“Comparison of Special Economic Zones between India & China”

Project Report

Submitted By

Bhojak keyur Gardhariya Dhaval Goswami Hardip Rajpara Hiren

12044311005 12044311024 12044311025 12044311135

Submitted To:

Prof. Dr. Amit Patel

V. M. Patel Institute of Management, Ganpat University, Kherva.



A Special Economic Zone (SEZ) is a geographical region that is designed to export goods and provide employment. SEZs are exempt from federal laws regarding taxes, quotas, FDI-bans, labor laws and other restrictive laws in order to make the goods manufactured in the SEZ at a globally competitive price. Special economic zone is a particular area inside a state which acts as foreign territory for tariff and trade operations. Govt. provides tax exemption (IT, Excise, customs, sales etc.), subsidized water and electricity etc. The Special Economic Zone (SEZ) policy in India first came into inception on April 1, 2000. The prime objective was to enhance foreign investment and provide an internationally competitive and hassle free environment for exports . The idea was to promote exports from the country and realizing the need that level playing field must be made available to the domestic enterprises and manufacturers to be competitive globally. Legislation has been passed permitting SEZs to offer tax breaks to foreign investors. Over half a decade has passed since its inception, but the SEZ Bill has certain drawbacks due to the omission (cancellation) of key provisions that would have relaxed rigid labor rules. This has lessened India's chance of emulating (compete with) the success of the Chinese SEZ model, through foreign direct investment (FDI) in export-oriented manufacturing. A SEZ otherwise called as Special Economic Zone is a particular area in a country which has geographically bound zones where the economic laws in matters related to export and import are more liberal as compared to other parts of the country. Special Economic Zones are introduced as tax free zones for the purpose of

mobilizing trade. Special Economic Zones being set up in various parts of the country are self sufficient with their own infrastructure and support services for its function. Special Economic Zones are being set up various parts of the country production of goods including other activities like processing, assembling, trading, repairing, reconditioning etc of commodities and goods. As per laws related with Special Economic Zones in India the units are supposed to be beyond the customs boundaries of India. Goods and services coming into SEZs from the domestic tariff area or DTA are treated as exports from India and goods and services rendered from the SEZ to the DTA are treated as imports into India.

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spur employment and boost the development of improved technologies and infrastructure. Special Economic Zones attract investment and foreign exchange. spur employment and boost the development of improved technologies and infrastructure. • Copenhagen (1891). • Singapore (1819). By offering privileged (advantages or special) terms. • Hong Kong (China. there are approximately 3. SEZs attract investment and foreign exchange.000 SEZs operating in 120 countries. By offering privileged (advantages. chance) terms. It is a trade capacity development tool. 1848).  Determine how resources are used  Whether Employment opportunities are created  Cost outweighs the benefit of SEZ. . Existing since 1704: • Gibraltar (1704). which account for over 600 US$ billion in exports and about 50 million jobs. Today. A Special Economic Zone (SEZ) is a geographical region that has economic laws more liberal than a country‘s typical economic laws. with a goal to promote rapid economic growth by using tax and business incentives to attract foreign investment and technology.2EVALUATION OF SEZ.1. • Hamburg (1888).

 Duty free import or domestic procurement of goods for setting up of the SEZ units. raw materials. trading or service activity has both advantages as well as disadvantages. 50% for the next 5 years and up to 50% for the balance 5 years equivalent to profits ploughed back for investment. consumables.  Exemption from customs duty on import of capital goods.3 ADVANTAGES OR DISADVANTAGES OF SEZ Introduction A SEZ unit which has been set up for carrying on manufacturing.  No license required for import made under SEZ units. SEZ advantages are quite far more as compared to its disadvantages which are almost negligible. and consumable spares.  Allowed to carry forward losses. etc. spares.  Exemption from Central Excise duty on the procurement of capital goods. . from the domestic market. raw materials.1. etc.  Goods imported/procured locally are duty free and could be utilized over the approval period of 5 years. Advantages  15 year corporate tax holiday on export profit – 100% for initial 5 years.

1947.  ―Write-off‖ of unrealized export bills is permitted up to an annual limit of 5% of their average annual realization.  OBU's allowed 100% income tax exemption on profit earned for three years and 50 % for next two years.e.  Setting up Off-shore Banking Units (OBU) allowed in SEZs.  No routine examination by Customs officials of export and import cargo. the goods are meant for undertaking authorized operations.  The sale of goods or merchandise that is manufactured outside the SEZ (i. in DTA) and which is purchased by the Unit (situated in the SEZ) is eligible for deduction and such sale would be deemed to be exports.  The SEZ unit is permitted to realize and repatriate to India the full export value of goods or software within a period of twelve months from the date of export.  Exemption from payment of Service Tax. Exemption from payment of Central Sales Tax on the sale or purchase of goods. provided that..  Since SEZ units are considered as ‗public utility services‘.  Exemption from requirement of domicile in India for 12 months prior to appointment as Director. . no strikes would be allowed in such companies without giving the employer 6 weeks prior notice in addition to the other conditions mentioned in the Industrial Disputes Act.

 The Government has exempted SEZ Units from the payment of stamp duty and registration fees on the lease/license of plots.  External Commercial Borrowings up to $ 500 million a year allowed without any maturity restrictions.  Enhanced limit of Rs. 2.40 crores per annum allowed for managerial remuneration.  Growth and development  Attracts FDI  Exposure to technology and global markets  Increase in GDP and economic model  Employment opportunities are created Disadvantages

 Revenue losses because of the various tax exemptions and incentives.  Many traders are interested in SEZ, so that they can acquire at cheap rates
and create a land bank for themselves.

 The number of units applying for setting up EOU's is not commensurate to
the number of applications for setting up SEZ's leading to a belief that this project may not match up to expectation

 Exploitation of laborers  Women exposed to sexual harassment  Loss of revenue for Government  Fertile lands being used for establishing industrial units 



SPECIAL ECONOMIC ZONES (SEZS)  Special economic zones (SEZs) aim to overcome barriers that hinder investment in the wider economy, including restrictive policies, poor governance, inadequate infrastructure, and problematic access to land. SEZs tend to offer export-oriented investors three main advantages relative to the domestic investment environment: 1) they offer a special customs

environment including efficient customs administration and (usually) access to imported inputs free of tariffs and duties; 2) they have historically offered a range of fiscal incentives including corporate tax holidays and reductions, along with an improved administrative environment; and 3) they provide infrastructure (including land, factory shells, and utilities) that are more accessible and reliable than would normally be available outside the zones.

 SEZs have a long-established role in international trade. Prior to the 1970s,
most zones were clustered in industrialized countries; but since the 1980s, there has been massive growth in SEZs in developing countries, led at first by East Asia and Latin America and more recently by the development of new programs in Central and Eastern Europe, Central Asia, the Middle East, and North Africa. Recent estimates indicate that there currently are more than 3,000 SEZs established in some 135 countries. Overall SEZs are estimated to account for more than US$200 billion in global exports and employ directly at least 40 million workers.

 Most zones set up in the 1970s through the 1990s were designed to attract
investment in labor-intensive assembly and manufacturing from multinationals. These export processing zones (EPZs) were a cornerstone of

trade and investment policy in countries shifting away from importsubstitution and in favor of integrating into global markets. Among the multiple objectives normally being sought as part of these policies were: job creation, growth in exports and foreign exchange earnings, facilitating economic diversification (often as a step in processes of industrialization and industrial upgrading) and access to foreign manufacturing technology and know-how. KEY ISSUES AND CHALLENGES  In some countries, SEZs have been a powerful instrument for economic growth and structural transformation. For many of the initial zones in East Asia, zones proved played a critical role in facilitating the industrial development and upgrading the ‗tiger‘ economies. Similarly, the later adoption of the model by China provided a platform for attracting FDI and not only supported the development of its export-oriented manufacturing sector, but served as a catalyst for sweeping economic reforms that were extended throughout the country. In Latin America, countries like Dominican Republic, Honduras, and El Salvador used free zones to take advantage of preferential access to US markets, and have generated largescale manufacturing sectors in economies that were previously reliant on agricultural commodities. Finally, in Africa, SEZs are credited with enabling Mauritius to move from dependence on sugar to become a manufacturing hub and eventually an innovative, middle income country.  However, there are also many examples of failures of SEZs, where investments in zone infrastructure resulted in ‗white elephants‘ or where zones have largely resulted in industry taking advantage of tax breaks without producing any substantial employment or export earnings.

there has been a gradual shift from traditional EPZs to special economic zones (SEZs). . Finally. poor national governance. including policy instability. First. and low productivity often undermine the potential of zones. the traditional EPZ model relies on unsustainable fiscal incentives to attract investment. Too often. This is for three main reasons. In addition. Zone failures can be attributed to a variety of causes. and include a greater mix of export and domestic-market focused activities. lack of water. despite the continued importance of global production networks. As a result. the traditional EPZ tends to create an enclave that is separated from the national market. which normally cover larger land areas. undermining its potential to create effective domestic linkages. heavy bureaucracy.  The traditional manufacturing-oriented processing zone (EPZ) is becoming increasingly anachronistic. EPZs restrict opportunities for investment and growth in the services sector. Second. following the end of the Multi-fiber Agreement).Moreover.g. have failed to remain sustainable once labor costs have risen or when preferential trade access is no longer an advantage (e. one of the most important opportunities for growth in middle income and even many low income countries. zones are plagued with the same problems – unstable electricity. offer greater flexibility for services and other nonmanufacturing activities (including residential and tourism development). inefficient and corrupt customs –that hinder investment in the wider economy. by limiting activities to manufacturing only. many zones that appear to have been successful in the short term. broader competitiveness challenges.

