DBA - 1702 - INTERNATIONAL BUSINESS MANAGEMENT
ASSIGNMENT – I
1. Describe the types and role of Export promotional council to promote International Trade.
EXPORT PROMOTION:
Export promotion has been one of the main planks of foreign trade policy of most
countries. With increasing export earnings, the benefits of enhanced domestic employment, rising revenues to companies and government, rise in standard of living, expanding overseas operations funded by export surplus, appreciation of domestic currency, raising forex reserve, no pressure to borrow from world markets – institutional or otherwise, an acknowledgement of capabilities of domestic people and firms, etc emanate. Also, in the world of rising oil prices, countries with no or far less oil reserves have to depend on exports to pay for rising oil import bills. Thus exports benefit a nation in many ways, but the world market is competitive, because every firm/country wants to export more. To have the edge over others in the global market, governments provide some promotional measures to firms to increase their export competitiveness. These measures are: (roles)
Financial,
Fiscal,
Facilitative,
Favours and Felicitating.
Types:
Export Promotion Council & Commodities Boards
• Federation of Indian Export Organizations (FIEO)
• All India Exporters Chamber
• Agricultural and Processed Food Products Export Development Authority (APEDA)
• Marine Products Export Development Authority
• Carpet Export Promotion Council
• Engineering Export Promotion Council
• Export Promotion Council for EOUs and SEZ Units
• Electronics & Computer Software Export Promotion Council
• Export Promotion Council for Handicrafts
• Gem & Jewellery Export Promotion Council
• Apparel Export Promotion Council (AEPC)
• Basic Chemicals, Pharmaceuticals & Cosmetics Export Promotion Council, (CHEMEXCIL)
• Cashew Export Promotion Council of India (CEPC)
• Chemical & Allied Products Export Promotion Council (CAPEXIL)
• Cotton Textile Export Promotion Council
• Council for Leather Exports (CLE)
• Handloom Export Promotion Council (HEPC)
• Indian Silk Export Promotion Council (ISEPC)
• National Agricultural Cooperative Federation of India Ltd. (NAFED)
• Project Exports Promotion Council (PEPC)
• Plastics Export Promotion Council (PLEXCONCIL)
• Shellac Export Promotion Council
• Sports Goods Export Promotion Council (SGEPC)
• Synthetic & Rayon Textiles Export Promotion Council (SRTEPC)
• Wool & Woollens Export Promotion Council (WWEPC)
• Central Silk Board (CSB)
• Coconut Development Board (CDB)
• Coffee Board of India
• Coir Board
• Jute Manufacturers Development Council (JMDC)
• Rubber Board
• Spices Board
• Tea Board
• Tobacco Board
A. Financial Services for Exporters
Exporters are given priority finance at concessional terms of lending by financial
and banking institutions under a kind of directive lending. Even specialist financial institutions are created to exclusively cater to export firms.
Commercial banks and the special Export-Import Bank of India, in short, EX-IM Bank, serve the exporting community by providing credit finance to exporters. The EXIM bank functions as the principal financial institution for coordinating the working of institutions engaged in financing export and import of goods and services with a view to promoting the country’s international trade. Another facility is credit guarantee.
a. Credit by EX-IM bank, Commercial Banks and ECGC for exporters
Pre-shipment credit, Post Shipment credit, Supplier’s Credit, Credit for Project
Exporters, Credit for Exporters of Consultancy and Technological Services, and Guarantee facilities are different assistances offered by EX-IM bank, Commercial Banks, Export Credit and Guarantee corporation, etc.
Pre-shipment Credit facility, in Indian Rupees and foreign currency, provides access to finance at the manufacturing stage - enabling exporters to purchase raw materials and other inputs. Supplier’s Credit facility enables exporters to extend term credit to importers (overseas) of eligible goods at the post-shipment stage.
Credit facility for Project exporters to meet rupee expenditure on overseas project export contracts on mobilization / acquisition of materials, personnel and equipment etc is also offered.
Credit facility to exporters of consultancy and technology services, so that they can, in turn, extend term credit to overseas importers is also provided. EX-IM bank offers Rediscounting Facility to commercial banks, enabling them to rediscount export bills of their SME customers, with usance not exceeding 90 days. EX-IM bank also offers Refinance of Supplier’s Credit, enabling commercial banks to offer credit to exporters of eligible goods, who in turn extend them credit over 180 days to importers overseas. Companies executing contracts within India, but which are categorized as Deemed Exports in the Foreign Trade Policy of India or contracts secured under international competitive bidding or contracts, under which payments are received in foreign currency, can avail of credit under Finance for Deemed Exports facility, aimed at helping them meet cash flow deficits. Overseas buyers can avail of Buyer’s Credit, for import of eligible goods from India on deferred payment terms. Special schemes are available for Small and Medium enterprises (SMEs), rural grass-root enterprises and Agri-exporters.
b. Funding for Exporting Companies
EX-IM bank, term lending financial institutions and commercial banks provide term Finance under different schemes: Equity Participation, Project Finance, Equipment Finance, Import of Technology & Related Services, Domestic Acquisitions of businesses/companies/brands and Export Product Development/ Research & Development. Under General Corporate Finance Working Capital Finance (For Exporting Companies) Working Capital Term Loans [< 2 years], Long Term Working Capital [upto 5 years], Export Bills Discounting, Warehousing Finance, Export Lines of Credit, Export Packing Credit and Cash Flow financing are extended. Letter of Credit facility is also extended to importers.
Funding for overseas acquisition: The schemes for financing Indian Company’s
equity participation in the overseas Joint Venture (JV)/ Wholly Owned Subsidiary (WOS), Term & Working Capital to the overseas JV / WOS, Finance (for equity/debt component) for acquisition of overseas businesses / companies including leveraged buy-outs including structured financing options and Direct Equity are available with Exim Bank, selected commercial banks and term lending financial institutions.
c. Line of Credit
Line of credit is a facility where a foreign institution, generally government or government owned, is provided finance which in turn extends the funds to a domestic institution that takes designated works or projects in the foreign country concerned. This is a tripartite arrangement, of which one is the Indian financing institution, the second is an Indian firm carrying out a project oversea and the third is the foreign government or financing agency.
d. Export Credit Guarantee service
Apart providing finance for exporters, insurance against risk of default on the part of importers is a very great need. To provide this guarantee, Export Credit Guarantee Corporation of India (ECGC) was established in the year 1957 by the Government of India to strengthen the export promotion drive by covering the risk of exporting on credit. ECGC is the fifth largest credit insurer of the world in terms of coverage of national exports.
It provides a range of credit risk insurance covers to exporters against loss in export of goods and services. Offers guarantees to banks and financial institutions to enable exporters to obtain better facilities from them. Provides Overseas Investment Insurance to Indian companies investing in joint ventures abroad in the form of equity or loan
B. Facilitating Services for Exporters
There are scores of institutions that render varied services to exporters. There are
Export Promotion Councils for major product groups, Commodity Boards for selected plantation and other crops, Trade Authorities for few product classes that render a range of services for product/service/commodity items that they are responsible.
a. Services extended
Exploration of overseas market, Identification of items with export potential, Market survey and up-to-date market intelligence, Contact with protective buyers to interest them in the exporters’ products, Providing the export company’s profile to overseas buyers and vice-versa, Advice on international marketing, Display of selected product groups ,Arrangement for supply of indigenous and imported raw materials for export production, Resolving shipping and transport problems, Advice on export finance banking and insurance, Extensive publicity in India and abroad, Participation in Trade Fairs and Exhibitions abroad, Deputation of trade delegations, study teams and sales teams to foreign markets, Organizing Buyer-Seller Meets in India and abroad, Catering to other developmental needs, Collecting, collating and disseminating world market intelligence, Updating the information on global trends in fashion & design, product development and adaptation, Dissemination of information of commercial and technological nature through seminars, news bulletins and magazines, Organizing participation of Indian exporters in international fairs and buyer seller meets, Organizing visits of buyers’ delegations from different countries, Liaising with various international organizations dealing with trade information, Leading trade delegations to potential markets globally, Formulating Inter-State trade Council to engage State Governments in providing an enabling environment for promotion of international trade, etc.
b. Facilitating Institutions: Export Promotion Councils and Authorities
i. Agricultural and Processed Food Products Export Development Authority,
ii. Marine Products Exports Development Authority,
iii. Apparel Export Promotion Council,
iv. Building Materials and Technology Promotion Council,
v. Carpet Export Promotion Council,
vi. Cashew Export Promotion Council of India,
vii. Chemicals & Allied Products Export Promotion Council,
viii. Council for Leather Exports,
ix. Cotton Textiles Export Promotion Council,
x. Electronics & Computer Software Export Promotion Council,
xi. Engineering Export Promotion Council,
xii. Export Promotion Council for Handicrafts,
xiii. Gem and Jewellery Export Promotion Council,
xiv. Handloom Export Promotion Council,
xv. Silk Export Promotion Council,
xvi. Synthetic & Rayon Textile Export Promotion Council,
xvii. Wool & Woolens Export Promotion Council,
xviii. Jute Manufactures Development Council,
xix. Plastics and Linoleums Export Promotion Council,
xx. Power loom Development & Export Promotion Council,
xxi. Cotton Textile Export Promotion Council,
xxii. Shellac Export Promotion Council, and
xxiii. Sports Goods Export Promotion Council.
c. Facilitating Institutions: Commodity Boards and Other Agencies
Asia Pacific Textile Clothing Forum, Central Silk Board, Coconut Development
Board, Coir Board, Federation of Indian Export Organizations (FIEO, India Trade
Promotion Organization, Indian Institute of Foreign Trade, National Agricultural Cooperative Marketing Federation of India Limited (NAFED), National Dairy Development Board, National Horticulture Board, National Oilseeds and Vegetable Oils Development Board,National Medicinal Plants Board, Patent Facilitating Centre, etc.
C. Fiscal Concession for Exporters
Fiscal concessions are in the form of tax concession on profit from export business, import duty concession on imports for supporting export activities, excise duty concession for export activities, exemption from certain levies on exports, etc.
I Export cess on export of all agricultural and plantation commodities levied under various Commodity Board Acts was waived.
Ii No safeguard and antidumping duty to be levied on inputs under advance
license for deemed export supplies made to ICB (International Competitive Bidding) projects.
Iii EPCG Scheme will facilitate the modernization of retail sector by allowing concessional duty imports. For this the retailer should have a minimum covered
shopping area of 1000 square meters.
IV Duty free import of inputs based on the past export performance, import of
mono filament long line system for tuna fishing at concessional duty and establishes a self removal for clearance of waste of perishable commodities.
V Entitlement of duty free imports of samples enhanced to Rs. 3 lakhs for gems.
VI EOUs can claim IT exemption within a period of 12 months from the date of exports.
Vii All actions by Income Tax authority on DEPB benefits have been stopped by Prime Minister with immediate effect. The matter is to be decided at economic advisory council headed by Prime Minister in the next 30 days.
Viii Export obligation for specified projects shall be calculated based on
Concessional duty permitted to them. This would improve the viability of such projects. An EPCG license can also be issued for import of capital goods for supply to projects notified by the Central Board of Excise and Customs under
S.No.441 of Customs Exemption Notification No.21/2002 dated 01-03-2002 where in the basic customs duty on imports is 10% with a CVD of 16%.The
export obligation for such EPCG licenses would be eight times the duty saved.
The duty saved would be the difference between the effective duty under the
Aforesaid Customs Notification and the concessional duty under the EPCG
Scheme.
Ix Fiscal Relief to EOUs
a. EOUs shall be exempted from Service Tax in proportion to their exported goods and services.
b. EOUs shall be permitted to retain 100% of export earnings in EEFC accounts.
c. Income Tax benefits on plant and machinery shall be extended to DTA units
which convert to EOUs.
D. Favours for Exporters
i. Realizing that great potential and opportunities exist in the manufacturing sector, Annual supplement introduces a number of measures to enhance the competitiveness of manufacturing sector.
ii. To promote accelerated export performance, balance export obligation will be waived
iii. for the exporters completing 75% of their export obligation in half the prescribed export obligation period.
iv. Reduced export obligation and enhanced time available for exports under the EPCG Scheme for the imports made by the agriculture sector.
v. Favours to EOUs
vi. Favours to Free Trade and Warehousing Zone
vii. Common Facilities Centre
viii. Procedural Simplification & Rationalization Measures
ix. Facilities at Pragati Maidan
x. Legal Aid
xi. Grievance Redressal
xii. Quality Policy
xiii. Bio Technology Parks
xiv. Co-Acceptance/Avalisation
xv. Revamping Boards of Trade
xvi. Web chat
E. Felicitative Encouragements to Exporters
a. Target Plus
A new scheme to accelerate growth of exports called “Target Plus” has been introduced. Exporters who have achieved a quantum growth in exports would be entitled
to duty free credit based on incremental exports substantially higher than the general actual export target fixed.(Since the target fixed for 2004-05 is 16%, the lower limit of performance for qualifying for rewards is pegged at 20% for the current year). Rewards will be granted based on a tiered approach. For incremental growth of over 20%, 25% and 100%, the duty free credits would be 5%, 10% and 15% of FOB value of incremental exports.
b. New Status holder Categorization:
The Scheme of status holders continues but the categorization of status holders from Export House, Trading House, Star Trading House and Super Star Trading House has been changed to one Star Export House, two Star Export House, three Star Export
House, four Star Export House and five Star Export House. Star Export Houses shall be eligible for a number of privileges
2. What are the concerns and challenges for India from the WTO perspective?
World Trade Organization
India is an original Member of the WTO and provides MFN treatment to all Members and other countries. It has accepted the Fourth and Fifth Protocols and is a Member of the Information Technology Agreement. It is not a party to the WTO Government Procurement Agreement (GPA). Like all Members, India is required to make regular notifications on its trade-related laws and measures.
India is an active Member of the WTO. In the current negotiations, it has submitted proposals relating to, inter alia, agriculture, non-agriculture market access (NAMA), services, disputes, competition policy, trade facilitation, rules, TRIPS, and special and differential treatment. A number of these proposals were made jointly with other Members and in many instances with developing countries, including the G-20, G-33, and NAMA-11 groups. India’s position prior to the launch of the Doha Round of negotiations placed emphasis on securing the objectives outlined in the mandated negotiations and the implementation issues raised by a number of developing countries. At the Ministerial Conference in Cancun, in September 2003, and in Hong Kong, China in December 2005, India stressed the need to address agricultural subsidies in rich countries and tariff and non-tariff barriers maintained by these countries on products of export interest to developing countries. India believes that the interests of its 650 million rural poor, who are dependent on agriculture for a livelihood, cannot be jeopardized. It is therefore emphasizing special and differential treatment through proportionately lower overall bound tariff reduction commitments by developing countries, coupled with a special safeguard mechanism and a list of special products vital to ensuring livelihoods and food security of farmers in developing countries.
With regard to NAMA, (NAMA products include fish and fishery products, wood and forestry products, electronics, manufactures, automotive products, machinery, textiles, clothing, leather, chemical products, and mining products) India, along with its coalition partners, believes that: progress must be made on achieving a fair, balanced, and development-oriented set of modalities based on the mandated principles of placing development concerns at the heart of the negotiations; ensuring less than full reciprocity in reduction commitments for developing countries; achieving a comparable level of ambition.
Read and concise
India submits proposals on strengthening the WTO
Published in SUNS #6739 dated 13 July 2009
Geneva, 10 Jul (Kanaga Raja) -- India has proposed that the forthcoming seventh Ministerial Conference of the World Trade Organization (WTO) end November should address some systemic issues with the aim of improving the functioning and efficiency of the WTO as a rules-based system, and make the system more useful, relevant, vibrant and user-friendly.
