Business environment assignment

NPO
A non-profit organization (abbreviated as NPO, also known as a not-for-profit organization [1])
is an organization that does not distribute its surplus funds to owners or shareholders, but instead
uses them to help pursue its goals.[2] Examples of NPOs include charities (i.e., charitable), trade
unions and public arts organizations. Most governments and government agencies meet this
definition, but in most countries they are considered a separate type of organization and not
counted as NPOs. They are in most countries exempt from income and property taxation.

Non-profit distinction
Ownership is the quantitative difference between for- and not-for-profit organizations. For-profit
organizations can be privately owned and may re-distribute taxable wealth
to employees and shareholders. By contrast, not-for-profit organizations do not have private
owners. They have controlling members or boards, but these people cannot sell their shares to
others or personally benefit in any taxable way.

While they are able to earn a profit, more accurately called a surplus, such earnings must be
retained by the organization for its self-preservation, expansion and future plans. Earnings may
not benefit individuals or stake-holders.[3] While some nonprofit organizations put substantial
funds into hiring and rewarding their internal corporate leadership, middle-management personnel
and workers, others employ unpaid volunteers and even executives may work for no
compensation. However, since the late 1980s there has been a growing consensus that
nonprofits can achieve their corporate targets more effectively by using some of the same
methods developed in for-profit enterprises. These include effective internal management,
ensuring accountability for results, and monitoring the performance of different divisions or
projects in order to better benefit from their capital and workers. Those require satisfied
management and that, in turn, begins with the organization's mission.[4]

Nature and goals

NPOs are often charities or service organizations; they may be organized as a not-for-profit
corporation or as a trust, a cooperative, or they may be purely informal.

Sometimes they are also called foundations, or endowments that have large stock funds. A very
similar organization called the supporting organization operates like a foundation, but they are
more complicated to administer, they are more tax favored, and the public charities that receive
grants from them must have a specially determined relationship.
Foundations give out grants to other NPOs, or fellowships and direct grants to participants.
However, the name foundations may be used by any not-for-profit corporation —
even volunteer organizations or grass roots groups.

Applying Germanic or Nordic law (e.g., Germany, Sweden, Finland), NPOs typically are voluntary
associations, although some have a corporate structure (e.g. housing cooperatives). Usually a
voluntary association is founded upon the principle of one-person-one-vote.[citation needed]

[edit]Legal aspects
There is a wide diversity of structures and purposes in the NPO landscape. For legal
classification and eventual scrutiny, there are, nevertheless, some structural elements of prime
legal importance:

 Economic activity
 Supervision and management provisions
 Representation
 Accountability and Auditing provisions
 Provisions for the amendment of the statutes or articles of incorporation
 Provisions for the dissolution of the entity
 Tax status of corporate and private donors
 Tax status of the foundation

Some of the above must be, in most jurisdictions, expressed in the document of establishment.
Others may be provided by the supervising authority at each particular jurisdiction.

While affiliations will not affect a legal status, they may be taken into consideration in legal
proceedings as an indication of purpose.

Most countries have laws which regulate the establishment and management of NPOs, and
which require compliance with corporate governance regimes. Most larger organizations are
required to publish their financial reports detailing their income and expenditure for the public. In
many aspects they are similar to business entities though there are often significant differences.
Both non-profit and for-profit entities must have board members, steering committee members, or
trustees who owe the organization a fiduciary duty of loyalty and trust. A notable exception to this
involves churches, which are often not required to disclose finances to anyone, including church
members.
[edit]Formation and structure
In the United States, nonprofit organizations are formed by incorporating in the state in which they
expect to do business. The act of incorporating creates a legal entity enabling the organization to
be treated as a corporation under law and to enter into business dealings, form contracts, and
own property as any other individual or for-profit corporation may do.

