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Factors Affecting Effective Management Of Asset Liability In Commercial Banking A Case Of Equity Bank.
Factors Affecting Effective Management Of Asset Liability In Commercial Banking: A Case Of Equity Bank.
SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE FINAL YEAR RESEARCH PROJECT OF THE BACHELOR OF COMMERCE DEGREE KCA UNIVERSITY
JUNE 2013
CHAPTER ONE
INTRODUCTION
1.0 INRTODUCTION
The research proposal focuses on establishing the factors affecting effective management of Asset Liability in commercial banking with special reference to Equity Bank. This chapter entails the background of the study, statement of the problem, research objectives, and research questions, justification of the study, significance of the study as well as the scope of the study.
1.1 Background of the Study
Asset Liability Management (ALM) is a critical function to the banks and financial institutions in present environment due to volatile global market, proliferation of new financial products and changing environment of regulatory system (Harrington, 2007). It is a dynamic and comprehensive framework that helps banks and financial institutions to measure, monitor and manage the market risk. Under this system, structure of balance sheet is managed in proper way to ensure that the net earnings from interest are maximized and risks are minimized. The ALM system has various functions to manage risks such as liquidity risk management, market risk management, trading risk management, funding and capital planning, profit planning and growth projection (Eng, 2008). It enables the banks to take business decisions in a more informed framework through considering risks. It is an integrated approach that covers both types of amounts financial assets and liabilities with the complexities of the financial market.
The banking sector still remains an important index of entrepreneurship and economic development in Kenya. The Central Bank of Kenya is given the responsibility to provide a lot of attention to harmonization of legislation regulating banking sector, to its compliance to the Kenya Banking Control directives. New regulations for capital sufficiency calculations have been approved allowing for assessing market risk taken by commercial banks and determining the need for additional capital (Crosse & George, 2000). Commercial banks focus their activities on the aim of profit maximization at the same time trying to remain liquid and ensuring security. This study is aimed at investigating how Asset liability management can be performed best in commercial banks where Equity Bank has been used to represent other commercial banks in Kenya.
Asset Liability Management (ALM) plays a critical role in weaving together the different business lines in a financial institution. Managing liquidity and the balance sheet are crucial to the existence of a financial institution and sustenance of its operations. It is also essential for seamless growth of the balance sheet in a profitable way. Currently, even large multinational financial institutions are in a deep liquidity crisis and in direct need of external intervention for survival (Bierwag, 2002). The practical importance of ALM and Liquidity Management has been somewhat underestimated. Even managements of large institutions, regulators, and observers saw how well reputed firms and trusted institutions folded up and were not able to find a way out of the deep liquidity crisis. This resulted in regulators attaching high importance to new measures needed to ensure a sound liquidity management system.
Consequently, regulators have enhanced and in some geographies, thoroughly serviced, regulatory oversight on ALM and liquidity management.
1.2 Statement of the Problem
Over the last few years, the Commercial Banking sector in Kenya has continued to grow in assets, deposits, profitability and products offering. The growth in the banking sector has experienced a boost through the provision of Asset Liability to its customers (Kannan, 1996). However, commercial banks have experienced a big challenge in managing asset liability that can cause huge losses for the businesses. To begin with, there has been a problem in commercial banks to meet governments’ policy standards on the management of asset liability. Managers do not take the responsibility to take good control of Asset liability in commercial banks.
It is a big challenge for commercial banks to disclose all their income to the government for tax purposes whereby, by disclosing they will pay taxes hence making little profits (Sinkey, 1992). In commercial banks, the market can be so small to provide asset liability which may take too long to be repaid. The banks may find themselves making losses by customers not meeting their loan demands to the banks. This is a big challenge that requires commercial banks to substitute the available funds to the unpaid liabilities. Many commercial banks have problems in managing Structural Gaps which must be critically and continuously monitored. This imposes a risk to the management of asset liability whereby gaps that must be realized and settled are not able to be established. Managing Interest Rate Sensitivity has also been a challenge to ALM managers (Flannery, 2006).
Hence this study is aimed at investigation of the factors affecting effective management of asset liability in commercial banks with special Equity Bank, Kenya.
1.3 Research Objectives
1.3.1 General Objective
The main aim of the study is to establish the factors affecting the management of Asset Liability in commercial banks with special reference to Equity Bank.
1.3.2 Specific Objectives
i. To establish the effect of Government Policy on the management of Asset Liability in commercial banking.
ii. To find out the effect of Interest Rate Sensitivity on the management of Asset Liability in commercial banking.
iii. To determine the effect of structural gaps on the management of Asset Liability in commercial banking.
1.4 Research Questions
i. To what extent does government policy affect the management of Asset Liability in commercial banking?
ii. To what extent does Interest Rate Sensitivity affect the management of Asset Liability in commercial banking?
iii. To what extent do structural gaps affect the management of Asset Liability in commercial banking?
1.5 Justification of the Study
In present scenario, ALM is important for the banking industry due to deregulation of interest regime. It helps to assess the risks and manage the risks by taking appropriate actions. For the purpose of understanding the ALM process and various strategies that are helpful for the banks to manage the market risk, the researcher seeks to investigate asset liability management practices that can be used in commercial banks. In the past studies, most of the authors widely analyze the problems of asset and liability management in their research works. However, much focus is on individual problems of commercial banks performance such as balancing profitability and risk, or portfolio optimization problems. Opinions are generalized to emphasize on harmonization of performance in commercial banks while striving to balance profitability, liquidity and security. In this study, the factors that affect effectiveness in the management of asset liability in commercial banks are areas that authors have not dealt with. This study therefore, takes the initiative to take into account and analyze asset and liability management practices for the achievement of growth in commercial banks.
1.6 Significance of the Study
1. The Management in Equity Bank
This study discusses the factors affecting the effectiveness of asset liability management in commercial banks. The research shall be of great importance to the management in Equity Bank since it advances knowledge and understanding of the key asset liability management practices that improves the performance of the organization.
This research shall also help the management to put in place or strengthen their existing practices in the management of asset liability to improve financial performance in their organizations.
2. Management in Commercial Banks
Managers in other commercial banks will benefit from this study since information provided here is not restricted to be used by only Equity bank managers. Managers and in other commercial banks within the country can use the information provided in this study to manage the asset liability as well as other financial management requirements that enable a firm to operate profitably. This will help in enabling the achievement of more competitive and better performing commercial banks in Kenya.
