Pijm Sep Oct08

From the Editor’s Desk
In the 42nd year of our long and eventful journey, with great pride we bring to you the maiden issue of Prabandhan: Indian Journal of Management.
Indian Journal of Marketing and Indian Journal of Finance received an unparalleled response and we received articles on diverse fields that could not
be circumscribed to the marketing and financial domains. In order to cater to the rapidly expanding world of management and to complement Indian
Journal of Marketing and Indian Journal of Finance, we have started publishing Prabandhan: Indian Journal of Management. The journal aims to
encourage and promote pragmatic research across a wide breadth of management topics; and has articles pertaining to the following fields of management:
1. Human Resource Management
2. Organizational Behaviour
3. International Business
4. Economics
5. Data Analysis and Decision Making
6. Technology and Operations Management
7. Strategic Decision Making
8. Negotiations and Competitive Decision Making
9. Ethics in Management
10. Entrepreneurship and Innovation
11. Public Management
12. Rural Management
We hope that you will continue to provide us with consistent support and patronage. With your unvarying encouragement, the journals are sure to cross
many milestones and achieve greater benchmarks in terms of quality and standards.
The world is becoming more interconnected and organizations that want to succeed in this new environment need to become more connected as well.
It is a challenge to individuals, teams, businesses, and the wider world. To innovate, many high performing firms are collaborating beyond their
organizations with their extended networks of suppliers, customers, business partners and others. The paper “Innovation and Innovative Solutions
Through Partnerships” tries to examine the role of organizational partnership on innovation. The purpose of this paper is to examine recent patterns
and developments in the literature on innovations in business through collaboration.
Most of the Chinese manufacturing units like toy manufacturing units, clothing, shoe, electronics and many others could be designated as sweatshops
still in the early 21st century. Chinese Laws were not being enforced and this gave the scope to the manufacturer to continue their practices in the same
manner as had been done in the past. The Chinese did not have any other option due to their extreme poverty and they rushed to the sweatshops to help
the MNCs or their subcontractors in China to cope up with the rapid global competition to produce the quality products at the cheapest possible price.
The article “Chinese Sweatshops: The Result of Outsourcing by Global Business Giants” brings to light the pathetic plight of the Chinese workers
and how the MNCs exploit workers and are violating human rights in China.
Special economic zone is a “duty free enclave” that is to be treated as foreign territory for the operations of trade, duties and tariff. The SEZ are governed by
special legislative policies and systems, which are otherwise not applicable in the country. The concept of special economic zones is a powerful instrument,
which is designed to achieve the rapid growth in manufacturing, employment and export. It offers the only way in filling the gap between China, South East
Asian nations and India in terms of manufacturing and employment. It is also an essential tool to attract foreign capital, technology and will help to integrate
national economy with global economy. In the paper “Special Economic Zones In The Emerging Economic Scenario: Issues and Challenges” an effort
has been made to examine the government policy on SEZ and thereafter an attempt has been made to analyze critically the implications of SEZ in the
agricultural sector, food security situation, displacement of masses, fiscal deficit, external sector, social sector and labour laws.
Polyhydron Pvt. Ltd. is a flag ship company of Polyhydron Group of Companies. It was established in 1982 and manufactures Hydraulic Radial Piston
Pumps, Valves and Accessories. Its products are priced unbeatably low, and Polyhydron Pvt. Ltd. has changed the price marginally in the last 25 years.
Polyhydron is known for its ‘Ethical Management’. At Polyhydron Pvt. Ltd., honesty is not a policy, but ‘the policy’. It believes in building quality
from the SOURCE. Self-inspection is the Best Inspection is also its policy. The paper “Ethics In Business and Value Addition” A Case : Polyhydron
Private Limited ;Belgaum - Karnataka” throws light on the importance of ethics in business and the value addition because of ethical conduct, and
exemplifies the same with a case study on Polyhydron Pvt. Ltd., Belgaum.
Applying the methods of the neurology lab to the questions of business world has become a common phenomenon. Use of neuroscience technologies
to boost advertising effectiveness or attain tangible marketing objectives may prove to be a potential danger to the consumer’s autonomy and choice in
deciding upon a positive buying behavior. One can argue that the purpose of all marketing initiatives is to manipulate consumer behaviour yet it is an
attack on the autonomy and private thought. Adding to the existing threats, neuroscientists are busy exploring possible solutions with intrusive technology
to decipher a person’s mental movements. The paper “Ethical Acceptability of Neuromarketing- Relevance, Limits and Limitation” tries to relate
the application of neuroscience to the field of marketing/advertising and examine its ethical acceptability, relevance, limits and limitations.
For India, growth is an imperative. The country aspires to be a major economic power house by the end of the century’s first quarter. To achieve that,
India needs to accelerate and maintain an economic growth rate that is beyond the 6-7% per annum that has been seen since the early 1990s. Strong and
capable leaders are the most critical resource for a country’s development. A nation especially a developing one, needs leaders not just in the business
area but in all walks of life, especially political and social. The paper “Leadership through Competing and Caring” discusses the guiding principles
that a leader, in the current Indian context, must use to effectively steer his organization and the wider community around it to success.
Energy resource and transport facility are the most important resource to define the wealth of a nation. Transport consumes the petroleum resource like
petrol, diesel and gas, which are limited energy resources available in nature. For the past two decades, the cost of the petroleum products are
increasing and fuel saving or fuel economy are the trend in the universe. Economically consuming these resources is a way to save energy resource and
wealth of the transport department and the nation. In this concern, the paper “Minimizing Fuel Expenses in Fleet Management by Using Theory of
Constraints” concentrates on fuel consumption in a set of selected service industry transport department buses. The successful functioning of the
transport department and its profit is limited by a number of constraints. Breaking the constraints is observed as a way to improve the profit by using
a thinking process tool -Theory of Constraints. This tool concentrates on breaking one of the selected constrains at a time instead of governing the
constraints for achieving the goal of maximizing profit by fuel economy.
Mrs.S.Gilani
Editor
Prabandhan: Indian Journal of Management
Prabandhan: Indian Journal of Management • September-October, 2008 1

