PRELIMINARY EXAMS BSBA-MM 3RD YEAR 2. Software – set of programs that form an c.

grams that form an c. User – are persons who operate the system
interface between the hardware and the user and use it for different purposes. Also called
MSTE4 of a computer system. the end users.
CHAPTER 1: OVERVIEW OF INFORMATION AND Types of Software Components of a Computer System
COMMUNICATION TECHNOLOGY
a. System Software – set of programs to control 1. Input Unit – is responsible for controlling the
Information and Communication Technology internal operations such as reading data from various input devices that are used to enter
- Is the infrastructure and components that input devices, giving results to output devices data into the computer.
enable modern computing. and ensuring the proper functioning of 2. Central Processing Unit (CPU) – ensures the
- The term is generally accepted to mean all components. flow of data into the system by directing the
devices, networking components, applications b. Application software – programs designed data to enter the system, storing it into the
and systems that when combined, allows by the user to perform a specific function, such memory and retrieving it when needed to
people and organizations to interact in the as accounting software, payroll software, etc. produce the output.
digital world. c. Operating system – set of tools and programs a. Arithmetic and Logic Unit (ALU) – it
to manage the overall working of a computer performs all the arithmetical
Computer using a defined set of hardware components. It calculations and computations. It is
is the interface between the user and the also responsible for logical
- Is a programmable machine. computer system. calculations like comparison among
- Is an electronic device that manipulates d. Utility software – special purpose programs data items.
information or data. It has the ability to store, that are designed to perform a specialized b. Memory Unit – the data has to be
retrieve and process data. task, such as function to copy, cut or paste files stored in the memory blocks of the
- Is any device that aids human in performing in a computer. computer before it is retrieve for
various kins of computations or calculations. e. Language processors – special software to actual processing.
accept data and interpret it in the form c. Control Unit – it controls and
Three Principal Characteristics of Computer
Machine/Assembly language understandable coordinates the activities of all the
1. It responds to a specific set of instructions in a by a computer. It also ensures the correctness components of the computer system.
well-defined manner. of language syntax and errors. It reads data from the memory,
2. It can execute a pre-recorded list of f. Connectivity software – set of programs and decodes the instructions, looks after
instructions. instructions to connect the computer with the its execution and fetches the next
3. It can quickly store and retrieve large amount main server to enable sharing of resources and instructions.
of data. information with the server and other 3. Output Unit – it controls various output
connected computers. devices to produce the desired output and
Elements of the Computer System 3. Peopleware – the most important element of present it to the user. It ensures the
computer system is its users. They are also convertibility of output into a human-readable
1. Hardware – the physical component of a
called liveware of the computer system. form that is understandable by the user.
computer. It consists of input devices and
output devices that make a complete Types of People
computer system.
a. Input devices – the devices used to a. System Analysts – are people who design the Classification of Computers
enter data. operation and processing of the system.
b. System Programmers – are people who 1. General purpose computers – are designed
b. Output devices – used to display the
information. writes codes and programs to implement the to perform a range of tasks. They have the
working of the system. ability to store numerous programs, but lack in
speed and efficiency.
 2. Specific purpose computers – are designed - A terminal or desktop computer in a network. f. Healthcare
to handle a specific problem or to perform a g. Retail and Trade
specific task. Set of instructions is built into the Capabilities of Computer System h. Government
machine. 1. Speed – means the duration a computer i. Marketing
system requires in fulfilling a task or j. Science
Based on Functionality k. Publishing
completing an activity.
1. Analog Computer – is a form of computer that 2. Accuracy – the level of precision with which l. Arts and Entertainment
uses continuous physical phenomena. calculations are made and tasks are m. Banking and Finance
2. Digital computer – a computer that performs performed. n. Transport
calculations and logical operations with 3. Reliability – the quality dure to which the o. Navigation
quantities represented as digits, usually in the user can stay dependable on the computer. p. Working from Home
binary number system. 4. Adaptability – the quality of it to complete a q. Military
3. Hybrid Computer – a combination of different type of tasks: simple as well as r. Social and Romance
computers that are able of inputting and complex. s. Booking Vacations
outputting in both digital and analog signals. 5. Storage – the ability of the computer to store t. Security and Surveillance
data in itself for accessing it again in future. u. Weather Forecasting
On the Basis of Size v. Robotics
Limitations of Computer Systems
1. Super Computer Impact of ICT in the Society
- The fastest and most powerful type of 1. Lack of Common Sense
computer. 2. Zero IQ  Positive Impact of ICT
- Are very expensive and are employed for 3. Lack of Decision-making o Access to information
specialized applications that require immense o Improved access to education
amounts if mathematical calculations. Hacker – internet villains; a person or entity who gains o New tools, new opportunities
2. Mainframe Computer access without authorization or compensation. o Communication
- A very large and expensive computer capable o Information management
a. White Hackers – good o Security
of supporting hundreds, or even thousands, of b. Bad Hackers – bad
users simultaneously. o Allows people to participate in a
3. Mini Computer Malware – malicious software wider, even worldwide, society.
- A midsized computer o Distance learning: students can access
- Lies between workstations and mainframes. a. Virus – spreads through files teaching materials from all over the
4. Micro Computer or Personal Computer b. Worms – spreads through internet world
a. Desktop Computer – personal or o Facilitates the ability to perform
Spyware – software that keeps track of your ‘impossible experiments’ by using
micro-mini computer sufficient to fit passwords, usernames and other info.
on a desk. simulations.
b. Laptop Computer – a portable Ransomware – software that locks out your files and o Creation of new more interesting jobs.
computer completes with an will unlock them in exchange of money.  Negative impact of ICT
integrated screen and keyboard. o Job loss
c. Palmtop Computer/ Digital Diary/ Uses of ICT in our Daily Lives o Reduced personal interaction
Notebook/ PDAs – a hand-sized o Reduced physical activity
a. Communication o Cost
computer. It has no keyboard but the
b. Job Opportunities o Competition
screen serves both as input and
c. Education
output device. CHAPTER 2: GENERATIONAL DIFFERENCES AND THE
d. Socializing
5. Workstations MEDIA ENVIRONMENT
e. Business
Generation – refers to all of the people born and living o This generation is conscious that they
at about the same time, regarded collectively. Today, need to work hard to achieve the
the sociological definition of a generation spanning 5 things they want in their life.
years is widely recognized.  Gen Alpha (2010-present)
o Gen Alpha are the most materially g. Ideal Leader – Thinker
Generation Names endowed generation ever, the most h. Learning Style – Structured
 Builders (<1946) technologically savvy generation ever i. Influence/ advice – Experts
o The label points to the fact that this and they will enjoy a longer life span j. Marketing – Broadcast (mass)
generation ‘built’ so much of the than any previous generation.
society we know today. o With the increase in screen and
o This generation has also displayed technology, there’s no doubt that 3. Generation X
their resilience through some tough Generation Alpha will feel this a. Slang Terms – Dude; Ace; Rad; As if;
times: starting life after a Depression, influence in their schooling. Wicked
hearing stories of World War I from Generation Matrix b. Social Markers – Stock Market crash
their parents and living through (1987)
World War II. 1. Builders c. Iconic Cars – Holden Commodore
 Baby Boomers (1946-1964) a. Slang Terms – “We prefer proper (1978)
o Their generational label is derived English if you please.” d. Iconic Toys – Rubix Cube
from the baby boom that occurred b. Social Markers – World War II e. Music Devices – Walkman (1979)
post-World War II, where the fertility (1939-1945) f. Leadership Style – Coordinating
rate was 3.5 babies per woman. c. Iconic Cars – Model T Ford (Final,
o They brought about massive cultural 1927)
change, social change and economic d. Iconic Toys – roller skates
change, and continue to have impacts e. Music Devices – Record player (LP,
in the society today. 1948) g. Ideal Leader – Doer
 Gen X (1964-1981) f. Leadership Style – Controlling h. Learning Style – Participative
o Generation X have done well through i. Influence/ advice – Practitioners
this era, despite the angst that they j. Marketing – Direct (targeted)
experienced earlier on. Now, they are 4. Generation Y
doing things differently to the a. Slang Terms – Bling; Funky; Duh;
generations that went before them. g. Ideal Leader – Commander Foshizz; Whassup?
o They have established themselves h. Learning Style – Formal b. Social Markers – September 11,
well economically, as their net worth i. Influence/ advice – Officials 2001
accelerated from the early nineties. j. Marketing – Print (traditional) c. Iconic Cars – Toyota Prius (1997)
 Gen Y (1980-1994) 2. Baby Boomers d. Iconic Toys – BMX bike
o Also known as the Millennials. a. Slang Terms – “Be cool”; “Peace”; e. Music Devices – iPod (2001)
o Jack of all trades “Groovy”; “Way out” f. Leadership Style – Guiding
o Technologically proficient compared b. Social Markers – Moon Landing
to the older generations (1969)
o Multi-tasking c. Iconic Cars – Ford Mustang (1964)
 Gen Z (1995-2009) d. Iconic Toys – Frisbee
o Being shaped in a COVID-19 era, this e. Music Devices – Audio Cassette g. Ideal Leader – Supporter
generation have learnt that the (1962) h. Learning Style – Interactive
economy can have upsets. f. Leadership Style – Directing i. Influence/ advice – Peers
 j. Marketing – Online (linked Social Media in the Philippines  Twitter – is known as a micro-blogging site.
5. Generation Z Blogging has been around for some time.
a. Slang Terms – *fire emoji*; Fam;  The Philippines boasts one of the most active
GOAT; Slay; Yass queen social media communities among Southeast Roles of Social Media
b. Social Markers – GFC (2008) Asian countries.
 Based on aggregated data from various  For Individuals – use of social media is for
c. Iconic Cars – Tesla Model S (2012) family, friends and extended family that use
d. Iconic Toys – Folding Scooter sources, we estimate that there are around 94
million active social media users, the majority various apps to look and search for
e. Music Devices –Spotify (2008) opportunities on their career, search similar
f. Leadership Style – Empowering of whom access these platforms via their
mobile devices. interest group and share thoughts, feelings
and activities.
Main Drivers behind Using Social Media  For Businesses – serves as a crucial platform
to find and engage with potential customers,
study consumer trends and provide additional
g. Ideal Leader – Collaborator channel for customer service.
h. Learning Style – Multi-modal
i. Influence/ advice – Forums Dependency on the Internet
j. Marketing – Digital (social)  Information Gathering – with the number of
6. Gen Alpha accessible information in the internet, it has
a. Slang Terms – lit; yet; hundo; oof; rn; been the first place to look upon during
idrc information gathering.
b. Social Markers – COVID-19 (2020)  Navigation & Transportation – Google Map
c. Iconic Cars – Autonomous vehicles
and Waze were two of the most used
(2020s) navigating apps in our country same as Grab
d. Iconic Toys – Fidget Spinner and Uber for transportation.
e. Music Devices –Smart Speakers  Communication – nowadays, only few uses
(now) Social Media in the Philippines landlines to communicate. People prefer to use
f. Leadership Style – Inspiring social media apps such as FB Messenger and
 Facebook – is a social networking site that
Skype when communicating with friends and
makes it easy for you to connect and share
family.
with family and friends online.
 Education – everyone today can learn and
 Facebook Messenger – is a FREE mobile
study via computer. Online schools, tutorial
messaging app used for instant messaging,
g. Ideal Leader – Co-creator videos, Google and eBooks are some of the
sharing photos, videos, audio recordings and
h. Learning Style – Virtual many options that we have.
for group chats.
i. Influence/ advice – Chatbots
j. Marketing – In situ (real-time)  TikTok – is a popular social media app that New Technological Development
allows users to create, watch and share 15-
Adapting to New Technology second videos shot on mobile devices or  Artificial Intelligence
webcams.  3D Printing
 Any set of progress in techniques which offers  Instagram – allows users to edit and upload  Google Glass (Augmented Reality)
significant help over the created technology photos and short videos through a mobile app.  Occulus Rift (Virtual Reality)
for a given process is a NEW TECHNOLOGY.  YouTube – is a video sharing service where  Agricultural Drones
 SOCIAL MEDIA has become more developed users can watch, like, share, comment and
and approved by most of the people in regards upload their own videos.
to trends and style.
Technology Changed the World  In 1882, the English Parliament passed Negotiable Instruments Act of the
the Bills of Exchange Act which codified United States of 1896 drafted by the
1. Technology changed the education system. the law of negotiable instruments as found National Conference of Commissioners
2. Technology changed the methods of in the court decisions of England. on Uniform State Laws.
communicating. 3. U.S Uniform Negotiable Instrument Act.  The evident purpose of the Act is to
3. Technology changed people’s health.  Following the example of the English facilitate transactions in commercial
Parliaments, the National Conference of paper and to promote free flow of credit.
Commissions on Uniform State Laws, 6. Code of Commerce.
BLAW3 which was sponsored by the American Bar  Prior to the passage of Act No. 2031, the
Association and the American Bankers law then existing and in force as to
THE NEGOTIABLE INSTRUMENTS LAW Association, drafted the Uniform negotiable instruments could be found
Historical Background of our Negotiable Instruments Negotiable Instrument Law for the United in Book II of the Code of Commerce,
Law States in 1896. from Articles 443 to 556.
4. U.S Uniform Commercial Code.  All these articles, with the exception of
1. Use of negotiable documents by merchants of  The Uniform Negotiable Instrument Act those on crossed checks, have been
Europe. has been replaced in part by Article 3 and replaced. (Sec. 197)
 The use of commercial paper may be in part by other articles of the Uniform
traced back to the beginning of the Commercial Code (U.C.C) prepared under Application and Purpose:
Christian era. the auspices of the National Conference of  The Act applies only to negotiable
 In fact, commercial paper of some type has Commissioners on Uniform State Law and instruments (Arnold v Jordan, 215 Ala.693,
been present in nearly every society that the American Law Institute. 112 So. 305) or to those instruments which
has developed a substantial commercial  Proposed for adoption by the legislature meet the requirements laid down in
system. of the states, the first draft of the Code was Section 1 of the law.
 During the Medieval period, merchants of finished in 1952 although the Code is  It is designed to describe fully the law of
Italy were already using negotiable revised periodically.
negotiable instruments.
documents on a broad scale rather than  The code was adopted to comply more
 It “covers the entire subject of negotiable
transferring principal money owing to the readily with the demands of the instruments and must be treated as a
inconvenience and danger of transporting modern business world. complete body of law upon the subject and
money itself.  It seeks to simplify, clarify, and controlling in all cases to which it is
 Introduced into France and then into standardize the rules of commercial applicable.”
England where it became part of the Law paper while retaining most of the  Any case not provided for by the Act shall be
Merchant. traditional rules and views on the subject. governed by the provisions of existing
2. English Bills of Exchange Act. 5. Act No. 2031. legislation or in default thereof, by the rules of
 Litigations arising out of transactions  Our Negotiable Instrument Law was the law merchant. (Sec. 196)
between merchants came under the enacted as Act No. 2031 on February 3,  The Civil Code has no effect on its provisions
jurisdiction of common law courts when 1911. except to supply any deficiency in cases not
the Law Merchant was absorbed by Kings  It took effect 90 days after its covered by the Act. (see Art. 18, Civil Code)
Court under the direction of Lord publication on March 4, 1911, in the  The law was enacted for the purpose of
Mansfield. Official Gazette of the Philippine
facilitating, not hindering or hampering
 Commercial paper had become so Islands was completed. (Sec. 198) transactions in commercial paper.
persuasive by the late 19th century that  The act, therefore, took effect on June 2,  Thus, the said statute should not be
the English Parliament began to enact 1911. tampered with haphazardly or lightly nor
special statutes to govern its use.  Our law is patterned with very slight
modifications after the Uniform
 should it be brushed aside in order to meet promissory notes, bills of exchange and The theory of negotiable instruments.
the necessities in a single case. checks knowing that other businessmen
will treat these promises as a cash.  Rests upon the proposition that they appear to
Function and Importance: 4. As a means, in the case of a check, of making belong to the person having them in
immediate payment- The check is primarily possession and to no one else.
1. As a Substitute for Money - although they do  By sending a negotiable instrument into the
not constitute legal tender (Art. 1249) and are used for immediate payment (as a substitute
for money), while ordinary bill of exchange world, the maker is estopped from urging, as
not money, they are used as a substitute for against a bona fide holder who has received it
money, eliminating the risk of dealing in and promissory notes are intended for the
circulation of credits. (primarily as a credit from anyone in possession, a defect of title.
cash.
transaction).  The holder, though without a title, has the
 Legal Tender - is anything recognized by
capacity to give a title because he is the
law as a means to settle a public or private NEGOTIABLE INSTRUMENT - a written contract for the apparent owner of the instrument.
debt or meet a financial obligation, payment of money which by its form and on its face is
including tax payments, contracts, and intended as a substitute for money and passes from
legal fines or damages. hand to hand as money, so as to give the holder in due
 allows it to pass freely from hand to Forms of negotiable instruments:
course the right to hold the instrument and collect
hand in the commercial markets; the sum for himself. 1. Common forms. - The most common forms of
 take the place of money in commercial negotiable instruments in commercial
transactions free from all personal Features:
transactions are the promissory note (Sec.
defenses available against the original 184.), bill of exchange (Sec. 126.), and bank
1. Negotiability- quality or attribute of a bill or
owner. check. (Sec. 185.)
note whereby it may pass from hand to hand
 valuable or worthless depending upon a. promissory notes or those in which the
similar to money, so as to give the holder in
the financial ability of the parties to issuer has promised to pay (certificates of
due course the right to hold the instrument
them. deposits, bank notes, due bills, bonds);
and collect the sum payable for himself free
 The purpose of the law is to place b. bills of exchange or those in which the
from any infirmity in the instrument or
negotiable instruments on such footing defect in the title of any of the prior parties issuer has ordered a third person to pay
that they would be freely accepted like (drafts, trade acceptances, and banker's
or defenses available to them among
money without question in commercial acceptances).
themselves.
transactions and thereby facilitate 2. Special types. - There are, to be sure, many
2. Accumulation of secondary contracts- The
trade. various forms of negotiable instruments.
most important feature of negotiable
2. As a medium of exchange for most
instruments is the accumulation of secondary
commercial transactions - Negotiable Doubt resolved in favor of negotiability.
contracts as they are transferred from one
papers, particularly Checks, constitute, at
person to another.  Where the meaning is doubtful, the courts
present, the media of exchange for most
commercial transactions. have thus adopted the policy of resolving in
Maker- Payee-Indorsee
 To increase the purchasing medium in favor of the negotiability of the instrument.
circulation.  Transfer between Maker and Payee is the  The purpose obviously is to encourage the free
3. As a medium of credit transactions - PRIMARY CONTRACT circulation of negotiable papers because of the
Negotiable instruments are also designed to  Transfer from Payee (P) to A, A to B, B to C, admittedly indispensable function they
serve as a medium of credit transaction, or as C to D, D to E- are what we call as perform in mercantile business transactions in
a credit instrument. NEGOTIATION any given country and the world at large.
 The purpose of negotiability then is to  Negotiation is the SECONDARY CONTRACT.
allow men of undoubted credit to carry on
a business enterprise upon their
Contracts and negotiable instruments compared. 4. Certificate of stock. - It is a muniment of money. The Negotiable Instrument law cannot
title to a given share in the assets of a come into operation unless the document in
1. Assignability and negotiability. corporation. existence is of the character described in
Bills of exchange and promissory notes in their 5. Pawn ticket. - It is not a negotiable Section 1 of the law. Thus, instruments given
various forms are written contracts, and the instrument under the Negotiable through electronic messages that do not
fundamental rules governing the law of Instruments Law nor a negotiable comply with the requisites of negotiability
contracts are applicable to the determination document of title under Articles 1507, et under Section 1 are not negotiable
of the legal questions which may arise over seq. of the Civil Code. instruments.
such instruments. 2. Matters to be considered - In determining
2. Negotiability of various types of commercial SECTION 1. Form of negotiable instrument. the negotiability of an instrument, the
papers. following must be considered:
While it has been said that there is no middle An instrument to be negotiable must conform to
the following requirements: a. the whole of the instruments
term between negotiability and non- b. only what appears on the face of the
negotiability, the courts sometimes use the (a) It must be in writing and signed by the maker instruments and;
term "quasi-negotiability," and "negotiability" or drawer; c. the provisions of the Negotiable
may vary with various types of commercial Instruments Law Especially Section 1
papers and their various purposes and (b) Must contain an unconditional promise or thereof which fully define the
functions. order to pay a sum certain in money; requirements an instrument must meet in
3. Rules of law applicable. order to be negotiable.
The peculiarities of the Nego-table (c) Must be payable on demand, or at a fixed or
Instruments Law, distinguishing such determinable future time; APPLICABILITY OF FORMAL REQUIREMENTS
instruments from other contracts, relate, of (d) Must be payable to order or to bearer; and
course, to a holder who has taken by  All kinds of negotiable instruments are
negotiation, and not as an original party. (e) Where the instrument is addressed to a drawee, either promises or orders to pay money
he must be named or otherwise indicated therein that meet the formal requirements or
Commercial paper with limited negotiability. with reasonable certainty. elements set forth in the law all of which
must be present for negotiability.