Cameroon. They are also essential tools for companies seeking to cut costs and improve inventory efficiency. and in doing so use their own terminology to describe them. inefficient trade policies and dilapidated or non-existent infrastructure. and they help developing nations rework poor. Since then. social. many of them emerging markets.‖ Despite the differences in nomenclature. The first modern special economic zone was created in Puerto Rico in 1942. The most important fiscal goal of an SEZ is to facilitate economic growth through the use of reduced tariffs and more efficient customs controls. and infrastructure policy rationales.‖ the Philippines calls its economic zones ―special export processing zones. Many countries employ their own variations of these special enclaves. Introduction Special Economic Zones (―SEZs‖) are defined as geographical areas.‖ Ghana. governed by one oversight management body that offer special trade incentives to firms who choose to physically locate within them. Special Economic Zones are generally implemented to meet fiscal. and Jordan have ―industrial free zones.000 zones. For example. Their development has helped to improve global trade relations and has created over 70 million jobs and hundreds of billions of dollars in trade revenue. Part II of this Briefing Paper describes the different types of SEZs available to host countries.‖ and Russia has ―free economic zones. Mexico refers to its zones as ―maquiladoras. 135 countries. have developed over 3.1. each SEZ operates to increase trade throughout its respective region by offering special trade incentives to stimulate local and foreign investment within the region.5 WHY SEZ? = OBJECTIVE I. Part III and IV discuss the physical and regulatory characteristics of .

textiles. Free Trade Zone One of the most expansive types of SEZ is a Free Trade Zone (―FTZ‖). Part V describes the different incentives associated with SEZs. . meaning they generally have less stringent customs controls and sometimes fewer labor and environmental controls. Different Kinds of Special Economic Zones Special Economic Zones are generally classified as zones that promote increased. and electrical goods. streamlined trade through beneficial taxation schemes and reduced customs oversight. shipping. A. and import/export operations in a reduced regulatory environment. II. government oversight. FTZs like the Colon Free Zone in Panama are a very popular type of SEZ. An FTZ is a geographically fenced-in. and geographies. tax-free area that provides warehousing. These zones generally focus on the tangible operations of international trade. but many nuances have developed within this broad framework to accommodate specialized industries. country infrastructure. storage. working conditions. distribution facilities for trade. Because many SEZs attract labor-intensive manufacturing such as assembly-oriented production of apparel.these zones. Part VI addresses the public and private nature of SEZ development and oversight. and Parts VII and VIII review the advantages and disadvantages of using an SEZ as a trade tool.

but each industry also operates within its own zone created to streamline specialized processes unique to those industries. but they also provide unique benefits of local. C. Export Processing Zone Another type of SEZ is an Export Processing Zone (―EPZ‖). An example is the Lat Krabang Industrial Estate in Thailand where all investors have access to the general trade area. The Empowerment Zone in Chicago is an example of an Enterprise Zone. They are generally created by national or local governments to revitalize or gentrify a distressed urban area. because the host country does not have to provide reduced tariffs or regulations but it still benefits from increased trade to the region.B. Hybrid EPZs are also geographically delimited zones. Enterprise Zones Enterprise Zones not only provide manufacturing or production benefits like other SEZs. but within it is a specialized. It was created to revitalize certain south and west Chicago . but they differ in that they do not provide the same degree of tax benefits or regulatory leniency. Sometimes these specialized areas are actually fenced off. They instead provide a functional advantage to investors seeking to capitalize on the economies of scale that a geographic concentration of production and manufacturing can bring to a trade region. These zones are similar to FTZs in that they encompass large land estates that focus on foreign exports. while other times they are fully integrated within the general SEZ area. but they are broken down into specialized zones that cater to specific industries. These zones are beneficial to a host country. centralized development efforts. export-processing zone that only certain export-based investors may utilize. In a hybrid EPZ. all industries use the ―general‖ zone‘s central resources. if they are successful.

One of the most notable single factory examples is the maquiladora in Mexico. This organic growth model assumes that improvement of a region‘s industry and trade begins at the individual neighborhood level. A country that desires to create an export concentration in a specific industry would use a single factory model to promote trade and growth in just that industry. creating affordable housing. These zones use greater economic incentives than EPZs—like tax incentives and financial assistance—to revitalize the area by bringing trades into the zone that will spur organic.neighborhoods and bring trade to the area by increasing public safety. factories specialize in the importation of foreign merchandise on a temporary basis where workers assemble or manufacture specific goods and then ship them out to other nations. They instead focus on the development of a particular type of factory or enterprise. If a specific industry is well suited for growth in an enterprise zone. Here. . giving each factory specializing in that trade economic incentives. Single Factories Single Factories are special types of SEZs that are not geographically delineated. A host country‘s goal in utilizing a single factory model is to create specialization in a specific industry. D. meaning they don‘t have to locate within a designated zone to receive trade incentives. regardless of location. and fostering cultural diversity. but the Zone‘s purpose in promoting trade is secondary to its goal of gentrification and revival. localized development and improve local inhabitants‘ quality of life. it may take on characteristics of an EPZ or a hybrid EPZ. providing better job training.

F. petrochemical zones. as opposed to just using the SEZ for manufacturing. Dubai Internet City is a specialized zone that focuses solely on the development of software and internet-based services. and financial products industries. production and shipping. highly technical logistics and warehousing sites. Most encourage a fully integrated life on-site for those who work in the Freeport.E. For example. tourism. Korea‘s ―International City‖ on the island of Cheju is another example of a Freeport in use. Examples of these zones can be found in India and the Philippines where large military bases have been converted into Freeport‘s that now function as specialized cities. Freeport‘s are typically very expansive zones that encompass many different goods and service-related trade activities like travel. The variation of products and services available to a Freeport cause them to be more integrated with the host country‘s economy. and airport-based economies. People live and work on the island and use the Freeport as a draw for high technology. Specialized Zones have been established to promote highly technical products and services unique to an industry. . Specialized Zones In addition to Enterprise Zones and Freeport‘s. Many of these zones focus on the production and promotion of science and technology parks. tourism. The Labuan Offshore Financial Centre in Malaysia is another example of a specialized zone that caters mostly to the development of offshore financial services. and retail sales. Freeport‘s Some zones specialize more in human capital goods and services such as call centers and telecommunication processing rather than manufacturing-based industries.

It forced change in favor of occupational shifts. Some have purchased small a few acres from other castes in the village if they had some money or were able to raise loans. and migration. were not only economic. The inability of some to adapt has apparently lead to increases in ill health and deaths. Some Lambada households have been able to buy some plot of land from the villagers so that basic survival is not threatened. While some of the land losers have become farmers with smaller land holdings many have become landless. The SEZ has caused fragmentation of land holding in the villages as the land losers have been forced to buy small pieces of land from neighbors. furthermore. The conversion of farmland for non-farm uses has also reduced farm labor opportunities for the people who had no non-farm skills. Impacts also went beyond the mere loss of land area. livelihoods and food security for the villagers. Impacts. Some of the Lambada families are cultivating land belonging .  Economic impacts Losing land to the SEZ project has significantly reduced the farmland in the affected villages and also brought with it severe pressures on employment. The forced acquisition of land for the Polepally SEZ had impacts not only among those households that lost land.1. with the local economy being affected various ways. and with knock-on effects on food security and overall health. family size and community support. including suicides.6 IMPACT OF SEZ ON ECONOMY. indebtedness. Those who lost land have adopted different approaches to ensure food security and survival depending on their assets. but also among the wider community. but also social and environmental. They bought land at prices far higher than the amount they received for the land acquired for the SEZ.

to Polepally on sharing basis where the landowner and the cultivator get equal share in the yield. like cattle and farm implements. The drastic reduction in the local availability of farmland is also reflected in the decline of leasing. The reduced size of many land holdings has made farming less cost effective. While land resources were directly taken away for the SEZ. Several families have one or more members of the family forced to migrate to engage in unskilled jobs in the towns and cities. The vulnerable sections of the communities have been subjected to rapid marginalization. The SEZ dispossessed the affected households both directly and indirectly. Of 370 respondents. A larger number of respondents lost bore wells. Part of the land lost to SEZ was irrigated using wells.  Loss of wells and bore wells Land acquisition also meant losing wells and bore wells in the lands acquired. Land holdings have also become smaller due to SEZ land acquisition. The land irrigated under wells was 97 acres. Forty six respondents had 55 wells altogether which had assured irrigation. The following sections detail the extent of these varied economic impacts. Tenant farmers in the sample have fallen from 9 to 6%. By 2010 this quota had fallen to 192. especially in Polepally and Gundlagadda Thanda. Last five years have seen several new changes as well as the intensification of changes already under-way prior to the SEZ. There were 216 bore wells . families saws other assets that remained in their possession. thirty nine respondents lost wells in the lands taken over by the SEZ. lose all their value. 358 were farmers before the SEZ. In total. Life in the affected villages has been altered radically.  Loss of farmland The SEZ has caused landlessness among a large section of the households in the affected villages. making life miserable for many.

