imm work final 2013

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Comparison of Special Economic Zones between India & China

Project Report

Submitted By

Bhojak keyur 12044311005

Gardhariya Dhaval 12044311024

Goswami Hardip 12044311025

Rajpara Hiren 12044311135

Submitted To:

Prof. Dr. Amit Patel

V. M. Patel Institute of Management,

Ganpat University,

Kherva.


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1.1 WHAT IS SEZ?A Special Economic Zone (SEZ) is a geographical region that is designed to export

goods and provide employment. SEZs are exempt from federal laws regarding

taxes, quotas, FDI-bans, labor laws and other restrictive laws in order to make the

goods manufactured in the SEZ at a globally competitive price.

Special economic zone is a particular area inside a state which acts as foreign

territory for tariff and trade operations. Govt. provides tax exemption (IT, Excise,

customs, sales etc.), subsidized water and electricity etc.

The Special Economic Zone (SEZ) policy in India first came into inception on

April 1, 2000. The prime objective was to enhance foreign investment and provide

an internationally competitive and hassle free environment for exports .The idea

was to promote exports from the country and realizing the need that level playing

field must be made available to the domestic enterprises and manufacturers to be

competitive globally.

Legislation has been passed permitting SEZs to offer tax breaks to foreign

investors. Over half a decade has passed since its inception, but the SEZ Bill has

certain drawbacks due to the omission (cancellation) of key provisions that would

have relaxed rigid labor rules. This has lessened India's chance of emulating

(compete with) the success of the Chinese SEZ model, through foreign direct

investment (FDI) in export-oriented manufacturing.

A SEZ otherwise called as Special Economic Zone is a particular area in a country

which has geographically bound zones where the economic laws in matters related

to export and import are more liberal as compared to other parts of the country.

Special Economic Zones are introduced as tax free zones for the purpose of


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mobilizing trade. Special Economic Zones being set up in various parts of the

country are self sufficient with their own infrastructure and support services for its

function.

Special Economic Zones are being set up various parts of the country production of

goods including other activities like processing, assembling, trading, repairing,

reconditioning etc of commodities and goods. As per laws related with Special

Economic Zones in India the units are supposed to be beyond the customs

boundaries of India. Goods and services coming into SEZs from the domestic tariff

area or DTA are treated as exports from India and goods and services rendered

from the SEZ to the DTA are treated as imports into India.

If you are planning to start a business in any Special Economic Zones in India you

need to have a project report with all the necessary business details which should

be approved by concerned authorities. We Signs and Marks offers assistance in

making a professional project report for starting your company or business in the

tax liberated Special Economic Zones in India. In the recent past variouscompanies have started their operations in Special Economic Zones in various

parts of India with the help of project reports created by our team of experts.


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1.2EVALUATION OF SEZ.

A Special Economic Zone (SEZ) is a geographical region that has economic laws

more liberal than a countrys typical economic laws. It is a trade capacity

development tool, with a goal to promote rapid economic growth by using tax and

business incentives to attract foreign investment and technology. By offering

privileged (advantages or special) terms, Special Economic Zones attract

investment and foreign exchange, spur employment and boost the development of

improved technologies and infrastructure. Today, there are approximately 3,000

SEZs operating in 120 countries, which account for over 600 US$ billion in

exports and about 50 million jobs. By offering privileged (advantages, chance)

terms, SEZs attract investment and foreign exchange, spur employment and boost

the development of improved technologies and infrastructure.

Determine how resources are used Whether Employment opportunities are created

Cost outweighs the benefit of SEZ.

Existing since 1704:

Gibraltar (1704);

Singapore (1819);

Hong Kong (China, 1848);

Hamburg (1888);

Copenhagen (1891);


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1.3 ADVANTAGES OR DISADVANTAGES OF SEZ

Introduction

A SEZ unit which has been set up for carrying on manufacturing, trading or service

activity has both advantages as well as disadvantages. SEZ advantages are quite far

more as compared to its disadvantages which are almost negligible.

Advantages

15 year corporate tax holiday on export profit 100% for initial 5 years,50% for the next 5 years and up to 50% for the balance 5 years equivalent to

profits ploughed back for investment.

Allowed to carry forward losses.No license required for import made under SEZ units. Duty free import or domestic procurement of goods for setting up of the SEZ

units.

Goods imported/procured locally are duty free and could be utilized over theapproval period of 5 years.

Exemption from customs duty on import of capital goods, raw materials,consumables, spares, etc.

Exemption from Central Excise duty on the procurement of capital goods,raw materials, and consumable spares, etc. from the domestic market.


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Exemption from payment of Central Sales Tax on the sale or purchase ofgoods, provided that, the goods are meant for undertaking authorized

operations.

Exemption from payment of Service Tax. The sale of goods or merchandise that is manufactured outside the SEZ (i.e.,

in DTA) and which is purchased by the Unit (situated in the SEZ) is eligible

for deduction and such sale would be deemed to be exports.

The SEZ unit is permitted to realize and repatriate to India the full exportvalue of goods or software within a period of twelve months from the date ofexport.

Write-off of unrealized exportbills is permitted up to an annual limit of5% of their average annual realization.

No routine examination by Customs officials of export and import cargo. Setting up Off-shore Banking Units (OBU) allowed in SEZs. OBU's allowed 100% income tax exemption on profit earned for three years

and 50 % for next two years.

Exemption from requirement of domicile in India for 12 months prior toappointment as Director.

Since SEZ units are considered as public utility services, no strikes would

be allowed in such companies without giving the employer 6 weeks prior

notice in addition to the other conditions mentioned in the Industrial

Disputes Act, 1947.


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The Government has exempted SEZ Units from the payment of stamp dutyand registration fees on the lease/license of plots.

External Commercial Borrowings up to $ 500 million a year allowed withoutany maturity restrictions.

Enhanced limit of Rs. 2.40 crores per annum allowed for managerialremuneration.

Growth and development Attracts FDI Exposure to technology and global markets Increase in GDP and economic model Employment opportunities are created

Disadvantages

Revenue losses because of the various tax exemptions and incentives.Many traders are interested in SEZ, so that they can acquire at cheap rates

and create a land bank for themselves.

The number of units applying for setting upEOU's is not commensurate tothe number of applications for setting up SEZ's leading to a belief that this

project may not match up to expectation

Exploitation of laborers

Women exposed to sexual harassmentLoss of revenue for GovernmentFertile lands being used for establishing industrial units
http://www.eximguru.com/exim/eou/default.aspxhttp://www.eximguru.com/exim/eou/default.aspx


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1.4 ISSUE OF SEZ.

SPECIAL ECONOMIC ZONES (SEZS)

Special economic zones (SEZs) aim to overcome barriers that hinderinvestment in the wider economy, including restrictive policies, poor

governance, inadequate infrastructure, and problematic access to land. SEZs

tend to offer export-oriented investors three main advantages relative to the

domestic investment environment: 1) they offer a special customs

environment including efficient customs administration and (usually) access

to imported inputs free of tariffs and duties; 2) they have historically offered

a range of fiscal incentives including corporate tax holidays and reductions,

along with an improved administrative environment; and 3) they provide

infrastructure (including land, factory shells, and utilities) that are more

accessible and reliable than would normally be available outside the zones.

SEZs have a long-established role in international trade. Prior to the 1970s,most zones were clustered in industrialized countries; but since the 1980s,

there has been massive growth in SEZs in developing countries, led at first

by East Asia and Latin America and more recently by the development of

new programs in Central and Eastern Europe, Central Asia, the Middle East,

and North Africa. Recent estimates indicate that there currently are more

than 3,000 SEZs established in some 135 countries. Overall SEZs are

estimated to account for more than US$200 billion in global exports and

employ directly at least 40 million workers.

