Emerging market economies are faced with a number of challenges, the greatest of them being poverty. Despite the economic progress being made by many developing countries, most of their citizens continue to live in extreme poverty levels, and in some countries, the situation appears to be worsening. The high levels of poverty in emerging markets is caused by a variety of factors, which include lack of sufficient capital, technological laggardness, high illiteracy levels, poor leadership and corruption. As a result, there is a big economic gap between first world nations and emerging markets, and this has presented an opportunity for developed nations to expand into emerging markets that are present in developing countries. Currently, many developed nations are penetrating into developing countries through the establishment of subsidiary companies. Further, developed countries are also using Foreign Direct Investment (FDI), Asset-based Community Development (ABCD) and resource mapping methodologies [System Dynamic Modeling (SDM] to exploit the potential in developing nations. Some of the specific factors that have prompted the strong interest of developed countries to invest in developing countries include the availability of cheap labor, space, and unexploited natural resources. Consequently, developing countries have experienced increased employment opportunities, technological transfer, infrastructural development, capacity to save, consumer choices, and knowledge transfer from expatriates working in the foreign developing countries. The effects of the investment made by the developed countries have directly or indirectly impacted on the poverty levels in the emerging nations, as the investments help in alleviating poverty. This dissertation proposal will analyze how FDI, ABCD, and SDM resources mapping methodology may help to reduce poverty levels in emerging nations. Further, the proposal will discuss how to potentially achieve sustainable poverty reduction through the use of the three approaches in select emerging market economies.

CHAPTER ONE: INTRODUCTION

1.0 Introduction

Emerging markets are generally characterized by high poverty rates resulting from numerous factors such as high illiteracy levels, lack of sufficient capital, lack of opportunities, and the unavailability of proper technology amongst several other factors (UNCTAD, 2007). This has prompted many developing nations to rely heavily on developed countries for economic survival. Consequently, some developing nations are heavily indebted to developed economies. The high rate of dependence on first world nations has prompted the modification of laws and regulations in developing countries to facilitate foreign investment through FDI, ABCD, and adoption of SDM resources mapping methodology (Moura & Forte, 2010). Some third world nations enter into bilateral agreements when they sign treaties in exchange for some form of assistance, for example, financial aid or technological revolutions that have greatly opened up the world.

The foreign presence in emerging nations has raised speculation concerning whether developed nations help weaker economies to achieve sustainable poverty reduction. Studies carried out by past researchers indicate that FDI, ABCD and adoption of SDM resources mapping methodology have some positive impacts that can translate poverty eradication.

Foreign direct investment is simply an offshore investment by an individual, group or nation in another country; in our case in emerging economies (UNCTAD, 2007). FDI mainly helps to create business opportunities for foreign nations. Asset-based community development, on the other hand, provides a means of involving any particular society in activities meant to boost their socioeconomic lives through the use of locally available resources and manpower (Kretzmann & McKnight, 1993). ABCD begins with resource mapping in order to determine the resources that are present in the community in question. SDM is a methodology utilized during the implementation of Enterprise Resource Planning (ERP) Systems –a program that provides great cohesion and enables the growth of any group or corporation (Winz, Brierley, & Trowsdale, 2009). The three approaches have a direct positive relationship with sustainable poverty reduction in emerging nations when either used separately or together.

This study explores the existing literature on FDI, ABCD and SDM resources mapping methodology, to collect information that can be used to determine their effect on poverty reduction with the hope of harmonizing the level of economic development throughout the world. Several research problems are posed by this research, as explained below in the problem statement section.

1.1 Problem Statement

The gap between developed and developing nations is known to be quite large despite the increased rate of globalization that has opened up most world economies. For instance, FDI, ABCD, and SDM resources mapping methodology activities by developed countries in developing countries have been made possible through globalization. However, very little research has been carried out to determine whether these approaches help mitigate or even curb the high rates of poverty in developing economies. This study tries to analyze the effectiveness of the three approaches in facilitating sustainable poverty reduction in the developing world countries. The study will also analyze the challenges limiting the effectiveness of the three approaches to establish possible solutions that can help enhance in emerging markets to foster socioeconomic growth within humanistic ways and values.

1.2 Nature of the Study

This study is primarily descriptive in nature as it takes the form of a mixed methods case study. According to Yin (2003), case studies should be considered when the focus of the study is to answer “how” and “why” questions. Our case tries to answer how ABCD, FDI and adoption of SDM resources mapping methodology aid in poverty mitigation and eradication in emerging market economies. It does this by conducting research on various emerging markets and developed economies that could be invested in such emerging markets. Both secondary and primary data will be gathered, and qualitative and quantitative analysis will be conducted. Primary data collection and analysis will rely or a research sample for quantitative analysis.

The study revolves around one general objective and three specific objectives, which shall not only be answered by looking at the works of past researchers, but also through analyzing data collected from the sample. This means that apart from literature review, our study will also use questionnaires that shall be administered either directly or indirectly to respondents by the researcher and his/her enumerators.

1.3 Research Questions and Hypotheses

Research Questions

What is the impact of ABCD on emerging markets with regards to growth and development?
Does FDI in emerging nations help achieve a sustained rate of poverty reduction? If so, by what percent?
Can SDM resources mapping methodology facilitate better scenario planning that can support Enterprise Resource Planning (ERP) implementation more effectively than traditional project management tools?
How do investments in developed economies and emerging markets affect each other, and what are their interactions and interrelationships?
Can sustainable reduction in poverty levels be achieved by uniting corporates, donors and the investment communities present in the emerging markets?

Research Hypotheses

H₁: ABCD has a positive impact on the growth and development of emerging market economies.

H₁: FDI helps reduce the poverty rates in emerging market economies by at least 20%.

H_0:The SDM resources mapping methodology cannot help to produce a better scenario that supports Enterprise Resource Planning (ERP) implementation more effectively than traditional project management tools.

H_0:Developed economies investing in emerging markets affect each other negatively as characterized by the high levels of competition amongst them and a fear of insecurity especially among emerging economies.

H₁: A sustainable reduction in poverty can be implemented by uniting corporates, donors and the investment communities in emerging markets.

1.4 Research Objectives

General Objective

To establish whether a sustainable reduction in poverty can be attained by uniting corporates, donors and the investment communities in emerging markets?

Specific Objectives

To examine the contribution of FDI and how its contributory factors can be enhanced to increase their capacity to achieve sustainable poverty reduction rates in emerging economies
To analyze the effectiveness of ABCD by developed nations in emerging nations; with a key interest in how it can help to attain sustainable levels of poverty reduction.
To find out how SDM resources mapping methodology can be applied in emerging markets to facilitate the achievement of a sustainable rate of poverty reduction.

1.5 Purpose of the Study

The purpose of this study is to come up with a strategy ensuring sustainable rates of poverty reduction in developing/emerging nations, to stir up global competitiveness, improve standards of living in emerging nations and enhance relationships between the developed and developing countries. The study plans to achieve this by taking a keen look at how the developed nations can use their expertise, knowledge, capital and technology to tap into unexploited natural resources in emerging nations for mutual benefits with the host-developing nation

When developing nations stand to gain from FDI, their governments should ensure they come up with laws that support the activities of foreigners in their land. In addition, the citizens in developing countries should also be discouraged from exhibiting xenophobic behavior; like the situation currently ongoing in South Africa where there is a fear that foreigners are taking over their land and resources (Sim, 2015).

1.5.1 Background of the Study

Many organizations globally face a highly competitive world economy that is characterized by various technological revolutions and rapid changes in people’s values and expectations. On a global average, people’s living standards are getting better every day as various economies continue to seize every possible opportunity to develop further. However, third world countries have been known to lag behind due to a number of factors and lack of opportunities. For instance, most developing nations lack the capital, technology and expertise to engage in many economic activities (Qualman, 2012).

Developed economies, on the other hand, have sufficient capital and technology but lack natural resources due to over-exploitation (Qualman, 2012). This phenomenon explains why most developed countries have been offering to invest in undeveloped nations for opportunity creation and at the same time get the chance to expand their operations for profits maximization. However, both classes of countries have various gains and challenges as well as push and pull factors that this study tries to look into in order to help utilize the FDI, ABCD and SDM approaches used by developed nations more effectively in third world market economies.

1.5.2 Theoretical Base

According to researchers (Moura & Forte, 2010; Kretzmann & McKnight, 1993; Winz, Brierley & Trowsdale, 2009), the FDI, ABCD and SDM approaches mainly focus on solving the major challenges facing emerging market economies. The developed world is characterized by increased rates of competition while third world countries lag behind. Moreover, developed nations mostly target utilization of unexploited natural resources present in developing countries to expand and globalize such developing nations.

In the past years, especially following the colonization that was faced by third world economies in the pre-independence period, there have been stringent rules and regulations that made it hard for foreigners to invest in the third world markets. However, needs have changed and the emerging nations need more employment opportunities rather than dependence on foreign debts. As a result, ABCD and FDI have become debatable topics that should be analyzed more comprehensively to determine how both the developed and developing nations could benefit mutually (Winz, Brierley & Trowsdale, 2009).

1.5.3 Conceptual Framework

The model below shows FDI, ABCD and SDM resources mapping methodology (independent variables) versus sustainable poverty reduction in emerging markets as the dependent variable.

Figure 1: Conceptual Framework

Remuneration/Compensation

Independent Variables Dependent Variable

ABCD

Sustainable Poverty reduction in emerging markets

Foreign Direct Investment (FDI)

Systems dynamic modeling

Source: Author

In the model above, sustainable poverty reduction in emerging markets can be either positively or negatively affected by FDI, ABCD and SDM resources mapping methodology. However, this does not mean that they are the only approaches that have an impact on the sustainable reduction of poverty in emerging markets.

The three approaches have their distinct merits and demerits; taking advantage of their merits and working on their demerits can be a good way of achieving sustainable reduction of poverty in emerging markets as shall be seen this study.

1.5.4 Justification of the Study

In the recent past, there has been an increase in the number young, educated, and skilled human resources across different industries leaving the emerging markets for greener pastures in the developed countries. Consequently, the citizens of such host economies may feel threatened that expatriates are taking over their jobs. A good example is the recent case of the ongoing xenophobic characteristics in South Africa, which has resulted in foreigners being brutally murdered and the increased fear of working in foreign lands (Sim, 2015).

The movement of highly skilled workers from developing countries normally results from the high unemployment rates in the emerging markets, which is a consequent effect of the lack of sufficient capital, inadequacy of expertise (in some cases total illiteracy), laggardness in technological development and poor leadership. As a result, most citizens in emerging nations live in adverse poverty conditions.

This study seeks to establish what can be done to create sustainable poverty eradication in emerging markets using three major approaches; FDI, ABCD and SDM, to create beneficial opportunities in emerging markets that can eventually see such high poverty levels reduced. The study will also analyze solutions such as technology improvement, knowledge transfer, and creation of employment opportunities among other merits that are expected to arise from the implementation of the three approaches.