3. Other Researchers
Future researchers shall be able to use the information in this study to find out more on the factors affecting the effectiveness in the management of asset liability in commercial banks in Kenya and other countries. By developing this study, researchers will provide information that helps in developing the good management of asset liability for commercial banks.
1.7 Scope of the Study
The study is aimed at investigating the factors affecting the effectiveness of asset liability management in commercial banks in Kenya. The research will take Equity Bank to represent other commercial banks within the country and to expound on the role of asset liability management practices on the performance of commercial banks. The study will target all employees working at equity bank head office totaling to 185 in number. The research investigates various asset liability practices that commercial banks must use to enable good financial performance of their businesses. Some of the factors that are discussed in this study Government Policy, market interest sensitivity as well as structural gaps.
CHAPTER TWO
LITERATURE REVIEW
2.1 Introduction
The researcher will use a variety of available books and the internet to describe past studies done by different scholars on matters concerning the factors affecting the effective management of asset liability management in commercial banks. The researcher expounds specifically on how government policy, interest rate sensitivity as well as structural gaps affects the effective management of asset liability management in commercial banks.
2.2 Review of Theoretical Literature
2.2.1 Government Policy
Commercial banks have been recommended to adopt an asset liability management policy (ALM policy) that will enable them addresses limits on the maximum size of major asset liability categories, pricing loans and deposits, correlating maturities and terms, controlling interest rate risk and establishing interest rate risk measurement techniques, controlling foreign currency risk, controlling the use of derivatives, requiring management analysis and expert consultation for derivative transactions, frequency and content for board reporting (Jain, 1996). The purpose of adopting an ALM policy by commercial banks will assist the credit union to manage risk and to comply with the Standards in the policy. When complying with the ALM policy, it must not conflict with requirements prescribed by the Act and Regulations, and any relevant interpretive bulletins or guidelines issued by the government body.
It is optimal for key regulatory requirements to be repeated in ALM policy, for greater user clarity and ease of reference. Section 78(1) of the Regulation 76/95 also requires commercial banks to establish ALM policies and procedures. When establishing ALM policies and procedures, management and the board should ensure they meet regulations requirements (Hampel, 1998). Over the last few years the Kenyan financial markets have witnessed wide ranging changes at fast pace. Intense competition for business involving both the assets and liabilities, together with increasing volatility in the domestic interest rates as well as foreign exchange rates, has brought pressure on the management of banks to maintain a good balance among spreads, profitability and long term viability. These pressures call for structured and comprehensive measures and not just ad hoc action.
Cates (2008) argues that, the Management of banks has to base their business decisions on a dynamic and integrated risk management system and process, driven by corporate strategy. Banks are exposed to several major risks in the course of their business; this include credit risk, interest rate risk, foreign exchange risk, equity / commodity price risk, liquidity risk and operational risks. It is evident that interest rate and liquidity risks in banks form part of the Asset-Liability Management (ALM) function. ALM organization involves structure and responsibilities as well as the level of top management involvement (Gup, 1997). The ALM process involves Risk parameters, Risk identification and Risk measurement, Risk management, Risk policies and tolerance levels. Information is the key to the ALM process.
Considering the large network of branches and the lack of an adequate system to collect information required for ALM which analyses information on the basis of residual maturity and behavioral pattern it will take time for banks in the present state to get the requisite information. The problem of ALM needs to be addressed by following an ABC approach, that is analyzing the behavior of asset and liability products in the top branches accounting for significant business and then making rational assumptions about the way in which assets and liabilities would behave in other branches (Kaufmann, 2004). In respect of foreign exchange, investment portfolio and money market operations, in view of the centralized nature of the functions, it would be much easier to collect reliable information. The data and assumptions can then be refined over time as the bank management gain experience of conducting business within an ALM framework. The spread of computerization will also help banks in accessing data.
Asset liability organization requires the board to have overall responsibility for management of risks and should decide the risk management policy of the bank and set limits for liquidity, interest rate, and foreign exchange and equity price risks. The Asset Liability Committee (ALCO) consisting of the bank’s senior management including CEO should be responsible for ensuring adherence to the limits set by the Board (Simonson & George, 2002). They are also responsible for deciding the business strategy of the bank on the assets and liabilities sides in line with the bank’s budget and decided risk management objectives. The ALM desk consisting of operating staff should be responsible for analyzing, monitoring and reporting the risk profiles to the ALCO.
The staff should also prepare forecasts or simulations showing the effects of various possible changes in market conditions related to the balance sheet and recommend the action needed to adhere to bank’s internal limits. The ALCO is a decision making unit responsible for balance sheet planning from risk return perspective including the strategic management of interest rate and liquidity risks (Murply, 2006). Each bank will have to decide on the role of its ALCO, its responsibility as also the decisions to be taken by it. The business and risk management strategy of the bank should ensure that the bank operates within the limits / parameters set by the Board. The business issues that an ALCO would consider, first, will include product pricing for both deposits and advances, desired maturity profile of the incremental assets and liabilities among others. In addition to monitoring the risk levels of the bank, the ALCO should review the results of and progress in implementation of the decisions made in the previous meetings. The ALCO would also articulate the current interest rate view of the bank and base its decisions for future business strategy on this view (Mishkm, 1995).
2.2.2 Interest Rate Sensitivity
In asset liability management, there is need to differentiate sensitive and non sensitive liabilities. Liabilities such as Capital, Reserves and Surplus, Current Deposits, Savings Bank Deposits Sensitive to the extent of interest paying are non sensitive liabilities. The non-interest paying portion may be shown in non-sensitive area. Term Deposits and Certificates of Deposit and re-prices on maturity are sensitive. The amounts should be distributed to different areas on the basis of remaining maturity (Yeager & Neil, 2009).
However, in case of floating term deposits, the amounts may be shown under the time area when deposits contractually become due for re-pricing. Liabilities such as borrowings are fixed Sensitive and re-prices on maturity. The amounts should be distributed to different areas on the basis of remaining maturity (Crosse & George, 2000). Borrowings are floating sensitive and re-prices when interest rate is reset. The amounts should be distributed to the appropriate bucket which refers to the repricing date. For borrowings that are Zero Coupon Sensitive and reprices on maturity. The amounts should be distributed to the respective maturity buckets. Regarding the level of interest rate risk acceptable to the bank the board should also approve policies that identify lines of authority and responsibility for managing interest rate risk exposures (Harrington, 2007). The board should get regular information about the interest rate risk exposure of the bank and periodically review the performance of senior management in monitoring and controlling these risks in compliance with the approved policies.
