Standard Costing, Operational Performance Measures

CHAPTER 10 STANDARD COSTING, OPERATIONAL PERFORMANCE MEASURES 1. MANAGING COSTS 1. Standard-cost systems are used to help managers control the cost of operations. The system has three components: standard costs (i. e. , predetermined costs), actual costs, and the difference between the two figures (termed a variance). 2. A standard cost for each product cost category (materials, labor, and overhead) is calculated on a per-unit basis. ? This calculation considers the planned quantity of each input factor allowed (pounds, hours, etc. and the planned price for each input factor (price per pound, rate per hour, etc. ). The total planned cost is a mini, per-unit budgeted amount. †¢ After the actual costs are known, a report is generated that shows actual costs, planned costs, and related variances. A manager can examine the variance column quickly to ascertain which exceptions require attention. ? Following up on significant variances is called management by exception. Managers focus their efforts where they are most needed in the limited time available. 2. SETTING STANDARDS . Managers set standards by analyzing historical data. However, past data must be adjusted for expected changes in technology, the production process, inflation, and other similar factors. ? Managers also use task analysis to focus on how much a product should cost. †¢ Knowledgeable people such as engineers, purchasing agents, production supervisors, and accountants should be brought into the standard-setting process. Cross-functional teams are very useful here. 4. Two types of standards may be used: perfection standards and practical standards. Perfection (ideal) standards assume that production takes place in the ideal world: employees always work at peak performance, materials are never defective, and machines never break down. ? Although some managers feel that ideal standards give employees a goal to shoot for, many behavioral scientists believe that setting unattainable goals has a demotivating effect, as employees simply give up trying to reach the standard. ? Practical (attainable) standards are set high enough to encourage efficient and effective operations but not so high as to seem impossible. Behavioral scientists feel that practical standards have a more positive effect on the productivity of employees. ? Unlike variances computed with perfection standards, variances calculated when practical standards are employed tend to be more meaningful as they represent deviations from a realistic goal. †¢ Service firms also use standards. For example, McDonald's restaurants are noted for using standards, not only for quantities of material (amount of beef per burger) but also for the time allowed to serve customers at the drive-in window or counter. . VARIANCE ANALYSIS 5. Variance analysis involves calculating the actual amount of input used and comparing it to the budgeted amount of input that should have been used (i. e. , the standard cost allowed for actual output). The variance is then analyzed into its component parts. 6. Standards are established for: ? The amount of material required to produce a finished product (the standard material quantity). ? The anticipated delivered cost of materials (the standard material price). The number of hours normally needed to manufacture one unit of product (the standard direct-labor quantity). ? The estimated hourly cost of compensation (the standard labor rate). †¢ The following model can be used to calculate variances for direct materials (DM) and direct labor (DL): DM Price = (AQ Purchased x AP) – (AQ Purchased x SP) DM Quantity = (AQ Used x SP) – (SQ Used* x SP) DL Rate = (AQ x AP) – (AQ x SP) DL Efficiency = (AQ x SP) – (SQ* x SP) * Standard quantity for the actual production levelNotice that the price and rate variances use a similar approach, and the quantity and efficiency variances use a similar approach, with efficiency being another way to say â €Å"quantity of hours† allowed. †¢ Unfavorable variances arise when the actual cost per unit of input (e. g. , gallons, hours, etc. ) exceeds standard cost and when actual quantities used (e. g. , gallons, hours, etc. ) exceed standard quantities. The opposite situation gives rise to favorable variances. 4. VARIANCE INVESTIGATION 1.A manager does not have time to examine each variance; therefore, he or she must consider selected factors in deciding when an investigation should take place. The factors include one or more of the following: ? Size of the variance (in absolute and/or relative terms, such as $5,000 or 10% of standard cost) ? Frequency of occurrence ? An otherwise small variance may require investigation if it consistently occurs, as it may indicate an ongoing problem or an outdated standard. ? Trends ? Controllability (there is little point to investigate items over which managers have no control). Favorable variances ? A manager should investigate both favor able and unfavorable variances. A favorable variance with advertising expense, for instance, could lead to the conclusion that an insufficient amount is being spent on promotion, which could lead to a loss of customers. ? Costs and benefits (the decision to investigate involves a cost-benefit analysis, as a number of investigative costs are incurred). Some companies use a statistical approach to variance investigation by preparing a statistical control chart. These charts help to pinpoint random and nonrandom variances, with a statistically determined critical value being compared to a variance to determine whether an investigation is warranted. 5. BEHAVIORAL IMPACT OF STANDARD COSTING 1. Variances may be used to evaluate personnel, often with regard to salary increases, bonuses, and promotions. ? Such incentives can have positive and negative effects, as a bonus plan may prompt a manager to pursue actions that are not in the best interests of the organization. ? An example of detri mental behavior: A purchasing manager may purchase cheap material to create a favorable price variance.That material could be of poor quality, which might result in excess usage and problems with the finished product. 6. CONTROLLABILITY OF VARIANCES 2. It is rare that one person controls any event; however, it is often possible to identify the manager who is most able to influence a particular variance. These managers are often the following: ? Direct-material price variance—Purchasing manager ? Direct-material quantity variance—Production supervisor and/or production engineers ? Direct-labor rate variance—Production supervisor ? Direct-labor efficiency variance—Production supervisor . Variances often interact, making investigation and controllability difficult. For example, a labor efficiency variance may be caused by problems not only with labor but by problems with machinery and/or material. ? Managers sometimes trade-off variances, purposely incurring an unfavorable variance that is more than offset by favorable variances. 7. STANDARD COSTS AND PRODUCT COSTING 4. In a standard-cost system, costs flow through the same accounts in the general ledger as shown earlier in the text; however, they flow through at standard cost.In other words, Work-in-Process Inventory, Finished-Goods Inventory, and Cost of Goods Sold are carried at standard cost. 8. ADVANTAGES OF STANDARD COSTS 2. A standard-cost system has several advantages, as follows: ? Managers have a sensible comparison method at their disposal, one that looks at budgeted costs vs. actual costs at the actual level of output. ? Managers can practice management by exception. ? Variances provide a benchmark for performance evaluation and employee rewards. ? Standard costs provide a stable product cost.Actual costs may fluctuate erratically, whereas standard costs are changed only periodically. 9. CRITICISMS OF STANDARD COSTING IN TODAY'S MANUFACTURING ENVIRONMENT 3. Criticisms of st andard costing in advanced manufacturing settings include: ? Variances are too aggregated and arrive too late to be useful. Variances should focus on activities, specific product lines, or production batches. ? Variances focus too much on the cost and efficiency of labor, which is becoming a relatively unimportant factor of production. Standard costs rely on a stable production environment, and flexible manufacturing systems have reduced this stability, with frequent switching among a variety of products on the same manufacturing line. ? Standards focus too much on cost minimization and not enough on product quality, customer service, and other contemporary issues. 10. OPERATIONAL CONTROL MEASURES 5. Many companies now focus on an increased number of performance measures, many of which are nonfinancial in nature. Examples often include: ? Customer-acceptance measures such as customer complaints, warranty claims, and product returns. Delivery cycle time, or the average time between t he receipt of a customer order and the delivery of goods. ? Manufacturing cycle time, or the total production time per unit. ? Manufacturing cycle efficiency, or processing time divided by the sum of processing time, inspection time, waiting time, and move time. †¢ To judge how well or poorly a company is performing, many firms use benchmarking, which involves comparing existing performance levels against those of either other organizations or other units within the same organization. †¢

Paulo Coelho Biography

Paulo Coelho No one thought Paulo would ever amount to anything. While attending a Jesuit school as a teenager, he dreamed of becoming a writer. When he revealed his career goals to his mother, she told him â€Å"My dear, your father is an engineer. He's a logical, reasonable man with a very clear vision of the world. Do you actually know what it means to be a writer? † He was determined to prove to them that he could accomplish his dream, whether they approved or not. After he turned seventeen, his parents placed him into a mental institution.Their reason being, they wanted to protect him from himself. Paulo Coelho wanted to be different; he wanted to follow an untraditional path. Coelho later admitted that his parents â€Å"did not do that to destroy me, they did that to save me. † At the time, Paulo must not have understood that since he escaped the institution three times before he was released at age 20. Coelho’s parents convinced him to register for Law Sch ool; they were still well aware of his dream to become a writer.After a year of drudgery in Law School, he finally dropped out to pursue his life as a Hippie, traveling around the world absorbed in the drug culture of that time. He later took up a career in songwriting for Rita Lee, Elis Regina, Raul Seixas. The military government arrested him in 1974 because they believed his lyrics were undermining their authority. Twelve years after that incident, Paulo began the long expedition through the Road of Santiago de Compostela. Little did he know this was the beginning of a new life for him.During his journey he went through a spiritual development, which he describes in more detail in his book The Pilgrimage. Coelho left his songwriting career after saying in an interview â€Å"I had money, but I was not fulfilling my dream. My dream was, and still is, to be a writer. † Even though Paulo was still hesitant about initializing his writing career, he thought to himself, â€Å"If I see a white feather today, that is a sign that God is giving me that I have to write a new book. † Coincidentally, in the window of shop he found a white eather and he kept his promise to himself and began writing after that. He was 38 when his first book was published. In 1986, after writing Hell Archives and adding to Practical Manual of Vampirism, he wrote his first successful book, The Pilgrimage. He discovered a small Brazilian publishing house, and later a bigger publisher, and published his book The Alchemist about 12 months later. The Alchemist has become a best seller in Brazil and has been printed in over 70 languages, selling over 65 million copies!Since then, he has become a well-known author. Some of his other books include Eleven Minutes, The Fifth Mountain, Brida and The Witch of Portobello. Brida and The Alchemist have both been made into successful movies, too. In the end, Paulo had a crazy life, but he never truly gave up on his dream of becoming a writer. No one believed he could do it, except himself. Paulo posted to his Facebook page in September that â€Å"You don't need to explain your dreams. They belong to you,† and has lived by this his whole life.