Towards this end, India has submitted a set of five proposals, in a communication (WT/GC/W/605, dated 2 July 2009) to the upcoming General Council meeting on 28-29 July.
The communication is in the context of India's stated intention at a General Council meeting on 26 May 2009 to submit a few proposals that it considered important from the perspective of improving the functioning and efficiency of the WTO as a rules-based system.
India's first proposal relates to trade information based on member notifications. The proposal calls on Ministers to direct the setting up of a project to enhance the Integrated Database to include in an appropriate format non-tariff data, based on the current notification obligations under WTO Agreements.
[Trade experts and former negotiators have been noticing, and commenting, that many of the agreements have provisions requiring members to notify regularly - such as on agriculture supports/subsidies, and regulatory changes in respect of services - and the scheme of the Marrakesh agreement envisaged the various committees to exercise oversight. However, in the preoccupations of launching the Doha Round, and attempts to conclude it, via mini-ministerial meetings etc, an important aspect of routine technical work has been neglected.]
The project, India said in its communication, should be designed to be efficient and effective by inter alia limiting additional resource requirements; optimising the design and structure of present notification systems; enhancing co-operation with related multilateral agencies; and providing technical assistance to developing countries, in particular the LDCs.
India noted that in the realm of trade information, there is a significant gap in the information available on non-tariff measures (NTMs). Closing this gap is of particular importance to governments as well as for trade operators.
While the WTO is uniquely placed as the biggest repository of certified trade information about its members' regimes through its system of notifications under various WTO agreements, at present, this information has at best archival value because of the way information is submitted and stored. "It is incomplete, not comparable amongst members or even timely."
What is needed is better integration and coherence in database form and more effective public visibility of the existing information, said India, voicing the view that such an exercise need not be resource intensive.
The second proposal relates to re-vitalizing WTO Committees. The proposal points to direction from Ministers to include in the agenda of formal WTO Committee meetings inter alia - monitoring of recent developments in members on the trade disciplines covered by the committee, based on a compilation by the Secretariat of developments between formal meetings and verified by the member concerned; regular discussions on general developments in the areas covered by the committee, including in the presence of outside experts; and through adoption of appropriate procedures, discussion on and resolution of low threshold specific trade concerns in small group settings.
"Given the widely perceived declining utility of the committee work, it is imperative that measures to revitalise them be adopted," said India, suggesting some ways on how the committees can be re-invigorated.
One way is that the recent exercise in the TPRB (Trade Policy Review Body) of the WTO of monitoring developments in the trade regimes of various members has proved to be a useful tool for all members, particularly the developing countries that have an inherent disadvantage in gathering such information. This practice could be formalized and be made a regular agenda item for all formal meetings of all trade related WTO Committees.
"Along with member notified measures, the Secretariat may make factual presentation on developments in various members on the disciplines covered by a committee. The Secretariat may base its factual report on information gathered from publicly available and reliable sources and after the gathered information being verified by the member concerned."
Another way to improve the relevance of the WTO Committees may be to include on the agenda, on a mandated basis, a discussion on the current practices and developments in the trade disciplines covered by a particular Committee. It may be considered to invite outside experts to present their views on such developments. Such a topical discussion will keep members abreast of the latest developments, said India.
According to the communication, one other measure would be to enable the Committees to discuss and offer possible solutions to the specific trade concerns of members. As a forum to discuss and resolve the specific trade concerns, it is important that members have access to at least a limited committee process right through the year and not just the periodical formal committee meetings.
"Working procedures that balance the need for confidentiality, to meaningfully discuss and resolve a specific trade concern, with that of transparency, i. e. information to the membership as a whole about the issue and its resolution, has to be devised and adopted."
Finally, said India, keeping the above in view, members may like to review the frequency of the WTO meetings. The frequency of the meetings refers to both the formal meetings as well as informal meetings. These could be increased to allow discharge of its work efficiently.
The third proposal concerns the WTO's engagement with Regional Trade Agreements (RTAs).
The proposal states: "Directions from Ministers to monitor the developing trends in RTAs and develop non-binding best practice guidelines for reference while negotiating new RTAs. To ensure robust and regular monitoring, the two transparency mechanisms should be implemented on a permanent basis; the Secretariat to produce an Annual Review of RTAs based on the factual reports; and members to discuss trends and formulate non-binding best practices in the CRTA (Committee on Regional Trade Agreements)."
India explained that the fact that RTAs are proliferating and most of the global trade is conducted on preferential terms is well documented. The work in the WTO on RTAs which earlier focused entirely on evaluating the RTAs for their compatibility with GATT/ WTO provisions was for long log-jammed. Members could neither definitively establish standards for the examination or evaluation, and even where they had clear yardsticks such as for "reasonable length of time", they could not agree whether indeed the RTAs under examination met the standards or not.
Noting that the RTA Transparency Mechanism was a success, India said that the success of the existing mechanism is reflected by the desire of the membership to design a similar mechanism for the unilateral preferential schemes as well. Even this mechanism, which is not Doha mandated, is close to finalisation. Thereby, all agreements offering preferences of any kind to participants will be covered by the transparency regime in the WTO.
Given the accepted benefits of the RTA Transparency Mechanism and the expectation that the transparency mechanism on preferential schemes will be as useful, Ministers could now agree to implement both on a permanent basis, albeit with in-built provisions for periodic review, said the communication.
The basic problem with examination of RTAs in the WTO has been the lack of a clear understanding amongst the members about the yardsticks on trade coverage; implementation periods; means to evaluate trade diversion, etc. While the work on the substantive issues may continue in the NGR (Negotiating Group on Rules), "it will be useful, in parallel, to put in place measures that will allow us to move further on implementing the Transparency Mechanisms and best utilise the knowledge gathered on RTAs through them."
In this context, said India, it is suggested that the Secretariat be requested to prepare an annual RTA Review. This publication, based on the factual presentations prepared by the Secretariat of individual RTAs, will inter alia review horizontally, across RTAs, the trends in content and structure of the RTAs that have come into effect during the year concerned.
Based on the trends detected in the annual reviews, members in the CRTA may examine from an educative perspective ways to reduce the adverse impact of RTAs on multilateral trade. Aspects like trade coverage/substantially all trade; reasonable length of time; non-trade issues; preferential rules of origin, etc. can be examined. To the extent that there is consensus, the outcome could be a series of non-binding "best practices/guidelines" on various elements/aspects of RTAs for reference by members in negotiating future RTAs.
The fourth proposal tabled by India relates to an omnibus legal instrument for preferential market access to LDCs. The proposal states: "Direction from Ministers for establishing a 'Steering Group' or a subsidiary body under the General Council to comprehensively examine all WTO-related instruments allowing members to grant preferential access to LDCs. Following such examination, members to consider; propose and adopt a single instrument that would address all forms of preferential market access for LDCs."
Within the GATT/WTO, members have provided special and differential treatment for Least-Developed Country members (LDCs) on a preferential basis under a variety of legal instruments and agreements. These preferential schemes have evolved over time both from the perspective of coverage, depth of concessions and the members granting the concessions, said India.
Highlighting several existing instruments that provide legal coverage for preferential market access for LDCs, the communication said that the multiple and sometimes overlapping instruments have different types of legal coverage and a variety of procedural requirements. This, combined with differential levels of market access commitments made in favour of LDCs, has created an environment of uncertainty both for the LDC preference receivers and the members granting or establishing such preferential market access schemes, said India.
It noted as an example, that just on the procedural front, the developed country GSP schemes under the Enabling Clause are notified in the CTD (Committee on Trade and Development) while developing countries will have to notify their schemes through the Council for Trade in Goods under the cover of the Decision contained in WT/L/759. The implementation of the DFQF (duty-free, quota-free market access) Decision is being notified to the CTD.
For the purposes of certainty, predictability and transparency on all aspects of preferential market access for LDCs, an Omnibus Legal Instrument is necessary, stressed India. The final proposal concerns the need to reaffirm the primacy of international standards and standard setting for WTO obligations.
It calls for a "Statement from Ministers in the Conference outcome document, reaffirming the provisions relating to the need to adopt international standards in respect of sanitary, phytosanitary and technical barriers to trade, stressing the need for members to primarily base domestic regulations on such international standards for all trade in goods. Encourage increased participation in international standard setting activities."
India argued that lack of common product standards and framing of technical regulations on national rather than international standards is increasingly a major hindrance to a smooth flow of trade. Arguably, alignment of standards amongst the membership and reduction of costs related to adherence, i. e. conformity assessment procedures, will bring about the most significant benefit to world trade.
A reaffirmation by Ministers will be an important signal to the membership that the increasing divergence from international standards and conformity assessment/testing practices is a matter of concern and it is time to roll back the complications brought about by the divergent national regulatory regimes, said India.
ASSIGNMENT- II
1. What is Globalization? Is it a Threat, Challenge or Opportunity to Indian Economy Discuss?
Introduction:
Globalisation is the new buzzword that has come to dominate the world since the nineties of the last century with the end of the cold war and the break-up of the former Soviet Union and the global trend towards the rolling ball. The frontiers of the state with increased reliance on the market economy and renewed faith in the private capital and resources, a process of structural adjustment spurred by the studies and influences of the World Bank and other International organisations have started in many of the developing countries. Also Globalisation has brought in new opportunities to developing countries. Greater access to developed country markets and technology transfer hold out promise improved productivity and higher living standard. But globalisation has also thrown up new challenges like growing inequality across and within nations, volatility in financial market and environmental deteriorations. Another negative aspect of globalisation is that a great majority of developing countries remain removed from the process. Till the nineties the process of globalisation of the Indian economy was constrained by the barriers to trade and investment liberalisation of trade, investment and financial flows initiated in the nineties has progressively lowered the barriers to competition and hastened the pace of globalisation
Definition:
Globalised World - What does it mean?
Does it mean the fast movement of people which results in greater interaction?
Does it mean that because of IT revolution people can be in touch with each other in any part of the world?
Does it mean trade and economy of each country is open in Non-Intrusive way so that all varieties are available to consumer of his choice?
Does it mean that mankind has achieved emancipation to a level of where we can say it means a social, economic and political globalisation?
Though the precise definition of globalisation is still unavailable a few definitions worth viewing, Stephen Gill: defines globalisation as the reduction of transaction cost of transborder movements of capital and goods thus of factors of production and goods. Guy Brainbant: says that the process of globalisation not only includes opening up of world trade, development of advanced means of communication, internationalisation of financial markets, growing importance of MNC's, population migrations and more generally increased mobility of persons, goods, capital, data and ideas but also infections, diseases and pollution
Impact on India:
India opened up the economy in the early nineties following a major crisis that led by a foreign exchange crunch that dragged the economy close to defaulting on loans. The response was a slew of Domestic and external sector policy measures partly prompted by the immediate needs and partly by the demand of the multilateral organisations. The new policy regime radically pushed forward in favour of amore open and market oriented economy.
Major measures initiated as a part of the liberalisation and globalisation strategy in the early nineties included scrapping of the industrial licensing regime, reduction in the number of areas reserved for the public sector, amendment of the monopolies and the restrictive trade practices act, start of the privatisation programme, reduction in tariff rates and change over to market determined exchange rates.
Over the years there has been a steady liberalisation of the current account transactions, more and more sectors opened up for foreign direct investments and portfolio investments facilitating entry of foreign investors in telecom, roads, ports, airports, insurance and other major sectors.
The Indian tariff rates reduced sharply over the decade from a weighted average of 72.5% in 1991-92 to 24.6 in 1996-97.Though tariff rates went up slowly in the late nineties it touched 35.1% in 2001-02. India is committed to reduced tariff rates. Peak tariff rates are to be reduced to be reduced to the minimum with a peak rate of 20%, in another 2 years most non-tariff barriers have been dismantled by march 2002, including almost all quantitative restrictions.
India is Global:
The liberalisation of the domestic economy and the increasing integration of India with the global economy have helped step up GDP growth rates, which picked up from 5.6% in 1990-91 to a peak level of 77.8% in 1996-97. Growth rates have slowed down since the country has still bee able to achieve 5-6% growth rate in three of the last six years. Though growth rates has slumped to the lowest level 4.3% in 2002-03 mainly because of the worst droughts in two decades the growth rates are expected to go up close to 70% in 2003-04. A Global comparison shows that India is now the fastest growing just after China.
This is major improvement given that India is growth rate in the 1970's was very low at 3% and GDP growth in countries like Brazil, Indonesia, Korea, and Mexico was more than twice that of India. Though India's average annual growth rate almost doubled in the eighties to 5.9% it was still lower than the growth rate in China, Korea and Indonesia. The pick up in GDP growth has helped improve India's global position. Consequently India's position in the global economy has improved from the 8th position in 1991 to 4th place in 2001. When GDP is calculated on a purchasing power parity basis.
Globalisation and Poverty:
Globalisation in the form of increased integration though trade and investment is an important reason why much progress has been made in reducing poverty and global inequality over recent decades. But it is not the only reason for this often unrecognised progress, good national polices , sound institutions and domestic political stability also matter.
Despite this progress, poverty remains one of the most serious international challenges we face up to 1.2 billion of the developing world 4.8 billion people still live in extreme poverty.
But the proportion of the world population living in poverty has been steadily declining and since 1980 the absolute number of poor people has stopped rising and appears to have fallen in recent years despite strong population growth in poor countries. If the proportion living in poverty had not fallen since 1987 alone a further 215million people would be living in extreme poverty today.
India has to concentrate on five important areas or things to follow to achieve this goal. The areas like technological entrepreneurship, new business openings for small and medium enterprises, importance of quality management, new prospects in rural areas and privatisation of financial institutions. The manufacturing of technology and management of technology are two different significant areas in the country.
There will be new prospects in rural India. The growth of Indian economy very much depends upon rural participation in the global race. After implementing the new economic policy the role of villages got its own significance because of its unique outlook and branding methods. For example food processing and packaging are the one of the area where new entrepreneurs can enter into a big way. It may be organised in a collective way with the help of co-operatives to meet the global demand.
Understanding the current status of globalisation is necessary for setting course for future. For all nations to reap the full benefits of globalisation it is essential to create a level playing field. President Bush's recent proposal to eliminate all tariffs on all manufactured goods by 2015 will do it. In fact it may exacerbate the prevalent inequalities. According to this proposal, tariffs of 5% or less on all manufactured goods will be eliminated by 2005 and higher than 5% will be lowered to 8%. Starting 2010 the 8% tariffs will be lowered each year until they are eliminated by 2015.
GDP Growth rate:
The Indian economy is passing through a difficult phase caused by several unfavourable domestic and external developments; Domestic output and Demand conditions were adversely affected by poor performance in agriculture in the past two years. The global economy experienced an overall deceleration and recorded an output growth of 2.4% during the past year growth in real GDP in 2001-02 was 5.4% as per the Economic Survey in 2000-01. The performance in the first quarter of the financial year is5.8% and second quarter is 6.1%.
Export and Import:
India's Export and Import in the year 2001-02 was to the extent of 32,572 and 38,362 million respectively. Many Indian companies have started becoming respectable players in the International scene. Agriculture exports account for about 13 to 18% of total annual of annual export of the country. In 2000-01 Agricultural products valued at more than US $ 6million were exported from the country 23% of which was contributed by the marine products alone. Marine products in recent years have emerged as the single largest contributor to the total agricultural export from the country accounting for over one fifth of the total agricultural exports. Cereals (mostly basmati rice and non-basmati rice), oil seeds, tea and coffee are the other prominent products each of which accounts fro nearly 5 to 10% of the countries total agricultural exports.
Where does Indian stand in terms of Global Integration?
India clearly lags in globalisation. Numbers of countries have a clear lead among them China, large part of east and far east Asia and Eastern Europe. Let’s look at a few indicators how much we lag.
