Brief case - Legal Process outsourcing in India (Kazim Ali Khan Ma Foi) Kazim Ali Khan
Legal Outsourcing is the new opportunity for Indian BPO industry - The note is made compiling variety of information just for the information of those who want to understand LPO industry and opportunities therein.
Brief case - Legal Process outsourcing in India (Kazim Ali Khan Ma Foi) Kazim Ali Khan
Legal Outsourcing is the new opportunity for Indian BPO industry - The note is made compiling variety of information just for the information of those who want to understand LPO industry and opportunities therein.
This report has been prepared as an assignment of International Economics. It is a brief report prepared to explain the SWOT Analysis BPO/KPO and ITES Industry.
Introduction:
The blog commences by highlighting the increasing trend of outsourcing in the software development industry and the significance of choosing the right outsourcing destination. It sets the stage for a comprehensive comparison between India, Latin America, and Europe.
India: The IT Outsourcing Hub:
The first section delves into India's longstanding reputation as a global IT outsourcing powerhouse. It discusses the country's vast pool of skilled IT professionals, cost-effectiveness, and robust infrastructure. Additionally, the blog examines potential challenges such as time zone differences and cultural nuances that businesses may encounter when outsourcing to India.
Latin America: The Emerging Contender:
The focus then shifts to Latin America, an increasingly popular outsourcing destination. The blog analyzes the region's growing tech talent, cultural proximity to North America, and the advantages of overlapping time zones. It also explores the challenges, such as language barriers and varying economic stability, that organizations may face when outsourcing to Latin America.
Europe: Balancing Quality and Proximity:
The third section evaluates outsourcing to Europe, emphasizing the region's emphasis on quality, innovation, and proximity to many Western countries. The blog highlights the advantages of working within similar time zones and the cultural compatibility with European clients. Challenges, including higher labor costs, are also addressed to provide a balanced perspective.
Conclusion:
The blog concludes with a summary of key takeaways and considerations for businesses seeking to outsource their software development projects. It emphasizes the importance of aligning outsourcing decisions with organizational goals and project requirements, ensuring a successful and mutually beneficial partnership.
By offering a comprehensive examination of outsourcing options in India, Latin America, and Europe, this blog equips readers with the knowledge needed to make informed choices that align with their business objectives in the ever-evolving realm of global software development.
LIVE PROJECT ON JOB DESCRIPTION AND JOB ENGAGEMENT OF EMPLOYEES IN IT INDUSTRY.NISHIGANDHA BATWAL
The project was aimed to understand the IT sector. We choose Datamatics Global Services Limited to understand the JD and Job Engagement process at Datamatics Global Services Limited.
This presentation is Made as a project given by INSTITUTE OF COST ACCOUNTANT OF INDIA on IT sector & the role of a Cost & Management Accountant in these particular Areas..
This report has been prepared as an assignment of International Economics. It is a brief report prepared to explain the SWOT Analysis BPO/KPO and ITES Industry.
Introduction:
The blog commences by highlighting the increasing trend of outsourcing in the software development industry and the significance of choosing the right outsourcing destination. It sets the stage for a comprehensive comparison between India, Latin America, and Europe.
India: The IT Outsourcing Hub:
The first section delves into India's longstanding reputation as a global IT outsourcing powerhouse. It discusses the country's vast pool of skilled IT professionals, cost-effectiveness, and robust infrastructure. Additionally, the blog examines potential challenges such as time zone differences and cultural nuances that businesses may encounter when outsourcing to India.
Latin America: The Emerging Contender:
The focus then shifts to Latin America, an increasingly popular outsourcing destination. The blog analyzes the region's growing tech talent, cultural proximity to North America, and the advantages of overlapping time zones. It also explores the challenges, such as language barriers and varying economic stability, that organizations may face when outsourcing to Latin America.
Europe: Balancing Quality and Proximity:
The third section evaluates outsourcing to Europe, emphasizing the region's emphasis on quality, innovation, and proximity to many Western countries. The blog highlights the advantages of working within similar time zones and the cultural compatibility with European clients. Challenges, including higher labor costs, are also addressed to provide a balanced perspective.
Conclusion:
The blog concludes with a summary of key takeaways and considerations for businesses seeking to outsource their software development projects. It emphasizes the importance of aligning outsourcing decisions with organizational goals and project requirements, ensuring a successful and mutually beneficial partnership.
By offering a comprehensive examination of outsourcing options in India, Latin America, and Europe, this blog equips readers with the knowledge needed to make informed choices that align with their business objectives in the ever-evolving realm of global software development.
