Comparison of Special Economic Zones between India & China

Project Report

Submitted By

Bhojak keyur Gardhariya Dhaval Goswami Hardip Rajpara Hiren

12044311005 12044311024 12044311025 12044311135

Submitted To:

Prof. Dr. Amit Patel

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

1.1

WHAT IS SEZ?

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

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

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1.2EVALUATION OF SEZ.

A Special Economic Zone (SEZ) is a geographical region that has economic laws more liberal than a countrys typical economic laws. It is a trade capacity development tool, with a goal to promote rapid economic growth by using tax and business incentives to attract foreign investment and technology. By offering privileged (advantages or special) terms, Special Economic Zones attract investment and foreign exchange, spur employment and boost the development of improved technologies and infrastructure. Today, there are approximately 3,000 SEZs operating in 120 countries, which account for over 600 US$ billion in exports and about 50 million jobs. By offering privileged (advantages, chance) terms, SEZs attract investment and foreign exchange, spur employment and boost the development of improved technologies and infrastructure. Determine how resources are used Whether Employment opportunities are created Cost outweighs the benefit of SEZ.

Existing since 1704: Gibraltar (1704); Singapore (1819); Hong Kong (China, 1848); Hamburg (1888); Copenhagen (1891);

1.3

ADVANTAGES OR DISADVANTAGES OF SEZ

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

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

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

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

The number of units applying for setting up EOU's is not commensurate to

the number of applications for setting up SEZ's leading to a belief that this project may not match up to expectation

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

1.4

ISSUE OF SEZ.

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

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

SEZs have a long-established role in international trade. Prior to the 1970s,

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

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

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

Moreover, many zones that appear to have been successful in the short term, have failed to remain sustainable once labor costs have risen or when preferential trade access is no longer an advantage (e.g. following the end of the Multi-fiber Agreement). Zone failures can be attributed to a variety of causes. Too often, zones are plagued with the same problems unstable electricity, lack of water, heavy bureaucracy, inefficient and corrupt customs that hinder investment in the wider economy. In addition, broader competitiveness challenges, including policy instability, poor national governance, and low productivity often undermine the potential of zones. The traditional manufacturing-oriented processing zone (EPZ) is 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 greater flexibility for services and other nonmanufacturing activities (including residential and tourism development), and include a greater mix of export and domestic-market focused activities.

1.5

WHY SEZ? = OBJECTIVE

I. Introduction Special Economic Zones (SEZs) are defined as geographical areas, governed by one oversight management body that offer special trade incentives to firms who choose to physically locate within them. Many countries employ their own variations of these special enclaves, and in doing so use their own terminology to describe them. For example, Mexico refers to its zones as maquiladoras, Ghana, Cameroon, and Jordan have industrial free zones, the Philippines calls its economic zones special export processing zones, and Russia has free economic zones. Despite the differences in nomenclature, each SEZ operates to increase trade throughout its respective region by offering special trade incentives to stimulate local and foreign investment within the region. The first modern special economic zone was created in Puerto Rico in 1942. Since then, 135 countries, many of them emerging markets, have developed over 3,000 zones. Their development has helped to improve global trade relations and has created over 70 million jobs and hundreds of billions of dollars in trade revenue. Special Economic Zones are generally implemented to meet fiscal, social, and infrastructure policy rationales. The most important fiscal goal of an SEZ is to facilitate economic growth through the use of reduced tariffs and more efficient customs controls. They are also essential tools for companies seeking to cut costs and improve inventory efficiency, and they help developing nations rework poor, inefficient trade policies and dilapidated or non-existent infrastructure. Part II of this Briefing Paper describes the different types of SEZs available to host countries, Part III and IV discuss the physical and regulatory characteristics of

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

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

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

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

1.6

IMPACT OF SEZ ON ECONOMY.

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

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

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

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

respondents were the major losers. They constitute 35% and 32% respectively of those who lost trees. Open Caste respondents lost none (Scheduled Castes are adversely affected as the tree wealth was a significant support base for them, given their low level of cash savings and land ownership. Construction work within the SEZ became a major source of labor locally, but only during the early phase of construction. SEZ managers discriminated against those who took part in the resistance and protest agitation and preferred outside labor who are not concerned with the problems of displacement. Some women from Polepally and Gundlagadda Thanda get daily wage work as gardeners, sweepers or as janitors.