Most zones set up in the 1970s through the 1990s were designed to attractinvestment in labor-intensive assembly and manufacturing from

multinationals. These export processing zones (EPZs) were a cornerstone of


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trade and investment policy in countries shifting away from import-

substitution and in favor of integrating into global markets. Among the

multiple objectives normally being sought as part of these policies were: job

creation, growth in exports and foreign exchange earnings, facilitating

economic diversification (often as a step in processes of industrialization and

industrial upgrading) and access to foreign manufacturing technology and

know-how.

KEY ISSUES AND CHALLENGES

In some countries, SEZs have been a powerful instrument for economicgrowth and structural transformation. For many of the initial zones in East

Asia, zones proved played a critical role in facilitating the industrial

development and upgrading the tiger economies. Similarly, the later

adoption of the model by China provided a platform for attracting FDI and

not only supported the development of its export-oriented manufacturing

sector, but served as a catalyst for sweeping economic reforms that were

extended throughout the country. In Latin America, countries like

Dominican Republic, Honduras, and El Salvador used free zones to take

advantage of preferential access to US markets, and have generated large-

scale manufacturing sectors in economies that were previously reliant on

agricultural commodities. Finally, in Africa, SEZs are credited with enabling

Mauritius to move from dependence on sugar to become a manufacturing

hub and eventually an innovative, middle income country. However, there are also many examples of failures of SEZs, where

investments in zone infrastructure resulted in white elephants or where

zones have largely resulted in industry taking advantage of tax breaks

without producing any substantial employment or export earnings.


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Moreover, many zones that appear to have been successful in the short term,

have failed to remain sustainable once labor costs have risen or when

preferential trade access is no longer an advantage (e.g. following the end of

the Multi-fiber Agreement). Zone failures can be attributed to a variety of

causes. Too often, zones are plagued with the same problems unstable

electricity, lack of water, heavy bureaucracy, inefficient and corrupt customs

that hinder investment in the wider economy. In addition, broader

competitiveness challenges, including policy instability, poor national

governance, and low productivity often undermine the potential of zones.

The traditional manufacturing-oriented processing zone (EPZ) is becomingincreasingly anachronistic, despite the continued importance of global

production networks. This is for three main reasons. First, by limiting

activities to manufacturing only, EPZs restrict opportunities for investment

and growth in the services sector, one of the most important opportunities

for growth in middle income and even many low income countries. Second,

the traditional EPZ tends to create an enclave that is separated from the

national market, undermining its potential to create effective domestic

linkages. Finally, the traditional EPZ model relies on unsustainable fiscal

incentives to attract investment. As a result, there has been a gradual shift

from traditional EPZs to special economic zones (SEZs), which normally

cover larger land areas, offer greater flexibility for services and other non-

manufacturing activities (including residential and tourism development),

and include a greater mix of export and domestic-market focused activities.


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1.5 WHY SEZ? = OBJECTIVE

I. Introduction

Special Economic Zones (SEZs) are defined as geographical areas, governed by

one oversight management body that offer special trade incentives to firms who

choose to physically locate within them. Many countries employ their own

variations of these special enclaves, and in doing so use their own terminology to

describe them. For example, Mexico refers to its zones as maquiladoras, Ghana,

Cameroon, and Jordan have industrial free zones, the Philippines calls its

economic zones special export processing zones, and Russia has free economic

zones. Despite the differences in nomenclature, each SEZ operates to increase

trade throughout its respective region by offering special trade incentives to

stimulate local and foreign investment within the region.

The first modern special economic zone was created in Puerto Rico in 1942. Since

then, 135 countries, many of them emerging markets, have developed over 3,000zones. Their development has helped to improve global trade relations and has

created over 70 million jobs and hundreds of billions of dollars in trade revenue.

Special Economic Zones are generally implemented to meet fiscal, social, and

infrastructure policy rationales. The most important fiscal goal of an SEZ is to

facilitate economic growth through the use of reduced tariffs and more efficient

customs controls. They are also essential tools for companies seeking to cut costsand improve inventory efficiency, and they help developing nations rework poor,

inefficient trade policies and dilapidated or non-existent infrastructure. Part II of

this Briefing Paper describes the different types of SEZs available to host

countries, Part III and IV discuss the physical and regulatory characteristics of


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these zones, Part V describes the different incentives associated with SEZs, Part VI

addresses the public and private nature of SEZ development and oversight, and

Parts VII and VIII review the advantages and disadvantages of using an SEZ as a

trade tool.

II. Different Kinds of Special Economic Zones

Special Economic Zones are generally classified as zones that promote increased,

streamlined trade through beneficial taxation schemes and reduced customs

oversight, but many nuances have developed within this broad framework to

accommodate specialized industries, working conditions, country infrastructure,

government oversight, and geographies.

A. Free Trade Zone

One of the most expansive types of SEZ is a Free Trade Zone (FTZ). An FTZ is

a geographically fenced-in, tax-free area that provides warehousing, storage,

distribution facilities for trade, shipping, and import/export operations in a reduced

regulatory environment, meaning they generally have less stringent customs

controls and sometimes fewer labor and environmental controls. These zones

generally focus on the tangible operations of international trade. Because many

SEZs attract labor-intensive manufacturing such as assembly-oriented production

of apparel, textiles, and electrical goods, FTZs like the Colon Free Zone in Panama

are a very popular type of SEZ.


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B. Export Processing Zone

Another type of SEZ is an Export Processing Zone (EPZ). These zones are

similar to FTZs in that they encompass large land estates that focus on foreign

exports, but they differ in that they do not provide the same degree of tax benefits

or regulatory leniency. They instead provide a functional advantage to investors

seeking to capitalize on the economies of scale that a geographic concentration of

production and manufacturing can bring to a trade region. These zones are

beneficial to a host country, if they are successful, because the host country does

not have to provide reduced tariffs or regulations but it still benefits from increased

trade to the region.

Hybrid EPZs are also geographically delimited zones, but they are broken down

into specialized zones that cater to specific industries. In a hybrid EPZ, all

industries use the general zones central resources, but each industry also

operates within its own zone created to streamline specialized processes unique to

those industries. An example is the Lat Krabang Industrial Estate in Thailand

where all investors have access to the general trade area, but within it is a

specialized, export-processing zone that only certain export-based investors may

utilize. Sometimes these specialized areas are actually fenced off, while other times

they are fully integrated within the general SEZ area.

C. Enterprise Zones

Enterprise Zones not only provide manufacturing or production benefits like other

SEZs, but they also provide unique benefits of local, centralized development

efforts. They are generally created by national or local governments to revitalize or

gentrify a distressed urban area. The Empowerment Zone in Chicago is an example

of an Enterprise Zone. It was created to revitalize certain south and west Chicago


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neighborhoods and bring trade to the area by increasing public safety, providing

better job training, creating affordable housing, and fostering cultural diversity.

If a specific industry is well suited for growth in an enterprise zone, it may take on

characteristics of an EPZ or a hybrid EPZ, but the Zones purpose in promoting

trade is secondary to its goal of gentrification and revival. These zones use greater

economic incentives than EPZslike tax incentives and financial assistanceto

revitalize the area by bringing trades into the zone that will spur organic, localized

development and improve local inhabitants quality of life. This organic growth

model assumes that improvement of a regions industry and trade begins at the

individual neighborhood level.

D. Single Factories

Single Factories are special types of SEZs that are not geographically delineated,

meaning they dont have to locate within a designated zone to receive trade

incentives. They instead focus on the development of a particular type of factory or

enterprise, regardless of location. A host countrys goal in utilizing a single factory

model is to create specialization in a specific industry. A country that desires to

create an export concentration in a specific industry would use a single factory

model to promote trade and growth in just that industry, giving each factory

specializing in that trade economic incentives. One of the most notable single

factory examples is the maquiladora in Mexico. Here, factories specialize in the

importation of foreign merchandise on a temporary basis where workers assemble

or manufacture specific goods and then ship them out to other nations.