Nonprofits can have members but many do not. The nonprofit may also be
a trust or association of members. The organization may be controlled by its members who elect
the Board of Directors, Board of Governors or Board of Trustees. Nonprofits may have a delegate
structure to allow for the representation of groups or corporations as members. Alternately, it may
be a non-membership organization and the board of directors may elect its own successors.

A primary difference between a nonprofit and a for-profit corporation is that a nonprofit does not
issue stock or pay dividends, (for example, The Code of the Commonwealth of Virginia includes
the Non-stock Corporation Act that is used to incorporate nonprofit entities) and may not enrich
its directors. However, like for-profit corporations, nonprofits may still have employees and can
compensate their directors within reasonable bounds.

The two major types of nonprofit organization structure are membership and board-only. A
membership organization elects the board and has regular meetings and power to amend the
bylaws. A board-only organization typically has a self-selected board, and a membership whose
powers are limited to those delegated to it by the board. A board-only organization's bylaws may
even state the organization has no membership, although the organization's literature may refer
to its donors as "members"; examples of such structures are Fairvote[5][6] and the National
Organization for the Reform of Marijuana Laws.[7] The Model Nonprofit Corporation Act imposes
many complexities and requirements on membership decision-making. Accordingly, many
organizations , such as Wikimedia,[8] have formed board-only structures. The National Association
of Parliamentarians has raised concerns about the implications of this trend for the future of
openness, accountability, and understanding of grassroots concerns in nonprofit organizations.
Specifically, they note that nonprofit organizations, unlike business corporations, are not subject
to market discipline for products and shareholder discipline over their capital; therefore, without
membership control of major decisions such as election of the board, there are few inherent
safeguards against abuse.[9][10] A rebuttal to this might be that as nonprofit organizations grow and
seek larger donations, the level of scrutiny rises, including expectations of audited financial
statements.[11]
[edit]Tax exemption
In many countries, nonprofits may apply for tax exempt status, so that the organization itself may
be exempt from income tax and other taxes. In the United States, to be exempt from federal
income taxes the organization must meet the requirements set forth by the Internal Revenue
Service.[12]

[edit]Australia

In Australia, non-profit organisations can fall into a number of categories: Unincorporated

Associations, Co-operative Societies, Incorporated Associations, Not-for-profit Companies and
Trusts. A Non-profit organisation in Australia can have a number of legal structures depending on
the needs and activities of the organisation in question. As a legal entity, the organisation may be
a co-operative society, a company limited by guarantee, an incorporated association or society
under the Associations Incorporation Act 1985 or an incorporated association or council under the
Commonwealth Aboriginal Councils and Associations Act 1976. [13]

[edit]Finland

In Finland, "rekisteröity yhdistys", given the abbreviation ry, denotes a registered association.
This is done at a cost of 75 Euro. The association is required by law to keep a list of members. It
must also hold an AGM and at least 3 members are required to set it up, a secretary, chair and
treasurer being the usual formation.

[edit]India

In India, NPOs are commonly known as Non-Governmental Organizations (NGOs).

They can be registered in four ways:

1. Trust
2. Society
3. Section-25 Company
4. Special Licensing

Registration can be done with the Registrar of Companies(RoC).

The following laws or Constitutional Articles of the Republic of India are relevant to the NGOs:

 Articles 19(1)(c) and 30 of the Constitution of India

 Income Tax Act, 1961
 Public Trusts Acts of various states
 Societies Registration Act, 1860
  Section 25 of the Indian Companies Act, 1956
 Foreign Contribution (Regulation) Act, 1976

[edit]South Africa
In South Africa, charities issue a tax certificate when requested by donors which can be used as
a tax deduction by the donor.[14]

[edit]United Kingdom
In the UK, many non-profit companies are incorporated as a company limited by guarantee. This
means that the company does not have shares or shareholders, but it has the benefits
of corporate status. This includes limited liability for its members and being able to enter into
contracts and purchase property in its own name. The goals ("objects") of the company are
defined in the Memorandum of Association when the company is formed. The profits of the
company (also referred to as the trading surplus) must be invested in achieving these goals and
not distributed to the company's members.[15]