LIVE PROJECT ON JOB DESCRIPTION AND JOB ENGAGEMENT OF EMPLOYEES IN IT INDUSTRY.NISHIGANDHA BATWAL
The project was aimed to understand the IT sector. We choose Datamatics Global Services Limited to understand the JD and Job Engagement process at Datamatics Global Services Limited.
This presentation is Made as a project given by INSTITUTE OF COST ACCOUNTANT OF INDIA on IT sector & the role of a Cost & Management Accountant in these particular Areas..
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The people of Punjab felt alienated from main stream due to denial of their just demands during a long democratic struggle since independence. As it happen all over the word, it led to militant struggle with great loss of lives of military, police and civilian personnel. Killing of Indira Gandhi and massacre of innocent Sikhs in Delhi and other India cities was also associated with this movement.
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The empire's roots lie in the city of Rome, founded, according to legend, by Romulus in 753 BCE. Over centuries, Rome evolved from a small settlement to a formidable republic, characterized by a complex political system with elected officials and checks on power. However, internal strife, class conflicts, and military ambitions paved the way for the end of the Republic. Julius Caesar’s dictatorship and subsequent assassination in 44 BCE created a power vacuum, leading to a civil war. Octavian, later Augustus, emerged victorious, heralding the Roman Empire’s birth.
Under Augustus, the empire experienced the Pax Romana, a 200-year period of relative peace and stability. Augustus reformed the military, established efficient administrative systems, and initiated grand construction projects. The empire's borders expanded, encompassing territories from Britain to Egypt and from Spain to the Euphrates. Roman legions, renowned for their discipline and engineering prowess, secured and maintained these vast territories, building roads, fortifications, and cities that facilitated control and integration.
The Roman Empire’s society was hierarchical, with a rigid class system. At the top were the patricians, wealthy elites who held significant political power. Below them were the plebeians, free citizens with limited political influence, and the vast numbers of slaves who formed the backbone of the economy. The family unit was central, governed by the paterfamilias, the male head who held absolute authority.
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Roman architecture and engineering achievements were monumental. They perfected the arch, vault, and dome, constructing enduring structures like the Colosseum, Pantheon, and aqueducts. These engineering marvels not only showcased Roman ingenuity but also served practical purposes, from public entertainment to water supply.
The Indian economy is classified into different sectors to simplify the analysis and understanding of economic activities. For Class 10, it's essential to grasp the sectors of the Indian economy, understand their characteristics, and recognize their importance. This guide will provide detailed notes on the Sectors of the Indian Economy Class 10, using specific long-tail keywords to enhance comprehension.
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Welcome to TechSoup New Member Orientation and Q&A (May 2024).pdfTechSoup
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Welcome to TechSoup New Member Orientation and Q&A (May 2024).pdf
International Business - BPO – BANE OR BOON.doc
1. MARKS : 80
COURSE : MBA
SUB: INTERNATIONAL BUSINESS
N. B.: 1) Attempt any four cases
2) All cases carries equal marks.
No: 1
BPO – BANE OR BOON ?
Several MNCs are increasingly unbundling or vertical disintegrating their activities.
Put in simple language, they have begun outsourcing (also called business process
outsourcing) activities formerly performed in-house and concentrating their energies on a few
functions. Outsourcing involves withdrawing from certain stages/activities and relaying on
outside vendors to supply the needed products, support services, or functional activities.
Take Infosys, its 250 engineers develop IT applications for BO/FA (Bank of America).
Elsewhere, Infosys staffers process home loans for green point mortgage of Novato, California.
At Wipro, five radiologists interpret 30 CT scans a day for Massachusetts General Hospital.
2500 college educated men and women are buzzing at midnight at Wipro Spectramind
at Delhi. They are busy processing claims for a major US insurance company and providing
help-desk support for a big US Internet service provider-all at a cost upto 60 percent lower
than in the US. Seven Wipro Spectramind staff with Ph.Ds in molecular biology sift through
scientific research for western pharmaceutical companies.
Another activist in BOP is Evalueserve, headquarterd in Bermuda and having main
operations near Delhi. It also has a US subsidiary based in New York and a marketing office
in Australia to cover the European market. As Alok Aggarwal (co-founder and chairman)
says, his company supplies a range of value-added services to clients that include a dozen
Fortune 500 companies and seven global consulting firms, besides market research and
2. venture capital firms. Much of its work involves dealing with CEOs, CFOs, CTOs, CIOs, and
other so called C-level executives.
Evaluserve provides services like patent writing, evaluation and assessment of their
commercialization potential for law firms and entrepreneurs. Its market research services
are aimed at top-rung financial service firms, to which it provides analysis of investment
opportunities and business plans. Another major offering is multilingual services.
Evalueserve trains and qualifies employees to communicate in Chinese, Spanish, German,
Japanese and Italian, among other languages. That skill set has opened market opportunities
in Europe and elsewhere, especially with global corporations.