• Over the past decade FDI flows into India have averaged around 0.5% of GDP against 5% for China 5.5% for Brazil. Whereas FDI inflows into China now exceeds US $ 50 billion annually. It is only US $ 4billion in the case of India
• Consider global trade - India's share of world merchandise exports increased from .05% to .07% over the pat 20 years. Over the same period China's share has tripled to almost 4%.
• India's share of global trade is similar to that of the Philippines an economy 6 times smaller according to IMF estimates. India under trades by 70-80% given its size, proximity to markets and labour cost advantages.
• It is interesting to note the remark made last year by Mr. Bimal Jalan, Governor of RBI. Despite all the talk, we are now where ever close being globalised in terms of any commonly used indicator of globalisation. In fact we are one of the least globalised among the major countries - however we look at it.
• As Amartya Sen and many other have pointed out that India, as a geographical, politico-cultural entity has been interacting with the outside world throughout history and still continues to do so. It has to adapt, assimilate and contribute. This goes without saying even as we move into what is called a globalised world which is distinguished from previous eras from by faster travel and communication, greater trade linkages, denting of political and economic sovereignty and greater acceptance of democracy as a way of life.
Consequences:
The implications of globalisation for a national economy are many. Globalisation has intensified interdependence and competition between economies in the world market. This is reflected in Interdependence in regard to trading in goods and services and in movement of capital. As a result domestic economic developments are not determined entirely by domestic policies and market conditions. Rather, they are influenced by both domestic and international policies and economic conditions. It is thus clear that a globalising economy, while formulating and evaluating its domestic policy cannot afford to ignore the possible actions and reactions of policies and developments in the rest of the world. This constrained the policy option available to the government which implies loss of policy autonomy to some extent, in decision-making at the national level.
~
2. Examine the various forms of Tariff and non Tariff Barriers in international trade & their impact on India’s trade.
Tariff Barrier:
A tariff is a duty imposed on goods when they are moved across a political boundary. They are usually associated with protectionism, the economic policy of restraining trade between nations. For political reasons, tariffs are usually imposed on imported goods, although they may also be imposed on exported goods.A certain amount of goods allowed in one's country.
In the past, tariffs formed a much larger part of government revenue than they do today.
When shipments of goods arrive at a border crossing or port, customs officers inspect the contents and charge a tax according to the tariff formula. Since the goods cannot continue on their way until the duty is paid, it is the easiest duty to collect, and the cost of collection is small. Traders seeking to evade tariffs are known as smugglers.
Types:
There are various types of tariffs:
• An ad valorem tariff is a set percentage of the value of the good that is being imported. Sometimes these are problematic, as when the international price of a good falls, so does the tariff, and domestic industries become more vulnerable to competition. Conversely, when the price of a good rises on the international market so does the tariff, but a country is often less interested in protection when the price is high.
They also face the problem of inappropriate transfer pricing where a company declares a value for goods being traded which differs from the market price, aimed at reducing overall taxes due.
• A specific tariff, is a tariff of a specific amount of money that does not vary with the price of the good. These tariffs are vulnerable to changes in the market or inflation unless updated periodically.
• A revenue tariff is a set of rates designed primarily to raise money for the government. A tariff on coffee imports imposed by countries where coffee cannot be grown, for example raises a steady flow of revenue.
• A prohibitive tariff is one so high that nearly no one imports any of that item.
• A protective tariff is intended to artificially inflate prices of imports and protect domestic industries from foreign competition (see also effective rate of protection,) especially from competitors whose host nations allow them to operate under conditions that are illegal in the protected nation, or who subsidize their exports.
• An environmental tariff, similar to a 'protective' tariff, is also known as a 'green' tariff or 'eco-tariff', and is placed on products being imported from, and also being sent to countries with substandard environmental pollution controls.
Tariffs, in the 20th century, are set by a Tariff Commission based on terms of reference obtained from the government or local authority and suo motu studies of industry structure.
Tax, tariff and trade rules in modern times are usually set together because of their common impact on industrial policy, investment policy, and agricultural policy. A trade bloc is a group of allied countries agreeing to minimize or eliminate tariffs and other barriers against trade with each other, and possibly to impose protective tariffs on imports from outside the bloc. A customs union has a common external tariff, and, according to an agreed formula, the participating countries share the revenues from tariffs on goods entering the customs union.
If a country's major industries lose to foreign competition, the loss of jobs and tax revenue can severely impair parts of that country's economy and increase poverty. If a nation's standard of living or industrial regulations are too great, it is impossible for domestic industries to survive unprotected trade with inferior nations without compromising them; this compromise consists of a global race to the bottom. Protective tariffs have historically been used as a measure against this possibility. However, protective tariffs have disadvantages as well. The most notable is that they prevent the price of the good subject to the tariff from undercutting local competition, disadvantaging consumers of that good or manufacturers who use that good to produce something else: for example a tariff on food can increase poverty, while a tariff on steel can make automobile manufacture less competitive. They can also backfire if countries whose trade is disadvantaged by the tariff impose tariffs of their own, resulting in a trade war and, according to free trade theorists, disadvantaging both sides.
Non-tariff barriers to trade (NTB's) are trade barriers that restrict imports but are not in the usual form of a tariff. Some common examples of NTB's are anti-dumping measures and countervailing duties, which, although they are called "non-tariff" barriers, have the effect of tariffs once they are enacted.
Their use has risen sharply after the WTO rules led to a very significant reduction in tariff use. Some non-tariff trade barriers are expressly permitted in very limited circumstances, when they are deemed necessary to protect health, safety, or sanitation, or to protect depletable natural resources. In other forms, they are criticized as a means to evade free trade rules such as those of the World Trade Organization (WTO), the European Union (EU), or North American Free Trade Agreement (NAFTA) that restrict the use of tariffs.
Examples of Non-Tariff Barriers to Trade
Non-tariff barriers to trade can be:
• Import bans
• General or product-specific quotas
• Rules of Origin
• Quality conditions imposed by the importing country on the exporting countries
• Sanitary and phyto-sanitary conditions
• Packaging conditions
• Labeling conditions
• Product standards
• Complex regulatory environment
• Determination of eligibility of an exporting country by the importing country
• Determination of eligibility of an exporting establishment(firm, company) by the importing country.
• Additional trade documents like Certificate of Origin, Certificate of Authenticity etc.
• Occupational safety and health regulation
• Employment law
• Import licenses
• State subsidies, procurement, trading, state ownership
• Export subsidies
• Fixation of a minimum import price
• Product classification
• Quota shares
• Foreign exchange controls and multiplicity
• Inadequate infrastructure
• "Buy national" policy
• Over-valued currency
• Intellectual property laws (patents, copyrights)
• Restrictive licenses
• Seasonal import regimes
• Corrupt and/or lengthy customs procedures
• Bribery and corruption .
Reasons why India struggles with trade policymaking in a broad sense in turn, feeds through to operational and procedural difficulties at every level.
Economic analysis
Libertarian economic theories hold that tariffs are a harmful interference with the individual freedom and the laws of the free market. They believe that it is unfair toward consumers and generally disadvantageous for a country to artificially maintain an industry made inefficient by local demands, and that it is better to allow a collapse to take place. Opposition to all tariffs is part of the free trade principle; the World Trade Organization aims to reduce tariffs and to avoid countries discriminating between differing countries when applying tariffs.
Political analysis
The first is that the ministry that negotiates international trade agreements –
the Ministry of Commerce and Industry (MoCI) – is firmly embedded in the
domestic political culture, which accords little importance to the principles of
free trade within the domestic context. This is a development model to which
both the federal and state governments largely subscribe, and which political
parties, most NGOs and major business associations all share, to some degree
or the other.
Indeed, it is revealing that no single ministry deals with the issue of domestic
free trade, which means that India’s international negotiating position, is often
at substantial variance with the way that the domestic economy is actually run
creating obvious operational problems.
And secondly, India’s political culture is strikingly insular, in marked contrast
to her foreign policy. Political attention is directed resolutely inward for the
most part, and, if anything, this process has become more pronounced over
the years with the rise to political power of formerly disadvantaged castes,
classes and communities, and the steady fragmentation of the structure of
political parties combined with the growing influence of federal units.
As a consequence, India’s political appetite and interest in engaging with the
outside world is very limited. The Ministry of External Affairs (MEA), which
was responsible for so much of post-independence policy-making – and which
has a strong internationalist reputation – watches from the sidelines and can
do little to alter this state of affairs.
In this strange situation, the MoCI can only be effective at the multilateral
level, if what it says and does remains largely concealed from domestic public
view, including from other ministries of the central government and state
governments. On the other hand, as this is, in reality, impossible, it often means
minimal real discussion, and minimal real engagement with the ideas of
liberalisation and reciprocity in the process of policy formulation
5.DBA1734 TECHNOLOGY TRANSFER
DBA1734 TECHNOLOGY TRANSFER
ASSIGNMENT I 10 marks
1. Identify the types of Technology Transfer agreements by the Indian companies.List out the prospects and challenges involved in Technology Transfer agreements.
Technology transfer is the term used to describe the processes by which technological knowledge moves within or between organizations. International technology transfer refers to the way in which this occurs between countries.
Government of India’s Technology Transfer policy:
For promoting technological capability and competitiveness of the Indian industry,
acquisition of foreign technology is encouraged through foreign technology collaboration
agreements. Induction of knowledge through such collaborations has permitted either
through automatic route or with prior Government approval.
Scope of Technology Collaboration:
The terms of payment under foreign technology collaboration, which are eligible for
approval through the automatic route and by the Government approval route, includes
technical know how fees, payment for design and drawing, payment for engineering
service and royalty.
Automatic Route: Payment for foreign technology coloration by Indian companies are
allowed under the automatic route subject to the following limits:
• The lump sum payments not exceeding US$2 million
• Royalty payable being limited to 5 per cent for domestic sales and 8 per cent for
exports, without any restriction on the duration of the royalty payments.
Authorized dealers appointed by the Reserve bank of India (RBI) allow
remittances for royalty payment of lump-sum fee and remittance for use of
Trademark/Franchise in India within the limits prescribed under the automatic
route. RBI’s prior approval is required for remittance towards purchase of trade
mark/franchise.
Government Approval – Project Approval Board (PAB): Royalty payment in the
following cases requires prior Government approval (through PAB when only technical
collaboration is proposed and FIPB where both financial & technical collaboration are
proposed):
a) Sectors/activities which are not on the automatic route for FDI, or
b) Proposals not meeting any of the parameters for automatic approval
Proposals for foreign technology transfer/collaboration not covered under the automatic
route shall considered by the PAB in the department of Industrial Policy and Promotion.
Application in such cases has submitted in Form FC-IL to the secretary for industrial
Assistance.
Important Issues Associated with the Transfer of Technology
“The availability of a pool of scientific and technical know-how, tested, tried and
perfected in the advanced countries”, has seen as a distinct advantage that LDCs of today
enjoy over those of the past. However, there is now a growing view that the transfer of
technology from the developed to the developing countries does not sufficiently conform
to the real needs and interests of the latter.Cost, appropriateness, dependence and obsolescence are the four important issues associated with the transfer of technology.
In many cases, the developing countries obtain foreign technology at unreasonably high
prices. In a number of cases of foreign direct investment associated with technology
transfer, the net outflow of capital by way of dividends, interest, royalties and technical
fees are much higher than the corresponding inflow.
The appropriateness of the foreign technology to the physical, economic and social
conditions of the developing countries is an important aspect considered in technology
transfer. There is a large no. of cases where the foreign technology transferred has been
irrelevant or inappropriate to the recipient country’s social-economic priorities and
conditions.
Further, heavy reliance on foreign technology may lead to technological dependence.
The import of modern sophisticated technology has tended to displace the traditional
indigenous technology that has improved under a different set of policies. The steady
stream of new products and processes introduced by multinationals into developing
countries has been unfavorable to the promotion of domestic technological capacities and
has discouraged local scientists and technicians from devoting themselves to practical
development problems. It creates an attitude of subservient dependence, which may
inhibit the capacity to do even relatively minor adaptive research or to adopt processes,
which can develop locally.
It has identified that there is a tendency to transfer outdated technology to the developing
countries. Thus, they would not enjoy the advantages of the latest technology and would
still technologically lag behind. It is unfortunate that the owners of modern technology
view the developing countries as a means to salvage technology that is obsolescent in the
advanced countries, even when they possess technology that is more advanced.
V. Disputes in Technology Transfers
However, initial care has taken in choosing the partner/company; there are various
reasons for raising the disputes while implementing the collaboration agreements.
Ministry of Science and Industrial research, Govt. of India conducted a study on
“Disputes in Technology Transfer Agreements – case studies” and given suggestions to
companies while entering technology transfer agreements (Executive summery of the
study is in Appendix-1)
The following are some of areas where the general disputes will arise.
• Disputes arise because of differentiation in interpretation of different clauses
of the agreement.
• At least one party must unable to operate the some part of the agreement due
to any reason.
• Deliberately come out of the agreement by one party ( some times it is
happen when the license company is taken over by another company, those
are not interested and or their philosophy is different – otherwise it is rarely
happen)
• Disputes relating payment of royalty and fees
• Delay in completion of the projects
• Passing of unapproved technology
• Technology up gradation and incomplete data and drawings
• Licensor is competing with licensee with the latest models in India
• After sales service and backup
• Intellectual Property Rights (IPR) issues like of trade mark
• Quality and cost of production,
• Delay and supply of inferior raw materials and components
2. Critically examine the role of International Brokers in Technology partnering.
International brokers operate at the very centre of the international trade. They gather, organize, and manage the commercial and trade data required to submit goods for release to national Customs administrations on behalf of their clients. As well, they can handle the payment of appropriate duties and taxes on these goods. In many countries, International brokers are licensed by their governments to perform the particular tasks of submitting Customs declarations and paying duties and taxes on behalf of importers and exporters.
International brokers possess wide-ranging skills and deep knowledge about trade processes and procedures, including classification, valuation, rules of origin, admissibility requirements, duty rates, taxes and supply chain security.
• training, vetting and monitoring independent community brokers;
• maintaining a list of approved, independent community brokers from which consumers could
choose (this body could also assist consumers to know what to expect from these
independent brokers);
• maintaining a database of information on such things as relevant laws and public policies,
cost and reputation of local services, etc. – such a database could, in fact, help to reduce the
need for direct brokerage involvement;
• providing training to service agency training;
• addressing local community development needs, including assisting consumers to establish
needed services and supports;
• collecting data about the nature and operation of community and generic services and
feeding this information to appropriate bodies.
International brokers’ Role in International Trade Relationships
1. International brokers and their Clients
(a) The services offered by International brokers to their clients are usually based in law (e.g. the
power of attorney), and on nationally recognized business practice and conventions.
(b) International brokers perform their work with honesty, dedication, diligence, and
impartiality.
2. International brokers and their National Customs Administrations
(a) International brokers generally are licensed to perform their duties by their governments. They
are thus uniquely placed to assist Customs administrations by working with government to
provide essential services to both clients and Customs.
(b) International brokers take every opportunity to help their Customs administrations
achieve improvements in service provision to traders. Such improvements include
efficiencies in application of regulations, development of programs that capitalize on
technological advances, and adherence to new trade security standards.
(c) Customs administrations conduct their relations with International brokers fairly and
without discrimination, offering all customs brokerage firms equal opportunity to serve their
mutual clients.
3. International brokers and Professional Education
(a) International brokers strive to enhance their knowledge and skills on a continuous
basis.
(b) Professional education can take place both formally (by means of activities undertaken in
schools, colleges, web-based courses, seminars offered by national International brokers
associations etc.) and informally (on-the-job training; mentoring; in-house training). Both styles
of training should be encouraged and recognized.
4. International brokers and Trade Security and Facilitation
(a) International brokers are at the centre of the international trade fulcrum, and thus have an
intrinsic interest in ensuring their clients’ interests are advanced by full participation in national
and international trade security and facilitation programs, such as those advanced by the World
Customs Organization.