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E. Freeports

Some zones specialize more in human capital goods and services such as call

centers and telecommunication processing rather than manufacturing-based

industries. Freeports are typically very expansive zones that encompass many

different goods and service-related trade activities like travel, tourism, and retail

sales. The variation of products and services available to a Freeport cause them to

be more integrated with the host countrys economy. Most encourage a fully

integrated life on-site for those who work in the Freeport, as opposed to just using

the SEZ for manufacturing, production and shipping. Examples of these zones can

be found in India and the Philippines where large military bases have been

converted into Freeports that now function as specialized cities. Koreas

International City on the island of Cheju is another example of a Freeport in use.

People live and work on the island and use the Freeport as a draw for high

technology, tourism, and financial products industries.

F. Specialized Zones

In addition to Enterprise Zones and Freeports, Specialized Zones have been

established to promote highly technical products and services unique to an

industry. Many of these zones focus on the production and promotion of science

and technology parks, petrochemical zones, highly technical logistics and

warehousing sites, and airport-based economies. For example, Dubai Internet City

is a specialized zone that focuses solely on the development of software and

internet-based services. The Labuan Offshore Financial Centre in Malaysia is

another example of a specialized zone that caters mostly to the development of off-

shore financial services.


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1.6 IMPACT OF SEZ ON ECONOMY.

The forced acquisition of land for the Polepally SEZ had impacts not only amongthose households that lost land, but also among the wider community. Impacts also

went beyond the mere loss of land area, with the local economy being affected

various ways. Impacts, furthermore, were not only economic, but also social and

environmental, and with knock-on effects on food security and overall health.

Economic impactsLosing land to the SEZ project has significantly reduced the farmland in the

affected villages and also brought with it severe pressures on employment,

livelihoods and food security for the villagers. While some of the land losers have

become farmers with smaller land holdings many have become landless. The

conversion of farmland for non-farm uses has also reduced farm labor

opportunities for the people who had no non-farm skills. The SEZ has caused

fragmentation of land holding in the villages as the land losers have been forced tobuy small pieces of land from neighbors. It forced change in favor of occupational

shifts, indebtedness, and migration. The inability of some to adapt has apparently

lead to increases in ill health and deaths, including suicides.

Those who lost land have adopted different approaches to ensure food security and

survival depending on their assets, family size and community support. Some have

purchased small a few acres from other castes in the village if they had some

money or were able to raise loans. Some Lambada households have been able to

buy some plot of land from the villagers so that basic survival is not threatened.

They bought land at prices far higher than the amount they received for the land

acquired for the SEZ. Some of the Lambada families are cultivating land belonging


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to Polepally on sharing basis where the landowner and the cultivator get equal

share in the yield. Several families have one or more members of the family forced

to migrate to engage in unskilled jobs in the towns and cities.

Last five years have seen several new changes as well as the intensification of

changes already under-way prior to the SEZ. Life in the affected villages has been

altered radically. The vulnerable sections of the communities have been subjected

to rapid marginalization, making life miserable for many. The SEZ dispossessed

the affected households both directly and indirectly. While land resources were

directly taken away for the SEZ, families saws other assets that remained in their

possession, like cattle and farm implements, lose all their value. The following

sections detail the extent of these varied economic impacts.

Loss of farmlandThe SEZ has caused landlessness among a large section of the households in the

affected villages, especially in Polepally and Gundlagadda Thanda. Of 370

respondents, 358 were farmers before the SEZ. By 2010 this quota had fallen to

192. Land holdings have also become smaller due to SEZ land acquisition. The

reduced size of many land holdings has made farming less cost effective. The

drastic reduction in the local availability of farmland is also reflected in the decline

of leasing. Tenant farmers in the sample have fallen from 9 to 6%.

Loss of wells and bore wellsLand acquisition also meant losing wells and bore wells in the lands acquired. Part

of the land lost to SEZ was irrigated using wells. Forty six respondents had 55

wells altogether which had assured irrigation. The land irrigated under wells was

97 acres. In total, thirty nine respondents lost wells in the lands taken over by the

SEZ. A larger number of respondents lost bore wells. There were 216 bore wells


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owned by 188 respondents before SEZ. Each bore well costs about Rs 60,000 to Rs

90,000 for varying depths towards drilling, casing, and the motor. Besides, one has

to try more than once to strike water thus the cost of a functional bore well can be

estimated at around Rs 100,000. Despite heavy costs and risks of failing the

farmers try several times because it assures one crop at least and also helps achieve

three crops if the water yield is good. Altogether 42 respondents have lost 53 bore

wells due to the SEZ. Of them, 32 had one bore well each followed by nine who

had two bore wells each.

Loss of livestockLivestock is an important source of livelihood for the villagers. The loss of lands

by hundreds of farmers has made it difficult to continue keeping livestock as there

was shortage of fodder, a loss of suitable places for cattle sheds, and loss of

purpose to keep draft animals (for an overview of livestock loses, see Table 6).

While two thirds (66%) of all respondents owned cows before SEZ, this has been

reduced to one-fifth (21%) of the respondents. The respondents were forced to

dispose of the cows for distress price. Scarcity of fodder, loss of land and pressures

of money lenders to clear the loans were major reasons for selling the cattle. Some

had to sell the cows to meet household needs, or construction of a house. Two

respondents informed of cows dying due to drinking polluted water.

A similar picture is revealed as regards other livestock. Goats and sheep are vital to

the households who rear them in large numbers. Golla and Kurma castes are

traditional goat and sheep rearers. Several others also rear goats and sheep as they

are great source of revenue and provide good returns in the short term. Land

displacement has also severely affected goat and sheep rearing. The number of

respondents rearing goats has declined from 72 respondents to 27, while sheep


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rearing families have declined from 67 to 23. A major decline is seen among

respondents with 1 to 25 sheep for whom it is supplementary source of income.

They seem to be more hard pressed to look after sheep than those with larger stock

where it is the primary occupation.

The number of respondents owning oxen has fallen from 61% to 30%, while the

number of respondents owning buffaloes has fallen from 28

Keeping livestock has become impractical for many due to severe shortage of

fodder and loss of grazing lands. Polluted water also is reported to have taken toll

of a few cattle, goats and sheep. The pressure for one or more family members to

seek employment outside the village has also made it difficult for many affected

families to keep livestock. The remaining members could not pay attention to the

livestock which now requires going for long distances for grazing. The loss of

incomes from livestock has not been compensated by the government or SEZ

authorities.

Loss of treesVillagers had a variety of trees in the lands that were occupied by the SEZ. Trees

provided incomes and food or fruit for the owners, as well as for landless

households. Besides, trees are essential for fodder and organic manure. Trees also

provide construction materials for housing and have a role in the ritual and belief

system of the villagers where for different festivals and pujas specific fruits and

leaves are offered. Trees also provide ingredients for medicinal preparations. Every

tree has multiple functions and they are important part of rural life.

More than half the respondents (56%) who lost land have also lost trees of

significance. A total of 1585 trees were lost by respondents. The loss of trees

among the respondents varied by their caste. Scheduled Caste and Backward Caste


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respondents were the major losers. They constitute 35% and 32% respectively of

those who lost trees. Open Caste respondents lost none (Scheduled Castes are

adversely affected as the tree wealth was a significant support base for them, given

their low level of cash savings and land ownership.

Construction work within the SEZ became a major source of labor locally, but only

during the early phase of construction. SEZ managers discriminated against those

who took part in the resistance and protest agitation and preferred outside labor

who are not concerned with the problems of displacement. Some women from

Polepally and Gundlagadda Thanda get daily wage work as gardeners, sweepers or

as janitors.

Long periods of unemployment in some cases led to severe poverty, high

indebtedness and the sale of all available assets. Unemployment and poverty has

been most intense among those who continued to stick to land-based livelihoods.

Although little effort was made in Polepally to offer alternative employment to

affected families, some relief has been provided by the National Rural

Employment Guarantee Act (NREGA) which was passed in 2005. The NREGA is

a national job guarantee scheme that aims to provide the rural poor with a

minimum of 100 days employment when none other is available. NREGA work is

eagerly sought in the villages, but unfortunately the programme is unable to keep

up with the demand for work in the village following the land acquisition. Less

than 3% of respondents received NREGA employment of more than 100 days.