PRABANDHAN: INDIAN JOURNAL OF MANAGEMENT
VOLUME : I NUMBER:1 Rs. 125/- SEPTEMBER-OCTOBER, 2008

Editor
Mrs. S. Gilani CONTENTS
editor@indianjournalofmanagement.com
INNOVATION :
Editorial Board :
Innovation and Innovative Prof. Renu Misra 3
Prof. V. Shekhar
Solutions Through Partnerships Dr. Neha Parashar
M. Com., M.B.A., Ph.D.
Head, Dept. of Business Management INTERNATIONAL BUSINESS :
Osmania University, Hyderabad
Chinese Sweatshops: The Result Indrani Majumder 9
P.K. Mittal of Outsourcing By Global
MBA (Faculty of Management Studies, University of Delhi)
Managing Director Business Giants
eMIT Peripherals Pvt. Ltd. ECONOMICS:
Noida, Uttar Pradesh
Special Economic Zones in the Prof. N.K. Sharda 22
Assistant Editor
Emerging Economic Scenario: Dr. Kulbhushan Chandel
Meenakshi Sawhney
(M.B.A, XIMB, Bhubaneswar) Issues and Challenges Dr. Raj Kumar
Senior Manager ETHICS IN MANAGEMENT:
Deepak Sawhney
“Ethics in Business and Dr D.N.S Kumar 28
deepak.sawhney@indianjournalofmanagement.com
Value Addition” A Case : Spardha Khera
Subscription Manager
Polyhydron Pvt. Ltd.,
Meenakshi Gilani
meenakshi.gilani@indianjournalofmanagement.com Belgaum-Karnataka (India)
Copy Editor Ethical Acceptability of Nazia Sultana 31
Priyanka Gilani Neuromarketing- Relevance, Ram Nangunoori
The views expressed by individual contributions
Limits and Limitations
in Prabandhan: Indian Journal of Management
are not necessarily endorsed by the Management. HUMAN RESOURCE MANAGEMENT :
Copyright©2008. All rights reserved. No part of Leadership Through Competing Dr. P.K. Jain 34
this publication may by reproduced or distributed and Caring I.P. Singh
in any form or by any means without the prior Minakshi Jain
written permission of the publisher. OPERATIONS MANAGEMENT :
All disputes are subject to Delhi Jurisdicition only. Minimizing Fuel Expenses in K. Velmanirajan 36
Fleet Management by Using
All correspondence relating to circulation and
advertisement may be addressed to:- Theory of Constraints
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2 Prabandhan: Indian Journal of Management • September-October, 2008

Innovation and Innovative Solutions Through Partnerships
* Prof. Renu Misra
**Dr. Neha Parashar
1. INTRODUCTION
There is a general understanding that real value in the sciences, arts, and commerce comes largely from the process of collaboration.
Collaboration is the process of shared creation. It is about collective intelligence. The whole is greater than the sum of the parts.
Success through collaboration is far from inevitable. The underlying assumption is that once the benefits of collaboration are
apparent to relationship participants, there is “smooth sailing” for collaborating organizations (Levitt, 1986).
Leading and managing strategic partnerships is not new. For years, companies have merged or been acquired for the
purpose of delivering increased value to their customers. Reasons include reducing total capital investment, faster market
access and payback, technology exchange, joint research and production (Contractor and Lorange, 1988). However, as
globalisation, highly diverse workforces and new ways of competing reshape the business landscape (Naylor, 2004), there
is growing evidence to suggest that using collaborative networks to leverage all elements of a firm’s intellectual capital is
not simply a business advantage, it is a business imperative (Drucker, 1999).
It has frequently been argued that technology exchange is prompting cooperation between companies (Horton and Richey,
1996). As technology life cycles become shorter and shorter, it is becoming increasingly difficult for firms to maintain
excellence in all product lines (Bleeke and Ernst, 1991; Business International Corporation, 1987; Jorde and Teece, 1989;
Ohmae, 1989). By pooling complementary technologies, firms can gain necessary technologies that will enable them to
produce more sophisticated products at a much faster rate than could be achieved by “going-it-alone.” Moreover, the risk of
investing in a project can be minimized through collaborations (Business International Corporation, 1987; Contractor and
Lorange, 1988; Horton and Richey, 1996). The world is becoming more interconnected and organizations that want to
succeed in this new environment need to become more connected as well. This is not simply an information technology (IT)
architecture issue, but a challenge to individuals, teams, businesses, and the wider world: How can we work together better?
How can we pool our knowledge to improve results? How can we make processes more efficient, while delivering personal
care and service when it matters most? How can we manage the flood of information that’s overflowing our inboxes, our
mobile phones, and our lives? Microsoft believes that the critical factor for organizational success is empowering people:
specifically, those people who create, analyze, distribute or consume information as part of their jobs – the information
workers. In a time of rapid change, agility depends on the ability to adapt and align quickly. Rigid, centrally-managed
systems can’t do that. Neither can organizations running yesterday’s technology as if it were “good enough” for today’s
challenges. But give information workers powerful tools that put them in control of their business environment, tools that
make working together as natural as working alone, and as familiar as the basic applications they already know – then you
have the kind of agility at the point of contact to drive innovation, drive insight, and drive success.
2. AN OVERVIEW ON COLLABORATION:
To sustain and accelerate our environmental progress, we must constantly search for better ways of solving environmental
challenges. Innovative collaboration is one of the ways to solve such problems. Collaboration with innovative strategies
keeps the world turning. Better, faster, more sustainable results are only achieved through collaboration. But effective
collaboration is not that straightforward.
Technically, collaboration is a process of participation through which people, groups, and organizations work together to
achieve desired results. Collaboration can occur among individuals, groups, or organizations at the same time (synchronous)
or with a time delay (asynchronous). Collaboration can also occur between people located in the same place or separated by
physical distance. The participants of the collaboration believe that by bringing together diverse interests, skills, resources
and sensitivities, there will be a greater ability to understand the problem before them, and a more effective solution is
likely to emerge than that which any of them could develop alone.
Collaboration occurs at various levels:
· Informal Collaboration - This is the simplest level of collaboration, involving activities which are unstructured and informal.
Examples of this level of collaboration would include one-to-one communication, discussion groups, and one-off meetings.
· Process / Project Collaboration - The next level of collaboration comprises of processes that are more structured in
nature, which have defined start and end points, as well as a defined flow of events between the two. Examples of these
activities would include sale order, purchasing requisition, and claims settlement processes.
* Associate Professor, Symbiosis Centre for Management and Human Resource Development, Pune (Maharashtra)
Email:Misra.renu@gmail.com
** Assistant Professor, Symbiosis Centre for Management and Human Resource Development, Pune (Maharashtra)
Email: nehaparashar10@rediffmail.com / nehaparashar10@gmail.com