Long periods of unemployment in some cases led to severe poverty, high indebtedness and the sale of all available assets. Unemployment and poverty has been most intense among those who continued to stick to land-based livelihoods. Although little effort was made in Polepally to offer alternative employment to affected families, some relief has been provided by the National Rural Employment Guarantee Act (NREGA) which was passed in 2005. The NREGA is a national job guarantee scheme that aims to provide the rural poor with a minimum of 100 days employment when none other is available. NREGA work is eagerly sought in the villages, but unfortunately the programme is unable to keep up with the demand for work in the village following the land acquisition. Less than 3% of respondents received NREGA employment of more than 100 days. 26% received 31 to 100 days of employment and 15% of respondents were employed for less than 30 days. Half of the respondents have an NREGA card and

are entitled to claim employment if they need it, though only 42% availed of any work during last year. Migration Loss of livelihoods within the village and growing interaction with labor contractors as well as information and assistance from the colleagues who have migrated outside has been leading to more people seeking labor outside. Altogether 51 villagers belong to the respondents' families have migrated out of the village. Migration has been largely due to the loss of livelihoods caused by displacement due to SEZ. The rate of migration was very low between 1992 and 2004 (4 individuals in total, 2 in 1992 and 2 in 2003). It then jumped to 13 individuals in 2005, with a yearly average of 8.5 in 2006-2009. More than two thirds (71%) of the migrants have stayed within the state. Hyderabad remains the single largest destination, accounting for 67% of migrants from the affected villages. Four out of five migrants (86%) work as construction laborers, masons and railway track gang men. The rest of them work as semiskilled employees in shops and establishments. Child labor Some households facing a severe fall in incomes and long periods of unemployment had their children dropping out of school. A significant number of respondents observed that children are affected by the domestic problems, especially unemployment and poverty. Asked what their major concerns were with regard to children in the current situation, 14% of respondents mentioned that children are required to do wage work, while 15% raised the isse of children being required to migrate.

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

1.7 SEZs in India

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

state of Gujarat in 1965. Among all the SEZs established in India, the most successful SEZs are of Mumbai, Noida, and Chennai which are prominent cities in India. This also signifies the location advantage of existing industrial and infrastructure base for export competitiveness of an SEZ. Presently, India has 19 functioning SEZs contributing 5-6 percent to the national exports and more than 400 SEZs have been principally approved by the Government of India at various locations . Modeling location, intermediate variables and superior firm performance Location of a firm The emergence of SEZ for promotion of exports has again highlighted the importance of location of firm and its impact on firm competitiveness. Economic zones as specialized locations have provided efficiency in business transactions through advanced infrastructure and other facilities to enhance trade

competitiveness of the country. The early theories of industrial location concentrated on analyzing simple frameworks, where the location and spatial diversification were simply determined by an adjustment between location, weight, and distance characteristics of inputs and outputs. Various recent empirical research and literature suggest that location can be a contributing factor to the competitiveness of a firm. Empirical studies suggest that SEZs which are located in a developed area where they have higher chances of pursuing agglomeration are found to be more successful as compared to those which are located in semi or undeveloped areas. It seems that agglomeration and linkage effect of the SEZs are more difficult to exploit if they are established in an area with poor or no industrial base. This raises a few research questions regarding the location of an SEZ, viz: RQ1. Does location of a firm in an SEZ lead to superior firm performance?

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

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

as a consequence of being competitive. The most important obligation of an export firm, situated in an SEZ, is net exports, i.e. exports minus imports which have been laid down as a requisite for setting up in an SEZ. Other important parameters used by different researchers are productivity and cumulative annual growth rate (CAGR). These three measurements have been taken to understand the superior firm performance in an SEZ. Productivity has been considered surrogates of competiveness and can be defined as total turnover divided by numbers of headcount and CAGR justifies the extent of growth of the organization over a period of years.