ICICI infotech Services in Edison, New Jersey, is another BOP services provider that is
offering marketing software products and diversifying into markets outside the US. The firm
has been promoted by $2-billion ICICI Bank, a large financial institution in Mumbai that is
listed on the New York Stock Exchange.
In its first year after setting up shop in March 1999, ICICI infotech spent $33 million
acquiring two information technology services firms in New Jersy-Object Experts and ivory
Consulting – and command Systems in Connecticut. These acquisitions were to help ICICI
Infotech hit the ground in the US with a ready book of contracts. But it soon found US
companies increasingly outsourcing their requirements to offshore locations, instead of hiring
foreign employees to work onsite at their offices. The company found other native modes for
growth. It has started marketing its products in banking, insurance and enterprise resource
planning among others. It has earmarket $10 million for its next US market offensive, which
would go towards R & D and back-end infrastructure support, and creating new versions of its
products to comply with US market requirements. It also has a joint venture – Semantik
Solutions GmbH in Berlin, Germany with the Fraunhofer Institute for Software and Systems
Engineering, which is based in Berlin and Dortmund, Germany – Fraunhofer is a leading
institute in applied research and development with 200 experts in software engineering and
evolutionary information.
A relatively late entrant to the US market , ICICI Infotech started out with plain
vanilla IT services, including operating call centeres. As the market for traditional IT
services started wakening around mid-2000, ICICI Infotech repositioned itself as a “Solutions”
firm offering both products and services. Today , it offers bundied packages of products and
services in corporate and retail banking and include data center and disaster recovery
management and value chain management services.
3. ICICI Infotech’s expansion into new overseas markets has paid off. Its $50 million
revenue for its latest financial year ending March 2003 has the US operations generating
some $15 million, while the Middle East and Far East markets brought in another $9 million.
It new boasts more than 700 customers in 30 countries, including Dow Jones, Glazo-
Smithkline, Panasonic and American Insurance Group.
The outsourcing industry is indeed growing form strength. Though technical support
and financial services have dominated India’s outsourcing industry, newer fields are emerging
which are expected to boost the industry many times over.
Outsourcing of human resource services or HR BPO is emerging as big opportunity for
Indian BPOs with global market in this segment estimated at $40-60 billion per annum. HR
BPO comes to about 33 percent of the outsourcing revenue and India has immense potential
as more than 80 percent of Fortune 1000 companies discuss offshore BOP as a way to cut
costs and increase productivity.
Another potential area is ITES/BOP industry. According to A NASSCOM survey, the
global ITES/BOP industry was valued at around $773 billion during 2002 and it is expected to
grow at a compounded annual growth rate of nine percent during the period 2002 – 06,
NASSCOM lists the major indicators of the high growth potential of ITES/BOP industry in
India as the following.
During 2003 – 04, The ITES/BPO segment is estimated to have achieved a 54 percent
growth in revenues as compared to the previous year. ITES exports accounted for $3.6 billion
in revenues, up form $2.5 billion in 2002 – 03. The ITES-BPO segment also proved to be a
major opportunity for job seekers, creating employment for around 74,400 additional
personnel in India during 2003 – 04. The number of Indians working for this sector jumped to
245,500 by March 2004. By the year 2008, the segment is expected to employ over 1.1 million
Indians, according to studies conducted by NASSCOM and McKinsey & Co. Market research
shows that in terms of job creation, the ITES-BOP industry is growing at over 50 per cent.
Legal outsourcing sector is another area India can look for. Legal transcription
involves conversion of interviews with clients or witnesses by lawyers into documents which
can be presented in courts. It is no different from any other transcription work carried out in
India. The bottom-line here is again cheap service. There is a strong reason why India can
prove to be a big legal outsourcing Industry.
India, like the US, is a common-law jurisdiction rooted in the British legal tradition.
Indian legal training is conducted solely in English. Appellate and Supreme Court
proceedings in India take place exclusively in English. Due to the time zone differences,
4. night time in the US is daytime in India which means that clients get 24 hour attention, and
some projects can be completed overnight. Small and mid – sized business offices can solve
staff problems as the outsourced lawyers from India take on the time – consuming labour
intensive legal research and writing projects. Large law firms also can solve problems of
overstaffing by using the on – call lawyers.
Research firms such as Forrester Research, predict that by 2015 , more than 489,000
US lawyer jobs, nearly eight percent of the field, will shift abroad..
Many more new avenues are opening up for BOP services providers. Patent writing
and evaluation services are markets set to boom. Some 200.000 patent applications are
written in the western world annually, making for a market size of between $5 billion and $7
billion. Outsourcing patent writing service could significantly lower the cost of each patent
application, now anywhere between $12,000 and $15,000 apiece-which would help expand the
market.