1.6 Operational Definitions

This study revolves around three major approaches: Foreign Direct Investment (FDI), Asset-based Community Development, and Systems Dynamic simulation as methods aimed at fostering sustainable poverty reduction in emerging markets. ABCD is recent and specific model of growth approach meant to help communities to grow by involving their members as change agents instead of beneficiaries (Mathie & Cunningham, 2000). The ABCD method helps to make community members to be leaders of growth. The facilitators of the ABCD method are only expected to help community members to secure the resources they lack.

FDI is a broad and long-standing method of investments by offshore (foreign) entities (a firm or an individual) that involve the transfer of assets such as financial capital (equity and debt—working capital), advanced technology, management expertise, and other intellectual property to a host country’s private sector enterprises (UNCTAD, 2007). SDM resources mapping methodology allows for the evaluation of assumptions and the analysis of existing parameters to better understand problems faced in recourse mobilization in developing countries. In short, the SDM evaluation facilitates for clients and other stakeholders to participate in different phases of the process of resource mapping (Chuang, 2011). Emerging nations refer to third world economies. The economies were colonized by the western countries but still lag behind in growth and development opportunities (Moura & Forte, 2010). Poverty refers to the situation whereby people are unable to meet their subsistence needs with ease, which is generally characterized by the scarcity of resources (Chuang, 2011).

1.7 Assumptions

This study is based on the below listed assumptions:

The information and responses received from the respondents; including various websites, corporations and groups will be honest and true.
There will be proper management of appointments by respondents; they will be available at times intended for meetings –free from their business and work.
The data collection instruments will be valid, effective and reliable based on their previous usage by other researchers.
Respondents will be cooperative.

1.8 Limitations

The research exercise may be affected by some of the following factors:

The exercise might be very costly on the part of the researcher, who will personally bear all the research related costs. This is so as the target population is cross-countries (emerging markets and investing developed economies) and therefore he may have to appoint enumerators to assist him while catering for several other expenses such as travelling, subsistence, printing, photocopying, internet, and legal fees among others.
There might be limited time for this study as various deadlines have to be met, yet the target population is very large. Even with the appointment of enumerators, time might still be limited as several of them would be required for this study.

1.9 Scope and Delimitations

This study revolves majorly around developing or emerging nations worldwide. Therefore, the sample population will mostly consist of emerging economies. More specifically, the sample will target emerging economies whose governing laws and legislations are already welcoming to any such poverty eradication approaches. For instance, such countries would be characterized by the existence of multinational companies, e.g. Kenya, Zimbabwe, Botswana, Ghana, Uganda and Malawi.

The study will also revolve around the investing developed economies, i.e. the USA as the study’s objectives can only be achieved if the two parties or sides get to solidify their intentions and work together for mutual benefits. Therefore, the study will be limited to both the developing and developed economies in order to achieve the pre-set objectives and to answer the research questions as unambiguously as possible.

A smaller sample of the whole population may be used due to the expenses and the extensive amount of time that might be demanded by a bigger sample. This means that there will be a larger extent of generalization. However, the researcher will be keen to ensure that the sample population is of appropriate size, not too large or too small, to avoid diluting the reliability of the information collected.

1.10 Significance of the Study

The findings arising from this study may be utilized by all the parties to it. Firstly, emerging market economies may utilize the results to ensure that they have put measures into place that will enable them to get maximum gains from the developing economies that desire to invest in their countries or even those already established in their countries. They will also be able to know the reasons that make them more attractive to foreigners, hence enabling them to rely on these strengths to make lucrative demands. They can for instance ensure that:

They are offered fair remuneration with comparisons being made to the prevailing market wages and salaries and rates paid to foreigners working for the same multinational corporations.
Understudies are assigned to expatriates to enable maximum knowledge transfer.
Re-ploughing of the business profits into the growth of the host country’s market economy.
Adequate technology transfer into the third world economies.

The demands listed above are just examples, but the list is endless, which can be achieved through the governments of the various developing countries by enacting favourable governing laws, rules and policies. However, no person is above the law. A breach of set laws should in fact lead to winding up of any foreign multinationals. Eventually, developing countries may compete favourably with developed nations and afford decent living standards without being exploited.

The findings of this research will also be of value to developed nations as they can analyse their strengths and work on their weak areas and find better ways of investing in developing market economies. Moreover, they can rely on the same to be able to identify untapped markets that they can target for various investment activities that will see them widely expand their operations and continue being global market leaders. Lastly but not least, the findings of this research will be useful to future researchers in the field.

1.11. Summary and Transition

In summary, there may be existing knowledge on the reasons for the disparities existing between developed and developing countries. This follows concerns from various people, groups, corporations and nations on the need to cement the relationship between third world economies and developed nations in an effort to fuel competition and to help the economies move forward as a single whole. However, there are still emerging market economies living in extreme poverty levels while the first world nations dwell in quite a luxury. This is despite the presence of such developed economies in emerging markets in order to help them develop.

In a bid to solve this problem, this study concentrates on key multinational development approaches in emerging market economies, which are ABCD, FDI, and the adoption of SDM resources mapping methodology (Moura & Forte, 2010). This will be done through a comprehensive analysis of the works of past researchers on these areas to gauge the current events or any ill practices, and to enable the establishment of ways of making the situation better.

The researcher will go ahead to collect fresh data from the people affected by the development approaches so as to answer the research objectives, to analyze the research hypothesis, and to fill the loopholes in the current literature. This will consequently lead to the production of reliable results that can actually lead to sustainable poverty reduction in emerging market economies (Krafft, 2009). All these will be captured in the subsequent chapters.

CHAPTER TWO: LITERATURE REVIEW

2.0. Introduction

This chapter looks at the existing literature on the subject of study. It analyzes the ideas and arguments of past researchers. Specifically, it looks at the theoretical perspectives of ABCD, FDI, and SDM resources mapping methodology.

2.1. The ABCD

2.1.1. Definition and Essence

Unlike the commonly known “Community Development”, ABCD is a form of societal growth that looks at the community in question as active participants or growth/change agents rather than simply beneficiaries of the development efforts (Kretzmann & McKnight, 1993). It eliminates the ideology of the community needing their problems to be solved by governments and well-wishers, instead of concentrating on asset development. Contrary to community development, this paradigm considers the knowledge, skills and abilities of the grassroots areas that development is targeted.

ABCD models normally concentrate on identifying local community assets through asset mapping and eventually mobilizing such a community to act. In all events, they are viewed as important members who have a great intrinsic value, and not as external persons to any such activities. Such models do create a sense of ownership of the development made by the local community members by ensuring that they are key and primary to the growth concept in question. A given community is normally brought together and united by the same models in order to create a sense of unity that is vital for the success of a development project. The community also gains in the sense that it owns the various processes and is in a position for continued growth, possession of local assets, and is able to sharpen skills for future developments.

2.1.2. What the ABCD Models Add to the More Traditional Community Development Approaches

First, the contemporary ABCD models eliminate the need-based approach of community development. ABCD models approach any one community in an appreciative manner than the traditional community development approach. Mathie and Cunningham (2000) are of the opinion that all communities have unique resources and the various members, groups and organizations have varying levels of knowledge, skills, abilities and experience that can be used to exploit these resources to develop such a society. ABCD disputes the half-empty glass approach, and concentrates on the half-full glass approach, when engaging in community development activities. It is an approach that appreciates what the community has (its strengths), and uses the same to help them develop themselves rather that look at their weaknesses and try to offer solutions without engaging them at all –it is like appreciative inquiry (Kretzmann & McKnight, 1993; Mathie & Cunningham, 2000).

Traditional community development approach ignores the knowledge, skills, capabilities, experience and the various assets that a community may have, by starting with a needs map rather that an asset map. This ends up identifying the gaps in a particular community, which are then filled without their actual involvement. This does not provide a permanent solution to any particular problem, but rather postpones the urgency to solve them. When such problems recur, such a community will be back to seek for the same assistance they had earlier on received. This means that such communities do really grow, as they will continue to depend on their governments and well-wishers for survival from time to time. This means there would be no objective means of curbing, or rather reducing poverty levels, especially in the emerging markets. Such emerging markets do not strive to develop or stand on their own. The “half-full glass approach”, however, solves this by making any solution to community needs a permanent solution that they own, and can from time to time make better and be in a continual path of growth and/or development.

Traditional community development models normally concentrate on problems such as youth unemployment, irresponsible sexual behaviors, illiteracy and drug abuse, which end up portraying such local community members as individuals who are unskilled, dysfunctional, violent and generally immoral. This may eventually result in stereotyping, which makes any such community feel deficient and needy, and this might even move from one generation to another, the vicious cycle of which burs any potential reduction in poverty and development especially in emerging markets. Such communities develop a habit of depending on other people, groups, organizations or countries for help; instead of develop themselves due to perceived unavailability of enough assets, knowledge, skills, abilities and experience. This lowers the pace at which such an economy or country develops, as continuously its dependency rate will be high. This is the likely reason why most third world countries are still living in high poverty levels despite the increased rate of globalization and technological development.

Nevertheless, such external funding in the form of foreign aid is mostly paid to professionals/specialists and foreign experts for their various services rather than being used to develop the community. Therefore, such communities lag behind in development for long periods while only a few highly educated and experienced individuals get to develop themselves. This explains the reason as to why emerging markets are characterized by huge gaps between the rich and the poor within their societies. The countries as a whole in turn get to lag behind in terms of development.

2.1.3. Theoretical Perspectives

ABCD relates closely to varying social theories, which can be utilized to conceptualize the idea. These include appreciative inquiry, interaction theory of communities, social capital theory and resource mobilization theory. These models or theories:

Emphasize the importance of social relationships and interactions amongst the members of a community, which then passes on to other external persons and groups. They acknowledge social capital and its significance not only to the local communities, but also to other external persons.
Try to develop the people and show them how to grow.
Bank on the community’s strengths and past successes to build on their confidence and make them thrive for the best they can achieve (Mathie & Cunningham, 2000).
Embrace a participatory style to include all the local community members and letting them to actually own the process while developing their skills to enable them do better.
Make maximum use of the locally owned resources and/or assets.

These theories are as discussed below.

Social capital theory

The social capital theory tries to create an informal environment that the local community can best operate in by attempting to break any possible barriers, i.e. in terms of bureaucratic processes and procedures, centralized decision-making and tight organizational charts and reporting procedures (Mathie & Cunningham, 2000). Owen and Kemp (2012) continue to note that the relationship between asset-based approach and sustainability can be connected to the principles that make the approach sustainable. Having its main value and objective on the people, this theory analyzes both formal and informal structures so as to deduce which is best. With informal systems, it goes ahead to appreciate its people; that is their skills, abilities, knowledge and experience. In a bid to eliminate any possible discrimination, the lowest ranking assets are given priority followed by the rest. However, this theory does not mean that conflicts of interest are not common among people, and the solution is to solve them once they arise.

Asset mapping tools are normally used to identify economic opportunities in the community as well as the existing connections in the various assets to prevent resource drainage and elevates the economic state of the community for export. Resource mapping allows for the inclusion of social, natural and cultural assets in such developments.

Appreciative Inquiry (AI) Theory

This is a form of participatory action research (PAR), “community capabilities or assets are here extended and remarkably transformed” (Boyd & Bright, 2007, p. 1025). It normally purposes to improve a given community’s standard to exceptional heights.