In addition, the board or one of its committees should periodically re-evaluate significant interest rate risk management policies as well as overall business strategies that affect the interest rate risk exposure of the bank. Senior management must ensure that the structure of the bank’s business and the level of interest rate risk it assumes are effectively managed, that appropriate policies and procedures are established to control and limit these risks on both a long-term and day-to-day basis, and that resources are available for evaluating and controlling interest rate risk (Sinkey, 1992). Asset Liability Management is also responsible for maintaining appropriate limits on risk taking, adequate systems and standards for measuring risk, standards for valuing positions and measuring performance, a comprehensive interest rate risk reporting and interest rate risk management review process as well as effective internal controls. Rate sensitive assets (RSA) are any loans or investments that can be repriced either up or down in interest rate within a given time frame (Bierwag, 2002). The following represent some examples of assets that would be considered rate sensitive: Federal Funds sold, Securities purchased under agreement to resell, All loans maturing within a given time frame, All securities maturing within a given time frame, Principal payments on all securities that are to be received using current prepayment, speed assumptions, Principal payments on all loans that are to be received including the impact of expected prepayments if deemed to be significant, All loans with floating interest rates, and when the floating rate can change with respect to caps and floors as well as the repricing characteristics of the underlying index, All securities with floating interest rates, and when the floating rate can change with respect to caps and floors as well as the repricing characteristics of the underlying index (Simonson & George, 2002).
Special attention shall be paid to any assets having embedded options like calls, prepayments, repricing, among others. For better management of asset liability, it is important to define lines of responsibility and accountability for both individuals and committees over interest rate risk management decisions (Kannan, 1996). There is need for defining authorized instruments, hedging strategies and position taking opportunities. Identifying quantitative parameters that define the level of interest rate risk acceptable for the bank, is also necessary for certain types of instruments, portfolios, and activities.
Ensure that there is adequate separation of duties in key elements of the risk management process to avoid potential conflicts of interest such as the development and enforcement of policies and procedures, the reporting of risks to senior management, and the conduct of back-office functions (Flannery, 2006). All interest rate risk policies should be reviewed periodically and revised as needed. The management should define the specific procedures and approvals necessary for exceptions to policies, limits and authorizations. Banks should identify the interest rate risks inherent in new products and activities and ensure these are subject to adequate procedures and controls before being introduced or undertaken. Major hedging or risk management initiatives should be approved in advance by the board or its appropriate delegated committee (Eng, 2008). Banks should have interest rate risk measurement systems that capture all material sources of interest rate risk including re-pricing; yield curve, basis and option risk exposures and that assess the effect of interest rate changes in ways that are consistent with the scope of their activities.
As noted by Hampel (1998), interest rate sensitive liabilities in each time band are subtracted from the corresponding interest rate sensitive assets to produce a repricing “gap” for that time band. This gap can be multiplied by an assumed change in interest rates to yield an approximation of the change in net interest income that would result from such an interest rate movement. The size of the interest rate movement used in the analysis can be based on a variety of factors, including historical experience, simulation of potential future interest rate movements, and the judgment of bank management. A negative, or liability-sensitive, gap occurs when liabilities exceed assets including off balance sheet positions in a given time band (Cates, 2008).
This means that an increase in market interest rates could cause a decline in net interest income. Conversely, a positive or asset-sensitive gap implies that the bank’s net interest income could decline as a result of a decrease in the level of interest rates.
2.2.3 Structural Gaps
In a commercial bank with a mature ALM function, this is arguably the most critically and continuously monitored aspect, since the ALM Managers seek to manage the structural gaps in the Balance Sheet. While liquidity management focuses typically on short-term time ladders, the structural gap management shifts the focus on time ladders more than a year (Kaufmann, 2004). This aspect of ALM stresses the importance of balancing maturities as well as cash flows on either side of balance sheet. It strategizes dynamically on balancing the gaps, issuing timely guidelines to adjust focus on ‘right’ product types and tenors, and actively involve ALCO in this process. In a static gap the ALM function takes into consideration assets maturing in short, medium and long time ladders and seeks to balance it in comparison with liabilities maturing across short, medium and long term ladders.
The gaps reports typically point to funding gaps and excess funds at different points in time. The challenge with the ALM function is that the gaps are dynamically evolving and need continuous monitoring as the balance sheet changes every day. Duration is considered as a measure of interest rate sensitivity (Jain, 1996). Macaulay’s duration is traditionally accepted as a good measure of ‘length’ of portfolio or a measure of center of gravity of discounted cash-flows over life of an asset (or liability).
It’s common practice to measure duration of portfolio for different product types as well as on an overall portfolio level. It’s useful to simulate how duration of portfolio will be affected by future events. For a dynamic gap it is normal practice to rely on dynamic gap reports to simulate future gap positions for assumed business volumes and exercise of options such as prepayments. In addition to proposed new volumes, prepayment transactions and assumed deposit roll-overs, the ALM manager would like to include a proposed hedge transaction (Murply, 2006). ALM practitioners prefer to focus on the ratio of assets and liabilities exceeding one year and often want to set acceptable limits around this. Where there are operative limits, the ALCO meetings will usually monitor the ratio, and the institution constantly endeavors. Asset liability management in commercial banks is improved by controlling and maintaining structural gaps that may be experienced.
To manage these gaps commercial banks gap and interest rate exposure is compiled and reviewed on a separate basis. The GAP reports will be used to measure risk to net interest income arising from the repricing of assets and liabilities over time. Funds gap or gap is positive when the peso amount of sensitive assets exceeds that of sensitive liabilities. The gap is negative if sensitive liabilities exceed sensitive assets (Yeager & Neil, 2009). When sensitive assets are equal to sensitive liabilities, there is a zero fund gap. With a positive gap, the interest margin would increase if short-term rates rose and decrease if short-term interest rates fell. With a negative gap, the interest margin would decline if short-term rates rose and increase if short-term rates fell.
If there is zero gap, interest margin will be stable or will not change regardless of the rise or fall of short-term rates. The first strategy is to accept fluctuation in interest margin and do nothing about it. The second strategy is to manage the funds gap over the rate cycle. If management expects a fall in short-term interest rate and there is a positive gap, it should widen the gap or increase rate sensitive assets (Mishkm, 1998). If management expects a rise in short-term interest rate and there is a negative gap, it should narrow the gap or increase rate sensitive assets. The third strategy is for the bank management is to decide not to take interest rate risk by seeking a zero gap position. The fourth strategy is for the management to use artificial hedges where financial futures to cover the loss that might result from the rise or fall of short term interest rate. When short term interest rises, Zero fund gap or perfect match and positive gap or where more rate sensitive assets (RSA) are financed by Fixed Rate Liabilities (FRL) (Cates, 2008).