Since the Companies act 2006, non-profit companies may be formed as a Community Interest
Company (CIC). These are forms of company limited by guarantee or company limited by
shares but with special conditions and are intended specifically to ensure that the profits and
assets of the company are used for public good, even when run for (limited) profit.[16]

A charity is a non-profit organisation that meets stricter criteria regarding its purpose and the way
in which it makes decisions and reports its finances.[17] For example, a charity is generally not
allowed to pay its Trustees. In England and Wales, charities may be registered with theCharity
Commission.[18] In Scotland, the Office of the Scottish Charity Regulator serves the same
function. Other organizations which are classified as non-profit organizations elsewhere, such as
trade unions, are subject to separate regulations, and are not regarded as "charities" in the
technical sense.

[edit]United States
For a United States analysis of this issue, see 501(c) and United States Charitable
Organization.

After a recognized type of legal entity has been formed at the state level, it is customary for
the nonprofit organization to seek tax exempt status with respect to its income
tax obligations. That is typically done by applying to the Internal Revenue Service (IRS),
although statutory exemptions exist for limited types of nonprofit organizations. The IRS,
after reviewing the application to ensure the organization meets the conditions to be
recognized as a tax exempt organization (such as the purpose, limitations on spending, and
internal safeguards for a charity), may issue an authorization letter to the nonprofit granting
it tax exempt status for income tax payment, filing, and deductibility purposes. The
exemption does not apply to other Federal taxes such as employment taxes. Additionally, a
tax-exempt organization must pay federal tax on income that is unrelated to their exempt
purpose.[19] Failure to maintain operations in conformity to the laws may result in an
organization losing its tax exempt status.

Individual states and localities offer nonprofits exemptions from other taxes such as sales
tax or property tax. Federal tax-exempt status does not guarantee exemption from state and
local taxes, and vice versa. These exemptions generally have separate application
processes and their requirements may differ from the IRS requirements. Furthermore, even
a tax exempt organization may be required to file annual financial reports (IRS Form 990) at
the state and federal level.

[edit]Belgium

Under Belgian law, there are several kinds of non-profit organisations:

 Vereniging zonder winstoogmerk (Dutch, abbreviated vzw) or Association sans

but lucratif (French, abbreviated asbl).
 Internationale vereniging zonder winstoogmerk (Dutch, often abbreviated ivzw)
or Association internationale sans but lucratif (French; often abbreviated aisbl) for
international non-profit organisations.
 Stichting van openbaar nut (Dutch, abbreviated son) or Fondation d’utilités
publique (French, abbreviated fup).

These three kinds of non-profit organisations are in contrast to a fourth:

 Feitelijke vereniging (Dutch) or Association de fait (French) an informal

organization, often started for a short term project, or run alongside another NPO which
does not have any status in law, so cannot purchase property etc(association sans
personnalité morale).

[edit]Issues faced by NPOs

Capacity building is an ongoing problem faced by NPOs for a number of reasons. Most rely
on external funding (government funds, grants from charitable foundations, direct donations)
to maintain their operations and changes in these sources of revenue may influence the
reliability or predictability with which the organization can hire and retain staff, sustain
facilities, create programs, or maintain tax-exempt status. For example, a university that
sells research to for-profit companies may face tax exemption issues or internal politics
purportedly related to that. In addition, unreliable funding, long hours and low pay can lead
to employee burnout and high turnover rates. In 2009, US nonprofits saw government
acknowledge this critical need through the inclusion of the Nonprofit Capacity Building
Program in the Serve America Act. Further efforts to quantify the scope of the sector and
propose policy solutions for community benefit were included in theNonprofit Sector and
Community Solutions Act, proposed in 2010 by Congresswoman Betty McCollum.