26% received 31 to 100 days of employment and 15% of respondents were

employed for less than 30 days. Half of the respondents have an NREGA card and


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are entitled to claim employment if they need it, though only 42% availed of any

work during last year.

MigrationLoss of livelihoods within the village and growing interaction with labor

contractors as well as information and assistance from the colleagues who have

migrated outside has been leading to more people seeking labor outside. Altogether

51 villagers belong to the respondents' families have migrated out of the village.

Migration has been largely due to the loss of livelihoods caused by displacement

due to SEZ. The rate of migration was very low between 1992 and 2004 (4

individuals in total, 2 in 1992 and 2 in 2003). It then jumped to 13 individuals in

2005, with a yearly average of 8.5 in 2006-2009.

More than two thirds (71%) of the migrants have stayed within the state.

Hyderabad remains the single largest destination, accounting for 67% of migrants

from the affected villages. Four out of five migrants (86%) work as construction

laborers, masons and railway track gang men. The rest of them work as semi-

skilled employees in shops and establishments.

Child laborSome households facing a severe fall in incomes and long periods of

unemployment had their children dropping out of school. A significant number of

respondents observed that children are affected by the domestic problems,

especially unemployment and poverty. Asked what their major concerns were with

regard to children in the current situation, 14% of respondents mentioned that

children are required to do wage work, while 15% raised the isse of children being

required to migrate.


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Food securityHousehold food security has been altered drastically among the affected

households in Polepally and Gundlagadda Thanda. Dependence on food grains

procured from market has increased significantly. They are compelled to buy most

of their food needs from the market which requires cash incomes which are not

available adequately to most of the respondents. Acute short-term shortages are a

particular problem.

Respondents were asked, according to a number of measures, how their food

security now compared to how it was before the SEZ. The results are summarized

in Table 8. They clear depict a situation of worsening household food security,

with 85% of 370 respondents (i.e. including those who did not own land) reporting

that the ability of farm produce to meet family needs had declined, and 89%

reporting a general worsening of food availability after the SEZ. An increase in the

problem of short-term shortages was reported by 79%, while 89% said that the

purchase of food grains from private shops and Public Distribution System (PDS)

ration stores had increased, and 77% reported an increase in the practice of

borrowing grains from neighbors

A particular area of concern has become the quality and quantity of food available

to women and children who are often the hardest hit by household food insecurity.

In particular, 38% of respondents expressed the concern that children do not

receive sufficient food at the present time.


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1.7 SEZs in India

India, as a developing nation, has strategically identified economic zones for

export promotion and trade development. The Ministry of Commerce, of the

Government of India, defines this "Special Economic Zone (SEZ) as specifically

delineated duty free enclave and shall be deemed to be foreign territory for the

purposes of trade operations and duties and tariffs." Zones share a few common

features worldwide:

- Unlimited, duty-free imports of raw, intermediate input, and capital goods

necessary for the production of exports;

- Less governmental red-tape, flexibility with labor laws for the firms in the zone

than the domestic market;

- Generous and long-term tax holidays and concessions to the firms;

- Above average (compared to the rest of the host country) communications

services and infrastructure; and

- Firms in a zone can be domestic, international, or joint venture.

The Indian Government's idea to foster SEZ relies on a two pronged strategy:

Reduction in restrictions-duty free imports, liberalized foreign exchanges, flexible

labor laws, etc.; and

Provision of incentives-better infrastructure, generous long-term income taxconcessions.

India was one of the first countries in Asia to recognize the effectiveness of the

EPZ model in promoting exports. It established Asia's first EPZ at Kandla, in the


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state of Gujarat in 1965. Among all the SEZs established in India, the most

successful SEZs are of Mumbai, Noida, and Chennai which are prominent cities in

India. This also signifies the location advantage of existing industrial and

infrastructure base for export competitiveness of an SEZ. Presently, India has 19

functioning SEZs contributing 5-6 percent to the national exports and more than

400 SEZs have been principally approved by the Government of India at various

locations .

Modeling location, intermediate variables and superior firm performance

Location of a firmThe emergence of SEZ for promotion of exports has again highlighted the

importance of location of firm and its impact on firm competitiveness. Economic

zones as specialized locations have provided efficiency in business transactions

through advanced infrastructure and other facilities to enhance trade

competitiveness of the country. The early theories of industrial location

concentrated on analyzing simple frameworks, where the location and spatial

diversification were simply determined by an adjustment between location, weight,

and distance characteristics of inputs and outputs. Various recent empirical

research and literature suggest that location can be a contributing factor to the

competitiveness of a firm. Empirical studies suggest that SEZs which are located in

a developed area where they have higher chances of pursuing agglomeration are

found to be more successful as compared to those which are located in semi or

undeveloped areas. It seems that agglomeration and linkage effect of the SEZs are

more difficult to exploit if they are established in an area with poor or no industrial

base. This raises a few research questions regarding the location of an SEZ, viz:

RQ1.Does location of a firm in an SEZ lead to superior firm performance?


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RQ2.What leads to competitiveness of a firm in an SEZ?

The central question we seek to answer is how does location of a firm in an SEZ

affect the competitiveness of the firm? With this central question as the subject of

this paper, a framework on the basis of exploratory study has been proposed with

several prepositions. Empirical studies on the location of a firm have brought out

various factors which can be summarized and inferred upon.

These studies indicate that proximity to supplier/resources, availability of

infrastructure, government and institutional support, quality and availability of

men, machine, money, and materials are the important factors affecting the

location of a firm.

Intermediate variables/functionsThe central question is further investigated by modeling the interrelationship

between firm location and variables/functions which lead to superior firm

performance. Five sets of broad explanatory functions (factors) were integrated

that explain firm competitiveness/superior firm performance in an SEZ. These

intermediate variables/functions.

Through this integration as depicted we can conclude following intermediate

functions/variables:

F2: investment in competitive resources and capabilities.

F3: linkages.Positive agglomeration effect and creation of linkages between firmsin an SEZ and domestic firms.

F4: entrepreneurial ability. The ability of an entrepreneur to run a business

efficiently and effectively.


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F5: government and institutional support. Support and encouragement by

government to firms in terms of infrastructure and export market assistance, can

lead to enhancement of competitiveness of a firm.

F6: factors of production. Businesses need constant supplies of qualified men,

machines, money and materials for smooth running.

These five sets of broad intermediate functions/variables consist of different sub-

variables:

- Investment in competitive resources and capabilities. Consistence of quality

practices, cost effective manufacturing capabilities, management capacity,branding, higher capacity utilization, and strategic planning.

- Linkages. With other firms, outside duty tariff area (DTA) firms and foreign

firms.

- Government and institutional support. In terms of available infrastructure (roads,

electricity, telecom, internet, and ports).

- Entrepreneurial ability. Will include vision, ability to organize, innovate, and

take calculated risks.

- Factors of production. Are linked with economical labor, skilled manpower,

technology management, access to cheap cost of capital and procurement of goods.

Superior firm performanceFirm performance is taken as a tool to measure the competitiveness of a firm. A

firm is said to be competitive when it shows superior financial performance,

although financial parameters are not only the sole indicators of a firm. All theories

regarding competitiveness of a firm have talked about superior firm performance


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as a consequence of being competitive. The most important obligation of an export

firm, situated in an SEZ, is net exports, i.e. exports minus imports which have been

laid down as a requisite for setting up in an SEZ. Other important parameters used

by different researchers are productivity and cumulative annual growth rate

(CAGR). These three measurements have been taken to understand the superior

firm performance in an SEZ. Productivity has been considered surrogates of

competiveness and can be defined as total turnover divided by numbers of

headcount and CAGR justifies the extent of growth of the organization over a

period of years.