 There are certain instruments with limited Commercial Paper 1. The requirements indicated in subsections (a),
negotiability which are also widely used in (b), (c), and (d) are necessary in order that a
commercial transactions but they have been  In its broadest sense, refers to written promise promissory note may be negotiable while all
held to be non-negotiable in the technical or obligations that arise out of commercial the subsections from (a) to (e) are necessary
sense because they do not have the requisites transactions from the use of such instruments in order that a bill of exchange may be
that are essential under the Negotiable as promissory notes and bills of exchange. negotiable.
Instruments Law.  Basically, a simple promise to pay money. it is 2. Under subsection (a), the maker refers to the
 They are beyond the scope of the Law and are, not a commercial paper if it does not arise out person issuing a promissory note, while the
therefore, governed by other laws. of commercial transactions. drawer, to the person issuing a bill of
TYPES:  It will be negotiable if it satisfies certain formal exchange.
1. Document of title. - It is a receipt or order requirements, giving it special characteristics 3. In subsection (b), the instrument must contain
for the delivery of goods. not possessed by other types of contract. an "unconditional promise" if it is a
2. Letter of credit. - It is in favor of a promissory note and "an unconditional
specified person and not to order. FORMAL REQUIREMENTS OF NEGOTIABILITY IN
order" if it is a bill of exchange.
3. Trust receipt. - It is a document of GENERAL:
4. Subsections (c) and (d) are both applicable to
security pursuant to each of the two kinds of instruments, but
1. Form and content - A negotiable instrument,
which a bank acquires a "security subsection (e) is applicable only to bills of
briefly stated, is a contractual obligation to pay
interest" in the goods under trust receipt. exchange. Sec. 1
FORMAL REQUIREMENTS EXPLAINED c. Where the genuineness of the signature by the debtor in the right amount." (see
of the maker or drawer is denied, the Black's Law Dictionary.) Thus, gold and silver
1. The instrument must be in writing. - The party against whom it operates must What and bank notes are not money. See comments
term instrument indicates a writing. The is important is that the signer has under Sections 2 and 6.
instrument must be in writing, or reduced to intended to adopt the signature on the 5. The instrument must be payable at a fixed
tangible form; otherwise, nothing could be instrument as his own and to obligate or determinable future time or on demand.
negotiated or passed from hand to hand. himself for its payment. 6. The instrument must be payable to order.
a. Writing includes not only that which d. However, an unusual signature may limit 7. The instrument must be payable to bearer.
has been written on paper and with the acceptability of an instrument. The use 8. The drawee must be named. - The
a pen or pencil but also that which is of a pencil is undesirable as it is easy to provision applies.
in print (Sec. 191.) or has been typed. tamper the writing. provide some a. Obviously, an order which is not
The usual way is to have the evidence of its invalidity because the addressed to any person cannot
instrument written or printed in signature is presumed valid. The party be a bill. (see Sec. 14.) But the bill
durable paper. asserting its validity must then provide would be sufficient if the drawee
b. There is no such thing as an oral proof of its genuineness in long hand. is indicated therein with
negotiable instrument. An oral 3. The instrument must contain an reasonable certainty though he is
promise can make it difficult to unconditional promise or order to pay. - A not named.
determine liability and create the commercial paper or instrument involving the b. the reason for this last element of
danger of fraud. payment of money must contain either a negotiability is to enable the
2. The instrument must be signed by the promise to pay or an order to pay. Thus, payee or holder to know upon
maker or drawer.- Although the signature of negotiable instruments may be classified as whom he is to call for
the maker or drawer, as a general rule, is either promises or orders to pay. acceptance or payment.
placed at the lower right hand corner of the 4. The instrument must be payable in a sum c. A promissory note has no drawee.
instrument, it may appear in any part thereof certain in money. - The promise or order like the drawee, the payee must
whether at the top, middle or bottom or at the must call for the payment of a sum certain in be named with reasonable
margin. It will be valid and binding as long as money. certainty.
it appears that a person intended to make the a. The reason for the requirement is that money
instrument his own. is the one standard of value in actual Non-Negotiable Instrument Defined
a. His signature is prima facie evidence of business. All other commodities may rise and
his intention to be bound as either maker  An instrument which is not negotiable,
fall in value but in theory, at least, money that is, an instrument which does not
or drawer. However, if the signature is so always measures this rise and fall, and
placed upon the instrument that it is not meet the requirements laid down to
remains the same. (Norton on Bills and Notes, qualify an instrument as a negotiable
clear in what capacity the person 14th Ed., P. 66.) But the promise or order may
intended to sign, he is deemed an one, or an instrument which in its
designate "a particular kind of current inception was negotiable but has lost its
endorser (Sec. 17 [f].) and not a maker or money in which payment is to be made."
a drawer. quality of negotiability.
(Sec. 6[e].) a. A typical example is a check payable only
b. The signature of the maker or drawer is b. Money is the medium of exchange
usually written. It is preferable that the to a specified person, as when it reads
authorized or adopted by a domestic or merely "Pay to Pedro Cruz." A negotiable
full name or at least the surname should foreign government as part of its currency.
appear. But initials or any mark will be instrument ceases to be negotiable if the
In a literal sense, the term means (“cash." it indorsement prohibits the further
sufficient, provided that such signature be includes all legal tender which has been
used as a substitute and the maker or negotiation of the instrument. (see Sec.
defined as "that currency which a debtor can 36[a]; also Secs. 32 and 41.)
drawer intends to be bound by it. legally compel a creditor to accept in b. A non-negotiable instrument may not be
payment of a debt in money when tendered negotiated but it may be assigned or
 transferred (see Sec.30.), absent an 3. Checks, which are also bills of exchange, but of b.Payee – to whom the instrument
express prohibition against assignment a special kind. this is a form of a bill of is payable.
or transfer written on the face of the exchange issued by a person (drawer) 3. Promissory Note
instrument. ordering his bank to pay the person named on  Is a written promise to pay sum of money.
c. Transfers of non-negotiable instruments the check.  It is commonly referred to as a note.
are governed by the provisions of the  It may be a demand instrument but normally a
Civil Code on assignment of contract Parties of the Negotiable Instruments and their
time instrument.
rights. (Arts. 1624-1635 thereof.) liabilities.
Similarly, the basic principles of contract Special types of a promissory note
a. Parties
law contained in the Civil Code govern 1. Promissory notes - The promissory, or 1. Certificate of Deposit, which is a written
when a negotiable instrument is the one making the promise pay. He is acknowledgement by a receipt of money
improperly negotiated to a third person called the maker. engaging to pay to the lawful holder upon
(transferee). Bill of exchange. The person to whom the proper indorsement;
d. The legal consequences of negotiation, as promise to pay is made. 2. Bond, which is a promissory note under
distinguished from assignment of a 2. Bill of exchange - Drawer, the person seal involving a public borrowing on a
negotiable instrument, are different. drawing or making the instrument, or the usually long-term basis, unlike an
Persons who transfer or assign person giving the order to pay. Drawee, ordinary promissory note;
contractual or non-negotiable rights the addressee of the order to pay, or the 3. Bank note, which is a promissory note of
pass only rights that they had. person required to pay the instruments. an issuing bank payable to bearer on
Nature of non-negotiable instrument Payee, the person to whom payment is to demand and intended to circulate as
be made. money; and
1. An instrument which is non-negotiable is c. Primarily liable: 4. Due bill, which is a note whereby a person
merely a simple contract in writing. It is thus a. Maker acknowledges his debt to another and he
covered by the general provisions of the Civil b. acceptor of a bill promises to pay bearer or to order a sum
Code, not the Negotiable Instrument Law. Secondarily: owed which is certain in money.
2. May not be negotiated, but it may be
assigned or transferred, absent an express a) drawer of a bill A bill of exchange is an unconditional order in writing
prohibition against assignment or transfer addressed by one person to another signed by the
b) indorsers of a bill or a note
written on the face of the instrument. person giving it, requiring the person to whom it is
 The legal consequences of 3 Not liable drawee, until he accepts accepts addressed to pay on demand or at a fixed or
negotiation, as distinguished from determinable future time a sum certain in money to
the assignment of a negotiable 4. Promissory note defined and its order or to bearer. (Sec. 126 NIL)
instrument, are different. characteristics
 A negotiable promissory note is an There are three (3) parties in a bill of exchange:
 Persons who transfer or assign
contractual or non-negotiable rights unconditional promise in writing 1. Drawer – the one drawing the instrument
pass only the rights that they had. made by one person to another, signed
2. Payee – to whom the instrument is payable
by the maker, engaging to pay on
3. Drawee – to whom the instrument is addressed
Most common forms of Negotiable Instruments demand, or at a fixed or determinable
time, a sum certain in money to order Idea and purpose of a bill of exchange
1. Promissory notes - this is evidence of a or to bearer. (Sec. 184 NIL)
promise to pay money.  There are two (2) parties in a 1. Drawer's funds in hands of drawee. - "The
2. Bills of exchange - these evidences an order Promissory Note: fundamental idea and purpose of a bill of
made by one person to another to pay money a. Maker – the one making the exchange is that the drawer has funds in the
to third person. instrument hands of the drawee which the former
 desires to be paid to the payee. He, 6. Sight bills, which are bills of exchange which Distinguish a check from a bill of exchange
therefore, draws the bill of exchange ordering are payable upon presentation or at sight or on
the drawee to pay the amount mentioned in demand.  Check is always drawn a bank; whereas an
the bill of exchange to the payee." (C. Alvendia, 7. Time or usance bills, which are bills of ordinary bill may or may not be drawn against
Neg. Inst. Law, 1948 Ed., p.8.) exchange which are payable at a fixed future the bank.
2. Liability of drawee for non-payment. - If the time or at a determinable future time.  Check is always payable on demand; while an
drawee refuses to accept when he has funds ordinary bill may payable on demand
for the purpose, he becomes liable to the Promissory note distinguished from a bill of or at a fixed or determinable future time.
drawer (not to the payee) for the resulting exchange  Check is drawn on a deposit; while a bill of
damages and the harm done to his credit. If the exchange is not.
1. Note – contains an unconditional promise
drawer has no funds in the hands of the  Check must be presented for payment within a
Bill – contains an unconditional order
drawee it is at least presumed that the former reasonable time after its issue; while a bill of
2. Note – there are two parties, the maker and the
must have made arrangements, with the latter exchange may be presented for payment
payee.
so that he will honor the bill. In such a case, the within a reasonable time after its last
Bill – there are three parties; the drawer,
drawee must look to the reimbursement and negotiation.
payee, and the drawee.
not to a bona fide holder. In short, in order for  It is not necessary that a check be presented
3. Note – the one who issues the note is primarily
the drawee to be liable to the drawer, there for acceptance as in the case of bill of
liable.
must be some kind of agreement obligating the exchange.
Bill – the one who issues the bill is secondarily
drawee to honor the order of the drawer or an liable.  Checks are not to be accepted but presented at
existing debt or creditor relationship between once for payment. However, If the holder
them, that is, the drawee must owe the drawer A check is a bill of exchange drawn on a bank payable requests, and he banker desires, he may
a debt, in which case, the drawer simply orders on demand. As already stated, a check is a bill of accept.
the drawee to pay the debt or portion of it to a exchange of a special kind. (Sec. 185 NIL). The feature  The death of a drawer of a check, with
third party. and characteristics of a check is the same as an knowledge by the bank, revokes the authority
ordinary bill of exchange because a check is a bill of of the banker to pay, while the death of the
Special types of a bill of exchange exchange. drawer of the ordinary bill of exchange does
1. Draft, which is a bill of exchange drawn not.
Kinds of check
usually by a bank against its branch or another Section 2 Certainly as to sum; what constitutes. —
bank. 1. Memorandum check, where the drawer The sum payable sum is a sum certain within the
2. Trade acceptance, which is a bill of exchange agrees to absolutely pay the bonafide holder of meaning of this Act, although it is to be paid—
drawn by a seller on the purchaser of goods the check.
and accepted by the purchaser 2. Cashier’s check, where the check is drawn by a. With interest; or
3. Banker’s acceptance, which is a bill of the bank upon itself and is accepted already by b. By stated installments or
exchange drawn against bank and accepted by the act of issuance; it is really the bank’s own c. By stated installments, with a provision that
the latter. check. upon default in payment of any installment or
4. Clean bill exchange, which is a bill of 3. Crossed check, where one which bears two of interest the whole shall become due; or
exchange to which no document is attached parallel lines across its face, indicating that the d. With exchange, whether at a fixed rate or at
when presented for payment or acceptance. check is for deposit. the current rate; or
5. Documentary bill of exchange, which is a bill 4. Manager’s check, one drawn by the bank’s e. With costs of collection or an attorney's fee, in
of exchange to which documents like shipping manager upon the bank. case payment shall not be made at maturity.
documents or invoices are attached when 5. Stale check, one that is valueless because it
presented for acceptance or payment. was presented for payment after a lapse of
reasonable length of time from its issuance.
Certainty of sum payable 1. Interest at fixed rate. - A provision for the 2. Acceleration at option of holder. - If a note
payment of interest does not render the provides for acceleration at the option of the
 The promise or order must call for the instrument non-negotiable because it does not holder, the instrument is non-negotiable as
payment of a sum certain in money. make uncertain the sum payable. where the clause (first par.) in the above
 This is a requisite for the negotiability of the 2. Interest at increased or reduced rate. - example instead provides “or the whole
instrument (Sec. 1[b].) to assure clarity and Likewise, a provision for increased interest amount plus interest on September 30, 2013
certainty in determining the value of the rate if the note is not paid at maturity, or for a at the option of the holder.
instrument. reduced rate if payment is made at or before
1. Payment of fixed amount of money. - Since maturity, or for payment of interest on Sum to be paid with exchange
a negotiable instrument is a device intended to interests, does not destroy negotiability.
take the place of money, it is, therefore,  Section 2(d) refers to instruments that are
3. Accrual/rate of interest not specified. - If the payable in foreign currency. The promise or
essential that it represents a fixed amount instrument provides for the payment of
to be paid wholly in money. order to pay “with exchange" does not destroy
interest without stating the date from which negotiability.
 The amount to be paid must be stated interest is to run, it shall be computed from the
plainly on the face of the 1. Meaning of exchange. - It is the charge for the
date of the instrument, and if the instrument is expense of providing funds at the place where
instrument and must be not dated, from the issue thereof. (Sec. 17[b].)
determinable from the face of the the instrument is payable to meet the
If there is a stipulation for the payment of
instrument itself without reference instrument which is issued at another place. It
interest but the rate is not specified, it shall be may be at a fixed rate or at the current rate.
to any outside source. the legal rate of six percent (6%). (Art. 2209, 2. Payment in foreign currency. A provision for
 It meets the "sum certain" Civil Code.) payment of a sum in a foreign currency does
requirement if the holder can
Sum payable by stated installments not impair negotiability because the current
determine from the instrument itself
rate of exchange at any given time may easily
the amount he is entitled to receive at
 The promise or order to pay "by stated be ascertained by inquiry from the banks
maturity.
installments" does not affect negotiability. dealing on exchange or foreign currencies and
2. Permissible clauses or stipulations. - The
sum is not rendered uncertain by a clause in  Stated installments, within the meaning of such rate is a matter of common commercial
this section, means that: knowledge. An instrument, whether payable
the instrument that it is to be paid with
a. the interest of each installment, and "at a fixed exchange rate or at the current rate"
interest, by stated installments, with
b. the due date of each installment must be is deemed by the law to meet the "sum certain"
exchange, with costs of collection, or with
fixed in the instrument. requirement.
attorney's fees.
3. Payment with exchange rate. - The provision
 Neither is the certainty of the sum Sum to be paid by stated installments with on payment with exchange applies to
affected by an acceleration provision acceleration clause instruments drawn in one country and
in an installment note. The basic test
1. Acceleration dependent on maker. - The sum payable in another. In other words, exchange
is whether the holder can determine
is still certain although payable by stated is applicable only to foreign bills. (see Sec.
by calculation or computation the
installments with an acceleration clause, ie., a 129.)
amount payable when the instrument
promise that if any installment or interest is 4. Exchange not applicable to inland or
is due.
not paid as agreed, the whole shall become domestic bill. = If the instrument is an inland
 But a promissory note giving the
due. Such a clause requires full payment of an or domestic bill, that is, both drawn and
maker the right to ascertain the
instrument upon default on any installment. It payable at the same place, there can be no
amount rightly payable thereunder is
does not make an instrument payable upon exchange so that a stipulation for payment in
non-negotiable.
contingency (and so non-negotiable) since the exchange may be disregarded. Under R.A. No.
Sum to be paid with interest time of payment will surely come 8183, every monetary obligation must be paid
in Philippine currency which is legal tender in
the Philippines. However, the parties may
 agree that the obligation or transaction shall guaranty to pay." "M obliges himself to pay," of the order. The drawer has his liability under
be settled in any other currency at the time of "Good for," "due on demand," etc.) on the face the law. (see Sec. 61.)
payment. of an instrument are sufficient to constitute a
"promise to pay." SEC. 4. Determinable future time; what constitutes.
Section 3 When promise is unconditional. —An 2. Bare acknowledgment of indebtedness- A —An instrument is payable at a determinable future
unqualified order or promise to pay is unconditional bare acknowledgment of indebtedness (like time, within the meaning of this Act, which is
within the meaning of this Act, though coupled 'IO.U." "due P P1,000," "for value received," expressed to be payable—
with— etc.) alone is not a negotiable instrument. It a. At a fixed period after date or sight; or
a. An indication of a particular fund out of which does not constitute a promise to pay. However, b. On or before a fixed or determinable future
reimbursement is to be made, or a particular if words of negotiability are added (like "due P time specified therein; or
account to be debited with the amount; or or order," or "due P or bearer," 'I.O.U. P10,000 c. On or at a fixed period after the occurrence of
b. A statement of the transaction which gives rise to be paid on Sept. 30"), the instrument is a specified event, which is certain to happen,
to the instrument. But an order or promise to negotiable although it contains no express though the time of happening be uncertain.
pay out of a particular fund is not promissory words since the written promise  An instrument payable upon a contingency is
unconditional. to pay may be fairly inferred therefrom. not negotiable, and the happening of the event
When bill of exchange contains an order to pay does not cure the defect.

1. Words equivalent to an order to pay- In the Certainty of time of payment

case a bill of exchange, there must be an 1. Instrument payable at all events - It is an
unconditional order to Pay by one party to essential requirement for negotiability of an
another, otherwise, it is non-negotiable. (Sec. ii instrument that its payment will certainly
b.) It is not also necessary to use the words
become due and demandable one time or
"order” in a bill of exchange to satisfy the other, though it may be uncertain when that
requirement. Any other words which are time will come.
equivalent to an order or which show the 2. When time of payment certain - In order to
drawer's will that the money should be paid be negotiable, the instrument must be payable
(like "Let the bearer," or "W [drawee] will on demand, or at a fixed or determinable
much oblige R [drawer] to pay to P'or order" future time. (Sec. 1[c].) In case of demand (or
When promissory note contains a promise to pay etc.) are sufficient.
sight) instrument, the holder may call for
 Negotiable instruments are intended to flow 2. Mere request to pay. - The language used in payment at any time. On the other hand, a term
easily through the commercial world. A the law is not a request. The drawer does not or time instrument is payable only upon the
prospective holder would not be eager to merely "ask" or even make payment. "expect" arrival of the time for payment. Checks, by
accept an instrument unless its payment can the drawee to pay. He demands that the definition, must be payable on demand. (Sec.
be reasonably expected under every drawee An order is a command or imperative 185.)
circumstance. direction and, therefore, a mere request, 3. Reasons why time must be certain. - The time
1. Implied promise to pay. - In order that a supplication, or authority (like "I request you must be certain so that the holder (Sec. 51.)
promissory note may be negotiable, it must to pay," "I wish you would pay," I hope you will will know when he may enforce the
contain an unconditional promise to pay. pay“ or 'I authorize you to pay," does not instrument, and the person liable the maker,
(Sec. 1[b].) It is not essential, however, that the constitute an order. However, the mere use of drawee, or acceptor (Secs. 60, 62.) - when he
word "promise" should be used. Any words polite words like "please" does not convert an may be required to pay, or the secondary
equivalent to a promise or assumption of order into a request. parties - the drawer, indorser, or
responsibility for the payment of the note (like 3. Liability of drawer. - It is immaterial whether
accommodation party (Secs. 61, 63-67, 29.) -
"payable," "to be paid," "I agree to pay." "TI the drawee obeys the order to pay or not. The when his obligation will arise.
negotiability of a bill depends upon the terms
 A. Payable at a fixed time. d. Gives the holder an election to require judgment without the delay usually
B. Payable at a fixed period after date. something to be done in lieu of payment of incident to a law suit, as it eliminates the
C. Payable at a fixed period after sight money. necessity of a trial. It is a written
D. Payable on or before a fixed time.  But nothing in this section shall validate any statement signed by the defendant, setting
E. Payable on or before a determinable future provision or stipulation otherwise illegal. forth the basis of liability and authorizing
time. the entry of judgment thereon.