Sez in China

Especial economic zone: A  Special Economic Zone  (SEZ) is a geographical region that has economic and other laws that are more free-market-oriented than a country's typical or national laws. â€Å"Nationwide† laws may be suspended inside a special economic zone. The category SEZ covers, including  free trade zones  (FTZ), export processing Zones (EPZ), free Zones (FZ),  industrial parks  or industrial estates (IE),  free ports,  free economic zones,  urban enterprise zones  and others.Usually the goal of a structure is to increase  foreign direct investment  by foreign investors, typically an  international business  or a  multinational corporation  (MNC), development of  infrastructureand to increase the employment. Currently, the most prominent SEZs in the country are  Shenzhen,  Xiamen,  Shantou, and  Zhuhai. It is notable that Shenzhen, Shantou, and Zhuhai are all in  Guangdong province, and all are on the southern coast of Chin a where sea is very accessible for transportation of goods.An analysis of the performance of these SEZs in China versus those in India in liberalizing the Chinese and Indian economies and their impact on economic growth was conducted by  Leong (2012). This paper investigates the role of special economic zones (SEZs) . The policy change to a more liberalized economy is identified using SEZ variables as instrumental variables. The results indicate that export and FDI growth have positive and statistically significant effects on economic growth in these countries. The presence of SEZs increases regional growth but increasing the number of SEZs has negligible effect on growth.The key to faster economic growth appears to be a greater pace of liberalization. Special economic zones of the people’s republic of china Special Economic Zones of the People's Republic of China  (SEZs) are  special economic zones  located in  mainland China. The  government of the People's Repu blic of China  gives SEZs special (more  free market-oriented) economic policies and flexible governmental measures. This allows SEZs to utilize an economic management system that is especially conducive to doing business that does not exist in the rest of mainland China.History Since the late 1970s, and especially since the 3rd Plenary Session of the 11th CPC Central Committee in 1978, the PRC government has decided toreform the national economic setup. The basic state policy has focused on the formulation and implementation of overall reform and opening to the outside world. During the 1980s, the PRC passed several stages, ranging from the establishment of special economic zones and open coastal cities and areas, and designating open inland and coastal economic and technology development zones.Since 1980, the PRC has established special economic zones in  Shenzhen,  Zhuhai  and  Shantou  in  Guangdong Province  and  Xiamen  in  Fujian Province, and designat ed the entire province ofHainan  a special economic zone. In August 1980, the  National People's Congress  (NPC) passed â€Å"Regulations for The Special Economy Zone of  Guangdong  Province† and officially designated a portion of  Shenzhen  as the Shenzhen Special Economy Zone (SSEZ).In 1984, the PRC further opened 14 coastal cities to overseas investment:  Dalian,  Qinhuangdao,  Tianjin,  Yantai,  Qingdao,  Lianyungang,  Nantong,  Shanghai,  Ningbo,  Wenzhou,  Fuzhou,Guangzhou,  Zhanjiang  and  Beihai. Since 1988, mainland China's opening to the outside world has been extended to its border areas, areas along the Yangtze River and inland areas. First, the state decided to turn Hainan Island into mainland China's biggest special economic zone (approved by the 1st session of the 7th NPC in 1988) and to enlarge the other four special economic zones.Shortly afterwards, the  State Council  expanded the open coastal areas, extending i nto an open coastal belt the open economic zones of the  Yangtze River Delta,  Pearl River Delta, Xiamen-Zhangzhou-Quanzhou  Triangle in south Fujian,  Shandong Peninsula,  Liaodong Peninsula  (Liaoning  Province),  Hebei  and  Guangxi. In June 1990 the PRC government opened the  Pudong  New Area in Shanghai to overseas investment, and additional cities along the Yangtze River valley, with Shanghai's Pudong New Area as its â€Å"dragon head. Since 1992, the  State Council  has opened a number of border cities, and in addition, opened all the capital cities of inland provinces and autonomous regions. In addition, 15 free trade zones, 32 state-level economic and technological development zones, and 53 new and  high-tech  industrial development zones have been established in large and medium-sized cities. As these open areas adopt different preferential policies, they play the dual roles of â€Å"windows† in developing the foreign-oriented econom y, generating foreign exchanges through exporting products and importing advanced echnologies and of â€Å"radiators† in accelerating inland economic development. Primarily geared to exporting processed goods, the five special economic zones are foreign-oriented areas which integrate science and industry with trade, and benefit from preferential policies and special managerial systems. In 1999, Shenzhen's new-and high-tech industry became one with best prospects, and the output value of new-and high-tech products reached 81. 98 billion yuan, making up 40. 5% of the city's total industrial output value.Since its founding in 1992, the Shanghai Pudong New Zone has made great progress in both absorbing foreign capital and accelerating the economic development of the Yangtze River valley. The state has extended special preferential policies to the Pudong New Zone that are not yet enjoyed by the special economic zones. For instance, in addition to the preferential policies of reduc ing or eliminating Customs duties and income tax common to the economic and technological development zones, the state also permits the zone to allow foreign business people to open financial institutions and run tertiary industries.In addition, the state has given Shanghai permission to set up a  stock exchange, expand its examination and approval authority over investments and allow foreign-funded banks to engage in  RMB  business. In 1999, the  GDP  of the Pudong New Zone came to 80 billion yuan, and the total industrial output value, 145 billion yuan. In May 2010, the PRC designated the city of  Kashgar  in  Xinjiang  a SEZ. Kashgar's annual growth rate was 17. 4 percent from 2009, and Kashgar's designation has since increased  tourism  andreal estate prices  in the city.Kashgar is close to China's border with the independent states of former  Soviet Central Asia  and the SEZ seeks to capitalize on international trade links between China and those sta tes. List of SEZs As part of its economic reforms and policy of opening to the world, between 1980 and 1984 China established  special economic zones  (SEZs) in  Shantou,  Shenzhen, and  Zhuhai  in  Guangdong  Province and  Xiamen  in  Fujian  Province and designated the entire island province of  Hainan  a special economic zone.In 1984 China opened 14 other coastal cities to overseas investment (listed north to south):  Dalian,  Qinhuangdao,  Tianjin,  Yantai,Qingdao,  Lianyungang,  Nantong,  S hanghai,  Ningbo,  Wenzhou,  Fuzhou,  Guangzhou,  Zhanjiang, and  Beihai. Then, beginning in 1985, the central government expanded the coastal area by establishing the following open economic zones (listed north to south):  Liaodong Peninsula,  Hebei  Province (which surrounds  Beijing  and  Tianjin),  Shandong  Peninsula,  Yangtze River Delta,Xiamen-Zhangzhou-Quanzhou  Triangle in southern Fujian Province,  Pearl Ri ver Delta, and  Guangxi.In 1990 the Chinese government decided to open the  Pudong  New Zone in  Shanghai  to overseas investment, as well as more cities in the Yangzi River Valley. Since 1992 the  State Council  has opened a number of border cities and all the capital cities of inland provinces and autonomous regions. In addition, 15 free-trade zones, 32 state-level economic and technological development zones, and 53 new and high-tech industrial development zones have been established in large and medium-sized cities. As a result, a multilevel diversified pattern of opening and integrating coastal areas with river, border, and inland areas has been formed in China.Type| City| Province| Special Economic Zone, City| Shenzhen| Guangdong| | Zhuhai| Guangdong| | Shantou| Guangdong| | Xiamen| Fujian| | Kashgar| Xinjiang| Special Economic Zone, Province| No city| Hainan| Coastal Development Areas| Dalian| Liaoning| | Qinhuangdao| Hebei| | Tianjin| Tianjin| | Yantai| Shandon g| | Qingdao| Shandong| | Lianyungang| Jiangsu| | Nantong| Jiangsu| | Shanghai| Shanghai| | Ningbo| Zhejiang| | Wenzhou| Zhejiang| | Fuzhou| Fujian| | Guangzhou| Guangdong| | Zhanjiang| Guangdong| | Beihai| Guangxi| ————————————————- Hainan Special Economic ZoneHainan became a special economic zone in 1988 after the other 4 zones had already established themselves as being successful and scalable. For current foreign investment regulations for the Hainan zone please see  Hainan Special Economic Zone, Foreign Investment Regulations ————————————————- Economic policies of SEZs 1. Special tax incentives for foreign investments in the SEZs. 2. Greater independence on international trade activities. 3. Economic characteristics are represented as â€Å"4 principlesâ € : 1. Construction primarily relies on attracting and utilizing foreign capital 2.Primary economic forms are Sino-foreign  joint ventures  and partnerships as well as wholly foreign-owned enterprises 3. Products are primarily export-oriented 4. Economic activities are primarily driven by market forces SEZs are listed separately in the national planning (including financial planning) and have province-level authority on economic administration. SEZs local congress and government have legislation authority. Leong (2012) investigates the role of special economic zones (SEZs) in liberalizing the Chinese and Indian economies and their impact on economic growth.The policy change to a more liberalized economy is identified using SEZ variables as instrumental variables. The results indicate that export and FDI growth have positive and statistically significant effects on economic growth in these countries. The presence of SEZs increases regional growth but increasing the number of S EZs has negligible effect on growth. The key to faster economic growth appears to be a greater pace of liberalization. China's Special Economic Zones Xu Dixin The Chinese Government has set up four special economic zones.They are located in the cities of Shenzhen, Zhuhai and Shantou of Guangdong Province and the city of Xiamen of Fujian Province . Politically, the special economic zones are based on assurance of China's state sovereignty and governing authority is entirely in China's hands. Economically, they are essentially based on state capitalism. APPROXIMATELY 300 special economic zones have been established in about 75 countries and regions in the world today (some are called free trading zones, some processing-exporting zones and some tax-free trading zones).Practices vary between countries. Special economic zones are set up when a country delimits a special area where, through exemption of customs duty, it formulates various preferential conditions and provides public facili ties so as to attract foreign investors to set up factories whose finished products are mainly for export. Insofar as capitalist social systems are concerned, few problems arise for those countries which set up special economic zones because the characteristics of such zones are essentially compatible with the development of capitalism.Some people wonder why China, a socialist country, has set up special zones which permit the manoeuvre of foreign capital. They ask: Concessions were eliminated a long time ago, why are a few areas with foreign investment being operated in the manner of concessions? They also want to know whether the four special economic zones represent a revival of the former concessions. Although important, such concerns are oversimplified and superficial. The situation can be best understood within context of the past and the nation's present state of development.At the end of the 19th century, foreign capital poured into China. This was a result of invasion by im perialist powers which used â€Å"gunboat diplomacy† to impose unequal treaties on China and infringed upon its state sovereignty. The foreign capital presently being invested in China is not based on â€Å"unequal treaties,† but on the assurance of China's state sovereignty. The special economic zones do not represent the revival of former concessions because authority over them is entirely in China's hands.Be they joint ventures with Chinese and foreign investments set up in the special zones or enterprises run exclusively by foreign or overseas Chinese capital, they must observe the Chinese Government's decrees and regulations, pay business and income taxes according to provisions and abide by China's labour laws. Although they represent a minor change in state economic policy, the special economic zones are not in basic conflict with China's socialist economic system. The economy in the special zones encompasses the socialist state economy, the collective economy a nd the individual economy, but state capitalism has the lion's share.Processing materials for foreign countries, compensatory trade, co-operative enterprises and joint ventures are all state capitalist economic activities. Strictly speaking, the enterprises run by foreign or overseas Chinese capital constitute a kind of capitalist economy, but the activities of such enterprises are subject to control and regulation by the governments of the special zones. As a result, they are special kinds of capitalist enterprises. Lenin clearly said: â€Å"State capitalism is capitalism which we shall be able to restrict, the limits of which we shall be able to fix. This provides us with a theoretical explanation of the nature of the enterprises financed individually in the special zones. Some people worry that the capitalists will exploit the surplus value of the labourers. It should be admitted that some exploitation does exist in the