Proposed framework; a sequential approachThere can be two possible approaches for studying the impact of location on

superior performance; one is direct and other will be indirect. Location

competitiveness of a firm in an SEZ cannot be directly measured so it is done

through intermediate variables and its effect on firm performance. This study

suggests that a logical sequence may exist among the location of a firm, five

intermediate variables/functions (investment in competitive resources and

capabilities, linkages, entrepreneurial ability, government and institutional support,

and factors of production), and superior firm performance.

Proposed sequential framework with prepositionsThe proposed sequential framework connects the latent function (location of a

firm-F1), intermediate functions (F2-F6), and dependent function.

It suggests that F1 leads to F2 -F6 and subsequently they lead to F7, thus

intermediate functions (F2 -F6) are both dependent as well as independent


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variables. Structural equation modeling (SEM) is a recognized multivariate

technique which enables us to assess both measurement properties and test the key

theoretical relationships. It is a powerful technique for specifying, estimating, and

testing hypothesized interrelationships among a set of substantively meaningful

variables. It helps to identify direct and indirect effects in a complex system of

variables and allows including the mediating variables in the analysis easily ([126]

Swamidass and Newell, 1987). SEM provides a method of dealing with multiple

relationships simultaneously and comprehensively for determining the goodness of

fit measure of the sequential model.

PrepositionsThe relationship flow chart.Clearly delineates the factors involved in the

association between location of firm and superior firm performance through five

mediating variables. The suggested hypothetical relationship diagram has been

constructed on the basis of the following assumptions:

- Factors responsible for location strategy have been empirically found for the

firms outside the SEZs and we have assumed that the same factors will be

responsible for the location of a firm inside the SEZ; and

- Location leads to intermediate variables and provides superior firm performance.

Under the light of the above assumptions, following prepositions are tabulated:

H1a.Being located in SEZ positively relates to firm/s investment in competitive

resources and capabilities.

H1b.Being located in SEZ positively relates to linkages with other units.

H1c.Being located in SEZ positively relates to entrepreneur ability.


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not operating from SEZ, since there were few empirical studies available on

economic zones from strategic management dimensions.

CII Report on SEZInfrastructure Development Finance Company Report on SEZ

Competitiveness Factors of Small to Medium Sized Enterprises in Zimbabwe: The

Pre- and Post Economic Structural Adjustment Programme Era.


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1.7 SEZs in China

China - the world factory

The pace and scale of China's economic development since the launch of its reform

program in 1978 is one of the most significant economic stories of our times. The

real GDP of china has averaged 10 per cent annually with the GDP doubling every

7-8 years. Several hundred million people have risen out of poverty and the living

conditions have improved over a period of time. China's share in the World GDP

has increased from 2 per cent (PPP basis) in 1980 to nearly 12 percent in 2008.China's linkage with the rest of the world has increased. In 1980, China accounted

for just 1 percent of the world trade flows, while by 2008 it accounted for over 8%.

FDI inflows into China accounted for 7% of gross world FDI in flows in 2009

compared to only 1% in 1980.

The increase in China's share of world trade is particularly striking in the markets

for certain products. Its share in world exports of medium and high technologymanufactured goods rose from low levels in 1980's to 12% by 2008... During this

period, China moved from being an exporter of apparel and oil products to

becoming a major exporter of electronic and information technology products such

as consumer electronics and office and communications equipment. Since 2002,

for example, China has been the largest supplier of U.S consumer products like

DVD players, notebooks, computers, mobile phones and information technology

hardware.

The phenomenal growth witnessed by China has been the result of 'reforms and

opening-up' strategy adopted by China in the 1970s.


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Prior to 1979, China had a centrally planned economy. A large share of the

country's output was directed and controlled by the state. The state set production

goals, controlled prices and allocated resources in the economy. Private enterprises

and foreign firms were totally nonexistent. Chinese living standards were

substantially lower than those of other developing countries. The inward looking

strategy adopted by China kept her stagnant and underutilized.

In 1979, several reforms were introduced to expand the Chinese economy by

infusing foreign capital and technology. One of the important measures adopted

was the establishment of four Special Economic Zones along the coast for the

purpose of boosting exports, attracting foreign investments and importing high

technology products into China. The open door policy was put into practice in

order to attain socialist modernization.

Four Special Economic Zones were established in Shenzhen, Zuhai and Shantou in

the province of Guangdong and Xiamen in the region of Fujian. The main

objective of setting up the zones were to delimit special areas to serve as a bridge

or "windows" for introducing foreign capital, technology, and knowledge and

management knowhow. These SEZs were located along the coasts to gain easy

access to markets like Hong Kong, Macao and Taiwan. As part of the open door

policy package announced in 1984, SEZs were extended to large areas inside the

country and fourteen coastal open port cities. In 1985, three coastal areas (Pearl

River Delta, Southern Fujian Delta, and Yangtze River Delta) were designed as

Open Economic Zones (OEZs) with special incentives to promote exports andattract foreign capital. The SEZs were created with the objective of attracting

foreign investment in various industries with preferential measures and incentives

such as lower tariffs, tax incentives to foreign investors, better infrastructure, more

flexible labor markets and less bureaucratic control. Variety of industries including


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manufacturing industries, service industries like hotels, retails, housing

constructions and infrastructural development were encouraged and open to

foreign investment.

In the words of Deng Xiaoping, the objectives of creating the SEZs can be

summarized as follows,

"SEZ is a window, a window of technology, a window of management, a window

of knowledge, as well as a window of international policy."

Growth of SEZs

The Special Economic Zones are considered as engine of growth for the Chinese

economy. These SEZs have played an important role in transforming China from a

stagnant and inward looking economy to the world's fastest growing economy in

the world. According to a World Bank Report on SEZs published in April 2008,

there were 157 zones in China employing 50,000 thousand people and generating

exports worth $145,000 million.

The following data show the growth of the five SEZs established in China.

Shenzhen

Shenzhen, a Special Economic Zone located in South China's Guangdong province

has turned out to be the most successful among the SEZs established in China. The

city's annual growth rate has averaged 28% since 1980. Shenzhen has developed

into an important high-tech R&D and manufacturing base in China, the world'sfourth largest container port, the fourth largest airport and the fourth largest

tourism city of China. Some of the important reasons cited for Shenzhen's success

are as follows.


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1) Special privileges: In 1980, the central government of China granted special

privileges to Shenzhen as a Special Economic Zone placing it literally in a class of

its own.

2) Foreign Direct investment: Initially Shenzhen lacked capital and other

resources. In 1979 Shenzhen attracted foreign investment worth 0.005 billion

dollars. But in 2008 Shenzhen actually used foreign investment worth 4.03 billion

dollars. 113 of the top global multinationals maintain offices in the city. Buying

foreign brands have become part of the daily life for Shenzhen residents. The

major shopping districts are packed with foreign retailers like Wal-mart, Carrefour,

H&Q. Countless global brands like P&G, Unilever, Mars, Coke, Nestle, Sony, LG,

Nokia, SIEMENS and Phillips can be found in these stores. The city is connected

to the outside world by a number of ways. Tens of thousands of foreign nationals

now live and work in Shenzhen.

3) Entrepreneurship: The city's greatest strength is its entrepreneurship, which have

flocked to the cities from all over China. Out of 170,000 registered companies in

the Sez in 2005, more than 135,000 were private 03 October 2013 Page 2 of 7

proQuest companies. The private sector employs about half of the city's workforce

and contributes about half of its economic output. It is the city's high tech sector

which has made a huge progress, growing at an annual rate of 46.5% over the past

two decades. Shenzhen also has a large pool of small business owners who are

engaged in a variety of industry all over the city.

4) The middle class: Large numbers of people have migrated to the city from the

adjoining areas leading to the emergence of a new middle class. Tens of millions of

Chinese have tried their luck in this city and some 12million now call it home. This

middle class is the key consumption force in the city.


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Chinese Success Story Chokes on Its Own Growth.