or construction of a house. and the motor. Land displacement has also severely affected goat and sheep rearing. and loss of purpose to keep draft animals (for an overview of livestock loses. loss of land and pressures of money lenders to clear the loans were major reasons for selling the cattle. A similar picture is revealed as regards other livestock. casing. see Table 6).owned by 188 respondents before SEZ.000 for varying depths towards drilling.000 to Rs 90. Scarcity of fodder. Besides. Some had to sell the cows to meet household needs. While two thirds (66%) of all respondents owned cows before SEZ. 32 had one bore well each followed by nine who had two bore wells each. Several others also rear goats and sheep as they are great source of revenue and provide good returns in the short term. Two respondents informed of cows dying due to drinking polluted water. Golla and Kurma castes are traditional goat and sheep rearers. The loss of lands by hundreds of farmers has made it difficult to continue keeping livestock as there was shortage of fodder. a loss of suitable places for cattle sheds. one has to try more than once to strike water thus the cost of a functional bore well can be estimated at around Rs 100. this has been reduced to one-fifth (21%) of the respondents. Each bore well costs about Rs 60. while sheep . Despite heavy costs and risks of failing the farmers try several times because it assures one crop at least and also helps achieve three crops if the water yield is good.  Loss of livestock Livestock is an important source of livelihood for the villagers. Altogether 42 respondents have lost 53 bore wells due to the SEZ. The respondents were forced to dispose of the cows for distress price.000. Goats and sheep are vital to the households who rear them in large numbers. The number of respondents rearing goats has declined from 72 respondents to 27. Of them.

The loss of trees among the respondents varied by their caste. The pressure for one or more family members to seek employment outside the village has also made it difficult for many affected families to keep livestock. More than half the respondents (56%) who lost land have also lost trees of significance. as well as for landless households. The loss of incomes from livestock has not been compensated by the government or SEZ authorities.  Loss of trees Villagers had a variety of trees in the lands that were occupied by the SEZ. Trees also provide ingredients for medicinal preparations. The number of respondents owning oxen has fallen from 61% to 30%. goats and sheep. Polluted water also is reported to have taken toll of a few cattle. A major decline is seen among respondents with 1 to 25 sheep for whom it is supplementary source of income. They seem to be more hard pressed to look after sheep than those with larger stock where it is the primary occupation. Besides. Trees also provide construction materials for housing and have a role in the ritual and belief system of the villagers where for different festivals and pujas specific fruits and leaves are offered. trees are essential for fodder and organic manure.rearing families have declined from 67 to 23. Every tree has multiple functions and they are important part of rural life. Scheduled Caste and Backward Caste . The remaining members could not pay attention to the livestock which now requires going for long distances for grazing. Trees provided incomes and food or fruit for the owners. while the number of respondents owning buffaloes has fallen from 28 Keeping livestock has become impractical for many due to severe shortage of fodder and loss of grazing lands. A total of 1585 trees were lost by respondents.

Half of the respondents have an NREGA card and . but unfortunately the programme is unable to keep up with the demand for work in the village following the land acquisition. Less than 3% of respondents received NREGA employment of more than 100 days. but only during the early phase of construction. Construction work within the SEZ became a major source of labor locally. given their low level of cash savings and land ownership. some relief has been provided by the National Rural Employment Guarantee Act (NREGA) which was passed in 2005. Some women from Polepally and Gundlagadda Thanda get daily wage work as gardeners. The NREGA is a national job guarantee scheme that aims to provide the rural poor with a minimum of 100 days employment when none other is available. They constitute 35% and 32% respectively of those who lost trees. Unemployment and poverty has been most intense among those who continued to stick to land-based livelihoods. Although little effort was made in Polepally to offer alternative employment to affected families. SEZ managers discriminated against those who took part in the resistance and protest agitation and preferred outside labor who are not concerned with the problems of displacement. sweepers or as janitors.respondents were the major losers. 26% received 31 to 100 days of employment and 15% of respondents were employed for less than 30 days. Open Caste respondents lost none (Scheduled Castes are adversely affected as the tree wealth was a significant support base for them. high indebtedness and the sale of all available assets. Long periods of unemployment in some cases led to severe poverty. NREGA work is eagerly sought in the villages.

with a yearly average of 8. More than two thirds (71%) of the migrants have stayed within the state.are entitled to claim employment if they need it. Four out of five migrants (86%) work as construction laborers.  Child labor Some households facing a severe fall in incomes and long periods of unemployment had their children dropping out of school. masons and railway track gang men. though only 42% availed of any work during last year. Altogether 51 villagers belong to the respondents' families have migrated out of the village. accounting for 67% of migrants from the affected villages.5 in 2006-2009. The rest of them work as semiskilled employees in shops and establishments. . Hyderabad remains the single largest destination. while 15% raised the isse of children being required to migrate.  Migration Loss of livelihoods within the village and growing interaction with labor contractors as well as information and assistance from the colleagues who have migrated outside has been leading to more people seeking labor outside. It then jumped to 13 individuals in 2005. A significant number of respondents observed that children are affected by the domestic problems. Asked what their major concerns were with regard to children in the current situation. 14% of respondents mentioned that children are required to do wage work. Migration has been largely due to the loss of livelihoods caused by displacement due to SEZ. The rate of migration was very low between 1992 and 2004 (4 individuals in total. 2 in 1992 and 2 in 2003). especially unemployment and poverty.

and 89% reporting a general worsening of food availability after the SEZ. Dependence on food grains procured from market has increased significantly. They are compelled to buy most of their food needs from the market which requires cash incomes which are not available adequately to most of the respondents. while 89% said that the purchase of food grains from private shops and Public Distribution System (PDS) ration stores had increased. according to a number of measures. In particular. Respondents were asked. Food security Household food security has been altered drastically among the affected households in Polepally and Gundlagadda Thanda. Acute short-term shortages are a particular problem. . 38% of respondents expressed the concern that children do not receive sufficient food at the present time. An increase in the problem of short-term shortages was reported by 79%. including those who did not own land) reporting that the ability of farm produce to meet family needs had declined. how their food security now compared to how it was before the SEZ.e. with 85% of 370 respondents (i. They clear depict a situation of worsening household food security. and 77% reported an increase in the practice of borrowing grains from neighbors A particular area of concern has become the quality and quantity of food available to women and children who are often the hardest hit by household food insecurity. The results are summarized in Table 8.

The Ministry of Commerce.Above average (compared to the rest of the host country) communications services and infrastructure. etc. defines this "Special Economic Zone (SEZ) as specifically delineated duty free enclave and shall be deemed to be foreign territory for the purposes of trade operations and duties and tariffs. and capital goods necessary for the production of exports.Firms in a zone can be domestic.7 SEZs in India India. It established Asia's first EPZ at Kandla.Unlimited.1. or joint venture. generous long-term income tax concessions. . flexibility with labor laws for the firms in the zone than the domestic market. India was one of the first countries in Asia to recognize the effectiveness of the EPZ model in promoting exports. flexible labor laws. of the Government of India. as a developing nation. has strategically identified economic zones for export promotion and trade development. international. in the . liberalized foreign exchanges." Zones share a few common features worldwide: . intermediate input. duty-free imports of raw.Less governmental red-tape.Generous and long-term tax holidays and concessions to the firms. and Provision of incentives-better infrastructure. . . The Indian Government's idea to foster SEZ relies on a two pronged strategy: Reduction in restrictions-duty free imports. and ..

the most successful SEZs are of Mumbai.state of Gujarat in 1965. Presently. Among all the SEZs established in India. Economic zones as specialized locations have provided efficiency in business transactions through advanced infrastructure and other facilities to enhance trade competitiveness of the country. Noida. and distance characteristics of inputs and outputs. Does location of a firm in an SEZ lead to superior firm performance? . intermediate variables and superior firm performance  Location of a firm The emergence of SEZ for promotion of exports has again highlighted the importance of location of firm and its impact on firm competitiveness. Various recent empirical research and literature suggest that location can be a contributing factor to the competitiveness of a firm. India has 19 functioning SEZs contributing 5-6 percent to the national exports and more than 400 SEZs have been principally approved by the Government of India at various locations . It seems that agglomeration and linkage effect of the SEZs are more difficult to exploit if they are established in an area with poor or no industrial base. Modeling location. where the location and spatial diversification were simply determined by an adjustment between location. Empirical studies suggest that SEZs which are located in a developed area where they have higher chances of pursuing agglomeration are found to be more successful as compared to those which are located in semi or undeveloped areas. This raises a few research questions regarding the location of an SEZ. This also signifies the location advantage of existing industrial and infrastructure base for export competitiveness of an SEZ. The early theories of industrial location concentrated on analyzing simple frameworks. weight. and Chennai which are prominent cities in India. viz: RQ1.