· Extended Collaboration - The third level of collaboration involves activities that extend beyond the enterprise to include
customers, partners, and vendors. Activities in this category would include interaction with customer focus groups,
product design sessions with vendors, and delivery of services or products by partners.
The facilitation of global expansion frequently motivates collaboration among firms. Alliances not only allow firms to
overcome a country’s protectionist measures (Contractor and Lorange, 1988), but they also allow firms to gain knowledge
of unfamiliar business areas (Harrigan, 1984). In fact, recent events occurring in Western Europe provided a motivation for
collaborative alliance formation. As the countries in Europe continued their move toward economic integration, firms,
fearing increased protectionism, scrambled to establish themselves as insiders. A common means of entry has been through
collaborative alliances (Delachaux, 1990; Lei, 1990; Lynch, 1990; Magee, 1989). It has been argued that the accomplishment
of quasi vertical integration may be a rationale for forming alliances (Contractor and Lorange, 1988). Quasi vertical integration
may represent the most desirable strategy for firms as opposed to complete integration or complete non-integration. An
alliance can enable firms to experience the benefits of internalization, without incurring cost of integration, nor the strategic
inflexibility it implies. Further, a firm can reduce its fixed costs by sharing through a collaborative alliance (Bleeke and
Ernst, 1991; Crouse, 1991; Ohmae, 1989). It has been suggested that the convergence and sophistication of consumer tastes are
also providing a rationale for collaboration (Gynes, 1991; Ohmae, 1989). Ohmae suggests that consumers in the Triad countries
have access to the same information and are seeking similar products and lifestyles. Alliances can allow a company to market a
full range of products to consumers around the world, without incurring the expense, both monetary and time, of “going-it-
alone.” Thus, firms, in their effort to maximize profits, are being forced to develop new strategies to fit the rapid changes in the
global business arena. Collaborative alliances offer companies numerous advantages as they operate within the changing
environment. Collaboration provides a means of minimizing risk, of overcoming protectionism, of sharing fixed costs, of
meeting consumers’ increasingly sophisticated and similar needs, and of accessing new technologies and marketing systems.
2.1 INTERSECTORAL PARTNERSHIP: A FORM OF COLLABORATION
Intersectoral partnering is the process of creating joint inter-organizational initiatives across two or three sectors. This
strategy generates sustainable solutions to development challenges by combining the distinct interests and resources of
different actors. The three sectors of society are:
Business: private, for-profit entities that produce private goods and services.
Civil Society: private, nonprofit organizations that express community beliefs and values through service provision and
advocacy, and contribute to collective goods and services.
Government: general and specialized governance institutions at the local, national, and international levels. ISPs are usually
formed with representatives from local democratic governance institutions.
Chart: 1 Intersectoral Partnership
Social sector, or cross sector partnerships, by contrast, are formed explicitly to
address societal issues of mutual concern to the parties involved (Waddock,
1991), although a firm’s decision to enter into a social partnership may be
prompted by stakeholder demands for business accountability and/or for
instrumental considerations, because the company perceives competitive
advantage from the initiative (Selsky and Parker, 2005).
A key hurdle to cross-sector relationships is overcoming the different
backgrounds and values of the partners that can make knowledge exchange
especially difficult (London et al., 2005). Alliances with nonprofit organizations
can provide a challenge to managers who often underestimate the complexity of
dealing with such groups (Hall and Vredenburg, 2005). Nonprofits have different
concerns and cultures that business managers need to appreciate if they are to
derive value from the relationship (Yaziji, 2004). However, companies that are
open to engaging with nonprofit stakeholders, have the communication skills to
do so, and can assimilate the information received (Clarke and Roome, 1999), can gain competitive advantage from the
acquisition and utilization of new knowledge they have accessed through the engagement (Sharma and Vredenburg, 1998).
Example - Philippines: A Bisectoral Partnership: As a result of a major power crisis in the late 1980s and early 1990s, the
Philippine government sought private sector support in the form of a partnership. The private sector was needed to provide
capital for additional power capacity, assistance in achieving project development and implementation of goals more rapidly,
and training and technical assistance to local government units and implementing agencies. The government provided fiscal
incentives, such as tax breaks and access to free land and fuel, and cost-sharing of those projects deemed the most difficult to
finance. These provisions enabled private sector firms interested in investing in the electric power infrastructure sector the