joint ventures or individually financed enterprises in the special zones. According to China's regulations, joint ventures or enterprises individually financed by foreign capital or overseas Chinese capital can remit their share of profits abroad after they have paid their income tax according to relevant provisions and with the approval of the authorities concerned.The profits remitted abroad and the profits retained for reinvestment in the special zones obviously represent the surplus value of the labourers. But allowing foreign or overseas Chinese capital to gain profits is, in a sense, a policy of redemption (that is, a policy of gradually nationalizing the means of production of the exploiting classes at a certain price). Shortly after the founding of the People's Republic, the government adopted a redemption policy towards the national bourgeoisie in order to win its co-operation.Now we are employing a redemption policy to win the co-operation of foreign and overseas Chinese capital. This is necessary for the development of the econom ies of the special zones. One of the characteristics of special zone economies is the fact that they open the door to foreign countries. Take Shenzhen and Zhuhai for example, their economic ties with Xianggang (Hongkong) and Aomen (Macao) are much closer than with the interior. This situation may result in the close relationship and mutual-effect between the role of regulating production according to market demands and the market fluctuations of Xianggang and Aomen.Within the special zones, it cannot be said that the regulation of production by state planning does not exist or does not function. However, if regulation of production by planning is made to cover too large an area, if it becomes the main body of the economy of the special zones, then it will be disadvantageous to absorbing foreign capital and developing the economies of the special zones. Newly built harbour in the Shekou industrial area managed by a Xianggang (Hongkong) company. Special Zones' FunctionsBecause the spe cial economic zones in Guangdong and Fujian Provinces have only been established for a short period of time, their role has not been brought into full play. The following points address the concerns most frequently expressed regarding their operation: They serve as bridges for introducing foreign capital, advanced technology and equipment and as classrooms for training personnel capable of mastering advanced technology. Both in the process of production and circulation, and in the joint ventures with Chinese and foreign investments in the special zones, we can learn the latest techniques and scientific methods of management.To develop the national economy and expedite China's enterprise production and management, it is imperative to promote competition between regions, between trades and with-in a certain trade. In the development of the economies of the special zones -and during their competition with Xianggang and Aomen – it is possible to win in the competition by learning how to make comparisons regarding the regulation of production according to market demands. improve the quality of goods, develop new products and reduce production costs. It is possible to absorb considerable amounts. of foreign exchange.It is also possible to transfer part of the foreign capital, technology and equipment through the special zones to other regions concerned and set up new enterprises there. The country's special zones can serve as experimental units in economic structural reform and as schools for learning the law of value and the regulation of production according to market demands. By developing the economies of the special zones, it is possible to employ many young people waiting for jobs. Some people wonder why it is necessary, more than 30 years since the founding of the People's Republic, to set up special economic zones.They also wonder whether the special zones signify that China is seeking help from capitalist countries. Such concerns are understandable, but unwarranted. Since its establishment, New China has scored brilliant achievements in many fields of work, including economic construction. But it has also traversed a tortuous path. Compared with the world's most advanced nations. China's level of production is still rather low. Its funds and technology are incompatible with the requirements of the modernization drive.Furthermore,† while implementing its policy of self-reliance in economic construction, China does not exclude co-operation with capitalism. Facts will prove that through developing the economies of the special zones, we will be able to make use of foreign and overseas Chinese capital, as well as state capitalism, to develop China's socialist economy. Economic construction in the special zones will possibly become a special form of supplement to the development of China's socialist economy. The total economies of the special zones will only constitute a very small portion of the national economy.Although the s ocialist economy will continue to dominate, the role of the special zones must not be overlooked. Japanese technician passing on technical know-how to a Chinese worker at a joint Sino-Japanese TV company. Policies and Measures 1. The development of the special economic zones requires emphasis on the word â€Å"special. † For instance, in opening the door to foreign countries, it is necessary to simplify procedures for entry and exit and make things easy for visitors. In tax rate, it is essential to give preferential treatment to imported goods in customs duties. Tax exemptions for some goods are needed.A portion of the profits gained by foreign financed enterprises is allowed to be remitted abroad. 2. The essence of developing the special economic zones lies in the import of foreign capital; making foreign capital serve China's socialist modernization drive. Given this, the lives of the people residing in the special zones are bound to change. Capitalist ideology is bound to increase. This will require us to devote special attention to the ideological education of people in the special zones. Of course, education and training in science and technology should not be neglected, either. 3.The currency used in the special economic zones is mainly Renminbi (people's currency), the use of foreign currencies is limited to designated areas. Renminbi represents the currency of the People's Republic of China, but in view of the characteristics of special economic zones, it may prove necessary to issue different currency for them. This is a very complicated problem which calls for further study. 4. It would be impossible for the special zones to develop without the support of China's interior regions. Only when they operate in cooperation with the interior can the special zones gain necessary materials.Of course, such cooperation is based on mutual benefit. And it can be successful only when the special zones produce commodities needed by the interior. This co-ope ration must be carried out in a planned way. China’s capital controls The more special economic zone The landscape of capital-account liberalisation Jul 7th 2012 |  QIANHAI  | from the print edition * Where there’s muck ELSEWHERE in the developing world, towns grow before the infrastructure is quite ready to support them. Things are different in Shenzhen, China’s original Special Economic Zone (SEZ), a stone’s throw from Hong Kong.The subway station at Qianhai bay, on the city’s west coast, is spick and span, with a full complement of signs, announcements and billboards, including one for a performance by the BBC National Orchestra of Wales, sponsored by Classy Kiss milk. But only one exit is open. And it surfaces in the middle of a wasteland of dirt, scrub and puddles. It is, surely, the best connected nowhere anywhere. In this section * Powering down *  »The more special economic zone * Rollercoaster * Duncan dough notes * The Oracle of Bos ton * Move over Reprints Related topics * Hong Kong * China This empty spot is, however, full of big ambitions.It is one corner of a 15-square-kilometre zone earmarked for experimentation by China’s cabinet. The zone has licence to try policies that are â€Å"more special† than those prevailing even in an SEZ. It aims to attract â€Å"modern service industries† rather than big-box manufacturers. It will charge only 15% corporate-profit tax and levy no income taxes on the finance professionals, lawyers, accountants and creative people it hopes eventually to attract. These cosmopolitan folk will live in a â€Å"waterfront city†, says James Corner, whose firm won a competition two years ago to design the bay’s future landscape.Over the next couple of years, he explains, the city will build a system of â€Å"water fingers†, large parks that collect, retain and purify the streams that flow from the hinterland, allowing water to enter the bay clea n and clear. Water is not the only flow Qianhai aims to collect and retain. It also wants to attract some of the offshore yuan that have pooled outside mainland China’s borders. Over 550 billion yuan ($87 billion) now sits in Hong Kong deposit accounts; another 60 billion yuan sits in Singapore, and 35 billion more resides in customer deposits in London, according to an April study by Bourse Consult.These yuan cannot flow freely back into mainland China, however. Banks can invest a limited amount in the mainland’s inter-bank bond market. Companies that raise yuan outside China can seek permission to invest the money in their operations inside the country. But the money can easily become bogged down in China’s exchange controls, especially when the authorities are trying to tighten credit. Qianhai, however, will be permitted to broaden these channels. Its firms will be given help in raising yuan offshore. Hong Kong banks will be allowed to enter the zone more eas ily. The ground will also be laid for greater cross-border lending. Since the mainland is targeting the gradual achievement of full yuan convertibility, Qianhai should be a pioneer for progress,† said Zhang Xiaoqiang of the National Development and Reform Commission, China’s planning body. The plan poses some puzzles. If offshore yuan were to be lent freely to Qianhai firms, what would stop them lending the money on to the rest of the country? An easing of capital controls between Hong Kong and Qianhai would seem to require a tightening of controls between Qianhai and the rest of the mainland. Otherwise the stream of yuan inflows could become a flood.The answer to the puzzle may lie in the timing. The Qianhai zone is not scheduled for completion until 2020, by when China’s capital controls may already be far looser nationwide. It is therefore unlikely that Qianhai’s opening up will get too far ahead of the rest of the country’s. In finance, as well as infrastructure, China likes to lay down the tracks, platforms and ticket barriers before the throngs arrive. Definition of ‘Special Economic Zone – SEZ' Designated areas in countries that possess special economic regulations that are different from other areas in the same country.Moreover, these regulations tend to contain measures that are conducive to foreign direct investment. Conducting business in a SEZ usually means that a company will receive tax incentives and the opportunity to pay lower tariffs. Investopedia explains ‘Special Economic Zone – SEZ' While many countries have set up special economic zones, China  has been the most successful  in  using  SEZ to attract foreign capital. In fact, China has even declared an entire province (Hainan) to be an SEZ, which is quite distinct, as most SEZs are cities. Read more:  http://www. investopedia. com/terms/s/sez. sp#ixzz29RnLw992 China's Special Economic Zones Keep Importance| China's speci al economic zones will still be â€Å"special† after the country's entry to the World Trade Organization (WTO) and can continue to boom because they are better prepared for its rules, officials and economists said on Wednesday. | | | PRINT|   DISCUSSION|   CHINESE|   SEND TO FRIEND| | | | Special zones better prepared for WTO rulesChina's special economic zones will still be â€Å"special† after the country's entry to the  World Trade Organization  (WTO) and can continue to boom because they are better prepared for its rules, officials and economists said on Wednesday.While thousands of Chinese businesses have yet to familiarize themselves with the WTO principles and practices, China's technological and economic areas are already ahead of the game, said Pi Qiansheng, chief official who oversees the  Tianjin  Economic Development Area (TEDA). Special Economic Zones| President Jiang on Special Economic ZonesChina will develop special economic zones (SEZs) a ll through the process of the country's reform, opening up and modernization drive, Chinese President  Jiang Zemin  said November 14 in Shenzhen, China's first SEZ.Feature : Economic Zones| Chief special economic zonesChina's chief special economic zones are Shenzhen, Zhuhai, Shantou, Xiamen cities and  Hainan  Province. But they encompass more than 100 national economic and technological development zones, 15 national bonded areas and 14 border trade and co-operation regions in the broadest sense, said Hu Ping, former director of the Special Economic Zone Office under the State Council.Years before China joined the global trade club, the special economic areas had begun operating in line with international practices, said Pi, director of the administrative commission of TEDA, the largest development zone in North China. â€Å"By implementing international practices – like simplified approval procedures and transparency – TEDA has actually been operating accor ding to WTO rules,† he said. Keep going wellBoth Pi and Hu denied allegations that the national treatment and non-discrimination principles of the WTO will undermine the development of the special economic and technological reas, which used to receive – and give – preferential policies. â€Å"The special zones in various sizes and forms in China have grown from their initial state when they needed policy support before they were able to rely on themselves for expansion,† Hu said. â€Å"I don't see much of a negative impact of WTO entry on their recruitment of experts and the overall