Profits from capital gains resulting from continuous increase in house prices.

The construction sector was one the most attractive economic sectors in the country.

Foreign and national banks expanded credit to companies which operate in the construction sector; the banking sector played an “accelerator” role in the run-up of the property prices.

The government in Hong Kong has constructed its tax system around the fact that land prices are going up all the time because they are in demand.

Because of the financial crises of August 1997 that hit south east Asia and also because of the government policy on housing, Revenues from land sales and land utilization(lease, rent) dropped dramatically, suddenly the government found its huge revenues from land dwindling.

On the 16^th of January 2000, the secretary for the treasury stated that:

“The other significant factor supporting our finances, in recent years, has been the high levels of revenue from land and property transactions. But as property prices stabilize, the huge windfalls are unlikely to recur in the future”

illegal betting:

Hong Kong’s treasury depended on revenues from betting activities in the country.

Hefty taxes has made too many people start thinking about illegal betting, Schuman,M(2004).

On the 16^th of January 2000, the secretary for the treasury stated that:

“The impact of illegal gambling and the rise of gambling through the Internet threaten to erode our income from betting tax”

Hong Kong’s Home Affairs bureau said handle plunged 30% from 1996-97 to 65 billion Hong Kong dollars (US$8.3 billion; euro6.5 billion) in 2003-04, while government revenue from betting dropped from HK$12.3 billion (US$1.6 billion; euro1.24 billion) to HK$8.78 billion (US$1.13 billion; euro882 million).

Meanwhile, the amount of cash and betting slips seized from illegal soccer and horse gambling operators jumped from HK$9.38 million (US$1.20 million; euro942,000) in 2001 to HK$19.7 million (US$2.53 million; euro1.98 million) in 2004, according to the government.

The government said handle is projected to drop another 30% by 2007-08 if no action is taken, Reference: the associated press (2005).

e-commerce:

Hong Kong tax system is based upon territorial system, which means that profits and incomes that are derived from Hong Kong should be taxed according to Hong Kong tax laws, the development of e-commerce and the expansion in on-line selling to customers who are not based in Hong Kong through websites that belong to the global network makes hard for the government of Hong Kong to draw a clear line between the income that is derived from the internet and the income that is derived from Hong Kong.

On the 16^th of January 2000, the secretary for the treasury stated that:

“The spread of e-commerce will have implications on all governments’ abilities to assess and collect business-related taxes. For us, the impact will be further accentuated by the territorial-base of our taxation regime”

online stock market trading:

the development of modern communications and the development of the financial markets made trading on-line possible from all over the world, trading has been made very easy by websites that are based on the web, the development of futures, options and spread betting markets have made possible to trade 24 hours a day.

It is very hard to impose taxes on online trading because the companies who established these websites do not have a physical place in Hong Kong.

On the 16^th of January 2000, the secretary for the treasury stated that:

“The acceleration in global stock market trading through the Internet will require us to consider whether the stamp duty we charge on stock transactions can be maintained at its present level, or whether by doing so we would impede the further development of the Hong Kong stock market”

Hong Kong has a prolonged problem in tax revenues resulting from low income tax on working population and the constant decrease in the number of working individuals because of aging.

The secretary of treasury addressed this problem by saying:

“For we all take for granted the low level of taxation which we enjoy in Hong Kong. For example, less than 40% of the workforce pay any salaries tax, and only 10,000 people pay the maximum salaries tax rate of 15%. Companies pay profits tax at 16%, and only profits arising in Hong Kong are subject to tax.

Also we have no taxes on other income or capital gains, no sales or value-added taxes on what we buy, and duty is payable on very few commodities.

So much for revenue, on the expenditure side, the community expects more and better public services. An ageing population will place increasing demands on our health and welfare services. The need to tackle pollution will bring substantial costs. We need to reconcile this need for additional spending with a contracting revenue base.

Based on the above reasons the treasury of Hong Kong is considering widening the tax base a strategic option.

Expanding the tax base is a constitutional obligation as well as an economical obligation.

Hong Kong has to reduce its deficit if it wants to keep the value of its dollar strong and able to attract investors.

…. These sound practices are now enshrined in the Basic Law. So we are under a constitutional obligation to keep our finances in a healthy state. With a fiscal deficit last year, and a projected deficit this year and next year, the law and prudent financial management demand that we bring our finances back into the black in the near term. This would also have the added advantage of maintaining our fiscal reserves at the level necessary to help support the Hong Kong Dollar, an indisputable requirement given the events of 1998.

5- Aging population:

Hong Kong has an aging population; this has put an increasing pressure on the social security system and the infrastructure.

This has made the secretary of the treasury to state:

“The directions indicate that the continuation of current revenue and expenditure policy is not an option“

Considered that introducing general consumption tax is the most suitable for Hong Kong?