A skilled role
In our view, the broker requires a high level of skills in a variety of areas. These primarily include:
• appropriate values;
• possession of a clear vision of the capacity of people with developmental disabilities to live
fulfilling lives as citizens;
• highly developed interpersonal communication skills;
• an understanding of the concept of the ‘circle of support’ and its relevance, as well as the
ability to recognize the kinds of people who might appropriately be involved in the circle;
• a strong understanding of the principles, structure, and functions of an IF system;
• a solid understanding of the principles and necessary logic of the individual planning
process;
• an ability to work systematically in collecting information about specific resources;
• knowledge of the kinds of organization which may be relevant;
• an ability to act in a group in ways which are facilitative;
• an ability to document the planning process and its outcomes in ways which are precise yet
also support vitality and imagination;
• budget negotiation, service contracting, monitoring, problem-resolution and mediation skills;
• awareness of the role of ‘supporter’ and ability to work within this role.
A distinct role offers a special opportunity
Service brokerage is a complex and demanding role, and requires the broker to accept the idea that professional ‘power’ can only result from effectively empowering and enhancing the status of others. If brokerage is to be effective it must be recognized as distinct from both case management and advocacy; and it must be correctly positioned within Individualized Funding systems as a role that is accorded legitimacy by the other actors in the system. On the other hand, we do understand the look of wistful longing that we sometimes notice on the faces of case managers when we explain the brokerage role. They have realized, correctly, that to be a service broker is an opportunity to work in the community, free from conflicts of interest and the burden
of gate-keeping, and with the single concern to enable people to find all the richness of living which comes with true citizenship.
ASSIGNMENT II 10 marks
1. Explain the IPR issues in Technology partnering.
The changing role of IPR
The main issue is whether collaborative research will be impeded or aided by IPR (Intellectual
Property Rights) system, and in particular how this system (or rather unintegrated IPR systems) will affect Internet collaborations. The importance of IPR issues have rapidly grown since the advent of the pro-patent era in the USA in the early to mid-1980s. The emergence of this era was perhaps more a consequence than a cause of the technology-driven transition to a new type of economy with labels such as 'knowledge based economy', 'intellectual capitalism' and the like. The basic economic rationales and legal framework of the IPR systems around the world have not changed for centuries however. During the 20th century the IPR field was dominated by lawyers; economists paid very little attention to it and so did industrial managers and policy makers in general, let alone the public at large. The rapid movement of IPR from backstage to the forefront of attention and strategic importance has therefore created a huge need for education as well as research on IPR issues, complex as they are from the outset.
Copyright issues
Copyright is part of the system of legal protection that exists over the products of intellectual
and creative activity. It is one of a group of legal controls called intellectual property rights
(IPR) which each protect different forms of intellectual property, the others being patents,
trademarks, design right and database right. Copyright is concerned with original literary or
written work, as well as musical, dramatic and artistic works, films, sound recordings and
broadcast programmes, and consequently it is the type of IPR most often involved in the
publication of academic work and has to be considered when depositing material in
institutional or subject repositories.
Certain criteria have to be fulfilled before a work qualifies for copyright protection. However
these are relatively basic and are likely to apply to all work produced by academics and
economists. Firstly, the work must exist in material form, as it is impossible to protect ideas or
intellectual activity until it has been recorded in some way, and secondly it must be original,
which means not copied from something which already exists. Once these criteria have been
met copyright protection applies automatically. There is no registration procedure as is the
case with patents or designs.
Ownership
Ownership is the key position in the copyright system as the owner determines what can and
cannot be done with copyright protected work. The author or creator of a work is the first
owner of the copyright unless the work has been produced during the course of employment,
in which case the employer is the owner. However, this does not usually apply in higher
education as universities generally waive their rights as employers and do not attempt to claim
ownership of copyright in the research, articles and books which academics produce. In
practice there is some variation across Europe and between intuitions and so to be certain
what the situation is authors should check their institution’s IPR policy or their employment
contract. In most cases, however, the academic author will be the first owner of copyright in
any material they produce.
Authors can transfer their rights but they should be aware that once they sign these away and
pass ownership on to another party they are no longer free to do what they want with their
own work and may be prevented from doing things which they subsequently wish to with it,
including depositing it in an institutional or subject repository.
Versions
The version of the article or piece of published work that can be deposited or self-archived
should be specified in the publishing agreement or in the publisher’s copyright or selfarchiving
policy and this is basis of the classification of publishers’ policies in the RoMEO
database.
Safety and Security Threats
CBP has targeted and seized an increasing number of counterfeit products that pose safety threats to American consumers, to our infrastructure, and potentially to our security. These products range from electrical articles such as power cords and lights that can catch fire or shock consumers, to batteries that may explode or leak mercury, to personal care items such as toothpaste and shampoo that may contain harmful bacteria, to computer network components and semiconductors that can cripple infrastructure vital for national security.
2. How to conduct the royalty audits? Give the Illustrations.
Royalty auditing in the licensing industry is designed to establish the degree to which a user of protected creative property rights has fulfilled the legal obligation to compensate the rights owner for such use as was originally defined by contract. This is usually accomplished through reviewing, investigating, and examining the books and records of a license to determine if the reportings rendered by the license are in compliance with the various provisions and requirements of the contract between the two parties. The audit will include various procedures reflecting the terms of the agreement, applied to the royalty accounting records of the users. The results are then reported to the rights owner for use in resolving any issues of non-compliance. The royalty audit should provide solutions to royalty compliance and collection issues, solve problems and clarify contractual issues, add to the bottom line and provide valuable industry insight toward building stronger business relationships between the parties.
The licensor may want procedures performed to provide comfort that their copyrighted product is only being exploited under the terms, conditions and methods as provided in the contract and as intended by the licensor. Therefore, the scope of royalty auditing may be expanded to include a study of the business practices of the licensee, verification of quality control, and copyright protection.
Royalty audits may also be used to provide valuable insight into the business practices of both parties. Quite often licenses are negotiated and executed without either party having a full understanding of the accounting requirements. In fact, many licensees are ill equipped to fulfill the accounting and auditing provisions of the contract. Royalty audits are often used for the purpose of educating both parties as to their obligations in providing information to facilitate accurate and complete accountings. If communication is the issue, the terms and requirements may be clarified. If the problem lies within the accounting system, recommendation may be made to obtain a royalty system from a service provider or to obtain consulting services to build internal capabilities. Finally, either party may use a royalty audit as a source of data to prepare a valuation for mergers, or buy / sell transactions.
Legal Goals of the Royalty Audit
• Assess overall contract compliance
• Create awareness of your expectations of the selfreporting
licensee and to deter non-compliant behavior
Fi i l • Financial recovery
• Reduction of blind trust in the licensee
• Increased knowledge and information flow
• Check for unethical behavior
• Trademark protection and copyright notifications p pyg
– Reduce risks to your client by licensees use of your client’s name
ASSIGNMENT I 10 marks
1. Identify the types of Technology Transfer agreements by the Indian companies.List out the prospects and challenges involved in Technology Transfer agreements.
Technology transfer is the term used to describe the processes by which technological knowledge moves within or between organizations. International technology transfer refers to the way in which this occurs between countries.
Government of India’s Technology Transfer policy:
For promoting technological capability and competitiveness of the Indian industry,
acquisition of foreign technology is encouraged through foreign technology collaboration
agreements. Induction of knowledge through such collaborations has permitted either
through automatic route or with prior Government approval.
Scope of Technology Collaboration:
The terms of payment under foreign technology collaboration, which are eligible for
approval through the automatic route and by the Government approval route, includes
technical know how fees, payment for design and drawing, payment for engineering
service and royalty.
Automatic Route: Payment for foreign technology coloration by Indian companies are
allowed under the automatic route subject to the following limits:
• The lump sum payments not exceeding US$2 million
• Royalty payable being limited to 5 per cent for domestic sales and 8 per cent for
exports, without any restriction on the duration of the royalty payments.
Authorized dealers appointed by the Reserve bank of India (RBI) allow
remittances for royalty payment of lump-sum fee and remittance for use of
Trademark/Franchise in India within the limits prescribed under the automatic
route. RBI’s prior approval is required for remittance towards purchase of trade
mark/franchise.
Government Approval – Project Approval Board (PAB): Royalty payment in the
following cases requires prior Government approval (through PAB when only technical
collaboration is proposed and FIPB where both financial & technical collaboration are
proposed):
a) Sectors/activities which are not on the automatic route for FDI, or
b) Proposals not meeting any of the parameters for automatic approval
Proposals for foreign technology transfer/collaboration not covered under the automatic
route shall considered by the PAB in the department of Industrial Policy and Promotion.
Application in such cases has submitted in Form FC-IL to the secretary for industrial
Assistance.
Important Issues Associated with the Transfer of Technology
“The availability of a pool of scientific and technical know-how, tested, tried and
perfected in the advanced countries”, has seen as a distinct advantage that LDCs of today
enjoy over those of the past. However, there is now a growing view that the transfer of
technology from the developed to the developing countries does not sufficiently conform
to the real needs and interests of the latter.Cost, appropriateness, dependence and obsolescence are the four important issues associated with the transfer of technology.
In many cases, the developing countries obtain foreign technology at unreasonably high
prices. In a number of cases of foreign direct investment associated with technology
transfer, the net outflow of capital by way of dividends, interest, royalties and technical
fees are much higher than the corresponding inflow.
The appropriateness of the foreign technology to the physical, economic and social
conditions of the developing countries is an important aspect considered in technology
transfer. There is a large no. of cases where the foreign technology transferred has been
irrelevant or inappropriate to the recipient country’s social-economic priorities and
conditions.
Further, heavy reliance on foreign technology may lead to technological dependence.
The import of modern sophisticated technology has tended to displace the traditional
indigenous technology that has improved under a different set of policies. The steady
stream of new products and processes introduced by multinationals into developing
countries has been unfavorable to the promotion of domestic technological capacities and
has discouraged local scientists and technicians from devoting themselves to practical
development problems. It creates an attitude of subservient dependence, which may
inhibit the capacity to do even relatively minor adaptive research or to adopt processes,
which can develop locally.
It has identified that there is a tendency to transfer outdated technology to the developing
countries. Thus, they would not enjoy the advantages of the latest technology and would
still technologically lag behind. It is unfortunate that the owners of modern technology
view the developing countries as a means to salvage technology that is obsolescent in the
advanced countries, even when they possess technology that is more advanced.
V. Disputes in Technology Transfers
However, initial care has taken in choosing the partner/company; there are various
reasons for raising the disputes while implementing the collaboration agreements.
Ministry of Science and Industrial research, Govt. of India conducted a study on
“Disputes in Technology Transfer Agreements – case studies” and given suggestions to
companies while entering technology transfer agreements (Executive summery of the
study is in Appendix-1)
The following are some of areas where the general disputes will arise.
• Disputes arise because of differentiation in interpretation of different clauses
of the agreement.
• At least one party must unable to operate the some part of the agreement due
to any reason.
• Deliberately come out of the agreement by one party ( some times it is
happen when the license company is taken over by another company, those
are not interested and or their philosophy is different – otherwise it is rarely
happen)
• Disputes relating payment of royalty and fees
• Delay in completion of the projects
• Passing of unapproved technology
• Technology up gradation and incomplete data and drawings
• Licensor is competing with licensee with the latest models in India
• After sales service and backup
• Intellectual Property Rights (IPR) issues like of trade mark
• Quality and cost of production,
• Delay and supply of inferior raw materials and components
2. Critically examine the role of International Brokers in Technology partnering.
International brokers operate at the very centre of the international trade. They gather, organize, and manage the commercial and trade data required to submit goods for release to national Customs administrations on behalf of their clients. As well, they can handle the payment of appropriate duties and taxes on these goods. In many countries, International brokers are licensed by their governments to perform the particular tasks of submitting Customs declarations and paying duties and taxes on behalf of importers and exporters.
International brokers possess wide-ranging skills and deep knowledge about trade processes and procedures, including classification, valuation, rules of origin, admissibility requirements, duty rates, taxes and supply chain security.
• training, vetting and monitoring independent community brokers;
• maintaining a list of approved, independent community brokers from which consumers could
choose (this body could also assist consumers to know what to expect from these
independent brokers);
• maintaining a database of information on such things as relevant laws and public policies,
cost and reputation of local services, etc. – such a database could, in fact, help to reduce the
need for direct brokerage involvement;
• providing training to service agency training;
• addressing local community development needs, including assisting consumers to establish
needed services and supports;
• collecting data about the nature and operation of community and generic services and
feeding this information to appropriate bodies.
International brokers’ Role in International Trade Relationships
1. International brokers and their Clients
(a) The services offered by International brokers to their clients are usually based in law (e.g. the
power of attorney), and on nationally recognized business practice and conventions.
(b) International brokers perform their work with honesty, dedication, diligence, and
impartiality.
2. International brokers and their National Customs Administrations
(a) International brokers generally are licensed to perform their duties by their governments. They
are thus uniquely placed to assist Customs administrations by working with government to
provide essential services to both clients and Customs.
(b) International brokers take every opportunity to help their Customs administrations
achieve improvements in service provision to traders. Such improvements include
efficiencies in application of regulations, development of programs that capitalize on
technological advances, and adherence to new trade security standards.
(c) Customs administrations conduct their relations with International brokers fairly and
without discrimination, offering all customs brokerage firms equal opportunity to serve their
mutual clients.
3. International brokers and Professional Education
(a) International brokers strive to enhance their knowledge and skills on a continuous
basis.
(b) Professional education can take place both formally (by means of activities undertaken in
schools, colleges, web-based courses, seminars offered by national International brokers
associations etc.) and informally (on-the-job training; mentoring; in-house training). Both styles
of training should be encouraged and recognized.
4. International brokers and Trade Security and Facilitation
(a) International brokers are at the centre of the international trade fulcrum, and thus have an
intrinsic interest in ensuring their clients’ interests are advanced by full participation in national
and international trade security and facilitation programs, such as those advanced by the World
Customs Organization.
A skilled role
In our view, the broker requires a high level of skills in a variety of areas. These primarily include:
• appropriate values;
• possession of a clear vision of the capacity of people with developmental disabilities to live
fulfilling lives as citizens;
• highly developed interpersonal communication skills;
• an understanding of the concept of the ‘circle of support’ and its relevance, as well as the
ability to recognize the kinds of people who might appropriately be involved in the circle;
• a strong understanding of the principles, structure, and functions of an IF system;
• a solid understanding of the principles and necessary logic of the individual planning
process;
• an ability to work systematically in collecting information about specific resources;
• knowledge of the kinds of organization which may be relevant;
• an ability to act in a group in ways which are facilitative;
• an ability to document the planning process and its outcomes in ways which are precise yet
also support vitality and imagination;
• budget negotiation, service contracting, monitoring, problem-resolution and mediation skills;
• awareness of the role of ‘supporter’ and ability to work within this role.
A distinct role offers a special opportunity
Service brokerage is a complex and demanding role, and requires the broker to accept the idea that professional ‘power’ can only result from effectively empowering and enhancing the status of others. If brokerage is to be effective it must be recognized as distinct from both case management and advocacy; and it must be correctly positioned within Individualized Funding systems as a role that is accorded legitimacy by the other actors in the system. On the other hand, we do understand the look of wistful longing that we sometimes notice on the faces of case managers when we explain the brokerage role. They have realized, correctly, that to be a service broker is an opportunity to work in the community, free from conflicts of interest and the burden
of gate-keeping, and with the single concern to enable people to find all the richness of living which comes with true citizenship.