Through this integration as depicted we can conclude following intermediate functions/variables: F2: investment in competitive resources and capabilities. availability of infrastructure. Positive agglomeration effect and creation of linkages between firms in an SEZ and domestic firms. Five sets of broad explanatory functions (factors) were integrated that explain firm competitiveness/superior firm performance in an SEZ. Empirical studies on the location of a firm have brought out various factors which can be summarized and inferred upon. These studies indicate that proximity to supplier/resources. government and institutional support. These intermediate variables/functions. machine. The ability of an entrepreneur to run a business efficiently and effectively. money. What leads to competitiveness of a firm in an SEZ? The central question we seek to answer is how does location of a firm in an SEZ affect the competitiveness of the firm? With this central question as the subject of this paper. F4: entrepreneurial ability. and materials are the important factors affecting the location of a firm. .RQ2. F3: linkages. a framework on the basis of exploratory study has been proposed with several prepositions.  Intermediate variables/functions The central question is further investigated by modeling the interrelationship between firm location and variables/functions which lead to superior firm performance. quality and availability of men.

innovate. . electricity.Factors of production.Investment in competitive resources and capabilities. Consistence of quality practices. branding. These five sets of broad intermediate functions/variables consist of different subvariables: . Will include vision. In terms of available infrastructure (roads. internet. Businesses need constant supplies of qualified men. . outside duty tariff area (DTA) firms and foreign firms. money and materials for smooth running. higher capacity utilization. and take calculated risks. and ports).Entrepreneurial ability.  Superior firm performance Firm performance is taken as a tool to measure the competitiveness of a firm. telecom. Support and encouragement by government to firms in terms of infrastructure and export market assistance. access to cheap cost of capital and procurement of goods. ability to organize.Linkages. skilled manpower. although financial parameters are not only the sole indicators of a firm. . machines.Government and institutional support. A firm is said to be competitive when it shows superior financial performance.F5: government and institutional support. and strategic planning. cost effective manufacturing capabilities. All theories regarding competitiveness of a firm have talked about superior firm performance . can lead to enhancement of competitiveness of a firm. F6: factors of production. technology management. Are linked with economical labor. . With other firms. management capacity.

Other important parameters used by different researchers are productivity and cumulative annual growth rate (CAGR). five intermediate variables/functions (investment in competitive resources and capabilities.e. These three measurements have been taken to understand the superior firm performance in an SEZ. is net exports. Productivity has been considered surrogates of competiveness and can be defined as total turnover divided by numbers of headcount and CAGR justifies the extent of growth of the organization over a period of years.  Proposed sequential framework with prepositions The proposed sequential framework connects the latent function (location of a firm-F1). linkages.as a consequence of being competitive. and superior firm performance. intermediate functions (F2 -F6). and dependent function. one is direct and other will be indirect. It suggests that F1 leads to F2 -F6 and subsequently they lead to F7. situated in an SEZ. a sequential approach There can be two possible approaches for studying the impact of location on superior performance. entrepreneurial ability. and factors of production). thus intermediate functions (F2 -F6) are both dependent as well as independent . Location competitiveness of a firm in an SEZ cannot be directly measured so it is done through intermediate variables and its effect on firm performance.  Proposed framework. This study suggests that a logical sequence may exist among the location of a firm. exports minus imports which have been laid down as a requisite for setting up in an SEZ. The most important obligation of an export firm. government and institutional support. i.

Being located in SEZ positively relates to firm/s investment in competitive resources and capabilities.Factors responsible for location strategy have been empirically found for the firms outside the SEZs and we have assumed that the same factors will be responsible for the location of a firm inside the SEZ. and . Under the light of the above assumptions. Structural equation modeling (SEM) is a recognized multivariate technique which enables us to assess both measurement properties and test the key theoretical relationships. and testing hypothesized interrelationships among a set of substantively meaningful variables. Being located in SEZ positively relates to entrepreneur ability. SEM provides a method of dealing with multiple relationships simultaneously and comprehensively for determining the goodness of fit measure of the sequential model.  Prepositions The relationship flow chart. It helps to identify direct and indirect effects in a complex system of variables and allows including the mediating variables in the analysis easily ([126] Swamidass and Newell. 1987). Being located in SEZ positively relates to linkages with other units. following prepositions are tabulated: H1a. .Clearly delineates the factors involved in the association between location of firm and superior firm performance through five mediating variables.variables.Location leads to intermediate variables and provides superior firm performance. The suggested hypothetical relationship diagram has been constructed on the basis of the following assumptions: . estimating. It is a powerful technique for specifying. H1b. H1c.

Investment in competitive resources and capabilities positively relates to superior firm performance. H2e. The strength of the framework lies in its theoretical approach which gives a valid reason to test it empirically by using SEM. Linkages with other units positively relates to superior firm performance. Another limitation of the research is generalization of the empirical studies carried out on firm competitiveness but . Factors of production positively relates to superior firm performance. Government and Institutional support positively relates to superior firm performance. While competitiveness of the firm in an SEZ has been identified in the study. Being located in SEZ positively relates to factors of production. Entrepreneur ability positively relates to superior firm performance. viz: RQ1 and RQ2. H2c. H1e. it may be possible to refine the framework and use it to further study the firms operating in different geographical locations which do not fall under SEZ. However. H2a. H2b.H1d.  Further scope of the research The proposed model has been developed with the objective to explain the basic central research question. the basic limitation is that the proposed framework has not been tested empirically and needs to be further researched. H2d. This hypothesized framework may be applied on any manufacturing industry operating from SEZs and can be tested on different industries operating within an SEZ. Being located in SEZ positively relates to government and institutional support.

not operating from SEZ. since there were few empirical studies available on economic zones from strategic management dimensions.  CII Report on SEZ Infrastructure Development Finance Company Report on SEZ Competitiveness Factors of Small to Medium Sized Enterprises in Zimbabwe: The Pre. .and Post Economic Structural Adjustment Programme Era.

notebooks. China accounted for just 1 percent of the world trade flows. . The increase in China's share of world trade is particularly striking in the markets for certain products.7 SEZs in China China . for example. Since 2002. computers.. China has been the largest supplier of U. China moved from being an exporter of apparel and oil products to becoming a major exporter of electronic and information technology products such as consumer electronics and office and communications equipment. FDI inflows into China accounted for 7% of gross world FDI in flows in 2009 compared to only 1% in 1980.1. In 1980. Its share in world exports of medium and high technology manufactured goods rose from low levels in 1980's to 12% by 2008.the world factory The pace and scale of China's economic development since the launch of its reform program in 1978 is one of the most significant economic stories of our times. mobile phones and information technology hardware.. The phenomenal growth witnessed by China has been the result of 'reforms and opening-up' strategy adopted by China in the 1970s. Several hundred million people have risen out of poverty and the living conditions have improved over a period of time. while by 2008 it accounted for over 8%.S consumer products like DVD players. During this period. The real GDP of china has averaged 10 per cent annually with the GDP doubling every 7-8 years. China's share in the World GDP has increased from 2 per cent (PPP basis) in 1980 to nearly 12 percent in 2008. China's linkage with the rest of the world has increased.

Southern Fujian Delta. attracting foreign investments and importing high technology products into China. The state set production goals. technology. more flexible labor markets and less bureaucratic control. controlled prices and allocated resources in the economy. Chinese living standards were substantially lower than those of other developing countries. The open door policy was put into practice in order to attain socialist modernization. China had a centrally planned economy. As part of the open door policy package announced in 1984. In 1979. The SEZs were created with the objective of attracting foreign investment in various industries with preferential measures and incentives such as lower tariffs. and knowledge and management knowhow. Private enterprises and foreign firms were totally nonexistent. A large share of the country's output was directed and controlled by the state. The main objective of setting up the zones were to delimit special areas to serve as a bridge or "windows" for introducing foreign capital. These SEZs were located along the coasts to gain easy access to markets like Hong Kong. Macao and Taiwan. several reforms were introduced to expand the Chinese economy by infusing foreign capital and technology.Prior to 1979. One of the important measures adopted was the establishment of four Special Economic Zones along the coast for the purpose of boosting exports. tax incentives to foreign investors. In 1985. Zuhai and Shantou in the province of Guangdong and Xiamen in the region of Fujian. three coastal areas (Pearl River Delta. SEZs were extended to large areas inside the country and fourteen coastal open port cities. Variety of industries including . and Yangtze River Delta) were designed as Open Economic Zones (OEZs) with special incentives to promote exports and attract foreign capital. The inward looking strategy adopted by China kept her stagnant and underutilized. better infrastructure. Four Special Economic Zones were established in Shenzhen.

there were 157 zones in China employing 50. Shenzhen has developed into an important high-tech R&D and manufacturing base in China. as well as a window of international policy.000 thousand people and generating exports worth $145. In the words of Deng Xiaoping.000 million. The following data show the growth of the five SEZs established in China. a window of knowledge. According to a World Bank Report on SEZs published in April 2008. These SEZs have played an important role in transforming China from a stagnant and inward looking economy to the world's fastest growing economy in the world.manufacturing industries. Some of the important reasons cited for Shenzhen's success are as follows. "SEZ is a window. a Special Economic Zone located in South China's Guangdong province has turned out to be the most successful among the SEZs established in China. a window of technology." Growth of SEZs The Special Economic Zones are considered as engine of growth for the Chinese economy. . The city's annual growth rate has averaged 28% since 1980. service industries like hotels. Shenzhen Shenzhen. the fourth largest airport and the fourth largest tourism city of China. retails. a window of management. the objectives of creating the SEZs can be summarized as follows. the world's fourth largest container port. housing constructions and infrastructural development were encouraged and open to foreign investment.