In order to see if the general consumption tax is the most suitable tax or not we have to evaluate all Hong Kong tax options.

Tax Options for Hong Kong:

1- Reduce Personal Allowance: Hong Kong tax systems is one of the most generous tax systems in the world, as we have said earlier fewer than 40% of the work force pay taxes, some tax experts are suggesting the government reducing its tax free income allowance in order to increase tax collection revenues, experts say that a reduction in the basic allowance of 10% will raise about $2bn revenue, even if Hong Kong decided to reduce the personal allowance by 50% this will raise 90% of its traditional revenue from the existing tax base is simply contributing more revenue, this options will not be suitable to Hong Kong because it does not broaden the tax base, this option will increase the weight of salaries tax in the overall tax collection, KPMG Tax base study.

2- Expand the Existing Tax Base via imposing capital gains tax: this option is not considered the best option because it will affect investment decisions negatively and lead to capital outflow from the country and make the country lose its competitive advantage.

Imposing capital gains tax may cause job losses and that will make the tax collection from salaries substantially less, so the gains from imposing capital gains tax will be offset by loss of tax from loss of income and salaries taxes.

Imposing taxes on dividends may not lead to desirable results.

3- Increase corporate taxes:

Increasing corporate taxes is one of the main issues that the government of Hong Kong is discussing, most of the analyst believe that this is not an option because increasing the corporate tax will simply cause damage to the position of Hong Kong in the global market, analysts think that there is a global trend to reduce corporate tax in all over the world.

Analysts think that countries are in competition with each other to provide facilities and tax concessions to corporations.

If Hong Kong increased its corporate tax, it would be very easy for corporations to shift their headquarters to somewhere else in the world.

According to Hong Kong Institute of Certified Public Accountants the government of Hong Kong is suggesting giving more corporate tax concessions to corporations in the following three areas:

A- Full profits tax exemption to regional headquarters/offices in

Hong Kong in respect of management consultancy income

Derived by the Hong Kong entity from associated entities

Overseas.

B- Exemption of interest income received by regional offices from

Loans made in Hong Kong to their overseas associates.

C- Group relief.

D- Loss incurred in the current year of assessment should be

permitted to be offset against the assessable profits of one

previous year.

3- Introduce New Taxes: introducing new taxes (apart from VAT/GST) could an innovative solution to Hong Kong’s structural fiscal deficit. In fact, there is no limit to the number of taxes that a government could impose in order to provide suitable macroeconomic environment for development. For example, Hong Kong could introduce environmental taxes in order to reduce carbon dioxide emissions from cars and factories, we all know that developed countries contribute significantly to the increasing stock of greenhouse gas emissions that causes global warming.

Because Hong Kong has very busy airports and sea ports, Hong Kong could impose new taxes on land and sea departures.

Experts advise the government to outsource the activities that it does not usually do efficiently, outsourcing will help the government reduce the deficit that is caused by inefficient use of resources.

Experts did not only advise the government to introduce new taxes but also to abolish some taxes. For example, abolishing taxes on alcohol beverages in order to encourage wine tourism

Experts think that applying this option will not solve Hong Kong’s structural deficit problem completely for the simple fact that Hong Kong has a reputation that it is a low tax country and if the government imposed taxes on several economic activities, Hong Kong reputation will be affected and this may have a damaging effect on the position of Hong Kong in the financial and business world.

What experts are trying to say that Hong Kong government should introduce new taxes and abolish old taxes in order to keep the current balance of taxes and respond to the modern needs of the society (such as environmental taxes).

4- Broad-Based tax on general consumption: this could be VAT (Value Added Tax), GST (Goods and Services Tax) or Sales Tax.

Kong’s structural deficit problems.

Government says that a 3% GST will yield about $18bn which stands for 1.5% of GDP.

Analysts recognize that GST is a powerful solution to Hong Kong’s Problem, 3% GST is capable of solving the problem, and in addition to that, 3% GST is in line with international standards.

This tax is not only capable of covering the government expenditures but also capable of broadening the tax base since it is imposed on nearly all kinds of consumption.

There are few points that the government needs to take in to its account when constructing the VAT/GST:

It is recommended that the VAT/GST should be simple; simplicity is the common feature of Hong Kong tax system and keeping the proposed VAT/GST simple is consistent with the rest of the tax system.
It is recommended that the VAT/GST should be comprehensive; in other words, it should include most goods and services in the economy, making the VAT/GST comprehensive will guarantee stable revenue to the government and will prevent further increases in the rate of VAT/GST.
Stability: it is advised that the rate of the VAT should stay constant for 5-10 years to come, stability in the tax rate is very important in creating stable consumption and investment decisions, consumers will base their consumption decisions upon the prices of products and s