ASSIGNMENT II 10 marks
1. Explain the IPR issues in Technology partnering.
The changing role of IPR
The main issue is whether collaborative research will be impeded or aided by IPR (Intellectual
Property Rights) system, and in particular how this system (or rather unintegrated IPR systems) will affect Internet collaborations. The importance of IPR issues have rapidly grown since the advent of the pro-patent era in the USA in the early to mid-1980s. The emergence of this era was perhaps more a consequence than a cause of the technology-driven transition to a new type of economy with labels such as 'knowledge based economy', 'intellectual capitalism' and the like. The basic economic rationales and legal framework of the IPR systems around the world have not changed for centuries however. During the 20th century the IPR field was dominated by lawyers; economists paid very little attention to it and so did industrial managers and policy makers in general, let alone the public at large. The rapid movement of IPR from backstage to the forefront of attention and strategic importance has therefore created a huge need for education as well as research on IPR issues, complex as they are from the outset.
Copyright issues
Copyright is part of the system of legal protection that exists over the products of intellectual
and creative activity. It is one of a group of legal controls called intellectual property rights
(IPR) which each protect different forms of intellectual property, the others being patents,
trademarks, design right and database right. Copyright is concerned with original literary or
written work, as well as musical, dramatic and artistic works, films, sound recordings and
broadcast programmes, and consequently it is the type of IPR most often involved in the
publication of academic work and has to be considered when depositing material in
institutional or subject repositories.
Certain criteria have to be fulfilled before a work qualifies for copyright protection. However
these are relatively basic and are likely to apply to all work produced by academics and
economists. Firstly, the work must exist in material form, as it is impossible to protect ideas or
intellectual activity until it has been recorded in some way, and secondly it must be original,
which means not copied from something which already exists. Once these criteria have been
met copyright protection applies automatically. There is no registration procedure as is the
case with patents or designs.
Ownership
Ownership is the key position in the copyright system as the owner determines what can and
cannot be done with copyright protected work. The author or creator of a work is the first
owner of the copyright unless the work has been produced during the course of employment,
in which case the employer is the owner. However, this does not usually apply in higher
education as universities generally waive their rights as employers and do not attempt to claim
ownership of copyright in the research, articles and books which academics produce. In
practice there is some variation across Europe and between intuitions and so to be certain
what the situation is authors should check their institution’s IPR policy or their employment
contract. In most cases, however, the academic author will be the first owner of copyright in
any material they produce.
Authors can transfer their rights but they should be aware that once they sign these away and
pass ownership on to another party they are no longer free to do what they want with their
own work and may be prevented from doing things which they subsequently wish to with it,
including depositing it in an institutional or subject repository.
Versions
The version of the article or piece of published work that can be deposited or self-archived
should be specified in the publishing agreement or in the publisher’s copyright or selfarchiving
policy and this is basis of the classification of publishers’ policies in the RoMEO
database.
Safety and Security Threats
CBP has targeted and seized an increasing number of counterfeit products that pose safety threats to American consumers, to our infrastructure, and potentially to our security. These products range from electrical articles such as power cords and lights that can catch fire or shock consumers, to batteries that may explode or leak mercury, to personal care items such as toothpaste and shampoo that may contain harmful bacteria, to computer network components and semiconductors that can cripple infrastructure vital for national security.
2. How to conduct the royalty audits? Give the Illustrations.
Royalty auditing in the licensing industry is designed to establish the degree to which a user of protected creative property rights has fulfilled the legal obligation to compensate the rights owner for such use as was originally defined by contract. This is usually accomplished through reviewing, investigating, and examining the books and records of a license to determine if the reportings rendered by the license are in compliance with the various provisions and requirements of the contract between the two parties. The audit will include various procedures reflecting the terms of the agreement, applied to the royalty accounting records of the users. The results are then reported to the rights owner for use in resolving any issues of non-compliance. The royalty audit should provide solutions to royalty compliance and collection issues, solve problems and clarify contractual issues, add to the bottom line and provide valuable industry insight toward building stronger business relationships between the parties.
The licensor may want procedures performed to provide comfort that their copyrighted product is only being exploited under the terms, conditions and methods as provided in the contract and as intended by the licensor. Therefore, the scope of royalty auditing may be expanded to include a study of the business practices of the licensee, verification of quality control, and copyright protection.
Royalty audits may also be used to provide valuable insight into the business practices of both parties. Quite often licenses are negotiated and executed without either party having a full understanding of the accounting requirements. In fact, many licensees are ill equipped to fulfill the accounting and auditing provisions of the contract. Royalty audits are often used for the purpose of educating both parties as to their obligations in providing information to facilitate accurate and complete accountings. If communication is the issue, the terms and requirements may be clarified. If the problem lies within the accounting system, recommendation may be made to obtain a royalty system from a service provider or to obtain consulting services to build internal capabilities. Finally, either party may use a royalty audit as a source of data to prepare a valuation for mergers, or buy / sell transactions.
Legal Goals of the Royalty Audit
• Assess overall contract compliance
• Create awareness of your expectations of the selfreporting
licensee and to deter non-compliant behavior
Fi i l • Financial recovery
• Reduction of blind trust in the licensee
• Increased knowledge and information flow
• Check for unethical behavior
• Trademark protection and copyright notifications p pyg
– Reduce risks to your client by licensees use of your client’s name
4.DBA-1703_STRATEGIC MANAGEMENT
DBA-1703 - STRATEGIC MANAGEMENT
ASSIGNMENT – I
1. Apply porter’s five forces Model for the model like Maruthi 800 during the present time of “Tata Nano”.
Porter's 5 Forces Model of the NANO car
The auto manufacturing industry is considered to be highly capital intensive and labour intensive. The major costs for producing and selling automobiles includes labour, material and advertising. There are other developments in the automobile industry that you must consider when analyzing an automobile company.
Threat of New Entrants:
Indian compact car market seems to be getting hotter, with not only better car models, but also the intensity of the competition in the segment. The market which is growing at 20-25% annually is attracting international player like Volkswagen, Toyota, Nissan and Ford, all of whom are expected to come up with a number of new launches in this segment of the Indian car market. The new players plan to differentiate their products through competitive pricing and additional features like added space, fuel efficiency and better performance. It seems like competition is set to go to a whole new level for existing players in the market.
The way in which Nano is produce such a methods will lead to even more new manufacturing innovations to offer affordable cars to consumers. New entrants in this category need to address various challenges such as inflation, low-price barriers, substantial changes in raw material prices, and government regulations, for example vehicles above 650cc pay excise taxes in India, but with 624cc engine, the Nano is exempt. Achieving a US$2,500 will be difficult for any carmaker, but going forward more automakers will develop low cost cars. It takes 4 to 5 years and a huge investment for a car maker to design and build a low cost car, which itself has low margins.
So, there is threat of new entrant to Nano in the long run.
1. Rivalry Among existing Firms:
The small car market in India is very competitive with players like Maruti Suzuki, Tata Motors, Huyndai etc. which was pretty much dominated by Maruti. But with launch of Nano the 1 lakh car the whole momentum of the market has shifted.
Maruti is planning to first slash the price of its best-selling model 800cc Alto which is priced at Rs2.3 lakh. And the price change would be effective only from 2010 once Tata Motors begins rolling out Nano from its Sanand plant in Gujarat in big number. Earlier, the news was that Maruti may slash the price of its 800 model to compete with Nano.
The Nano is alleged to have severely affected the used car market in India, as many Indians opt to wait for the Nano's release rather than buying used cars, such as the Maruti 800, which is considered as the Nano's nearest competitor. Sales of new Maruti 800s have dropped by 20%, and used ones by 30% following the unveiling of the Nano. As one automotive journalist summarises; “People are asking themselves—and us—why they should pay, say, 250,000 Rupees for a Maruti Alto, when they can wait and get a brand new Nano for less in a few months’ time, a car that is actually bigger
The launch of Tata Nano is expected to diminish the sales of the used cars under Rs. 1 Lakh - 2 Lakhs range and also the sales of the other entry level cars like Maruti 800, Alto, Chevrolet Spark etc. Some companies such as Bajaj is working on a much less priced car and companies such as Maruti will think of reducing the price of their small cars.
A source in the automobile industry with direct knowledge of the plans said Alto will have a stripped down version (i.e. basic) to compete with Tata Motors’ small car Nano.
It shows there is threat of rivalry for Nano car.
2. Threat of substitutes:
The threat of substitute for Nano car is that of electric car, the new entrant in the small car sector is the Morbi-based world famous clock-maker Ajanta group. The company is planning to manufacture an electric car at its unit at Kutch district and market it at a price lower than Rs 1-lakh Nano. The company is already manufacturing electric scooters and bikes under ‘Oreva' brand. Production of electric car is not difficult for them as the technology is almost similar and 70 per cent of its parts can be produced in-house, giving them an edge over the vehicle's pricing. The Ajanta group is serious in its attempt to keep the basic price of the proposed car as low as Rs 85,000.
At present, in the electric car segment only Reva car is available in India. Another player in the small car segment, the Rajkot-based Field Marshal group, is in negotiations with Australian company Farnow Technologies for a joint venture for a low cost electric car.
Tata itself is believed to be making an electric version of the Nano, called the E-Nano which might well turn out to be the "world's cheapest electric car" which is more eco-friendly. It's supposed to be as cheap as the conventional gasoline version. Economic Times reported that the "electric Nano" would still make good sense for economic, clean and green personal mobility in countries around the world.
Since two-wheeler owners are used to getting 60-70 km per litre, as compared to the Nano's 20+, the cost of ownership of a Nano is likely to be far higher than that of a two-wheeler. One time investment of buying car can be done by the lower income group people but it will be difficult for them to overcome maintenance cost and cost of running i.e. fuel these people would like to remain in bike segment only.
So there is a high threat of substitutes for Nano as electric cars trying to keep prices lower, less cost of running as a product differentiation.
3. Threat of bargaining power of buyer:
Tata Motors has to work out their strategies to meet the challenges of sales and after-sales. The first is to meet the high demand that is likely to get created. As there would be many first-time customers, the sales force will have to advise them on issues like running and maintenance of the car. Further, the Indian consumer is very discerning and the product and after-sales service quality will need to live up to the consumers' expectations for the Nano to be successful.
As the Nano car is made for lower income group people we can say there is no power in the hands of buyer at present as only Nano is available in Indian market but soon there will be cheaper car in the Indian market and buyers will have power to switch to other cars.
4. Threat of bargaining power of supplier:
For Nano about 60 suppliers collectively spent about Rs. 500 crores ($112.7 million) to locate on the Singur complex. Suppliers have said that they have the capacity in existing plants to be part of the Tata Nano launch, if the Tata plant moves to Pantnagar, or even Pune. Other suppliers are willing to stay, put and use their sheds as warehouses to store the components.
The company said most of its vendor relationships are covered by a “bill marketing” system, where Tata’s bank makes payments to the vendors, and Tata Motors pays the bank.
Tata Motors had set up a so-called suppliers’ council to address several issues, including delayed payments that were causing friction between the auto maker and its parts’ suppliers.
Rather than a threat to Nano, suppliers were supporting Tata Motors for launch of Nano and there are overall thousands of suppliers to TATA Motors.
Is Nano a Rising Threat ?
These methods will lead to even more new manufacturing innovations to offer affordable cars to consumers. Tata Motors is expecting to build around 250,000 units annually, excluding the markets of Africa, Southeast Asia, Latin America and Europe. In the next couple of years, more than a million of Nano’s are expected to be on the road. In addition, Nissan and Renault are planning to form alliance with Bajaj Auto to develop a car with a price tag of around US$3000 by 2011. Volkswagen is also considering in developing a low cost car, under a separate brand name and China's Guangzhou Motors had announced its collaboration with an Indian-based company, Global Automobiles, to roll out a low cost car. As this continues, the growing small segment car industry is set to expand exponentially.
According to United Nations, at the start of 2008 about 12 in 1,000 Indians have a car. Due to the low-cost innovations like Nano, the ratio is expected to increase rapidly in the coming years. If the same trend happens in China and its neighboring countries, the situation might become worse. Today, light duty vehicles account for more than 10 percent of global carbon emissions. As Asia, where Tata Motors are aggressively promoting its Nano, accounts more than 60 percent of the world's population, the contribution of carbon emissions from light duty vehicles is set to increase swiftly.
2. Suggest the possible strategies for Indian IT companies to sustain the present competiveness created by other countries like china.
Infrastructure Development:
India, as we all know, is still a developing country. By harping upon the term developing, we
stress upon the fact that we are still to reach the basic requirements of infrastructure development,
GDP etc .But the question remains, why does Infrastructure requirements have top priority?
In an International conference, Lee Kuan Yew, architect of Modern day Singapore, when asked
about his views on India, replied that there was much that needed to be done. He said that
production should have been the primary concern for any developing country. If you don’t
produce, even after equitable distribution, you would still be dirt poor. Thus manufacturing has to
be the base upon which India’s growth must be based. For that we need Infrastructure in place.
You cannot produce much with your bare hands. So you need factories, you need power to run
those factories. You have to have roads and ports and airports to bring inputs to the factory and
take the output out.
Despite labor costs that are often 1/25th that of the West, India's transportation costs are among
the highest in the world. India's export-driven progress is hampered by some of the world's
highest port and rail costs. The cost of transporting one TEU one kilometer in India is 53% higher
than in the United States and if India continues to ignore the competitive world market, things
will only get worse. The above referenced article refers to the fact that by late 2008 some 25% of
world container ship capacity will be comprised of vessels of at least 6,000 TEU (twenty-foot
equivalent units) but that India does not yet have a port that can handle this class of ship. Given
the rise of the Indian manufacturing sector -- and its strengths in such areas as metals and textiles
-- it would be an absolute shame if the country's roads and ports continue to hold back economic
progress.
India is a largely agricultural economy. If we look at the statistics, the years in which the growth
has suffered has been ones when agriculture has suffered due to either untimely or inexistent rains
.If India has to prosper, it has to forgo its dependence on the rains and needs to establish a well
connected irrigation system and have proper Dams in place .This again brings up the
Infrastructure requirement.
Thus the importance of Infrastructure in the long term plans.
Untapped rural population
India with all its growth still remains a largely untapped powerhouse. Most of the growth is
concentrated in the urban pockets, which is still insignificant considering that India is the second
most populated country with more than 1 billion inhabitants. If India can work on bringing even
50% of the rural population in the mainstream, we suddenly have an even larger pool of
workforce to eliminate the workforce windfall/crunch that the Indian Industry expects to be hit
with sometime in the next decade.
Derogatory state of state owned PSU’s
At the time of Independence, India had one of the most developed private sectors in
manufacturing in the Third World .However it is also true that at that point of time, it lacked the
ability to mobilize resources for the heavy industries that Prime Minister Nehru regarded as a
priority.
The pre-eminence of the public sector was secured through the Industrial Policy Resolution of
1956, which excluded the private sector from basic industries such as power, oil, heavy
engineering, steel and several others. This was carried on by the Indira Gandhi led government ,
who nationalized 14 leading banks followed by the nationalization of coal, general insurance,
copper , wholesale wheat trading and even part of the textile industry .This caused a major
stagnation in the Industry in the first half of the 1970’s and a widespread economic discontent .
Here were sown the first seeds of economic liberalization, generally associated with the Rajiv
Gandhi government .This was the time when it was realized that the State owned Enterprises
(SOE) had to show a better financial performance.
When Rajiv Gandhi came to power, a quick analysis informed that the public sector far from
generating surpluses and fostering accumulation in the economy, was getting in the way of it .The
focus had changed from attempting additional investments to getting more out of the existing
ones.
By the 1990’s, SOE’s had helped create a diversified Industrial economy, also having laid the
foundation of research and development .They were also model employers , paying wages and
benefits to workers that were superior to what much of the private sector had to offer. But with
the deteriorating fiscal conditions, it was acknowledged that the SOE’s had to deliver better
returns, also a thought process had started where the better performing SOE’s needed to
contribute more than just the dividends. That is how the concept of disinvestment came.