Founder's syndrome is an issue organizations face as they grow. Dynamic founders with a
strong vision of how to operate the project try to retain control over the organization, even as
new employees or volunteers want to expand the project's scope and try new things.

Resource mismanagement is a particular problem with NPOs because the employees are
not accountable to anybody with a direct stake in the organization. For example, an
employee may start a new program without disclosing its complete liabilities. The employee
may be rewarded for improving the NPO's image, making other employees happy, and
attracting new donors. Liabilities promised on the full faith and credit of the organization but
not recorded anywhere constitute accounting fraud. But even indirect liabilities negatively
affect the financial sustainability of the NPO, and the NPO will have financial problems
unless strict controls are instated.[20]

[edit]Examples

In the United States, two of the wealthiest non-profit organizations are the Bill and Melinda
Gates Foundation, which has an endowment of $38 billion,[21] and the Howard Hughes
Medical Institute, which has an endowment of approximately $14.8 billion. Outside the
United States, another large NPO is the British Wellcome Trust, which is a "charity" in
British usage. See: List of wealthiest foundations. Note that this assessment
excludes universities, at least a few of which have assets in the tens of billions of dollars.
For example; List of U.S. colleges and universities by endowment

Measuring an NPO by its monetary size has obvious limitations, as the power and
significance of NPOs are defined by more qualitative measurements such as effectiveness
at carrying out charitable mission and goals.

Some NPOs which are particularly well known, often for the charitable or social nature of
their activities conducted over a long period of time, include Amnesty
International, Oxfam, Rotary International, Carnegie Corporation of New York, DEMIRA
Deutsche Minenräumer (German Mine Clearers), FIDH International Federation for Human
Rights, Goodwill Industries, United Way, The National Rifle Association, ACORN(now
defunct), Habitat for Humanity, Teach For America, the Red Cross and Red
Crescent organizations, UNESCO, IEEE, World Wide Fund for Nature, Heifer International,
and SOS Children's Villages.

However, there are also millions of smaller NPOs that provide social services and relief
efforts on a more focused level to people throughout the world. There are more than 1.6
million NPOs in the United States alone.

[edit]On the Internet

Many NPOs often use the .org or .us (or the CCTLD of their respective country) or .edu top-
level domain (TLD) when selecting a domain nameto differentiate themselves from more
commercially focused entities which typically use the .com space.

In the traditional domain categories as noted in RFC 1591, .org is for "organizations that
didn't fit anywhere else" in the naming system, which implies that it is the proper category
for non-commercial organizations if they are not governmental, educational, or one of the
other types with a specific TLD. It is not specifically designated for charitable organizations
or any specific organizational or tax-law status, however; it encompasses anything that does
not fall into another category. Currently, no restrictions are enforced on registration of .com
or .org, so you can find organizations of all sorts in either of these domains, as well as other
top-level domains including newer, more-specific ones which may fit particular sorts of
organizations such as .museum for museums or .coop for cooperatives. Organizations
might also register under the appropriate country code top-level domain for their country.

[edit]Other terminology for the sector

There is a growing movement within the “non”-profit and “non”-government sector to define
itself using more proactive wording. Instead of being defined by “non” words, organizations
are suggesting new terminology to describe the sector. The term “civil society organization”
(CSO) has been used by a growing number of organizations, such as the Center for the
Study of Global Governance.[22] The term “citizen sector organization” (CSO) has also been
advocated to describe the sector — as one of citizens, for citizens — by organizations such
as Ashoka: Innovators for the Public.[23] This labels and positions the sector as its own
entity, without relying on language used for the government or business sectors. However,
use of terminology by a nonprofit of self-descriptive language such as "public service
 organization" or other term that is not legally compliant risks confusing the public about
nonprofit abilities, capabilities and limitations.[24]

Multinational Corporation

A multinational corporation (MNC) or enterprise (MNE),[1] is a corporation or an enterprise that

manages production or delivers servicesin more than one country. It can also be referred to as
an international corporation. The International Labour Organization (ILO) has defined[citation
needed]
an MNC as a corporation that has its management headquarters in one country, known as
the home country, and operates in several other countries, known as host countries.