Offshoring of equity research is another major growth area. Translation services are
also becoming a big Indian plus. India produces some 3,000 graduates in German each year,
which is more than that in Switzerland.
Though going is good, the Indian BPO services providers cannot afford to be
complacent. Phillppines, Maxico and Hungary are emerging as potential offshore locations.
Likely competitor is Russia, although the absence of English speaking people there holds the
country back. But the dark horse could be South Affrica and even China
BOP is based on sound economic reasons. Outsourcing helps gain cost advantage. If
an activity can be performed better or more cheaply by an outside supplier, why not outsource
it ? Many PC makers, for example, have shifted from in – house assembly to utilizing contract
assemblers to make their PCs. CISCO outsources all productions and assembly of its routers
and witching equipment to contract manufactures that operate 37 factories, all linked via the
internet.
Secondly, the activity (outsourced) is not crucial to the firm’s ability to gain sustainable
competitive advantage and won’t hollow out its core competence, capabilities, or technical
know how. Outsourcing of maintenance services, date processing, accounting, and other
administrative support activities to companies specializing in these services has become
common place. Thirdly, outsourcing reduces the company’s risk exposure to changing
technology and / or changing buyer preferences.
Fourthly, BPO streamlines company operations in ways that improve organizational
flexibility, cut cycle time, speedup decision making and reduce coordination costs. Finally,
5. outsourcing allows a company to concentrate on its core business and do what it does best.
Are Indian companies listening ? If they listen, BPO is a boon to them and not a bane.
Questions:
1. Which of the theories of international trade can help Indian services providers gain
competitive edge over their competitors?
2. Pick up some Indian services providers. With the help of Michael Porter’s diamond,
analyze their strengths and weaknesses as active players in BPO.
3. Compare this case with the case given at the beginning of this chapter. What
similarities and dissimilarities do you notice? Your analysis should be based on the
theories explained.
No: 2
PERU
Peru is located on the west coast of South America. It is the third largest nation of the
continent (after Brazil and Argentina) , and covers almost 500.000 square miles (about 14 per
cent of the size of the United States). The land has enormous contrasts, with a desert (drier
than the Sahara), the towering snow – capped Andes mountains, sparkling grass – covered
plateaus, and thick rain forests. Peru has approximately 27 million people, of which about 20
per cent live in Lima, the capital. More Indians (one half of the population) live in Peru than
in any other country in the western hemisphere. The ancestors of Peru’s Indians were the
famous incas, who built a great empire. The rest of the population is mixed and a small
percentage is white. The economy depends heavily on agriculture, fishing , mining, and
services, GDP is approximately $15 billion and per capita income in recent years has been
around $4,3000. In recent years the economy has gained some relative strength and
multinationals are now beginning to consider investing in the country.
One of these potential investors is a large New York based bank that is considering a
$25 million loan to the owner of a Peruvian fishing fleet. The owner wants to refurbish the
fleet and add one more ship.
During the 1970s, the Peruvian government nationalized a number of industries and
factories and began running them for the profit of the state in most cases, these state – run
6. ventures became disasters. In the late 1970s the fishing fleet owner was given back his ships
and allowed to operate his business as before. Since then, he has managed to remain
profitable, but the biggest problem is that his ships are getting old and he needs an influx of
capital of make repairs and add new technology. As he explained it to the new York banker.
“Fishing is no longer just an art. There is a great deal of technology involved. And to keep
costs low and be competitive on the world market, you have to have the latest equipment for
both locating as well as catching and then loading and unloading the fish”
Having reviewed the fleet owner’s operation, the large multinational bank believes that
the loan is justified. The financial institution is concerned, however, that the Peruvian
government might step in during the next couple of years and again take over the business. If
this were to happen, it might take an additional decade for the loan to be repaid. If the
government were to allow the fleet owner to operate the fleet the way he has over the last
decade, the fleet the way he has over the last decade, the loan could be repaid within seven
years.
Right now, the bank is deciding on the specific terms of the agreement. Once theses
have been worked out, either a loan officer will fly down to Lima and close the deal or the
owner will be asked to come to New York for the signing. Whichever approach is used, the
bank realizes that final adjustments in the agreement will have to be made on the spot.
Therefore, if the bank sends a representative to Lima, the individual will have to have the
authority to commit the bank to specific terms. These final matters should be worked out
within the next ten days.
Questions:
1. What are some current issues facing Peru? What is the climate for doing business in
Peru today?
2. What type of political risks does this fishing company need to evaluate? Identify and
describe them.