03 billion dollars. Coke. Shenzhen also has a large pool of small business owners who are engaged in a variety of industry all over the city.1) Special privileges: In 1980. The private sector employs about half of the city's workforce and contributes about half of its economic output.000 were private 03 October 2013 Page 2 of 7 proQuest companies. . Countless global brands like P&G. 3) Entrepreneurship: The city's greatest strength is its entrepreneurship. H&Q. the central government of China granted special privileges to Shenzhen as a Special Economic Zone placing it literally in a class of its own. more than 135. Mars.005 billion dollars. It is the city's high tech sector which has made a huge progress.000 registered companies in the Sez in 2005. The major shopping districts are packed with foreign retailers like Wal-mart. SIEMENS and Phillips can be found in these stores. Sony. which have flocked to the cities from all over China. Buying foreign brands have become part of the daily life for Shenzhen residents. Out of 170. The city is connected to the outside world by a number of ways. But in 2008 Shenzhen actually used foreign investment worth 4. Tens of thousands of foreign nationals now live and work in Shenzhen. Tens of millions of Chinese have tried their luck in this city and some 12million now call it home. This middle class is the key consumption force in the city. LG. In 1979 Shenzhen attracted foreign investment worth 0. growing at an annual rate of 46.5% over the past two decades. Nokia. Unilever. Carrefour. 4) The middle class: Large numbers of people have migrated to the city from the adjoining areas leading to the emergence of a new middle class. Nestle. 113 of the top global multinationals maintain offices in the city. 2) Foreign Direct investment: Initially Shenzhen lacked capital and other resources.

According to the National Bureau of Statistics. while the per capita .8% of the migrant workers have a formal contract with their employees and in the construction industry.2% have medical insurance and 7.8% have employment injury insurance while 12. Yet there are some winners and losers. there are also millions of workers who live in small dormitories working long hours in the factories. Migrant workers: Majority of the workers working in the SEZs in China are migrant workers who receive as little as $100 per month. In 2009.28) in 2009 from the year before. 2006 This article published in the New York Times highlights the deplorable conditions in which workers live in Shenzhen. Rural stagnation: According to the National Bureau of Statistics. The situation for migrant workers social insurance is even worse. the per capita total incomes of urban households was 10. 14.4 hours a week. It is also reported that the average monthly salary of migrant workers grew by 77 Yuan ($11.4 hours a week more than the legal limit of 44 hours a week according to the country's new labor law. SEZs like Shenzhen have created tremendous economic prosperity. According to the NBS report. Only 21. The New York Times. during the first half of 2010. December19. If on one side these SEZs are dotted with huge factories and commercial complexes. the figures are as low as 26%. migrants worked on an average 26 days a month or 58. only 42.Chinese Success Story Chokes on Its Own Growth. Majority of the migrant workers are forced to work overtime. The migrant workers come from some of the poorer regions in China and are driven to the cities by lack of opportunities in the villages and the increasing gap between the urban and rural areas.6% have pension insurance.699 Yuan.

In some coastal and particular economic zones. while only 8 million new jobs will be created at the current growth of 9%. Lack of agricultural development has forced millions of people from the rural areas to migrate to the cities. such as Fujian and Guangdong. It is recorded that girls work in awful conditions for 13 to 14 hours a day from 7 am to 10 p. 15 million new people will enter the Chinese labor market each year. An article in the Telegraph in February 2010 revealed that child labor was used in factories for manufacturing Apple computers. They are forced to love in the most deplorable conditions. China's economic growth has been rather uneven with the agricultural sector languishing and the rural population suffering from lack of job opportunities. children between the ages of 10 to 16 work for up to 14 hours a day in factories.078 Yuan. Growing level of unemployment: It is estimated by the China Labor Bulletin that between 2003 and 2020. there are reported to be approximately four to five million child laborer under the age of 16. In Shenzhen. yet children are reported to be dropping out of school at increasing rates. China has virtually inexhaustible supply of migrant laborers who are willing to work under any conditions without protest.m with two one-hour breaks. iPods and mobile phones.cash income of rural population was 3. According to the International Labor Organization. They are a cheap source of labor for the various factories in China. education is compulsory up to the age of 16. Child labor: There is increasing evidence of usage of child labor in factories in China. School children are increasing becoming part of the required workforce. .

manufacturing is the largest sector to employ women. the rural residents were to be self reliant. Despite provision in the Chinese labor laws regarding maternity leave.Feminization: SEZs have played an important role in creating employment opportunities for Chinese women. low paying and labor intensive factories. the rural-Hukou Chinese who migrate to the cities are not eligible for basic urban welfare and social service program including public education. Sexual harassment and personal abuse often occur at the working place. Young. single women are preferred as they can be easily controlled and are ignorant about their rights. While urban residents received state allocated jobs. Under the Hukou system. Hukou system: Hukou is a system of residency permits adopted by the Communist government used to minimize the movement of people between rural and urban areas. According the China Labor Statistical year book (2005). Discrimation against women is a common feature in the Chinese factories. Most of the female workers are employed in unskilled. many factories refuse to abide by the law. The migrant worker continues to . Chinese citizens were classified as urban and rural based. However. Though the government has introduced a number of reforms in recent years. The industrial growth witnessed by China has led to a huge migration of rural people to the factories. Today 60% of the workers engaged in the SEZs are females. The hukou system operated as an internal passport system. the basic structure has remained intact. Women are often made to work for long hours lasting up to 12 hours in a day.

with workers demanding higher wages and better working conditions. China has seen a number of labour unrest. Today labor disputes have become a common feature with more and more workers fighting for better wages.face discrimination in the job market and remain as second class citizens in the cities. 2010. Labor unrest: In recent times. the migrant workers became jobless with little protection. 50 workers were injured in a clash with security guards. In June. . but pay is same. According to Geoffrey Crothall of the China Labor Bulletin. On June10. 2010. a Japanese automaker saw a series of strikes at its Chinese factories demanding higher wages. Honda. nearly 700. a Taiwanese -owned factory that produces rubber products.000 labor disputes went into arbitration in 2008. According to the Ministry of Human resources and Social security. Time reported that in Kushan. a city near Shanghai. after 2. when Chinese exports fell and factories closed.000 people went on strike at KOK industries. Obviously they are angry &frustrated". a Hong Kong based NGO. During the recent global crisis. "the economy is booming again and the same workers are forced to work longer hours.

Secondary .  Comparison Special Economic Zones between India and China.Objectives of Study and Methodology Objectives:The objectives of the study in a nutshell are as follows To analyze the basic concept of SEZ in Indian Economy. Methodology:We have used the secondary data for conducting the study and analysis of our project work.  To analyze the basic concept of SEZ in China Economy. This helped us a lot to broaden our outlook on the topic.

analyzing and comparing the business systems of China and India. Both have experienced consistently high economic growth rates over the past decade and it is widely assumed they will have a profound global and regional impact in the 21st century. An adaptation of Redding's (2005) model is utilized for the purpose of describing. in terms of geography. and those who would learn from their development experiences. The potential of these two nations suggests that a comprehensive understanding of their business systems is vital for competitors.Engine Encyclopedia E – Libraries Pro-quest Academia.data analysis is commonly known as second-hand analysis. It is important to note that this approach .9 Comparison: India & China Head note China and India. are the most important Asian nations. It is simply the analysis of preexisting data in a different way or to answer a different question than originally intended. trading partners. population size and regional cultural influence. In our project we have taken the help of the following secondary data: Websites      Search .edu Journals 1.

utilizes an adaptation of Redding's comparative business systems model. and following a brief background to . The approach in this paper is descriptive. and approaches to corporate management. are the most important nations in Asia. but within the limited scope and constraints of this relatively short document. Despite the influence of apparently convergent global trends. Australia in February. would provide global and regional models. which are beyond the narrow stereotypes currently associated with the democratic and socialist systems of the 20th century. a fact which is made all the more notable by the size of their respective populations. and within the constraints of this relatively short document. The present paper. as is the case with many comparative management models in the academic literature. population size and regional cultural influence. an early version of which was presented to the Asia Pacific Economics and Business History Conference in Sydney. divergent managerial assumptions and business practices persist in these two nations. considered either separately or together. demonstrates how enhanced understanding might be achieved through the use of the proposed model. inter-firm networks and alliances. INTRODUCTION It is clear that China and India.does not attempt to derive causality between societal factors and economic performance. and it is assumed that these two nations. in terms of geography. adopting the premise that cultures underpin socially embedded economic institutions. and in turn. Both have experienced consistency high economic growth rates over recent decades. This economic reshaping is widely predicted to continue 'for some years. that institutions underwrite governance models. This approach is not aimed at establishing causal relationships between societal factors and economic performance.