F. Payable on the occurrence of a specified Acts in addition to payment of money c. Waiver of benefit granted by law
event.  Neither does waiver of protest
 A negotiable instrument must be payable in "a
G. Payable after the occurrence of a specified (Sec. 1-11.), presentment for
sum certain in money. “
event. payment (Sec. 70.), or demand
1. General rule. — As a general rule, the
H. Payable upon a contingency. (ibid.), or exemption from
instrument is non-negotiable if it contains a
 Section 4 indicates when an instrument is attachment or execute destroy
promise or order to do any act in addition to
payable at a determinable future time while the negotiability of an
the payment of money, (par. 1.) The
Section 7, when it is payable on demand. instrument. The following is also
prohibition is based on the fact that while one
Checks, by definition, must be payable on an illustration of an instrument
could be indorsed the other would have to be
demand. (Sec. 185.) containing a waiver of benefits
assigned, (see Sec. 30.)
 A contingency is, in law, an uncertain future intended by law for the advantage
2. Exceptions. —The law, however, gives
event, or an event which may or may not or protection of the obligor:
exceptions (Sec. 5 [a to d].) to the general rule.
happen. "Three months, after date, I
a. Sale of collateral securities.
 "I promise to pay P or order the sum of promise to pay to the order of P
 Here, the additional act is to be
P10,000 if his father should die within five P10,000.00, waiving the benefit
performed after the date of
years.” of the homestead and all other
maturity when the instrument is
 The instrument is also. non-negotiable. Note statutory exemptions as to the
no longer negotiable in the full
that if there is no length of time within which debt evidenced by this note." (see
commercial sense, (see Sec. 2[e].)
the death must take place, the maturity is a Rules of Court, Rule 39, Sec. 12.)
 Until the date of maturity, the
determinable future time. d. Election of holder to require some
promise is to pay money only.
other act
SEC. 5. Additional provisions not affecting  A statement that an instrument is
 In this case, the holder has the
negotiability. secured by a collateral, in fact,
choice. The instrument is,
adds to the marketability of the
therefore, negotiable as it is as
 An instrument which contains an order or instrument in commerce as a
good as an instrument payable in
promise to do any act in f addition to the substitute for money or as a
money.
payment of money is not negotiable. But the credit instrument.
negotiable character of an instrument  Note that the statement does not Sec. 6. Omissions; seal; particular money. — The
otherwise negotiable is not affected by a subject the promise or order to validity and negotiable character of an instrument
provision which— the terms and conditions of the are not affected by the fact that —
a. Authorizes the sale of collateral securities pledge.
in case the instrument be not paid at  The instrument may recite that a. It is not dated; or
maturity; or the security covers not only the b. Does not specify the value given, or that any
b. (b) Authorizes a confession of judgment if debt evidenced by the instrument value has been given therefor; or
the instrument be not paid at maturity; or but also other liabilities. c. Does not specify the place where it is drawn or
c. Waives the benefit of any law intended for (Farmers & Merchants Bank & the place where it is payable; or
the advantage or protection of the obligor; Davies, 144, La. 532,80 Sc. 713.) d. Bears a seal; or
or b. Confession of judgment. — A confession e. Designates a particular kind of current money
of judgment enables the holder to obtain a in which payment is to be made.
  But nothing in this section shall alter or repeal Sec. 7. When payable on demand. —An instrument is standardized words of negotiability of an
any statue requiring in certain cases the payable on demand — instrument.
nature of the consideration to be stated in the  These words serve as an expression of consent
instrument. a. Where it is expressed to be payable on that the instrument may be transferred, to
demand, or at sight, or on presentation; or whoever the payee orders, allowing further
Effect of omission of date b. In which no time for payment is expressed. negotiation of the instrument.
Where an instrument is issued, accepted, or  This consent is indispensable since a maker or
1. The date in a bill or note is not necessary. indorsed when overdue, it is, as regards the
Hence, the omission of the date will not make drawer assumes greater risks under a
person so issuing, accepting, or indorsing it, negotiable instrument than under a non-
the instrument non-negotiable, (see Sec. 13 as payable on demand.
to insertion of the date.) In such case, the negotiable one.
instrument will be considered to be dated as of When instrument payable on demand Sec. 9. When payable to bearer. — The instrument is
the time it was issued. (Sec. 17[c].) An payable to bearer —
instrument has no inception until delivery.  Under the first paragraph, an instrument is
2. If there is a date stated, but there is no such payable on demand not only as between the a. When it is expressed to be so payable; or
date in the calendar, the law will deem the immediate parties but also as to subsequent b. When it is payable to a person named therein
nearest date of the month the date intended. parties. or bearer; or
Thus, a note dated September 31 will be  On the other hand, the provision of the second c. When it is payable to the order of a fictitious or
construed as to have been intended for paragraph refers only to immediate parties non-existing person, and such fact was known
September 30. (Wagner v. Kenner, 2 Rob [La.] since between immediate parties there is no to the person making it so payable; or
120.) difference between a holder in due course and d. When the name of the payee does not purport
3. There are, however, cases where the date is a person not a holder in due course. to be the name of any person; or
necessary to determine the date of maturity Sec. 8. When payable to order. —The instrument is e. When the only or last indorsement is an
as: payable to order where it is drawn payable to the indorsement in blank.
a. where said date is tied to the date of
order of a specified person or to him or his order. It When instrument payable to bearer
issue (e.g., an undated note is may be drawn payable to the order of—
"payable thirty days after date"); or
 Bearer means the person in possession of a bill
b. (b) where interest is stipulated for the a. A payee who is not maker, drawer, or drawee; or note which is payable to bearer. (Sec. 191,
purpose of determining when the or par. 4.)
interest is to run (see Sec. 17[c].); or b. The drawer or maker; or  Section 9 defines a bearer instrument. An
c. (c) in the case of the promissory note, c. The drawee; or instrument payable to bearer may be
the date of issue, and in the case of the d. Two or more payees jointly; or transferred by delivery without indorsement
bill of exchange, the date of the last e. One or more several payees; or (Sec. 30.) and payment to any person in
negotiation thereof, for the purpose of f. The holder of an office for the time being. possession thereof (Sec. 191.) in good faith
determining whether a party acted  Where the instrument is payable to order the and without notice that his title is defective, at
within a reasonable time in making payee must be named or otherwise indicated or after maturity (Sec. 88.), discharges the
presentment for payment, (see Sees. therein with reasonable certainty. instrument. (Sec. 119.)
70,71,144.)
 Delivery alone is enough to effect negotiation
d. Instruments may be ante-dated or
of the instrument. (Sec. 30.) Whoever
post-dated. (Sec. 12.)
When instrument payable to order possesses it is the bearer. For added security,
the holder may require indorsement of the
 The words "to the order of/' "or order/' "or Instrument, (see Sec. 34.) An instrument that
bearer/' and "to bearer" (see Sec. 9.) are fails to qualify as an order instrument is
nonetheless negotiable if it is payable to
 bearer. Note that only instrument under fraudulent purpose. The person to whom an date of issue or acceptance, as the case may be,
subsections (a) and (b) are bearer instruments instrument so dated is delivered acquires the be specified so as to determine the date of
on the face. title thereto as of the date of delivery. maturity. Unless the true date is inserted, one
 Those under subsections (c), (d), and (e) are will not know when the instrument will be
order instruments on the face. Both types of Meaning of ante-dated and post-dated due.
Instruments are bearer Instruments. 1. An instrument is ante-dated when it contains  Application to other cases. —It is obvious
a date earlier that the true date of its issuance. that this section does not apply to an
Sec. 10. Terms, when sufficient instrument payable on demand although
Thus, an instrument issued on July 30,2010
 The instrument need not follow the language but is dated July 15,2010 is antedated. undated, for its maturity is already fixed, being
of this Act, but any terms are sufficient which 2. An instrument is post-dated when it contains due immediately. Neither does it authorize the
clearly indicate an intention to conform to the a date later than the true date of its issuance. It insertion of the date of issue in an undated bill
is just the reverse of an antedated instrument. of exchange payable at a fixed period after
requirements thereof.
In the example given, if the instrument was sight, say, "thirty days after sight." In such a
issued on July 15,2010, but bears a date of July case, the date of issue is not necessary to fix the
Sec. 11. Date, presumption as to. — 30,2010, it is postdated. maturity of the bill (it is, however, necessary,
as already pointed out to determine whether
 Where the instrument or an acceptance or any Sec. 13. When date may be inserted. — or not the holder acted with reasonable
indorsement thereon is dated, such date is diligence; see Sec. 144.) but if the acceptance is
deemed prima facie to be the true date of the  Where an instrument expressed to be payable undated the insertion of the true date of such
making, drawing, acceptance or indorsement, at a fixed period after date is issued undated, acceptance is necessary because the "thirty
as the case may be. or where the acceptance of an instrument days" is to be counted not from the date of
payable at a fixed period after sight is undated, issue but from "sight" or acceptance. (Sec. 13;
Presumption as to date any holder may insert therein the true date of see Sees. 136,138, last sentence.)
issue or acceptance, and the instrument shall
1. Date of Instrument, acceptance, or any
be payable accordingly. The insertion of a Sec. 14. Blanks, when may be filled
indorsement. — If the instrument bears a
wrong date does not avoid the instrument in
date, it is presumed that said date is the date  Where the instrument is wanting in any
the hands of a subsequent holder in due
when it was made or drawn. material particular, the person in possession
course; but as to, him, the date so inserted is to
2. Evidence of a different date. — He who thereof has a prima facie authority to complete
be regarded as the true date.
claims that some other date is the true date has it by filling up the blanks therein. A signature
the burden to establish such claim. Thus, When date may be inserted on a blank paper delivered by the person
evidence is admissible that, the maker of an making the signature in order that the paper
instrument inadvertently wrote the date  Two cases. —This section which authorizes may be converted into a negotiable instrument
"2009" instead of "2010" because at the the holder to put a date on an instrument, operates as a prima facie authority to fill it up
beginning of the New Year he had not yet refers to two cases, namely: as such for any amount. In order, however,
become accustomed to writing the new date. a. where an instrument is payable at a fixed that any such instrument when completed
But a different date may be shown only as period after date but is issued undated; may be enforced against any person who
between the original parties but not against a and became a party thereto prior to its completion,
holder in due course. (Sees. 14,57.) b. where an instrument is payable at a fixed it must be filled up strictly in accordance with
period after sight but the acceptance is the authority given and within a reasonable
Sec. 12. Ante-dated and post-dated. — undated. time. But if any such instrument, after
 The Instrument is not invalid for the reason  Date of issue or acceptance to be specified. completion, is negotiated to a holder in due
only that it is ante-dated or post-dated, — Any holder may insert therein the true date course, it is valid and effectual for all purposes
provided this is not done for an illegal or of issue or acceptance and the instrument shall in his hands, and he may enforce it as if it had
be payable accordingly. It is necessary that the
 been filled up strictly in accordance with the Rules where instrument mechanically c. Where the instrument is not dated, it will
authority given and within a reasonable time. complete. be considered to be dated as of the time it
was issued;
Steps in issuance of negotiable instrument 1. Undelivered. — Every contract on negotiable d. Where there is a conflict between the
instrument even if it is completely written is written and printed provisions of the
1. the mechanical act of writing the instrument incomplete and revocable until its delivery for
completely and in accordance with the instrument, the written provisions
die purpose of giving it effect. prevail;
requirements of Section 1; and a. Delivery means transfer of possession,
2. the delivery of the complete instrument by the e. Where the instrument is so ambiguous
actual or constructive, from one person to that there is doubt whether it is a bill or
maker or the drawer to the payee or holder another (Sec. 191, par. 6.) with intent to
with the intention of giving effect to it. Such note, the holder may treat it as either at
transfer title thereto. his election;
instrument, complete and delivered, is b. Issue is defined as the first delivery of the
negotiable and may be enforced accordingly. f. Where a signature is so placed upon the
instrument, complete in form, to a person instrument that it is not clear in what
Sec. 15. Incomplete instrument not delivered. — who takes it as holder, (ibid., par. 10.) capacity the person making the same
"Issue" and "delivery" are used intended to sign, he is to be deemed an
 Where an incomplete instrument has not been interchangeably. As ordinarily indorser;
delivered it will not, if completed and understood and as used in the same sense g. Where an instrument containing the word
negotiated, without authority, be a valid as the term "issue," " delivery" means the "I promise to pay" is signed by two or
contract in the hands of any holder, as against transfer of the possession of the more persons, they are deemed to be
any person whose signature was placed instrument by the maker or drawer with jointly and severally liable thereon.
thereon before delivery. intent to transfer title to the payee and
recognize him as the holder thereof. Rules of construction in case of ambiguity or
Sec. 16. Delivery; when effectual; when presumed. — c. Holder means the payee or indorsee of a omission
bill or note who is in possession of it, or
 Every contract on a negotiable instrument is  It must be emphasized that the rules in this
the bearer thereof, (ibid., par. 7.)
incomplete and revocable until delivery of the section are applicable only when the
instrument for the purpose of giving effect SECTION 17 Construction where instrument is instrument in question is ambiguous or
thereto. As between immediate parties, and as ambiguous. – uncertain or when there are omissions
regards a remote party other than a holder in therein.
due course, the delivery in order to be  Where the language of the instrument is  If the terms are clear, the instrument must be
effectual, must be made either by or under the ambiguous or there are omissions therein, the enforced as it reads.
authority of the party making, drawing, following rules of construction apply:
accepting, or indorsing as the case may be; and a. Where the sum payable is expressed in Sums expressed in words and in figures different
in such case the delivery may be shown to have words and also in figures and there is a
been conditional, or for a special purpose only, discrepancy between the two, the sum  When there is a discrepancy between the sum
and not for the purpose of transferring the denoted by the words is the sum payable; expressed in words and the sum expressed in
property in the instrument. But where the but if the words are ambiguous or figures, the former controls.
instrument is in the hands of a holder in due uncertain, reference may be had to the
Words ambiguous or uncertain
course, a valid delivery thereof by all parties figures to fix the amount;
prior to him so as to make them liable to him b. Where the instrument provides for the  Words outweigh figures. However, when the
is conclusively presumed. And where the payment of interest, without specifying words are ambiguous or uncertain, reference
instrument is no longer in the possession of a the date from which interest is to run, the may be had to the figures to determine the true
party whose signature appears thereon, a interest runs from the date of the amount.
valid and intentional delivery by him is instrument, and if the instrument is
presumed until the contrary is proved. undated, from the issue thereof; Date when stipulated interest to run not specified
  If the date when the stipulated interest is to liable to the same extent as if he had signed in Signature by an authorized agent
run is not specified, the interest runs from the his own name.
date of the instrument or if undated from the  The maker or drawer may sign the instrument
date of its issue. Persons liable on an instrument personally or by another duly authorized by
him.
Instrument undated 1. General rule. — As a general rule, only 1. Authority of agent to sign principal's name.
persons whose signatures appear on an — The authority of the agent may be shown, as
 An undated instrument is considered dated as instrument are liable thereon. Thus, a drawee in Other cases of agency, to have been given
of the date of its issue. is not liable where his signature does not orally or in writing subject to the provisions of
 Issue means the first delivery of the appear on the bill. Neither is one bound by a the Statute of Frauds. It has been held
instrument complete in form, to a person who promissory note executed by another because competent for the agent to sign simply the
takes it as holder. (Sec. 191, par. 10.) The date part of the consideration for which the note principal's name and to show his authority to
appearing in the instrument is deemed prima was given was received by him. (Kalk v. do so by other evidence. (First Nat. Bank v.
facie the true date of its issue acceptance, or Salerio, 146 Sec.103.) Bank of Columbia, 5 Wheat 326.) The purpose
indorsement, (see Sec. 11.) Under Section 2. Exceptions. —The following are the of a written power of attorney is not to define
17(c), the instrument is not dated. exceptions to the general rule: the authority of the agent, as between himself
a. Where a person signs in a trade or and the principal, but to evidence the authority
Written and printed provisions in conflict assumed name (Sec. 18, par.103.) of the agent to third parties dealing with the
b. The principal is liable if a duly authorized agent
 In case of conflict between the written and
agent signs on his own behalf (Sec. 19.);
printed provisions, the former prevails.
c. In case of forgery (Sec. 23.), the forger is Sec. 20. Liability of person signing as agent, and so
Whether instrument bill or note in doubt. liable even if his signature does not appear forth.
on the instrument;
 In case of doubt as to whether an instrument d. Where the acceptor makes his acceptance  Where the instrument contains or a person
is a bill or note, the holder may treat either at of a bill on a separate paper (Sec. 134.); adds to his signature words indicating that he
his election. and signs for or on behalf of a principal, or in a
e. Where a person makes a written promise representative capacity, he is not liable on the
Capacity in which person signed in doubt to accept a bill before it is drawn. (Sec. instrument if he was duly authorized; but the
135.) mere addition of words describing him as an
 In case of doubt as to what capacity the person agent, or as filling a representative character,
making the instrument intended to sign, he is Signing in a trade or assumed name without disclosing his principal, does not
to be deemed an indorser. exempt him from personal liability.
 One who signs in a trade or assumed name is
Instrument signed by two or more persons liable as if he signed his own name. It is When agent may escape personal liability
 An instrument with the words "I promise to necessary, however, that the party who signed
intended to be bound by his signature. 1. In order that an agent who signs a negotiable
pay" signed by two or more persons gives rise instrument may escape personal liability, the
to solidary liability. SECTION 19. SIGNATURE BY AGENT; AUTHORITY; following are the requisites:
SECTION 18 LIABILITY OF PERSON SIGNING IN HOW SHOWN a. He is duly authorized;
TRADE OR ASSUMED NAME. b. He adds words to his signature indicating
 The signature of any party may be made by a that he signs as an agent, that is, for or on
 No person is liable on the instrument whose duly authorized agent. No particular form of behalf of a principal, or in a representative
signature does not appear thereon, except as appointment is necessary for this purpose; capacity; and
herein otherwise expressly provided. But one and the authority of the agent may be c. He discloses his principal.
who signs in a trade assumed name will be established as in other cases of agency.
Disclosure by agent of principal  The term "procuration" has a special and are insane or demented persons and deaf-
technical meaning. It gives a warning that the mutes who do not know how to write. (Art.
 If the agent signs a note or bill in his own name agent has but a limited authority, so that it is 1327, Civil Code.)
and discloses no principal, he is personally the duty of the person dealing with him to  As far as the incapacitated person
bound, and evidence to the contrary may not inquire into the extent of his authority. himself is concerned, his
be admitted to relieve him from personal incapacity is a real defense that is,
liability Sec. 22. Effect of indorsement by infant or it is available even against a
 As has been said: "It is better that a careless or corporation. holder in due course, (see Sees.
ignorant agent shall sometimes pay for his 57, 58.) He is not even bound to
principal, than to subject the construction of  The indorsement or assignment of the
restore anything he has received
valid written contracts to the manifold instrument by a corporation or by an infant
by virtue of his contract, except to
perversions, misapprehensions, and passes the property therein, notwithstanding
the extent to which he has been
uncertainties of oral testimony." that from want of capacity the corporation or
benefited thereby. (Art. 1399,
 It is, however, not necessary to exempt the infant may incur no liability thereon.