The Dutch East India Company was the first multinational corporation in the world and the first
company to issue stock.[2] It was also arguably the world's first megacorporation, possessing
quasi-governmental powers, including the ability to wage war, negotiate treaties, coin money, and
establish colonies.[3]

The first modern multinational corporation is generally thought to be the East India Company.
[4]
Many corporations have offices, branches or manufacturing plants in different countries from
where their original and main headquarters is located.

Some multinational corporations are very big, with budgets that exceed some nations' GDPs.
Multinational corporations can have a powerful influence in local economies, and even the world
economy, and play an important role in international relations and globalization.

Market imperfections
It may seem strange that a corporation can decide to do business in a different country, where it
does not know the laws, local customs or business practices.[1] Why is it not more efficient to
combine assets of value overseas with local factors of production at lower costs by renting or
selling them to local investors?[1]

One reason is that the use of the market for coordinating the behaviour of agents located in
different countries is less efficient than coordinating them by a multinational enterprise as an
institution.[1] The additional costs caused by the entrance in foreign markets are of less interest for
the local enterprise.[1] According to Hymer, Kindleberger and Caves, the existence of MNCs is
reasoned by structural market imperfections for final products.[5] In Hymer's example, there are
considered two firms as monopolists in their own market and isolated from competition by
transportation costs and other tariff and non-tariff barriers. If these costs decrease, both are
forced to competition; which will reduce their profits.[5] The firms can maximize their joint income
by a merger or acquisition, which will lower the competition in the shared market.[5] Due to the
transformation of two separated companies into one MNE the pecuniary externalities are going to
be internalized.[5]However, this doesn't mean that there is an improvement for the society.[5]

This could also be the case if there are few substitutes or limited licenses in a foreign market.
[6]
The consolidation is often established by acquisition, merger or the vertical integration of the
potential licensee into overseas manufacturing.[6] This makes it easy for the MNE to enforce price
discrimination schemes in various countries.[6] Therefore Hymer considered the emergence of
multinational firms as "an (negative) instrument for restraining competition between firms of
different nations".[7]

Market imperfections had been considered by Hymer as structural and caused by the deviations
from perfect competition in the final product markets.[8] Further reasons are originated from the
control of proprietary technology and distribution systems, scale economies, privileged access to
inputs and product differentiation.[8] In the absence of these factors, market are fully efficient.
[1]
The transaction costs theories of MNEs had been developed simultaneously and independently
by McManus (1972), Buckley & Casson (1976) Brown (1976) and Hennart (1977, 1982).[1] All
these authors claimed that market imperfections are inherent conditions in markets and MNEs
are institutions that try to bypass these imperfections.[1] The imperfections in markets are natural
as the neoclassical assumptions like full knowledge and enforcement don't exist in real markets.[9]

[edit]International power
[edit]Tax competition
Multinational corporations have played an important role in globalization. Countries and
sometimes subnational regions must compete against one another for the establishment of MNC
facilities, and the subsequent tax revenue, employment, and economic activity. To compete,
countries and regional political districts sometimes offer incentives to MNCs such as tax breaks,
pledges of governmental assistance or improved infrastructure, or lax environmental and labor
standards enforcement. This process of becoming more attractive toforeign investment can be
characterized as a race to the bottom, a push towards greater autonomy for corporate bodies, or
both.

