CHAPTER FOUR 4. RESEARCH DESIGN AND METHODOLOGY 4.1 Introduction In the preceding chapters (Chapters 2 and 3) discussions have been made regarding the theoretical underpinnings as well as the empirical evidence related to the subject under investigation. This chapter presents the basic underlying principle of research methodologies and the selection of relevant research methods that suits the current study. 4.2 Quantitative Research Methods In the early decades of evaluation of social science research, a quantitative, quasi-experimental design prevailed, and many practitioners still associate good evaluation practice with this method. According to Patton (1986), this approach determines a program s effectiveness through rigorous comparison of a treatment group (those receiving program services) and a control group (those not receiving services). Consequently, the sample or study survey is its most common data collection instrument. Surveys are particularly useful in describing the characteristics of a large population. A carefully selected probability sample in combination with a standardized questionnaire offers the possibility of making refined descriptive assertions about a person, city, a nation or any other large population. Surveys especially self-administered ones make large samples feasible. Surveys are flexible. Standardized questionnaires have an important strength in regard to measurement. Moreover, the quantitative approach, with proper sampling, allows for the measurement of many subjects reactions to set of questions. Because each question has a limited set of answers, the results can be compared and analyzed statistically, they also can be generalized to a larger population within known limits of error (Warwick and Lininger, 1975; Patton, 1986). 91
Experimental design does offer options that differ in the degree of rigor required in the selection and composition of groups, but its Scientific features include the following: (a) it is deductive in that specific research hypotheses and main variables are specified in advance of data collection, (b) respondents (both treatment and control groups) are selected according to random sampling methods that enable results to be generalized to the wider population targeted by the evaluation, and (c) results are quantified and analyzed using tests of statistical significance that permit comparison of treatment and control groups (Patton, 1986). The most important advantage of quantitative research, therefore, is it provides finding with a high degree of credibility for many decision makers. The weakness of the approach is the difficulty of establishing controlled conditions in the real world and its insensitivity to complexities and subtleties in human intervention (Stecher and Davis, 1987). Moreover, the validity and objectivity of any quantitative research will be highly dependent on the following five issues: Whether its hypotheses, design, and findings are based on an in-depth understanding of the clients. Whether the sampling methodology is randomized and therefore likely to provide representative results. The quality of data collection instrument (survey questionnaire). The quality of the data collection process including interviewer technique and supervision, and The quality of the analysis (including data coding, cleaning, keying the data, and analysis). In general, a qualitative approach is one in which the investigator primarily uses post-positivist claims for developing knowledge (ie., cause and effect thinking, reduction to specific variable and hypotheses and questions, use of measurement and observation, and the test of theories), employs strategies of inquiry such as experiments that yield statistical data. 92
Therefore, to meet the objectives of this research, quantitative research methods have been implemented. To capture information about the foreign exchange risk management practices, a questionnaire schedule has been designed and unstructured interviews were held with the executives associated with the treasury or finance department of sample companies. The questions in the questionnaire schedule were adapted from the 1998 Wharton Survey of Financial Risk Management by US Non-Financial Firms conducted by Bodnar et al with some modifications. The questionnaire consists of four sections: The first section (questions 1-5) collects information pertaining to the firm s characteristics. The second section (question 6-12) collects information pertaining to the firm s identification of foreign exchange risk. The third section (questions 13-25) collects information pertaining to the firm s foreign exchange risk management policy. The last section (question 26-29) collects information pertaining to the techniques used in foreign exchange risk management. Furthermore, to examine the relationship among Indian software exports, US economic activity, and INR-USD exchange rate volatility, time series data starting from 2000-01 Ist Quarter to 2012-13 IVth Quarter was collected from Reserve Bank of India, India and Bureau of Economic Analysis, US. 93
4.3 The Study Area In India, Software companies are operating in different regions as shown in Figures 4.3.1 and 4.3.2 below. Figure 4.3.1 shows regional location of Software Companies in India (Source: Maps of India.com). Figure 4.3.2 shows location map of the study area (Source: Maps of India). Figure 4.3.1 94