Civil Code.)
agent from liability that the disclosure of the Effect of indorsement by incapacitated persons  As regards corporations, Section
principal be in signature. 22 applies to cases where the
1. Minors — As a general rule, contracts entered corporation has committed ultra
Use of descriptive words without disclosure of into by a minor are voidable (Arts. vires acts or acts beyond its
principal 1327,1329,1390, Civil Code.) at his instance or powers. It has been held that a
1. Signer personally liable. — The mere at the instance of his guardian. corporation is not liable on notes
addition of descriptive words without a. A minor is not bound by his in a suit thereon by an indorsee,
disclosing the principal will not relieve the indorsement for lack of capacity. He where the corporation is without
signer from personal liability. Therefore, one is, however, not incapacitated to capacity to make the contract in
who signs an instrument in a representative transfer certain rights. Section 22 fulfillment of which they were
capacity but without disclosing his principal merely provides that the indorsement executed. (Pearce vs. Madison &
will still be personally liable although he adds of an infant is not void and that his I.R. Co., 21 How [US] 441.)
to his signature the word "agent" or "trustee," incapacity is not a defense in favor of
prior parties, and does not take away Sec. 23. Forged signature; effect of.
or "administrator," or "guardian," or
"director," or "treasurer" etc. the infant's right to disaffirm his
indorsement and recover the  When a signature is forged or made without
instrument even against an innocent authority of the person whose signature it
Sec. 21. Signature by procuration; effect of.
purports to be, it is wholly inoperative, and no
indorsee or subsequent holder for
 A signature by "procuration" operates as value. (Murray v. Thompson, 188 S.W. right to retain the instrument, or to give a
notice that the agent has but a limited 578.). Minority is not even a personal discharge therefor, or to enforce payment
authority to sign, and the principal is bound defense which may be set up by thereof against any party thereto, can be
only in case the agent in so signing acted parties other than the minor; but it is acquired through or under such signature,
within the actual limits of his authority. real defense available to the minor. unless the party against whom it is sought to
Hence, he may also disaffirm and enforce such right is precluded from setting up
Procuration is defined as "the act by which a principal the forgery or want of authority.
recover the instrument from a holder
gives power to another to act in his place as he could
in due course, (see Sees. 57,58.). By forgery is meant the counterfeit-making or
himself." (Fink v. Scott, 143 S.E. 305.) It is ordinarily
2. Other incapacitated persons. — The rule in fraudulent alteration of a writing, and may consist in
understood in the same sense as agency or proxy for
Section 22 applies to other incapacitated the signing of another's name or the alteration of an
the one who signs in merely acting as agent for another.
persons as well. Other persons, besides instrument in the name, amount, description of the
Effect of signature by procuration minors, who have no capacity to give consent person and the like, with intent thereby to defraud.
Application of Section 23 b. Forgery of the drawer's signature; either whether the words "value received" appear in
it or not.
1. Two cases. — This provision consists of two (with acceptance by the drawee; or without  Consideration being presumed, it need not be
(2) parts. The first part states the general rule such acceptance but the bill is paid by the alleged and proved, (see Art. 1354, ibid.) But
while the second part states the exception to drawee) the presumption is only prima facie. It may,
the general rule. It applies only to two cases: therefore, be rebutted by evidence to the
a. Where the signature on the Exceptions to the general rule
contrary.
instrument is affixed by one who does  There are actually two (2) exceptions to the
not claim to act as an agent and who general rule that no right or title can be SEC. 25 Value, what constitutes. —
has no authority to bind the person acquired to a negotiable instrument through
whose signature he has forged; and  Value Is any consideration sufficient to
or under a forged or unauthorized signature, support a simple contract. An antecedent or
b. Where the signature is affixed by one namely:
who purports to be an agent but has pre-existing debt constitutes value; and is
1. If the party against whom it is sought to deemed such whether the instrument is
no authority to bind the alleged enforce such right is precluded from setting up
principal. payable on demand or at a future time.
the forgery or want of authority (Sec. 23.); and
2. Effect of forged signature. — In both cases, 2. Where the forged signature is not necessary to Valuable consideration in general
the signature is wholly inoperative and so no the holder's title in which case the forgery may
right can be acquired through the forged be disregarded, (see Sec. 48.)  Valuable consideration may "in general terms
signature. Payment made "through or under be said to consist either in some right, interest,
such forged signature" is ineffectual and does SEC. 24 Presumption of consideration. — profit or benefit accruing to the party who
not discharge the Instrument. Forgery is, makes the contract, or some forbearance,
therefore, a real or absolute defense even  Every negotiable instrument is deemed prima detriment, loss, responsibility, act, labor or
against a holder in due course, (see Sec. 58.) facie to have been issued for a valuable service, on the other side. And if any of these
3. Proof of forgery. — Forgery, as any other consideration; and every person whose exists, it will furnish a sufficient consideration
mechanism of fraud, must be proven clearly signature appears thereon to have become a to sustain the making or indorsing of a
and convincingly, and the burden of proof lies party thereto for value. promissory note in favor of the payee or other
on the party alleging forgery. It cannot be holder."
Consideration means an inducement to a contract,
presumed. A person who denies issuing a note
that is, the cause, price or impelling influence which SEC. 26 What constitutes holder for value. —
or check puts into question the genuineness
induces a contracting party to enter into the contract.
and authenticity of the signature appearing
(Ogden, op. cit., p. 125.) It is the essential or more  Where value has at any time been given for the
thereon; it is he who has the burden of proving
proximate purpose a party has in view at the time of instrument, the holder is deemed a holder for
the signature is a forgery. Mere variance of
entering into the contract. It is different from motive value in respect to all parties who become
signatures cannot be considered conclusive
which is the personal or private reasons of a party in such prior to that time.
proof that the same were forged.
entering into a contract, (see Art. 1351, Civil Code.)
Cases of forgery in general What constitutes a holder for value
Presumption of consideration
1. Forgery of promissory notes which may be  A holder for value is one who has given a
 Like all other contracts, a negotiable valuable consideration for the instrument
subdivided into:
a. Forgery of an indorsement on the note; instrument must have a consideration or issued or negotiated to him. The holder is
cause. It is not necessary, however, that the deemed as such not only as regards the party
and
consideration be expressly stated in the to whom value has been given by him but also
b. Forgery of the maker's signature.
instrument. The presumption is that it has in respect to all those who became parties
2. Forgery of bills of exchange which may be
been issued for a valuable consideration and prior to the time when value was given.
subdivided into:
that every person whose signature appears
a. Forgery of an indorsement on the bill; and
thereon has become a party thereto for value,
  A holder of a negotiable instrument is consideration is a defense pro tanto, whether c. (c) for the purpose of lending his name to
presumed to be a holder for value until the the failure is an ascertained and liquidated some other person. (Sec. 29.)
contrary is shown. amount or otherwise.  He usually expects that not he, but the
 A holder who has not given value for an accommodated party, will provide payment of
instrument obviously will suffer no loss by Meaning of absence or want of consideration the bill or note when it falls due. He actually
being unable to recover from the primary  Absence of consideration means a total lack of lends his credit to the party to whom the
party in the event that the latter has a personal any valid consideration for the contract, in accommodation is made. He is classified
defense assertible by him. consequence of which the alleged contract according to the accommodated party's status.
must fall. If the accommodated party is a maker, for
SEC. 27 When Hen on instrument constitutes holder example, he is liable on the instrument to
for Meaning of failure of consideration subsequent parties as if he were the maker.
3. An Accommodated party is one in whose
value. —  Failure of consideration means the failure or favor a person, without receiving value
 Where the holder has a lien on the instrument, refusal of one of the parties to do, perform or therefor, signs an instrument for the purpose
arising either from contract or by implication comply with the consideration agreed upon. In of lending his credit and enabling said party to
of law, he is deemed a holder for value to the other words, something was agreed upon as raise money upon it. (Sec. 29.) He impliedly
extent of his lien. consideration but for some cause, such agreed agrees to take up the instrument at maturity
consideration failed to materialize. and to indemnify the accommodation party
Where a holder has lien on instrument against the consequences of non-payment.
 One who has taken a negotiable instrument as
collateral security for a debt has a lien on the SEC. 29 Liability of accommodation party. —
instrument.  An accommodation party is one who has
 If the amount of the instrument is more than signed the instrument as maker, drawer,
the debt secured by such instrument, the acceptor, or indorser, without receiving value
pledgee is a holder for value to the extent of his therefor, and for the purpose of lending his
lien. He can collect the full value of the name to some other person. Such a person is
instrument, and apply the same to the liable on the instrument to a holder for value,
payment of the debt but he must deliver the notwithstanding such holder at the time of
surplus to the pledgor, (see Art. 2118, Civil taking the instrument knew him to be only an
Code.) accommodation party.
 If the amount of the instrument is less than or
the same as the debt secured by such Definition of terms.
instrument, the pledgee is a holder for value
for the full amount and may, therefore, recover 1. Accommodation bill or note is one to which
all. the accommodation party has put his name,
without consideration, for the purpose of
 If the defenses of the party liable on the
accommodating some other party who is to
instrument are real defenses, then the pledgee
use it, and is expected to pay it.
can recover nothing upon the instrument.
2. Accommodation party is one who has signed
SEC. 28 Effect of want of consideration. — the instrument:
a. as maker, drawer, acceptor, or indorser,
 Absence or failure of consideration is a matter b. (b) without receiving value for the
of defense as against any person not a holder signature and
in due course; and partial failure of
 SOCS2a - Is the intensification and expansion f political - It was a movement aimed at eliminating trade
interrelations around the globe. boundaries and promoting globalization.
Globalization a. Military Globalization (Brook, 2008)
- The development of an increasingly integrated o as a subdomain of political globalization, is
defined as the intensification and Laissez Faire – is an economic system in which
global economy marked especially by free transactions between private groups of people are free
trade, free of capital, and the cheaper foreign stretching of military power across the
globe through various mean of military or almost free from any form of economic
labor markets. interventionism such as regulations and subsidies. As a
- The increase of trade around the world power (nuclear military weapons,
radiation weapons simply weapon of mass system of thought, laissez faire rests on the following
especially by large companies producing and axioms (Gaspard, 2004).
trading goods in many different countries. destruction).
- A situation in which available goods and o This form of globalization occurs across Neoliberalism – is contemporarily used to refer to
services or social and cultural influences, offensive and defensive used of power and market-oriented reform policies such as “eliminating
gradually became similar in all parts of the survival in international field. Beyond price controls, deregulating capital markets, lowering
world. states, global organizations such as the trade barriers” and reducing, especially through
- One of the effects of globalization is that it United Nations also extend military means privatization and austerity, state influence in the
promotes and increases interactions between globally through support given by both economy (Boas & Morse, 2009).
different regions and populations around the Global North and South countries.
globe. 3. Cultural Globalization Laissez Faire to Neoliberalism
- According to WHO, globalization can be - Is the intensification and expansion of cultural
flows across the globe. - Neoliberalism is distinct from liberalism
defined as “the increased interconnectedness insofar as it does not advocate laissez-faire
and interdependence of peoples and - Culture is a very broad concept and has many
facets, but in the discussion on globalization, economic policy but instead is highly
countries. constructivist and advocates a string state to
- It is generally understood to include two inter- Steger means it to refer to “the symbolic
construction, articulation, and dissemination bring about market-life reforms in every
related elements: aspect of society (Mirowski, 2018)
o The opening of international borders to of meaning.”
- Topics under this include discussion about the - Neoliberalism is related to laissez-faire
increasingly fast flows of goods, services, economics, a school of thought that prescribes
finance, people and ideas. development of a global culture, or lack
thereof, the role of the media in shaping our a minimal amount of government interference
o The changes in institutions and policies into the economic issues of individuals and
at national and international levels that identities and desires and the globalization of
languages. society. Laissez-faire economics proposes that
facilitate or promote such flows. continued economic growth will lead to
4. Ecological Globalization
Major Dimensions of Globalization - Include population growth, access to food, technological innovation, expansion of the free
worldwide reduction in biodiversity, the gap market and limited stated interference
1. Economic Globalization between rich and poor as well as between the (Kenton,2020)
- is the intensification and stretching of Global North and global South, human-
economic interrelations around the globe. The Monetary Regimes
induced climate change, and global
- It encompasses such things as the emergence environmental degradation. - The Gold Standard is a monetary system in
of a new global economic order, the which the standard economic unit of account
internationalization of trade and finance, the North American Free Trade Agreement (NAFTA) is based on a fixed quantity of gold.
changing power of transnational corporations, - The gold standard was the basis for the
and the enhanced role of international - The United States of America has been
identified as the leader in globalization after international monetary system from the
economic institutions. 1870s to the early 1920s, and from the late
2. Political Globalization the World War II after they introduced this
agreement in 1993. 1920s to 1932 as well as from 1944 until 1971
when the United States unilaterally
 terminated convertibility of the US dollar to - According to Lawrence Officer, the main cause - Group of goods often move proportionally to
gold foreign central banks, effectively ending of the gold standard’s failure to resume its each other and when this relation is very clear
the Bretton Woods system. Many states hold previous position after World War I was “the among different market, it is said that the
substantial gold reserves. Bank of England’s precarious liquidity markets are integrated.
position and the gold-exchange standard”. A - Is an indicator that explains how much
Classic Gold Standard Regime (1870-1914) run-on sterling caused Britain to impose different markets are related to each other.
- existed from the 1870s to the outbreak of the exchange controls that fatally weakened the - A marketer plays the role of an integrator in
First Worl War in 1914. standard; convertibility was not legally the sense that he collects feedback and vital
- In the first part of the 19th century, once the suspended, but gold prices no longer played inputs from other channel members and
turbulence caused by the Napoleonic Wars the role that they did before. consumers and provide product solutions to
had subsided, money consisted of either specie - In financing the war and abandoning gold, customers by coordinating multiple functions
(gold, silver or copper coins) or of specie- many of the belligerents suffered drastic of the organization.
backed bank issue notes. However, originally inflations. Price levels doubled in the U.S and - It is the central aspect of economic
only the UK and some of its colonies were on a Britain, tripled in France and quadrupled in globalization, which refers to the increasing
Gold Standard, joined by Portugal in 1854. Italy. Exchange rates changed less, even interconnectedness of economies and
Other countries were usually on a silver or, in though European inflations were more severe societies around the world.
some cases, a bimetallic standard. than America’s. This meant that the costs of
American goods decreased relative to those in International Financial Institutions
- In 1871, the newly unified Germany,
benefiting from reparations paid by France Europe. Between August 1914 and spring of - Is a financial institution that has been
following the Franco-Prussian war of 1870, 1915, the dollar value of U.S exports triple and established (or chartered) by more than one
took steps which essentially put it on Gold its trade surplus exceeded ₴1 billion for the country, and hence is subject to international
Standard. The impact of Germany’s decision, first time. law.
coupled with the them economic and political - The gold specie standard ended in the United - Its owners or shareholders are generally
dominances of the UK and the attraction of Kingdom and the rest of the British Empire at national governments, although other
accessing London’s financial markets, was the outbreak of World War I, when treasury international institutions and other
sufficient to encourage other countries to turn notes replaced the circulation of gold organizations occasionally figure as
to gold. sovereigns and gold half sovereigns. Legally, shareholders.
- However, this transition to a pure Gold the gold specie standard was not repealed. The - The most prominent IFIs are creations of
Standard, in some opinions, was more based end of the gold standard was successfully multiple nations, although some bilateral
on changes in the relative supply of silver and affected by the Bank of England through financial institutions (created by two
gold. Regardless, by 1900, all countries apart appeals to patriotism urging citizens not to countries) exist and are technically IFIs.
from China and some Central American redeem paper money for gold specie. - The best known IFIs were established after
countries, were on a Gold Standard. This lasted - It was only in 1925, when Britain returned to World War II to assist in the reconstruction of
until it was disrupted by the First World War. the gold standard in conjunction with Europe and provide mechanisms for
Periodic attempts to return to a pure classical Australia and South Africa, that the gold specie international cooperation in managing the
Gold Standard were made during the inter- standard was officially ended. global financial system.
war period, but none survived past the 1930’s Market Integration o Multilateral Development Bank
Great Depression.  An institution, created by a group of
- Refers to the process of creating a unified countries, that provides financing and
Gold Exchange Standard Regime (1914-1944) marketplace where goods, services and capital professional advice to enhance
- By the end of 1913, the classical gold standard can flow freely between countries or regions. development.
was at its peak, but World War I caused many - Occurs when prices among different locations  Has many members, including
countries to suspend or abandon it. or related goods follow similar patterns over a developed donor countries and
long period of time. developing borrower countries. MBD’s
 finance projects through long-term Development Bank, the Central states, cultures, intergovernmental and non-
loans at market rates, vey-long-term American Bank for Economic governmental organizations.
loans below market rates (also known Integration and the European Bank - Though global governance is rule-based, it has
as credits) and grants. for Reconstruction and no central authority. However, there are
o Bretton Woods Institutions Development. systems for international relationships that
 the best known IFIs were established  The Islamic Development Bank is bind the states, people and society together.
after World War II to assist in the among the leading multilateral
reconstructions in Europe and provide development banks. IsDB is the only International Organization
mechanisms for international multilateral development bank after the - Organizations may be established by a treaty
cooperation in managing the global World Bank that is global in terms of its or be an instrument governed by international
financial system. membership. 56 member countries of law and possessing its own legal personality,
 They include World Bank, the IMF, and IsDB are spread over Asia, Africa, such as United Nations, the World Health
the International Finance Corporation. Europe and Latin America. Organization and NATO.
Today, the largest IFI in the world is the - Are composed of primarily member states, but
European Investment Bank in which World Bank
may also include other entities, such as other
lent 61 billion euros to global projects in - is an international financial institution that international organizations.
2011. provides loans and grants to the government - Its role is helping to set the international
o Bilateral Development Bank of low- and middle-income countries for the agenda, mediating political bargaining,
 is a financial institution set up by one purpose of pursuing capital projects. providing a place for political initiatives and
individual country to finance - its goals are: acting as catalysts for the coalition-formation.
development projects in a developing o To end extreme poverty. The bank’s goal is - They facilitate cooperation and coordination
country and its emerging market, hence to decrease the percentage of people living among member nations. In addition, they
the term bilateral, as opposed to with less than ₴1.90 a day to no more than promote global initiatives aimed at reducing
multilateral. 3% by 2030. inequality like the United Nations Sustainable
 Financial institutions of neighboring o To promote shared prosperity. The goal is to Development Goal 10.
countries established themselves promote income growth of the bottom 40%
internationally to pursue and finance of the population in each country. Different International Organizations
activities in areas o f mutual interest;
most of them are central banks, European Investment Bank – the largest IFI in the 1. United Nations (UN)
followed by development and world which lent 61 billion euros to global projects in 2. European Union (EU)
investment banks. 2011. 3. North Atlantic Treaty Organization (NATO)
o Regional Development Bank 4. World Trade Organization (WTO)
 Consist of several regional institutions World Governance 5. Group pf 20 (G20)
that have functions like the World Bank 6. International Criminal Court (ICC)
- An international organization (also known as 7. World Health Organization (WHO)
group’s activities, but with particular an international institution or
focus on a specific region. Shareholders 8. Organization for Security and Co-operation
intergovernmental organization) is a stable in Europe (OSCE)
usually consist of the regional countries
set of norms and rules meant to govern the 9. Bank for International Settlement (BIS)
plus the major donor countries.
behavior of states and other actors in the 10. Council of Europe (COE)
 the best known of these regional banks international system.
cover regions that roughly correspond 11. International Labor Organization (ILO)
- World or global governance makes world 12. International Police Organization
to United Nations regional groupings, affairs systematic, secured and formulaic.
including the Inter-American (INTERPOL)
- The totality of norms, laws, policies and bodies
Development Bank, the Asian that define, compromise and facilitate
Development Bank, the African transnational relations between citizens,
 MKTM24 Planning - is where the product is put into pieces, 1. It identifies a market problem/ customer need
followed by verification, wherein a product adheres to 2. It quantifies the opportunity
INTRODUCTION TO PRODUCT MANAGEMENT the design specification. 3. It communicates the market opportunity to
PRODUCT MANAGEMENT - An organizational the top management
Forecasting - happens when there is a quota or
function within a company dealing with new product threshold set for a certain product produced.