For a negative gap or where more Fixed Rate Assets (FRA) exists, they are financed by Rate Sensitive Liabilities (RSL). The interest margin performance of individual banks varies during such cyclical periods. These differences in interest margin performance appear to be explained primarily by endogenous factors such as the nature of the bank’s assets and liabilities and the reaction of the bank to expected exogenous factors (Sinkey, 1992). In the typical funds gap management system, management is asked to classify all items in each side of the bank’s balance sheet into groups of items whose cash flows are sensitive and those whose cash flows are insensitive to changes in short term interest rates.
Thus, an asset or liability is identified as sensitive if cash flows from the asset liability change in the same direction and general magnitude as the change in short-term rates. The cash flows of insensitive or non sensitive assets liabilities do not change within the relevant time period. Funds gap is negative if sensitive liabilities exceed sensitive assets (Bierwag, 2002). When sensitive assets are equal to sensitive liabilities, there is a zero fund gap. With a positive gap, the interest margin would increase if short-term rates rose and decrease if short-term rates fell. With a negative gap, the interest margin would decline if short-term rates rose and increase if short-term rates fell. If there is zero gap, interest margin will be stable or will not change regardless of the movement of short-term rates. If management expects interest rates to fall and there is a positive gap, it should widen the funds gap or increase rate-sensitive assets. On the other hand, management should narrow the banks funds gap or increase rate sensitive assets if interest rates are expected to rise and there is a negative gap. If used effectively, such gap management decisions should lead to higher returns.
According to Harrington (2007), commercial banks that follow a positive strategy in asset liability management should pay considerably more attention to comparative weight of the volume of assets with flexible interest rate than to equilibrium of liabilities with flexible interest rate. Positive gap is understood as situation when the share of income-earning assets with fixed interest rate will be less than the share of liabilities with fixed interest rate in total volume of interest generating liabilities of the bank. As the result, bank total returns received on the credits will decrease (Kannan, 1996).
However, because of existing positive gap between assets and liabilities the total income of the bank will be subject to changes to larger extent than costs. The bank’s profit decreases correspondingly. If along with the drop of interest rate in the market the present value of assets increases, the present value of liabilities with fixed interest rate also increases. Although the bank follows the positive strategy in asset and liability management, net return of the bank decreases.
2.3 Review of Critical Literature
The ALM core function consists of managing maturity gaps and mismatches while managing interest rate risk within the overall mandate prescribed by ALCO. This study did not provide any information on the core action that the asset liability management must take to ensure good management of asset liability. A financial institution typically relies on certain measures to evaluate and manage interest rate sensitivities. This research did not focus on how to deal with Interest Rate Sensitivity Gap Reports where the ALM function seeks to monitor interest rate sensitivity by generating so-called interest rate sensitive gap reports. The research did not discuss the function of interest rate gap reports which provide a cash flow laddering based on re-pricing profile and frequency of interest rate sensitive assets and liabilities. Commercial banks attach much importance to assessing the impact of interest rate changes, new business, change in product-mix and roll-over of deposits on net interest income. Income statements that allow for comparison of net interest income under different scenarios are immensely helpful in understanding the impact of mild market movements and shocks on the income statement as well as balance sheet.
The study has not established the ALM functions whether it seeks to generate daily gaps on short-term ladders and ensures that cumulative gaps operate within pre-set limits.
2.4 Summary
This study has established the building blocks of an ALM solution from all perspectives while observing those aspects that the institution must address functionally as part of their ALM solution. Proper asset and liability management allows for achievement of banking harmony in the bank’s performance. This means that the balance in combining its striving for maximization of the profit at the same time ensuring its liquidity with the least risk. Whatever strategy is used in managing asset liability in commercial banks in its performance, it shows that it is able to follow contemporary systemic approach in asset and liability management, what has direct impact not only on the bank’s performance, but also the profit.
2.5 Conceptual Framework
Independent V
Family Finances
Family Finances
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Institutional Affiliation:
Abstract
Finances are one of the most challenging issues in any family, and this article focuses on some of the ways to deal with money fights within the family. According to the author, some reasons why families get into money fights include increased spending or parents fighting on whether to help an adult child financially. Issues to do with money tend to make people very angry, given that a person’s money habits often run deep. Money can also influence other areas of a person’s life, including love and control of other people. The article offers some tactics on how to address a situation involving money fights within the family. These are meeting in a neutral place, focusing on one topic, hiring a professional to help hash out issues, active listening, maintaining respect for each other, and agreeing to disagree on some issues. People can choose two different strategies when it comes to conversations with family members regarding finances. The article explains some of the best ways to tackle to the topic of finances by consulting elderly parents, adult children, new partners, siblings, and spouses. The participants expressed different ideas on how they preferred to deal with money issues, with some expressing preference for a tough-love stance and others taking the fuzzier approach. The main findings of the article are that every family has money fights, and it is crucial to come up with a strategy on how to deal with finances within the family. Different families take different approaches, but it is essential to address such issues while maintaining respect for each other. One of the best ways is to hire a professional who can help family members come up with a plan on how to manage their finances and find common ground with other members of their family.
References
Stanger, T. (2017, April 06) “Solving Family Money Fights.” Consumer Digest. Retrieved from https://www.consumerreports.org/personal-finance/solving-family-money-fights/
Factors Affecting Chinese Consumers On Purchase Of Jewellery in Afghanistan
Factors Affecting Chinese Consumers On Purchase Of Jewellery in Afghanistan?
1.0 Chapter 11.1 BackgroundThe global jewellery goods market has increased considerable over the last twenty year. Today, it is estimated to be worth $20 billion. In spite of operating within a comparatively stable business environment for decades, jewellery goods firms have faced recent challenges from external forces (Yeoman and McMahon-Beattie, 2006). The industry is faced by globalisation, intense competition, increased consumer sophistication and maturity in markets (Djelic and Ainamo, (1999). For example, Nueno and Quelch (1998) found that sales volume in luxury brands decline by 3% averagely each year from 1990 to 1993. The recent global financial crisis as well affected the luxury goods market. LVMH an American luxury firm reported that its sales dropped by 4% in the US market and by 5% in Japanese market in 2008.