The New York Times, December19, 2006

This article published in the New York Times highlights the deplorable conditionsin which workers live in Shenzhen. SEZs like Shenzhen have created tremendous

economic prosperity. Yet there are some winners and losers. If on one side these

SEZs are dotted with huge factories and commercial complexes, there are also

millions of workers who live in small dormitories working long hours in the

factories.

Migrant workers: Majority of the workers working in the SEZs in China aremigrant workers who receive as little as $100 per month. The migrant workers

come from some of the poorer regions in China and are driven to the cities by lack

of opportunities in the villages and the increasing gap between the urban and rural

areas. According to the National Bureau of Statistics, Majority of the migrant

workers are forced to work overtime. In 2009, migrants worked on an average 26

days a month or 58.4 hours a week, 14.4 hours a week more than the legal limit of

44 hours a week according to the country's new labor law. It is also reported that

the average monthly salary of migrant workers grew by 77 Yuan ($11.28) in 2009

from the year before. According to the NBS report, only 42.8% of the migrant

workers have a formal contract with their employees and in the construction

industry, the figures are as low as 26%. The situation for migrant workers social

insurance is even worse. Only 21.8% have employment injury insurance while

12.2% have medical insurance and 7.6% have pension insurance.

Rural stagnation:

According to the National Bureau of Statistics, during the first half of 2010, the per

capita total incomes of urban households was 10,699 Yuan, while the per capita


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cash income of rural population was 3,078 Yuan. China's economic growth has

been rather uneven with the agricultural sector languishing and the rural population

suffering from lack of job opportunities. Lack of agricultural development has

forced millions of people from the rural areas to migrate to the cities. They are a

cheap source of labor for the various factories in China. They are forced to love in

the most deplorable conditions.

Growing level of unemployment:

It is estimated by the China Labor Bulletin that between 2003 and 2020, 15 million

new people will enter the Chinese labor market each year, while only 8 million

new jobs will be created at the current growth of 9%. China has virtually

inexhaustible supply of migrant laborers who are willing to work under any

conditions without protest.

Child labor:

There is increasing evidence of usage of child labor in factories in China. School

children are increasing becoming part of the required workforce. In some coastal

and particular economic zones, such as Fujian and Guangdong, there are reported

to be approximately four to five million child laborer under the age of 16. In

Shenzhen, children between the ages of 10 to 16 work for up to 14 hours a day in

factories. It is recorded that girls work in awful conditions for 13 to 14 hours a day

from 7 am to 10 p.m with two one-hour breaks. According to the International

Labor Organization, education is compulsory up to the age of 16, yet children are

reported to be dropping out of school at increasing rates. An article in the

Telegraph in February 2010 revealed that child labor was used in factories for

manufacturing Apple computers, iPods and mobile phones.


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Feminization:

SEZs have played an important role in creating employment opportunities for

Chinese women. Today 60% of the workers engaged in the SEZs are females.

According the China Labor Statistical year book (2005), manufacturing is the

largest sector to employ women. Discrimation against women is a common feature

in the Chinese factories. Most of the female workers are employed in unskilled,

low paying and labor intensive factories. Young, single women are preferred as

they can be easily controlled and are ignorant about their rights. Sexual harassment

and personal abuse often occur at the working place. Women are often made to

work for long hours lasting up to 12 hours in a day. Despite provision in the

Chinese labor laws regarding maternity leave, many factories refuse to abide by the

law.

Hukou system:

Hukou is a system of residency permits adopted by the Communist government

used to minimize the movement of people between rural and urban areas. Under

the Hukou system, Chinese citizens were classified as urban and rural based. While

urban residents received state allocated jobs, the rural residents were to be self

reliant. The hukou system operated as an internal passport system. The industrial

growth witnessed by China has led to a huge migration of rural people to the

factories. However, the rural-Hukou Chinese who migrate to the cities are not

eligible for basic urban welfare and social service program including public

education. Though the government has introduced a number of reforms in recent

years, the basic structure has remained intact. The migrant worker continues to


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face discrimination in the job market and remain as second class citizens in the

cities. During the recent global crisis, when Chinese exports fell and factories

closed, the migrant workers became jobless with little protection.

Labor unrest:

In recent times, China has seen a number of labour unrest, with workers

demanding higher wages and better working conditions. In June, 2010, Honda, a

Japanese automaker saw a series of strikes at its Chinese factories demanding

higher wages. On June10, 2010, Time reported that in Kushan, a city near

Shanghai, 50 workers were injured in a clash with security guards, after 2,000

people went on strike at KOK industries, a Taiwanese -owned factory that

produces rubber products. According to Geoffrey Crothall of the China Labor

Bulletin, a Hong Kong based NGO, "the economy is booming again and the same

workers are forced to work longer hours, but pay is same. Obviously they are

angry &frustrated". Today labor disputes have become a common feature with

more and more workers fighting for better wages. According to the Ministry of

Human resources and Social security, nearly 700,000 labor disputes went into

arbitration in 2008.


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Objectives of Study and Methodology

Objectives:-

The objectives of the study in a nutshell are as follows-

To analyze the basic concept of SEZ in Indian Economy. To analyze the basic concept of SEZ in China Economy. Comparison Special Economic Zones between India and China.

Methodology:-

We have used the secondary data for conducting the study and analysis of our

project work. This helped us a lot to broaden our outlook on the topic. Secondary


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data analysis is commonly known as second-hand analysis. It is simply the analysis

of preexisting data in a different way or to answer a different question than

originally intended. In our project we have taken the help of the following

secondary data:

Websites

Search - Engine Encyclopedia ELibraries Pro-quest Academia.edu

Journals

1.9 Comparison: India & China

Head note

China and India, in terms of geography, population size and regional cultural

influence, are the most important Asian nations. Both have experienced

consistently high economic growth rates over the past decade and it is widely

assumed they will have a profound global and regional impact in the 21st century.

The potential of these two nations suggests that a comprehensive understanding of

their business systems is vital for competitors, trading partners, and those who

would learn from their development experiences. An adaptation of Redding's

(2005) model is utilized for the purpose of describing, analyzing and comparing

the business systems of China and India. It is important to note that this approach


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does not attempt to derive causality between societal factors and economic

performance, but within the limited scope and constraints of this relatively short

document, demonstrates how enhanced understanding might be achieved through

the use of the proposed model.

INTRODUCTION

It is clear that China and India, in terms of geography, population size and regional

cultural influence, are the most important nations in Asia. Both have experienced

consistency high economic growth rates over recent decades, a fact which is made

all the more notable by the size of their respective populations. This economic

reshaping is widely predicted to continue 'for some years, and it is assumed that

these two nations, considered either separately or together, would provide global

and regional models, which are beyond the narrow stereotypes currently associated

with the democratic and socialist systems of the 20th century.

Despite the influence of apparently convergent global trends, divergent managerial

assumptions and business practices persist in these two nations. The present paper,

an early version of which was presented to the Asia Pacific Economics and

Business History Conference in Sydney, Australia in February, utilizes an

adaptation of Redding's comparative business systems model, adopting the

premise that cultures underpin socially embedded economic institutions, and in

turn, that institutions underwrite governance models, inter-firm networks and

alliances, and approaches to corporate management. This approach is not aimed at

establishing causal relationships between societal factors and economic

performance, as is the case with many comparative management models in the

academic literature. The approach in this paper is descriptive, and within the

constraints of this relatively short document, and following a brief background to


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placed third. Again, on the basis of statistics such as those expressed in Table 2, it

is widely assumed that these two nations, considered either separately or together,

will have an outstandingly significant global and regional impact in the 21st

century.

Even from the preliminary data presented above, it is obvious that other nations

around the world, and especially those located in or near the Asia-Pacific region,

should thoroughly acquaint themselves with the circumstances surrounding the

economic rise of China and India. Towards this end, the purpose of this article is to

address the following question: What is the nature of the business systems in China

and India, and how are-they similar and different? How have they survived and

prospered into the modern age?