investment environment. † The special zones can instead maintain their â€Å"special† status by maximizing their accumulated expertise and their advantages in geographic locations and export-orientated industrial structures.They can gain a head start in absorbing foreign funds, technology and developing modern logistic systems, Hu said. The bonded zones, export pr oduct processing quarters and high-tech parks in those special areas will open still wider, Pi said. â€Å"It is my understanding that the WTO rules obligate the government to shift its functions to serving businesses in a more efficient fashion,† Pi said. â€Å"In TEDA, for example, the authorities have already modified or removed all the regulations and operations that go against the WTO rules. â€Å"Within the framework of national treatment requirements of the WTO, TEDA will give more favourable policies to overseas investment to attract more transnationals, he said. | SEZs: Go the Chinese way S. Majumder SPECIAL Economic Zones (SEZs), first proposed in the Exim Policy 2000-01 by the erstwhile Commerce Minister, Mr Murasoli Maran, are now a reality. With Export Processing Zones (EPZs) failing to help achieve the export targets, sights are on SEZs to deliver the goods. Eight SEZs are already operational — seven EPZs were converted for this purpose — and ano ther nine have been approved and are to be located strategically.The Commerce Minister, Mr Arun Jaitley, overwhelmed by the success of China's SEZ experiments has reposed much faith in them not only for export growth but also to boost FDI, which has become imperative especially as domestic investments are sagging. It is heartening that Mr Jaitley seems to be aware of the fact that the objectives of SEZs are much wider than merely boosting exports. Can India replicate China's immensely successful SEZ model? The incentives offered in Indian SEZs are in no less than those in China.From duty-free imports and tax holidays to freedom from cumbersome Custom procedures, the SEZs' facilities match those in China. Hence, theoretically at least, India's SEZs should be no less attractive to foreign investors as the Chinese versions. But reality paints a different picture. The key to SEZ success lies not just handing out incentives. Conceptually, EPZs and SEZs are different — while the fo rmer is an industrial estate, the latter is an industrial township. Boosting incentives to SEZs does not necessarily mean greater investment flows. The scope of SEZs are much wider and their linkages with the domestic economy stronger.SEZs provide supportive infrastructure such as housing, ports, roads and telecommunication and, as a result, have a wider industrial base. Compared to EPZs, SEZs give more in terms of exports, industrial growth, investments, both domestic and foreign, and employment generation. Hence, merely switching from EPZs to SEZs, without undertaking the required structural changes, does not guarantee success. The China story There are five SEZs in China. Of these, four — Shenzhen, Xiamen, Shantou and Zhuhai — were founded 20 years back and the fifth, Hainan, was set up in 1988.There are eight distinguishing features which have contributed to the success of SEZs in China: Unique location, large size, investment friendly attitudes towards non-residen t Chinese, attractive incentive packages, liberal Custom procedures, flexible labour laws, a strong domestic market and decentralisation of power in favour of provinces and local authorities for administering the zones. Of the five SEZs, Shenzhen, Shantou and Zhuhai are in the Guangdong province, adjacent to Hong Kong — the gateway to China. The other SEZ, Xiamen, in the Fujian province, is nearer Taiwan. Setting up hese zones close to internationally reputed commercial destinations was basically for easier access to foreign investments, modern technology and managerial expertise. This move paid off. FDI spurted in China — with Hong Kong accounting for about 60 per cent of the total inflows — with foreign investors making a beeline for the SEZs. Initially, the majority of foreign investors were non-resident Chinese from Hong Kong who were engaged in trading. Later, MNCs started investing in technology-oriented sectors even as China liberalised its foreign invest ment policy further to attract modern technology.The Guangdong province, which has the largest number of SEZs, became the most attractive foreign investment destination. In 2001, over 25 per cent of China's FDI flowed into Guangdong. Size is another important factor for SEZ success in China. Each SEZ is well over 1,000 hectares, the minimum recommended area. In India, the EPZs converted into SEZs are not even a third of this. Among the converted SEZs, the one in Noida is the largest but extends only 310 hectares. The SEEPZ, the first SEZ in India, is only 93 hectares.In such small areas, the requisite infrastructure and services required of an SEZ cannot be created nor multiple economic activities undertaken. Strong domestic market is another important aspect for SEZ success. In China, about 50 per cent of SEZ sales are to the domestic market. Though India has a large domestic market, it has failed to project this to lure SEZ investors. The reason: Policy impediments to sales in the domestic market. While in China the thrust of SEZs has been to attract foreign investments and modern technology, in India the emphasis has been on exports.The policymakers seem to think that export success in the zones is difficult unless accompanied by a liberal FDI regime. In China, the contribution of SEZs to the total exports is not substantial even after 20 years of their existence. In 2001, the share of the five SEZs in the country's total exports was 10. 4 per cent. In contrast, the contribution of Indian SEZs in 2001-02 was a little over 4 per cent of the total exports. Decentralisation of power was also a major reason for SEZ success in China. Provincial and local authorities were made partners and stakeholders, by delegating to them powers to approve foreign investment.The SEZ authorities in China can approve foreign investment proposals up to $30 million. In India, only State governments are allowed to set up SEZs and the powers for foreign investment approvals are vest ed with the Development Commissioners, who are the representatives of the Central Government. The hire-and-fire policy in SEZs has been one of the biggest attractions for foreign investors in China. The new labour law consists of 107 articles, but none of these is more than one paragraph. All jobs are on labour contract basis, which stand terminated upon the expiry of the terms, which can be fixed/flexible or for a specific job.In contrast, the labour policy in India is worker, rather than investment, oriented. Merely declaring SEZs as public utilities under the Industrial Disputes Act may not suffice to quell the image of labour unrest in the country. In sum, the fundamental objectives for setting up SEZs and their role in the national economy are different in the two countries. In such a situation, multiple doses of incentives and unravelling the procedural hassles in India may not in themselves aid SEZs. The impending need is buoyancy in foreign investments, which would automatic ally catapult exports.For this, the primary need is to foster SEZs as investment-friendly areas. This job is not of the Commerce Ministry alone, which is empowered to tinker with the Exim Policy only. The Foreign Investment Promotion Board (FIPB) and the Foreign Investment Implementation Authority (FIIA) also have an equally important role to make SEZs a success. SPECIAL ECONOMIC ZONES (SEZS) ? Special economic zones (SEZs) 1 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 w ith 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 multinat ionals. These export processing zones (EPZs) were a cornerstone of trade and investment policy in countries shifting away from import-substitution and in favour 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 sect or, but served as a catalyst for sweeping economic reforms that were extended throughout the country. In Latin America, countries like Dominican Republic, Honduras, and El Salvador used free zones to take advantage of preferential access to US markets, and have generated large-scale manufacturing sectors in economies that were previously reliant on agricultural commodities.Finally, in Africa, SEZs are credited with enabling Mauritius to move from dependence on sugar to become a manufacturing hub and eventually an innovative, middle income country. ? However, there are also many examples of failures of SEZs, where investments in zone infrastructure resulted in ‘white elephants’ or where zones have largely resulted in industry taking advantage of tax breaks without producing any substantial employment or export earnings.Moreover, many zones that appear to have been successful in the short term, have failed to remain sustainable once labor costs have risen or when preferen tial 1 The term â€Å"SEZ† is being used here in a generic sense to cover any one of a variety of similar regimes including „industrial free zones? , „special economic zones? , „maquiladoras? , „export processing zones? , „investment promotion zones? , „foreign trade zones? and „free zones? What are Special Economic Zones (SEZs)? What are the Key Issues and Challenges for SEZs?What is the World Bank Group doing on SEZs? TRADE ISSUES BRIEF: Special Economic ZonesWorld Bank Group – Poverty Reduction and Economic Management Network – International Trade Department trade access is no longer an advantage (e. g. following the end of the Multi-fiber Agreement). Zone failures can be attributed to a variety of causes. Too often, zones are plagued with the same problems – unstable electricity, lack of water, heavy bureaucracy, inefficient and corrupt customs – that hinder investment in the wider economy.In addition, broader competitiveness challenges, including policy instability, poor national governance, and low productivity often undermine the potential of zones. ? The traditional manufacturing-oriented processing zone (EPZ) is becoming increasingly anachronistic, despite the continued importance of global production networks. This is for three main reasons. First, by limiting activities to manufacturing only, EPZs restrict opportunities for investment and growth in the services sector, one of the most important opportunities for growth in middle income and even many low income countries.Second, the traditional EPZ tends to create an enclave that is separated from the national market, undermining its potential to create effective domestic linkages. Finally, the traditional EPZ model relies on unsustainable fiscal incentives to attract investment. As a result, there has been a gradual shift from traditional EPZs to special economic zones (SEZs), which normally cover larger land areas, offer g reater flexibility for services and other non-manufacturing activities (including residential and tourism development), and include a greater mix of export and domestic-market focused activities.THE WORLD BANK GROUP AND SEZS ? The World Bank Group has worked with client governments on export processing zones, free trade zones, and SEZs for decades. More than 40 SEZ related projects have been undertaken in the past ten years. This work has included Bank lending for on-site and off-site infrastructure, IFC investment, and technical assistance and knowledge products from various Bank units and the Investment Climate Department on SEZ-related policies, legal and regulatory frameworks, institutional design, and feasibility studies.OUR WORK ON SEZS ? During 2009 and 2010, the World Bank’s International Trade Department (PRMTR) has been leading a major global research study on SEZs – supported by a BNPP trust fund and in partnership with the SEZ team in the World Bank Groupâ €™s Investment Climate Department – with a primary emphasis on the experience SEZ programs in Sub-Saharan Africa. The main question addressed in this study is: why have SEZs worked well as engines of growth in some countries but not in many Sub-Saharan African ones? Based on knowledge developed as part of this research, PRMTR is also supporting the World Bank Group’s program looking at the potential role and impact of China’s investment in African industrial zones on the development prospects for the region. Our portfolio of SEZ knowledge products in 2010 includes: I. A book summarizing the results of PRMTR’s major research project: Special Economic Zones in Africa – assessing performance and learning from global experience (forthcoming); II.A set of case studies of SEZ programs in ten countries (Bangladesh, Dominican Republic, Ghana, Honduras, Kenya, Lesotho, Nigeria, Senegal, Tanzania, Vietnam); III. Results from surveys of investors in SEZs in the same ten countries as above; IV. A series of notes covering topical issues in SEZs, including: regional trade agreements and SEZs; WTO rules and SEZ fiscal incentives; gender aspects of SEZs; using SEZs as catalysts for economic reform; training and skills development in SEZs; etc. and V. Notes related to China’s investment in African industrial zones, including an overview of progress and challenges and a proposed framework for effective collaboration, as well as a note drawing lessons from China’s experience in establishing a knowledge-sharing partnership for SEZs with Singapore in China’s Suzhou Industrial Park. An investigation into the importance of special economic zones in developing economies by Raphael Monye on September 18, 2010Over the past decade, there has been a sea change in economic policies in  developing countries which are attempting to become more export- orientated,  they   have started setting   up free trade zones. These zon es are called â€Å"Special Economic Zones†(SEZ’s) and feature various   designed to encourage foreign investment. What is the significance of these zones? Have they really played an important role in the development of the economy of the developing countries? In this paper I first describe the background to the establishment of these zones, then I describe some of the aims and characteristics of the SEZ’s.Lastly, I attempt to assess the significance of the SEZ’s in the development