4. It communicates with the Product
development, business justification, planning, Development team
verification, forecasting, pricing, product launch, and Pricing - is based on the product’s quality, value for 5. It communicates to Advertising/ Promotion
marketing of a product or products at all stages of price, costs, and competitors’ prices. team
the product lifecycle. Similarly, product lifecycle 6. It empowers the sales team
management (PLM) integrates people, data, processes Product Launch - introduce the product to the market
and business systems. It provides product information through product launching. Product Management Role
for companies and their extended supply chain Market - marketing the product to its target market.  Realize your product is not the center of your
enterprise.
customer’s worlds
Product Manager’s role interaction in the operations:
 Is a function within a company that deals with  Save some features for later
the Planning or Marketing or Forecasting of a 1. Manufacturing and distribution  Product management is more than prioritizing
product or products through all stages of the 2. Research and development product features
product lifecycle. 3. Legal  Differentiate to avoid being a ―me too In
 Product Management and Product Marketing 4. Fiscal “Product Leadership: Creating and Launching
are different yet complementary efforts with Superior New Products, Robert Cooper” offers
5. Market Research
the objective of maximizing sales revenues, some amazing statistics on ―truly superior,
6. Sales, Publicity
market share, and profit margins. differentiated products
7. Purchasing
 Product Management is responsible for the  Reinforce your product-related
8. Publicity communication
growth and development of the product in the
9. Packaging  Do not think that a single product will solve all
market and sometimes they may even be
10. Promotion Services problems for customers
responsible for the bottom line generated by
the product. 11. Media  Define the problem before solving it
 A company needed to stay ahead by creating 12. Advertising Agency.  Product manager is responsible for the
new markets while continuing to dominate planning activities related to the product or
Product Management and its Interface with Other
existing ones. Hence, what was needed was A product line.
Organizational Functions
formal approach to product planning and  A key function of the product manager is
management.  Though All The ―P ‘s are interlinked and affect getting the organization to support the
 The formal process of product planning & its each other, it is the product that has the most marketing programs recommended in the
management is led by a product manager profound effect on all the other functions. plan.
whose primary role is to serve as the ―Voice Hence the study of the product management
of the customer. What kind of person makes a good Product
process is an extremely important process.
Manager?
 He is responsible for the ―4p’s” Of Product  It is this function that has a large impact on the
Management: – Price – Place – Product – bottom line of the organization and also  Someone able to size up a situation quickly,
Promotion whether the company is able to stay ahead of realistically;
competition giving the company a strategic
Product Justification - the product is justified for its advantage to leverage.  who can sense the possible effects of external
feasibility, salability, and usability. actions on his own plans;
Product Management Interfaces with Other
Functions in The Following Manner:
  who has that all-important 'feel' of the market Advantages: significant differences in buyer
place; behavior
1. PM develops a cost-effective marketing mix for  Big advantage: focus on the
 who can see the various courses of action in the product customer
the circumstances, can gather all the options 2. PM can react more quickly to problems in the 3. Functionally Focused Organizations
and take positive action to exploit the marketplace than a committee of specialists  Align themselves by marketing
situation; can. functions such as advertising and
3. Smaller brands are less neglected because sales promotion
 who has the presence and commands the they have a product advocate
respect of his/her colleagues for obtaining  Most marketing organizations have
4. Product management is an excellent training some aspect of this structure
commitment to his/her measures;
ground for young executives, for it involves  no single person is responsible for the
 who is logical, numerate, clear, and mature in them in almost every area of company day-to-day health of a product
thought as well as incisive and decisive in operation.  Marketing strategies are fully
action; FORMS OF MARKETING ORGANIZATION designed and implemented through
the coordinated activities of the
 someone not easily panicked, who is a good 1. Product-Focused Organization functional areas
thinker and a good practitioner;  Classic "product management" structure  Advantage: administratively simple
 knowledgeable to the point of being an expert that was developed by Procter & Gamble
in the 1930s PRODUCT MANAGEMENT PROCESS (MARKETING
on his or her products: to an extent, a Jack of MIX)
all trades but a master of marketing:  Most likely to be found in packaged goods
industries PRODUCT MANAGEMENT PROCESS - Process that
 who can systematically and single-mindedly  Commonly used where different products focuses on bringing new product to market or
attack and attain the objectives set, with use the same channels of distribution. developing an existing one. It starts with an idea of a
overall control and a grasp of detail; a. Assistant product manager - job product that a customer will interact with and ends
includes market and share with the evaluation of the product’s success.
 who, with all his/her logicality, can exercise an forecasting, budgeting, coordinating
entrepreneurial flair when the occasion with production, executing national
demands; promotions, and packaging
 who can communicate with and sell to top b. Product assistant - tasks involve
becoming more familiar with the PRODUCT MANAGEMENT CYCLE
management, as well as to his or her
category within which the product is
colleagues, associates, equals and peers.
competing The Product Management Cycle has five stages:
Product and Brand Management Organization c. Associate product managers - have
more freedom to develop brand 1. NEW PRODUCT IDENTIFICATION PHASE
 Companies producing a variety of products extensions, and sometimes even  Customer surveys and responses to
and/or brands often establish a product or manage a small product line. existing products
brand management organization d. Product Manager - has the ultimate  They read journals, magazines, books,
 Does not replace the functional management responsibility for the product. and also go to international
organization but serves as another layer of 2. Market-Focused Organizations exhibitions, conferences and see what
management  This structure defines marketing innovations are being displayed and
 Headed by a product manager, who supervises authority by market segment discussed by eminent scientists,
several product group managers, who  The market focused structure is business associates and competitors.
supervise product managers in charge of clearly useful when there are  Companies create think tanks
specific products
 All interesting information is collated Management group has to develop the MARKETING MIX
and circulated support needed to launch the product
2. PRODUCT DEFINITION PHASE in the market. They have to: 1. PRODUCT
 During this phase the following a. Position the product. Along with  Product is anything that can be
activities are undertaken: advertising they have to develop offered to a market to satisfy a want
 The high-level functions of the the campaign needed to launch or need.
product are defined. the product. PRODUCT LEVELS
 A business case is made for the b. The entire sales force, the channel
new product. partners must know what a. CORE PRODUCT - Most fundamental benefit
 Management team sell the idea product they are selling and how customer is buying. Heart of the system. (what
of the product to various it compares to competition. The the buyers are really buying)
people in the organization customers must be able to b. BASIC PRODUCT - Do you buy compressor?
3. PRODUCT DEVELOPMENT PHASE understand the product they are You buy a basic product? Formal (turning the
 Once the product ‘s high level buying. core into actual product)
specifications have been finalized and c. The Product Management group c. EXPECTED PRODUCT - A set of attributes and
the top management has approved continues to provide support to conditions customers expect. This depends on
this product and committed the product throughout the life of the chosen target audience. This is expected
resources for its development, the the product by determining ways from a marketer.
Product Management Group involves to improve sales, profitability of d. AUGMENTED PRODUCT - Prepare a product
the Product Development Team. This the product. that exceeds customer expectation. Is the
team consists of people from R&D, d. They also keep taking a feedback reason to buy. Add further attributes. Each
Manufacturing, Industrial from the customer so that small attribute adds cost. Will customer pay enough
Engineering and Sales. They are given incremental improvements can to cover the extra cost?
the high-level specifications of the be made to the product thus e. POTENTIAL PRODUCT - Companies search
product and given the tasks of increasing its life and profitability for new ways to satisfy customers and
creating the actual physical product. of the company while keeping it distinguish their offer.
 During this phase: ahead of competition
 Team make a detailed e. We know that capital is scarce PRODUCT CLASSIFICATION
specification of the product. and new product development is
a. Durability and tangibility
 They evaluate the various options expensive. Thus, if we can
 Nondurable goods - Consumed in one
in manufacturing processes prolong the life of the product it
or few uses
 The first prototype of the product can help the company make
 Durable goods - Used many times
is developed and evaluated profits while staying ahead of its
 Services – Intangible, Inseparable,
 Product finalized and the competition.
Variable, Perishable
product functionality frozen. 5. PRODUCT DISCONTINUATION PHASE
b. Consumer –goods classification
 Test marketed in a small area to  Some of the considerations in this  Convenience good - Goods purchased
get the more feedback. phase are: Frequently, Immediately, Minimum
 The product is then ready for 1. Availability of a new product effort
launch. 2. Awareness of the Competitor’s
 Shopping goods - Goods that the
4. PRODUCT LAUNCH AND GROWTH PHASE Products customer experiences the process of
 The product launch needs a lot of 3. Customer Maturity selection and purchase.
preparation so as to ensure that the 4. Adequate Training Characteristically compares on such
product succeeds in the market. After 5. Adequate stock basis as suitability, quality, price and
final product is ready, the Product style.
  Speciality goods - Unique  The shift toward a more integrated and  Increased role of international organizations
characteristics, Unique brand values interdependent world economy such as WTO, WIPO, IMF that deal with
that buyers are willing to make extra  Two components: international transactions
efforts. a. The globalization of markets  Increase in the number of standards applied
 Unsought goods - Goods the b. The globalization of production globally; e.g. copyright laws
consumer does not know about or does  Globalization of production has historically
not normally think of buying. been about manufacturing Anti- globalization
Consumers made aware through  Increasingly companies are using modern  Many anti-globalism activists see globalization
promotional efforts of the firm. communications to outsource as the promotion of a Corporatist agenda,
service activities to low-cost nations which is intent on constricting the freedoms of
Signs of globalization individuals in the name of profit. They also
MGNT24 claim that increasing autonomy and strength
 Increase in international trade at a faster rate of corporate entities increasingly shape the
Globalization
than the growth in the world economy political policy of nation-states.
 a term used to describe the changes in  Increase in international flow of capital  Globalization imposes credit-based
societies and the world economy that are the including foreign direct investment economics, resulting in unsustainable growth
result of dramatically increased trade and  Greater transborder data flow, using such of debt and debt crises.
cultural exchange. In specifically economic technologies such as the Internet,
Pro-globalization (globalism)
contexts, it refers almost exclusively to the communication satellites and telephones
effects of trade, particularly trade  Greater international cultural exchange, for  Supporters of free trade point out that
liberalization or "free trade" example through the export of Hollywood and economic theories such as comparative
 It is a common belief that globalization plays a Bollywood movies. advantage suggests that free trade leads to a
role just at international levels of trade and  Some argue that even terrorism has more efficient allocation of resources, with all
commerce, but the fact is that it has played an undergone globalization. Terrorists now have those involved in the trade benefitting. In
important role in making our lives much more attacked places all over the world. general, they claim that this leads to lower
comfortable too. The phones, apparels,  Spreading of multiculturalism and better prices, more employment and better
gadgets or accessories that we use in our day- individual access to cultural diversity, with on allocation of resources
to-day life are be available to us through the other hand, some reduction in diversity
globalization. Knowingly or unknowingly, we through assimilation, hybridization, Globalization in the Philippines
are all under the impact of globalization, and Westernization, Americanization or
 The country is taking part in the process of
more importantly it has helped in bringing Sinicization of cultures.
international peace and justice to mankind. globalization ever since the country signed
 Erosion of national sovereignty and national
agreements with World Trade Organization in
 The formation of a global village - closer borders through international agreements
1995.
contact between different parts of the world, leading to organizations like the WTO and
 Now, globalization is very effective in the
with increasing possibilities of personal OPEC.
Philippines, it has allowed major changes in
exchange, mutual understanding and  Greater international travel and tourism
the nation like more labor, and more Filipino
friendship between "world citizens"  Greater immigration, including illegal
and foreign companies has emerged in the
 Economic globalization - "free trade" and immigration
nation in order to help the country’s
increasing relations among members of an  Development of global telecommunications developing economy.
industry in different parts of the world infrastructure
 Globalization can make the Philippines into a
(globalization of an industry), with a  Development of a global financial systems better nation if the Philippine leaders to make
corresponding erosion of National  Increase in the share of the world economy their economy more advance through global
Sovereignty in the economic sphere. controlled by multinational corporations trading and allowing more foreign investors to
 the help boost the economy. And by economy, thereby providing direct access to 2. Loss of Culture - With large number of people
accomplishing those goals, the Philippines information and products. moving into and out of a country, the culture
should be able to reduce the poverty level as 7. Transportation - Considered as the wheel of takes a backseat. People may adapt to the
well as increase labor force for job every business organization, connectivity to culture of the resident country. They tend to
opportunities for those that are in need for a various parts of the world is no more a serious follow the foreign culture more, forgetting
living. However, since the poverty level is still problem. Today with various modes of their own roots. This can give rise to cultural
increasing, most Filipinos has managed to find transportation available, one can conveniently conflicts.
work overseas and they have managed to seek deliver the products to a customer located at any 3. Uneven Wealth Distribution - It is said that
better living than in the Philippines. The most part of the world. the rich are getting richer while the poor are
effective factor in the Philippines is education. 8. GDP Increase - Gross Domestic Product, getting poorer. In the real sense, globalization
The society’s mentality is to be educated and commonly known as GDP, is the money value of has not been able to reduce poverty.
it’s with education that people in the nation the final goods and services produced within the 4. Environment Degradation - The industrial
see their opportunity for a better life in the domestic territory of the country during an revolution has changed the outlook of the
future. accounting year. economy. Industries are using natural
9. Free Trade - Free trade is a policy in which a resources by means of mining, drilling, etc.
Advantages country does not levy taxes, duties, subsidies or which puts a burden on the environment.
1. Peaceful Relations - Most of the countries have quota on the import/export of goods or services 5. Disparity - Though globalization has opened
resorted to trade relations with each other in from other countries. There are countries which new avenues like wider markets and
order to boost their economy, leaving behind have resolved to free trade in specific regions. employment, there still exists a disparity in the
any bitter past experiences if any. This allows consumers to buy goods and development of the economies. Structural
2. Employment - Considered as one of the most services, comparatively at a lower cost. unemployment owes to the disparity created.
crucial advantages, globalization has led to the 10. Travel and Tourism - Globalization has Developed countries are moving their
generation of numerous employment promoted tourism to great heights. International factories to foreign countries where labor is
opportunities. Companies are moving towards trade among different countries also helps in cheaply available.
the developing countries to acquire labor force. increasing the number of tourists that visit 6. Conflicts - It has given rise to terrorism and
3. Education - A very critical advantage that has different places around the world. other forms of violence. Such acts not only
aided the population is the spread of education. 11. External Borrowing - With the help of cause loss of human life but also huge
With numerous educational institutions around globalization, there is opportunity for corporate, economic losses.
the globe, one can move out from the home national, and sub-national borrowers to have 7. Cut-throat Competition - Opening the doors
country for better opportunities elsewhere. better access to external finance, with facilities of international trade has given birth to
4. Product Quality - The product quality has been such as external commercial borrowing and intense competition. This has affected the local
enhanced so as to retain the customers. Today syndicated loans. markets dramatically. The local players
the customers may compromise with the price thereby suffer huge losses as they lack the
Disadvantages potential to advertise or export their products
range but not with the quality of the product.
Low or poor quality can adversely affect 1. Health Issues - Globalization has given rise to on a large scale. Therefore, the domestic
consumer satisfaction. more health risks and presents new threats markets shrink.
5. Cheaper Prices - Globalization has brought in and challenges for epidemics. The dawn of Globalization of Markets
fierce competition in the markets. HIV/AIDS. Having its origin in the wilderness
6. Communication - Every single information is of Africa, the virus has spread like wildfire  In the past, each country had
easily accessible from almost every corner of the throughout the globe in no time. Food items its own companies in many industries and its
world. Circulation of information is no longer a are also transported to various countries, and own products
tedious task, and can happen in seconds. The this is a matter of concern, especially in case of
Internet has significantly affected the global perishable items. But the most global markets are for standard goods
  Aluminum  Free trade and tech after 1980 produced The Globalization Debate
 Wheat globalization
Pro
 Microprocessors
The Emergence of Global Institutions
 Aircraft  Lower prices for goods and services
For many consumer end-products, huge  The World Trade Organization (WTO) which is  Economic growth
differences still exist among national markets responsible for policing the world trading  Increase in consumer income
system and ensuring that nations adhere to  Creates jobs (for many)
 Entertainment, food, clothing the rules established in WTO treaties.  Countries specialize in production of goods
 In 2008, 151 nations accounting for 97% of and services that are produced most efficiently
Drivers of Globalization world trade were members of the WTO the
International Monetary Fund (IMF) which Con
 Two factors underlie globalization
maintains order in the international monetary
 “Decline in barriers to the free flow of  Destroys manufacturing jobs in wealthy
system.
goods, services, and capital” that has nations
occurred since the end of World War The Changing Roles of Countries in the Global  Wage rates of unskilled in advanced countries
II Economy decline
 Technological change  Companies move to countries with fewer labor
In the 1960s: and environment regulations
Declining Trade and Investment Barriers
 Loss of sovereignty
 The U.S. dominated the world economy and
 During the 1920s and ‘30s, many of nations the world trade picture  Homogenized cultures
erected formidable barriers to international  U.S. multinationals dominated the Managing in the Global Marketplace
trade and international business scene
foreign direct investment  About half the world-- the centrally planned  Much of this course is concerned with
 Advanced industrial nations of the West economies of the communist world-- was off managing an international business
committed themselves after World War II to limits to Western international business  i.e., any business with international sales,
removing barriers to the free flow of goods,  Today, much of this has changed. sourcing, or Investment
services, and capital between nations.  In the early 1960s, the U.S. was the world's
Managing an international business is different
The Role of Technology dominant industrial power accounting for
about 40.3% of world manufacturing output  Countries are different
 Lowering of trade barriers made globalization  By 2007, the U.S. accounted for only 20.7%  International transactions involve converting
possible;  Other developed nations experienced a similar money into different currencies
 Technology has made it a transforming decline  Range of problems in an international
movement business is wider and problems are
The Changing Nature of the Multinational
Enterprise more complex
Globalization is acceleration of trends of the last
10,000 years  International business must cope with
Since the 1960s, different, conflicting government rules and
 People lived for 250,000 years in hunter- systems
gatherer bands  there has been a rise in non-U.S.  Different strategic approaches required
 Rise of agriculture 10,000 years ago led to multinationals
rise of empires and nation-states  there has been a rise in mini-multinationals
 Science and ‘enlightenment’ after 1680
produced global trade and empires
Key terms  It is a notion that although a country Product Cycle Theory: Vernon’s Premises
may produce both products more
 An international business – any business with cheaply than another country, it is  Technical innovations leading to new and
international sales, sourcing, or relatively better at producing one profitable products require large quantities of
investment product than the other. capital and skilled labor
 A multinational business – any business with  E.g. automated manufacturing
productive activities in 2 or more countries Classical Trade Theory Contributions  The product and the methods for manufacture
 A global business – a business that takes a go through three stages of maturation.
global approach to production and sourcing  Adam Smith—Division of Labor
(Coca-Cola, Intel)  Industrial societies increase output Stages of the Product Cycle
using same labor-hours as it produces
 The World Bank which promotes economic 1. The New Product
specialization.
development 2. The Maturing Product
 David Ricardo—Comparative Advantage
 The United Nations (UN) which maintains 3. The Standardized Product
 Countries with no obvious reason for
international peace and security, develops
trade can specialize in production,
friendly relations among nations, cooperates The Product Cycle and Trade Implications
and import products they do not
in solving international problems and
produce  Increased emphasis on technology’s impact on
promotes respect for human rights, and is a
center for harmonizing the actions of nations  Gains from International Trade product cost
 A nation can achieve consumption  Large international investment
 WIPO – World Intellectual Property
levels beyond what it could produce  Limitations
Organization
by itself  Appropriate for technology-based
 Business Goods – not consumable; solely for
business use. products
Factors of Production
 BOTs – Build, Operate, and Transfer  Some products not easily
1. Land characterized by stages of maturity.
The Theory of Trade and Investment 2. Labor e.g semi-processed goods
3. Capital  Most relevant to products produced
Mercantilism is the objective of trade and through mass production
investment Factor Proportions Trade Theory
The New Trade Theory: Strategic Trade
 Accumulation of resources through  A country that is relatively labor abundant
international trade (labor capital abundant) should specialize in Two New Contributors
 Mixed exchange (domestic/foreign) through the production and exporter of the product
trade with accumulation of wealth  Paul Krugman – manufacturing’s
which is relatively labor intensive.
geographical range is inherently limited by
 Conducted under authority/control of the
Product Cycle Theory economies of scale (mass production) and
government
should accrue in area of high demand
Classical Trade Theory on International Business  Raymond Vernon  Economies of Scale means cost advantage
 Parts and labor (globalization of production) and efficiency due to scale of operation
 The Theory of Absolute Advantage associated with the introduction of a product  Michael Porter - Competitiveness of
 The ability to produce more are called home-country origin industries on a global basis is based on
efficiently  After the product becomes adopted in the choosing activities that deliver unique sets of
 The ability of a country to produce a world markets, production gradually moves value.
product better than other country away from the point of origin.