the economic potential of China and India. and this is reflected in the growth patterns over recent decades. and have been so for some considerable time. This extraordinary long run economic expansion is predicted to continue (see Table 2). analyzed and compared. to purchasing power equivalents. What makes the figures in Table 2 especially notable is the outcome after adjustment of gross domestic product. are also the two fastest growing economies in the world.  THE ECONOMIC RISE OF CHINA AND INDIA The world's two most populous nations. China in 2007 is placed second only to the USA in terms of gross domestic product. For example. and gross domestic product per capita. Both have experienced consistently high economic growth rates since the opening of their economies to global market forces. the contemporary business systems of these two critically important Asian nations are described. and India is . after this conversion.

besides the standard economic yardsticks for productivity and competitiveness. Singapore's Senior Minister Lee Kuan Yew suggested that comparative economic models needed to explore well beyond financial statistics..even if China and India were both democratic. religion and other ethnic characteristics and national ethos that affect the outcome" (Kelly et at. We now believe that. it is obvious that other nations around the world. considered either separately or together. the purpose of this article is to address the following question: What is the nature of the business systems in China and India.placed third. should thoroughly acquaint themselves with the circumstances surrounding the economic rise of China and India. and how are-they similar and different? How have they survived and prospered into the modern age? Over a period of almost half a century. As one of the most astute Asian leaders of recent times.  UNDERSTANDING AND COMPARING BUSINESS SYSTEMS . or authoritarian or communist. there are intangible factors like culture. Again. vii). their performance would be different. Even from the preliminary data presented above. Towards this end. and India with a vigorous democratic political culture in combination with socialist economic planning. China and India experimented with two contrasting axioms of economic management-China with centralized controls and planning and a heavy emphasis on state-owned enterprises. 2006. on the basis of statistics such as those expressed in Table 2. and especially those located in or near the Asia-Pacific region.. will have an outstandingly significant global and regional impact in the 21st century. it is widely assumed that these two nations. He argued ".

and diet the underlying societal forces which define these systems should be respected since they are deeply embedded within national societies. for example the US. have tended to assert that all of the current variations of capitalist business systems were converging towards an ideal model under the pressure of globalization. and the organization of particular capitalist markets. often with sociology. inextricably associated with social institutions. and often tended to ignore social context and the impact of experiential learning. Britain. as has the justification for economic globalization. have been based on these ideas. Whitley (2002) asserted that a considerable amount of economic theory neglected to specify how particular competitive environments impacted on approaches to economic organization. who are generally opposed to what they see as a ruthless and misguided market driven logic associated with neoliberal or neo-classical economics positions. social sciences or humanities discipline backgrounds. unrestricted access to capital and labor. western nations. and Australia. Because of this. have argued that there are various types of capitalism. the roles of particular interest groups and collective actors in the structuring of economic relations. A number of authors have asserted that the contemporary economic policies of the so-called Anglo nations. were often overlooked. and minimalist direct government involvement in economic activity. which in this view. or 'economic rationalists'). Analysts often associated with the study and practice of mainstream economics (more accurately 'neo-liberal' or 'neoclassical' economists. a natural outcome of open markets for goods and services. Many. is often assumed to principally advantage developed.There is a significant dichotomy in the academic literature in relation to the conceptualization of business systems. and were better left to evolve for the ultimate well being of the various societies in which they were located. As opposed to accepting .

With the foregoing in mind. which was based on for the influence of societal contextual factors.simplistic explanations often associated with globalization. These were Weber's idea that ―a combination of the ideational (psychological) and the material (economic and technological) will explain societal variations in economic behavior". that economic action was essentially socially embedded and as unique coordination arrangements of societal institutions and economic actors. and why they were different. and that. There is a certainly a case for the recognition of societal influences in the conceptualization of business systems. that culture under laid societal institutions. Redding proposed a model for the purpose of describing and comparing capitalist business systems. According to Redding's analysis. The model was based on the premises earlier developed by Whitley. . this idea has been previously approached from three alternative and fundamental directions. he suggested that it would be more reasonable to focus on explaining how different forms of industrial capitalism in fact became established. and basing the analysis on the assumption that all capitalist systems were in various stages of convergence to a single model.

through the model. and therefore comparable way. and the role of the state. as well as external ideational and material influences. systematic.in turn. culture. It has been made very usable. and therefore essentially avoids the controversy between neo-classical economists and those who favor socioeconomic explanations of economic performance. Whitley's conceptualization has been. also taking into account the effect upon them of key historical. in effect. important societal institutions. and is utilized in the current article to describe and compare the Chinese and Indian business systems. The most significant adaptation is the substitution of Redding's . developed and operational zed. The following model. A key point about the model was that it did not seek to establish causal relationships. is a close adaptation of Redding's pioneering work. those institutions underpinned business systems. Redding's interpretation is a considerable advance because. emphasizing the notion that business systems were dynamically interrelated to culture. but sought understanding through holistic description and analysis of capitalist business systems across the world in a logically structured. for practitioners and educationalists alike.

As per Redding's conceptualization and the 'operational zed' versions of his theoretical model. which affect specific arrangements for the availability and deployment of financial. which provide certainty. the cultural or socio-cultural factors which underpin institutional frameworks and business systems. in the conduct of business in a national context. . which in fact subsumes the concepts of material and ideational logics. as explained in the preceding paragraphs. culture and the role of the state. are taken to include key historical influences. business networks and alliances. Following Redding. and to try to avoid any impression of linear. takes into account the global and regional business context. or causal relationships. with particular emphasis on the coordination and control of financial. but adds the further dimensions of global and regional. and management. but. The business system is conceptualized as the dynamic interrelationships between enterprise owners (also taking into account the concept and nature of corporate governance). political and economic influences. human and social capital in a particular society. or trust. Despite being presented in terms of concentric circles for ease of comprehension. the proposed model is essentially faithful to Whitley's core ideas and Redding's subsequent development and interpretation. technological and human resources. the institutional framework is constructed as the relevant institutions. for example a commercial law system or established norms in the conduct of relations between employers and employees.categories of 'material and ideational logics' with 'global and regional context'. social capital is interpreted as the formal or informal institutions. In particular. a reasonable modification in an increasingly globalizing and regionalizing international business context.

The role of the state relates to the level of direct government involvement in economic activity. technical and human resources). and management (the role of managers in the coordination of financial. and is made up of capital (essentially relates to the financial system. and the level of formal market regulation. and culture. how control is exercised. The business system represents a 'market hierarchy' of ownership (identifies the owners of enterprises. and the conditions of access to finance). die state acts as an interpreter of culture in the formation of institutions. sources of finance. human capital (how human resources are sourced. and the nature of governance structures). The institutional framework is made up of the social institutions which are relevant to an understanding of the business system. and separately and jointly influence both the business system and the institutional framework. Here the influence of globalization. .The circular core of the model represents the dynamic interrelationship between the relevant business system and the institutional framework. and private banks. networks (shows how firms are interconnected across the economy). The third circle from the center describes influence of the global and regional context (including external ideational and material influences). as is a knowledge of "specific historical events. implying that they are interrelated. In this context. and how capability and skills are developed within society) and social capital (relates to formal as well as interpersonal arrangements to establish trust in transactions of economic exchange). are tolerated. especially economic globalization. and the 'key historical influences' on the contemporary business system as per Redding. is taken into account. The second circle from the centre consists of the role of the state. institutions or people. the extent to which intermediaries such as professional and business associations.

and further details are provided as necessary in the explanation of the core institutional frameworks and the business systems. For the sake of brevity. because it avoids the suggestion of linear causal relationships. as favored by anthropologists engaged in ethnographical research. key historical influences are initially presented in this paper in tabular format only. rather invoking the concept of observation and description as a path to understanding context. it is better understood and compared as interconnected parts making up a whole. it is important to note Geertz's idea of 'thick description' is useful here. although the proposed model is layered in concentric circles in its graphical format.capable of changing a society ". Further. such as resource cost and availability. When utilizing the above model in the description and analysis of business systems. and historical economic circumstances. as per Ragin. .