3. What types of integrative and protective and defensive techniques can the bank use?
4. Would the bank be better off negotiating the loan in New York or in Lima ? Why?
7. No: 3
RED BECOMING THICKER
The Backdrop
There seems to be no end to the troubles of the coloured – water giant Coca Cola. The cola
giant had entered India decades back but left the country in the late 1970s. It staged a
comeback in the early 1990s through the acquisitions route. The professional management
style of Coca Cola did not jell with the local bottlers. Four CEOs were changed in a span of
seven years. Coke could not capitalize on the popularity of Thums Up. Its arch rival Pepsi is
well ahead and has been able to penetrate deep into the Indian market. Red in the balance
sheet of Coke is becoming thicker and industry observers are of the opinion that it would take
at least two decades more before Coke could think of making profits in India.
The Story
It was in the early 1990s that India started liberalizing her economy. Seizing the
opportunity, Coca Cola wanted to stage a comeback in India. It chose Ramesh Chauhan of
Parle for entry into the market. Coke paid $100 million to Chauhan and acquired his well
established brands Thums Up, Goldspot and Limca. Coke also bagged 56 bottlers of Chauhan
as a part of the deal. Chauhan was made consultant and was also given the first right of
refusal to any large size bottling plants and bottling contracts, the former in the Pune –
Bangalore belt and the latter in the Delhi and Mumbai areas.
Jayadeva Raja, the flamboyant management expert was made the first CEO of Coke
India. It did not take much time for him to realize that Coke had inherited several
weaknesses from Chauhan along with the brands and bottlers. Many bottling plants were
small in capacity (200 bottlers per minute as against the world standard of 1600) and used
obsolete technology. The bottlers were in no mood to increase their capacities, nor were they
willing to upgrade the trucks used for transporting the bottle. Bottlers were more used to the
paternalistic approach of Chauhan and the new professional management styles of Coke did
8. not go down well with them. Chauhan also felt that he was alienated and was even suspected
to be supplying concentrate unofficially to the bottlers.
Raja was replaced by the hard – nosed Richard Niholas in 1995. The first thing
Nicholas did was to give an ultimatum to the bottlers to expand their plants or sell out. Coke
also demanded equity stakes in many of the bottling plants. The bottlers had their own
difficulties as well. They were running on low profit margins. Nor was Coke willing to
finance the bottlers on soft terms. The ultimatum backfired. Many bottlers switched their
loyalty and went to Pepsi. Chauhan allegedly supported the bottlers, of course, from the
sidelines.
Coke thought it had staged a coup over Pepsi when it (Coke) clamed the status of
official drink for the 1996 Cricket World Cup tournament. Pepsi took on Coke mightily with
the famous jingle “Nothing official about it”. Coke could have capitalized on the sporty image
of Thums Up to counter the campaign, but instead simply caved in.
Donald Short replaced Nicholas as CEO in 1997. Armed with heavy financial powers,
Short bought out 38 bottlers for about $700 million. This worked out to about Rs 7 per case,
but the cost – effective figure was Rs 3 per case. Short also invested heavily in manpower. By
1997, Coke’s workforce increased to 300. Three years later, the parent company admitted
that investment in India was a big mistake.
It is not in the culture of Coke to admit failure. It has decided to fight back. Coke
could not only sustain the loss, it could even spend more money on Indian operations. It
hiked the ad budget and appointed Chaitra Leo Burnett as its ad agency. During 1998 – 99,
Coke’s ad spend was almost three times that of Pepsi.
Coke is taking a look at its human resources and is taking initiatives to re – orient the
culture and inject an element of decentralization along with empowerment. Each bottling
plant is expected to meet predetermined profit, market share, and sales volumes. For newly
hired management trainees, a clearly defined career path has been drawn to enable them to
become profit centre heads shortly after completion of their probation. Such a decentralized
approach is something of a novelty in the Coke culture worldwide.
But Alezander “Von Behr, who replaced Short as Chef of Indian operations, reiterated
Coke’s commitment to decentralization and local responsiveness. Coke has divided India into
six regions, each with a business head. Change in the organization structure has
disappointed many employees, some of whom even quit the company.
Coke started cutting down its costs. Executives have been asked to shift from farm
houses to smaller houses and rentals of Gurgaon headquarters have been renegotiated.
9. Discount rates have been standardized and information systems are being upgraded to enable
the Indian headquarters to access online financial status of its outposts down to the depot
level.
Coke has great hopes in Indian as the country has a huge population and the current
per capita consumption of beverages is just four bottles a year.
Right now, the parent company (head – quartered in the US) has bottle full of
problems. The recently appointed CEO-E Neville Isdell needs to struggle to do the things that
once made the Cola Company great. The problems include –
Meddling Board
Coke’s star- studded group of directors, many of whom date back to the Goizueta era,
has built a reputation for meddling.