As shown in figure 4.3.1, software companies are concentrated in various cities of India. The 38 sample software companies included in this study were randomly selected from Hyderabad. Figure 4.3.2 shows location map of the study area. Figure 4.3.2 95
As shown in Figure 4.3.2, software companies are scattered across Hyderabad. The southern region led by Tier I cities such as Bengaluru, Chennai and Hyderabad has emerged as an important hub for software services. Andhra Pradesh now houses around 1,300 IT-BPO organizations of which, over 800 are operational, approximately 700 of which work out of Hyderabad alone and provide direct employment to 2.75 lakh people and indirect employment to 11 lakh professionals. Hyderabad has also taken strides within the product development arena, housing 470 product start-ups and growing within this segment at a CAGR of 18 percent during 2007-11. The IT-BPO exports from Andhra Pradesh touched INR 40,000 crores in 2011-12 (NASSCOM). The above mentioned facts indicate that Hyderabad is one of the top destinations for software companies. Therefore, Hyderabad has been chosen as an area of study. 4.4 Sources of Data In order to obtain data relevant to assess and describe the foreign exchange risk management practices, the researcher employed both primary and secondary data sources. The primary data were collected through questionnaire schedule and un-structured interviews. The questionnaire schedule was administered to the executives who are associated with the treasury related or currency management related activities. The unstructured interviews were conducted with the executives associated with the treasury or finance department, in order to secure important information about the foreign exchange risk management practices adopted by sample software companies. In addition, secondary data were gathered from different sources viz., annual reports, policy documents, academic literature, and various publications of Reserve Bank of India, National Association of Software Services Companies (NASSCOM), Foreign Exchange Dealers Association of India (FEDAI), Software Technology Park of India (STPI) and Bureau of Economic Analysis (BEA). 96
4.5 Sample Design The sample design has to be adapted to suit different circumstances, and thus the procedural details given below are essentially descriptive. i. Population: To examine the foreign exchange risk management practices, sample software companies were selected as appropriate subjects and both qualitative and quantitative evaluation have been made. To meet the objectives 60 software companies were selected randomly. The total population considered for the study was 122 software companies that have registered office in Hyderabad. (ACE-Equity, January 2012) and out of these companies, those having significant degree of foreign involvement (export ratio) were considered fit for the study purpose to assess the foreign exchange risk management practices. ii. iii. Sample Unit: All software companies having registered office in Hyderabad and enlisted in the ACE-Equity Database constitutes the sampling unit of the study. Sample Size: From the total of 122 software companies having registered office in Hyderabad, 38 software companies have been drawn to constitute sample using a combination of simple random sampling and deliberate sampling techniques. Therefore, the researcher selected the 38 software companies randomly from the Hyderabad region based on significant degree of foreign involvement. Details of the selection process are shown below: In the first stage, sixty software companies that is, fifty percent of the population of 122 companies were selected using simple random sampling. Out of these sixty companies, fifty companies have responded to the questionnaire. In the second stage, to draw meaningful results, companies which have a significant export ratio were considered for the study. Out of fifty questionnaires received, only forty six questionnaires were found useful. However, out of these forty six questionnaires, eight software companies which had an export ratio of less than twenty five percent were excluded. Therefore, the final sample was 38 software companies and the response rate was 31 percent, which was on par with earlier studies. 97
4.6 Data collection Instruments 4.6.1 Primary Data To meet the objectives sought, appropriate and relevant data were gathered and assessed the foreign exchange risk management practices of selected software companies and also examined the relationship among Indian software exports, US economic activity, and INR-USD exchange volatility. The collected data were analyzed and summarized to reach into a meaningful conclusions and recommendations. As it was mentioned earlier in this chapter, the research is based on a combination of both quantitative and qualitative approaches. Accordingly, primary as well as secondary data were collected. The primary data were collected at two levels: Firstly, unstructured interview was conducted with the executives of selected software companies. The purpose of this interview was to gather first-hand information about the foreign exchange risk management practices currently being followed, challenges being faced in managing the foreign exchange risk, and other policy issues that require further clarification. Moreover, unstructured interview is a valuable instrument to obtain vital information that is not possible to access them using other methods of