China is on a trajectory to regain its traditional regional hegemony. * China will ultimately be the world's largest Internet and telecommunications market. The impact that China is likely to make in global and regional terms can be understood in terms of the following forecasts and facts: * China has had the fastest growing economy in the world for past 25 years. * Chinese demand for grain will outstrip world capacity to supply by 2030. . * In unadjusted terms. and perhaps superpower status. and when adjusted for internal purchasing power. because of the expected loss of land to industrialization and population growth. China is already the sixth largest economy in the world.CHINA'S BUSINESS SYSTEM  GLOBAL AND REGIONAL BUSINESS CONTEXT Essentially because of its rapid economic growth since opening to foreign investment in 1978. * China is already the world's second largest consumer of oil. is number two in the world.

bringing both opportunities and challenges. which have taken place since 1978.  CHINESE CULTURE Analyzing the behaviors of contemporary Chinese business people in terms of cultural values is particularly difficult. notwithstanding the major changes. suggested that market mechanisms and economic institutions would need to adjust to global capitalist competition and standards. Hickson and Pugh have also implicitly acknowledged this difficulty of entanglement. Zhao et al. although many East Asian governments in general have been ambivalent about the Washington agenda of liberalization. and this would have major consequences for state owned manufacturing industries and collectively managed agricultural enterprises. or alternatively choose some strain of Daoism or Buddhism. However. privatization and minimalist government. as we have a veritable banquet of influences from which to choose. deregulation. Pan Note "They may pick something out of the Confucian world of thought and action.As Beeson has noted. In the case of China. questions of ownership and governance of the means of production are inevitably brought into the spotlight here. or neither". noting that Buddhism was imported from India to China. Alluding to this dilemma. it seems likely that China's 2001 accession to the World Trade Organization (WTO) in 2001 will result in changes of similar significance to those brought about by the opening of the Chinese economy in 1978. as the Chinese government has by no means relinquished its central role in the direction of the economy. whence it was blended with Taosim. both. and China is clearly no exception. the East Asian region has become a part of the global production network. and that Confucianism was subsequently blended with . or of various superstitious cults and practices that might claim connection to either of these two traditions.

in the name of Marxist-Leninist ideology (Redding. Fuelling China's global reach are a number of national champions with vast asset bases.  ROLE OF THE STATE As noted by Milston (1978). As has been pointed out. The main order of the day for these companies is to digest a great deal of modern technology and make their way up the steep learning curve of acquiring the management skills necessary to compete domestically and globally (Silk and Malish. ports and telecom networks (reducing costs and turnaround times) and an educated a low-cost workforce. but maintains a significant role in the regulation and control of private business via various arms of the state bureaucracy (Beeson. state capitalism was not introduced to China by the communists. This continued in the Maoist and subsequent eras.Buddhism. which was to subsequently to have a dominant influence in Chinese society. unprecedented profitability and listings in global bourses. 2002). a rapidly growing. leadership in cost control and technological development. "Chinese companies benefit from a high level of research and development. Confucianism. but still inadequate infrastructure of roads. In contemporary China. Twenty-four of these companies were included in the 2007 Fortune Global 500 list. . 2006: 106)". Despite this. they were confident enough to assert that it was the indigenous philosophy. essentially a series of recommendations for how to live and to construct a good society based on the teachings of the scholar Confucius. the state has a significant if declining direct role in the economy as it attempts to divest itself of state-owned enterprises in all but strategically important sectors. but existed in highly centralized Chinese regimes since at least the Eastern Chou period (771-221 BC). 2007).

This has been expressed in a lack of capacity to plan development. especially taken in combination with the progressive dismantlement of the state owned enterprises. despite the fact that laws establishing individual property rights will soon exist. economic development has been essentially driven by massive levels of foreign direct investment. 2007). . Taiwan. Public sources of capital are currently limited because. they are not yet appropriately enforced (see "China's Next Revolution". and the disparate centers of power and authority in the Chinese bureaucracy. 2007). This has generally limited the control of the Chinese state over development. and within related networks. and elements of the Chinese Diaspora in South East Asia). and relative inability to facilitate reciprocity and cooperation between business and government (Amsden cited in Beeson. much of which has been from so-called 'Greater China' (Hong Kong. since the opening of China in 1978 (see Table 3). and the finance industry is still relatively immature. CHINA'S INSTITUTIONAL FRAMEWORK: CAPITAL As noted by Beeson (2007). often making policy decisions unclear and inconsistent.

2002). are proving to be inadequate to cope with the demands of rapid industrialization (Redding. 1978). invasion by Japan. as well as labor market structure. internal division and warfare. and despotic rule under Mao caused massive chaos in Chinese society in the 19th and 20th centuries (Milston. Indeed. which did not leave a sound basis for the development of human capital to serve industrial development. . the collapse of the Emperor system. CHINA'S INSTITUTIONAL FRAMEWORK: HUMAN CAPITAL Ruthless exploitation by the Western powers of China's weaknesses. contemporary Chinese education and training systems.

as well as China's ascension to the WTO. and as Redding has noted. which was in contrast to what was occurring in the West at a similar time. in China. a commercial law framework was more or less irrelevant. and is highly compatible with traditionalist Confucianism teaching and practice. and because supporting professions. the use of relationships and networks to minimize risk in business remains generally essential because legal protections to those involved in business are inadequate. . information is insufficiently accessible. During the Maoist era in which the state owned and actively controlled all assets. testing. which enabled enterprises to hire and terminate staff according to organizational operational requirements. and has enacted a number of laws aimed at modernizing the labor market.  CHINA'S INSTITUTIONAL FRAMEWORK: SOCIAL CAPITAL The maintenance and development of strong relationships and networks is a crucial element of Chinese life and society. The absence of an enforceable legal-rational system to support a capitalist business system might well be linked to the closure of China and the subsequent entrenchment of the Chinese imperial bureaucratic system during the Ming dynasty. and a reaction to prior domination and conquest of China by the Mongols. interviewing. The 1995 Labor Law introduced the employment contract system. application forms. reference checking and medical examinations may now be found in Chinese organizations ". "such as vacancy advertising and job hunting. Although by no means universal. the Chinese government has taken up membership of the International Labor Organization. procedures and monitoring systems are underdeveloped. Western style HRM practices.In response to these shortcomings exposed by rapid economic development and massive foreign direct investment.

where the market focus has been primarily internal or domestic. the influx of foreign capital after opening the economy in 1979 has been highly influential in the development of market institutions. between 1949 and 1976. and thereafter owned and controlled by the Chinese state. With respect to contemporary modernization of the SOEs. In the industrial sector. where production has been quite often aimed at export markets. Many privately owned enterprises established in post-1978 have been funded by foreign multinational corporations. this was accomplished via so-called State-owned Enterprises (SOEs). CHINAS BUSINESS SYSTEM: OWNERSHIP The current ownership structure of China's enterprise system has ready explanations in Chinese history and culture. and in the agricultural sector by means of workers managing collectively owned rural land. private and joint venture enterprises were permitted in particular areas of the economy. The establishment of China as a communist state under Mao Tse Tung in 1949 was an event which has had a profound effect on the shape of the contemporary Chinese business system-as is well known. as well as by Chinese capital from so-called 'Greater China'. all of the China's productive assets were appropriated. . Overall. which effectively allowed the indigenous private sector to operate freely in the small. in particular from Hong Kong and Taiwan. the policy enunciated by Prime Minister Zhu Rhongji in Deng's administration. under Mao. After the opening of China and economic reforms in 1978 under Deng Xiaoping. privatization has only been an option outside of state designated 'strategically important economic sectors'. The 1980s establishment of Special Economic Zones in coastal areas accelerated this influx.to medium-sized area of the economy.

Indeed. Generally. and other elements of the regional Chinese Diaspora. Motorola. between 1979 and 2003. Hong Kong. as an integral component of a so-called 'Greater China. China's export economy is currently dominated by multinational corporations. In fact. Taiwan. business networks cannot be separated from the sociocultural tradition of 'guanxi'. than has been the case anywhere else in East Asia. but this figure was somewhat overstated as capital from Caribbean tax havens as well as Taiwan comes through Hong Kong. the Chinese domestic market has also attracted multinationals such as Coca-Cola. Hong Kong's average annual share of China's FDI inflows was around 40%. and Hiscock in Asia's Wealth Club have provided considerable detail about the influence and business expertise of the expatriate East Asian Chinese. and many other powerful consumer goods manufacturing companies. Taiwan's share at 7% was therefore greatly understated.  CHINA'S BUSINESS SYSTEM: NETWORKS AND ALLIANCES A number of books published in the mid-1990s highlighted the role of Overseas Chinese business networks in the economic development of East Asia in general. Dupont. In the Chinese cultural context. Rohwer in Asia Rising. Chinese business interests in Hong Kong and Taiwan have had an especially important role in channeling FDI into China. The term 'guanxi' refers to the development of . Seagrave in Lords of the Rim. General Motors.and Foreign Invested Enterprises have played a greater role in the growth of exports. utilizing family and network connections. and restructuring economic activity across the region. Beeson refers to about 50 million Chinese resident in Asia outside of China. and China in particular. which have invested either directly or via joint venture arrangements. Kodak. which consists of mainland China itself. Apart from the export economy.

Guanxi has strong historical linkage to the social conditions of China where legal-rational norms were of limited importance. kinship. there remains a distinct contrast of styles and practices between Chinese managers in the private sector. .  CHINA'S BUSINESS SYSTEM: MANAGEMENT Chinese management today is eclectic. Guanxi relationships are deeply embedded in all relationships-social (in terms of birthplace. and former state-owned or collective enterprises which have adopted the disciplines of the market place. reciprocity and notional debt. Failure to develop a coherent legal system alongside economic reforms over the past 30 years or so have contributed to the adaptation of guanxi as a coping mechanism in the new and dynamic Chinese business environment. developing. and alumni). alliances and networks). political (in terms of hierarchies. cumulative and mostly instrumental obligation system. Guanxi is aimed at building individual. and as Nankervis and Lee (2007) noted. market space and other business and social advantages. foreign invested companies and joint ventures. Redding suggested that networks in China act as a guide to the regulation of transactions in the absence of a well defined legal structure and state institutions. or 'powerdependency' relationships with a long-term.human relationships within a uniquely designed social web of mutuality. information. group and organizational coalitions that can be mobilized to share resources. and older. and combines elements of Chinese traditional administrative practices. Guanxi in China is a unique social networking phenomenon built upon multiple layers of trust-commitment. institutions and bureaucracies) and economic (in terms of partnerships. senior managers in unreformed state-owned enterprises and government bureaucracies.