Below are the concepts or ideas that make appreciative inquiry a good tool for asset-based community development:

A community’s nature and high levels of interaction, acts as a good ground for possible developments.
Communities are comprised of several individuals with varying levels of knowledge, skills, abilities and experience, which provide a good mix for growth and development.
Inquiries made in the various communities give way for new strategies.
Involvement of the community as a whole in change implementation will affect every member of such a community.
The togetherness of the communities makes it possible for them to trust one another and work well together towards attaining the planned change.

Inquiry gives room for a wide range of possibilities, which like asset-based community development does not predetermine the community’s problems or solutions (Boyd & Bright, 2007). Flexibility is encouraged which may facilitate a detailed research that might help us come up with very rich ideas that may move forward any such given community.

Resource Mobilization

This is a simple theory comprising of three phases/stages:

Developing and reviewing a strategic plan which helps in coming up with a program and identifying the needs of the community.
Resources analysis so as to identify which are the resources needed and their prioritization.
Conducting a research by use of “appropriate tools” i.e. sourcing for donors and making various applications (Chirisa, 2009, p. 34).

It is important for such a community to conduct a self-analysis aimed at assessing what they can or cannot do before seeking external assistance.

Mapping/ Identifying Community Assets

Mapping helps in the identification of a community’s resources and/or assets (both financial and non-financial) for purposes of development and poverty eradication or alleviation. It is a good point to start as it shows us what it is that a community has and what it lacks for a given project. The people’s knowledge, skills, abilities and experience are considered as well. When asset mapping is done in the right way, it can open up funding and other kinds of support for local communities from external persons, groups and institutions. It is important to conduct asset mapping in the best way possible so as to make the right strides towards poverty reduction.

Various researchers have varied opinions on the best ways of conducting asset mapping. The bottom line is, however, their great support for the theory and ideology. Fuller, Guy and Pletsch (2006), support the storytelling and heritage approach as the best methods to asset mapping while other researchers support focus group discussions.

A remarkable work was by Kretzmann and McKnight (1993) who developed a community asset map to be used after the identification of the local community assets as below:

Figure 2: Community Asset Map

Source: Kretzmann and McKnight (1993)

Lastly, some of the methodologies that can be used are sustainable livelihood approach (Chirisa, 2009; Zeuli & Radel, 2005); asset-building and integrated rural development approaches (Richardson, 2012; Sherraden, 1991); and systems dynamic methodology (Sharawat, Dahiya, Dahiya, & Kumari, 2014; Stave, 2010; Winz, Brierley, & Trowsdale, 2009).

2.2. The Concept of FDI

2.2.1. Introduction

Currently, most businesses exist in a world that is similar to a global village due to technological growth and development. This has created a platform for foreign direct investments. Foreign direct investment refers to the act of channeling investment opportunities to the less developed regions, i.e. the third world countries by the developed nations (UNCTAD, 2007). It further defines FDI as an investment by an offshore (foreign) entity (a firm or an individual) involving the transfer of assets, such as financial capital (equity and debt—working capital), advanced technology, management expertise, and other intellectual property to a host country’s private sector enterprises that are mostly devised on management control of ownership, though not always.

This follows the existing gap in the levels of development between developed and third world nations. While developed countries are doing extremely well economically, third world countries are lagging behind; characterized by high levels of unemployment, illiteracy, gender inequality and lack of capital.

The main agents of FDI are multinational corporations, which do not only have the capital to expand into the less developed countries, but also the expertise knowledge and the technology as well. In doing so, they normally can resolve to embrace a geocentric approach, ethnocentric approach or a polycentric approach. According to Moura and Forte (2010), whether or not FDI is advantageous or disadvantageous relies on the internal conditions of the host country, that is: political factors, economic conditions, and socio-cultural factors, technological and legal factors. This can be presented by the use of the acronym PESTEL. A good example of such factors is the role played by host governments. They can choose to be welcoming and put in place laws that favor FDI or perceive FDI as a threat to the local community and therefore place tight entry procedures, documentation amongst other barriers. The creation of enabling environments by host countries is critical to the impact of FDI and the role it plays in poverty reduction. Moura and Forte (2010) are of the opinion that the objective of FDI is to develop a host country’s economy.

2.2.2. Economic Prosperity and Enabling Economic Environments

The major objective of FDIs is to stir up economic growth in both the host country and the investing country. However, an enabling environment is required to support the people behind the investments required (Krafft, 2009). In the past, the creation of an enabling environment was deemed to be a role of the various governments. However, this has been challenging because FDI was restricted to only private markets in the past, which limited representation by various governments. This means that such governments would spend time and resources on other activities, as they would deem valid and forget about the creation of favorable environments for FDIs. Moreover, government involvement weakened the balance between the private and the public sector, encouraged risk taking in employment as well as importation as opposed to local production.

On the other hand, multinational companies have in the past been focusing on having huge rates of return on investments (ROI). This desire to make good profit margins for 50 years caused such firms not to concentrate on economies whose governments were not keen on creating enabling environments, (Krafft, Donahue, & Hemming, 2007a; Krafft, Donahue & Hemming, 2007b; Krafft, 2009). Some of the tools that can possibly be utilized to create enabling environments are SWOT analysis, strategic planning, strategy maps, surveys, innovating, target setting, organizing, action planning, PESTEL analysis, etc.

However, it is not always obvious that FDIs benefit any one country as a country may also experience some losses in the process. This is influenced by both internal and external factors such as the line of business being ventured into (Alvarez, Sauvant & Ahmed, 2011). Other factors include cost-related factors; barriers to entry; technology, macroeconomic factors and the country’s profile of political risk (Alvarez et al., 2011). Recent studies, however, concentrate on the governance of various studies as well as investment flows in a bid to try creating environments that are more favorable. One study, for instance, concentrated on 43 variables that can be used to quantify the levels of economic freedom (Gwartney, Hall & Lawson, 2010).

Host countries should create favorable environments for FDIs as failure to do so may cause them loose if such multinational corporations with their huge capital sources get to have a major control of such a country’s assets, resources and employment. In creating such enabling environments, emerging markets should have in mind that they still can fail to benefit from foreign direct investment. For example, OECD (2008) notes circumstances where low-income earning emerging markets still end up having weak economic systems, as the FDIs may be their sole source of income.

2.2.3. Factors Attracting FDI to Emerging Markets

FDI was restricted to private markets with tight entry regulations from authorities, dating in the 1960s to the 1980s (Edwards, 2010). This situation, however, changed after the elapse of the Berlin wall in 1989, which brought about the reinstatement of several market-oriented reforms. When the Soviet Union, for instance, joined the world market, there was the demand for huge capital amounts to be channeled at restructuring the private sector (Edwards, 2010). In this regard, the economy was characterized by huge cash flows with majorly targeted emerging markets with lenient regulations. This move awakened industrial countries that then began to channel FDIs to emerging nations that had been abandoned before as a means of growing or rather expanding their businesses as the markets were close to being totally untapped (Edwards, 2010). Consequently, various rules and regulations governing investment began to weaken with no exact standards concerning the same (Edward, 2010). This created growth opportunities for companies desiring to expand their operations, and was an idea seized by many so as to develop.

Moreover, as per UN reports, the strengthening of public sectors is a great pull for countries to welcome FDI. This means that the appropriate standardization and regulation can open the way for FDI and encourage foreign investitures. Currently, there is an increased rate of globalization attributed to FDIs (Dunning, 2000a; Dunning, 2000b).

Kojima (1975) points out labor training, management and marketing as key benefits emerging markets get to gain as a result of FDI and the same are aids to poverty reduction and eradication. Nunnenkamp & Spatz (2003) support Kojima (1975) by terming the same as “know-how”. Whichever the circumstance, emerging markets always get to benefit in cases of FDI.

2.2.4. Market Influence Pertaining to FDIs

The sole objective of FDIs is not to develop emerging markets. Some multinational corporations (MNCs) view investing in less developed countries as a good way of increasing their competitiveness. In most first world countries, competition is high with all firms exposed to similar market conditions and technological advancement. Investing in less developed economies provides multinational corporations with an advantage outside their home countries because most local firms in the host countries are normally not able to compete against them (Farole, 2011). The existence of little or no competition in emerging markets pulls certain multinationals to invest in them; more so; those corporations are not risk averse.

2.2.5. Reasons Emerging Market Countries Seek FDIs

Emerging economies normally attract or rather seek FDIs, unlike developed countries, because they are usually faced with many challenges that they lack the resources and funds to solve on their own and for economic development. Most of these economies are characterized by high rates of unemployment and illiteracy levels, which are all covered by the high poverty levels in such countries.

FDI is the best form of aid that such countries can on as their governments are usually placed in a position to solve some if not all such poverty related problems. In fact, there are countries that are heavily indebted to other nations, especially, to the developed countries as a result of the operations of their governments. Such emerging markets come up with laws that favor FDIs in their own countries.

Secondly, most, if not all emerging markets are lagging behind technologically (Looney, 2014). Developing countries are, in many cases, the pioneers of new technology and, therefore, owners of the same, thus leaving many emerging markets yearning for technological know-how which they can gain or learn from the developers who are the first world nations. This situation in many cases calls for foreign direct investment that makes technological transfer from developed countries to emerging markets possible. In addition, locals get to learn various technological skills from the expatriates in their countries.

Host country nationals can for instance learn how to conduct electronic transfers and utilize management expertise from the investment made by developed economies. As a result of the contribution made by multinational corporations, developing countries are able to improve their level of competitiveness as they too can be able to improve their productivity by embracing technology. Moreover, such emerging economies may become self-independent after learning from the developed markets and improving their competitiveness (Jovanovic, 2011). However, some researchers argue that such laggardness is normally passed on from one generation to another, thus, creating a perpetual cycle of poverty. This, therefore, means that emerging markets may never cease to depend on FDIs their major mode of survival. Their major argument is that “The poor are not only lacking resources, but are also held-back by-a poverty-perpetuating value system”.

It is not enough for emerging countries to depend on FDI for jobs and an improvement of their living standards. Instead, the same should be merged with greater concerns, such as fiscal, employment and other labor related issues.

Local citizens hired as a result of FDIs many assigned a lot work while being remunerated poorly, therefore, inhibiting their financial growth. Meaningful FDI should be considered carefully by all the parties’ concerned (local governments, donor firms and investing corporations).

2.2.6. Positive Impacts of FDIs in Emerging Market Countries

When developed countries invest in emerging markets, they do so with the aim of expanding their operations and increasing their profit levels. Their aim is to venture into untapped markets that offer cheap factors of production such as labor. However, they are not the parties who benefit from such ventures because host countries may also accrue several benefits from the same.

One of the benefits FDI in emerging markets is that there is infrastructural development and the transfer of technology from developed markets into the emerging markets. This factor tends to stir up competition by enhancing the capacity of local companies to compete with the multinational subsidiaries that are set in the emerging markets. They not only become aware of the existence of more functional technologies, but are also made of part of the process either directly through employment in those subsidiaries or by association. Increased levels of competition will eventually translate to increased productivity levels, thus, putting such an economy in a better position to address problems such as poverty reduction (E. Marinov & S. Marinov, 2013).