 The Theory of Comparative Advantage
 The ability to produce cheaper goods
Porter’s Five forces The Theory of International Investment  Stable and developing markets without
upsurge in inflation rates or private-
 The movement of capital has allowed foreign sector debt
direct investments across the globe because  Value an international business can create in a
investors wants to maximize return on market
investments.  Suitability of product for market
 Firms as Seekers  Nature of indigenous competition
 Seeking Resources  Not widely available & satisfies an
 Seeking Factor Advantages unmet need
 Seeking Knowledge  Greater value translates into an
 Seeking Security ability to charge higher prices & build
 Seeking Markets sales volume more rapidly
 Firms as Exploiters of Imperfections  Process of country evaluation & selection
 Imperfections in Access  Scan for alternatives
 Imperfections in Factor Mobility  Choose & weight variables
 Imperfections in Management  Collect & analyze data for variables
Strategic Trade
 Firms as Internalizers  Use tools to compare variables &
 Government can play a beneficial role when  Establish their own multinational narrow alternatives
markets are on a perfect competition (non- operations-internalize production  Make final country Selection
equilibrium theory)  Competitive advantage due to
 Theory expands to government’s role in confidentiality Timing of Entry??
international trade  Early entry - Firm enters foreign market
Country evaluation, selection & Foreign market
 Four circumstances exist that involve before other foreign firms
entry strategies
imperfect competition in which strategic trade  First mover advantage:
may apply Basic foreign expansion entry decisions  Ability to preempt rivals & capture
 The Four Circumstances Involving Imperfect demand by establishing strong brand
Competition:  A firm contemplating foreign expansion must
make three decisions: name
a. Price  Build sales volume and ride down the
b. Cost  Which markets to enter??
 When to enter these markets?? experience curve with a cost advantage
c. Principle Repetition  Create switching cost that tie customers
d. Principle of Externalities  What is the scale of entry??
into products & services
 Which is the best mode of entry??
Porter’s Diamond of National Advantage  First mover disadvantages:
Which Market??  Pioneering costs
 Innovation is what drives and sustains  Time & effort in learning the rules of the
competitiveness  More than 200 nation-states game
 Four components of competition  Different long-run profit potential for firms  Mistakes due to ignorance
 Factor Conditions  Size of market  Liability of being a foreigner
 Demand Conditions  Purchasing power (present wealth)  Costs of promoting & establishing a
 Related and Supporting Industries  Future wealth product – educating customers (KFC in
 Firm Strategy, Structure, and Rivalry  Benefits cost & risks trade off-rank markets China -> benefit to McDonald’s)
 Future economic growth rates
 Free market system & country’s capacity
for growth
Scale of Entry?? (importer or distributor) in the home licensor receives a royalty fee from
country who in turn exports the product the licensee.
 Large scale entry – Requires commitment of  The Internet is becoming increasingly  Offers know-how, shares technology,
significant resources & implies rapid entry important as a foreign market entry method and shares brand name with licensee;
(Dutch ING spend billions to acquire US  Initially, Internet marketing focused on licensee pays royalties; lower-risk
operations) domestic sales, however, a surprisingly large entry mode; permits access to
 Strategic commitment: number of companies started receiving orders markets
 Decision that has long term impact & is from customers in other countries, resulting in  Advantages:
difficult to reverse (entering market on the concept of: o Helps company to spread out its
large scale)  international Internet marketing (IIM) R&D & investment costs with
 Change the competitive playing field &  Advantages: incremental income
unleash number of changes – e.g. how  Easy implementation of strategy o Little additional capital or time
competitors might react  Less investment abroad which helps small investment
 Can limit strategic flexibility firms also to enter international business o Legitimate means of capitalizing
 Small Scale Entry:  Minimal risks on intellectual property in a
 Advantages:  Casual international marketing effort foreign market.
 Time to learn about the market.  Firm may manufacture in centralized o Receive royalties for granting the
 Limits company exposure. location & export to other national rights to intangible property to
 Disadvantages: markets to realize scale economies from licensee for specified period
 May be difficult to build market share. global sales volume (Sony/TV, (patents, inventions, formulas,
 Difficult to capture first-mover Matsushita/VCR, Samsung/Chips) processes, designs, copyrights,
 Disadvantages: trademarks)
Basic market entry decisions
 Susceptibility to trade barriers o Allows firm to participate where
 Discussion based on developing country  Logistical difficulties there are barriers to investment
considerations  Less suitable for service products (Fuji-Xerox)
 Can use MNEs to learn & bench mark  Susceptibility to exchange-rate o Frequently used when firm
against fluctuation possesses intangible property but
 Can focus on niches the MNE ignores or  Not appropriate if other lower cost does not want to develop the
can’t serve manufacturing locations exist business application itself (Coco-
 Can piggyback with MNEs (eg; Jollibee)  High transport costs can make exporting Cola/clothing)
uneconomical especially bulk products o Primarily used by manufacturing
Which Foreign market entry mode? firms
CONTRACTUAL AGREEMENTS  Disadvantages:
EXPORTING o Inconsistent product quality may
 Contractual agreements are long-term, non- affect product image negatively
 The commercial activity of selling and equity associations between a company and
shipping goods to a foreign country o The agreement generally
another in a foreign market prohibits the originating firm
 The most common overseas entry approach  Approaches:
for small firms from exploiting the assets in
 Licensing particular foreign markets
 Exporting can be either:  An arrangement whereby a licensor
 direct or indirect o Does not give firm tight control
grants the rights to intangible over manufacturing, marketing &
 In direct exporting the company sells to a property to another entity for a
customer in another country strategy to realize experience
specified period and in return, the curve & location economies
 In contrast, indirect exporting usually
means that the company sells to a buyer
 o Firms can lose control over the country – subsidiary which is JV accounting, marketing services and
competitive advantage of their (McDonalds & local firm) training.
technological know-how.  Contract manufacturing  Advantages:
o Solution: Cross licensing  Contract manufacturing is a process o Management contracts are often
agreements that establish a working agreement formed where there is a lack of
 Franchising between two companies. local skills to run a project.
 Franchising is a specialized form of  As part of the agreement, one o It is an alternative to foreign
licensing in which the franchisor not company will custom produce parts direct investment as it does not
only sells intangible property to the or other materials on behalf of their involve as high risk and can yield
franchisee, but also insists that the client. higher returns for the company
franchisee agree to abide by strict  Advantages: when foreign government actions
rules as to how it does business o The client does not have to restrict other entry methods.
 Longer-term commitments maintain manufacturing facilities,  Disadvantages:
 Advantages: purchase raw materials, or hire o Loss of control
o Important way of gaining foreign labor in order to produce the o Time delays
returns on certain kinds of finished goods so less capital o Loss of flexibility
customer-service and trade name investment is required o Loss of quality
assets o Helps to achieve benefits of o Compliance
o Limited financial commitment economies of scale  Turnkey projects
o Involves longer term o Helps to achieve location  A product or service which can be
commitment than licensing. economies implemented or utilized with no
Primarily used by service firms  Disadvantages: additional work required by the
(McDonalds) o Less management control buyer (just by 'turning the key')".
o Franchiser sells intangible o Potential security or  The contractor agrees to handle every
property (trademark) & insists confidentiality issues detail of the project for a foreign
franchisee agrees to abide by o Complexity client, including the training of
strict business rules (location, o Potential quality issues operating personnel
methods, design, staffing, supply  Management contracting  Advantages:
chain)  A management contract is an o A way of earning great economic
o Royalty payments that are some arrangement under which returns from the know-how &
percentage of franchisee’s operational control of an enterprise is exporting process technology
revenues vested by contract in a separate o This strategy is useful where FDI is
o Firm relieved of many costs & enterprise which performs the limited by host government
risks of opening new market. necessary managerial functions in regulations
 Disadvantages: return for a fee. o Less risky than FDI in countries
o No manufacturing so no location  Management contracts involve not with unstable political and
economies & experience curve just selling a method of doing things economic environment
o May inhibit the ability to take (as with franchising or licensing) but o Means of exporting process
profits out of one country to involves actually doing them. technology (chemical,
support competitive attacks in  A management contract can involve a pharmaceutical, petroleum,
another wide range of functions, such as mining)
o Risk of worldwide reputation if technical operation of a production  Disadvantages:
no quality control – Firm can set facility, management of personnel,
up “master franchise” in each
 o Firm has no long-term interest in  There are partnerships between legally  Consortia are developed to pool financial
the country – can take minority incorporated entities such as companies, and managerial resources and to lessen
equity interest in company chartered organizations, or governments, risks.
o Firm may inadvertently create a and not between individuals
competitor (middle east oil  Equity positions are held by each of the Structuring the alliance to reduce opportunism
refineries) partners
o If firm’s process technology is a  Advantages:
source of competitive advantage, o Smaller investment
then selling technology is also o Local marketing and production/
selling competitive advantage to procurement of expertise from
potential competitors local partner
o Better understanding of the host
STRATEGIC ALLIANCE country
 Cooperative agreements between potential or o Typically, 50/50 with
actual competitors contributed team of managers to
share operating control WHOLLY OWNED SUBSIDIARY
 A strategic international alliance (SIA) is a
o Firm benefits from local partner’s
business relationship established by two or  The firm owns 100% of the stock
knowledge of competitive
more companies to cooperate out of mutual  The firm can either set up a:
conditions, culture, language,
need and to share risk in achieving a common  Green-field venture or;
political system & business
objective  It can acquire an established firm in the
system
 SIAs are sought as a way to shore up host nation
o Sharing market development
weaknesses and increase competitive  Advantages:
costs & risks with local partner
strengths.  Reduces the risk of losing control over
o In some countries, political
 Licensing, Joint venture, consortia etc. technological competence
considerations make JVs the only
 Firms enter SIAs for several reasons: feasible entry mode  Tight control over operations
 Opportunities for rapid expansion  Disadvantages:  Helps to achieve location economies
into new markets o Risk of giving control of  Disadvantages:
 Access to new technology technology to the partners  Larger commitment and risk
 More efficient production and o Shared ownership arrangement  Most costly method
innovation can lead to conflicts and battles of  Risk of national expropriation
 Reduced marketing costs control between the investing
 Strategic competitive moves Selecting an entry mode
firms.
 Access to additional sources of
products and capital STRATEGIC ALLIANCES – CONSORTIA
STRATEGIC ALLIANCES - JOINT VENTURES  Consortia are similar to joint ventures and
could be classified as such except for two
 A JV entails establishing a firm that is jointly unique characteristics:
owned by two or more otherwise independent  They typically involve a large number of
firms. participants
 Four Characteristics define joint ventures:  They frequently operate in a country or
 JVs are established, separate, legal entities market in which none of the participants is
 The acknowledged intent by the partners currently active.
to share in the management of the JV
 ACTG18 which involve possible source of finance at o The financial manager tries to identify
minimum cost. investment opportunities that are
CHAPTER 1: INTRODUCTION TO FINANCIAL worth more to the firm than they cost
MANAGEMENT 3. Proper Use of Funds – proper use and to acquire.
allocation of funds leads to improve the
Finance – can be defined as the science and art of operational efficiency of the business concern. o Financial managers must be
managing money. This can also be defined as the study When the finance manager uses the funds concerned not only with how much
of the acquisition and investment of cash for the properly, they can reduce the cost of capital cash they expect to receive, but also
purpose of enhancing value and wealth. and increase the value of the firm. with when they expect to receive it
Corporate Finance and how likely they are to receive it.
4. Financial Decision – financial management Evaluating size, timing and risk of
 Activities and transactions related to raising helps to take sound financial decision in the future cash flows is the essence of
capital to create, develop and acquire a business concern. Financial decision will affect capital budgeting.
business. It also includes the tools and analysis the entire business operation because there is
utilized to prioritize and distribute financial direct relationship with various department 2. Capital Structure
resources. functions such as marketing, production,
personnel, etc. o Specific mixture of long-term debt
and equity the firm uses to finance its
 The ultimate purpose of corporate finance is to
5. Improve Profitability – profitability of the operations.
maximize the value of a business through
business purely depends on the effectiveness
planning and implementation of resources, o The financial manager has to decide
and proper utilization of funds by the business.
while balancing risk and profitability. exactly how and where to raise the
Financial management helps in improvement
of profitability by having a strong financial money. The expenses associated with
 The study of the relationship between
control device such as budgetary control, raising long-term financing can be
business decisions and the value of the stock
ration analysis and cost volume profit analysis. considerable, so different possibilities
in the business.
must be carefully evaluated.
Financial Management 6. Increase the Value of the Firm – Financial
management is very important in the field of o Choosing among lenders and among
 Deals with procurement of funds and their increasing the wealth of the investors as well loan types.
effective utilization in the business. as the business. Ultimate aim of any business 3. Working Capital Management
is to achieve the maximum profit and higher
 Mainly concerned with the effective funds profitability leads to maximizing the wealth of o Refers to a firm’s short-term assets,
management in the business. the investors as well as the nation. such as inventory and its short-term
Importance of Financial Management liabilities, such as money owed to
7. Promoting Savings – savings are possible suppliers.
1. Financial Planning – financial management only when the business earns higher
helps to determine the financial requirement profitability and maximizing wealth. Effective o Is a day-to-day activity that ensures
of the business concern and leads to take financial management helps to promote and that the firm has sufficient resources
financial planning of the concern. It is an mobilize individual and corporate savings. to continue its operations and avoid
important part of the business concern which costly interruptions. This involves a
Financial Management Decisions number of activities related to the
helps in the promotion of an enterprise.
1. Capital Budgeting firm’s receipt and disbursement of
2. Acquisition of Funds – financial management cash.
involves the acquisition of required funds to o the process of planning and managing
the business concern. Acquiring needed funds a firm’s long-term investments.
play a major part of the financial management,
Relationship to Economics - Typically provides capital in the early stages of - Units of stock are called “shares” which entitles
a new business, when risk is high. the owner to a proportion of the corporation’s
- Financial managers must understand the assets and profits equal to how much stock
economic framework and be alert to the 2. Venture Capitalist they own.
consequences of varying levels of economic
activity and changes in economic policy. They - Are usually in the form of a company, that seek o Bonds
must also be able to use economic theories as to invest in startups and other small
guidelines for efficient business operation. businesses. - Loan from an investor to a
borrower such as a company or
Relationship to Accounting - Unlike angel investors, they do not seek to government. The borrower uses
fund businesses in the early stages to help get the money to fund its operations,
- Financial managers evaluate the accounting them off the ground, but rather look at and the investor receives interest
statements, develop additional data and make businesses that are already in the early stages on the investment.
decisions on the basis of their assessment of with a potential for growth.
the associated returns and risks. o Real Estate
3. P2P Lending
CHAPTER 2: INVESTORS AND TYPES OF INVESTMENT - is defined as the land and any
MATERIALS - Peer-to-peer lending, is a form of financing permanent structures, like a home,
where loans are obtained from other or improvements attached to the
Investor individuals, cutting out the traditional land, whether natural or man-
middleman, such as a bank. made.
- is any person or other entity (such as firm)
who commits capital with the expectation of 4. Personal Investors - There are five main categories of
receiving financial returns. real estate which include
- Invests their own capital.
- Rely on different financial instruments to earn residential, commercial, industrial,
a rate of return and accomplish important - Are not professional investors but rather those raw land and special use.
financial objectives like building retirement seeking higher return than simple investment
vehicles, like certificates of deposit or savings o Mutual Funds
savings, funding a college education, or merely
accumulating additional wealth over time. accounts. o Is a type of investment vehicle consisting of a
5. Institutional Investors portfolio of stocks, bonds or other securities.
- Are not a uniform bunch. They have varying
risk tolerances, capital, styles, preferences and - Are organizations that invest the money of o Commodities
time frames. other people. o Investors can invest in physical commodities
o Risk tolerance – is a measure of the - Because they raise large amounts of capital such as gold, silver, oil or agricultural
degree of loss an investor is willing to from many investors, they are able to purchase products, which may offer protection against
endure within their portfolio. large amounts of assets, usually big blocks of inflation and other economic risks.
Types of Investors stocks. o Alternative Investments
1. Angel Investor Investment Materials o Investors can invest in alternative assets such
o Stocks as private equity, venture capital, hedge funds,
- Is a high-net-worth private individual that cryptocurrency, art, or collectibles. Though
provides financial capital to a startup or - Represents a share in the ownership of a potentially riskier investments, the end goal is
entrepreneur. company, including a claim on the company’s always the same: to own something increases
earnings and assets. in value over time.
CHAPTER 3: BUSINESS TRENDS AND THE FINANCIAL o Incentive Managers – relates to job o Are for products such as wheat, autos,
MARKET prospects. Better performers within the real estate, computers and machinery.
firm will tend to get promoted. More
Important Business Trends generally, managers who are successful in b. Financial asset markets
o Business practices pursuing stock-holder goals will be in o Deal with stocks, bonds, notes and
greater demand in the labor market and mortgages and derivative securities
o Globalization of business thus command higher salaries. Managers whose values are derived from
who are successful in pursuing changes in the prices of other assets.
o Information technology (IT) stockholder goals can reap enormous
o Corporate governance rewards. 2. Spot markets vs. Future markets

Business Ethics – a firm’s commitment to business 2. Control of the firm a. Spot Markets – markets in which
ethics can be measured by the tendency of its assets are bought or sold for “on-the-
o Ultimately rests with stockholders. They spot” delivery.
employees, from the top down, to adhere to laws, elect the board of directors, who in turn
regulations and moral standards relating to product hire and fire managers. b. Future Markets – markets in which
safety and quality, fair employment practices, fair participants agree today to buy or sell
marketing and selling practices, the use of confidential o Proxy Fight – an important mechanism an asset at some future date.
information for personal gain, community involvement by which unhappy stockholders can act to
and illegal payments to obtain business. replace existing management. 3. Money market bs. Capital Markets
Consequences of Unethical Behavior o Takeover – firms that are poorly a. Money Markets – markets for short-
managed are more attractive as term, highly liquid debt securities.
o Bankruptcies acquisitions than well-managed firms
because a greater profit potential exists. b. Capital markets
o Damages other companies and even whole
industries. Stakeholders – someone other than a stockholder or o Markets for intermediate or long-
creditor who potentially has a claim on cash flows of term debt and corporate stocks.
o Difficult for firms to raise the capital they
needed to grow, create jobs, and stimulate the the firm. Such groups will also attempt to exert control o Short-term generally means less than
economy. over the firm, perhaps to the detriment of the owners. 1 year, intermediate-term means 1-10
Capital Allocation Process years and long-term means more than
Manager and Stockholder Interest 10 years.
o Alignment of management and stockholder 1. Direct transfers of money and securities
4. Primary markets vs. Secondary markets
goals 2. Primary market transaction
a. Primary markets – markets in which
o Managers can be replaced if they do not 3. Financial intermediary corporations raise new capital.
pursue stockholder goals.
Financial Markets b. Secondary markets – are markets in
Reasons management has a significant incentive to which existing, already outstanding
act in the interests of stockholders: 1. Physical Asset Markets vs. Financial asset securities are traded among
markets investors. It also exists for mortgages,
1. Managerial compensation
a. Physical Asset Markets other types of loans and other
o Particularly at the top, is usually ties to financial assets. The corporation
financial performance in general and often o “tangible” or “real” asset markets whose securities are being traded is
to share value in particular. not involved in a secondary market
 transaction and thus does not receive Marketing research want to know how effective those
funds from such a sale. expenditures are for the advertising,
- is the process of designing, gathering, sales force, publicity and promotional
5. Private markets vs. Public markets analyzing and reporting information that may offers.
be used to solve a specific marketing problem. o Distribution Research – what are
a. Private markets – where - The focus is on a process that results in
transactions are negotiated directly the best channels to get our product
information that will be used to make to consumers? Where are the best
between two parties. decisions. dealers for our product and how can
b. Public markets – where - Its function is to link the customer to the we evaluate the service they provide?
standardized contracts are traded on marketer by providing information that can 3. Monitoring marketing performance.
organized exchanges. be used in making marketing decisions. - Control is a basic function of management. To
Market Research assess performance on some variables,
marketing research is often used. Examples:
MKTM27 - as a process is used to define size, location, o Scanner data allow managers to
and/or makeup of the market for a product or monitor their brands’ sales as well as
CHAPTER 1: INTRODUCTION TO MARKETING service. sales of competitors.