opportunity to do so under attractive commercial and financial terms. Thus, such a partnership produced results consistent with
both the investors’ financial and commercial objectives and met the government’s main need: additional power capacity. Today,
the private sector has a significant role in the Philippines electric power infrastructure sector (Marks et al. 1997).
Intersectoral partnering is both a process and a result. Partnerships in themselves are a valuable result since they provide a
strong foundation for future collaborations.
3. INNOVATION: AN OUTCOME OF COLLABORATION
Not that long ago, most executives viewed innovation as a matter of coming up with new products or services, which was
primarily the job of the company’s R&D department. If pressed, they would have likely maintained that breakthrough
innovations – innovations that significantly change customer expectations, the basis for competitive advantage, or industry
economics – were either the result of dumb luck, or originated with a visionary leader like Steve Jobs, Richard Branson or
Akio Morita. But such views of innovation have become obsolete. Drivers such as globalization, the blurring of industry
boundaries, the explosion in the availability and accessibility of information, the increasing dispersion of knowledge, and
the growing use of alliances and partnerships have dramatically shifted the landscape of innovation. As a result, it is urgent
that companies reexamine their assumptions about innovation and purge three common obsolete ideas:
Innovation is all about coming up with new products and services. New products and services are vital to growth. But there
are several other ways in which companies can innovate. In particular, leaders need to ask themselves what new customers
they might serve and what these customers need, how they might configure their value chain differently, and what alternative
economic model they might use. Innovation is solely the job of the R&D department. “Research” and “development” are
always important in innovation. But every group inside the company and beyond it – such as partners, customers and
suppliers – need to be involved as well if you want to find opportunities to innovate that will produce competitive advantage.
Breakthrough innovation occurs only through luck or a “stroke of genius” from a visionary leader. Yes, luck is good and
having an innovative genius leading your company is wonderful. But the majority of companies can’t rely on either. So they
need to design and implement a systematic innovation process to maximize the chances that they will identify and take to
market new profitable opportunities time and time again.
Few examples have been quoted to have an inside about innovative collaboration:
1. Capgemini believes collaborative working is perhaps the single most important factor in achieving competitive advantage
and long-term success for organizations.
2. IBM and Nortel have formed an alliance to promote collaborative innovation between the companies and to aid carriers
in meeting the opportunities and challenges of next generation services.
Turning to the innovation field, studies consistently illustrate the importance of external linkages on innovative performance
(Faems et al., 2005; Goes and Park, 1997; Laursen and Salter, 2006), and report increased collaborative ties between
organizations (Freeman, 1991). A firm’s position within its network and its experience of collaborative relationships are
also key determinants of innovation (Powell et al., 1996). Authors have considered the particular role of boundary spanners
who can act as information gatekeepers (Conway, 1995). External environments are viewed as sources of information
(Koberg et al., 2000) and being open to the new ideas that these knowledge flows provide is a key predictor of firm
innovative performance (Fey and Birkinshaw, 2005). Key managerial attributes for fostering innovation include having a
wide range of interests that facilitate environmental scanning, and an internal locus of control that enable managers to
frame ideas as opportunities (Howell and Shea, 2001). However, despite the focus on inter-organizational ties within this
literature genre, relations with nonprofit organizations have not been considered as a potential source of innovation.
3.1 NEED FOR INNOVATIVE COLLABORATION
Collaboration is also a key factor in innovation and creativity in organizations, something that most organizations are
concerned about and interested in stimulating as a tool for competitive advantage and differentiation. Effective collaboration
can reduce elapsed time in situations where a large number of partners are involved, and the power of collaboration allows
small work teams to resolve issues quickly and accelerate delivery. Collaboration is the life-blood that guides the flow of
conversation and creation of meaning in human systems.
Moreover, partners engage in collaboration activity for a variety of reasons, and normally to achieve varied goals. Collaboration
must also be something an organisation needs and wants, the worth of which it can define. In fact, collaboration between government
agencies, between subdivisions of government entities, between government and businesses, and between individuals and their
government, is not new. This collaboration can lead to better service from government for its citizens, better decision-making, and
improved government processes, as well as the generation of an effective co-operation between government and private sector.
Today’s global economy is presenting organizations of all sizes with new challenges:
• Global permanently-connected customers, partners, and suppliers that are continuously driving the need for continued
agility in processes and people.