Over a period of almost half a century, China and India experimented with two

contrasting axioms of economic management-China with centralized controls and

planning and a heavy emphasis on state-owned enterprises, and India with a

vigorous democratic political culture in combination with socialist economic

planning. As one of the most astute Asian leaders of recent times, Singapore's

Senior Minister Lee Kuan Yew suggested that comparative economic models

needed to explore well beyond financial statistics. He argued "...even if China and

India were both democratic, or authoritarian or communist, their performance

would be different. We now believe that, besides the standard economic yardsticks

for productivity and competitiveness, there are intangible factors like culture,

religion and other ethnic characteristics and national ethos that affect the outcome"(Kelly et at, 2006; vii).

UNDERSTANDING AND COMPARING BUSINESS SYSTEMS


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There is a significant dichotomy in the academic literature in relation to the

conceptualization of business systems. Analysts often associated with the study

and practice of mainstream economics (more accurately 'neo-liberal' or 'neo-

classical' economists, or 'economic rationalists'), have tended to assert that all of

the current variations of capitalist business systems were converging towards an

ideal model under the pressure of globalization, a natural outcome of open markets

for goods and services, unrestricted access to capital and labor, and minimalist

direct government involvement in economic activity. A number of authors have

asserted that the contemporary economic policies of the so-called Anglo nations,

for example the US, Britain, and Australia, have been based on these ideas, as has

the justification for economic globalization, which in this view, is often assumed to

principally advantage developed, western nations. Many, often with sociology,

social sciences or humanities discipline backgrounds, who are generally opposed to

what they see as a ruthless and misguided market driven logic associated with neo-

liberal or neo-classical economics positions, have argued that there are various

types of capitalism, and diet the underlying societal forces which define these

systems should be respected since they are deeply embedded within national

societies, inextricably associated with social institutions, and were better left to

evolve for the ultimate well being of the various societies in which they were

located.

Whitley (2002) asserted that a considerable amount of economic theory neglected

to specify how particular competitive environments impacted on approaches to

economic organization, and often tended to ignore social context and the impact of

experiential learning. Because of this, the roles of particular interest groups and

collective actors in the structuring of economic relations, and the organization of

particular capitalist markets, were often overlooked. As opposed to accepting


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capable of changing a society ", and historical economic circumstances, such as

resource cost and availability.

When utilizing the above model in the description and analysis of business

systems, it is important to note Geertz's idea of 'thick description' is useful here,

because it avoids the suggestion of linear causal relationships, rather invoking the

concept of observation and description as a path to understanding context, as

favored by anthropologists engaged in ethnographical research. Further, although

the proposed model is layered in concentric circles in its graphical format, it is

better understood and compared as interconnected parts making up a whole, as per

Ragin. For the sake of brevity, key historical influences are initially presented in

this paper in tabular format only, and further details are provided as necessary in

the explanation of the core institutional frameworks and the business systems.


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CHINA'S BUSINESS SYSTEM

GLOBAL AND REGIONAL BUSINESS CONTEXTEssentially because of its rapid economic growth since opening to foreign

investment in 1978, China is on a trajectory to regain its traditional regional

hegemony, and perhaps superpower status. The impact that China is likely to make

in global and regional terms can be understood in terms of the following forecasts

and facts:

* China has had the fastest growing economy in the world for past 25 years.

* In unadjusted terms, China is already the sixth largest economy in the world, and

when adjusted for internal purchasing power, is number two in the world.

* Chinese demand for grain will outstrip world capacity to supply by 2030,

because of the expected loss of land to industrialization and population growth.

* China is already the world's second largest consumer of oil.

* China will ultimately be the world's largest Internet and telecommunications

market.


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As Beeson has noted, although many East Asian governments in general have

been ambivalent about the Washington agenda of liberalization, deregulation,

privatization and minimalist government, the East Asian region has become a part

of the global production network, and China is clearly no exception. In the case of

China, questions of ownership and governance of the means of production are

inevitably brought into the spotlight here, as the Chinese government has by no

means relinquished its central role in the direction of the economy,

notwithstanding the major changes, which have taken place since 1978.

However, it seems likely that China's 2001 accession to the World Trade

Organization (WTO) in 2001 will result in changes of similar significance to those

brought about by the opening of the Chinese economy in 1978. Zhao et al.

suggested that market mechanisms and economic institutions would need to adjust

to global capitalist competition and standards, and this would have major

consequences for state owned manufacturing industries and collectively managed

agricultural enterprises, bringing both opportunities and challenges.

CHINESE CULTUREAnalyzing the behaviors of contemporary Chinese business people in terms of

cultural values is particularly difficult, as we have a veritable banquet of influences

from which to choose. Alluding to this dilemma, Pan Note "They may pick

something out of the Confucian world of thought and action, or alternatively

choose some strain of Daoism or Buddhism, or of various superstitious cults and

practices that might claim connection to either of these two traditions, both, or

neither". Hickson and Pugh have also implicitly acknowledged this difficulty of

entanglement, noting that Buddhism was imported from India to China, whence it

was blended with Taosim, and that Confucianism was subsequently blended with


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Buddhism. Despite this, they were confident enough to assert that it was the

indigenous philosophy, Confucianism, essentially a series of recommendations for

how to live and to construct a good society based on the teachings of the scholar

Confucius, which was to subsequently to have a dominant influence in Chinese

society.

ROLE OF THE STATEAs noted by Milston (1978), state capitalism was not introduced to China by the

communists, but existed in highly centralized Chinese regimes since at least the

Eastern Chou period (771-221 BC). This continued in the Maoist and subsequent

eras, in the name of Marxist-Leninist ideology (Redding, 2002). In contemporary

China, the state has a significant if declining direct role in the economy as it

attempts to divest itself of state-owned enterprises in all but strategically important

sectors, but maintains a significant role in the regulation and control of private

business via various arms of the state bureaucracy (Beeson, 2007). Fuelling China's

global reach are a number of national champions with vast asset bases, leadership

in cost control and technological development, unprecedented profitability and

listings in global bourses. Twenty-four of these companies were included in the

2007 Fortune Global 500 list. As has been pointed out, "Chinese companies benefit

from a high level of research and development, a rapidly growing, but still

inadequate infrastructure of roads, ports and telecom networks (reducing costs and

turnaround times) and an educated a low-cost workforce. The main order of the

day for these companies is to digest a great deal of modern technology and make

their way up the steep learning curve of acquiring the management skills necessary

to compete domestically and globally (Silk and Malish, 2006: 106)".


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CHINA'S INSTITUTIONAL FRAMEWORK: CAPITALAs noted by Beeson (2007), since the opening of China in 1978 (see Table 3),

economic development has been essentially driven by massive levels of foreign

direct investment, much of which has been from so-called 'Greater China' (Hong

Kong, Taiwan, and elements of the Chinese Diaspora in South East Asia), and

within related networks. This has generally limited the control of the Chinese state

over development, especially taken in combination with the progressive

dismantlement of the state owned enterprises, and the disparate centers of power

and authority in the Chinese bureaucracy, often making policy decisions unclear

and inconsistent. This has been expressed in a lack of capacity to plan

development, and relative inability to facilitate reciprocity and cooperation

between business and government (Amsden cited in Beeson, 2007). Public sources

of capital are currently limited because, despite the fact that laws establishing

individual property rights will soon exist, they are not yet appropriately enforced

(see "China's Next Revolution", 2007), and the finance industry is still relatively

immature.


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In response to these shortcomings exposed by rapid economic development and

massive foreign direct investment, as well as China's ascension to the WTO, the

Chinese government has taken up membership of the International Labor

Organization, and has enacted a number of laws aimed at modernizing the labor

market. The 1995 Labor Law introduced the employment contract system, which

enabled enterprises to hire and terminate staff according to organizational

operational requirements. Although by no means universal, Western style HRM

practices, "such as vacancy advertising and job hunting, application forms, testing,

interviewing, reference checking and medical examinations may now be found in

Chinese organizations ".