The increased external pressure is forcing jewellery and other luxury companies to transform themselves from family-owned and private companies to public companies, while at the same time they try to exploit international markets (Bhat and Reddy, 1998). Foxall (2005) observes that China as an emerging market offer big opportunity for jewellery goods companies.
As noted by Agarwal and Wu (2004) China is the biggest emerging market and boosts of a fast growing economy. With high economic growth of China, there is increase in personal income, which is resulting in a new segment of wealthy individuals referred to as China’s “new rich” (Wu, 1997). This point is further echoed by Blackwell et al (2001) who notes that increasing number of rich individuals in China has meant that more people are able to reside in affluent neighbourhoods and buy luxury products. a report carried by Ernst and Young (2005) indicated that China was the third biggest consumer of premium fashions and luxury products, and Chinese market is projected to account for 30% of entire global luxury goods sales by 2015.
Several luxury goods firms including those dealing specifically in jewellery have set up shop in China to exploit China’s vibrant economy and the emerging rich consumer group who is in love with and can afford jewellery goods. Gucci, Bally and Lois Vuitton are some of the luxury that have already set shop in China, and have operated for over ten years. Indeed, as early as 2004, Ermenegildo Zegna had 40 stores in more than 20 Chinese cities, and China is its fourth-biggest market. Armani had 30 stores by 2006, and Prada was not left behind as it has 10 stores as at 2006 (Wiedmann el al, 2007). All these luxury goods firms plan to put more efforts in their businesses to increase their sales. Nonetheless, not all luxury goods companies that enter Chinese market succeed, some are only able to record minimal profits, while others struggle to survive within the market (Yeoman and McMahon-Beattie, 2006).
Table of Contents
TOC o “1-3” h z u HYPERLINK l “_Toc367043269” 1.0 Chapter 1 PAGEREF _Toc367043269 h 4
HYPERLINK l “_Toc367043270” 1.1 Background PAGEREF _Toc367043270 h 4
HYPERLINK l “_Toc367043271” 1.2 Research Aim and Objectives PAGEREF _Toc367043271 h 7
HYPERLINK l “_Toc367043272” 1.3 Research justification PAGEREF _Toc367043272 h 8
HYPERLINK l “_Toc367043273” 1.4 Structure of the thesis PAGEREF _Toc367043273 h 8
HYPERLINK l “_Toc367043274” 2.0 Literature Review PAGEREF _Toc367043274 h 10
HYPERLINK l “_Toc367043275” 2.1 Introduction PAGEREF _Toc367043275 h 10
HYPERLINK l “_Toc367043276” 2.2 The meaning of jewellery products PAGEREF _Toc367043276 h 10
HYPERLINK l “_Toc367043277” 2.3 What does luxury goods entail? PAGEREF _Toc367043277 h 11
HYPERLINK l “_Toc367043278” 2.4 Outlook of Chinese jewellery market PAGEREF _Toc367043278 h 12
HYPERLINK l “_Toc367043279” 2.5 Consumption of jewellery as a luxurious product PAGEREF _Toc367043279 h 13
HYPERLINK l “_Toc367043280” 2.6 Jewellery goods consumption in Chinese market PAGEREF _Toc367043280 h 16
HYPERLINK l “_Toc367043281” 2.7 Cultural orientation and jewellery products consumption PAGEREF _Toc367043281 h 19
HYPERLINK l “_Toc367043282” 2.8 Theory of planned behaviour PAGEREF _Toc367043282 h 24
HYPERLINK l “_Toc367043283” 2.8.1 Application of planned behaviour to Chinese buying behaviour of jewellery PAGEREF _Toc367043283 h 26
HYPERLINK l “_Toc367043284” 2.9 Summary of the chapter PAGEREF _Toc367043284 h 28
HYPERLINK l “_Toc367043285” 3.0 Chapter 3 PAGEREF _Toc367043285 h 31
HYPERLINK l “_Toc367043286” Methodology PAGEREF _Toc367043286 h 31
HYPERLINK l “_Toc367043287” 3.1 Introduction PAGEREF _Toc367043287 h 31
HYPERLINK l “_Toc367043288” 3.2 Research Designs PAGEREF _Toc367043288 h 31
HYPERLINK l “_Toc367043289” 3.3 Data collection PAGEREF _Toc367043289 h 32
HYPERLINK l “_Toc367043290” 3.3.1 Secondary data method PAGEREF _Toc367043290 h 32
HYPERLINK l “_Toc367043291” 3.3.2 Primary data PAGEREF _Toc367043291 h 32
HYPERLINK l “_Toc367043292” 3.4 Data collection methods PAGEREF _Toc367043292 h 33
HYPERLINK l “_Toc367043293” 3.4.1 Interview PAGEREF _Toc367043293 h 33
HYPERLINK l “_Toc367043294” 3.2.2 Questionnaire PAGEREF _Toc367043294 h 34
HYPERLINK l “_Toc367043295” 3.5 Sampling strategy PAGEREF _Toc367043295 h 35
HYPERLINK l “_Toc367043296” 3.6 Viability and Reliability PAGEREF _Toc367043296 h 35
HYPERLINK l “_Toc367043297” 3.7 Data analysis PAGEREF _Toc367043297 h 36
HYPERLINK l “_Toc367043298” Chapter 4: PAGEREF _Toc367043298 h 37
HYPERLINK l “_Toc367043299” Investigation: Results and analysis of results PAGEREF _Toc367043299 h 37
HYPERLINK l “_Toc367043300” 4.1 Demographic aspects of the respondents PAGEREF _Toc367043300 h 37
HYPERLINK l “_Toc367043301” 4.2 Dimensions of satisfaction PAGEREF _Toc367043301 h 41
HYPERLINK l “_Toc367043302” 4.2.1 Store Type and Location PAGEREF _Toc367043302 h 41
HYPERLINK l “_Toc367043303” 4.2.2 Other variable Correlations PAGEREF _Toc367043303 h 43
HYPERLINK l “_Toc367043304” 4.2.3 Product Aspects of Jewellery PAGEREF _Toc367043304 h 45
HYPERLINK l “_Toc367043305” 4.2.4 Product characteristics PAGEREF _Toc367043305 h 46
HYPERLINK l “_Toc367043306” 4.2.5 Value created-including PAGEREF _Toc367043306 h 47
HYPERLINK l “_Toc367043307” 4.3 Findings from interview from the 20 managers PAGEREF _Toc367043307 h 48
HYPERLINK l “_Toc367043308” Chapter 5: PAGEREF _Toc367043308 h 50
HYPERLINK l “_Toc367043309” 5.1 Conclusion PAGEREF _Toc367043309 h 50
HYPERLINK l “_Toc367043310” Chapter 6: PAGEREF _Toc367043310 h 52
HYPERLINK l “_Toc367043311” 6.1 Recommendations PAGEREF _Toc367043311 h 52
HYPERLINK l “_Toc367043312” Appendix PAGEREF _Toc367043312 h 54
HYPERLINK l “_Toc367043313” Questionnaire PAGEREF _Toc367043313 h 54
HYPERLINK l “_Toc367043314” Reference PAGEREF _Toc367043314 h 64
though China’s rapid economic growth with definitely continue to offer considerable opportunities for luxury goods companies and particularly those dealing in jewellery, cultural differences, changing consumer behaviour and differences in Chinese consumer markets presents major challenges for these firms operating in China. Tse (1996) notes that the buying of jewellery goods by Chinese consumers could be driven by factors that differ from those in their home markets such as the US and European markets.