However, some scholars for instance the Columbia economist Jagdish Bhagwati, have argued
that multinationals are engaged in a 'race to the top.' While multinationals certainly regard a low
tax burden or low labor costs as an element of comparative advantage, there is no evidence to
suggest that MNCs deliberately avail themselves of lax environmental regulation or poor labour
standards. As Bhagwati has pointed out, MNC profits are tied to operational efficiency, which
includes a high degree of standardisation. Thus, MNCs are likely to tailor production processes in
all of their operations in conformity to those jurisdictions where they operate (which will almost
always include one or more of the US, Japan or EU) that has the most rigorous standards. As for
labor costs, while MNCs clearly pay workers in, e.g. Vietnam, much less than they would in the
US (though it is worth noting that higher American productivity—linked to technology—means that
any comparison is tricky, since in America the same company would probably hire far fewer
people and automate whatever process they performed in Vietnam with manual labour), it is also
the case that they tend to pay a premium of between 10% and 100% on local labor rates.
[10]
Finally, depending on the nature of the MNC, investment in any country reflects a desire for a
long-term return. Costs associated with establishing plant, training workers, etc., can be very
high; once established in a jurisdiction, therefore, many MNCs are quite vulnerable to predatory
practices such as, e.g., expropriation, sudden contract renegotiation, the arbitrary withdrawal or
compulsory purchase of unnecessary 'licenses,' etc. Thus, both the negotiating power of MNCs
and the supposed 'race to the bottom' may be overstated, while the substantial benefits that
MNCs bring (tax revenues aside) are often understated

[edit]Market withdrawal
Because of their size, multinationals can have a significant impact on government policy, primarily
through the threat of market withdrawal.[11]For example, in an effort to reduce health care costs,
some countries have tried to force pharmaceutical companies to license their patenteddrugs to
local competitors for a very low fee, thereby artificially lowering the price. When faced with that
threat, multinational pharmaceutical firms have simply withdrawn from the market, which often
leads to limited availability of advanced drugs. In these cases, governments have been forced to
back down from their efforts. Similar corporate and government confrontations have occurred
when governments tried to force MNCs to make their intellectual property public in an effort to
gain technology for local entrepreneurs. When companies are faced with the option of losing a
core competitive technological advantage or withdrawing from a national market, they may
choose the latter. This withdrawal often causes governments to change policy. Countries that
have been the most successful in this type of confrontation with multinational corporations are
large countries such as United States and Brazil[citation needed], which have viable indigenous market
competitors.

[edit]Lobbying

Multinational corporate lobbying is directed at a range of business concerns, from tariff structures
to environmental regulations. There is no unified multinational perspective on any of these issues.
Companies that have invested heavily in pollution control mechanisms may lobby for very tough
environmental standards in an effort to force non-compliant competitors into a weaker position.
Corporations lobby tariffs to restrict competition of foreign industries. For every tariff category that
one multinational wants to have reduced, there is another multinational that wants the tariff
raised. Even within the U.S. auto industry, the fraction of a company's imported components will
vary, so some firms favor tighter import restrictions, while others favor looser ones. Says Ely
Oliveira, Manager Director of the MCT/IR: This is very serious and is very hard and takes a lot of
work for the owner.pk

Multinational corporations such as Wal-mart and McDonald's benefit from

government zoning laws, to create barriers to entry.

Many industries such as General Electric and Boeing lobby the government to receive subsidies
to preserve their monopoly.[12]

[edit]Patents

Many multinational corporations hold patents to prevent competitors from arising. For
example, Adidas holds patents on shoe designs,Siemens A.G. holds many patents on equipment
and infrastructure and Microsoft benefits from software patents.[13] The pharmaceutical companies
lobby international agreements to enforce patent laws on others.

[edit]Transnational Corporations
A Transnational Corporation (TNC) differs from a tranditional MNC in that it does not identify itself
with one national home. Whilst traditional MNCs are national companies with foreign subsidiaries,
[14]
TNCs spread out their operations in many countries sustaining high levels of local
responsiveness.[15] An example of a TNC is Nestlé who employ senior executives from many
countries and try to make decisions from a global perspective rather than from one centralised
headquarters.[16] However, the terms TNC and MNC are often used interchangeably.