• Increasingly mobile global project teams, those are capable of working in multiple locations, time zones, and across
organizational boundaries.
• Pressures to become more transparent (to government, to customers, suppliers, and partners), yet at the same time
reducing information risk.
• A global competition for talent as today’s workforce ages and the millennial generation arrives with its own values and
expectations.
• Ongoing technological innovation and the accompanying challenges of integrating useful new capabilities smoothly
with existing systems and practices.
Organizations need strong, secure networks that extend across their enterprise and beyond, while workers must manage
constant demands on their attention, master new skills, and find new ways to be productive in a more deeply connected,
transparent workplace.
In the New World of Work, organizations that can work together effectively will enjoy competitive advantages in a number
of areas. Those who sell information or expertise can draw on a wider pool of human talent and data to generate new
insights and new innovations, and bring them to market more quickly. Those whose businesses are built around fixed
processes – manufacturing, distribution, resource extraction – can discover and drive new efficiencies that bring down
costs. Those who rely on expertise can cast a wider net for talent, seamlessly extending rich capabilities and access to
remote and mobile users.
For information workers, the New World of Work means new opportunities to add value, and a global marketplace in which
to offer their skills and expertise. Better collaboration tools can connect them easily with colleagues, managers and customers,
minimize the time spent on low-value administrative activities, gather resources from disparate systems and applications
together in one productive environment, and reduce the burdens of “information overload.”
3.2 BUSINESS MODEL INNOVATION
There was a time, not so long ago, when “innovation” meant that companies needed to invest in extensive internal research
laboratories, hire the most brilliant people they could find, and then wait patiently for novel products to emerge. Not
anymore. The costs of creating, developing, and then shipping these novel products have risen tremendously (think of the
cost of developing a new drug, or building a new semiconductor fabrication facility, or launching a new product into a
crowded distribution channel). Worse, shortening product lives means that even great technologies no longer can be relied
upon to earn a satisfactory profit before they become commoditized. Today, innovation must include business models, rather
than just technology and R&D. Business models matter. A better business model often will beat a better idea or technology.
Consider Wal-Mart in retailing, Dell in PCs, or Southwest Airlines. But business models are not all the same. To innovate your
business model, you must first understand what it is, and then examine what paths exist for you to improve upon it.
Innovations that involve more than one element of the business model have a much better chance of being truly differentiating and
sustainable. Commerce Bank is an example of a company which competes in an industry (retail banking) whose services are
widely viewed as commodities, so advantage is generally believed to be driven primarily by scale economies. Going its own way,
Commerce Bank has innovated along all business model dimensions and has generated the growth and returns to show for it.
• Value Proposition: The GE Aircraft engines unit crafted an innovative value proposition when they shifted from selling
airlines jet engines to selling them flight hours. This shifted the risk of downtime from the airline customer to GE, and
enabled GE to establish a very profitable service operation.
• Target Market: Ryanair, a growing European discount airline, innovated a different target market by going after
leisure travelers, instead of the usual business travelers.
• Value Chain: Wal-Mart (which targeted an innovative market by going after underserved rural communities in its early
days) is celebrated for its management of its supply chain.
• Revenue Mechanism(s): Xerox got its start in the copier business by leasing its copiers, instead of selling them. Air Products
gets paid for the delivery of its industrial gases right to the manufacturing station inside the plant, instead of by the box car.
• Value Network or Ecosystem: Ryanair again innovated here, by striking novel arrangements with underutilized regional
airports. Ryanair gets a percentage of concession sales at these airports, and in some circumstances even gets paid for
landing passengers at the airports.
• Competitive Strategy: One interesting aspect of business models is how difficult it is for others to imitate them. Many
airlines have tried to emulate Southwest’s low cost approach. Most of their attempts have not fared well. Copying the
Southwest model apparently creates too many conflicts with the airlines’ established business model.
Global connectivity (created through telecommunications, IT infrastructure and open standards) makes new skills and
partners accessible is practical to employ and enables entirely new forms of collaboration, and, thus, new business models.
Of course, the same global connectivity also exposes firms to new competitors with very different business models and cost
bases, which in turn, can force business model innovation.

Major strategic partnerships and organization structure changes topped the list of most significant business model innovations.
One CEO explained that the success of strategic partnerships depends heavily on combining each company’s strengths in
an economic model that benefits all parties.
As global connectivity reduces collaboration and transaction costs, companies are taking advantage of the expertise and
scale that lies hidden in their own organizations and across the globe. They are assembling a business model fashioned from
groups of “specialized” capabilities – combining internal expertise and scale through shared service centers with the
capabilities of specialized partners to create truly differentiating business designs. Partners can be instrumental in establishing
new business models.
3.2.1 RESULTS OF BUSINESS MODEL INNOVATION
Cost reduction and strategic flexibility were considered top benefits from business model innovation – reported by over
half of all business model innovators (Exhibit). Business model innovation allows companies to specialize and move more
quickly to seize growth opportunities as they emerge. Overall, CEOs’ rankings suggest that business model innovation is
helping their organizations become more nimble and responsive, while, at the same time, lowering costs.
There are other very positive implications of business model innovation that differentiated it from the other two types of
innovation CEOs have as a focus – products/services/markets and operations. The business model innovators were growing
was operating margins faster than those concentrating on other types of innovation. Companies innovating through strategic
partnerships had enjoyed the highest operating margin growth.
Exhibit 1: Benefits cited by business model innovators
Put in context, companies focusing on business model
innovation have enjoyed significant operating margin
growth, while those using products/services/markets
and operational innovation continues (or intensifies),
it could become the relentless battleground where
operational and products/services/markets innovation
compete today. Innovations have sustained their
margins over time.
3.3 SUCCESS FACTORS FOR
INNOVATIVE COLLABORATION:
• Target and Create Value: Know exactly what
you want to achieve and then establish targets all
along the path your project will take.
• Align the Organization: Match your program to
the needs of your larger enterprise all along its life
cycle and help bring managers and staff aboard.
• Mitigate and Manage Risk: Anticipate and overcome the risks that are inherent to complex programs.
• Optimize Capabilities: Understand what each partner contributes, improve performance in a lasting way, and ultimately
transfer knowledge for long-term advantage.
4. CONCLUSION:
It is essential for the established supplier companies to prepare themselves for a future that brings with it immense competition,
globalization, new product development and generation of an environment that insists business innovation. They should
respond by adopting a new approach to strategy – one that combines speed, openness, flexibility, and forward-focused
thinking. It is an era of new opportunities and regeneration especially for executives who realize the importance of change
and innovation, for mature companies, which acknowledge that the time for slow change is over and it is important to
accept changes in their own best interest. To survive it is essential that companies must be able to adapt and evolve.
Businesses operate with the knowledge that their competitors will inevitably come to the market with a product that changes
the basis of competition, the ability to change and adapt is fundamental to survival (Trott, 2005). Christiansen (2000) states
that specific innovation management systems such as idea generation methods, funding systems and project management
methods also have a profound impact on the performance of innovation and innovative ideas and not to forget the final
intervention of the senior management in specific projects. Required are flexible companies and mindsets, which can
accept failures before they look out for results and a clear definition for innovation. To innovate is a mindset, as earlier
stated it’s not a one-time event; innovation should be incorporated as a daily schedule of each employee. If we fail to
innovate, we fail to move forwards and to accept any barriers to the movement of the innovation frontier within the business
process is unacceptable (Pitt, 2005).