Moribund Marketing
Once world class critics say that today the soda giant has become too conservative, with
ads that don’t resonate with the teenagers and young adults that made up its most important
audience.
Lack of Innovation
In the US market, Coke hasn’t created a best – selling new soda since Diet Coke in
1982. In recent years Coke has been outbid by rival Pepsi Co for faster growing noncarb
beverages like SoBe Gatorade.
Friction with Bottlers
Over the past decade, Coke has often made its profit at the expenses of bottlers,
pushing aggressive price hikes on the concentrate it sells them. But key bottlers are now
fighting back with sharp increases in the price of coke at retail.
International Worries
Coke desperately needs more international growth to offset its flagging US business,
but while some markets like Japan remain lucrative, in the large German market Coke has
problems so far as bottling contracts go.
When its own house is not in order in the large country, will the company be able to
focus enough on the Indian market?
Questions:
10. 1. Why is that Coke has not been able to make profit in its Indian operations?
2. Do you think that Coke should continue to stay in India? If yes, why?
3. What cultural adaptations would you suggest to the US expatriate managers regarding
their management style?
4. Using the Hofstede and the value orientations cultural models, how can you explain
some of the cultural differences noted in this case?
NO. 4
THE ABB PBS JOINT VENTURE IN OPERATION
ABB Prvni Brnenska Stojirna Brno, Ltd. (ABB-PBS), Czechoslovakia was a joint
venture in which ABB has a 67 per cent stake and PBS a.s. has a 33 per cent stake. This PBS
share was determined nominally by the value of the land, plant and equipment, employees
and goodwill, ABB contributed cash and specified technologies and assumed some of the debt
of PBS. The new company started operations on April 15, 1993.
Business for the joint venture in its first two full years was good in most aspects.
Orders received in 1994, the first full year of the joint venture’s operation, were higher than
ever in the history of PBS. Orders received in 1995 were 2½ times those in 1994. The
company was profitable in 1995 and ahead of 1994s results with a rate of return on assets of
2.3 per cent and a rate of return on sales of 4.5 per cent.
The 1995 results showed substantial progress towards meeting the joint venture’s
strategic goals adopted in 1994 as part of a five year plan. One of the goals was that exports
should account for half of the total orders by 1999. (Exports had accounted for more than a
quarter of the PBS business before 1989, but most of this business disappeared when the
Soviet Union Collapsed). In 1995 exports increased as a share of total orders to 28 per cent,
up from 16 per cent the year before.
The external service business, organized and functioning as a separate business for the
first time in 1995, did not meet expectations. It accounted for five per cent of all orders and
revenues in 1995, below the 10 per cent goal set for it. The retrofitting business, which was
expected to be a major part of the service business, was disappointing for ABB-PBS, partly
because many other small companies began to provide this service in 1994, including some
started by former PBS employees who took their knowledge of PBS-built power plants with
11. them. However, ABB-PBS managers hoped that as the company introduced new technologies,
these former employees would gradually lose their ability to perform these services, and the
retrofit and repair service business, would return to ABB-PBS.
ABB-PBS dominated the Czech boiler business with 70 per cent of the Czech market in
1995, but managers expected this share to go down in the future as new domestic and foreign
competitors emerged. Furthermore, the west European boiler market was actually declining
because environmental laws caused a surge of retrofitting to occur in the mid -1980 s, leaving
less business in the 1990 s. Accordingly ABB-PBS boiler orders were flat in 1995.
Top managers at ABB-PBS regarded business results to date as respectable, but they
were not satisfied with the company’s performance. Cash flow was not as good as expected.
Cost reduction had to go further. The more we succeed, the more we see our shortcomings”
said one official.
Restructuring
The first round of restructuring was largely completed in 1995, the last year of the
three-year restructuring plan. Plan logistics, information systems, and other physical capital
improvements were in place. The restricting included :
Renovating and reconstructing workshops and engineering facilities.
Achieving ISO 9001 for all four ABB-PBS divisions. (awarded in 1995)
Transfer of technology from ABB (this was an ongoing project)
Intallation of an information system.
Management training, especially in total quality assurance and English language.
Implementing a project management approach.
A notable achievement of importance of top management in 1995 was a 50 per cent
increase in labour productivity, measured as value added per payroll crown. However, in the
future ABB-PBS expected its wage rates to go up faster than west European wage rates
(Czech wages were increasing about 15 per cent per year) so it would be difficult to maintain
the ABB-PBS unit cost advantage over west European unit cost.