Most emerging economies have been known to exhibit inefficiencies with regard to various factors of production. Their counterparts in developed nations, however, prioritize efficiency during production at all times. This means that FDI has the potential of ensuring that productivity in developed nations is efficient. Consumers in emerging markets may begin to receive high quality products and the producers may be forced to lower production costs (Moura & Forte, 2010). In summary, people’s wellbeing will be addressed properly and their living standards will most likely improve.

Among the factors that attract FDI to emerging markets is the ability to acquire cheap labor (Tihanyi, Devinney & Pedersen, 2012). This means that one of the benefits of FDI to emerging economies is increased rates of employment (Jovanovic, 2011). This is usually happens when most Multinational Corporations set up subsidiaries in host countries. In such cases, MNCs only look for personnel from their home countries to work in emerging markets as expatriates, but only employ locals to work the middle and junior level positions. This move is usually meant to reduce labor costs, as foreign procurement of labor is quite expensive. Besides, many governments normally implement tight immigration rules to ensure that most of their citizens are employed in such multinational corporations.

Many people in emerging markets live in extreme poverty conditions that are characterized by high unemployment levels. Many young yet well-educated youths remain unemployed for long periods due to the lack sufficient capital to venture into entrepreneurship (Eremina, 2009). This means that such high unemployment levels can only be reduced when multinational corporations employ locals. This eventually translates to improved standards of living. In fact, Ramamurti and Hashai (2011) argue that that poverty mitigation in emerging markets or economies is one of the major benefits of foreign direct investment. One might argue that the locally employed individuals are poorly remunerated as multinational corporations usually use local rates to calculate their salaries (Farole, 2011). However, Athukorala (2007) notes that it is better when citizens of developing nations have a source of income than lacking any income at all. Besides, not all FDIs operate in this manner as there are multinational corporations that remunerate their employees so as to motivate them into increased productivity for the continued survival of the firm in question. Some of these firms even dedicate themselves to corporate social responsibility programs and would not engage in anything that would negatively affect the wellbeing of their workers or negatively impact their public image (Ramp, 2009).

Athukorala (2007) continues to note that the creation of more employment opportunities increases people’s capacity to save and invest. An increased level of investments from locals not only increases self-employment opportunities, but also increases opportunities for other people, as one may need to employ other people to help in the business. In the end, if such small businesses are effectively managed, they can grow into large corporations, which then will require a huge manpower population. Nonetheless, increased savings create security, especially when people reach at their old age and, therefore, improves their standards of living.

Another benefit of FDIs arises from Corporate Social Responsibility (CSR) programs. Since multinational corporations are foreign companies, they are required to engage in philanthropic activities so as to give back to the society in which their subsidiaries are situated (Jovanovic, 2011). CSR activities are important for multinationals to ensure that they are accepted in the foreign countries, especially, by the local communities who are their hosts and primary customers. Currently, most customers prefer to associate with companies that also invest in improving their wellbeing. Further, customers also value multinational companies that uphold high ethical standards in their operations. Therefore, many MNCs believe that they have a bigger role to play in the societies they are based in besides maximizing their profits. Such firms may, therefore, choose to fund various community and social development projects with some constructing schools, hospitals and other forms of infrastructure for local community use Jovanovic, 2011).

Any form of developments that result from CSR activities conducted by multinational corporations eventually result in further advantages or benefits for members in the community surrounding the MNC. For instance, the construction of schools in local communities’ means that more and more people will seek for meaningful education, thus, enhancing competitiveness in the job market. Consequently, members of a community who have acquired quality education as a result of CSR programs are able to secure well-paying jobs that ensure they are able to live above poverty levels (Goldstein, 2004). Consumers in markets where MNCs operate also benefit greatly because their choices of products and/or services is increased. Consequently, consumers are, therefore, able to compare products and services based on the quality and cost, amongst other factors (Peng, 2011).

Increased competition will force the local companies to strategize on how best keep its customers and even still attract more customers; in the presence of MNC subsidiaries. This may see the prices of goods go down while quality gets to improve. They will have satisfying products and high buying powers. They might also be able to save the few extra coins, which then may be channeled to other matters. Tihanyi, Devinney and Pedersen (2012) argue that it is the lack of competition in emerging markets that lead to producers exploiting their customers. At this point, the local companies will end up investing a lot in research and development so as to be at par with the multinational subsidiary and therefore not be beaten off the market i.e. how best to be cost effective so as to lower the prices of their products and services.

Wattanawisitporn (2005) says that multinational corporations usually have expatriated senior level managers who generally are very skilled, knowledgeable and experienced. With their high competency levels, they normally are capable and have the responsibility of training their followers in middle level and first line positions so as to be able to take up from them should they travel back to their home countries (Moura & Forte, 2010). Emerging markets get to benefit in terms of managerial development, which sharpens their skills and enables them to be better positioned to brainstorm in new ideas and develop various strategies that can be enacted to the local businesses for increased productivity. Such companies will not only be able to compete locally, but at the global or international level as well (Onkvisit & Shaw, 2009).

According to M. Marinov and T. Marinova (2013), most emerging markets have some degree of unexploited natural resources. This normally is as a result of the lack of capital, yet such resources if adequately exploited, can act as good sources of income for the nationals, and provide funding for various economic and social projects. Some economies end up seeking for foreign debts in order to obtain funds that can be used to exploit their natural resources. However, such economies are usually unable to exploit their resources even after they have obtained the credit to finance the process due to their technological laggardness. FDIs offer aid to such economies by providing the required expertise for the exploitation and sale of the resources. In the end, their dependence on foreign and donor aid will cease, as they will be capable of funding their own projects (Alvarez et al., 2011).

Lastly, Ramp (2009) notes that FDIs benefit emerging nations because it fosters global integration. Developing nations that encourage a lot of FDI have to be in a continuous communication with the developed countries, therefore, giving them a global presence that, consequently, boosts their economic development i.e. flows of finances (Looney, 2014). If the same developing countries maximize their networking activities during their interactions with developed nations, they will gain a lot in terms of the knowledge that can be applied in their local environments for increased growth and economic development.

2.2.7. Negative Impacts of FDI in Emerging Market Countries

Evidently, several advantages or merits accrue from foreign direct investment. However, this does not mean that FDIs do not affect emerging nations in a negative way. One of the negative impacts of FDI in emerging markets is the political lobbying by the multinational corporations, which is usually aimed at influencing a country’s laws and regulations to favor them over a particular period of time, thus, ensuring that these companies are able to continue trading and making profits in such an economy. A good example of MNCs’ political lobbying is the oil industry where companies such as Shell and BP have on several occasions tried to influence the politics some parts of Africa like Nigeria (Ramamurti & Hashai, 2011).

There are a number of multinational corporations that perform very well to levels where their gross domestic product (GDP) surpass that of an emerging country as a whole. As a result, such a multinational corporation may end up having a great ability to influence a country’s policies, rules and regulations, to favor their activities (Ramp, 2009). In fact, some multinational corporations support specific leaders who can advocate policies, rules and regulations that will enhance the companies’ interests. Such policies may, for instance, allow MNC to save more profit or evade paying taxes (Farole, 2011).

Secondly, most emerging markets have unexploited resources that remain so for long periods of time following the lack of inadequacy of capital to exploit the same. Some multinational firms, then target to channel FDI in such economies with a hidden intention of exploiting those resources. This is so as they have either overexploited or wastefully exploited the resources in their own countries, yet still yearn to grow and have capital for the same (Moura & Forte, 2010). Truthfully speaking, this constitutes exploitation of the host country’s nationals as such MNCs do not care about the sustainability of the resources, but on gaining short term profits by using such resources indiscriminately, only to their advantage.

Edwards (2010) is of the opinion that multinational corporations threaten small-scale businesses in emerging nations. MNCs have wide scope and scale which earns them great buying power as well as huge pricing incentives –which the small-scale businesses cannot compete with. Having their operations in several countries, they get to enjoy economies of scale and scope and they never even have to rely on debts. Besides, they stand in a position to better market their products and services to the public, yet marketing is expensive and not affordable by small-scale businesses in emerging markets (Moura & Forte, 2010). In the end, many such small businesses are normally wiped off the markets due to their inability to attract more customers and to operate on the same level as the MNCs. When local businesses are wiped out of market by foreign MNCs, it means the host country will experience low growth rates as most of the profits made by MNCs are repatriated to their home countries or distributed to offline holdings (Wattanawisitporn, 2005).

In as much as emerging economies get to develop their technological know-how through FDIs, and the FDI get to benefit in terms of natural resources for profits maximizing, there are speculations that developing economies do not share completely their technological knowledge. This is on for fear of the weak economies will adopt their business models and hence compete favorably with them (Athukorala, 2007; Jovanovic, 2011). Khanna, Palepu and Bullock (2010) are in fact of the view that developed economies utilize this strategy so as to ensure that the emerging nations forever depend on them.

Multinational corporations also pay workers from their host countries, a lower amount of pay than what they are supposed to earn. Employers from MNCs are able to take advantage of desperation exhibited by employees following the high levels of poverty in such regions. Most of the nationals from emerging nations would accept the little amount of income they can get from MNCs rather than nothing at all, so as to be able to meet their lowest levels of physical and psychological needs. The fact that multinational corporations are able to rely on cheap labor and, therefore, make high profit margins, is one of the factors that prompts them to invest in emerging market economies. Therefore, developed nations are most likely to venture into emerging economies that have do not have stringent restrictive rules, therefore, enhancing their capacity control on the host government (Pedersen, Asmussen & Devinney, 2011).

Following the above-mentioned demerits on emerging economies, there are some emerging nations’ governments that have put in place stringent rules and regulations control the effects of FDIs and protect its nationals against any unfair competition and discrimination. However, the same nations are characterized by high levels of corruption that still see such rules and regulations broken.

2.2.8. Positive Effects of FDI in Emerging Markets with the Reduction of Poverty

There appears to be a direct positive relationship between FDI and poverty reduction in emerging markets; that can even be made better by structuring all the parties involved properly, a good example of such direct relationship is the creation of employment opportunities for the nationals the host countries (Alvarez, et al., 2011). The increase in opportunities as a result of open doors for such individuals increases their capacity to meet their basic needs while the host countries’ governments get to collect more taxes which not only reduce their level of independence on foreign aid but also enhances their socioeconomic development as well (Wattanawisitporn, 2005).

Nevertheless, when money circulation increases, people are able to save and invest more. This means that they will not only live a good life today but also will still be able to enjoy the same in future without having to desperately depend on the younger generation, their governments and donors for assistance (Peng, 2011).

FDIs also help in poverty reduction through a wide range of philanthropic activities, i.e. the construction of social amenities like schools and hospitals. No one can ever be able to engage in any meaningful employment if one lacks the requisite skills and knowledge offered in schools, especially, during the younger and the youthful ages of an individual. Nevertheless, one needs to be healthy enough to engage in work, yet diseases and illnesses are very natural and can sometimes not be prevented, hence, the need for hospitals. Even in situations requiring prevention, some of such prevention services can only be provided in hospitals, for example, vaccinations.