The business environment today is one of intense global competition, rapid technological change and demanding consumers.
Firms operating in this environment are challenged by consumers to rapidly develop wider and innovative product lines,
that encompass greater technological sophistication and quality, yet are low priced. At the same time, global competition
has forced corporations to seek new markets, which in turn has speeded up this cycle of product development, innovation
and simultaneously created “world” markets. However, firms are finding that the costs of increased research and development
and entry into new markets are formidable. Today’s corporations are realizing that the days of large, vertically integrated
businesses are rapidly vanishing, that one firm can no longer afford (monetarily and/or organizationally) to maintain
sophistication in all levels of technology, develop distribution channels in multiple countries or develop new markets.
Rather, as a means of meeting the combined challenges of entering or maintaining markets with new, better products, many
firms are realizing that they must find outside partners to share the risks and, hence, are forming collaborative alliances.
The Buddhist principle of “dependent co-arising” states that every recognizable entity on every scale of existence participates
in the universal exchange of energies, supporting and being supported by the existence of others. Future trends suggest that
the kinds of interdependent communities described in this paper will play an increasing role in a company’s ability to keep
pace with the level of complexity in its world and the amount of innovation required to compete. As global corporations
continue to grow significantly, covering more countries, employing more people and addressing more market sectors, the
knowledge pool is growing while the organization’s capability to leverage that knowledge is effectively decreasing. As the
demands of customers become ever more sophisticated and change more rapidly, old organizational cultures become barriers
to keeping up with demand, and responding with innovative products and solutions.
To manage external partnerships, managers must continually assess when experimentation is moving away from the guiding
values and core mission of the company. Such a balance between adaptation and innovation is essential if knowledge
generation is to continue to feed the strategic aspirations of the firm while ensuring the basics are taken care of.
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Chinese Sweatshops: The Result of Outsourcing By Global
Business Giants
*Indrani Majumder
“The difference between the money price of labour in China and Europe is still greater than that between the money price
of subsistence; because the real recompence of labour is higher in Europe than in China.”1
*Adam Smith 2
“China does not have to depend on having clean manufacturers to get work — what China has is incredible mass and
economies of scale,” 3
**Frost
“I was dealing with a society that had no rules; or more accurately, plenty of rules but they were seldom enforced. China
appeared to be run by masterful showmen: appearances mattered more than substance, rules were there to be distorted and
success came through outfacing an opponent”4
***Clissold, former head Asimco
Everywhere on this earth where there was enormous surplus, perhaps the ultimate destination of desperate workers were
the sweatshops. It has its origin between 1830 and 1850: A special kind of workshop where a middleman, “the sweater”,
directed the workers in garment making “under arduous conditions” was termed as sweatshops. To fulfill their minimum
basic needs, the workers aggressively went there as they had no other way. Analysts sometimes used it to describe a
workplace which was “physically or mentally abusive, or that crowds, confines, or compels workers, or forces them to
work for long and unreasonable hours, as would be the case with penal labor or slave labor”. Charles Kingley in his writing
‘Cheap Clothes & Nasty’ in 1850 used the term “sweater” for the subcontractor and “sweating system” for the process they
did their business. It was the National Labor Committee5 which brought the sweatshops “into the mainstream media”.
Though trade unions, minimum wage, fire safety codes etc. reduced the number of sweatshops around the developed
countries, it could not stop the increasing trend of these units in the developing countries. Analysts view was that it’s the
globalization and an urge for excellence of developing nations that kept alive the sweatshops around the globe.
Most of the Chinese manufacturing units like toy manufacturing units, clothing, shoe, electronics and many others could be
designated as sweatshops (still in the early 21st century). Since the Chinese Laws were not being enforced strictly, the
sweatshops thrived in the same manner as they had in the past. The Chinese did not have any other option to choose and “to
put food on the table” they rushed to the sweatshops to help the MNCs or their subcontractors in China to cope up with the
rapid global competition to produce the quality products at the cheapest possible price.
OUTSOURCING: THE URGE OF 21ST CENTURY
“Global sourcing has become a corporate mandate for both leading corporations and global service suppliers,” stated Atul
Vashistha, CEO of neoIT6. Enterprises outsourced various functions for many kinds of reasons. Outsourcing institutes
placed comparative cost advantage in the first position. A greater access to the world-class capabilities and improvement in
the company focus were among the others. Martin Cole, managing partner for Outsourcing and Infrastructure Delivery at
Accenture7 explained that “Traditionally, the outsourcing market focused on infrastructure, data operations and cost takeout
1
Wealth of Nations, 1776
2
Adam Smith, FRSE, (baptized and probably born June 5, 1723 O.S. (June 16 N.S.) – July 17, 1790) was a Scottish political economist and moral
philosopher. His Inquiry into the Nature and Causes of the Wealth of Nations was one of the earliest attempts to study the historical development of
industry and commerce in Europe. That work helped to create the modern academic discipline of economics and provided one of the best-known intellectual
rationales for free trade, capitalism, and libertarianism.
3
Reuters: In China, Toil Works for Business: http://www.chinalaborwatch.org/Honest%20Toil%20Reuters.htm?article_id=50301
4
“A disorderly heaven”, www.economist.com, March 18th 2004
5
The National Labor Committee in Support of Human and Worker Rights, commonly known as the National Labor Committee or the NLC,
is a non-profit NGO founded in 1981 by David Dyson to combat sweatshop labor and United States government policy in El Salvador and
Central America. Today the NLC has offices in New York City, Bangladesh, and Central America; when Dyson left to become Executive
Minister of Fort Greene’s Lafayette Avenue Presbyterian Church, Charles Kernaghan became Executive Director.
The National Labor Committee engages in fact-finding missions throughout the world to expose and document labor and human rights
abuses; they then use this information to raise public awareness in an effort to change corporate policy.
6
San Ramon, California based neo IT is a consulting firm that is singularly focused on helping leading firms improve operations and grow
their business by capitalizing on services globalization.
7
Accenture is a global management consulting, technology services and outsourcing company. Committed to delivering innovation,
Accenture collaborates with its clients to help them become high-performance business and governments. Accenture has more than
110 offices in 48 locations.
* Lecturer, Department of Commerce (PG , Marketing), Rashtraguru Surendranath College, Barrackpore, West Bengal. Email: ndrnmjmdr@yahoo.com