According to Tse (1996) present studies on consumption strongly show western culture and stress on individualistic objectives and that in a collectivist culture such as China, the consumer behaviour and motivations for buying luxury products maybe remarkably different with those observed in individualistic culture. However, Wiedmann et al (2007) disagree with this argument and states that consumer behaviour concerning luxuries products like jewellery is “culture independent”, therefore, does not differ across cultures. Yet again, behaviour is guided by attitudes, which are arise from values and therefore related to culture (Triandis, 1995). Attitudes are influenced by beliefs; consequently, consumers with different beliefs regarding buying goods may use different processes in searching for product information and in making buying decisions, this will certainly result in different consumer behaviour. As noted by Wong & Ahuvia (1998) though same products maybe available in Asian and Western markets, consumers from these two different cultures may have different reasons for buying same products. Wong and Ahuvia (1998) add that culture can affect consumer’s perceived motivations, values and even beliefs regarding goods, including jewellery. Phau and Prendergast (2000) points out that empirical research reveals that consumer in collectivist societies have different perceptions and attitudes towards jewellery and other luxury products than those of individualistic cultures.
Another important aspect that jewellery goods firms have to take into account is the diversity existing in Chinese consumer market. Cui & Liu (2000) states that though in general Chinese consumers are experiencing raise in their income and show increased demand for luxuries products, patterns of buying jewellery goods differ significantly within these consumers. Indeed, Triandis (1995) explains that people in each society whether collectivist or individualistic, differ in their personal cultural orientation. More so, the cultural orientation of collectivist and individualistic could either be horizontal or vertical. Different cultural orientations observed among Chinese consumers could result in different beliefs about buying jewellery goods and therefore different buying patters. To be successful in Chinese markets, jewellery goods firms ought to understand the different cultural orientation of their target consumers to formulate responsive marketing strategies.
Information and data on jewellery goods available in past literature is very limited (Vickers and Renald, 2003; Beverland, 2004). Though China is a significant market for jewellery goods, research is limited on the Chinese jewellery goods market as well as on Chinese consumer behaviour in relation to jewellery goods. According to Xiao (2005) this can be attributed to two main factors. First, players in the jewellery goods industry hold that “the golden principle for success in the jewellery market is to remain stylish, reliable and effective, and instead of asking what customers want, you should tell them what they ought to have”. Indeed, few firms in the jewellery goods industry frequently examine developments that occur within the market place for jewellery products (Xiao, 2005). Secondly, jewellery goods firms only lately made a mark in Chinese market and other emerging markets; this explains the limited applicable and consistent data exist on consumers of jewellery products in these markets. As observed by Crane (1997) research is needed for formulating an analytical system to promote scholars’ knowledge of buying behaviour relating to jewellery goods in Chinese market, and to assist players formulate marketing strategies appropriate for this market. The necessity for such kind of research has motivated the present research to investigate the factors affecting Chinese consumers to buy jewellery.
1.2 Research Aim and ObjectivesThe main aim of this research is to determine the factors that influence Chinese consumers to buy jewellery. Accordingly, the specific objectives set for this research are:
To investigate the Chinese consumers behaviour in regard to cultural orientation
To establish the main factors that determines Chinese consumers’ intention to buy jewellery as luxury products by applying the Planned Behaviour theory.
Determine behaviour dimensions that influence Chinese consumers to purchase jewellery
1.3 Research justificationIt’s generally accepted that China as a market provides significant long-term opportunities for jewellery goods firms; however, lack of awareness with the market situation may hamper these firms’ ability to exploit the opportunity that exists. Being able to understand consumer behaviour relating to jewellery goods is necessary for various business activities including product development, promotion activities, branding strategies and customer relations. Manufactures, designers, and even retailers in the jewellery goods industry have to know and understand the consumer behaviour of these products so as to gain from the market opportunities. This calls for proactive analysis of the buying behaviour of Chinese consumers to produce results with relevant implications for firms currently operating or those planning to open their operations in Chinese market.
It’s against this background that the findings of the current research offer valuable and significant information for players with jewellery goods industry. The research documents the setting and potential of the jewellery goods in Chinese market. More so, the results offer in-depth into consumer behaviour relating to jewellery products.
1.4 Structure of the thesis
The thesis is arranged in five chapters as outlined below
Chapter 1: Introduction: this chapter provides the background information of the research, aim and objectives and research rationale
Chapter 2: the literature review: gives a review of the past literature on luxury goods and market with special attention on jewellery market, a review of Chinese cultural orientation and who it influences consumer behaviour, and theory of planned behaviour.
Chapter 3: methodology: this chapter underlines research design, data collection methodology, sampling, questionnaire formulation and data analysis.
Chapter 4: data analysis: This chapter gives details of data analysis and presents interrelates data.
Chapter 5: Conclusions, Recommendations: this chapter revisits research questions, summarises the research findings and offers conclusion, and recommendation based on the research findings. It also will provide direction on future research work.
2.0 Literature Review2.1 IntroductionThis chapter will reviews past studies on the current topic to determine academic basis to apply when formulating the theory to be used. The first aspect to examine will be defining jewellery products, before reviewing the meaning of luxury products in general. This will be followed by examining the general outlook of the industry as well as the consumer behaviour. In addition, the review will examine Consumption of jewellery as a luxurious product, Jewellery goods consumption in Chinese market, Cultural orientation and jewellery products consumption and lastly examine Theory of planned behaviour in relation to consumption of jewellery.