Multinational corporations also provide services and commodities of need to emerging markets. In doing so, they stir up competitiveness to the point of breaking up any existing monopolies (Khanna, et al., 2010).When this is done, prices get to reduce as consumers will go for best pricing companies. This in turn increases the buying power of the same consumers who can then be able to purchase more for less and therefore better their standards of living (Edwards, 2010).

As seen earlier on in this study, there are demerits suffered by emerging nations as a result of FDI. However, any course of action taken by a government must have both merits and demerits. FDI’s potential to reduce poverty levels in most developing countries, should encourage most nations to look for solutions that will address the demerits that may arise from such an intervention. This will ensure that emerging nations are able of gaining the maximum benefits from the same as the multinational corporations or the developed economies enjoy good profit margins.

2.3. Simulation Modeling using SDM

2.3.1 Introduction

Systems dynamics is an approach to understanding the nonlinear behavior of complex systems over time while using stocks, flow time delays, and internal feedback. It utilizes computers in designing policies and analysis. It features mutual interaction, cyclic causality, interdependence and information feedback.

SDM allows the evaluation of assumptions and the analysis of existing parameters that facilitate participation. Participatory system dynamics modeling is beneficial to resource mapping and, therefore, supports community participation, which is the main principle of asset-based community development. So, there exists a direct tie between asset-based community development and systems dynamics modeling. In addition, SDM provides clients and stakeholders with an opportunity to participate in different phases of the resource mapping process (Chuang, 2011).

SDM is a concept used as a methodology that can address dynamically compound issues in community resource management. It is characterized by stakeholder involvement is instrumental in resource mapping. According to Winz et. al. (2009), the underlying premise of the system dynamics model is that the framework of the system created observable and predictable behavior. SDM can assist in resource mapping and mobilization when all the phases are followed sequentially. Stages of incorporating the SDM methodology in resource mapping include:

Problem definition
System conceptualization

Formulation of a model

Evaluation and testing of the model
Policy analysis
Implementation (Winz, et al., 2009).

2.3.2 System Simulation Research Methodology

The systems simulation uses computer modeling simulation, in order to conduct a test in other real world systems. The aim of simulation is to understand the behavior of systems and to use imitated systems instead of the actual ones. The main detriment of this system is that it relies on real world investigation of systems. This means that any failure in the system happens in real time and this causes irreplaceable damage (Lynei & Ford, 2007). The discrete event simulation separates the various changes as separate events. SDM, on the other hand, looks at the system as a whole.

Researchers have often argued about the difference between system dynamics and discrete event simulation (Lynei & Ford, 2007). The main argument is that systems dynamics does not accommodate randomness, while discrete event simulation allows randomness in the system. The validity of this argument is that the system dynamics model is more stable when compared to the discrete event simulation model.

The SDM software is used to create flow charts that will be used in diagram modeling. The software allows the user to create complex simulations that have the ability to run multiple outcomes. In addition, the software is fundamental for the simulation process being conducted in this research. The model is characterized by levels, constants, flow and auxiliaries. The levels represent the state of the system while flows refer to the actions. Flows are the variables that cause changes to the levels. Auxiliaries are the converters that receive, compute and pass on information. On the other hand, constants are computed during the initial step. The flows represent the relationships between two or more levels and links represent relationships between auxiliaries. Valves are able to control the flow through the system by increasing or depleting these flows. Thereafter, the model is then expressed using mathematical equations used to determine the rates and the influence of the auxiliaries (Palm, 2005). The equations are normally either integrated or differentiated to allow for increases and decreases.

2.3.3 Stages in SDM

Systems dynamic modeling has five distinct stages. Boundary selection or Problem articulation is the first stage. This stage involves setting the main variables and time frame. Historical behaviors of main concepts are outlined in comparison to the projected future behavior. Formulating the dynamic hypothesis is the second stage. This entails the generation of a hypothesis with the aim of creating maps of causal cycles through subsystem diagrams, boundary diagrams, and loop diagrams. The third stage involves the creation of a simulation model. This stage focuses on research questions to validate the model. Testing the Simulation model is the fourth stage, and the last stage is designing policies and assessment. This will involve emerging issues, sensitivity, potential policy and specific scenarios.

System dynamics with the inclusiveness of stakeholders is an important resource for mapping. It’s a concept that can be methodologically used to address compound issues in community resources. Winz,et al. (2009, p. 1304) state that “the underlying premises of the system dynamics model is that the framework of the system created observable and predictable behavior”. When the phases are followed correctly, SDM can assist in resource mapping and mobilization and cause a reduction in poverty levels.

2.3.4 Model conceptualization.

The process of conceptualization begins with the system boundaries being defined and the constant variables being set. This then proceeds to creation of the causal feedback loops. The feedback loops are set and the levels, auxiliaries, constants and flows based on the real world system. In most cases, the mathematical equations are used to determine the auxiliary computations and the exact flow. In order to separate the various organizational departments, the model also creates various sectors. The complicated relationships between the various sectors are assigned and mathematical equations are integrated into every sector. Thereafter, flows are used to link the various levels (Karnopp, Margolis, & Rosenberg, 2012). This model clearly shows the relationships between the various variables.

Model testing reveals that the advertisement and hiring delays do not significantly cause project schedule delays. However, the policy used for training is the most important factor (Palm, 2013). This is all based on the SDM created as a replica of the real world systems. This concludes the testing and simulation of the research model.

A Causal Loop Diagram

This is a diagram that aids in visualizing how various variables in a system are interrelated. The diagrams consist of nodes that represent a connection between two variables. A negative causal link means that two nodules change in opposite directions while a positive causal link means that the nodes face the same direction

Below is a loop diagram that indicates the various variables that are incorporated, through participation, in a SDM of managing a water resource.

Figure 3: Casual Loop Diagram

Source: Sharawat, et al. (2014) (The diagram above is a loop diagram indicating the various variables that are incorporated, through participation, in a SDM of managing a water resource)

2.3.5 Dependability of the SDM

Most dynamic modelers are reluctant in applying the formal tests when assessing the behavior of the created model. This explains why validity of any dynamic models created, without being tested to ascertain validity, should be questioned. Further, this provides an indication that research questions developed cannot be conclusive as the literature review also fails to refer to any inherent weakness in SDM. The notion of a lack of validity was first defended by Forrester (1994), who claimed that validation, as an abstract concept did not have a useful meaning.

Most research methodologies validate systems using statistical estimates to reach accuracy of results. There is no reference to a control or alternative system and no one can ascertain the actual difference between the effect of the simulation model application and the real world system, conclusively (Morecroft & Sterman, 2000).

2.3.6 Validation of the SDM

It is important to have confidence in systems dynamics and adapting its models despite the Dynamic modelers being aware of their weaknesses. Despite most systems dynamics modelers finding the goodness of fit to be an unreliable way of validating the model, it is still a necessary step. This step needs to be carried out to defend the research questions as well as to validate the model.

A good traditional test that can be applied is the root mean squared error test that will compare the simulated variables with the actual variables in the system. This will provide a clear way of assessing the accuracy of the SDM generated. When dealing with oscillating factors that affect a business organization, there should be a way of conducting tests meant to cancel out such effects. A summary of the spectral density in the simulated model and the actual model at regular periods will provide a platform of asserting whether the model properly represents the actual system. This will provide an empirical comparison of the system dynamics model generated with the real world system and conclusions can be drawn without the bias that is inherent in Chuang’s dissertation. Such data can be collected using the questionnaire method in the real world system that is being investigated and a comparison could be done in order to validate the SDM (Chuang, 2011).

2.4. Summary and Transition

To summarize this chapter, ABCD, FDI and adoption of SDM approaches can be utilized in creating a sustainable reduction in poverty levels in emerging markets as evidenced by the theoretical perspectives; that is, through the works of the previous researchers in the field and other related fields. This will play a major role of enabling third world economies to catch up with the high level of global competitiveness.

However, as has already been seen in this chapter, there are loopholes and weaknesses of the existing literature that need to be filled with fresh research. Besides, this is also critical as factors surrounding the approaches keep on changing, and previous findings may therefore no longer be valid. This chapter, however, gives the researcher an idea of what the critical and non-critical factors of this study entail and makes him/her ready to go to the field to conduct fresh research as shall be seen in the chapters that follow.

CHAPTER THREE: RESEARCH METHODOLOGY

3.0 Introduction and Chapter Overview

This chapter presents the research methodology. Specifically, it discusses the transition existing from the previous chapters; the research design, qualitative and quantitative methodologies; data types and sources; target population, ethical considerations, setup up of system dynamics methodology, and summary.

3.1 Transition

The Literature review has covered the study’s objectives in detail. However, the literature review concentrates on the works of previous researchers. Based on literature review, there are gaps and weaknesses in past research that current research needs to address (Chandra & Sharma, 2013). Most current businesses exist in a continually changing environment, thus calling for an equally continuous research. Having looked at the literature review in a logical manner as proposed by Richer (2013),, it is essential to go back to the field so as to examine the real situation before summarizing the findings in comparison to the theoretical background.

This chapter, therefore, explains the research methodology that will be used in the study. Specifically, it looks at the research design, including a differentiation of qualitative and quantitative methodologies, data types and sources, target population and ethical considerations. It also goes ahead to examine the manner in which the data collected will be analyzed, the ethical considerations to be made and the challenges likely to be faced by the researcher during the process of collecting data.

3.2 Research Design

Given the nature of the research problem, the study will adopt a case study method, which, according to Yin (2003) should be considered when the focus of the study is to answer “how” and “why” questions. The case study is based on: recent journal articles, government policies, and primary data. It does so by concentrating on the three objectives of the study, thus, relating these factors (Asset-based community development, foreign direct investment and systems dynamic modelling) to poverty reduction in emerging markets.

Neale (2006) explains that a case study is a description of something unique, special, or interesting – stories can be about individuals, organizations, processes, programs, institutions and events (Yin, 2003). In such a case, the story is about how to achieve a sustainable reduction in poverty by uniting corporate, donor and the investment community in emerging markets. In determining the same, the researcher and his/her enumerators will attempt to establish the positions of ABCD, FDI and SDM approached in relation to the poverty levels in selected emerging market economies.

According to Mugenda (2003), a descriptive research design is used when the problem has been designed and where the researcher is in a position to conduct a field survey by visiting the population of interest in order for the respondents to explain certain features about the problem under study. The respondents are expected to describe how the three investment approaches benefit or limit them; their relationship and interaction, and how all these impact on the high poverty rates in the developing world countries.

Case studies are important since they are considered particularly useful where the researcher wishes to understand the unique aspects of the population being studied to ascertain facts, which is the case with this research (Yin, 2003). A case study will also be relevant to this study in that it gives a more detailed consideration to the variables being studied (ABCD, FDI, and SDM) and facilitate better information generation about the wider populations involved (emerging market economies and developed world countries-Multinational Corporations; MNCs).

3.3. Qualitative and Quantitative Methodologies

There are two approaches to research, which are distinctive. The first is a quantitative approach that utilizes statistical, mathematical and modelling techniques to test the validity of the objectives and matters surrounding them. During analysis, this approach goes ahead to summarize the data and present it in terms of means, percentages, fractions amongst other statistical formulas. These forms of data can then be fed into statistical packages such SPSS and findings from the research as they are in numerical form, and decomposed into components that can be better understood. Quantitative data can be analyzed using tables, percentages, pie and bar chart by use of computer packages, especially with SPSS and Excel. Taylor (2009) describes quantitative research as being conclusive as it involves statistical data.