of the wider   economy Historically, China for instance  has adopted an inward-looking strategy to its economic development. Successive Chinese governments thought that the economy could grow  purlythrough self-reliance. However, there are always limitations to what a country can do by itself, for example limitations in raw-materials, natural resources, technology, etc. These can hold back the growth of an economy and certainly China’s economic growth  lagged f ar behind much of the rest of the world up to the 1970? . The aims of the establishment of the sez’s were to earn foreign exchange, to  enhance  employment, to attract foreign investment and to accelerate the introduction of technology and managementexpertise The favourable impact of the SEZ’s on  an economy of   is fivefold: They attract foreign investment, they help the growth of the export industry, they earn foreign exchange, they provide employment opportunities and lastly they help the  indigenous  economy improve its level of technology.I would now like to look at some of these points in more detail Since the beginning of the open-door policy, small-scale private businesses have been allowed to coexist with state enterprises. This has increased employment opportunities for local people and raised the level of economic activities in most developing countries. Also, many state workers sense that going into business on their own may provide greater inco me potential. Many prefer to work for joint-venture firms for higher wages.So the average income in SEZ’s   ranks as the highest in most of these economies. In theory advanced technology and know-how will also flow into the country as a result of foreign investment. In turn, with increasing exports the force of international competition may bring greater pressure on   firms to adopt more efficient work practices. It is perhaps questionable how much benefit the wider developing  economies has  reaped  from these investments. The technology, patents and know-how remain firmly the property of, and are controlled by the parent companies.It may however be the case that in the long run the work culture and practices adopted by foreign companies could have some washback effect over wider economic practices in the country In conclusion, the establishment of the SEZ’s has helped to increase the export trade which in turn has helped to improve the  developing economy . Preferential treaties  are been made in  SEZ’s to attract foreign investment. A large amount of foreign investment has occurred not only in the export trade, but also in infrastructure construction, commerce and tourism.Foreign companies have been encouraged to set up factories in the territories and the export industry has grown. Jobs opportunities have been provided for locals as factories need labour and the average income of the people has increased. In addition, advanced foreign technology has been brought in with the inflow of foreign investment. All these factors have contributed to the growth of the  developing economy. It remains to be seen if these  quantitative  advances, in which the SEZ’s have played an important role, are matched by  commensurate  advances in the quality of life for the majority of   people in theses countries.Special Economic Zones and tax exemption in China The key tax incentive for investing in China lies in the vario us options available for claiming tax concessions. The three main avenues are tax exemption, location-based concessions, and activity-based concessions. In theory, foreign-invested companies in China are subject to 30% corporation tax plus an additional 3% local corporation tax. In practice, however, foreign-invested companies rarely have to pay the full corporate tax rate. Tax exemption and 50% tax reductionManufacturing companies operating in China for at least ten years are granted a tax exemption period from the date of entering the profit zone. In the first two years they are fully exempt from corporation tax, and in the following three years they are granted a 50% reduction in the tax burden. The fiveyear period begins in the year in which an accumulated profit, after taking into account loss carryforwards, is recorded for the first time. However, the tax exemption period is not interrupted if at any time after commencement of the period a company once more records losses.Furt hermore, only taxable losses within a maximum carryforward period of five years are taken into account when determining the date on which an accumulated profit is recorded. Companies in the following sectors and areas are regarded as manufacturing companies and hence eligible for preferential taxation treatment: – Engineering and electronics industry; – Energy industry (excluding oil and natural gas extraction); – Metal industry, chemical industry, manufacture of construction materials; – Light industry, textile industry, manufacture of packaging materials; Medical and pharmaceutical industries; – Agriculture and forestry; – Construction industry; – Communications and transport industries (excluding passenger transport); – Scientific and technical development, geological studies, consulting services aimed at production improvements, maintenance services for production equipment and precision instruments. The above list is not e xhaustive and may be extended to other areas. In principle, exemption followed by a reduction in the tax burden is only granted if the company’s activities in China extend over at least ten years.If operations in China are discontinued before this ten-year horizon, Chinese tax law requires that the concessions be reimbursed. Special Economic Zones and Economic and Technological Development Zones After China opened up back in 1980, government-promoted Special Economic Zones (SEZs) were set up to attract foreign investors to the country. The main purpose of these Special Economic Zones with their many investment incentives was to strengthen China’s embattled economy with foreign capital and to modernise the country through foreign technology.Manufacturing companies are generally granted a reduced tax rate of 15% in these zones, with full tax exemption in the first two years and a 50% reduction in tax during the three following years. Foreigninvested service companies and banks can also benefit from tax concessions but are subject to special regulations in these zones. The Special Economic Zones are in: – Shenzen, Guangdong Province; – Zhuhai, Guangdong Province; – Shantou, Guangdong Province; – Xiamen, Fujian Province; – Hainan Island, Hainan Province. Moreover, Economic and Technological Development Zones ETDZs) were set up in 14 coastal cities of the People’s Republic of China in 1984. To date this number has been extended to more than 50. The aim of these development zones was the targeted opening of investment zones for foreign investors, as well as research and development in specific areas through the application of modern foreign technologies. In particular, foreign investors in these zones are offered a complete infrastructure that meets international standards. Economic and Technological Development Zones are to be found not only in booming metropolises such as Shanghai, Beijing nd Shenzen, but als o in all-important Chinese industrial cities as well as in cities of local economic importance in the interior. The Chinese accord these development zones the highest priority, which is why in recent years China’s booming major cities in particular have evolved to become the favourite locations for foreign investors, due to the many concessions and well-developed infrastructure on offer. Nevertheless, when deciding on a location it is important to take into account the cost of labour, which is significantly cheaper in the more rural development zones in the interior.Tax-wise, there is no difference between the Special Economic Zones and the other Economic and Technological Development Zones. Here, too, a reduced tax rate of 15% is generally applicable, with full tax exemption in the first two years and a 50% reduction in the following three years. Unlike the Special Economic Zones, however, the Economic and Technological Development Zones do not differentiate between manufact uring and service companies. Open coastal towns and old cities The 14 eastern ports of Dalian, Qinhuangdao, Tianjin, Yantai, Qingdao, Lianyungang, Nantong, Shanghai, Ningbo, Wenzhou,Fuzhou, Guangzhou, Zhanjiang and Beihai were also opened to foreign investors in 1984. Now there are more than 300 open coastal cities and old towns in China, offering similar concessions to the Special Economic Zones. If these cities also contain a Special Economic Zone or an Economic and Technological Development Zone, companies are also granted a reduced tax rate of 24% outside these zones. If necessary a tax rate of 15% can also be granted subject to the approval of the Chinese authorities, provided the company’s business falls into one of the following categories: Technological projects or projects requiring expertise; – Projects with a foreign investment volume of at least USD 300 million and a long repayment period; – Projects in the field of energy generation, communication o r port operations; – State-promoted projects. High-Tech Industrial Development Zones Only in recent years has the Chinese government created newer types of development zones called High-Tech Industrial Development Zones (HTIDZ) primarily aimed at promoting and further developing the scientific and economic potential inherent in China through foreign capital investment and the import of know-how.Currently there are more than 50 HighTech Industrial Development Zones where foreign high-tech companies are granted a reduced tax rate of 15%. Joint ventures with a foreign partner scheduled to operate for over ten years may also be granted tax exemption or a 50% reduction in tax, similar to the above-mentioned concessions, subject to approval by the Chinese authorities. Currently the best-known High-Tech Industrial Development Zone is the Zhongguancun Science and Technology Park in Beijing. Shanghai Pudong New Area By contrast, foreign companies operating in the financial, ndustrial and trade sectors have been enjoying numerous tax concessions in the Pudong district since 1992. Financial services providers in particular are becoming increasingly important in this context. While foreign financial institutes are prohibited from setting up offices in all other investment zones, this zone – which is also home to a stock exchange – is to be established as a financial centre. The applicable tax rate in this area is 15%. Moreover, in a bid to promote the infrastructure, the Shanghai Pudong New Area offers special tax incentives to foreign companies engaged in the construction of roads, railways, orts and airports as well as companies engaged in energy and transport projects. These companies are also offered a generally lower tax rate of 15%. If scheduled to operate for at least 15 years, these companies enjoy full exemption from taxes for the first five years and a 50% tax reduction for the following five years. Other regions In addition to the above-men tioned areas, a wide range of other regions grant foreign companies tax concessions with a view to attracting such businesses and promoting economic expansion in China’s structurally weak regions.These currently include 13 open border cities, remote and underdeveloped regions as well as numerous central and western regions of China. Particularly in the remote and underdeveloped areas of China, companies enjoy full tax exemption for the first two years and tax concessions for up to 15 years. In all, 19 central and western provinces offer companies in defined industrial sectors a wide range of additional concessions which are listed in a catalogue specially drawn up for this purpose. Concessions for special sectors and activitiesNevertheless, eligibility for tax concessions is dependent not only on the choice of location but also on the company’s business activities. For instance, special concessions are granted to export-oriented companies with an export ratio of more t han 70% which are scheduled to operate for more than ten years. Companies which qualify as  «technologically advanced » enterprises may request a three-year extension beyond the statutory five-year tax concession period. The requirements for eligibility in this respect are described in a special catalogue of criteria.Qualification for such additional concessions is subject to an on-site examination by the authorities of the information provided in the application. Special concessions may also be requested by companies in the software industry, with the aim of turning China into a world leader in the field of software products. These primarily concern VAT and customs duties, but additional concessions may be granted in the form of a reduction in corporation tax to 15%, shorter depreciation periods or higher expense deductions provided the defined criteria are met. Furthermore, in order to make China’s economic expansion nd infrastructure more attractive to foreign companie s, longterm projects relating to port construction as well as in the Special Economic Zones of Hainan and Pudong and in the field of airport and rail construction enjoy substantial concessions up to and including full tax exemption for the first five years as well as a tax reduction of 50% for the following five years if, as above, they meet the relevant criteria. Similar conditions also apply to agricultural projects. Research and Development (R&D) Centres can also enjoy tax concessions provided they meet a number of defined requirements.Specifically, these govern employee qualifications, investment volume, the quality of equipment used, exclusive use of invested capital for R&D purposes, etc. The concessions granted are related to the transfer of technology developed in-house and associated consulting and other services, the import of business equipment including the associated technologies, accessories and spare parts, and increased deductions on R&D expenditure. On t he other hand, companies in heavy industry and plant construction or companies engaged in the extraction of raw materials are expressly excluded from the statutory five-year tax concession