2.2 The meaning of jewellery products
The online dictionary defines jewellery as “articles of gold, silver, precious stones, etc., for personal adornment,” or “any ornaments for personal adornment, as necklaces or cuff links, including those of base metals, glass, plastic, or the like” HYPERLINK “http://dictionary.reference.com”http://dictionary.reference.com Similarly McCreight (1997) defines jewellery as all forms of decorative items worn by men and women. He adds that jewellery is normally made with precious stones and gems like gold, diamond and silver (McCreight, 1997). Nonetheless, they can be made from other materials including bones, iron, plastic and stones. According to McCreight (1997) people have fashioned jewellery from metal, and the main metal they have used is nickel, which can be used in costume jewellery for example buttons.
Jewellery has been around for many centuries (McCreight, 1997). In ancient years, jewellery was usually worn by only those in the upper social class as away of showing their status. During that time, jewellery was made for practical uses and not for decoration as the case right now. Presently, all sort of jewellery has been made to be worn on virtually every part of the body including the toes, fingers, tongue, stomach and many others (Tait, 1986).
Tait (1986) explains that there are a number of rules that have to be followed when buying jewellery, be it diamond or gold. Each occasion have its type of jewellery. For example, McCreight (1997) explains that while a person can buy unconventional deigns and styles of jewellery for official occasion, the same person will buy different jewellery for weddings, which will normally require diamonds, gold and other precious stones. In general, the size, quality and type of the precious stone will determine the price of the jewellery. Certainly diamond jewellery is some of the most expensive. However, the price of jewellery usually includes the uniqueness of the gemstone. Recent studies show that the biggest jewellery market is the United States (KPMG India, 2007).
2.3 What does luxury goods entail?Jewellery is grouped under luxury goods and it’s important to explain luxury goods. According to Dubois, Czellar and Laurent (2005) luxury products such as jewellery, expensive watches and bags have a common attributes, they are expensive, high quality, exclusive, desirable and inaccessible. On their part, Riley, et al (2005) this kind of differentiation features offers clues to identify luxury goods; Riley, et al (2005) have defined luxury goods as having a target a niche market with exclusive distribution, unlike mass products that target the entire market. When people buy luxury goods such as jewellery, they are mainly influenced by status and prestige of the brand name. This is different with mass products, where consumers look for functionality and price (Riley, et al 2005). This kind of differentiation features offers clues to identify luxury goods; however, this cannot be the only way of identifying luxury goods since the values that are based on their intrinsic attributes keep changing with time (Djelic and Ainamo, 1999). We have defined luxury goods because some of the concepts and theories under review cover luxury goods in general, but are applicable to jewellery goods.
Most jewellery are associated with luxury, this implies that many people consume jewellery as a luxury product. Accordingly it’s important to define luxury jewellery. According to Dubois, Czellar and Laurent (2005) luxury jewellery have certain attributes; these attributes include expensive, high quality, exclusive, desirable and inaccessible. As it can be noted these qualities are same to those of other luxury products. This dissertation will mainly examine consumption of luxury jewellery, such as articles and ornaments made from diamonds, gold, silver, precious stones.
2.4 Outlook of Chinese jewellery marketSince ancient times, jewellery consumption has been a critical social practice in many societies across the world (Barry, 1994). According to Djeclic and Ainamo (1999) the jewellery goods industry has experienced great transformation particularly over the last few years.
Since the 1970s, China has been undergoing rapid economic growth and has emerged as a leading market of jewellery products (Agarwal and Wu, 2004). The robust Chinese economic means that more people are getting richer, indeed, Thomas (2007) points out that by 2006 millionaires in China had reached 300. This increasing number of wealthy Chinese is starting to embrace high cost jewellery products. In addition, those Chinese that can buy jewellery is increasing, Ernst and Young (2005) projects that Chinese jewellery market could reach 29% of total global sales by 2015. The number of Chinese travelling across the world has increased tremendous and account for nearly 80% of the jewellery purchases made by Chinese in foreign countries (Okonkwo, 2007).
According to a market research by Business wire, Chinese jewellery industry in 2012 suffered slightly because of the European debt crisis, this saw a decline in demand in Chinese jewellery market. Still, in 2012 Chinese jewellery market increased by 19% in 2012, though this was lower compared to 40.7% increase in 2011 (Business Wire, 2013). In 2012, decline was witnessed in gold, diamond and sliver jewellery sales. Data carried by Business wire (2013) indicate that gold jewellery consumption in Chinese market represents nearly 50% of the net jewellery sales. In 2012, 502.5 tones of gold jewellery were consumed in Chinese market. Chinese consumer prefer pure gold and solid gold (Business Wire, 2013). Agarwal and Wu, 2004
Diamond jewellery as well account for a big percentage of Chinese jewellery market. The report indicates that the biggest market share in diamond segment is the wedding market that accounted for 70% of net diamond jewellery sales. Most of the diamond jewellery is imported to the country since China does not have diamond deposits. But, the volume sold in 2012 declined by 6.36%. Presently the major Chinese diamond markets are Beijing, Shanghai, and Guangzhou among other big cities (Business Wire, 2013).
The Hong Kong and other foreign brands into Chinese jewellery market have increased the level of competition within the industry. Retailers are competing based on brand names, design styles and sales distribution channels. Some jewellery firms are applying expansion strategies to control terminal sales channels tightly, and thereafter take control of the sales initiative as a strategy of getting higher sales and surviving the competitive market.
2.5 Consumption of jewellery as a luxurious product
Consumer behaviour concerning jewellery goods, which as stated before is a luxury good therefore results from various motivation for example, three forms of interpersonal impacts on jewellery consumption, which are “Veblen effect”, “snob effect” and “bandwagon effect” Veblen effect, means that a certain luxury product is bought because of its high pricing (gives exclusivity feeling to own it). Snob effect is the preference of products because of their uniqueness from other products. Lastly, bandwagon effect is where a preference for a certain product increases because more people are purchasing it. When these three effects interact they either increase or reduce demand for jewellery products. For example, if the Veblen effect is high (the jewellery is highly exclusive) then the demand will be high, but if it declines, the product will loss its exclusiveness and its demand will fall. Vigneron and Johnson (2004, 67). Other motivation comes from the following effects, personal, the hedonic and perfectionism. Accordingly, Vigneron and Johnson (2004) asserts that consumers may think that they can get five values by buying jewellery, these values include conspicuous values, unique value, social values, hedonic values and quality value, all these value is perceived. Hedonic value is the beauty that one derives from the luxury product, while the quality value is the perceived superiority of the product. These two values combine to make the product worth owning. The first three values conspicuous values, unique value, social values interact together to create a visible but unique product that rises owns social status. The second objective of this research is to establish the main factors that determine Chinese consumers’ intention to buy luxury jewellery products. In this lies the inevitability to review the values of purchasing luxury goods and by extension jewellery goods.