The state meanwhile had picked up an idea that it ought to concentrate on its central role of
providing physical and social infrastructure. Running businesses, irrespective of whether some
SOE’s were performing well or not, was best left to the private sector.
In the budget for 1999-2000 for the first time the word privatization was used. Privatization was
selling off a controlling stake of a SOE’s to a private buyer, a form of disinvestment now better
known as “strategic sale”.
Many well performing SOE’s have since been sold by the strategic sale method. In short we are
selling off the better performing SOE’s and keep the loss making ones for ourselves and still
blaming the SOE’S for not giving dividends .
With the fast increasing energy and development needs of the country, its time for the SOE’s to
finally deliver on their promise. With an efficient management at helm , and a little autonomy ,
the SOE’s have shown equal efficiency to that of the private sector .While the private sector is
profit mongering machine , the SOE’s or PSU’s have to also fulfill their social obligations. Hence
it is unable to maximize its profits. It is relevant to note here that one of the biggest tax payers in
the country are the state owned PSU’s.
Government policies on FDI
It is now acknowledged worldwide the foreign investment brings extra investment, new
technology and access to global markets, and so is wooed.
Capital account liberalization has allowed India to attract large portfolio flows, but reforms are
needed to raise FDI, which remains a disappointment. FDI can bring with it—in addition to
increased capital—cutting-edge technology and managerial know-how. But India is not fully
reaping these benefits. In 2003, the stock of FDI to India totaled just 5 percent of GDP compared,
for example, to 31 percent for Thailand and 35 percent for China. But the most striking fact is
that, at the same time that FDI lags, surveys consistently point to India as one of the top two or
three destinations for FDI in the coming years. So, the opportunity is there for the taking. The
analysis suggests that while sectoral restrictions on FDI have played some role, India’s FDI
regime is not overly restrictive by international standards. Rather, what is mainly holding back
FDI is broader difficulties of doing business? A few statistics serve to define the problem: to start
a business in Korea takes 22 days and in China 41. But in India, it takes 89 days. And enforcing a
contract takes 425 days in India, more than five times longer than Korea and nearly double that in
China.
At one time, all foreign investment was considered a loot of the country, and so discouraged.
Some economists complained out that foreign-controlled companies generally imported more
than they exported. However, we find that the ratio of imports to exports is lowest for foreign
investors, higher among Indian private sector companies, and highest of all for public sector
companies. It is appropriate for Third World industries to be net importers, using aid and foreign
capital to plug the trade gap.
Foreign Direct Investment (FDI) is permitted as under the following forms of investments.
• Through financial collaborations.
• Through joint ventures and technical collaborations.
• Through capital markets via Euro issues.
• Through private placements or preferential allotments.
India has high tariff barriers, and even after the Chelliah Committee reforms import duties will
range up to 30 per cent. These barriers keep imports out, and this protection gives a windfall gain
to all producers in India, including foreign investors. Domestic companies keep their windfall in
India, but foreign investors can remit theirs abroad. By insisting on some Indian shareholding, we
ensure that enough profits stay in India, mitigating or even completely offsetting the windfall
repatriated abroad. There is no such windfall for foreign investors producing in India for export.
Assigment II
1. Strategic alliances and diversification are the tools used by all the corporate”-Discuss the process and concepts.
A number of contributions explore firms’ technological and business diversification. As far as
technological diversification is concerned, these studies show that during the past decades the
complexity and multi-technology nature of products and processes led firms to broaden their
technological base in order to develop new products and processes (Granstrand and Sjolander, 1990;
Patel and Pavitt, 1994; Granstrand and Oskarsson, 1994; Granstrand et al., 1997). The literature
suggests that firms might develop technologies that are different but highly interdependent with
their distinctive capabilities. They can also invest in complementary fields in order to be able to
adopt and integrate technologies developed by external suppliers. Moreover, firms may want to
develop some knowledge in non-core technologies in order to have a window on emerging
technological opportunities. Or, still, they can internalise some “general purpose technologies”
which are used in different products and processes.
Some authors, however, point out that firms’ technological profiles are difficult to change. They
tend to be stable over time and evolve in a path-dependent fashion according to strong intersectoral
differences. Furthermore, firms that successfully diversify technologically maintain a certain
coherence between existing and new fields (Patel and Pavitt, 1997; Teece et al., 1994; Breschi et al.,
1998).
Unlike technological diversification, product diversification decreased over time due to the
process of restructuring and refocusing of large diversified firms (Scott, 1993; Hoskisson and Hitt,
1994; Markides, 1995a). Hence, firms broaden their technological knowledge, but they do not use all
their competence to enter new businesses. Empirical studies witness the difference between
technological diversification and product diversification (Granstrand, 1997; Granstrand et al., 1997).
Some of them point out that while in principle multi-technology firms can develop a wide range of
different products, there are severe limitations to the acquisitions of the downstream assets needed
to produce and commercialise these products in many different markets (Gambardella and Torrisi,
1998). Other studies focus on the impact of related and unrelated product diversification on firm
performance. The results indicate that related diversifiers outperform unrelated diversifiers (Robins
and Wiersema, 1995; Berger and Ofek, 1995; Markides and Williamson, 1994; Varadarajan and
Ramanujam, 1987; Dubofsky and Varadarajan, 1987), and that refocusing has a positive effect on
firms’ performance (Markides, 1995a; Comment and Jarrell, 1995).
A branch of the literature on technological diversification focuses on the strategies that firms
adopt to build up technological competencies internally. The distribution of patents across
technological classes is used to measure the extent to which firms diversify technologically. In-house
R&D investment, however, is not the only means that firms can use to enlarge their technological
base. External collaborations help acquire competencies that are more “exogenous” to the firm
(Hagedoorn and Duysters, 1999). They are a means to strengthen firms’ critical technological
competencies, to acquire general purpose technologies that companies do not develop internally, to
get access to frontier technologies produced by firms in other sectors, and to expand knowledge in
complementary or more marginal fields. Some contributions explore the trade-off between the
internal development and the “outsourcing” of technologies. Richardson (1972) suggests that similar
and complementary activities should be maintained within the firm, while activities which are
complementary but dissimilar can be accessed externally. Prahalad and Hamel (1990) claim that
firms should invest internally in related areas or in core technologies, and use external alliances to
acquire technological competencies in unrelated areas or in non core technologies. In addition, firms
can use strategic alliances to get access to new and complementary technologies (Teece, 1986), to
speed up firms’ learning processes, to share the costs and risks of R&D activities, to exploit
economies of scale and scope in research, to access new markets or production facilities, or to
monitor the evolution of non core-technologies (Hagedoorn, 1993). These issues have been studied
intensively during the past two decades, when there has been a steep increase in the use of
collaborative agreements between domestic firms in related markets and foreign companies in global
markets (von Tunzelmann, 1995; Freeman and Hagedoorn, 1994; Hagedoorn and Schakenraad,
1993; Chesnais, 1988).
This paper focuses on strategic alliances as a means to exchange technological knowledge and
other downstream assets. The “competence-based” theories of the firm provide a valid support to
the study of this issue. The basic idea is that economic institutions have different abilities to support
the acquisition and development of knowledge or other assets. These abilities are firm-specific, they
are cumulative, and determine firms’ competitive advantages. Inter-firm linkages can help combine
these firm-specific assets that require time to build up and that are hard to reproduce. Moreover,
since the shared assets can be accessed without separating them from the developer firm, the
problem of tradability is also bypassed (see, for example, Richardson, 1972; Kogut and Zander,
1992).
The empirical evidence suggests that various factors influence the choice between different types
of external agreements, such as the pace of technological change, the complexity and the objectives
of the transaction. Pisano (1991) and Teece (1992) demonstrate that when technological change
proceeds fast, companies prefer flexible forms of organisation – i.e. strategic alliances vs. mergers
and acquisitions. Other contributions show that in industries characterised by rapid technological
change, the scope for learning, the organisational change and the quick strategic response require
flexible forms of organisation (Hagedoorn, 1993; Eisenhardt and Schoonhoven, 1996). By contrast,
when transactions are complex, hierarchical organisations have superior monitoring and incentive
aligning properties. Some contributions also shows that the larger the number of partners, the
broader the product and/or technology scope, and the wider the functional activities covered by an
alliance, the higher the likelihood of the alliance being a joint venture or, more generally, an equity
arrangement (Pisano, 1989; Garcia Canal, 1996; Oxley, 1997). Even though the empirical evidence
on the relationship between the technological content and the organisational form of the alliances
are mixed (Osborn and Baughn, 1990; Gulati, 1995), the preference for more hierarchical
arrangements is more likely also when firms develop or transfer tacit know-how.
To conclude, in recent years there has been a trend towards the increasing technological
diversification of firms and the intensification in the use of strategic technological alliances.
Although the relationship between technological diversification and firms’ performances deserves
further attention, so far the empirical results suggest that there is a positive correlation between the
two. The same positive relationship holds for strategic technological alliances and firms’
performances, although the results are not clear across sectors (Hagedoorn and Shakenraad, 1994).
By contrast, firms’ performances are positively affected by the process of refocusing and
restructuring of productin and marketing activities (among others Markides, 1995a,b; Montgomery
and Wernerfelf, 1988; Amit and Livnat, 1988; Hitt and Ireland, 1986).
This work adds empirical evidence to some of these issues. It investigates the relationship
between internal technological diversification and diversification through strategic alliances, and
highlights differences across countries and sectors. It also explores the relationship between internal
and external technological diversification and firms’ economic performances. More specifically, we
explore the following issues.
First, the paper compares firms’ internal technological diversification with external technological
diversification. We expect the former to be more pronounced than the latter. Firms develop in-house
critical technologies and try to maintain a frontier position in these fields. However, the multitechnology
nature of products and processes leads companies to internalise knowledge in a wider
range of technological fields. Competencies developed internally are also needed to evaluate,
understand and assimilate outside technologies (Cohen and Levinthal, 1989, 1990; Rosenberg, 1990),
and allow firms to guide the evolution of external collaborations by avoiding that the partners
entirely shape the scope of the relationships.
Second, this work compares firms’ internal technological diversification with external market diversification
(see also Granstrand, 1997; Patel and Pavitt, 1994, 1997; Granstrand et al., 1997). The expectation is
that internal technological diversification is more pronounced than external market diversification.
Although firms develop competencies in several technological fields, they may find it difficult to get
access to production and commercialisation assets for entering different markets (Gambardella and
Torrisi, 1998). The internalisation of a wide range of technologies does not imply the presence in
“all potential” markets in which these technologies can be applied. Entry in different markets
requires investments in downstream assets, some of which are extremely specific.
Third, by means of multiple correlation analysis, this paper describes the relationship between
firms’ performances, internal technological diversification, and diversification through strategic
alliances. We expect the results to be sector-specific, with some sectors like transportation
equipment displaying a positive correlation between firms’ performances and technological
diversification. This is because, compared to industries like the ICTs, the transportation equipment
sector requires the integration of a wider range of different technologies to develop the products.
production and marketing alliances : alliances aimed at obtaining downstream assets in
marketing and production activities – i.e. Joint Marketing and Joint Manufacturing operations.
The total number of market alliances is 5,840.
− technological alliances : alliances in which some technological knowledge is exchanged trough
technology transfer or joint innovative projects – i.e. Licensing Agreements and Joint Research
Agreements. The number of technological alliances is 6,502. Technological alliances are divided
into alliances through which firms acquire technological knowledge and alliances through which
firms transfer their knowledge to third parties. To differentiate between these two types of
alliances we use the information on the direction of the technological flow involved in the
alliance. The analysis below will focus only on the alliances used to acquire knowledge.
2. How to prepare and use Balance Score card practices in Non-profit organization
The Reason for a Balanced Scorecard
Historically, organizations have measured their performance primarily, if not exclusively, with
measures derived from financial data. In the 1990s, a group of researchers and consultants from
the Nolan Norton Institute, the research arm of the accounting firm KPMG, began to study
commonly used organizational performance measures. Their hypothesis was that organizations
were being hindered by these measurement practices because the measurement focus was too
narrow.
After working with a number of ideas, the researchers suggested that companies ought to balance
the way they assess their organizations by looking at more than simply financial performance.
For the best single summary of this research, get a copy of The Balanced Scorecard by Robert S.
Kaplan and David P. Norton (Boston: Harvard Business School Press, 1996).
The original balanced scorecard formulation, which has been carried forward formulaically by
most companies that use it today, was organized around four perspectives that were given these
labels: financial, customer, internal, and innovation and learning. To reinforce the idea of
balance, the authors also promoted the use of lagging and leading indicators and performance
measures that were external as well as internal.
Another innovative idea emerging from this work was to tie performance measures closely to a
company’s strategic plan. In short, start with planning; then create a measurement process to
gauge how well you are executing against your plan. By doing this, the measures graduated from
simply providing descriptive data to being the basis for a management tool.
While this sounds straightforward, indeed almost simple minded, it was not a common practice
in the early 1990s. Nor, I suspect, is this common practice today.
Balanced Scorecard Pitfalls
As a manager and consultant, I have worked at or with a half dozen large organizations that were
(or at least claimed to be) using a balanced scorecard. Only one of them (a county government)
had any real success with it. In that group, I attribute the success to the presence of one very
bright young woman who truly understood the process, had complete intellectual and budgetary
support from her senior management and whose job was 100 percent committed to the balanced
scorecard process.
Rather than understanding what a balanced scorecard is supposed to accomplish, why, and how,
many managers simply implement a balanced scorecard as if it were a recipe. While the
technique described in professional literature accumulates the wisdom and experience of many
people and represents a form of best practice, it should not be copied blindly under the
assumption that one size fits all. In particular, the four major dimensions (financial, customer,
internal, and innovation and learning) can and should (in my opinion) be modified to fit an
organization. This is particularly true when the organization is a nonprofit.
Another problem that organizations frequently make is jumping into a measurement program too
fast and making the program too complicated. Deriving meaningful measurements, gathering
reliable data, developing useful analytical techniques, and educating managers about how to use
the data are all difficult steps. Doing all this at one time with a bucket full of 50 different
measures is doomed to failure. Organizations in which managers do not have experience with
measurement programs, or fail to heed the warnings of those who do, typically underestimate the
difficulties of implementing a balanced scorecard program.
Creating Organizational Metrics1
Despite the pitfalls, balanced scorecard is a useful management tool. It can be done successfully
if managers take a careful and thoughtful approach to the process.
The real trick behind any measurement program is to figure out first what you want to measure,
and then to figure out how to measure it. Many times, managers who want to evaluate their work
groups simply jump into collecting measures, not because the measures relate to organizational
attributes in which they are interested, but more because the measures are simple and available.
So it is that managers build assessments based upon measures such as: attendance data;
production and fulfillment records; budget deviances; and computer system up-time. When you
1 The words “measures” and “metrics” are often used as synonyms. Technically, they are not. A measure is a basic
quantitative or qualitative evaluative label, derived through a specified process, and assigned to a fundamental
attribute of a concept that we are trying to characterize. A metric is a derivation and/or combination of one or more
primary measures. For example, a category 3 hurricane earns its designation by being in a certain spot on the earth,
and having winds that rotate in a particular direction with speeds over a predetermined threshold. For the hurricane,
the category designation is a metric; the location, wind direction, and wind speed are primary measures.
The Balanced Scorecard Categories
A balanced scorecard is a management tool. Like any tool, it is supposed to be a means to an
end, not an end in itself.
In some organizations, a higher power simply and thoughtlessly mandates that the organization
shall implement a balanced scorecard. In this case, the balanced scorecard foolishly becomes the
end in itself. For this event, simply go to the literature and follow the balanced scorecard recipe
as best you can. Eventually, the management group will realize that the benefits accruing from
the balanced scorecard (as they have implemented it) are too few to justify the work going into it.