[edit]Micro-multinationals

Enabled by Internet based communication tools, a new breed of multinational companies is

growing in numbers.(Copeland, Michael V. (2006-06-29). "How startups go global". CNN.
Retrieved 2010-05-13.) These multinationals start operating in different countries from the very
early stages. These companies are being called micro-multinationals. (Varian, Hal R. (2005-08-
25). "Technology Levels the Business Playing Field". The New York Times. Retrieved 2010-05-
13.) What differentiates micro-multinationals from the large MNCs is the fact that they are small
businesses. Some of these micro-multinationals, particularly software development companies,
have been hiring employees in multiple countries from the beginning of the Internet era. But more
and more micro-multinationals are actively starting to market their products and services in
various countries. Internet tools like Google, Yahoo, MSN, Ebay and Amazon make it easier for
the micro-multinationals to reach potential customers in other countries.

Service sector micro-multinationals, like Facebook, Alibaba etc. started as dispersed virtual
businesses with employees, clients and resources located in various countries. Their rapid growth
is a direct result of being able to use the internet, cheaper telephony and lower traveling costs to
create unique business opportunities.

Low cost SaaS (Software As A Service) suites make it easier for these companies to operate
without a physical office.

Hal Varian, Chief Economist at Google and a professor of information economics at U.C.
Berkeley, said in April 2010, "Immigration today, thanks to the Web, means something very
different than it used to mean. There's no longer a brain drain but brain circulation. People now
doing startups understand what opportunities are available to them around the world and work to
harness it from a distance rather than move people from one place to another."

[edit]Criticism of multinationals
Main article: Anti-corporate activism
File:Adbusters NY Billboard.jpg
Anti-corporate activism in New York

The rapid rise of multinational corporations has been a topic of concern

among intellectuals, activists and laypersons who have seen it as a threat of such basic civil
rights as privacy. They have pointed out that multinationals create false needs in consumers and
have had a long history of interference in the policies of sovereign nation states. Evidence
supporting this belief includes invasive advertising (such asbillboards, television
ads, adware, spam, telemarketing, child-targeted advertising, guerrilla marketing), massive
corporate campaign contributions in democratic elections, and endless global news stories about
corporate corruption (Martha Stewart and Enron, for example). Anti-corporate protesters suggest
that corporations answer only to shareholders, giving human rights and other issues almost no
consideration.[17] Films and books critical of multinationals include Surplus: Terrorized into Being
Consumers, The Corporation, The Shock Doctrine, Downsize This and others.

Total Quality Management TQM

Since the late 1980s, firms around the world have launched Total Quality Management (TQM)
programs in an attempt to retain or regain competitiveness in order to achieve customer
satisfaction in the face of increasing competition from around the world in this era of globalization.
TQM is an integrative philosophy of management for continuously improving the quality of
products and processes. [1]

TQM functions on the premise that the quality of the products and processes is the responsibility
of everyone who is involved with the creation or consumption of the products or services offered
by the organization. In other words, TQM capitalizes on the involvement of management,
workforce, suppliers, and even customers, in order to meet or exceed customer expectations.
Considering the practices of TQM as discussed in six empirical studies, Cua, McKone, and
Schroeder (2001) identified the nine common TQM practices as cross-functional product
design, process management, supplier quality management, customer involvement, information
and feedback, committedleadership, strategic planning, cross-functional training, and employee
involvement. [2]

[edit]TQM and Six Sigma

The Six Sigma process improvement originated in 1986 from Motorola’s drive towards reducing
defects by minimizing variation in processesthrough metrics measurement. [3] Applications of the
Six Sigma project execution methodology have since expanded to include practices common in
Total Quality Management and Supply Chain Management, such as increasing customer
satisfaction, and developing closer supplier relationships. [4]

The main difference between TQM and Six Sigma (a newer concept) is the approach. TQM tries
to improve quality by ensuring conformance to internal requirements, while Six Sigma focuses on
improving quality by reducing the number of defects and impurities.[5]