On the contrary, qualitative data does not necessarily use statistical techniques. Instead, it attempts to understand human factors. Such forms of data are rather descriptive in nature as evidenced by words and sentences in an attempt to create an understanding, thus, making the study a success. Taylor (2009) postulates that collection of qualitative data in the form of sentences and words can lead to research bias, compared to numerical data that provide conclusive answers to questions. Qualitative research will be the focus of the design of this research. The qualitative method will be chosen over the quantitative methodology due to the nature of the research questions which require the researcher to answer the “how” and why” questions at the end of the study. Moreover, a qualitative methodology seems to have a number of merits, amongst them being:

The methodology does not require a large sample size as its main interest is not numbers but quality. Instead, it requires a relatively small target population that is more focused. Our case study will cover several emerging market economies as well as offshore investments in emerging markets. The study will analyse a great geographical region; meaning that choosing a reasonable number of respondents for the sample population who is focused on the topic in question will save on the time and funds to be spent on the study. This approach will be better than having the whole population acting as the sample population. The researcher and the enumerators will also focus on persons and institutions that are at the core of the study thus including people who are most likely in possession of the requisite information for the study e.g. emerging markets’ governments, and multinational corporations (MNCs).
It allows for the discernment of issues in which the researcher only has an idea or no knowledge of at all. This notion is true because the use of the qualitative methodology allows for an elaborate study that eventually uncovers the unknown and sufficiently solves the issues in question. Therefore, a researcher does not only need to research issues that he/she has knowledge about.
This method also studies phenomena in details and hence leads to a better understanding of the same. While studying how best to create a sustainable reduction in poverty, in emerging market economies, it is essential to understand ABCD, FDI, and SDM and what they entail. Further, the researcher will also have to analyse the benefits and demerits and the resulting relationship between the emerging market economies and the developed nations in order the answer the research question appropriately. Although quantitative methodology might provide important figures, it would so but without sufficient explanation attached to these figures, hence the phenomena would still not be well understood.
Finally, the methodology also operates on the assumption that multiple realities can exist in any given situation. Therefore, it will not ignore any factor that might be relevant to the study. For instance, in our case study, a qualitative methodology considers other factors that might have a great impact on creating sustainable poverty reduction in emerging market economies. This merit might further lead to discovery of new knowledge that can improve the research.

A qualitative methodology would normally seem like the best method for conducting the research method. However, there might never be a perfect way of conducting research, as this methodology is quite involving and costly (Taylor, 2009). Consequently, the researcher must invest a lot of time and greater amounts of funds to the research, especially, because of the need to widen the geographical coverage of the study population.

In summary, it is necessary to note that research can take a mixed methodology that contains elements of both quantitative and qualitative data (Harwell, 2012). This study will adopt the approach proposed by Harwell (2012) and it will concentrate more on the qualitative methodology to enhance the understanding of the concepts ABCD, FDI, and SDM approaches and their roles in creating sustainable poverty reduction in emerging markets. The data collected from the field will be expressed in terms of words and statements. However, quantitative data will be used to represent the views collected from respondents through questionnaires, especially the existing statistics surrounding ABCD, FDI, and SDM approaches in emerging market economies. The study will hence be a mixed-methods research

3.3 Data Type and Sources

Data is the most important consideration in any decision-making process within an organization, institution or country. Processing data generates important statistics that characterize the study. The researcher will use both primary and secondary sources.

Secondary data is usually collected from sources, which have already been created for the purpose of this case and future cases. The study focused on the organizations’ websites, press reports, journals, research reports, news articles, magazines and other written literature on issues surrounding ABCD, FDI, and SDM approaches.

However, as Zikmund (2012) notes secondary sources are not as accurate as primary sources. This study uses questionnaires as the main source of collecting detailed feedback from individuals. A questionnaire or survey is a collection of questions to which a research subject is expected to respond. The questionnaires contain both open and closed questions; the closed questions restricted the respondents to the yes or no answers, while the open-ended questions required the respondents to respond freely with the hope that they would provide more detailed information about the subject in question.

However, the method has its drawbacks. For example, some questions of the questions asked are, in some cases, not understood and so irrelevant information was given and some respondents withheld some important information that was needed for the study. In summary, the limitations of the method ware overcome through: stating the objectives clearly and making questions pleasing and simple by organizing them in a logical sequence to ensure the flow of answers.

Given the geographical dispersion of the research population, the researcher will chose to use enumerators who were allocated different regions to supervise as per the distribution of questionnaires and all prior activities such as sampling. The researcher will ensure that the enumerators will be well chosen to ensure that persons with the requisite skills, knowledge and abilities are able to work in the field. Moreover, these individuals will go through prior training sessions to prepare them, further by the researcher.

The enumerators are also trained on observation techniques, as the method was also a necessary primary collection data tool. Past researchers have, for example, made significant observations relevant to the study in question. According to Bassanini and Scarpetta (2001), the general observation has been that there are many interrelated factors that influence socioeconomic growth. Further observations by the enumerators should not only benefit the study, but might also help develop and improve the work of past researchers.

3.4 Target Population

Harwell (2012) defines a target population as the entire group of individuals or objects that the researcher wishes to generalize the findings of the research. The target population in this research will be nationals and governments of emerging economies. Various secondary sources will be relied on; especially a number of government reports coupled with the written responses from different people. The setting of this research will, therefore, be appropriate as it will provide complete access to all such details and it will facilitate the administration of questionnaires to key people. However, there will be the risk of not obtaining all the relevant information as matters relating to government policies and economic matters are normally treated with utmost confidentiality. Data will, however, be available at all times as most of it will be obtain online.

3.5 Ethical Considerations

During the study, the researcher will ensure that a high level of ethical consideration will be maintained by both the researcher and by the enumerators. These involve:

Plagiarism- The researcher will avoid copying the work of other individuals acquired in the process of data collection without acknowledging that it is not the researchers own work.
Security and confidentiality of information- The researcher will ensure utmost security and confidentiality of any such information acquired during the study to avoid compromising the operations of investing countries, MNCs, and emerging nations in all possible regards.

Permit and approval- The researcher will ensure that he obtained the permit and approval of all economies, corporations, groups and individuals before collecting data.

The study’s findings will be presented in the next chapter through the use of charts and system diagrams and system dynamics simulation modeling to ensure a good visual impression and to enable a better understanding.

3.6 SDM Setup

3.6.1 Prelude

To effectively understand how to set up a system dynamics model that will be validated from world systems, it is paramount to understand the process and the different parameters involved prior to providing the model and simulation. This chapter provides a step-by-step walk-through of achieving the model from the background information of the variables to the approach taken in formulating the model. An understanding of systems dynamics modeling is provided to enhance the credibility of the system.

3.6.2 Background Information: Understanding Variables

System- group of items that are interdependent and forming a unified pattern. It is an ordered set of interrelated elements. Quantity, connectivity and functionality are the three dimensions that define a system (Cantrell & Yates, 2012). The design concentrates on people and technology in an effort of designing, marketing, producing and distributing products and services. With a systems approach an alternate viewpoint to the challenges facing the management is taken. In this approach, the system internal structure is important than the external events that generate the problem. Using a system structure, the probability of enhancing the performance of the business is increased to a high degree (Forrester, 1961). Correcting the deficiencies in the system structure ensures that the problem does not resurface or become replaced by a more challenging problem.

Root Square Error- measures the frequencies between values. The values may be sample values or population values that are predicted by a model and the actual values observed. The root mean square error provides a standard deviation as a sample of the existing differences between observed values and predicted values (Ford, 1999). The emerging differences are known as residuals is the calculation is performed over the data used for estimation. If the computation is on the out of sample data, the individual differences are termed as prediction errors. The root square error acts as a good measure for accuracy as it enhances forecasting errors of different models for a given variable and is scale dependent (Ing, 2014). The root mean square error of a given estimator in relation to a given parameter say results to be the square root of the mean square error as follows;

If the estimator is unbiased, as will be in this model, the root mean square deviation is equivalent to the square root of the variance; known also as the standard error.

Spectral Density- this is an estimation technique used in statistical signal processing for estimating a random signal from a set of time samples of the signal. The frequency content of a signal characterizes the spectral density with the aim of detecting and determining the periodicities of the data (Lucertini, Millán & Nicolò, 2004). The detection is achieved through making observations to the peak of the data and evaluating the corresponding periodicities to the observed peaks.

Goodness of Fit- this is a measure that summarizes any discrepancies prevalent between the observed values and the expected values (Lucertini, et al., 2004). As a statistical model, the goodness of fit shows the extent to which variables fit a given set of observations. In this methodology setup, the spectral density analysis and the root square error are used to determine a necessary goodness of fit measurement (Maani & Cavana, 2007).

3.6.3 Understanding SDM

To understand complex systems, a set of conceptual tools are applied in a certain perspective to enhance this understanding. In system dynamics, rigorous methods for the construction of formal simulations of complex systems are adopted to enable effective design of organization policies (Montuori, 2000). System dynamics modeling applies mutual interaction, interdependence, circular causality and information feedback. The application of system dynamics involves defining a problem, mapping and modeling, building confidence in the model by rigorously testing and evaluating the model to ensure it provides the required results. To understand the prevalent problems, systems thinking is applied (C. Mamoria, S. Mamoria & Gankar, 2008). Using this approach, isolated events and their causes are disregarded in favor of viewing the organization as a set of interacting parts as indicate in Fig 1. The conceptual tools applied allow the creation of management flight simulators and micro worlds. In this scenario, space and time can either be compressed or slowed down to determine the side effects of learning speed and decision-making in the long term. Therefore, structures and strategies that guarantee greater success are formulated.

Figure 4: Looking for Higher Leverage

3.6.4 The System Dynamics Approach

The approach involves a number of steps that enable the formulation of a model. The chronology of the various steps in the approach is as follows:

Understanding the scope and dynamically defining the problems in terms of graphs over time
An inward focus on system characteristics that they exacerbate on the perceived problem. Doing this strives for a behavioral view of system dynamics.
Conceptualizing concepts in the real system as continuous quantities that are interconnected using loops of circular causality and information feedback (Morecroft & Sterman, 1994).
Identifying and determining levels in the system and their rates of inflow and outflow
Formulating a behavioral model with the ability of reproducing by itself the challenges and problems of concern. The model, usually a simulation from a computer is expressed in nonlinear equations. However, it is quantified as a diagram that captures the systems feedback structure i.e. the stock and flow.
Deciphering and deriving policy insights applicable from the developed model (Böhringer & Löschel, 2003)
Implementation of the changes from the model on the basis of insight and understanding

3.6.5 Simulation and Modeling

From a mathematical perspective, the structure of a system dynamics model is a computer simulation of nonlinear, coupled, first order either differential or integral equations as follows;

x (t) = f (x, p)

In this equation X is the vector of levels which are either the states or stock variables, p is a set of parameters, f is a nonlinear vector-valued function. To achieve simulation of such a system, the simulated time is divided into discrete intervals of length dt. After this, the system is stepped through partitions of time of one dt (Mount, 2009). Every state variable is determined through computation of its previous state values and the net rate of change i.e. x’(t): x(t) = x(t-dt) + dt * x’(t-dt) (Richardson & Pugh, 1981). Initially, the systems in simulation language were incorporated in the field of DYNAMI and this equation was represented using time scripts. The representation was K for the current time, J the previous moment and JK was the interval between the times i.e. the time elapsed between the current and the previous. Therefore, the resultant equation emerged as X.K = X.J + DT * XRATE.JK (Murray & Zhu, 2003). To ensure that there are no discernable effects on the dynamic behavior patterns attributed to the model, the interval of the computation date, is selected as low as possible. Modern simulation environments have a sophisticated integration scheme and approach where the time schemes are not evident despite the equation depicting a simple Euler integration scheme.