INDIA'S BUSINESS SYSTEM:  GLOBAL AND REGIONAL BUSINESS CONTEXT India today is widely considered as one of the most exciting and vibrant emerging economies in the world. socialist inspired ideas such as collective participation in decision-making. managerial paternalism. After a century and half of British rule. especially in the private sector. the desirability of worker representation through trade unions.In the contemporary context. the maintenance of face and workplace harmony. A decisive reform program was undertaken in 1991 and crucial changes have resulted in a remarkable improvement. A centrally planned economic system bedevilled Indian economy until the 1980's and the low economic growth of 3. we can see that imported management and human development systems are blended with traditional Confucian inspired ideas about the primacy of senior management.5% was sometimes derisively described as the "Hindu growth rate". India became an independent and democratic country in 1947.7% annual average rate of growth for the first half of the 20th century had achieved around 8% growth over the first six years of . and the importance of networks. A nation with about 0.

2000). or institutional behavior. The cultural influence of the Hindu tradition provides a framework called 'Guna dynamics' and this is being increasingly used in the workplace. and many other spheres. Das (2006) has forecast that India's economy may well be larger than Japan's within the next few years. group. Government controls were also evident in media (particularly television and radio). The sattava guna (or virtue emphasis) refers to the pursuit of higher values. with the fundamental objective self-reliance. team building and performance evaluation. employee training. extrinsic and intrinsic motivation called Kama and self-actualization called Moksha. The tamasik guna (the darker or negativity emphasis) shows ignorance.  INDIAN CULTURE Over the past centuries. rajas guna (proactivity emphasis) focuses on the virtues of action and solutions. education. The government played a very . The third guna. Guna is a personality attribute that guides individual.the 21st century (Sachs et al. For the first five decades. Foreign investment in India was highly restrictive until 1991 when a serious ideological shift towards market culture signalled the beginning of economic liberalization. health services.  ROLE OF THE STATE After two hundred years of colonial rule. the government pursued a policy of control in every sphere of economic life. It is often suggested that Indians can maintain a duality of essence in their consciousness by accepting one type of behavior at the organizational level while a very different one at the personal level. India became independent in 1947. The hierarchy of needs in Indian culture comes from basic practical challenges of organizational life called Artha. corruption and a lack of values. cultural forces have left a very strong residual influence on the Indian mindset.

significant part in setting up public sector enterprises in major industries. A recent economic scenario based on World Bank data indicates the continued upward movement of India to the third-largest economy by 2010. India is becoming a major destination for global capital and a dynamic economic environment. More recently. . and after 50 years of stagnation based on self-reliance and the almost exclusive utilization of local capital. some of which are proving to be of immense value as the economy gathers momentum.  INDIA'S INSTITUTIONAL FRAMEWORK: CAPITAL India has been described as a country with more potential than performance. but it is interesting to note that some historians claim that India's economy was the largest in the world during the Mauryan dynasty period (300-100BC).

to a services-oriented economy with world-class management. In a relatively short time. India's economy changed from one where food shortages periodically occurred. an impressive display of capital acquisition ability has been demonstrated by the Tata Group in their £560 mn acquisition of Tetley Tea as well as their ambitious global acquisitions in the steel sector around the world. including the recent acquisition of the Corus Group. and facilitated the development of the so-called 'new' economy-IT. and more than 100. However. In the private sector.000 medical doctors.000 business school graduates annually). these initiatives led to rapid economic growth.000 engineers. the Steel Authority of India.  INDIA'S INSTITUTIONAL FRAMEWORK: HUMAN CAPITAL Economic reforms after 1991 included opening India to global economic investment and competition. (some 500. a recent . very large Indian public sector companies such as Indian Oil. Besides Tata.In the post-independence era. domestic companies were able to raise capital from domestic public and private sources only. Reliance Industries. 250. and ONGC have been strong performers. telecommunications and financial services. increased productivity. This new economy requires a very large number of highly trained professionals. emigration to developed countries over 20 years from the 1960s has been a considerable economic drain. Airtel and others have not only have leveraged capital from the region and beyond but also become highly active in the global capital market. More recently. as well as the privatization and deregulation of many government enterprises. Despite the fact that India graduates a staggering number of professionals each year. with access to international as well as domestic capital sources.

The youth of India have often been seen as having great economic potential.'reverse brain-drain' has resulted in a significant repatriation of ability. structured and controlled environment. social bonds of long standing tradition have sustained India's identity as a nation.  INDIA'S INSTITUTIONAL FRAMEWORK: SOCIAL CAPITAL In spite of a being a nation with 20 major languages and hundreds of dialects. Many researchers find this generalization inappropriate in the Indian context. which may be a consequence of the caste system. By 2050. mainly as a result of the 'one-child' policy. and it is not uncommon in rural areas or for specific companies or industries to employ people based on caste rather than on skill. India's student population (age bracket 5-19) accounted for 321 million. China's population in a similar age bracket is forecast to decline from 534 million in 2000 to 408 million in 2050. this needs to be juxtaposed against the British legacy of a codified commercial legal framework and the integration of commercial activity into the legal purview of the state. and is expected to decline to 296 million by 2050. In an economic context. China's student population is predicted to be only 221 million in 2050. responsibility and control over their work. it has been suggested that by the fourth decade of the current century that India would have captured a considerable share of the global labor market. The western management theories argue to suggest that employees are motivated when they are given a greater degree of autonomy. expertise. and because of this. However. the Indian preference for hierarchical relationships remains. there would be 549 million Indian citizens in the 20-24 age brackets. In 2000. capital and (multinational) connections. and they lose their motivation when in a highly bureaucratic. . In contrast.

where. government owned and controlled corporations remain extremely significant and encompass a wide range of industry sectors particularly in essential infrastructure such as airlines. In recent years. successful corporations in the knowledge industry have been led by visionary leaders from the private sector such as Narayana Murthy of Infosys. for example. postal services. and Azim Premji of Wipro. major steel plants. and wield enormous commercial and political power. However. In the modern context. Ambani families and Modi families. family conglomerates once again dominate the Indian corporate scene. Europe and Asia. Birla families. and for about four decades after 1947 the government steadily increased its involvement. mineral exploration. for example. The leading family controlled corporate groups include the house of Tata. and this was followed by the nationalization of banks in the 1960s. India tops the World Bank's list of developing countries that receive significant cash . In 1956. power. machine tools. The rise of the services sector in India has been significantly propelled by a large number of professionals of Indian origin (Reference Work on Indian Diaspora) in the United States. Most people employed in the infrastructure area are government employees. The ownership of the small and medium sector enterprises in the Indian system are almost inevitably in the private sector. the government controlled Indian Railways alone employs about two million people. oil and gas. the insurance industry was nationalized. railways. shipping. INDIA'S BUSINESS SYSTEM: OWNERSHIP The large-scale industrial sector was dominated by a handful of business families for over a century until independence.  INDIA'S BUSINESS SYSTEM: NETWORKS AND ALLIANCES Globalization has been able to link overseas Indians and their country of origin in significant ways over the past decade.

inflow from family networks around the world. enterprise and knowledge networks. 2. 3. New levels of confidence in innovation. it appears that a hybrid form of managerial culture unique to India is emerging. and 4. and the integration of a range of major trends has led to this observable style of Indian management. Existing bureaucratic institutional infrastructure and regulatory frame. more than 20 million nonresident Indians sent US$23 bn in remittances back to India. As a consequence of these changes. Strong national pride in the tradition and history of the country. Commitment and vision to achieve a global identity by becoming engaged in the region and beyond. Corporations are increasingly listed on public stock exchanges. There are four clear sources of this emerging management style: 1. In 2004. bringing the necessity for professional organizational and managerial structures and governance standards. . Even the oldest and most exclusive business families are keen to stress that their businesses are not run by family members but by professionally qualified deserving candidates.  INDIA'S BUSINESS SYSTEMS: MANAGEMENT The contemporary managerial elite in India are more pragmatically than ideologically driven than has previously been the case. and MBAs and other equivalent qualifications are sought after by the intellectual elite.

As compared to china where majority of the SEZ‘s were setup by the government. But this should not be done at the cost of bringing down the agricultural activities.Conclusion:  The SEZ‘s could drastically improve the economic activity in the country. similar should be adopted in India. be net foreign exchange earner and provide immense employment opportunity. make the country‘s export competitive and globally noticeable. To be economically viable SEZ‘s should be approved over a particular land area (greater than . Land grabbing and real estate mafia should be properly regulated so that the common man is not the net sufferer to get the net foreign exchange earner up and running. if not fully it should be a public-private partnership and regulatory bodies should be properly managed to weed out fallacies.

Labor laws and DTA regulations will surely attract foreign investment and major industries to setup industries in the SEZ‘s making it profitable and meeting its desired results! . Relaxed Tax norms.1000 acres) for rapid economic growth in the area and for it to be profitable and self sustainable.

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