as primary drivers,”. “Now, in addition to reduce the cost of operations, enterprises are looking to outsource business areas
to achieve greater flexibility and to gain greater ability to respond nimbly. It is critical to be able to respond to changing
market conditions and a competitive environment frequently driven by mergers and acquisitions”. According to Dr. James
Brian Quinn, a professor at Dartmouth College’s Amos Tuck School and author of Innovation Explosion, “Outsourcing to
the best in the world ups the value and lowers the cost”. Allie Young, a chief analyst at Stamford, Conn.-based Gartner, Inc.,
explains that the “outsourcing market has been shifting gradually from a cost focus to a business focus, and that a new
emphasis on access and speed to market has emerged. The focus now is on business outcomes, not just infrastructure. This
is about taking advantage of relationship types and models, and a variety of contracting modes and structures”. According
to Gartner Inc8 in the year of 2003, outsourcing business had generated $298.5 billion. Forrester Research estimated that by
2015 as many as 3.3 million US jobs and $ 136 billion in wages will move to China, India, Russia ,Pakistan & Vietnam.
China, India, Vietnam, Honduras these developing countries encouraged outsourcing for their country’s benefit, to relieve
their economy from the vicious circle of poverty. To these countries, outsourcing was the only way to provide employment
to their people and to give a scope to their economy to make enormous profits and in this way to make a position in the
world economy. According to a worldwide poll conducted by Pew Global Attitude Survey, “more, not less economic
integration is good for the world”. Director of Development Policy of World Bank, David Dollar argued that “globalization
indeed helps to reduce poverty and inequality”. To support his argument he pointed out that since 1980 world’s extreme
poor decrease significantly. But the result of this game was not the win-win one. Human rights could not take place in the
victory-stand. It became a spectator of the award-distribution ceremony of this game.
CHINA AS AN OUTSOURCING DESTINATION
MNCs Interest in China
In the early phase of 21st century, there was more and more talk about China becoming the world’s factory. Most of global
leaders recognized China as an emerging market and as the newest destination for outsourcing. During the period 2003-
2007, outsourcing growth in China was 18.5% (Exhibit1). For decades, China led outsourcing charge of manufacturing and
textile goods.
Exhibit 1
Source: The Changing Face of China ATKEARNEY

http://atkearney.com/shared_res/pdf/ChinaOffshore_S.pdf
Gradually it became the hottest destination offshore (Exhibit 2). Many reasons influenced both the big giants all over the
world and start-up companies to move towards China (Exhibit 3). Companies like IBM, Qualcomm, Agilent made the
decision to move to China because of the sheer operational scale that was possible because of labor pool in China (Exhibit
4). With a population of more than 130 million, China was widely known to have low labor costs with a lower growth rate
compared to other developing and developed countries (Exhibit 5). The average hourly manufacturing compensation in
2002 was $0.57, which was just about 3 percent of the average hourly compensation of manufacturing production workers
in the United States and of many developed countries of the world. Regional competitors in the newly industrialized
8
Gartner, Inc. is the leading provider of research and analysis on the global information technology industry

Exhibit 2
China : World’s Most Attractive Offshore Location
Source: The Changing Face of China

ATKEARNEY http://atkearney.com/shared_res/pdf/ChinaOffshore_S.pdf
Exhibit 3
Source: The Changing Face of China

ATKEARNEYhttp://www.atkearney.com/shared_res/pdf/ChinaOffshore_S.pd
Exhibit 4(a) China’s Share in Total World Exhibit 4(b) Inter country comparison of
Population dependency ratio