3.6.6 A Modeling Approach

To gain an understanding how business processes work, several issues will need to be addressed. The processes are presented using a causal loop diagram as illustrated in Fig 2. The model adopted here is a simple solution to an advertising problem for a durable product. The available pool of potential customers are converted into actual customers through sales. With the aim of driving the potential customers to zero, a negative feedback loop connects the customers to the sales. In an ideal situation with a typical advertising scenario, the higher the number of customers, the higher the sales (Roberts, 1978). The illustration is depicted in the figure 2a using a positivity between the customers and the sales. A negative feedback loop arises once there are odd number of negative links in the feedback loop. The diagram is formulated with the intent of providing insight. As it emerges, the sales will go to zero when the number of potential customers reaches zero. Such an insight is not useful to the management in the decision-making process. As previously stipulated, the essence of having a model is to determine the rate of proliferation. For this reason, the model falls short of providing the rate at which the customers the customers will decline to zero. An understanding of the declining rate will ensure that the management determines the ratio of production for a specified period before losing all the customers. The scenario provided here is a simple situation where spreadsheets may be used to develop a model that is qualitative and that investigates the rate of customer decline towards zero (Shaw, 2008). Using this approach as the basis, simple and complex business processes may be solved.

Figure 5: An Advertising Example

Stock and flow diagrams are used as an approach to modeling to help in thinking concerning the rate. For example, in this scenario, figure 2b is used as a graphical representation that provides a basic framework or structure for thinking the rate at which the business is losing customers (rate towards zero) (Forrester, 1961). There are three elements in the diagram, the stock, flows and the information. Any business process would be represented using such an approach. As discussed during the definition of a system, it is paramount to not the three dimensions that define the system. It is these dimensions that are being applied in this scenario. The graphical notion is a skeleton, it is the basis upon which qualitative models used to study the characteristics of processes are applied. In addition to this, the application of a stock flow diagram enhances validation. The initial requirements of the root mean square error and spectral density analysis may be used as deducing and testing factors (Ing, 2014). The stock flow diagram is used to indicate the relationship among the variables that are continues i.e. the variables with the potential of changing over time. In the scenario used here, the variables present are the potential customers, actual customers and sales. Compared to a causal loop diagram, there is a distinction of the different types of variables in the stock flow diagram as opposed to a causal loop diagram. In figure 2b, the variables present, are distinguished using different graphical symbols (Forrester, 1961). Customers, both potential and actual are presented inside rectangle provide a level, stock or accumulation variable. Sales, on the other hand are shown next to a bow tie symbol that represents a rate or flow.

3.6.7 Approach Generality

As previously noted, the graphical representation may be used to characterize any business process. As such the inference that any business process may be characterized or represented is unambiguous. There are some processes such as manufacturing the process that contain numerous elements as opposed to the ones represented in this model. Simulating such packages results into taking into account the different symbols and specific characterizations for the various varieties of machines applicable. Detailed information is essential for determining the operations and characteristics of a specific process. However, since the detailed information is subject to a particular equipment, that may be obsolete in the future, consideration of such variables is not taken into account when it comes in the design and development of a high model subject to particular standards (Forrester, 1961). The essence is to consider the shared characteristics by all the business processes in relation to the components that make up the processes. Therefore, using the shared approach standardization, all the processes can be classified from two perspectives; variables of stock and rates.

The basis of such an assertion is derived from practical and theoretical work dating over a century. The first application came from Forrester (1961) when the ideas were incorporated into business processes and analysis. An extensive application indicates that this approach of considering business processes provides deducible insights based on the prevalent theory. It is through the availability of these predominant theoretical frameworks that the model can be tested from the expected results and the actual observed results. The practicality of the issue is based on well substantiated theories that have been tested for a long time. Using such a high end approach in the formulation of a model, it becomes inherently easy to determine how far the variables have deviated from the expected results (Ing, 2014). Therefore, the root mean square error may be applied as world systems to determine the frequencies between values. As previously seen, the values are explicit and this makes it a possibility.

3.6.8 Stocks and Flows

According to figure 2b there are differences between stocks and flows. The rectangles may be termed as containers while the double line from the potential customers to the actual customers is a pipe and the bow tie in the center of the pipe is a regulator of the flow within the pipe (Cantrell & Yates, 2012). As such, one sees that there is a flow of the potential customers to the actual customers and the rate of flow is controlled by the sales. Therefore, the key differences between stocks and flows emerge. On one hand a stock is an accumulation of something and the flow is the movement of the something from the stock. In a real world system, interest factors such as the changes in actual variables over time are of importance. That is, the managers are concerned at the rate at which the customers change over time. There are some continuous variables in this example. For example, some parameters such as time and rate of change of customers are not constant but keep on changing. If this was not the case, management would not be a dynamic process, but rather a static process characterized by common activities that everyone can carry out. Change is what poses the greatest managerial problems (Böhringer & Löschel, 2003). Changes in sales for example, an increase or a decrease should be met and addressed effectively to ensure that the firm faces the right direction. In a business setting, there are different types of stocks ranging from materials, personnel, capital, money and orders. Operations is the movement of these types of stocks from one end to the other either from high to low or vice versa.

3.6.9 Equations for Stocks

In modeling a business scenario, deterministic and continuous flow assumptions are made. The best approach is to view the model as a plumbing system where the stocks are considered as tanks and the flows as taps that control the rate of flow between the tanks. To specify the equations of the process completely for a process model; 1) the initial stock values should be given and 2) the equations for each flow should be determine. Using this approach, no matter the number of available stocks or flows the equations are simplified. Applying this approach to the previous advertising model in figure 2b calculus notations are used (Böhringer & Löschel, 2003). The number of potential customers at any given time t is the difference between the potential customers during the start and the number that flowed out based on the sales. If the sales are to be measured in number of customers per unit time, and assuming there were 100 potential customers, then

Potential customer (t) =100-

In the above equation, it is assumed that the initial time t=0 and T is used as a variable for integration. In the same manner, to determine the actual customers, it is assumed that the initial actual customers were zero (Morecroft & Sterman, 1994). A condition that holds true in the real world system since every new business does not possess actual customers. Therefore,

Actual Customers= .

Through the previous generalization discussed, the above equations holds true for any stocks in a dynamic business setting. One notes that the stock present at time t is equivalent to the initial value of the stock at t=0 added to the integral of the flows into the stock minus the flows out.

3.6.10 Equations of Flows

There are a variety of equations of flows consistent with the stock and flow diagram previously analyzed. Taking an example of sales being 3000 on a monthly basis until the potential customers drops to zero, the representation is as;

In a realistic approach model, if the sales are made by advertising to potential customers, then some given proportion of the potential customers will buy the product in a given time unit. The sales are in response to the advert. If, for example, 3% of the target potential customers buy the product during a given month, the sales equation results to;

From the actual customers and the projected number of customers, validation will be carried out to determine the extent to which the results deviate from the projection. It is here that the root square error and the spectral density are inculcated to determine the goodness of fit. In this scenario, since the distribution is from time is 0 to time=t (Richardson & Pugh, 1981), all the customers lying within this distribution time are used as determinants to the goodness of fit.

After a successful formulation of a model, as provided in the section above, it is essential to determine the credibility of the formulated model through validation and testing. To achieve this, the article Group Model Building Using System Dynamics: An Analysis of Methodological Frameworks is used as a comparative platform to augment the credibility of the above model compared with other models (Bérard, 2010 ) . The essence of adopting this document for analysis and review is because a majority of organizations apply group modelling frameworks to support strategic decisions. The research paper identifies and classifies key frameworks in an effort of providing an in-depth analysis. It is through the analysis provided in this research paper that one realizes the scarcity of frameworks that propose a global vision of the projects. In relation to this, the structures and the processes of the system dynamics are considered and evaluated. Knowledge, participation and facilitation are the three crucial issues of concern addressed in the article. Using the statistics provided in this article enhances reliability and validity of the above model in a business setting.

The article starts by prepositioning and defining a system. According to Berard (2010), the concept of totality is underline within the notion of a system. Such an argument is important as it forms the basis upon which the background of the formulated model is cemented. The view of the system is seen as a whole and not in parts where the parts are the individual components that comprise the system as the end result (Richardson, 2012). There are natural, technical, social and economic elements that form a system. It is the presence of these elements that contribute to the complexity of the system. From this approach, the model formulated concentrated on just the essential elements of the system. The parts that influence and affect the functionality of the organization were outlined. However, the article further emphasizes on the interactions and behavioral properties of a system. It is a wide scope that involves both emergent and dynamic properties of any system. Despite this, only the essential attributes of the system are considered in the development of a model as indicated in the modeling section (Rouwette, Vennix & Thijssen, 2000). Complex systems are defined as dynamic once they involve strong interaction of the actors in the system, time dependency feedbacks and behavioral reactions that are inherently difficult to predict. It is the lack of this predictability that enhances the formulation of a model that achieves this prediction through the application of both continuous and static variables in the system. Among them include time and stock respectively as applied in the example model formulated in this paper.

Background information on how actions result into effects differ from the projected results and the desired outcomes have been provided. Such information cements the need for modeling as it shows how rationality is surpassed. It is the characteristics of a system that influence the decisions of an organization as complexity of systems and cognitive limits of decision makers limit decision making. For this reason, modeling emerges as an option to articulate and enhance understanding of complex systems. Traditional approaches such as systematic modeling have been evaluated by the author (Richardson, 2012). For example, in this approach, simulation models are used for the analysis of complex systems to enhance the decision of the system actors and enable its understanding. To further augment and present the need for models, the article industrial dynamics are analyzed as inspired by Forrester (1980). It is the adoption of this approach that acts as a skeleton for simulating complex systems in a technique known as system dynamics. Using the simulation approach, behavioral dynamics over time are carried out which further enhances effective decision-making that eventually leads to an improved system over time. Inter-organizational networks, international alliances and prevention of crises in the management process are some of the organizational practices that benefit from the application of system dynamics. Therefore, since the need of the paper is to provide a methodology setup, understanding the business processes affected by the process is essential. The background on the emergence of system dynamics serves as a stepping-stone towards achievement of this goal.

