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The IUP Journal of Managerial Economics

The current issue consists of five papers. The first paper, “The Economics of Cloud Computing”, is on the topic of cloud computing. In principle, it discusses the net benefits of the new trend in the Information and Communication Technology businesses of obtaining computing capabilities and storage capacities from providers of these services on rent. The author delves into the operational consequences of such a change. In effect, fixed costs are converted into variable costs. This surely adds to the efficiency of the industry. In addition to being a sector-specific study, it has general relevance to the study of economic organization. The author explains as to how men and resources could be better utilized elsewhere in the project instead of these activities. The fact that there are possibilities of economies of scale and scope to be derived by this industry as a whole from the outsourcing practice adds flavor to this analysis. Particularly the logic of asset specificity is relevant, since the firm exercises its option of employing the talent and time freed thus to speedier completion of the project. Also there will be a change in the financial statements due to lesser requirement of fixed assets. In fact, I have a hunch that there exists considerable waste of facility-time across the industry in these important chores. This is also an example of how changes in supporting technologies like high-speed Internet alter the way businesses operate in a radical manner. The gains are real and not only pecuniary in nature.

The second paper, “Corporate Diversification of British and German Non-Financial Firms”, is on the topic of the effects of diversification strategy on the value of a business. Although the study is based on the data from the UK and Germany, the results and analysis are relevant to the current trends of business across the liberalized capitalist world. The discussion refers to the traditional literature where diversification is described as an opportunistic move. The more recent studies show the decision to diversify as a more far-reaching change making a difference in the value of the business. Diversification from the core business is thus an issue of strategy and is intended to be used for the long-run objective of enhancing the value of the firm. The interesting feature of this study is the role played by the business environment, as the results obtained for UK are significantly different from those obtained for Germany.
The third paper, “Technical Efficiency of Sugar Factories in West Godavari District, Andhra Pradesh: A Case Study”, is on the sugar industry in West Godavari District of Andhra Pradesh. This is a study on the efficiency aspects of the industry. The discussion involves use of resources, including the primary raw material, sugarcane. The results of such studies can have wide relevance in the discussion of what needs to be done to make the industry more efficient with regard to utilization of resources.

The fourth paper, “Paradox of Plenty, with Special Reference to Inelastic Demand for Apples”, is a study of the market conditions for plantation crops like apples. It is an analysis of the problem called ‘paradox of plenty’ in economic literature. The paper is based on the neo-classical analysis involving shifts in the supply curve and what that does to the equilibrium price, and therefore the income of the farmer. The demand for food products being known to be relatively inelastic, the farmer is a loser by forced rightward movement of the supply curve on the inelastic demand schedule. The quantity demanded does not increase as much in percentage terms as the fall in price due to the downward shift in the supply curve. Hence, the total revenue actually stands to be lowered though the production has increased. A natural corollary to this result would be that if better food-processing, warehousing and export avenues are provided, all the supply need not be released at the same time, at one location. Thus, the negative pecuniary effect of the glut is converted into a positive real and pecuniary effect for everyone involved.

The last paper, “Banking Services and Customer Satisfaction: A Study on Banks in Belgaum District, Karnataka”, is on the satisfaction of the account holders of the banks in a district of Karnataka. The study has a lot of contemporary relevance due to the fact that rural extension is now a thrust area in the business. Customer care is becoming the central focus of most service industries. The need for this is felt due to increasing competition in most services. In the case of Indian banks, customer care took off about two decades ago, with the creation of the ‘ombudsman’, a special officer attending to grievances. It was a new concept then because nationalized banks were used to taking the customer for granted. The situation has completely undergone a change in the last half-a-decade. The customer cannot be taken for granted due to the increasing market share of private banks that are trying every new idea in the book to endear themselves to their customers. This has become important for retaining the existing customer base and for attracting new ones. The study throws light on some of the factors which matter in retaining the customer base and increasing it in the smaller towns of India.

-- Syamasunder Talluri
Consulting Editor

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Automated Teller Machines (ATMs): The Changing Face of Banking in India

Bank Management
Information and communication technology has changed the way in which banks provide services to its customers. These days the customers are able to perform their routine banking transactions without even entering the bank premises. ATM is one such development in recent years, which provides remote banking services all over the world, including India. This paper analyzes the development of this self-service banking in India based on the secondary data.

The Information and Communication Technology (ICT) is playing a very important role in the progress and advancement in almost all walks of life. The deregulated environment has provided an opportunity to restructure the means and methods of delivery of services in many areas, including the banking sector. The ICT has been a focused issue in the past two decades in Indian banking. In fact, ICTs are enabling the banks to change the way in which they are functioning. Improved customer service has become very important for the very survival and growth of banking sector in the reforms era. The technological advancements, deregulations, and intense competition due to the entry of private sector and foreign banks have altered the face of banking from one of mere intermediation to one of provider of quick, efficient and customer-friendly services. With the introduction and adoption of ICT in the banking sector, the customers are fast moving away from the traditional branch banking system to the convenient and comfort of virtual banking. The most important virtual banking services are phone banking, mobile banking, Internet banking and ATM banking. These electronic channels have enhanced the delivery of banking services accurately and efficiently to the customers. The ATMs are an important part of a bank’s alternative channel to reach the customers, to showcase products and services and to create brand awareness. This is reflected in the increase in the number of ATMs all over the world. ATM is one of the most widely used remote banking services all over the world, including India. This paper analyzes the growth of ATMs of different bank groups in India.
International Scenario

If ATMs are largely available over geographically dispersed areas, the benefit from using an ATM will increase as customers will be able to access their bank accounts from any geographic location. This would imply that the value of an ATM network increases with the number of available ATM locations, and the value of a bank network to a customer will be determined in part by the final network size of the banking system. The statistical information on the growth of branches and ATM network in select countries.

Indian Scenario

The financial services industry in India has witnessed a phenomenal growth, diversification and specialization since the initiation of financial sector reforms in 1991. Greater customer orientation is the only way to retain customer loyalty and withstand competition in the liberalized world. In a market-driven strategy of development, customer preference is of paramount importance in any economy. Gone are the days when customers used to come to the doorsteps of banks. Now the banks are required to chase the customers; only those banks which are customercentric and extremely focused on the needs of their clients can succeed in their business today.


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Managerial Economics