SPECIAL SEGREGATED SCHOOLING CONTINUES TO ISOLATE PEOPLE WITH Essay

SPECIAL SEGREGATED SCHOOLING CONTINUES TO ISOLATE PEOPLE WITH DISABILITIES FROM MAINSTREAM OF SOCIAL AND ECONOMIC LIFE. CRITICALLY DISCUSS - Essay Example With Porter (2001) appreciating the diversity in definition of children with disabilities, the definition by National Council of Education Research and Training, NCERT (2006, p.2), includes those with physical challenges in intellect, hearing, vision and locomotion together with victims of social conflicts and natural catastrophes, street children and those that would be extremely deprived socially and economically. Scholars have linked their lower participation in the national workforce largely to exclusion from educational systems which yields poverty and dependence among these persons, causing them to live in isolation, despair and neglect. This paper looks at the effect of segregated schooling in isolating people living with disabilities from the economic and social opportunities in the society. Indeed, specialised segregated schooling isolates people living with disabilities from tapping into the mainstream of economic and social life. Taking the Irish context as an example, its schooling system was segregated and separated for pupils considered as handicapped as early as in the 1950s with pupils being excluded from regular school setting to specialised schools (Winter & O’Raw 2010, p.6). But due to international influence, this system was slowly scrapped off with an inclusive education system being adopted albeit some portions of the specialised schools were maintained. The World Health Organisation, WHO (2011) notes that even in countries where enrolment to primary schools are high like in Eastern Europe, a large portion of children living with disabilities fail to attend schools. As of 2002, the rates of their enrolment stood at 59%, 58% and 81% as compared to 93%, 97% and 96% among the normal children in Romania, Moldova and Bulgaria respectively. According to the National Disability Authority (2011), in Ireland, 64% of

Madonna Phenomenon Essay Example | Topics and Well Written Essays - 1500 words

Madonna Phenomenon - Essay Example The Madonna phenomenon demonstrates popular culture’s ability to enable political and social contestation through Madonna as its central popular symbol where the Madonna phenomenon explores gender as performance, intersects political and cultural representation, challenges and reinscribes feminine gender categories, and inspires other women to pursue their dreams. Judith Butler asserts that gender is performed as it relates socially-produced subjects in a specific context, where Madonna literally and figuratively performs gender to connect to her primary audience. Butler explains that gender is not an attribute but a performance. Gender is part of human identity, and identity is not static or homogenous (Butler 5 qtd. in Gauntlett 106). Gender is what people do (i.e. their behaviours) and not what they truly are, according to Butler (Gauntlett 107). Madonna’s performances are performances of her identity and for her gender. Different scholars assert that Madonna performs femininity as a masquerade. E. Ann Kaplan explains the meaning of Madonna’s image to her and her audience: â€Å"[Madonnas] image usefully adopts one mask after another to expose the fact that there is no ‘essential’ self and therefore no essential feminine but only cultural constructions† (160). Indeed, Madonna’s different images show cultural constructions as present in â€Å"Material Girl.† In this song, she shows how materialism in modern society shapes femininity and masculinity. In the chorus, Madonna sings: â€Å"You know that we are living in a material world/And I am a material girl.† She is suggesting that because she lives in a material world, she has become a material girl. She talks about herself and women who have become materialistic because of the American Dream that underlines materialistic indicators of happiness and success. Guilbert notes that Madonna challenges â€Å"the consumerist form of the

Critically discuss the main theories of corporate governance, focusing Essay

Critically discuss the main theories of corporate governance, focusing in particular on how they apply to different types of co - Essay Example What this means is that corporate governance could be looked at from a perspective of the legal administration of different businesses. In effect, mechanisms and acts that would constitute corporate governance in one firm or business may not constitute corporate governance in another because of differences in the legal organization of the companies involved. Interesting, the demarcations that company law gives to the various forms of companies inform the basis of the existence of various corporate governance theories. With reference to company law, corporate governance could generally be seen as the legal mandate that binds players in various organizations and institutional set ups to ensure that companies meet the interest of all stakeholders, defined to include shareholders, customers, employees and the government3. Contract Theory and Corporate Theory Contract theory and corporate theory remain two of the major forms of theories of corporate governance. As indicated earlier, these two theories are directly related to the allocation and differentiations that exists in the types of business under company law. With reference to corporate theory, its principles could be dated to as far back as the era of â€Å"artificial† entity theory. The artificial entity theory dates back to the dates before the 1800s when governments made special legislations to ensure that the power to operate corporations was vested in the power and authority of public benefit units4. Some of these public benefit entities included schools, churches and the larger community. However, these public benefit units were not the outright owners of the corporations but the government. It is in light of this simulated ownership that the theory became known as the artificial entity theory. In relation to the present study, it would be noted that the corporate theory has a lot of influence on corporate governance in the sense that because the cooperation are supposedly owned by government, th ere are State defined legislations that affect and influence their operations. Though many who belong to the fiction theory school of thought hold that â€Å"corporations are simply legal fictions, created and sustained by an act of the state†5 and that there are weaker internal management principles that defeat the principles of corporate governance, the reality is that in a state where institutions are made to function properly, there is no way managers can expect to go away with lapses in corporate governance. Under contract theory, reference is made to contract-based corporate theory where actors in various companies and organizations are expected to play a collaborative role in ensuring that they use asymmetric information to regularize the construct of contractual arrangements6. In effect, the contract theory expects that managers and administrators would work and function as people who have been assigned to play specific roles within a specific timeframe for a specific reward. Essentially, contract theory greatly affects corporate governance because it is said to be an avenue by which managers and stakeholders in the running of businesses feel fundamentally obliged to work and operate within the premises of the contracts they agreed upon7. In certain quarters, this has been said to

Brand management and research Essay Example | Topics and Well Written Essays - 3000 words

Brand management and research - Essay Example This increased wave of competition in the business markets has forced firms to devise strategies that tend to enhance their competitive advantage in the market. The increased wave of competition in the market has enhanced the importance of branding and brand image towards generating competitive advantage. The aspect of branding assumes even more importance as customers largely use the brand to distinguish between products and services of different market players. Firms are therefore trying out different strategies that tend to increase their brand value so as to gain competitive advantage. The aspect of branding has assumed so much importance that well known brand like Apple are being valued in billions for their brand image and their image on the minds of the customers. Aspects like brand equity which involves the extra value addition in the product or service offering have also assumed large scale importance for business organizations (Stadtler, 2010, p.1). The present study would try to analyse the different dimensions of branding including elements like brand value, brand image and brand positioning. The organization selected for the study is Nintendo which is an organization that deals with the manufacture and sales of gaming consoles in many nations across the world. The study would highlight the relative strengths and weakness of the organizations with regards to the aspect of branding. Company Background Nintendo is a Japanese organization that deals in the manufacture of gaming consoles. The company started its business in the year 1985 as a manufacturer of games and gaming consoles. The initial operations of the firm were restricted to Japan. After initial success the company expanded into different nations like USA, UK and is presently operating in about 20 nations across the globe. The company’s initial products of Mario and Zelda became instant hit with the target audience and still continue to be largely popular among the members of the tar get audience. The company by virtue of its highly innovative products has established a strong brand image in the minds of the customers. The other products of the company include Nintendo Ds, Nintendo Game cube which have been huge hits with the customers across the world. In the year 2006 the company launched the Nintendo Wii that was a revolution in the world of gaming industry which had exiting and unmatched product features. The core competence of the firm includes its innovative product line and a continuous and uniform diffusion of innovation that helps it to establish itself as a unique brand in the minds of the customers (Nintendo, 2011). The subsequent sections would try to analyze the different aspects of branding including the elements of value, image and positioning towards generation of competitive advantage. Brand Position Brand position implies the image of the brand in the minds of the target market audience. Knox (2004) undertook a study on the aspect of brand posi tioning and stated that in order to stay competitive firms need to look beyond the realm of the product and service mix so as to generate greater value and image of the brand in the minds of the consumers. The author cites the example of Coca Cola by stating that most of its value comes from its brand image rather than its other existing assets (Knox, 2004, p. 105-106). Grad et.al