Vigneron and Johnson (2004) explains that perceived conspicuous value of luxury products in this case jewellery is the idea that the purchasing of jewellery is seen as symbol of status and wealth, and high prices enhances the conspicuous value and the status of wealth. Social status that is associated with jewellery goods s an essential aspect in conspicuous consumption.
According Vigneron and Johnson (2004) to this value entails the notion that consumers buy luxury goods, in this case jewellery to show uniqueness with the aim of improving both their individual and social image by showing their individual preferences, or going against the common trend. If a large number of individuals have same jewellery brand, it loses its prestige for those consumers who want to own a unique value of jewellery. According to Vigneron and Johnson (2004) some consumers seek uniqueness by buying new brands on the market. Such consumers may as well decline a certain jewellery of it is been purchased by large number of people (mass market). Vigneron and Johnson (1999) applied the terms “very exclusive,” and “rare” to explain the uniqueness customers seek to get.
Vigneron and Johnson (2004) describe perceived social value to imply the behaviour by consumers to buy luxurious products such as jewellery in order to achieve the prestige of belongs to certain social class. they went on to ague these type of consumers are concerned with social value that comes with owning certain brands of jewellery want to fit in particular wealthy lifestyle. They want to be distinguished from the lower social class. They view they jewellery an element of their identity, Vigneron and Johnson (2004) states that social referencing as well as advancement of an individual’s self-esteem by owning jewellery is pursued by those individuals who want to achieve social value. The terms “leading” “rewarding”, “powerful” and “successful” are applied by Vigneron and Johnson (2004) to describe social perception.
Several researchers have tried to formulate a measuring scale to evaluate the interpersonal influence against luxury product buying; many of these scales focus on social effects related with consumer behaviour. For example, Eastman et al (1999) formulated a self-report evaluation scale to measure luxury product consumption. They carried out six studies to refine their uni-dimensional construct scale. Accordingly, the scale has the five items listed below:
“I would buy a product just because it has status”
“I am interested in new products with status”
“I would pay more for a product of it had status”
“The status of a product is irrelevant to me”
“A product is more valuable to me if has some snob appeal”
2.6 Jewellery goods consumption in Chinese marketCulture greatly influences how an individual values wealth and luxury (Rose and DeJesus, 2007). According to Dubois and Duquesne (1993) the social value put on jewellery purchase reveals a considerable effect of culture. Individualistic and collectivistic societies differ in their value system, but they both drive consumers to buy luxurious goods such as jewellery in different approaches (Schutte and Ciarlante 1999). According to Schutte and Ciarlante (1999) status-seeking consumption in Asian cultures in buying of luxuries products stresses social meaning expressed by the products. They add that social meanings are conveyed through signals like price and brand name and not necessarily quality of the product (Schutte and Ciarlante, 1999). Schutte and Ciarlante (1999) further claims that Asian consumer buy luxury goods like jewellery to gain social recognition and comply with the social norms.
Chinese culture is group-oriented, the collectivism of the Chinese advances the belief that people who share same group are inter-related and therefore should adhere to the norms of that group and to live in harmony (Leung, 1996). Indeed in their study, Hui and Tan (1996) established that Chinese workers emphasised social relationships as well as group welfare at the cost of individual needs and desires. Similarly, Yau (1994) agrees that Chinese culture puts a great value on interpersonal relations as well as social orientations, and therefore emphasising group norms.
Tse (1996) has asserted that consumption in traditional Chinese culture was viewed as a means of serving higher-order demands than an activity that has to be taken by a person. Tse (1996) therefore agues that Chinese consumers place a lot of emphasis on social aspects and values of a brand compared to their American counterparts. Tse (1996) goes on to suggest that Chinese consumers put more value on aesthetics when buying jewellery; nonetheless, the emphasis placed on aesthetics may be drive by a need to attain social status or social identity.
According to Tse (1996) Chinese people always keep a certain social gap those in different social group and try to close this social gap that separate them. Therefore, consumption is normally used as a way to maintain or close the social gap. Yet, again one is expected to behave properly within his/her social class. According to Hui and Tan (1996) Chinese people also have a strong need to be distinguished from others. For example, the Chinese people (mainland China) always want to be differentiated from their brothers in Taiwan and Hong Kong. In seeking this difference they use material thing (Tse, 1996). Hui and Tan (1996) adds their voice to this debate by stating that jewellery and luxury goods in general have usually been applied as social tools to open the gap between social groups and match with peers from the same social group. The above situation becomes outstanding when the class of social groups have been formed with the continuing rapid economic growth in China. Accordingly, the drive to use jewellery and other luxury goods to strengthen social identity has increased from the newly rich class (Hui and Tan (1996)). Still, Tse (1996) suggest that Chinese consumers are bound to put a lot of emphasis on the views of their reference social group in reaching buying decision compared to American consumers.
These cultural features of Chinese people indicates that the “Veblen effect”, “snob effect” and “bandwagon” are critical for Chinese consumers when buying and displaying jewellery goods. Yet again, it cannot be proposed that only interpersonal factors drive Chinese consumers to buy jewellery goods. Triandis (1995) argues that each society has individualistic and collectivists attributes. Triandis (1995) adds that the teachings of Confucianism, Buddhism and Taoism have shaped Chinese people’s life in a way that Chinese traditions stresses inter-group norms, competition, quality and individuality. Indeed, observed individual differences demonstrate adequate differences on an assumption held by a certain homogeneous society.
More so, many factors can result in cultural changes. Chinese society is undergoing rapid economic growth and slowly being influenced by western values (Triandis (1995). According to Triandis (1995) China’s quest of economic reforms as well as open-door policy adopted in 1978 has greatly impacted its traditional cultural values. Western culture is becoming popular in China particularly among the young generation, which is increasingly accepting western norms and products. However, Leung (1996) observes that the young generation may buy jewellery goods driven by different factors that are same as they parents’ generation. Accordingly, the young generation may place a greater emphasis on individual values. Studies done by Tse (1996) seem to agree with this observation since he established that hedonic consumption among Chinese society is increasing.
These changes in consumer behaviour among the young generation has a considerably implication in analysing Chinese consumer behaviour regarding jewellery products. In addition, consumerism in China is comparatively new (Schutte and Ciarlante, 1999). Leung (1996) notes that m