Proposed framework; a sequential approach There can be two possible approaches for studying the impact of location on superior performance; one is direct and other will be indirect. Location competitiveness of a firm in an SEZ cannot be directly measured so it is done through intermediate variables and its effect on firm performance. This study suggests that a logical sequence may exist among the location of a firm, five intermediate variables/functions (investment in competitive resources and capabilities, linkages, entrepreneurial ability, government and institutional support, and factors of production), and superior firm performance. Proposed sequential framework with prepositions The proposed sequential framework connects the latent function (location of a firm-F1), intermediate functions (F2 -F6), and dependent function. It suggests that F1 leads to F2 -F6 and subsequently they lead to F7, thus intermediate functions (F2 -F6) are both dependent as well as independent

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

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

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

1.7

SEZs in China

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

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

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

1) Special privileges: In 1980, the central government of China granted special privileges to Shenzhen as a Special Economic Zone placing it literally in a class of its own. 2) Foreign Direct investment: Initially Shenzhen lacked capital and other resources. In 1979 Shenzhen attracted foreign investment worth 0.005 billion dollars. But in 2008 Shenzhen actually used foreign investment worth 4.03 billion dollars. 113 of the top global multinationals maintain offices in the city. Buying foreign brands have become part of the daily life for Shenzhen residents. The major shopping districts are packed with foreign retailers like Wal-mart, Carrefour, H&Q. Countless global brands like P&G, Unilever, Mars, Coke, Nestle, Sony, LG, Nokia, SIEMENS and Phillips can be found in these stores. The city is connected to the outside world by a number of ways. Tens of thousands of foreign nationals now live and work in Shenzhen. 3) Entrepreneurship: The city's greatest strength is its entrepreneurship, which have flocked to the cities from all over China. Out of 170,000 registered companies in the Sez in 2005, more than 135,000 were private 03 October 2013 Page 2 of 7 proQuest companies. The private sector employs about half of the city's workforce and contributes about half of its economic output. It is the city's high tech sector which has made a huge progress, growing at an annual rate of 46.5% over the past two decades. Shenzhen also has a large pool of small business owners who are engaged in a variety of industry all over the city. 4) The middle class: Large numbers of people have migrated to the city from the adjoining areas leading to the emergence of a new middle class. Tens of millions of Chinese have tried their luck in this city and some 12million now call it home. This middle class is the key consumption force in the city.

Chinese Success Story Chokes on Its Own Growth. The New York Times, December19, 2006 This article published in the New York Times highlights the deplorable conditions in which workers live in Shenzhen. SEZs like Shenzhen have created tremendous economic prosperity. Yet there are some winners and losers. If on one side these SEZs are dotted with huge factories and commercial complexes, there are also millions of workers who live in small dormitories working long hours in the factories. Migrant workers: Majority of the workers working in the SEZs in China are migrant workers who receive as little as $100 per month. The migrant workers come from some of the poorer regions in China and are driven to the cities by lack of opportunities in the villages and the increasing gap between the urban and rural areas. According to the National Bureau of Statistics, Majority of the migrant workers are forced to work overtime. In 2009, migrants worked on an average 26 days a month or 58.4 hours a week, 14.4 hours a week more than the legal limit of 44 hours a week according to the country's new labor law. It is also reported that the average monthly salary of migrant workers grew by 77 Yuan ($11.28) in 2009 from the year before. According to the NBS report, only 42.8% of the migrant workers have a formal contract with their employees and in the construction industry, the figures are as low as 26%. The situation for migrant workers social insurance is even worse. Only 21.8% have employment injury insurance while 12.2% have medical insurance and 7.6% have pension insurance. Rural stagnation: According to the National Bureau of Statistics, during the first half of 2010, the per capita total incomes of urban households was 10,699 Yuan, while the per capita

cash income of rural population was 3,078 Yuan. China's economic growth has been rather uneven with the agricultural sector languishing and the rural population suffering from lack of job opportunities. Lack of agricultural development has forced millions of people from the rural areas to migrate to the cities. They are a cheap source of labor for the various factories in China. They are forced to love in the most deplorable conditions. Growing level of unemployment: It is estimated by the China Labor Bulletin that between 2003 and 2020, 15 million new people will enter the Chinese labor market each year, while only 8 million new jobs will be created at the current growth of 9%. China has virtually inexhaustible supply of migrant laborers who are willing to work under any conditions without protest.

Child labor: There is increasing evidence of usage of child labor in factories in China. School children are increasing becoming part of the required workforce. In some coastal and particular economic zones, such as Fujian and Guangdong, there are reported to be approximately four to five million child laborer under the age of 16. In Shenzhen, children between the ages of 10 to 16 work for up to 14 hours a day in factories. It is recorded that girls work in awful conditions for 13 to 14 hours a day from 7 am to 10 p.m with two one-hour breaks. According to the International Labor Organization, education is compulsory up to the age of 16, yet children are reported to be dropping out of school at increasing rates. An article in the Telegraph in February 2010 revealed that child labor was used in factories for manufacturing Apple computers, iPods and mobile phones.