UNIX SHELLS Essay Example | Topics and Well Written Essays - 500 words

UNIX SHELLS - Essay Example Hence, interpreting login commands that will result to the anticipated result. Undeniably, UNIX serves a critical role in the current technological knowhow though to date it has undergone varied and essential developments that give it an advantage over, which this study seeks to highlight. Compared to other operating systems as well as varied computer technological enhancements, what I like regarding UNIX is its speed (Liu, Yue & Guo, 2011). However, historically this has been improving since its inception in 1960s up to date to the extent of being able to numerous daemons that known to operate manually or slowly in UNIX’s absence (Liu, Yue & Guo, 2011). This is quite advantageous especially currently, whereby almost each venture has almost completely embraced technology in order to evade commercial opposition from competitors. Additionally, it possesses the capability of aiding multiple segments that necessitate usage of varied network cards by the firewall (Liu, Yue & Guo, 2011). Mostly, this is at least 32, which is contrary to the practical Netware’s support that has a limit of 16 and windows strictly limited to four (Parker & Morley, 2014). Another aspect that I like about this system encompasses its compatibility whereby poses a capability of suppo rting word processors including WordPerfect as well as StarOffice (Liu, Yue & Guo, 2011). In customizing this system, it entails adequate knowledge coupled how to navigate with ease to ensure the intended adjustments work as necessitated (Robbins, Hannah, Lamb & Lamb, 2008). However, there are varied ways of customizing this system whereby on my side I would encompass setting the right margin such that it will be prompting to wrap sentences automatically (Robbins, Hannah, Lamb & Lamb, 2008). This is without one or user having to execute that command with the aid of a ENTER key thus saving on time (Robbins, Hannah, Lamb & Lamb,

Costs of Undergraduate and Graduate Degrees to Students in the Essay

Costs of Undergraduate and Graduate Degrees to Students in the European Union - Essay Example In countries, where education was not expensive, a major increase in the fees has been observed in the past few years. The example is Canada where the fee structure doubled in the last ten years. The fees of universities differ in terms of the courses, level of degree and between national or international students. Students take admission in the institutions where they are able to bear the fees because the cost of education varies from region to region. The international students are very particular in taking admission in those colleges or universities where they can afford the fees because most of these students take financial aids from the bank or funded by themselves. The international students have to show their financial balance sheet in order to take admission in a good university and they have to prove from their balance sheet that they can afford all the expenses in the first year of their education. If they are not able to meet these requirements, then they are not eligible to apply for student’s visa. In the universities of USA, it is comparatively easy to get admission because of the facility of university funding but in UK and other European countries, it is relatively difficult to take admission. The students in order apply in universities of Europe fulfill more complexed requirements and formalities and because of variation in the education cost, these universities deal with two aspects that include the cost of tuition and living expense. The purpose of this study is to compare the cost of educational degree in USA and European Union and compare which region is more suitable to study for students. Higher education differs from university to university and it is not sure that how college experience of student is going to be. In each university, there are different rules and regulations that students have to follow to compete with the social standard and reputation of university. There are some obvious similarities between the colleges and un iversities of the United States and the European countries. The standards of the United States universities are different from the standards of the European institutes and there is a cultural difference in both regions and this difference reflect in their system of education (Sheng 2012). Education in European Countries: In the 2020 Strategy of Europe, the European Council has made a structure of Union to gather all the instruments that include expansion of jobs and high growth. The main target of the European Union in this strategy is to increase the education level and all the members of the European Union must fulfill the education requirements that council have made. The economic research recently conducted reveals that in order to achieve the goals and meet the future objective of European Union, measures should be taken to improve the education in the region. The European Union has developed human capital policy because it is recognizing the significance of giving education to the people. The basic motive of the European Union to educate its citizen is that union understands upcoming requirements of education and more skills needed from people to compete in future. The cost of degree in universities of Europe is relatively low but top ten universities are planning to increase the fee structure of students and they are trying to increase the fees up to ?4,000 this year. However, they are certain requirement that

The relationship between the people and their spiritualists Essay

The relationship between the people and their spiritualists - Essay Example The relationship between priests and the Church is based on mutual beliefs in the existence of God as the most superior deity and in the belief of a need to have a close relationship with God. Similarly, spiritualists and people in other religions such as ancient religions also spoke of the importance of maintaining a close and intimate relationship with the gods. In other modern religions such as Islam, sheiks serve as the spiritual advisers to the congregation and also advocate the essence of maintaining an intimate relationship with Allah through righteous deeds and faith in Him. The relationship between spiritualists and people is also marked by the latter’s religious duties towards the people. For instance, priests are afforded various duties and responsibilities such as interpreting religious ideologies and laws to the people and administration of ceremonial rights such as baptisms, blessings, and weddings. Priests’ relationships with people surpass the spectrum o f death as priests are also tasked with praying for the deceased at funerals. In other religions, as well as traditional religions, spiritualists officiate funeral ceremonies by praying for the souls of the deceased. In addition, priests and their congregations have a distinct relationship with regard to counseling and offering advice on matters of a religious and personal nature. Spiritualists and priests are notable as having accomplished wisdom that they use to provide counsel and advice to people and the Church respectively.