CHINA'S INSTITUTIONAL FRAMEWORK: SOCIAL CAPITALThe maintenance and development of strong relationships and networks is a crucial

element of Chinese life and society, and is highly compatible with traditionalist

Confucianism teaching and practice, and as Redding has noted, in China, the use

of relationships and networks to minimize risk in business remains generally

essential because legal protections to those involved in business are inadequate,

information is insufficiently accessible, and because supporting professions,

procedures and monitoring systems are underdeveloped. The absence of an

enforceable legal-rational system to support a capitalist business system might well

be linked to the closure of China and the subsequent entrenchment of the Chinese

imperial bureaucratic system during the Ming dynasty, which was in contrast to

what was occurring in the West at a similar time, and a reaction to priordomination and conquest of China by the Mongols. During the Maoist era in which

the state owned and actively controlled all assets, a commercial law framework

was more or less irrelevant.


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CHINAS BUSINESS SYSTEM: OWNERSHIPThe current ownership structure of China's enterprise system has readyexplanations in Chinese history and culture. The establishment of China as a

communist state under Mao Tse Tung in 1949 was an event which has had a

profound effect on the shape of the contemporary Chinese business system-as is

well known, between 1949 and 1976, under Mao, all of the China's productive

assets were appropriated, and thereafter owned and controlled by the Chinese state.

In the industrial sector, this was accomplished via so-called State-owned

Enterprises (SOEs), and in the agricultural sector by means of workers managing

collectively owned rural land. With respect to contemporary modernization of the

SOEs, privatization has only been an option outside of state designated

'strategically important economic sectors', the policy enunciated by Prime Minister

Zhu Rhongji in Deng's administration, which effectively allowed the indigenous

private sector to operate freely in the small- to medium-sized area of the economy.

After the opening of China and economic reforms in 1978 under Deng Xiaoping,

private and joint venture enterprises were permitted in particular areas of the

economy. Many privately owned enterprises established in post-1978 have been

funded by foreign multinational corporations, where production has been quite

often aimed at export markets, as well as by Chinese capital from so-called

'Greater China', in particular from Hong Kong and Taiwan, where the market focus

has been primarily internal or domestic.

Overall, the influx of foreign capital after opening the economy in 1979 has been

highly influential in the development of market institutions. The 1980s

establishment of Special Economic Zones in coastal areas accelerated this influx,


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and Foreign Invested Enterprises have played a greater role in the growth of

exports, than has been the case anywhere else in East Asia. Indeed, China's export

economy is currently dominated by multinational corporations, which have

invested either directly or via joint venture arrangements. Apart from the export

economy, the Chinese domestic market has also attracted multinationals such as

Coca-Cola, Dupont, General Motors, Kodak, Motorola, and many other powerful

consumer goods manufacturing companies.

CHINA'S BUSINESS SYSTEM: NETWORKS AND ALLIANCESA number of books published in the mid-1990s highlighted the role of Overseas

Chinese business networks in the economic development of East Asia in general,

and China in particular. Seagrave in Lords of the Rim, Rohwer in Asia Rising, and

Hiscock in Asia's Wealth Club have provided considerable detail about the

influence and business expertise of the expatriate East Asian Chinese. Beeson

refers to about 50 million Chinese resident in Asia outside of China, as an integral

component of a so-called 'Greater China, which consists of mainland China itself,

Hong Kong, Taiwan, and other elements of the regional Chinese Diaspora.

Generally, utilizing family and network connections, Chinese business interests in

Hong Kong and Taiwan have had an especially important role in channeling FDI

into China, and restructuring economic activity across the region. In fact, between

1979 and 2003, Hong Kong's average annual share of China's FDI inflows was

around 40%, but this figure was somewhat overstated as capital from Caribbean

tax havens as well as Taiwan comes through Hong Kong. Taiwan's share at 7%was therefore greatly understated.

In the Chinese cultural context, business networks cannot be separated from the

sociocultural tradition of 'guanxi'. The term 'guanxi' refers to the development of


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human relationships within a uniquely designed social web of mutuality,

reciprocity and notional debt. Guanxi in China is a unique social networking

phenomenon built upon multiple layers of trust-commitment, or 'power-

dependency' relationships with a long-term, cumulative and mostly instrumental

obligation system. Guanxi is aimed at building individual, group and

organizational coalitions that can be mobilized to share resources, information,

market space and other business and social advantages. Guanxi has strong

historical linkage to the social conditions of China where legal-rational norms were

of limited importance. Guanxi relationships are deeply embedded in all

relationships-social (in terms of birthplace, kinship, and alumni), political (in terms

of hierarchies, institutions and bureaucracies) and economic (in terms of

partnerships, alliances and networks). Redding suggested that networks in China

act as a guide to the regulation of transactions in the absence of a well defined

legal structure and state institutions. Failure to develop a coherent legal system

alongside economic reforms over the past 30 years or so have contributed to the

adaptation of guanxi as a coping mechanism in the new and dynamic Chinese

business environment.

CHINA'S BUSINESS SYSTEM: MANAGEMENTChinese management today is eclectic, developing, and combines elements of

Chinese traditional administrative practices, and as Nankervis and Lee (2007)

noted, there remains a distinct contrast of styles and practices between Chinese

managers in the private sector, foreign invested companies and joint ventures, andformer state-owned or collective enterprises which have adopted the disciplines of

the market place, and older, senior managers in unreformed state-owned

enterprises and government bureaucracies.


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In the contemporary context, especially in the private sector, we can see that

imported management and human development systems are blended with

traditional Confucian inspired ideas about the primacy of senior management,

managerial paternalism, the maintenance of face and workplace harmony, socialist

inspired ideas such as collective participation in decision-making, the desirability

of worker representation through trade unions, and the importance of networks.

INDIA'S BUSINESS SYSTEM:

GLOBAL AND REGIONAL BUSINESS CONTEXTIndia today is widely considered as one of the most exciting and vibrant emerging

economies in the world. After a century and half of British rule, India became an

independent and democratic country in 1947. A centrally planned economic system

bedevilled Indian economy until the 1980's and the low economic growth of 3.5%

was sometimes derisively described as the "Hindu growth rate". A decisive reform

program was undertaken in 1991 and crucial changes have resulted in a remarkable

improvement. A nation with about 0.7% annual average rate of growth for the first

half of the 20th century had achieved around 8% growth over the first six years of


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the 21st century (Sachs et al, 2000). Das (2006) has forecast that India's economy

may well be larger than Japan's within the next few years.

INDIAN CULTUREOver the past centuries, cultural forces have left a very strong residual influence on

the Indian mindset. It is often suggested that Indians can maintain a duality of

essence in their consciousness by accepting one type of behavior at the

organizational level while a very different one at the personal level. The cultural

influence of the Hindu tradition provides a framework called 'Guna dynamics' and

this is being increasingly used in the workplace, employee training, team building

and performance evaluation. Guna is a personality attribute that guides individual,

group, or institutional behavior. The sattava guna (or virtue emphasis) refers to the

pursuit of higher values. The tamasik guna (the darker or negativity emphasis)

shows ignorance, corruption and a lack of values. The third guna, rajas guna (pro-

activity emphasis) focuses on the virtues of action and solutions. The hierarchy of

needs in Indian culture comes from basic practical challenges of organizational life

called Artha, extrinsic and intrinsic motivation called Kama and self-actualization

called Moksha.

ROLE OF THE STATEAfter two hundred years of colonial rule, India became independent in 1947. For

the first five decades, the government pursued a policy of control in every sphere

of economic life, with the fundamental objective self-reliance. Governmentcontrols were also evident in media (particularly television and radio), education,

health services, and many other spheres. Foreign investment in India was highly

restrictive until 1991 when a serious ideological shift towards market culture

signalled the beginning of economic liberalization. The government played a very

imm work final 2013

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