Feminization: SEZs have played an important role in creating employment opportunities for Chinese women. Today 60% of the workers engaged in the SEZs are females. According the China Labor Statistical year book (2005), manufacturing is the largest sector to employ women. Discrimation against women is a common feature in the Chinese factories. Most of the female workers are employed in unskilled, low paying and labor intensive factories. Young, single women are preferred as they can be easily controlled and are ignorant about their rights. Sexual harassment and personal abuse often occur at the working place. Women are often made to work for long hours lasting up to 12 hours in a day. Despite provision in the Chinese labor laws regarding maternity leave, many factories refuse to abide by the law.

Hukou system: Hukou is a system of residency permits adopted by the Communist government used to minimize the movement of people between rural and urban areas. Under the Hukou system, Chinese citizens were classified as urban and rural based. While urban residents received state allocated jobs, the rural residents were to be self reliant. The hukou system operated as an internal passport system. The industrial growth witnessed by China has led to a huge migration of rural people to the factories. However, the rural-Hukou Chinese who migrate to the cities are not eligible for basic urban welfare and social service program including public education. Though the government has introduced a number of reforms in recent years, the basic structure has remained intact. The migrant worker continues to

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

Objectives of Study and Methodology

Objectives:The objectives of the study in a nutshell are as follows To analyze the basic concept of SEZ in Indian Economy. To analyze the basic concept of SEZ in China Economy. Comparison Special Economic Zones between India and China.

Methodology:We have used the secondary data for conducting the study and analysis of our project work. This helped us a lot to broaden our outlook on the topic. Secondary

data analysis is commonly known as second-hand analysis. It is simply the analysis of preexisting data in a different way or to answer a different question than originally intended. In our project we have taken the help of the following secondary data: Websites Search - Engine Encyclopedia E Libraries Pro-quest Academia.edu

Journals

1.9 Comparison: India & China

Head note China and India, in terms of geography, population size and regional cultural influence, are the most important Asian nations. Both have experienced consistently high economic growth rates over the past decade and it is widely assumed they will have a profound global and regional impact in the 21st century. The potential of these two nations suggests that a comprehensive understanding of their business systems is vital for competitors, trading partners, and those who would learn from their development experiences. An adaptation of Redding's (2005) model is utilized for the purpose of describing, analyzing and comparing the business systems of China and India. It is important to note that this approach

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

premise that cultures underpin socially embedded economic institutions, and in turn, that institutions underwrite governance models, inter-firm networks and alliances, and approaches to corporate management. This approach is not aimed at establishing causal relationships between societal factors and economic performance, as is the case with many comparative management models in the academic literature. The approach in this paper is descriptive, and within the constraints of this relatively short document, and following a brief background to

the economic potential of China and India, the contemporary business systems of these two critically important Asian nations are described, analyzed and compared. THE ECONOMIC RISE OF CHINA AND INDIA The world's two most populous nations, are also the two fastest growing economies in the world, and have been so for some considerable time. Both have experienced consistently high economic growth rates since the opening of their economies to global market forces, and this is reflected in the growth patterns over recent decades.

This extraordinary long run economic expansion is predicted to continue (see Table 2). What makes the figures in Table 2 especially notable is the outcome after adjustment of gross domestic product, and gross domestic product per capita, to purchasing power equivalents. For example, after this conversion, China in 2007 is placed second only to the USA in terms of gross domestic product, and India is

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

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

simplistic explanations often associated with globalization, and basing the analysis on the assumption that all capitalist systems were in various stages of convergence to a single model, he suggested that it would be more reasonable to focus on explaining how different forms of industrial capitalism in fact became established, and why they were different.