data collection such as questionnaire schedule. Secondly, questionnaire schedule was used to collect information regarding the foreign exchange risk management practices. The questions in the schedule are standardized in the sense that they were adapted from a study entitled 1998 Wharton Survey of Financial Risk Management by US Non-Financial Firms developed by Gordon M. Bodnar et al. Of course, some modifications were made in view of the differences existing in the representation of sample proportions and operating conditions or business environment of companies. A combination of closed (limited and set responses) and open-ended (responses not predetermined) questions were used to strike a balance between rigid standardization and the richness of individual experience. The questionnaire schedule is preferred to other methods of data collection because it provides an opportunity for obtaining reliable and valid information from large number of respondents. The questionnaire was administered in English during the period of January 2011 to December 2011 to the executives of the selected software companies in the same way to all respondents, their answers were expressed largely in terms of numbers corresponding to pre-coded responses. 98
Respondents were provided with an overview of the theory relating to the broad field of the research along with the purpose of the study. Respondents were informed that their responses would remain anonymous and confidential. Incorporating an anonymous approach was desirable to create a climate of safety and to encourage executives to provide authentic viewpoints. Adequate care was taken to see that the respondents had not misunderstood the questions and to collect the data executives were approached through their personnel department. 4.6.2 Secondary Data In addition to data obtained from primary sources, this research also employed data from secondary sources. Accordingly, to study the relationship among Indian software exports, US economic activity and INR-USD exchange volatility, quarterly data on INR-USD exchange rates and software exports were collected from Reserve Bank of India and foreign country GDP is considered as a proxy for foreign economic activity. Therefore, quarterly data on US GDP values were extracted from Bureau of Economic Analysis, US. The data on these variables were collected for the period 2000-01 I st Quarter through 2012-13 IV th Quarter. Moreover, intensive investigation of academic literature, policy documents and publications of RBI, and other professional organizations like NASSCOM, FEDAI and STPI was made. 4.7 Procedures of Data Collection This study is a combination of analytical and a descriptive survey conducted to assess foreign exchange risk management practices of software companies having registered office in Hyderabad. As in the case of most surveys, this study relies on samples. Hence, to undertake this study the investigator first determined the sample sufficient to undertake the study. After having decided on the optimal sample size, the researcher went to the respective software companies to secure the necessary permission that enables the collection of all the necessary data. In this process, first personnel department was contacted to get the details of the concerned authority, who can provide the required information, then that particular concerned authority was approached for the collection of data. 99
4.8 Data Analysis Techniques Based on the nature of data collected through primary and secondary sources, the following procedures and statistical tools were employed. First, data were checked for consistency and completeness and then labeled and entered into a computer. Then it has been processed and analyzed quantitatively and qualitatively using IBM SPSS Version 20 and R Version 3.0.1 for Windows software. The output from the SPSS was analyzed using descriptive statistics such as chi-square tests, cross-tabulation, pie-charts, and tables for the responses obtained from the executives through questionnaire schedule. In addition, the output from R software was analyzed using econometric techniques, that is, Cointegration 9 analysis as suggested by Engle- Granger. Moreover, interpretations were made based on the results of the analysis. The data collected through unstructured interviews and documents were analyzed qualitatively by descriptive statistics. Finally, the results obtained from the analysis were presented using percentages, pie-charts, cross-tabulations and chi-square tests. 4.9 Limitations of the Study The major dimness of this study stems from the nature of the variables studied. Since the variables were on nominal scale, no other statistical technique other than chi-square can be employed. The research is confined to software companies that have registered office in Hyderabad. Since the study is geographically focused the findings cannot be generalized. The sample comes from one industry only, due to which again the results may not be generalized. Executives of some of the companies were reluctant to provide the information and they did not show interest in filling up the complete questionnaire. Also while conducting this study some pieces of information was difficult to obtain, other than these sample imperfections, methodological flaws, measurement errors can also be cited as limitations. 9 Cointegration is a statistical property of time series variables. 100