If you understand the ideas behind a balanced scorecard, you will be free to modify the classic
formula so it becomes a better tool for your organization. In particular, I think a nonprofit
organization should make some fundamental changes to the four basic measurement
perspectives. Specifically, I suggest using an approach based on these six categories, which are
clearly related to the four measurement categories originally formulated by the balanced
scorecard research group:
• Revenue and funding
• Resource allocation (including budgets)
• Donors and Board members
• Product and service recipients
• Internal operations
• Staff development
The first two categories are a refinement of the classical perspective of “financial.” The goals
and strategies around revenues (the first category above) are extremely important for any
nonprofit organization. These are primarily external-facing goals and strategies, aimed at the
question of how best to bring in monetary resources. For most organizations, this includes
questions of fundraising strategies, investment strategies, alternative funding sources, costs of
fundraising, use of fundraising consultants, and so on.
The second category above relates to monetary and perhaps other non-financial resources from
an internal perspective. The question is resource allocation. Organizations always start the year
with a spending plan (a budget), which should have been created in order to support the
organization’s program plan, and reflecting the organization’s policies and priorities for the
upcoming year. Alas, every year brings with it unforeseen events, changes in priorities,
emergency allocations, and the like. Therefore, a complete budget plan also should include
principles and practices for budgetary reviews and, as necessary, reallocations. That is the focus
for this category of measurement.
In the classical for-profit company, a major goal is to satisfy the wants and needs of customers,
since customers are the primary source of revenues. So, a balanced scorecard can focus simply
on customers. The situation is more complex for nonprofits. Most nonprofits deliver some type
of product or service, which often is the source of only a portion of revenues, and may be a
source of no revenue at all (e.g., a charity kitchen). In a drug treatment facility, for example, the
customer (i.e., an abuser) not only does not pay for the treatment, but arguably his or her
personal satisfaction with the facility’s treatment may be irrelevant to the most important
measures of organizational performance. Nonetheless, even in this type of case, the nonprofit is
most likely concerned about how it interacts with its service recipients and it will want to
measure that somehow.
For the nonprofit, donors and Board members are more often treated as though they were the
customer even though they may not be recipients of the nonprofit’s services or products. These
are the people who contribute with dollars, labor, and advice to support the nonprofit. It is their
satisfaction, often more than that of direct service recipients, that is crucial to keeping a nonprofit
operation going. It is therefore totally appropriate to separate out these two types of customers
(i.e., service recipients vs donors and Board members) within an organization’s strategic plan
and thus within the balanced scorecard.
ASSIGNMENT – I
1. Apply porter’s five forces Model for the model like Maruthi 800 during the present time of “Tata Nano”.
Porter's 5 Forces Model of the NANO car
The auto manufacturing industry is considered to be highly capital intensive and labour intensive. The major costs for producing and selling automobiles includes labour, material and advertising. There are other developments in the automobile industry that you must consider when analyzing an automobile company.
Threat of New Entrants:
Indian compact car market seems to be getting hotter, with not only better car models, but also the intensity of the competition in the segment. The market which is growing at 20-25% annually is attracting international player like Volkswagen, Toyota, Nissan and Ford, all of whom are expected to come up with a number of new launches in this segment of the Indian car market. The new players plan to differentiate their products through competitive pricing and additional features like added space, fuel efficiency and better performance. It seems like competition is set to go to a whole new level for existing players in the market.
The way in which Nano is produce such a methods will lead to even more new manufacturing innovations to offer affordable cars to consumers. New entrants in this category need to address various challenges such as inflation, low-price barriers, substantial changes in raw material prices, and government regulations, for example vehicles above 650cc pay excise taxes in India, but with 624cc engine, the Nano is exempt. Achieving a US$2,500 will be difficult for any carmaker, but going forward more automakers will develop low cost cars. It takes 4 to 5 years and a huge investment for a car maker to design and build a low cost car, which itself has low margins.
So, there is threat of new entrant to Nano in the long run.
1. Rivalry Among existing Firms:
The small car market in India is very competitive with players like Maruti Suzuki, Tata Motors, Huyndai etc. which was pretty much dominated by Maruti. But with launch of Nano the 1 lakh car the whole momentum of the market has shifted.
Maruti is planning to first slash the price of its best-selling model 800cc Alto which is priced at Rs2.3 lakh. And the price change would be effective only from 2010 once Tata Motors begins rolling out Nano from its Sanand plant in Gujarat in big number. Earlier, the news was that Maruti may slash the price of its 800 model to compete with Nano.
The Nano is alleged to have severely affected the used car market in India, as many Indians opt to wait for the Nano's release rather than buying used cars, such as the Maruti 800, which is considered as the Nano's nearest competitor. Sales of new Maruti 800s have dropped by 20%, and used ones by 30% following the unveiling of the Nano. As one automotive journalist summarises; “People are asking themselves—and us—why they should pay, say, 250,000 Rupees for a Maruti Alto, when they can wait and get a brand new Nano for less in a few months’ time, a car that is actually bigger
The launch of Tata Nano is expected to diminish the sales of the used cars under Rs. 1 Lakh - 2 Lakhs range and also the sales of the other entry level cars like Maruti 800, Alto, Chevrolet Spark etc. Some companies such as Bajaj is working on a much less priced car and companies such as Maruti will think of reducing the price of their small cars.
A source in the automobile industry with direct knowledge of the plans said Alto will have a stripped down version (i.e. basic) to compete with Tata Motors’ small car Nano.
It shows there is threat of rivalry for Nano car.
2. Threat of substitutes:
The threat of substitute for Nano car is that of electric car, the new entrant in the small car sector is the Morbi-based world famous clock-maker Ajanta group. The company is planning to manufacture an electric car at its unit at Kutch district and market it at a price lower than Rs 1-lakh Nano. The company is already manufacturing electric scooters and bikes under ‘Oreva' brand. Production of electric car is not difficult for them as the technology is almost similar and 70 per cent of its parts can be produced in-house, giving them an edge over the vehicle's pricing. The Ajanta group is serious in its attempt to keep the basic price of the proposed car as low as Rs 85,000.
At present, in the electric car segment only Reva car is available in India. Another player in the small car segment, the Rajkot-based Field Marshal group, is in negotiations with Australian company Farnow Technologies for a joint venture for a low cost electric car.
Tata itself is believed to be making an electric version of the Nano, called the E-Nano which might well turn out to be the "world's cheapest electric car" which is more eco-friendly. It's supposed to be as cheap as the conventional gasoline version. Economic Times reported that the "electric Nano" would still make good sense for economic, clean and green personal mobility in countries around the world.
Since two-wheeler owners are used to getting 60-70 km per litre, as compared to the Nano's 20+, the cost of ownership of a Nano is likely to be far higher than that of a two-wheeler. One time investment of buying car can be done by the lower income group people but it will be difficult for them to overcome maintenance cost and cost of running i.e. fuel these people would like to remain in bike segment only.
So there is a high threat of substitutes for Nano as electric cars trying to keep prices lower, less cost of running as a product differentiation.
3. Threat of bargaining power of buyer:
Tata Motors has to work out their strategies to meet the challenges of sales and after-sales. The first is to meet the high demand that is likely to get created. As there would be many first-time customers, the sales force will have to advise them on issues like running and maintenance of the car. Further, the Indian consumer is very discerning and the product and after-sales service quality will need to live up to the consumers' expectations for the Nano to be successful.
As the Nano car is made for lower income group people we can say there is no power in the hands of buyer at present as only Nano is available in Indian market but soon there will be cheaper car in the Indian market and buyers will have power to switch to other cars.
4. Threat of bargaining power of supplier:
For Nano about 60 suppliers collectively spent about Rs. 500 crores ($112.7 million) to locate on the Singur complex. Suppliers have said that they have the capacity in existing plants to be part of the Tata Nano launch, if the Tata plant moves to Pantnagar, or even Pune. Other suppliers are willing to stay, put and use their sheds as warehouses to store the components.
The company said most of its vendor relationships are covered by a “bill marketing” system, where Tata’s bank makes payments to the vendors, and Tata Motors pays the bank.
Tata Motors had set up a so-called suppliers’ council to address several issues, including delayed payments that were causing friction between the auto maker and its parts’ suppliers.
Rather than a threat to Nano, suppliers were supporting Tata Motors for launch of Nano and there are overall thousands of suppliers to TATA Motors.
Is Nano a Rising Threat ?
These methods will lead to even more new manufacturing innovations to offer affordable cars to consumers. Tata Motors is expecting to build around 250,000 units annually, excluding the markets of Africa, Southeast Asia, Latin America and Europe. In the next couple of years, more than a million of Nano’s are expected to be on the road. In addition, Nissan and Renault are planning to form alliance with Bajaj Auto to develop a car with a price tag of around US$3000 by 2011. Volkswagen is also considering in developing a low cost car, under a separate brand name and China's Guangzhou Motors had announced its collaboration with an Indian-based company, Global Automobiles, to roll out a low cost car. As this continues, the growing small segment car industry is set to expand exponentially.
According to United Nations, at the start of 2008 about 12 in 1,000 Indians have a car. Due to the low-cost innovations like Nano, the ratio is expected to increase rapidly in the coming years. If the same trend happens in China and its neighboring countries, the situation might become worse. Today, light duty vehicles account for more than 10 percent of global carbon emissions. As Asia, where Tata Motors are aggressively promoting its Nano, accounts more than 60 percent of the world's population, the contribution of carbon emissions from light duty vehicles is set to increase swiftly.
2. Suggest the possible strategies for Indian IT companies to sustain the present competiveness created by other countries like china.
Infrastructure Development:
India, as we all know, is still a developing country. By harping upon the term developing, we
stress upon the fact that we are still to reach the basic requirements of infrastructure development,
GDP etc .But the question remains, why does Infrastructure requirements have top priority?
In an International conference, Lee Kuan Yew, architect of Modern day Singapore, when asked
about his views on India, replied that there was much that needed to be done. He said that
production should have been the primary concern for any developing country. If you don’t
produce, even after equitable distribution, you would still be dirt poor. Thus manufacturing has to
be the base upon which India’s growth must be based. For that we need Infrastructure in place.
You cannot produce much with your bare hands. So you need factories, you need power to run
those factories. You have to have roads and ports and airports to bring inputs to the factory and
take the output out.
Despite labor costs that are often 1/25th that of the West, India's transportation costs are among
the highest in the world. India's export-driven progress is hampered by some of the world's
highest port and rail costs. The cost of transporting one TEU one kilometer in India is 53% higher
than in the United States and if India continues to ignore the competitive world market, things
will only get worse. The above referenced article refers to the fact that by late 2008 some 25% of
world container ship capacity will be comprised of vessels of at least 6,000 TEU (twenty-foot
equivalent units) but that India does not yet have a port that can handle this class of ship. Given
the rise of the Indian manufacturing sector -- and its strengths in such areas as metals and textiles
-- it would be an absolute shame if the country's roads and ports continue to hold back economic
progress.
India is a largely agricultural economy. If we look at the statistics, the years in which the growth
has suffered has been ones when agriculture has suffered due to either untimely or inexistent rains
.If India has to prosper, it has to forgo its dependence on the rains and needs to establish a well
connected irrigation system and have proper Dams in place .This again brings up the
Infrastructure requirement.
Thus the importance of Infrastructure in the long term plans.
Untapped rural population
India with all its growth still remains a largely untapped powerhouse. Most of the growth is
concentrated in the urban pockets, which is still insignificant considering that India is the second
most populated country with more than 1 billion inhabitants. If India can work on bringing even
50% of the rural population in the mainstream, we suddenly have an even larger pool of
workforce to eliminate the workforce windfall/crunch that the Indian Industry expects to be hit
with sometime in the next decade.
Derogatory state of state owned PSU’s
At the time of Independence, India had one of the most developed private sectors in
manufacturing in the Third World .However it is also true that at that point of time, it lacked the
ability to mobilize resources for the heavy industries that Prime Minister Nehru regarded as a
priority.
The pre-eminence of the public sector was secured through the Industrial Policy Resolution of
1956, which excluded the private sector from basic industries such as power, oil, heavy
engineering, steel and several others. This was carried on by the Indira Gandhi led government ,
who nationalized 14 leading banks followed by the nationalization of coal, general insurance,
copper , wholesale wheat trading and even part of the textile industry .This caused a major
stagnation in the Industry in the first half of the 1970’s and a widespread economic discontent .
Here were sown the first seeds of economic liberalization, generally associated with the Rajiv
Gandhi government .This was the time when it was realized that the State owned Enterprises
(SOE) had to show a better financial performance.
When Rajiv Gandhi came to power, a quick analysis informed that the public sector far from
generating surpluses and fostering accumulation in the economy, was getting in the way of it .The
focus had changed from attempting additional investments to getting more out of the existing
ones.
By the 1990’s, SOE’s had helped create a diversified Industrial economy, also having laid the
foundation of research and development .They were also model employers , paying wages and
benefits to workers that were superior to what much of the private sector had to offer. But with
the deteriorating fiscal conditions, it was acknowledged that the SOE’s had to deliver better
returns, also a thought process had started where the better performing SOE’s needed to
contribute more than just the dividends. That is how the concept of disinvestment came.
The state meanwhile had picked up an idea that it ought to concentrate on its central role of
providing physical and social infrastructure. Running businesses, irrespective of whether some
SOE’s were performing well or not, was best left to the private sector.
In the budget for 1999-2000 for the first time the word privatization was used. Privatization was
selling off a controlling stake of a SOE’s to a private buyer, a form of disinvestment now better
known as “strategic sale”.
Many well performing SOE’s have since been sold by the strategic sale method. In short we are
selling off the better performing SOE’s and keep the loss making ones for ourselves and still
blaming the SOE’S for not giving dividends .
With the fast increasing energy and development needs of the country, its time for the SOE’s to
finally deliver on their promise. With an efficient management at helm , and a little autonomy ,
the SOE’s have shown equal efficiency to that of the private sector .While the private sector is
profit mongering machine , the SOE’s or PSU’s have to also fulfill their social obligations. Hence
it is unable to maximize its profits. It is relevant to note here that one of the biggest tax payers in
the country are the state owned PSU’s.
Government policies on FDI
It is now acknowledged worldwide the foreign investment brings extra investment, new
technology and access to global markets, and so is wooed.
Capital account liberalization has allowed India to attract large portfolio flows, but reforms are
needed to raise FDI, which remains a disappointment. FDI can bring with it—in addition to
increased capital—cutting-edge technology and managerial know-how. But India is not fully
reaping these benefits. In 2003, the stock of FDI to India totaled just 5 percent of GDP compared,
for example, to 31 percent for Thailand and 35 percent for China. But the most striking fact is
that, at the same time that FDI lags, surveys consistently point to India as one of the top two or
three destinations for FDI in the coming years. So, the opportunity is there for the taking. The
analysis suggests that while sectoral restrictions on FDI have played some role, India’s FDI
regime is not overly restrictive by international standards. Rather, what is mainly holding back
FDI is broader difficulties of doing business? A few statistics serve to define the problem: to start
a business in Korea takes 22 days and in China 41. But in India, it takes 89 days. And enforcing a
contract takes 425 days in India, more than five times longer than Korea and nearly double that in
China.
At one time, all foreign investment was considered a loot of the country, and so discouraged.
Some economists complained out that foreign-controlled companies generally imported more
than they exported. However, we find that the ratio of imports to exports is lowest for foreign
investors, higher among Indian private sector companies, and highest of all for public sector
companies. It is appropriate for Third World industries to be net importers, using aid and foreign
capital to plug the trade gap.
Foreign Direct Investment (FDI) is permitted as under the following forms of investments.