The Technology Role for ABB-PBS
The joint venture was expected from the beginning to play an important role in
technology development for part of ABB’s power generation business worldwide. PBS a.s. had
engineering capability in coal – fired steam boilers, and that capability was expected to be
especially useful to ABB as more countries became concerned about air quality. (When asked
if PBS really did have leading technology here, a boiler engineering manager remarked, “Of
course we do. We burn so much dirty coal in this country; we have to have better technology”)
12. However, the envisioned technology leadership role for ABB-PBS had not been realized
by mid – 1996. Richard Kuba, the ABB-PBS managing director, realized the slowness with
which the technology role was being fulfilled, and he offered his interpretation of events.
“ABB did not promise to make the joint venture its steam technology leader. The main
point we wanted to achieve in the joint venture agreement was for ABB-PBS to be recognized
as a full-fledged company, not just a factory. We were slowed down on our technology plans
because we had a problem keeping our good, young engineers. The annual employee turnover
rate for companies in the Czech Republic is 15 or 20 per cent, and the unemployment rate is
zero. Our engineers have many other good entrepreneurial opportunities. Now we’ve begun
to stabilize our engineering workforce. The restructing helped. We have better equipment
and a cleaner and safer work environment. We also had another problem which is a good
problem to have. The domestic power plant business turned out to be better than we
expected, so just meeting the needs of our regular customers forced some postponement of
new technology initiatives.”
ABB-PBS had benefited technologically from its relationship with ABB. One example
was the development of a new steam turbine line. This project was a cooperative effort among
ABB-PBS and two other ABB companies, one in Sweden and one in Germany. Nevertheless,
technology transfer was not the most important early benefit of ABB relationship. Rather,
one of the most important gains was the opportunity to benchmark the joint venture’s
performance against other established western ABB companies on variables such as
productivity, inventory and receivables.
Questions:
1. Where does the joint venture meet the needs of both the partners? Where does it fall
short?
2. Why had ABB-PBS failed to realize its technology leadership?
3. What lessons one can draw from this incident for better management of technology
transfers?
NO. 5.
CHINESE EVOLVING ACCOUNTING SYSTEM
Attracted by its rapid transformation from a socialist planned economy into a
market economy, economic annual growth rate of around 12 per cent, and a population in
excess of 1.2 billion, Western firms over the past 10 years have favored China as a site for
foreign direct investment. Most see China as an emerging economic superpower, with an
13. economy that will be as large as that of Japan by 2000 and that of the US before 2010, if
current growth projections hold true.
The Chinese government sees foreign direct investment as a primary engine of China’s
economic growth. To encourage such investment, the government has offered generous tax
incentives to foreign firms that invest in China, either on their own or in a joint venture with
a local enterprise. These tax incentives include a two – year exemption from corporate income
tax following an investment, plus a further three years during which taxes are paid at only 50
per cent of the standard tax rate. Such incentives when coupled with the promise of China’s
vast internal market have made the country a prime site for investment by Western firms.
However, once established in China, many Western firms find themselves struggling to
comply with the complex and often obtuse nature of China’s rapidly evolving accounting
system.
Accounting in China has traditionally been rooted in information gathering and
compliance reporting designed to measure the government’s production and tax goals. The
Chinese system was based on the old Soviet system, which had little to do with profit or
accounting systems created to report financial positions or the results of foreign operations.
Although the system is changing rapidly, many problems associated with the old
system still remain.
One problem for investors is a severe shortage of accountants, financial managers, and
auditors in China, especially those experienced with market economy transactions and
international accounting practices. As of 1995, there were only 25,000 accountants in china,
far short of the hundreds of thousands that will be needed if China continues on its path
towards becoming a market economy. Chinese enterprises, including equity and cooperative
joint ventures with foreign firms, must be audited by Chinese accounting firms, which are
regulated by the state. Traditionally, many experienced auditors have audited only state-
owned enterprises, working through the local province or city authorities and the state audit
bureau to report to the government entity overseeing the audited firm. In response to the
shortage of accountants schooled in the principles of private sector accounting, several large
international auditing firms have established joint ventures with emerging Chinese
accounting and auditing firms to bridge the growing need for international accounting, tax
and securities expertise.
A further problem concerns the somewhat halting evolution of China’s emerging
accounting standards. Current thinking is that China won’t simply adopt the international
accounting standards specified by the IASC, nor will it use the generally accepted accounting
14. principles of any particular country as its mode. Rather, accounting standards in China are
expected to evolve in a rather piecemeal fashion, with the Chinese adopting a few standards
as they are studied and deemed appropriate for Chinese circumstances.
In the meantime, current Chinese accounting principles present difficult problems for
Western firms. For example, the former Chinese accounting system didn’t need to accrue
unrealized losses. In an economy where shortages were the norm, if a state-owned company
didn’t sell its inventory right away, it could store it and use it for some other purpose later.