Conceptual frameworks are developed with an aim of supporting modeling processes through the application of system dynamics. The management of the process is done by modelers with knowledge and experience in system dynamics. Despite this, Berard (2010) proposes the need to involve different participants with the aim of adding value to the produced model. Collective contribution has been the key to the development of system dynamics modeling. Despite this proposition, the provided model was not done as part of collaboration and, therefore, it falls short of meeting the fundamental concepts of system dynamics (Rouwette, Vennix & Thijssen, 2000). There are challenges involved through involving a number of participants in the design and development of the model. In this regard, the author attributes group model building as an art more than it is a science. The lack of collaboration and participation in the formulated model eradicates the challenges posed to the model and hence a proliferation in achieving the output. Berard further argues that it is difficult to obtain a global vision of procedures to be followed to carry out a group project. Therefore, in order to model a system that conforms to group dynamics, it is essential to provide a basic framework to be adopted as a skeleton to solving the problems (Mount, 2009). . The concepts holds true in the formulation of the given model where only the higher end design is provided without concentrating on the in depth analysis.

After the definition of a system, the modeling using system dynamics section of the article addresses the failures that occur in complex system. Implementation of design policies proves difficult due to the lack of feedback loops that account for limits and unintentional consequences. The case holds true when the system under evaluation has numerous components that pose a challenge to the decision-makers to account for in the mental modeling. The imprecise, elusive, incomplete and incompetent nature of mental model calls for the need of a structured, systematic approach to address these challenges (Richardson, 2012). Qualitative and quantitative principles are encapsulated in the feedback loop of the model. Modeling is divided into stages as proposed in the framework of Sternman (2000) from conceptualization to quantitative simulation as depicted in the following figure.

Source: (Bérard, 2010 ) From Conceptualization to Quantitative Simulation

It is this modelling concept that was adopted in the formulation of the proposed model previously discussed. The system structure and behavior of pattern were conceptualized from this inspirational diagram in an effort of leveraging lasting change within an organization. The need to articulate a problem and providing hypothesis to be tested based on the proposition is what determines the credibility of the system. The importance of this diagram lies within the design principles. Every effective and credible model has to be formulated to adhere to the underlying principles of design based on the quality and the quantity in relation to the environment of modeling.

According to the diagram, the first step is the problem articulation. In this phase, the problem is defined in its entirety and the aims of the model stipulated. It is through this understanding the formulated model was first defined through an introduction to the variables involved and the parameters in the problem. After this, the author introduces the influence diagram based on the assumptions in the model (Rouwette, Vennix & Thijssen, 2000). The influence diagram is developed based on the existing system. Through their adoption and implementation, the dynamics of any complex system are understood. According to an excerpt from Sterman (2000), the diagrams also enhance a conceptualization of the entire system and the mental models and the communication of important feedback between the sources of the problem (Sterman, 2000). It is the presence of these diagrams that elaborate and makes clear the cause of the problem. The diagram is a hypothetical representation of the system’s feedback structure. A statement that holds true as it is through the provision of a high-end system that the logic of the problem is determined and the model is conceptualized. The provision of influence diagrams influences the modeling of the scenario according to the system dynamics.

Simulation model formulation is the third step in the design of system dynamics. At this point, the level and rates diagrams are provided. Stocks and flows are used in these diagrams as representations of the system. It can be seen now that the system modeling approach, that takes the reader on a step-by-step methodological approach has been formulated from this basis (Stave, 2010). The concept of stocks as accumulators of something and flows as pipes that enhance the flow rate between the stocks correlates well with the definition provided in this scenario. In this step, rules for the formulation and adoption of decisions are made. The formulated rules correspond to the mathematical equations included in the development of the model. In addition to this, the variables are quantified and the initial condition in the model is presented in form of calibration. Despite the fact that the presented model does not provide the calibration parameter, it is essential to note that it adopts the same approach as presented in the design of dynamic systems as presented by Sterman (2000). After this step, the approach ensures that the model conforms to the stipulated task. It is in this step that tests are carried out with an aim of obtaining confidence by evaluating internal and external tests. When it came to the developmental model, this step was not overlooked, but a proposition was made for the application of the root mean square error and the spectral density as standard measures. However, the validity of these two approaches has not been fully substantiated, which makes the model show weakness in the application in real world systems.

The final step is the formulation of strategies and evaluating the simulated results. In reality, all systems fall short of providing an exact projection of the proposed solution. This shortcoming makes all models to lack an absolute sense of validity. Therefore, there are recommendations inform of alternative strategies to be adopted in the event that the initial approach does not delivery according to the specifications. However, this final step was not incorporated in the formulated model, as the aim was to develop a model using a procedural approach. The lack of alternatives, therefore, does not mean that the developed approach fails to deliver according to the needs of the business set up (Stave, 2010). However, in a real world application, this may pose some challenges once the norms of the system fail to deliver as initially provided in the design and implementation.

Modeling projects versus the group modeling is the other aspect that the article evaluates. In the former, modelers design and manage the models through data gathering from various sources. In the other approach, the experts are not the only sources of information but a collaboration with other experts in the field of system dynamics. It is the evaluation of these two approaches that the relevant modeling approach was adopted. Modeling in itself is an activity that has various components that are classified into stages (Cavana, Davies, Robson & Wilson, 1999). Berard (2010) classified the stages into three and they are the phases upon which all models are developed as presented in table 1.

Table 1: Components of Group Model Building

When Berard (2010) focused on the dimensions of project modeling, she provides two extremes; the structure and the process dimensions. The process dimension is of paramount importance as it forms the basis of the model formulated in this paper. These activities are of concern in the modeling where this approach is adopted. It is from this branch that the flow from the problem articulation, formation of hypothesis, simulation, testing and eventually the provision of evaluation strategies emerges. Using system dynamics, and relating it to modeling of projects, seven components are defined that characterize modeling using system dynamics. The different definitions of the components are as defined in table 2.

Table 2: Dimensions of Components of Group Model Projects

The components available in the organization dictate to a large extent the modeling approach to be adopted. To identify the key methodological frameworks, the article analysis literature rigorously and systematically using both transparent and scientific approaches to determine the selection strategy and the inclusion criteria. Three criteria were used to select proposed models (Richardson, 2012). To achieve this, articles based on system dynamics were used and all of them were published in scientific journals, which mean they were peer reviewed and therefore credible. Lastly, the version of the article was determined to ensure they were up to date from their last publication date. Based on these parameters, there emerged sixteen methodological frameworks as classified in table 3. Substantial components principal on all the frameworks was used to classify the different frameworks. There are several success factors that determine the outcome of a model including structural dimension. In addition to this, Berard (2010) shows that facilitation is key to group modeling since the attitude and communication skills of the facilitator influences largely on the consensus among the group members.

Table 3: Frameworks Classification According to the Two Dimensional Scales

At this point one may wonder how the article correlates with the formulated model. It is essential to note that the success of the current model heavily relies on closely augmenting previous components that were initially implemented and that guarantee success. Therefore, the evaluated methodological approaches do not only ease the adopting a proper dimension for the model, they also enhance save time since the formulation of the model does not take into account the structure dimension, but rather concentrates on the process dimension (Walter, 2013). The time of the modeler is drastically reduces and the probability of the model being a success increase. Background information and review of literature ensures that information is available that enhances the credibility of the approach adopted. In addition, a review shows which areas fall short of the models (Richardson, 2012). According to Berard (2010), the articles reviewed showed a shortcoming in the field of logistics. Therefore, this creates ample room for formulating a model that will cater for the logistics of an organization. Despite these chances being readily, available, it also poses some challenges seeming that some of the loopholes in the field have not been discovered let alone being fully substantiated.

Process dimension is the last methodological framework that has been evaluated by the author. Since the tasks involved in the modeling process of group dynamics are cognitive, that is the need lies with helping the management in decision-making, some of the tasks are evaluative, divergent and convergent in nature. It is this nature of the activities and tasks that ensure the modeling approach involves a succession of individual activities (Andersen & Richardson, 2012 1997). Therefore, every activity is catered for from the perspective of its nature and since each of the steps requires its own techniques, it can be divided into various techniques. The nature of the problem under consideration during the modeling approach is what dictates how the definition and articulation will be performed. For example, in this scenario, a high-end approach was adopted since it implements the principles of modeling dynamic systems.

In conclusion, the chapter section recaps the primary methodological frameworks as they pertain to group modeling as they were identified and classified. It emerges that an in-depth analysis shows the scarcity of existing frameworks as they attempt to propose a global vision as an approach to projects (Andersen & Richardson, 1997). The author emphasizes that only few frameworks consider process and structure simultaneously. However, the two extremes are inextricably linked and the need to launch an investigation on their interrelationship and fit emerges. Despite this, the article concludes that there none covers the components as covered in the scale of analysis. Structural dimension on one hand lacks a methodological support in various aspects with an exception of the facilitation. On the other, process dimension appears to be well analyzed and investigated with an emphasis on the qualitative model (Karnopp, Margolis, & Rosenberg, 2012). However, the totality of the group modeling approach and framework is seldom taken into account, which results into a lack of a proper approach to address group modeling. The paper inherently contributes to the identification of critical issues in the design of group modeling projects. It is through the elicitation of knowledge from the participants of the model and the ability to capture mental model and manage a cognitive process that makes the article fundamental for laying the background that cements the basis of the model. There is still room for further analysis and study since the article has some limitations such as the lack of component contextualization (Bérard, 2010). Project implementation is also influenced by other external factors such as policies and culture of the organization, which were not addressed in the article.

3.7 Summary and Transition

In summary, this chapter provides guidance on data collection and the manner in which the target population will be obtained. It concentrates on what kind of data will be collected and how to identify the right respondents who have the necessary information. This is critical for the objective of this research to be maintained as proposed by Harwell (2012).

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APPENDICES

Appendix 1: Ethical Considerations

Attention: Saybrook International Review Board (SRIB)

Ethical considerations for research proposal

This research will evaluate the impact of Asset-based community development (ABCD); Foreign Direct Investment (FDI) and systems dynamic modelling (SDM) in creating sustainable poverty reduction in emerging market economies. This activity will be done through data review and questionnaires.

I have looked at the ethical considerations of the study and of the protection of sensitive information in relation to my respondent in this research proposal and all attempts will be made not to infringe on these. This commitment will be achieved through the maintenance of:

Confidentiality – Some key individuals are by virtue of their work, custodians of information that may be deemed confidential to non-staff members. A general overview of respondents’ answers will be published, that cannot be traced back to individual respondents.

Anonymity – All data will be collected to maintain the anonymity of all participants.

Informed consent – All participants will be made aware that the information sought is to be used in a research project.

Voluntary participation – All participants to this proposal do so voluntarily, after being fully informed. A paragraph documenting consent is also included in the questionnaire.

Thank you.

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TENTATIVE TITLE: SYSTEMS DYNAMIC OF THE IMPACT OF FDI, ABCD, AND SDM ON POVERTY ALLEVIATION IN EMERGING MARKETS: CAN A SUSTAINABLE REDUCTION IN POVERTY BE IMPLIMENTED BY UNITING CORPORATE, DONOR, THE INVESTMENT COMMUNITY, AND THE PUBLIC IN GENERAL IN SELECTED EMERGING MARKETS?

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