• Through financial collaborations.
• Through joint ventures and technical collaborations.
• Through capital markets via Euro issues.
• Through private placements or preferential allotments.
India has high tariff barriers, and even after the Chelliah Committee reforms import duties will
range up to 30 per cent. These barriers keep imports out, and this protection gives a windfall gain
to all producers in India, including foreign investors. Domestic companies keep their windfall in
India, but foreign investors can remit theirs abroad. By insisting on some Indian shareholding, we
ensure that enough profits stay in India, mitigating or even completely offsetting the windfall
repatriated abroad. There is no such windfall for foreign investors producing in India for export.
Assigment II
1. Strategic alliances and diversification are the tools used by all the corporate”-Discuss the process and concepts.
A number of contributions explore firms’ technological and business diversification. As far as
technological diversification is concerned, these studies show that during the past decades the
complexity and multi-technology nature of products and processes led firms to broaden their
technological base in order to develop new products and processes (Granstrand and Sjolander, 1990;
Patel and Pavitt, 1994; Granstrand and Oskarsson, 1994; Granstrand et al., 1997). The literature
suggests that firms might develop technologies that are different but highly interdependent with
their distinctive capabilities. They can also invest in complementary fields in order to be able to
adopt and integrate technologies developed by external suppliers. Moreover, firms may want to
develop some knowledge in non-core technologies in order to have a window on emerging
technological opportunities. Or, still, they can internalise some “general purpose technologies”
which are used in different products and processes.
Some authors, however, point out that firms’ technological profiles are difficult to change. They
tend to be stable over time and evolve in a path-dependent fashion according to strong intersectoral
differences. Furthermore, firms that successfully diversify technologically maintain a certain
coherence between existing and new fields (Patel and Pavitt, 1997; Teece et al., 1994; Breschi et al.,
1998).
Unlike technological diversification, product diversification decreased over time due to the
process of restructuring and refocusing of large diversified firms (Scott, 1993; Hoskisson and Hitt,
1994; Markides, 1995a). Hence, firms broaden their technological knowledge, but they do not use all
their competence to enter new businesses. Empirical studies witness the difference between
technological diversification and product diversification (Granstrand, 1997; Granstrand et al., 1997).
Some of them point out that while in principle multi-technology firms can develop a wide range of
different products, there are severe limitations to the acquisitions of the downstream assets needed
to produce and commercialise these products in many different markets (Gambardella and Torrisi,
1998). Other studies focus on the impact of related and unrelated product diversification on firm
performance. The results indicate that related diversifiers outperform unrelated diversifiers (Robins
and Wiersema, 1995; Berger and Ofek, 1995; Markides and Williamson, 1994; Varadarajan and
Ramanujam, 1987; Dubofsky and Varadarajan, 1987), and that refocusing has a positive effect on
firms’ performance (Markides, 1995a; Comment and Jarrell, 1995).
A branch of the literature on technological diversification focuses on the strategies that firms
adopt to build up technological competencies internally. The distribution of patents across
technological classes is used to measure the extent to which firms diversify technologically. In-house
R&D investment, however, is not the only means that firms can use to enlarge their technological
base. External collaborations help acquire competencies that are more “exogenous” to the firm
(Hagedoorn and Duysters, 1999). They are a means to strengthen firms’ critical technological
competencies, to acquire general purpose technologies that companies do not develop internally, to
get access to frontier technologies produced by firms in other sectors, and to expand knowledge in
complementary or more marginal fields. Some contributions explore the trade-off between the
internal development and the “outsourcing” of technologies. Richardson (1972) suggests that similar
and complementary activities should be maintained within the firm, while activities which are
complementary but dissimilar can be accessed externally. Prahalad and Hamel (1990) claim that
firms should invest internally in related areas or in core technologies, and use external alliances to
acquire technological competencies in unrelated areas or in non core technologies. In addition, firms
can use strategic alliances to get access to new and complementary technologies (Teece, 1986), to
speed up firms’ learning processes, to share the costs and risks of R&D activities, to exploit
economies of scale and scope in research, to access new markets or production facilities, or to
monitor the evolution of non core-technologies (Hagedoorn, 1993). These issues have been studied
intensively during the past two decades, when there has been a steep increase in the use of
collaborative agreements between domestic firms in related markets and foreign companies in global
markets (von Tunzelmann, 1995; Freeman and Hagedoorn, 1994; Hagedoorn and Schakenraad,
1993; Chesnais, 1988).
This paper focuses on strategic alliances as a means to exchange technological knowledge and
other downstream assets. The “competence-based” theories of the firm provide a valid support to
the study of this issue. The basic idea is that economic institutions have different abilities to support
the acquisition and development of knowledge or other assets. These abilities are firm-specific, they
are cumulative, and determine firms’ competitive advantages. Inter-firm linkages can help combine
these firm-specific assets that require time to build up and that are hard to reproduce. Moreover,
since the shared assets can be accessed without separating them from the developer firm, the
problem of tradability is also bypassed (see, for example, Richardson, 1972; Kogut and Zander,
1992).
The empirical evidence suggests that various factors influence the choice between different types
of external agreements, such as the pace of technological change, the complexity and the objectives
of the transaction. Pisano (1991) and Teece (1992) demonstrate that when technological change
proceeds fast, companies prefer flexible forms of organisation – i.e. strategic alliances vs. mergers
and acquisitions. Other contributions show that in industries characterised by rapid technological
change, the scope for learning, the organisational change and the quick strategic response require
flexible forms of organisation (Hagedoorn, 1993; Eisenhardt and Schoonhoven, 1996). By contrast,
when transactions are complex, hierarchical organisations have superior monitoring and incentive
aligning properties. Some contributions also shows that the larger the number of partners, the
broader the product and/or technology scope, and the wider the functional activities covered by an
alliance, the higher the likelihood of the alliance being a joint venture or, more generally, an equity
arrangement (Pisano, 1989; Garcia Canal, 1996; Oxley, 1997). Even though the empirical evidence
on the relationship between the technological content and the organisational form of the alliances
are mixed (Osborn and Baughn, 1990; Gulati, 1995), the preference for more hierarchical
arrangements is more likely also when firms develop or transfer tacit know-how.
To conclude, in recent years there has been a trend towards the increasing technological
diversification of firms and the intensification in the use of strategic technological alliances.
Although the relationship between technological diversification and firms’ performances deserves
further attention, so far the empirical results suggest that there is a positive correlation between the
two. The same positive relationship holds for strategic technological alliances and firms’
performances, although the results are not clear across sectors (Hagedoorn and Shakenraad, 1994).
By contrast, firms’ performances are positively affected by the process of refocusing and
restructuring of productin and marketing activities (among others Markides, 1995a,b; Montgomery
and Wernerfelf, 1988; Amit and Livnat, 1988; Hitt and Ireland, 1986).
This work adds empirical evidence to some of these issues. It investigates the relationship
between internal technological diversification and diversification through strategic alliances, and
highlights differences across countries and sectors. It also explores the relationship between internal
and external technological diversification and firms’ economic performances. More specifically, we
explore the following issues.
First, the paper compares firms’ internal technological diversification with external technological
diversification. We expect the former to be more pronounced than the latter. Firms develop in-house
critical technologies and try to maintain a frontier position in these fields. However, the multitechnology
nature of products and processes leads companies to internalise knowledge in a wider
range of technological fields. Competencies developed internally are also needed to evaluate,
understand and assimilate outside technologies (Cohen and Levinthal, 1989, 1990; Rosenberg, 1990),
and allow firms to guide the evolution of external collaborations by avoiding that the partners
entirely shape the scope of the relationships.
Second, this work compares firms’ internal technological diversification with external market diversification
(see also Granstrand, 1997; Patel and Pavitt, 1994, 1997; Granstrand et al., 1997). The expectation is
that internal technological diversification is more pronounced than external market diversification.
Although firms develop competencies in several technological fields, they may find it difficult to get
access to production and commercialisation assets for entering different markets (Gambardella and
Torrisi, 1998). The internalisation of a wide range of technologies does not imply the presence in
“all potential” markets in which these technologies can be applied. Entry in different markets
requires investments in downstream assets, some of which are extremely specific.
Third, by means of multiple correlation analysis, this paper describes the relationship between
firms’ performances, internal technological diversification, and diversification through strategic
alliances. We expect the results to be sector-specific, with some sectors like transportation
equipment displaying a positive correlation between firms’ performances and technological
diversification. This is because, compared to industries like the ICTs, the transportation equipment
sector requires the integration of a wider range of different technologies to develop the products.
production and marketing alliances : alliances aimed at obtaining downstream assets in
marketing and production activities – i.e. Joint Marketing and Joint Manufacturing operations.
The total number of market alliances is 5,840.
− technological alliances : alliances in which some technological knowledge is exchanged trough
technology transfer or joint innovative projects – i.e. Licensing Agreements and Joint Research
Agreements. The number of technological alliances is 6,502. Technological alliances are divided
into alliances through which firms acquire technological knowledge and alliances through which
firms transfer their knowledge to third parties. To differentiate between these two types of
alliances we use the information on the direction of the technological flow involved in the
alliance. The analysis below will focus only on the alliances used to acquire knowledge.
2. How to prepare and use Balance Score card practices in Non-profit organization
The Reason for a Balanced Scorecard
Historically, organizations have measured their performance primarily, if not exclusively, with
measures derived from financial data. In the 1990s, a group of researchers and consultants from
the Nolan Norton Institute, the research arm of the accounting firm KPMG, began to study
commonly used organizational performance measures. Their hypothesis was that organizations
were being hindered by these measurement practices because the measurement focus was too
narrow.
After working with a number of ideas, the researchers suggested that companies ought to balance
the way they assess their organizations by looking at more than simply financial performance.
For the best single summary of this research, get a copy of The Balanced Scorecard by Robert S.
Kaplan and David P. Norton (Boston: Harvard Business School Press, 1996).
The original balanced scorecard formulation, which has been carried forward formulaically by
most companies that use it today, was organized around four perspectives that were given these
labels: financial, customer, internal, and innovation and learning. To reinforce the idea of
balance, the authors also promoted the use of lagging and leading indicators and performance
measures that were external as well as internal.
Another innovative idea emerging from this work was to tie performance measures closely to a
company’s strategic plan. In short, start with planning; then create a measurement process to
gauge how well you are executing against your plan. By doing this, the measures graduated from
simply providing descriptive data to being the basis for a management tool.
While this sounds straightforward, indeed almost simple minded, it was not a common practice
in the early 1990s. Nor, I suspect, is this common practice today.
Balanced Scorecard Pitfalls
As a manager and consultant, I have worked at or with a half dozen large organizations that were
(or at least claimed to be) using a balanced scorecard. Only one of them (a county government)
had any real success with it. In that group, I attribute the success to the presence of one very
bright young woman who truly understood the process, had complete intellectual and budgetary
support from her senior management and whose job was 100 percent committed to the balanced
scorecard process.
Rather than understanding what a balanced scorecard is supposed to accomplish, why, and how,
many managers simply implement a balanced scorecard as if it were a recipe. While the
technique described in professional literature accumulates the wisdom and experience of many
people and represents a form of best practice, it should not be copied blindly under the
assumption that one size fits all. In particular, the four major dimensions (financial, customer,
internal, and innovation and learning) can and should (in my opinion) be modified to fit an
organization. This is particularly true when the organization is a nonprofit.
Another problem that organizations frequently make is jumping into a measurement program too
fast and making the program too complicated. Deriving meaningful measurements, gathering
reliable data, developing useful analytical techniques, and educating managers about how to use
the data are all difficult steps. Doing all this at one time with a bucket full of 50 different
measures is doomed to failure. Organizations in which managers do not have experience with
measurement programs, or fail to heed the warnings of those who do, typically underestimate the
difficulties of implementing a balanced scorecard program.
Creating Organizational Metrics1
Despite the pitfalls, balanced scorecard is a useful management tool. It can be done successfully
if managers take a careful and thoughtful approach to the process.
The real trick behind any measurement program is to figure out first what you want to measure,
and then to figure out how to measure it. Many times, managers who want to evaluate their work
groups simply jump into collecting measures, not because the measures relate to organizational
attributes in which they are interested, but more because the measures are simple and available.
So it is that managers build assessments based upon measures such as: attendance data;
production and fulfillment records; budget deviances; and computer system up-time. When you
1 The words “measures” and “metrics” are often used as synonyms. Technically, they are not. A measure is a basic
quantitative or qualitative evaluative label, derived through a specified process, and assigned to a fundamental
attribute of a concept that we are trying to characterize. A metric is a derivation and/or combination of one or more
primary measures. For example, a category 3 hurricane earns its designation by being in a certain spot on the earth,
and having winds that rotate in a particular direction with speeds over a predetermined threshold. For the hurricane,
the category designation is a metric; the location, wind direction, and wind speed are primary measures.
The Balanced Scorecard Categories
A balanced scorecard is a management tool. Like any tool, it is supposed to be a means to an
end, not an end in itself.
In some organizations, a higher power simply and thoughtlessly mandates that the organization
shall implement a balanced scorecard. In this case, the balanced scorecard foolishly becomes the
end in itself. For this event, simply go to the literature and follow the balanced scorecard recipe
as best you can. Eventually, the management group will realize that the benefits accruing from
the balanced scorecard (as they have implemented it) are too few to justify the work going into it.
If you understand the ideas behind a balanced scorecard, you will be free to modify the classic
formula so it becomes a better tool for your organization. In particular, I think a nonprofit
organization should make some fundamental changes to the four basic measurement
perspectives. Specifically, I suggest using an approach based on these six categories, which are
clearly related to the four measurement categories originally formulated by the balanced
scorecard research group:
• Revenue and funding
• Resource allocation (including budgets)
• Donors and Board members
• Product and service recipients
• Internal operations
• Staff development
The first two categories are a refinement of the classical perspective of “financial.” The goals
and strategies around revenues (the first category above) are extremely important for any
nonprofit organization. These are primarily external-facing goals and strategies, aimed at the
question of how best to bring in monetary resources. For most organizations, this includes
questions of fundraising strategies, investment strategies, alternative funding sources, costs of
fundraising, use of fundraising consultants, and so on.
The second category above relates to monetary and perhaps other non-financial resources from
an internal perspective. The question is resource allocation. Organizations always start the year
with a spending plan (a budget), which should have been created in order to support the
organization’s program plan, and reflecting the organization’s policies and priorities for the
upcoming year. Alas, every year brings with it unforeseen events, changes in priorities,
emergency allocations, and the like. Therefore, a complete budget plan also should include
principles and practices for budgetary reviews and, as necessary, reallocations. That is the focus
for this category of measurement.
In the classical for-profit company, a major goal is to satisfy the wants and needs of customers,
since customers are the primary source of revenues. So, a balanced scorecard can focus simply
on customers. The situation is more complex for nonprofits. Most nonprofits deliver some type
of product or service, which often is the source of only a portion of revenues, and may be a
source of no revenue at all (e.g., a charity kitchen). In a drug treatment facility, for example, the
customer (i.e., an abuser) not only does not pay for the treatment, but arguably his or her
personal satisfaction with the facility’s treatment may be irrelevant to the most important
measures of organizational performance. Nonetheless, even in this type of case, the nonprofit is
most likely concerned about how it interacts with its service recipients and it will want to
measure that somehow.
For the nonprofit, donors and Board members are more often treated as though they were the
customer even though they may not be recipients of the nonprofit’s services or products. These
are the people who contribute with dollars, labor, and advice to support the nonprofit. It is their
satisfaction, often more than that of direct service recipients, that is crucial to keeping a nonprofit
operation going. It is therefore totally appropriate to separate out these two types of customers
(i.e., service recipients vs donors and Board members) within an organization’s strategic plan
and thus within the balanced scorecard.