Zaras Fast Fashion Essay Example for Free

Zaras Fast Fashion Essay Absrtact This paper was written for the purpose of researching and illustrating fast fashion strategies which include strategic integrated supply chain, manufacturing and sourcing methods. Fast fashion is explained as a system that involves more control over operations and customer â€Å"strategic behavior† by using the combined benefits of both the â€Å"quick response production capabilities† or â€Å"short production and distribution lead times†, which minimizes clearance items by finding more reasonable balances between supply and demand, and the â€Å"enhanced product design capabilities† or â€Å"highly fashionable product designs†, which plays homage to customer values. This paper also analyzes methods used by fast fashion leader, the Spanish, Inditex owned Zara. A closer look at Zara’s supply chain, market responsiveness, flexibility, technology, pricing and costs strategies and methods are examined and compared to other fast fashion retailers that can appropriately be deemed as competition for Zara. Also, globalization and other operational strategies are discussed that all come together to show the remarkable success of the Spanish company. When thinking of the term fast fashion, one may think of the change in fashion trends and how quickly certain styles can be deemed as in, and the next second, those same styles are no longer looked at as having any resemblance of being fashionable. That would be the definition of a trend or fad in itself; â€Å"an intense but short-lived fashion; craze† (Dictionary.com 2012) . However, â€Å"the phrase ‘fast fashion’ refers to low-cost clothing collections that mimic current luxury fashion trends† (Joy, Sherry, Venkatesh, Wang, Chan, 2012) . It is a system that enables young, trendy customers to quickly attain and keep up with the ever changing latest fashions and trends from the runway, celebrity styles and other trendy inspirations for reasonable prices. Fast fashion is a system that involves more control over customer â€Å"strategic behavior† by using the combined benefits of both the â€Å"quick response production capabilities† or â€Å"short production and distribution lead times†, which minimizes clearance items by finding more reasonable balances between supply and demand, and the â€Å"enhanced product design capabilities† or â€Å"highly fashionable product designs†, which plays homage to customer values, which in-turn persuades customers to purchase full priced items rather than shopping around or waiting for items to go on-sale (Cachon Swinney, 2011, p. 778) . Globalization, Manufacturing and Sourcing Strategies for Fast Fashion Firms According to Mihm (2010) , supply chain, market responsiveness, flexibility, technology, pricing and labor costs are all factors in globalization and manufacturing and sourcing strategies. For instance, firms that are mainly involved with outsourcing and other third parties have less control of their supply chain and hands control to those third parties. On the other hand, firms that predominantly sell their own brands and designs are generally more vertically integrated and have minimal involvement with third parties. These firms can have control over all aspects of their supply chain and are also capable of controlling their sourcing. Fast fashion firms are generally vertically integrated. Mihm (2010) also states that â€Å"fast fashion and market responsiveness seem to be inseparable† and stresses the importance of supplying correct quantities in order to support demand for each individual store. In terms of fast fashion, market responsiveness refers to the speed of respond ing to consumer demand and accurately distributing and supplying appropriate quantities and styles in each store at the right times (p. 56) . Firms can achieve this by research and development (R D), technology, and forecasting. R D normally is in charge of coming up with new products and innovations and an alternative to research is â€Å"imitation† or copying outside products and ideas (Meredith Shafer, 2010) . The imitations strategy is one that mirrors the strategies of fast fashion firms in that ideas and designs for new merchandise often come from runway designs, celebrity fashions and customer input and ideas. Furthermore, fast fashion firms often allow individual stores and locations to have control over store merchandise by using a pull system rather than a push system. The pull system uses the just-in-time (JIT) concept mentioned by Meredith Shafer (2010) . The JIT system lowers lead times and merchandise orders by allowing quick and instant deliveries of exact order quantities, which eradicates having over stock and the need for â€Å"safety stocks† (p. 258) . With many fast fashion firms implementing major globalization initiatives, technology is a key factor in communication, efficient logistics, and business success. Information technology (IT) systems provide the ability to collect and share important information, such as trends, orders, â€Å"production and shipping data†, using constant transfer and communication throughout the entire supply chain. IT systems help mitigate â€Å"real-time† communication from consumers to store managers to market specialists and designers, to suppliers and to manufacturing and production facilities, then to distributors, and back to stores and the customers (Mihm, 2010, p. 56) . Moreover, IT systems product lifecycle management (PLM) software, and sourcing programs can keep track of all sourcing and development activities and are designed to react to and handle change and conflict, which helps with flexible suppliers and positively effects production. These technologies speeds up production time, placing communication and processes in real time and allows an ease to the supply chain (Speer, 2006) . Mihm (2010) states that firms in the fashion industry use a technology known as computer-aided design (CAD), which includes laser cutting machines and automated sewing machines that ultimately â€Å"eliminates wasted fabric† and cuts production time; allowing companies to be more efficient by saving time and money. Another way fast fashion firms make use of flexibility â€Å"also includes changes in the construction and coloring processes used to make garments.† â€Å"For example, garments are often dyed after they are constructed thus allowing the manufacturer to produce the best selling colors quickly† (Mihm, 2010, p. 56) . Furthermore, â€Å"improved logistical programs including air freight and expedited customs clearance for imports also fall within the technology factor.† Many fast fashion companies are leaning towards globalization and have highly vertically integrated supply chains and therefore provide their own world-wide souring, and manage their own design, manufacturing, and logistics models. â€Å"All of these influences have dramatically changed the way the apparel business operates in the age of globalization, making the fashion industry appear borderless† (Mihm, 2010, p. 56) . Mihm (2010) states that â€Å"lower labor costs are a major contributing factor to fast fashion since cutting, sewing and fitting are labor intensive, and are integral parts in constructing need high levels of education† and therefore do not require salary or high wages. For example, in China, labor rates are only around 60 cents per hour. â€Å"Additionally, capital equipment costs are very low, making it easy to open an apparel plant almost anywhere† (p. 56) . Along with lower labor costs, it is also important to manage labor times to further mi nimize labor costs and increase efficiency and profitability (Desai, Nasar, Chertow, 2012, pp. 71- 72) . Lastly, a major factor influencing fast fashion and fast fashion retail strategies has to do with keeping merchandise prices at least moderately low. Mihm (2010) mentions that a key factor in keeping prices low is by maintaining low labor costs (p. 56) . Additionally, Desai et al. (2012) discusses the impacts and importance of maintaining control over all costs including; production, materials, labor, transportation, manufacturing and overhead and other costs. Maintaining control over all costs is essential to efficiency, maintaining low product costs and business success. However, many items that may be considered basic and require less production costs, and labor costs and time may still be sold for premium price points do to customer perceived value and brand value (pp. 64-72) . All about Zara Zara, the Spanish fast-fashion retailer belonging to â€Å"Inditex, one of the world’s largest distribution groups†, is one of the leading international fashion companies in the world (Zara, 2012). In 1975, Chairman and founder of Inditex, Amancio Ortega, opened the first Zara shop in Spain and he came up with a philosophy for business success which states, â€Å"‘you need to have five fingers touching the factory and five touching the customer’† (Ferdows, Lewis, Machuca, 2004, p. 106). The philosophy can be said to be the basis for Zara’s business model and retail strategy that successfully runs a fully vertically integrated supply chain by vertically integrating all features of the sourcing and manufacturing process (Mihm, 2010) including, design, production, distribution and sales. By providing constant information about consumer’s demands and desires, customer actions and feedback are the soul of the Zara model (Inditex, 2012), whi ch ultimately allows the company to maintain control of its products from the design stage until the customer purchase stage. Zara has taken retail globalization by storm and now has 1,721 stores all in prime locations in great cities spread across eighty-seven countries. A Closer Look into the Zara Model Because Zara has full control over its supply chain, their sourcing strategy differs from the strategies normally used by companies in the industry (Mihm, 2010). For instance, Zara purchases many of its fabrics and other supplies from Inditex owned companies. The company also owns its own manufacturing and production facilities, which allows the majority of profits stay within Zara and the Inditex group; it also boosts overall company flexibility and allows the full control over the supply chain system that would otherwise be unattainable if the firm did not embody the fast fashion method and mainly outsourced to third parties (Ferdows, 2004, p. 109) . Moreover, only basic items like T-shirts and common woolens are out sourced to, or bought from, manufactures in low- cost areas like Asia, Africa and Eastern Europe (Capell, 2008); the rest of Zara’s products, which are more fashion sensitive, are designed by the 300 in-house designers and are manufactured in Zara manufacturing facilities. â€Å"All finished products pass through the five-story, 500,000-square-meter distribution center in La Corufia, which ships approximately 2.5 million items per week† (Ferdows, 2004, p. 109). Furthermore, Zara production facilities maintain stock piles of neutral fabrics that can be dyed, printed on, or altered for the purpose of speed and convenience to help mitigate design and production times (Mihm, 2010). In terms of production and labor times and costs, Zara has the ability to easily adjust production to the change in demand. The company is able to do this because many of their facilities are highly innovated and specialized, and normally run one single shift per day (Ferdows, 2004, p.109) . It seems that Zara operates its manufacturing facilities using a combination of transformation systems to maximize efficiency. For instance, job shops would be used for smaller facilities that produce more basic and/or custom items. Cellular production systems, that also utilizes JIT, would largely be used for a fast fashion firm like Zara because the system allows the facility to reduce production time and costs, reduce labor time and costs and increase flexibility and market responsiveness and minimizes waste and excess stock. For instance, Meredith Shafer (2010) state that the advantages of cellular production include; reduced setup times, increased equipment capacity that results in lower eq uipment and maintenance costs, and increased floor space. The system also allows increased efficiency to produce small batches of varieties, which ultimately increases flexibility to respond to customer demand, reduces over stock and excess inventory that can take up space, and minimizes lead times and increases throughput times, which improves forecasting and market responsiveness and enhances revenues. Other advantages include greater operational control, lower overall costs and an exclusivity value sense from customers that discourages purchase postponement (pp. 71-72) . Furthermore, like other fast fashion firms, Zara utilizes innovation and IT systems to communicate information through every part of the organization. These IT communication systems are especially important to Zara because their products go from the design stage to store shelves in as little as two weeks. To make this happen, store managers record selling trends, determine customer desires and quickly sends the information to the design headquarters where ideas, innovations and designs for new fashions are created and more appropriate forecasting can be made. The speed and this system automatically gives â€Å"Zara a competitive advantage† (Capell, 2008) . Competition and Competitive Advantage The term competitive advantage refers to any factor that will give a firm a lead on its competitors. This can mean anything ranging from new innovations, ideas and products, costs and pricing, locations and market share, to marketing and operational strategies, and so on. Zara is recognized as being a leader in the fast fashion retail industry and has steam rolled ahead of competitors such as Gap, Express, Uniqlo, and H M. Compared to its competitors, Zara is completely vertically integrated and uses sophisticated IT communication systems for constant and speedy communication, whereas competitors are less involved in ease of communication and still heavily outsource to third parties, which significantly reduces their control over process, time and quality (Desai, 2012 ). This is where Zara gains their biggest competitive advantages, which are speed, quality and customer value. Customer value is a huge advantage for Zara wherein the receive customer support, repeat, satisfied custome rs, and increase revenue. The fact that Zara often produces trends at super speeds, even before they show up in luxury shops, induces Zara as an innovative firm which further attracts â€Å"early adopters† who desire the freshest looks and don’t mind paying higher prices for items that they may value as exclusive (Meredith Shafer, 2010, pp. 14-15). Additionally, Inditex and Zara factory workers are paid more that the industry average (Capell, 2008) . Also, with the smaller quantities of vast varieties of the freshest trends, Zara gains â€Å"85% of the full ticket price on its retail clothing, while the industry average is 60% to 70%.† Because of this, Zara is also able to gain â€Å"higher net margins on sales than its competitors†. For instance, in 2001, Inditexs net margin was 10.5%, Benettons was only 7%, HMs was 9.5%, and Gaps near zero (Ferdows, 2004, p. 106) . Conclusion and Recommendations Overall, Zara is the perfect example for fast fashion retailing. The company truly has taken a step forward in strategies for successful operations, management, globalization and supplying and selling the latest trends at lightning fast speeds with minimal costs and wastes. The only negative that I find with Zara is with their pricing strategy in nations outside of Spain. According to Kumar Linguri (2006) , Zara is considered a low-cost retailer, whereas in countries such as the US, Japan and Mexico, Zara is considered more of a luxury retailer due to pricing differences (p. 82) . Even though pricing differences are based on individual country economics, there still should not be such a disparity in pricing and perceived value between countries. One final suggestion is for Inditex to consider investing in opening distribution centers and/or manufacturing facilities in other market areas to continue the speed in supply chain and lead times in all markets throughout the world. References Capell, K. (2008). Zara Thrives By Breaking All the Rules. Businessweek, (4104), 066. Cachon, G. P., Swinney, R. (2011). The Value of Fast Fashion: Quick Response, Enhanced Design, and Strategic Consumer Behavior. Management Science, 57(4), 778-795. Desai, A., Nassar, N., Chertow, M. (2012). American Seams: An Exploration of Hybrid Fast Fashion and Domestic Manufacturing Models in Relocalised Apparel Production. Journal Of Corporate Citizenship, (45), 53-78. Dictionary.com. (2012). Retrieved from http://dictionary.reference.com/browse/fad Ferdows, K., Lewis, M.A., Machuca, J.A.D. (November 2004). Rapid-fire fulfillment. Harvard Business Review, 82(11), 104-110 Inditex. (2012). Investors. Retrieved from http://www.inditex.com/en Joy, A., Sherry Jr, J.F., Venkatesh, A., Wang, J., Chan, R. (2012). Fast fashion, sustainability, and the ethical appeal of luxury brands. Fashion Theory: The Journal of Dress, Body Culture, 16(3), 273-295. doi:10.2752/175174112X13340749707123 Meredith, J.R., Shafer, S. M., (2010). Operations management for mbas, 4. Hoboken, NJ: John Wiley Sons, Inc. Mihm, B., (2010). Fast fashion in a flat world: Gl obal Sourcing Strategies. International Business Economics Research Journal, 9(6), 55-63 Speer, J. K., (2006). Top 5 sourcing strategies. Apparel Magazine , 47(12), 32-35. Retrieved from http://ezproxy.limcollege.edu:2357/ehost/detail?sid=4b23db26-6002-4704-9709-23540fa18525%40sessionmgr111vid=1hid=127bdata=JnNpdGU9ZWhvc3QtbGl2ZSZzY29wZT1zaXRl#db=bthAN=22112593 Zara. (2012). Investors. Retrieved from http://www.zara.com