RESEARCH - Refers to applying marketing research to a o Firms use marketing research to
specific market. monitor other variable such as their
Marketing employees’ and customers’
Uses of Marketing Research satisfaction levels.
- is the activity, set of institutions and processes
for creating, communicating, delivering and 1. Identifying market opportunities and Improving Marketing as a Process
exchanging offerings that have value for problems.
customers, clients, partners and society. - Which ones are actually feasible? Improving our understanding of the
- Modern marketing thought holds that firms - Which ideas can we accomplish? marketing process entails conducting research to
should collaborate with and learn from - Which will mostly likely generate a good expand our knowledge of marketing.
consumers. return?
2. Generating, refining and evaluating  Basic research – is research that is conducted
The Philosophy of Marketing Concept Guides potential market actions. to expand knowledge rather than to solve a
Manager’s Decisions - Marketing research is conducted in a variety of specific problem.
area such as  Applied research – is research that is
Marketing Concept – is a business philosophy conducted to solve specific problems.
that holds the key to achieving organizational goal o Selecting Target Markets – a great
consists of the company being more effective than deal of marketing research is The Marketing Information System (MIS) – is a
competitors in creating, delivering and communicating conducted to determine the size of structure consisting of people, equipment and
customer value to its chosen target markets. various market segments. procedure to gather, sort, analyze, evaluate and
o Product Research – successful distribute needed, timely and accurate information to
The “Right” Marketing Strategy companies are constantly looking for marketing decision makers.
new products and services.
Marketing Strategy – consists of selecting a o Pricing Research – when a  Internal Reports System – gathers
segment of the market as the company’s target market revolutionary new product is created, information generated within a firm, including
and designing the proper mix of product/service, price, marketers use research to determine orders, billings, receivables, inventory levels,
promotion and distribution system to meet the wants the “value” consumers perceive in the stock outs and so on.
and needs of the consumers within the target market. new product.  Marketing Intelligence System – is defined
o Promotion Research – as firms as a set of procedures and sources used by
spend money on promotion, they managers to obtain everyday information
 about pertinent developments in the needs. A supplier firm may be referred to as an  Neuroimaging – observe brain activity as
environment. agency or simply as a supplier. consumers are exposed to stimuli such as
 Marketing Decision Support System (DSS) – packages or ads.
is defined as collected data that may be Types of Firms and their Specialties  Market Segmentation – determine firms’
accessed and analyzed using tools and  Full-service supplier firms – have the target markets, locate these consumers and
techniques that assist managers in decision capability to conduct the entire marketing determine other characteristics of these
making. research project for buyer firms. It offers consumers such as media habits.
 Marketing Research System – gathers clients a broad range of services; they often  Social Media Monitoring – monitor for
information for a specific situation facing the define the problem, specify the research relevant buzz over the social media and attach
company. design, collect and analyze the data, and meaning for companies and their brands.
prepare the final written report.  Field Services – collect data using a variety of
CHAPTER 2: THE MARKETING RESEARCH INDUSTRY methods telephone, online, person to person
 Limited-service supplier firms – specialized
Evolution of an Industry in one or, at most, a few marketing research and mall intercept.
activities. Firms can specialize in marketing
Gathering information dates back to the Challenges to the Marketing Research Industry
research services such as online communities,
earliest days of recorded history. questionnaire development and pretesting, 1. New and evolving sources of data and methods
 Early 1800s – surveys were used for politics data collection or data analysis. 2. Effective communication of results
in the United States. 3. Need for talented and skilled employees
Major Types of Marketing Research Services
 1879 – the first known application of research Types of Social Media that Provide Sources of User-
to a business/ marketing/ advertising  Syndicated Data Services – analyze the Generated Content
problem was conducted by an ad agency. trends and consumer behavior within an
 1911 – The first continuous, organized industry and sold to many companies.  Blogs – dated, online journal entries, usually
research was conducted by Charles Coolidge  Packaged Service – use a proprietary process focused on a particular topic.
Parlin. He is recognized today as the “father of to conduct a service such as test marketing or  Microblogs – short posts commenting on the
marketing research”. measuring customer or employee satisfaction. user’s activities.
 Online Research Specialists – provide client  Video Sharing Networks – websites or apps
Why did the Industry Grow? services associated with measuring online that allow the sharing of the user’s videos
The industry began to grow in the early 1900s consumer behavior and measurement or online.
as the Industrial Revolution separated business online data collection.  Photo Sharing Sites – websites or apps that
owners from customers. Many developments occurred  Customized Services – provide services allow the sharing of the user’s photos online.
during the 20th century that allowed marketing customized to individual clients’ needs.  Social Networks – websites that enable users
research to evolve into a mature industry.  Industry or Market Segment Specialists – to connect by creating personal information
specialize in a particular industry or a market profiles, inviting friends and colleagues to
Who conducts the Marketing Research? segment. access those profiles and sending and
 Eye Tracking – track eye movement to receiving emails and instant messages.
 Client-side research – is research that is determine better package designs, advertising  Professional Networks – websites that
conducted within an organization. copy, etc. enable users to connect by creating
 DIY marketing research or do-it-yourself  Mobile Research – conduct research using professional information profiles, inviting
marketing research – refers to firms mobile devices such as iPads or smartphones. business colleagues to access those profiles,
conducting their own marketing research.  Sampling – use different sampling methods to and sending and receiving emails and instant
 Supply-side marketing research – is draw samples to suit client’s research messages.
research that is conducted by an outside firm objectives.
hired to fulfill a company’s marketing research
  Product and Service Review Sites – websites  Support Services – quality of support Additional Attributes of Quality
that allow consumers to talk about and review sale.  Timeless – delivery on schedule as
their experience with a product or service.  Psychological – ambiance, prestige, per the requirements of the customer is a
 Web-based communities and forums – friendly staff. must both in product sector as well as in
communities created online, often focused Manufacturing Quality vs. Service Quality service sector.
around a particular interest, whose members Manufacturing Quality Service Quality  Aesthetics – a product or service
interact with each other online. Focuses on tangible product Focuses on intangible should not only perform well but also
 News Sharing Sites – websites that allow features such as: products that must be appear attractive.
users to post and discuss news items. experienced.  Regulatory Requirements – as
stipulated by the local and federal
1. Conformance 1. Courtesy
(Functionality) governments should be fulfilled by the
product or service.
2. Performance 2. Friendliness of staff
MGNT27  Requirements of Society – the
(Efficiency)
product should fulfill both the stated and
3. Reliability 3. Promptness in
Total Quality Management implied requirements imposed by the
solving complaints
 Meeting quality expectations as society.
4. Features (Portability) 4. Atmosphere
defined by the customer.  Conformance to Standards –
 Integrated organizational effort 5. Durability 5. Waiting Time product or service should conform to the
designed to improve quality of (Maintainability) stated and implied requirements of
processes at every business level. 6. Serviceability 6. Consistency customers.
 is defined as a continuous effort (Usability) Cost of Quality
by the management as well as  Quality effects all aspects of the
employees of a particular Product Quality organization and have dramatic cost
organization to ensure long term 1. Functionality – core featured and implications.
customer loyalty and customer characteristics of a product.  Most of obvious consequences of poor
satisfaction. 2. Reliability – measured by quality is dissatisfied customers and
mean(average) time between failures eventual loss of bus Early
 is a structures effort by (MTFB). It is an indicator of durability of detection/prevention is less costly
employees to continuously products.  Early detection/prevention is less
improve the quality of their 3. Usability -0 a product should be costly
products and services through easily usable.  May be less by a factor of 10
proper feedbacks and research. 4. Maintainability – ease with which a
Ensuring to provide superior product can be maintained in the original o Prevention Cost – cost of
quality of product or services to condition. preparing and implementing
customer. 5. Efficiency – the ratio of output to quality plan.
input. o Appraisal Cost – cost of
Quality
6. Portability – set of attributes that testing, evaluating and inspecting
 Conformance of Specification - does bear on the ability of software to be
product or service meet target and quality.
transferred from one environment to o Internal Failure Costs – cost
tolerances defined by designers?
another. of scrap, rework and material
 Value for Price Use – evaluation of Service Quality losses.
usefulness versus price paid. 1. Quality of Customer Service o External Failure Costs –
 Fitness for Use – evaluates 2. Quality of Service Design cost of failure at customer site,
performance for intended use. 3. Quality of Service Delivery
 including return, repairs and  Bell Telephone Engineer  Named after W. Edwards Deming who
recalls.  Grandfather of Statistical worked to improve Japanese quality after
Evolution of TQM Quality Control (SQC) WWII
 Early 20th Century – quality meant  Contributed to understand  Not open to foreign companies until
inspection. Reactive in nature. the process of variability 1984
 1980’s – quality began to have  Developed concept of  Florida P & L was first US company
strategic meaning. Proactive in nature. statistical control charts winner
 Successful companies understand 2. William Edwards Deming (1940s & 3. Joseph M. Juran (1950)
that quality provides a competitive 1950s)  Defined quality as “fitness for
advantage.  Father of Statistical Quality use”
 Put customer first and define quality Control  Developed concept of cost of
as meeting or exceeding customers  Deming’s Cycle (PDSA) quality
expectation.  Stressed management’s  Originated idea of quality
 Quality excellence has become a responsibility for quality trilogy
standard for doing business.  Developed “14” points to o Quality planning
o Old Concept of Quality – guide companies in quality o Quality control –
inspect for quality after improvement. process which a business
production. seeks to ensure that
 Japanese established
 Early 1900s product is maintained or
“Deming Prize” in his name.
(Inspection) improved.
 15% of quality problems are
 1940s (Statistical o Quality
actually due to worker error.
sampling) improvement –
 85% of quality problems are
 1960s evaluating performance
caused by systems and errors.
(Organizational quality of systems.
Deming Cycle (PCDA)
focus) Juran’s Quality Planning Roadmap
o New Concept of Quality – 1. Identify your customers.
build quality into process. 2. Determine their needs.
Identify and correct causes of 3. Translate them into your language.
quality problems. 4. Develop a product that can respond to
 1980s and beyond the needs.
(Customer driven 5. Develop processes, which are able to
quality) produce those product features.
History of TQM 6. Prove that the process can produce
 1920s – scientific management the product.
principles 7. Transfer the resulting plans to the
 1930s – Shewhart develops SQC Deming Award for Quality (Deming Prize)
operating forces.
methods  To express their gratefulness,
 1946 – ASQ (then ASQC) formed. Japanese instituted a Quality Award in the
4. Armand V. Feigenbaum (1960s)
 1950s – TQM and quality concepts name of Deming in the year 1951.
 Introduces the concept of
developed  The award is now given not only to
total quality control later called
 1968 – quality management systems companies in Japan, but even overseas
Total Quality Management
 Today – quality standards and QMS who excel in quality.
(TQM).
Quality Gurus  Given by the union of Japanese
 Total Quality Management is
1. Walter Shewhart (1920s & 1930s) Scientists and Engineers since 1951
an effective system for
 integrating the quality  The measurement of quality is the House of Quality (Quality Function
development, quality price of non-conformance. (How much Deployment (QFD)) – use to transform
maintenance and quality the defect in design, manufacture, customer requirements into design,
improvement efforts of the installation and service cost the production and manufacturing
various groups in an organization company). characteristics.
so as to enable production and
service at the most economical 6. Kaoru Ishikawa Quality Control – is the operational techniques and
levels which allow full customer  Developed cause-and-effect activities that are used to fulfil the requirements for
satisfaction. diagrams, also called as Fishbone quality.
 Together with Deming and Diagram. It is a structured  Evaluate actual
other’s ideas became basis for brainstorming tool using performance.
ISO:9000. categories to explore root causes  Compare actual performance
Feigenbaum’s Cycle Time Reduction Methodology for an undesirable effect. to goals.
1. Define process.  Identified concept of  Act on the difference.
2. List all activities. “internal customer” Quality Assurance
3. Flowchart the process.  Introduced the concept of  All planned and systematic activities
4. List the elapsed time for each activity. “quality circles" implemented within the quality system
5. Identify non-value adding tasks. o Quality Circles – and demonstrated as needed, to provide
6. Eliminate all possible non-value group of employees who adequate confidence that an entity will
adding tasks. regularly meet with the fulfill the requirements for quality.
aim to solve problems.  Main objective: Quality is being
5. Philip B. Crosby (1970s) 7. Genichi Taguchi improvised, implement and attained.
 Coined phrase “quality is  Focused on Product Design Requirements for Building Product Quality
free” Quality  Quality of Design – it refers how well
 Introduced concept of “zero  Developed Taguchi Loss the product or service has been designed
defects” Function to meet the current and future
 Developed the phrase “do it o Cost of quality requirements of customers and add value
right the first time” increases as a quadratic to all the stakeholders (customer,
 He scorned the idea that a function as conformance employees, suppliers, owners and
small number of defects is a value move away from society).
normal part of the operating target.  Quality of Conformance – this
process because systems and  Robust Design – a design indicates the consistency in delivering the
workers are imperfect. that results in a product that can designed product.
 He stressed the idea of perform over a wide range of  Quality of Performance – it is an
prevention. conditions. indicator of the performance of the end
Crosby’s Four Absolutes of Quality  Loss Function – he devised product.
 Quality is conformance to an equation to help managers  Quality of Service – It is the quality of
requirements, nothing more and nothing find how much revenue they are associated services rendered that adds
less and certainly not goodness or losing because of variability in value to the product. It involves all the
elegance. production process and resultant activities that will enable the customer to
 Quality has to be achieved by poor quality – which in turn leads procure and use the product without any
prevention and not by appraisal. to lost customers as well as hassles.
 The performance standard must be financial loss to society.
zero defect and not something close to it.
Quality of Planning – the quality of 4 M’s (Man,  Guidelines for Performance  To help develop a product that addresses
Machine, Material and Methods) involves planning for  More than 40,000 companies have issues within current market offerings.
the following with regard to a product or service, been certified  To reveal bottlenecks or areas of weakness in
 Quality of objectives to be met. ISO 14000 a business process.
 Specific of QA/QC practices  Focuses on a company’s environmental  To avoid reoccurring issues or employee
 Resources needed. responsibility burnout.
 Sequence of QA/QC activities.  To ensure that any corrective actions put into
Quality Improvement – this process aims at attaining Quality Management (QM) place will resolve the issue
unprecedented levels of performance, which are  According to ISO 9000, quality
significantly better than the past level. management companies “all activities of Components of Fishbone Diagram:
Strategic Planning – it involves making plans for the overall management function that 1. Main Problem or Effect - The issue being
business value, investment in machinery and determine the quality policy, objectives analyzed is placed at the head of the fishbone
equipment, manpower to be hired, budget, product and responsibilities and implement them diagram. This is the central problem or
diversification, markets to be served and strategies for by means such as quality planning, quality outcome that requires investigation.
improving profits. control, quality assurance and quality 2. Categories of Causes (Bones) - Typically,
Just-in-time (JIT) improvement within the quality system”.
there are six major categories, often referred
 Tai-chi Ohno of Toyota motors refined WHY TQM EFFORTS FAILS? to as the 6Ms, which stand for Machine,
an idea for Just-in-time.  Lack of genuine quality culture Method, Material, Measurement, Mother
 This means that no stage of  Lack of top management support and Nature (Environment), and Manpower
manufacturing nobody or nothing waits commitment (Human Resources). These categories help
for anything.  Over- and under-reliance on SPC methods structure the analysis and ensure a
 This is to ensure that there is no comprehensive examination of potential
wastage of machinery, materials and causes.
manpower. FISHBONE DIAGRAM
3. Sub-Causes - Under each major category, sub-
ISO 9000 Standards Fishbone Diagram - also known as the Ishikawa causes or factors are identified. These sub-
 Standards were released for the first Diagram or Cause-and-Effect Diagram, is a causes are the specific elements that may
time in the year 1987 to bring in system structured and visually intuitive tool used in contribute to the main problem. They branch
for quality in every organization. various industries to identify the root causes out from the major categories.
 ISO stands for International of a particular problem or issue.
Organizational for Standardization. How to create a Fishbone Diagram:
 Worldwide federation of standard Dr. Kaoru Ishikawa
1. Identify the Problem. Begin by clearly
bodies with headquarter in Geneva,
 A Japanese organizational theorist and defining the problem or effect that needs
Switzerland.
professor at the University of Tokyo. analysis. This is placed at the "head" of the
 Certification developed by ISO diagram.
 He introduced the Fishbone Diagram as a
 Set of internationally recognized 2. Select Categories. Determine which of the
visual tool in the 1960s to help organizations
quality standards 6Ms are relevant to your problem. These
identify and analyze the root causes of
 Companies are periodically audited categories will serve as the "bones" of the
problems and improve their processes.
and certified diagram.
 Dr. Ishikawa is widely recognized for his
 ISO 9000:2000 QMS 3. Brainstorm Causes. Under each selected
contributions to quality management and
 Fundamentals and Standards category, brainstorm potential causes or
quality control in various industries
 ISO 9001:2000 QMS factors that could contribute to the problem.
 Requirements When to use a Fishbone Diagram: Encourage team collaboration and input.
 ISO 9004:2000 QMS
 To identify the possible causes of a problem.
 4. Organize and Analyze. Organize the  Histograms are widely used in quality control, PARETO ANALYSIS
identified causes on the diagram, branching as they can help identify issues in the
out from their respective categories. This production process before they lead to defects Pareto Analysis
visual representation helps teams see the or quality problems. They are particularly  A simple decision-making technique for
relationship between different causes and the useful in identifying common causes of assessing competing problems and measuring
main problem. variation, which can then be addressed the impact of fixing them. This allows you to
5. Prioritize and Investigate. After creating the through process improvement efforts. focus on solutions that will provide the most
diagram, prioritize the most likely or  A chart that shows the frequency distribution benefit.
significant causes for further investigation. of observed values of variables like service  Technique that displays the degree of
This helps focus resources on addressing the time at a bank drive-up window importance for each element
most critical issues.  Displays whether the distribution is  Named after 19th century Italian Economist
symmetrical (normal) or skewed  Often called the 80-20 rule
HISTOGRAM
Data Distribution - Histograms are employed to  Principle is that quality problems are the
HISTOGRAM result of only a few problems
display the distribution of data. They divide the data
 Karl Pearson invented the Histogram. into intervals or bins, and for each interval or bin, they
THE 80-20 RULE
 The histogram as a quality tool has been used show the frequency or number of data points that fall
for many years, and its origin is difficult to within it.  Pareto Analysis uses the Pareto Principle –
trace to a single individual or organization. also known as the "80/20 Rule " – which was
X and Y-axis - The horizontal x-axis usually denotes
 However, the use of histograms as a tool for coined by Italian economist, Vilfredo Pareto, in
the range or intervals of the data, while the vertical y-
quality control and statistical process control his 1896 book, "Cours d'économie politique."
axis denotes the frequency or number of data points in
became popularized in the mid-20th century,  The Pareto Principle states that 80 percent of
each interval, respectively.
largely due to the work of Walter A. Shewhart a project's benefit comes from 20 percent of
and W. Edwards Deming. Shape - A histogram’s shape can disclose vital details the work. Or, conversely, 80 percent of
 A histogram is a graphical representation of a about the distribution of the data. Bars and rectangles problems can be traced back to 20 percent of
frequency distribution of data. make up a histogram. Each bar’s width and height are causes. Pareto Analysis identifies the problem
 In the context of quality tools, a histogram is based on the range of values it covers and the areas or tasks that will have the biggest payoff.
used to analyze the variation in a process. The frequency of data points inside each interval, The tool has several benefits, including:
horizontal axis of the histogram represents the respectively. A. Identifying and prioritizing problems and
range of values being measured, while the tasks.
vertical axis represents the number of APPLICATIONS OF HISTOGRAMS IN QUALITY B. Helping people to organize their
occurrences of each value or range of values. MANAGEMENT: workloads more effectively.
 A quality histogram can help you understand 1. Identifying defect frequency and C. Improving productivity.
the distribution of data and identify any trends concentration in a product or process. D. Improving profitability.
or patterns that may affect the quality of your 2. Analyzing the distribution of product
product or process. PARETO ANALYSIS STEPS:
attributes such as size, weight, or color.