Similarly, accounting principles assumed the state always paid its debts – eventually. Thus,
Chinese enterprises don’t generally provide for lower-of-cost or market inventory adjustments
or the creation of allowance for bad debts, both of which are standard practices in the West.
Questions:
1. What factors have shaped the accounting system currently in use in China?
2. What problem does the accounting system, currently in sue in China, present to foreign
investors in joint ventures with Chinese companies?
3. If the evolving Chinese system does not adhere to IASC standards, but instead to
standards that the Chinese governments deem appropriate to China’s “Special
situation”, how might this affect foreign firms with operations in China ?
NO. 6
UNFAIR PROTECTION OR VALID DEFENSE ?
“Mexico Widens Anti – dumping Measure …………. Steel at the Core of US-Japan
Trade Tensions …. Competitors in Other Countries Are Destroying an American Success
Story … It Must Be Stopped”, scream headlines around the world.
International trade theories argue that nations should open their doors to trade.
Conventional free trade wisdom says that by trading with others, a country can offer its
citizens a greater volume and selection of goods at cheaper prices than it could in the absence
of it. Nevertheless, truly free trade still does not exist because national governments
intervene. Despite the efforts of the World Trade Organization (WTO) and smaller groups of
nations, governments seem to be crying foul in the trade game now more than ever before.
We see efforts at protectionism in the rising trend in governments charging foreign
producers for “dumping” their goods on world markets. Worldwide, the number of
antidumping cases that were initiated stood at about 150 in 1995, 225 in 1996, 230 in 1997 ,
and 300 in 1998.
There is no shortage of similar examples. The Untied States charges Brazil, Japan,
and Russia with dumping their products in the US market as a way out of tough economic
times. The US steel industry wants the government to slap a 200 per cent tariff on certain
15. types of steel. But car markers in the United States are not complaining, and General Motors
even spoke out against the antidumping charge – as it is enjoying the benefits of law – cost
steel for use in its auto product ion. Canadian steel makers followed the lead of the United
States and are pushing for antidumping actions against four nations.
Emerging markets, too, are jumping into the fray. Mexico recently expanded coverage
of its Automatic Import Advice System. The system requires importers (from a select list of
countries) to notify Mexican officials of the amount and price of a shipment ten days prior to
its expected arrival in Mexico. The ten-day notice gives domestic producers advance warning
of incoming low – priced products so they can complain of dumping before the products clear
customs and enter the marketplace. India is also getting onboard by setting up a new
government agency to handle antidumping cases. Even Argentina, China, Indonesia, South
Africa, South Korea, and Thailand are using this recently – popularized tool of protectionism.
Why is dumping on the rise in the first place? The WTO has made major inroads on the
use of tariffs, slashing tem across almost every product category in recent years. But the WTO
does not have the authority to punish companies, but only governments. Thus, the WTO
cannot pass judgments against individual companies that are dumping products in other
markets. It can only pass rulings against the government of the country that imposes an
antidumping duty. But the WTO allows countries to retaliate against nations whose
producers are suspected of dumping when it can be shown that : (1) the alleged offenders are
significantly hurting domestic producers, and (2) the export price is lower than the cost of
production or lower than the home – market price.
Supporters of antidumping tariffs claim that they prevent dumpers from undercutting
the prices charged by producers in a target market and driving them out of business. Another
claim in support of antidumping is that it is an excellent way of retaining some protection
against potential dangers of totally free trade. Detractors of antidumping tariffs charge that
once such tariffs are imposed they are rarely removed. They also claim that it costs
companies and governments a great deal of time and money to file and argue their cases. It is
also argued that the fear of being charged with dumping causes international competitors to
keep their prices higher in a target market than would other wise be the case. This would
allow domestic companies to charge higher prices and not lose market share – forcing
consumers to pay more for their goods.
Questions
16. 1. “You can’t tell consumers that the low price they are paying for a particular fax
machine or automobile is somehow unfair. They’re not concerned with the profits of
companies. To them, it’s just a great bargain and they want it to continue.” Do you
agree with this statement? Do you think that people from different cultures would
respond differently to this statement? Explain your answers.
2. As we’ve seen, the WTO cannot currently get involved in punishing individual
companies for dumping – its actions can only be directed toward governments of
countries. Do you think this is a wise policy ? Why or why not? Why do you think the
WTO was not given the authority to charge individual companies with dumping?
Explain.
3. Identify a recent antidumping case that was brought before the WTO. Locate as many
articles in the press as you can that discuss the case. Identify the nations, products (s),
and potential punitive measures involved. Supposing you were part of the WTO’s
Dispute Settlement Body, would you vote in favor of the measures taken by the
retailing nation? Why or why not?