There is a certainly a case for the recognition of societal influences in the conceptualization of business systems. According to Redding's analysis, this idea has been previously approached from three alternative and fundamental directions. These were Weber's idea that a combination of the ideational (psychological) and the material (economic and technological) will explain societal variations in economic behavior", that economic action was essentially socially embedded and as unique coordination arrangements of societal institutions and economic actors. With the foregoing in mind, Redding proposed a model for the purpose of describing and comparing capitalist business systems, which was based on for the influence of societal contextual factors. The model was based on the premises earlier developed by Whitley, that culture under laid societal institutions, and that,

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

The following model, is a close adaptation of Redding's pioneering work, and is utilized in the current article to describe and compare the Chinese and Indian business systems. The most significant adaptation is the substitution of Redding's

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

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

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

CHINA'S BUSINESS SYSTEM

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

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

Buddhism. Despite this, they were confident enough to assert that it was the indigenous philosophy, Confucianism, essentially a series of recommendations for how to live and to construct a good society based on the teachings of the scholar Confucius, which was to subsequently to have a dominant influence in Chinese society.

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

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

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

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

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

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

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

In the contemporary context, especially in the private sector, we can see that imported management and human development systems are blended with traditional Confucian inspired ideas about the primacy of senior management, managerial paternalism, the maintenance of face and workplace harmony, socialist inspired ideas such as collective participation in decision-making, the desirability of worker representation through trade unions, and the importance of networks.

INDIA'S BUSINESS SYSTEM:

GLOBAL AND REGIONAL BUSINESS CONTEXT India today is widely considered as one of the most exciting and vibrant emerging economies in the world. After a century and half of British rule, India became an independent and democratic country in 1947. A centrally planned economic system bedevilled Indian economy until the 1980's and the low economic growth of 3.5% was sometimes derisively described as the "Hindu growth rate". A decisive reform program was undertaken in 1991 and crucial changes have resulted in a remarkable improvement. A nation with about 0.7% annual average rate of growth for the first half of the 20th century had achieved around 8% growth over the first six years of

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

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

In the post-independence era, domestic companies were able to raise capital from domestic public and private sources only. More recently, with access to international as well as domestic capital sources, very large Indian public sector companies such as Indian Oil, the Steel Authority of India, and ONGC have been strong performers. In the private sector, an impressive display of capital acquisition ability has been demonstrated by the Tata Group in their 560 mn acquisition of Tetley Tea as well as their ambitious global acquisitions in the steel sector around the world, including the recent acquisition of the Corus Group. Besides Tata, Reliance Industries, Airtel and others have not only have leveraged capital from the region and beyond but also become highly active in the global capital market.

INDIA'S INSTITUTIONAL FRAMEWORK: HUMAN CAPITAL Economic reforms after 1991 included opening India to global economic investment and competition, as well as the privatization and deregulation of many government enterprises. In a relatively short time, these initiatives led to rapid economic growth, increased productivity, and facilitated the development of the so-called 'new' economy-IT, telecommunications and financial services. India's economy changed from one where food shortages periodically occurred, to a services-oriented economy with world-class management. This new economy requires a very large number of highly trained professionals. Despite the fact that India graduates a staggering number of professionals each year, (some 500,000 engineers, 250,000 medical doctors, and more than 100,000 business school graduates annually), emigration to developed countries over 20 years from the 1960s has been a considerable economic drain. However, a recent

'reverse brain-drain' has resulted in a significant repatriation of ability, expertise, capital and (multinational) connections. The youth of India have often been seen as having great economic potential, and because of this, it has been suggested that by the fourth decade of the current century that India would have captured a considerable share of the global labor market. By 2050, there would be 549 million Indian citizens in the 20-24 age brackets. In contrast, China's population in a similar age bracket is forecast to decline from 534 million in 2000 to 408 million in 2050. In 2000, India's student population (age bracket 5-19) accounted for 321 million, and is expected to decline to 296 million by 2050. China's student population is predicted to be only 221 million in 2050, mainly as a result of the 'one-child' policy.

INDIA'S INSTITUTIONAL FRAMEWORK: SOCIAL CAPITAL In spite of a being a nation with 20 major languages and hundreds of dialects, social bonds of long standing tradition have sustained India's identity as a nation. In an economic context, this needs to be juxtaposed against the British legacy of a codified commercial legal framework and the integration of commercial activity into the legal purview of the state. However, the Indian preference for hierarchical relationships remains, which may be a consequence of the caste system, and it is not uncommon in rural areas or for specific companies or industries to employ people based on caste rather than on skill. The western management theories argue to suggest that employees are motivated when they are given a greater degree of autonomy, responsibility and control over their work, and they lose their motivation when in a highly bureaucratic, structured and controlled environment. Many researchers find this generalization inappropriate in the Indian context.

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

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

Conclusion:

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

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