 It can also help you identify areas where the 3. Monitoring process capability by tracking the 1. Identify and List Problems
process may be out of control or where there variation of data over time.  Write out a list of all of the problems
is too much variation. 4. Comparing data from different processes or that you need to resolve. Where
 Histograms can show how data is distributed suppliers to identify opportunities for possible, gather feedback from clients
and help identify trends, outliers, and improvement. and team members. This could take
potential problem areas. This can aid in the form of customer surveys, formal
making informed decisions to improve
product or process performance.
 complaints, or helpdesk logs, for FLOWCHART Types of Flowchart:
example.
2. Identify the Root Cause of Each Problem Flowchart 1. Process flowchart - A process flowchart is a
 Next, get to the root cause of each type of flowchart that shows the steps
 are most commonly used to document involved in a process, such as a manufacturing
problem. Techniques such as the 5 organizational structures and process flows,
Whys, Cause and Effect Analysis, and process or a service delivery process.
making them ideal for identifying delays and 2. Data flowchart - A data flowchart is a type of
Root Cause Analysis are useful tools unnecessary steps within your process or
for this. flowchart that shows how data flows through
system. a system or process.
3. Score Problems  Mapping out your current process can help
 Now, score each problem that you've 3. Swimlane flowchart - A swim lane flowchart
you to more effectively pinpoint which is a type of flowchart that shows the steps
listed by importance. The scoring activities are completed when and by whom,
method that you use will depend on involved in a process and the people or
how processes flow from one department or departments responsible for each step.
the sort of problem that you're trying task to another, and which steps can be
to resolve. 4. Workflow diagram - A workflow diagram is a
eliminated to streamline your process. type of flowchart that shows the steps
4. Group Problems Together  Used to document the detailed steps in a involved in a workflow or business process.
 Use the root cause analysis that you process
carried out in Step 3 to group  Often the first step in process re-engineering Symbols:
problems together by common cause.
For example, if three of your problems History of Flowchart:
are caused by a lack of staff, you could
 In the 1920s, industrial engineers Frank and 1. - For process
put these into the same group.
5. Add up Scores for Each Group Lillian Gilbreth introduced the "Flow Process
 Now, add up the scores for each group Chart" to the American Society of Mechanical
that you've identified. The one with Engineers (ASME). This was the first
2. – For decisions
the top score should be your highest structured method for documenting process
priority, and the group with the flow.
lowest score your lowest priority.  In the 1930s, industrial engineer Allan H.
6. Take Action Mogensen saw an opportunity to extend 3. - For feedback
 Finally, it's time to take action! Your flowcharts and other useful tools of the
highest-scoring problem will likely industry to business workers. He began 4. - For start and end points
have the biggest payoff once fixed, so training business people in how to use
start brainstorming ideas on how to flowcharts to make their processes more SCATTER PLOTS
solve this one first. efficient, spreading their popularity and use.
Scatter Plots
 You may find that your lowest-scoring  In the late 1940s, Herman Goldstine
problems aren't worth bothering developed flowcharts with John von Neumann • Scatter plots are graphical tools used to
about, particularly if they are very at Princeton University. Flowcharts used to be display the relationship between two
costly to fix. Use your Pareto Analysis hand-drawn charts which made changes very variables.
to save your energy and resources for difficult and messy
what's important!  In the early 1950s, flowcharts became • Each data point represents a combination of
popular in early computing. Visual values from the two variables.
Programming Languages used in computing
• A graph that shows how two variables are
are sophisticated flowcharts.
related to each other
 • Data can be used in a regression analysis to RUN CHARTS Run chart interpretation rules:
establish equation for the relationship
Run Chart - also known as a run-sequence plot is a 1. Shift - Seven or eight values in succession
The Role of Quality Management: graph that displays observed data in a time sequence. above or below the median line is a shift. Do
Often, the data displayed represent some aspect of the not consider the points that fall on the median
• Quality management ensures products or output or performance of a manufacturing or other line as they are not toward or against the shift.
services meet or exceed customer business process. It is therefore a form of line chart. A shift indicates a dramatic change in the
expectations. process.
Why use a run chart? 2. Runs - Too many or too few runs in the data
• Consistency and improvement are key goals in
quality management.  A run chart is used to determine whether or displayed on the chart. In other words, one or
not the central tendency of the process is more consecutive points are all lying on the
Scatter Plots in Quality Management: changing. Following are a few reasons to use a same side of the line. Ignore the points exactly
run chart: on the line!
1. Defect Analysis: Discover links between 3. Clustering - Too few runs or groups of points
process variables and defects. a. Easy to construct
b. It does not require too many calculations in one or more areas of the plot. It indicates
2. Root Cause Analysis: Identify underlying measurement or sampling problems.
causes of quality issues. or software for analysis.
c. Easy to interpret the results 4. Trend - Seven or more consecutive points are
3. Process Improvement: Optimize processes increasing or decreasing. A basic rule of thumb
based on data-driven insights. d. Minimum statistical knowledge is
sufficient to draw and interpret the chart is when a run chart exhibits seven or eight
4. Supplier Evaluation: Evaluate supplier points successively up or down, then a trend is
performance and make informed decisions. When to use run charts? clearly present in the data and needs process
5. Customer Satisfaction: Understand factors improvement. This rule does not care whether
affecting customer satisfaction and loyalty.  To visually depict how the process is the consecutive points are above, below, or
performing crossing the median.
Steps in Creating a Scatter Plot:
 Effectively track and communicate 5. Mixtures - Too many runs in a chart with
1. Collect Data: Gather data on two relevant improvements (and determine success) absences of points near the median line.
variables (e.g., temperature and defect rate).  To identify process variation and avoid 6. Astronomical Points - Astronomical points
2. Plot Data Points: Create a graph with one unbiased actions occur when there is one value that is very
variable on the x-axis and the other on the y-  Display outputs to look for stability or different from the other data values on the
axis. instability chart. It would be a value that is highly unlikely
3. Interpret Patterns: Examine the plot for to occur again and would appear as an outlier.
patterns, trends, or outliers. Key components of Run Chart:
4. Draw Conclusions: Use the plot to draw Counting Runs
1. Time- series: the specific time period of the
conclusions about the relationship between output (hours, days, weeks, months); plotted  A non-random pattern is signaled by too few
the variables. on the horizontal (X) axis or too many runs, or crossings of the median
2. Output: The data measurement from the line. A run is a series of points in a row on one
Benefits and Insights:
completed process; plotted on the vertical (Y) side of the median.
1. Visual Representation: Data becomes axis  Swed and Eisenhart developed a chart in
visually accessible and easier to understand. 3. Data points: output values plotted on the 1943 to determine the minimum and the
2. Data-Driven Decisions: Identify correlations chart maximum number of runs required for each
and make informed decisions. 4. Median Line: the line on the graph that shows data point to follow the random variation in
3. Continuous Improvement: Use insights to the average of all the output measures. the process. In other words, no special cause
improve quality, processes, and customer existed in the process.
satisfaction
How to create a run chart: When the control chart indicates an “out-of-control” Four dimensions of quality
situation, it’s essential to identify and address the
1. Determine the data to be measured cause of the issue. This could involve adjusting the 1. Quality of Design
2. Obtain the data – collect a minimum of 10 to process, investigating for defects, or making other  Determining which features to include in the
15 data points in a time sequence. improvements to bring the process back into control. final design
3. Plot a graph with a time sequence in the 2. Quality of conformance to design
horizontal x-axis (like, hours, days, weeks) and CHECKLIST  Production processes are set up to meet
a vertical y-axis with measuring variables. design specifications
4. Plot the data values in a time sequence  Simple data check-off sheet designed to 3. Ease of use
5. Compute the means/median and draw a identify type of quality problems at each work  Instructions, operation, maintenance, safety
horizontal line in the graph station; per shift, per machine, per operator. 4. Post-sale service
6. Analyze the graph, and observe the trends and TQM Philosophy  Responsiveness, rapid repair, p.m., spare parts
patterns to detect special cause variation in
the process  TQM attempts to embed equality in every Ways to Improve Quality
aspect of organization.
CONTROL CHARTS  Plan-Do-Study-Act (PDSA)
 Focus on customer  Deming Wheel
Control Chart  Identify and meet customer needs  Circular, never-ending problem-
 Stay tuned to changing needs, e.g. solving process
 Also known as Shewhart Charts or Statistical fashion styles  Plan
Process Control Charts (SPCC)  Continuous improvement  Evaluate current process
 Used to determine if a process is in a state of  Continuous learning and problem  Collect procedures, data,
statistical control, or how much variation solving, e.g. kaizen, 6 sigma identify problems
exists in a process.  Quality at the source  Develop an improvement plan,
 Control charts, like run charts, are time-series  Inspection vs prevention and problem performance objectives
charts. Depending on the type of data, a solving  Do
particular type of chart is used, with a center  Employee empowerment  Implement the plan – trial basis
line and upper and lower control limit marked  Empower all employees; external and  Study
on the chart. internal customers  Collect data and evaluate against
 Important tool used in statistical process  Team approach, quality circle objectives
control  Understanding Quality Tools  Act
 The UCL and TCL are calculated limits used to  Ongoing training on analysis,  Communicate the results from
show when process is in or out of control assessment, and correction, & trial
implementation of quality tools  If successful, implement new
There are five rules for identifying special causes in
 Team Approach process
control charts:
 Teams formed around process – 8 to  Quality Function Deployment
1. A single point outside the control limits 10 people  Used to translate customer preferences
2. Eight or more consecutive points above or  Meet weekly to analyze and solve to design
below the center line problems  A tool used to translate the preferences
3. Six consecutive points increasing (trend up) or  Benchmarking of the customer into specific technical
decreasing (trend down)  Studying practices at “best in class” requirements
4. Two out of three consecutive points near a companies  QFD begins by identifying customer
control limit (outer one-third)  Managing Supplier Quality requirements coming from the
5. Fifteen consecutive points close to the center  Certifying suppliers vs receiving marketing department
line (inner one-third). inspection
 These requirements are numerically  The bottom row of the house is the ensures that they engage the same
scored, based on their importance, and output of QFD quality practices.
scores are translated into specific  These are specific, measurable  If suppliers meet quality
product characteristics. product characteristics that have standards, materials do not have
 Comparison of product is made with its been formulated from general to be inspected upon arrival.
competitors, relative to identified customer requirements
characteristics  Details of QFD Quality Awards and Standards
 Specific goals are set to address  Process used to ensure that the  Malcolm Bridge National Quality Award
identified problems product meets customer (MBNQA)
 The resulting matrix looks like picture of specifications
 Award named after the former secretary
house and is often called the “house of  House of Quality of commerce – Regan Administration
quality”.  Adding trade-offs, targets and  Intended to reward and stimulate quality
 Customer Requirements developing product specifications initiatives
 Survey customers to find out why  Seven Tools of Quality Control  Given to no more that two companies in
they specifically need our product  Tools typically taught to problem solving each of three categories; manufacturing,
 Competitive Evaluation teams service, and small business.
 How our product compares to
Reliability  Past winners: FedEx, 3M, IBM, Ritz-
those of competitors Carlton
 Evaluation scale is from one to five
 The more components a product has, the  Typical winners have scored around 700
 Higher the rating, the better points
lower its reliability
 Product Characteristics
 The failure of a certain products can be very  The Deming Prize
 Specific product characteristics
critical  ISO 9000 Certification
are on top of relationship matrix
 One way to increase product reliability is to  ISO 14000 Standards
 The Relationship Matrix
build redundancy into product design in the
 The strength of relationship TOTAL QUALITY MANAGEMENT PRINCIPLES
form of backup parts
between customer requirements
and product characteristics is  Redundancy is built into the system by placing TQM Principles
shown in the relationship matrix components in parallel
 A negative relationship means that  When one component fails, the other takes - A core definition of total quality management
as we increase the desirability of over describes a management approach to long-
one variable, we decrease the  Rs= (reliability of 1st component) + {(reliability term success through customer satisfaction. In
desirability of other of 2nd component) x (probability of needing 2nd TQM effort, all members of an organization
 A positive relationship means that component)} participate in improving processes, products,
as we increase in desirability of services, and the culture in which they work.
Process Management
one variable is related to an - Total Quality Management (TQM), also known
increase in the desirability of  A quality product comes from a quality as total productive maintenance, describes a
another process management approach to long-term success
 The Trade-Off Matrix  Quality at source through customer satisfaction. In a TQM effort,
 The roof of house is put through  The belief that it is best to uncover all members of an organization participate in
trade-off matrix the source of quality problems and improving processes, products, services and
 Shows how each product eliminate it. the culture in which they work.
characteristics is related to others  Managing Supplier Quality
 What trade-offs we need to make  The philosophy of TQM extends to - Total Quality Management (TQM) consists of
 Setting Targets concept of quality suppliers and organization-wide efforts to install and make
 permanent a climate in which an organization should be gathered before making modern Quality Management Systems, the successor to
continually improve its ability to deliver high- one. TQM.
quality products and services to customers.
While there is no widely agreed-upon  SPC (Statistical Process 1. Customer-Focused
approach, TQM efforts typically draw heavily Control)
- The customer ultimately determines the level
on the previously developed tools and  DOE, FMEA of quality. No matter what an organization
techniques of quality control. TQM enjoyed does to foster quality improvement – training
widespread attention during the late 1980s  7 Statistical Tools employees, integrating quality into the design
and early 1990s before being overshadowed process, upgrading computers or software, or
by ISO 9000, Lean manufacturing, and Six  TOPS (Team Oriented
Problem Solving) buying a new measuring tool – the customer
Sigma. determines whether the efforts were
1. Management Commitment 4. Continuous Improvement worthwhile.

o This involves management strategies o In Japanese term, it is also called 2. Employees Involvement
and implementation of quality. The KAIZEN.
- All employees participate in working toward
seek for continuous improvement is common goals. Total employee commitment
 Systematic Measurement of
rooted to management commitment. can be only be obtained after fear has been
Quality
 Plan (drive and direct) driven from the workplace, when
 Excellence Teams empowerment has occurred and management
 Do (deploy, support,  Cross Functional Process has provided the proper environment. High-
participate) performance work systems integrate
Management
continuous improvement efforts with normal
 Check (review)  Attain, maintain, improve business operations. Self-managed work
 Act (recognize, communicate, standards teams are one form of empowerment.
revise) 5. Customer Focus 3. Process-Centered
2. Employees Empowerment  Supplier Partnership - A fundamental part of TQM is a focus on
o Involving employees in the process thinking. A process is a series of steps
 Service relationship with that take inputs from suppliers (internal or
implementation of TQM will give Internal Customers
greater chances of success. external) and transforms them into outputs
that are delivered to customers (again, either
 Never Compromise Quality
 Training internal or external). The steps required to
 Customer Driven Standards carry out the process are defined and
 Suggestion Scheme performance measures are continuously
The 8 Primary Elements of TQM monitored in order to detect unexpected
 Measurement and
Recognition variation.
Total Quality Management (TQM) can be
summarized as a management system for a customer- 4. Integrated System
 Excellence Teams focused organization that involves all employees in
3. Fact Based Decision Making continual improvement. It uses strategy, data and - Although an organization may consist of many
effective communications to integrate the quality different functional specialties often
o Making decisions regarding quality discipline into the culture and activities of the organized into vertically structured
implementation is crucial to any organization. Many of these concepts are present in departments, it is the horizontal processes
organization. Factual information
 interconnecting these functions that are the competitive and more effective at meeting  Change in Corporate Culture – TQM involves
focus of TQM. stakeholder expectations. the creation of a work culture that is conducive
to quality improvement.
- Micro-processes add up to larger processes 7. Fact-Based Decision Making
and all processes aggregate into the business Benefits of TQM
processes required for defining and - In order to know how well an organization is
implementing strategy. Everyone must performing, data on performance measures  Strengthened competitive position
understand the vision, mission and guiding are necessary. TQM requires that an
organization continually collect and analyze  Adaptability to changing or emerging market
principles as well as the quality policies,
data in order to improve decision making conditions and to environmental and other
objectives and critical processes of the
accuracy, achieve consensus, and allow government regulations
organization. Business performance must be
monitored and communicated continuously. prediction based on past history.
 Higher productivity
- An integrated business systems may be 8. Communications
 Enhanced market image
modeled after the Baldrige National Quality - During times of organizational change, as well
Program criteria and/or incorporate the ISO as part of day-to-day operation, effective  Elimination of defects and waste
9000 standards. Every organization has a communications play a large part in
unique work culture and it is virtually  Reduced costs and better cost management
maintaining morale and in motivating
impossible to achieve excellence in its employees at all levels. Communications  Higher profitability
products and services unless a good quality involve strategies, methods and timeliness.
culture has been fostered.  Improved customer focus and satisfaction
Features of TQM
- Thus, integrated system connects business  increased customer loyalty and retention
improvement elements in an attempt to  Customer Oriented – TQM focuses on
continually improve and exceed the customer satisfaction through creation of  Increased job security
expectations of customers, employees and better quality products and services at lower
other stakeholders. costs.  Improved employee morale

5. Strategic and Systematic Approach  Employee Involvement and Empowerment  Enhanced shareholder and stakeholder value
– teams focus on quality improvement  Improved and innovative processes
- A critical part of the management of quality is
projects and employees are empowered to
the strategic and systematic approach to
serve customers well.  The benefits of total quality management are
achieving an organization’s vision, mission
endless, helping your organization get results.
and goals.  Organization-wide – TQM involves every
department or division. How to Implement Total Quality Management?
- This process called strategic planning or
strategic management, includes the  Continuous Improvement – Quality 1. Commitment from Employees
formulation of a strategic plan that integrates improvement is a never-ending journey.
quality as a core component. 2. Quality Improvement Culture
 Strategic Focus – quality is viewed as a
6. Continual Improvement strategic, competitive weapon. 3. Continuous Improvement in Process

- A major thrust of TQM is continual process 4. Co-operation from Employees

 Process Management – TQM adopts the
improvement. Continual improvement drives concept of prevention through process
an organization to be both analytical and 5. Focus on Customer Requirements
management.
creative in finding ways to become more 6. Effective Control shall be laid down
Strategies for TQM Approach initial recipient of the Malcolm  Adopt the new philosophy.
Baldrige National Quality Award.
 Strategy 1: The TQM Element Approach  Cease dependence on inspection to achieve
 Strategy 4: The Japanese Total Quality quality.
o The TQM element approach takes key Approach
business processes and/or  End the practice of awarding business on price
organizational units and uses the o Organizations using the Japanese alone; instead, minimize total cost by working
tools of TQM to foster improvements. total quality approach examine the with a single supplier.
This method was widely used in the detailed implementation techniques
early 1980s as companies tried to and strategies employed by Deming  Improve constantly and forever every process
implement parts of TQM as they Prize—winning companies and use for planning, production and service.
learned them. this experience to develop a long-
 Institute training on the job.
range master plan for in-house use.
o Examples of this approach include
quality circles, statistical process o This approach was used by Florida  Adopt and institute leadership.
control, Taguchi methods and quality Power and Light – among others – to  Drive out fear.
function deployment. implement TQM and to compete for
and win the Deming Prize.  Break down barriers between staff areas.
 Strategy 2: The Guru Approach
 Strategy 5: The Award Criteria Approach  Eliminate slogans, exhortations and targets for
o The guru approach uses the teachings the workforce.
and writings of one or more of the o When using this model, an
leading quality thinkers as a guide organization uses the criteria of a  Eliminate numerical quotas for the workforce
against which to determine where the quality award, for example, the and numerical goals for management.
organization has deficiencies. Then, Deming Prize, the European Quality
the organization makes appropriate Award, or the Malcolm Baldridge  Remove barriers that rob people of pride of
changes to remedy those deficiencies. National Quality Award, to identify workmanship, and eliminate the annual rating
areas for improvement. Under this or merit system.
o For example, managers might study approach, TQM implementation
Deming’s 4 points or attend the  Institute a vigorous program of education and
focuses on meeting specific award
Crosby College. They would then self-improvement for everyone.
criteria.
work on implementing the approach
learned. o Although some argue that this is not  Put everybody in the company to work
an appropriate use of award criteria, accomplishing the transformation.
 Strategy 3: The Organization Model some organizations do use this
o In this approach, individuals or teams approach and it can result in
visit organizations that have taken a improvement.
leadership role in TQM and determine Deming’s 14 Points on Quality Management
their processes and reasons for
success. They then integrate these A core concept on implementing total quality
ideas with their own ideas to develop management, is a set of management practices to help
an organizational model adapted for companies increase their quality and productivity.
their specific organization.
 Create a constancy of purpose for improving
o This method was used widely in the products and services.
late 1980s and is exemplified by the