economies of Asia had, on an average, labor costs Exhibit 5(a)
more than 10 times those for China’s Wages in different provinces of China in 2005
manufacturing workers and Mexico and Brazil
had labor costs about 4 times those for China’s
manufacturing employees. In labor intensive,
low-tech industries such as textile, garments &
household products, China took away FDI and
export share from Thailand, Indonesia, Malaysia
and Philippines.
In the late 1970s, China started its export strategy
with a greater emphasis on coal and petroleum.
By the 1990s, exports were predominantly
composed of labor intensive manufactured
products: textiles, apparel, footwear, toys and
sporting goods alone accounted for 40% of the
total exports. Electric equipments—such as
telephones, television sets, videocassettes
recorders made up another 10%. According to
Nicholas Lardy, these products were based
overwhelmingly on processing and assembly
type activity and thus they too were labor
intensive. In 2004 & 2006, the FDI growth rate
of China was14% & 8% simultaneously. By Source: http://neweconomist.blogs.com/photos/uncategorized/
1990s, many foreign investors discovered China 20060318_chinaswagecostchallenge_bw.gif
as an optimal place to manufacture and assemble
low tech goods requiring abundant quantities of
cheap labor. Cost minimizing firms thus naturally regarded the country as an important place to invest and conduct operations.
China’s Interest to Open the Door:
An urge to modernize the Chinese economy led China to open its doors in 1970. Since late 70s its GDP gradually increased
with an increase in FDI (Exhibit 6). One of the basic objectives of the Chinese government policy to encourage foreign
capital was “exchanging technology with market”. “Socialism with Chinese characteristics”9 was started in 1978 in the
People’s Republic of China (PRC). The initiative was taken by pragmatists within the Communist Party of China (CPC) led
by Deng Xiaoping which were ongoing as of the early 21st century. Opening to the outer world was central to the country’s
development. About 45% of its exports were by Foreign-invested enterprises. In 2005, its foreign exchange reserve exceeded
$800 billion and in November 2006, it further exceeded to $1 trillion which placed it in the number 1 position in this field.
CHINESE SWEATSHOPS: A RESULT OF REFORM
Two forms of ownership of industrial enterprises existed in China before the economic reforms in 1978: “all people’” ownership,
which was changed into “state ownership” in the late 1980s, and collective ownership (owned by villages or communities). To
describe the industrial employment and its associated benefits the phrase “iron rice bowl”10 was often used. With low wages,
employees used to enjoy lifetime employment, guaranteed pension benefits, health care, housing, and education for dependents,
paid maternity leave, and other such benefits that created a high level of security and societal equity. In addition to that, many
Chinese workers engaged in decision making and management issues at their place of employment.
In 1978, the Chinese government began an official “reform” era which initially included: breaking up of rural communes;
designating Special Economic Zones (SEZs); and introducing “market mechanisms” into state-owned enterprises (SOEs).
“Architect of China’s reform”, the “capitalist roader”, Deng Xiaoping consolidated power in late 1978 with an objective to
take China into a new direction. During his visit to the U.S. in January 1979 (the first official state visit between the two
countries), he became deeply impressed by the material wealth of the U.S. Reform slogans such as “to get rich is glorious,”
and “development is the absolute need” was the consequence of his impression.
9
“Socialism with Chinese characteristics” is an official term for the economy of the People’s Republic of China which as of 2006 consists of
mixed forms of private and public ownership competing within a market environment.
10
“Iron rice bowl” is a Chinese term used to refer to an occupation with guaranteed job security, as well as steady income and benefits. Traditionally,
people considered to have iron rice bowls included military personnel, members of the civil service, as well as employees of various state run
enterprises (through the mechanism of the Work unit).

Exhibit 5(b)Inter country comparison of compensation of production over the Period 2003-2009
Source:http://knowledge.wharton.upenn.edu/papers/download/BCG-Wspecialreport-final.pdf

Exhibit 6(a)
Source: http://en.wikipedia.org/wiki/Image:Prc1952-2005gdp.gif#file
Exhibit 6(b)China’s Economic Growth Since 60s
Source: Why Has China’s Economy Taken Off Faster than India’s? June 2006 David E.
Bloom, David Canning, Linlin Hu, Yuanli Liu, Ajay Mahal, and Winnie Yip1 http://
www.hsph.harvard.edu/pgda/Bloom_Canning_China_India.pdf
In late 1979, the government selected several thousand state-owned enterprises to operate on a profit making basis. In early
1980, the program was expanded to cover 16 percent of SOEs. After a short break of 4 years the program resumed in 1984
with a mission “smashing the iron rice bowl”. The objective was to increase the labor productivity by ending the lifetime
job security. Some new bonus and profit sharing schemes were implemented to get better results.
With a little halt after the protests at Tiananmen Square11, the market oriented reform was started again in 1992 with a
greater pace with Deng Xiaoping’s “Southern Tour”. Privatization of collective enterprises and SOEs further increased.
Tax advantages were extended to private and foreign businesses that were not given to SOEs. Unable to compete with
advantages given to foreign-owned firms, SOEs fired millions of workers and decreased social benefits during this period.
With a surplus of workers and no competition from diminishing SOEs, industries had tightened their grip on workers and
sweatshops had become the norm. Especially in the coastal SEZs—where most foreign corporations did business—Chinese
11
The Tiananmen Square protests of 1989, also known as the Tiananmen Square Massacre, June 4th Incident, or the Political Turmoil between Spring and
Summer of 1989 by the government of the People’s Republic of China, were a series of demonstrations led by students, intellectuals and labour activists in
the People’s Republic of China between April 15, 1989 and June 4, 1989. The demonstrations centred on Tiananmen Square in Beijing, but large scale
protests also occurred in cities throughout China, including Shanghai.

workers earned lower wages in terms of purchasing power, fewer benefits, longer working hours, increasing work-related
injuries, and other associated problems .
CHINESE SWEATSHOPS: THE PLAYGROUND OF MNCS
The Walt Disney Company is one of the largest media and entertainment corporations of the world. Founded on October
16, 1923 by brothers Walt and Roy Disney as a small animation studio, in the year 2005 it earned total revenue of US $31.9
billion. This revenue was not generated from one source. It was from the largest Hollywood studios and eleven theme
parks, two water parks and several television networks ( including the American Broadcasting Company12). Wide variety of
consumer products from garments, stuffed toys, to plastic toys, and many other accessories such as traveling kits, hair
accessories, belts, bags, caps, and watches. In late 20th century, Disney’s production lines had been shifted to China, Indonesia,
Thailand, Sri Lanka, and El Salvador where abundant cheap labor was offered. Government suppression along with the
cheap labor pool helped China to take no. 1 position in Disney’s outsourcing destination list. Two decades ago HK, Taiwan,
and Korea were the production bases for Disney. Labor cost in Indonesia was much lower than that in China but political
instability and the government failure to control the riots had left it behind. Moreover, workers in China were not allowed
to organize themselves and had no collective bargaining power. Disney and its licensee took this advantage.
Most of the workers of Disney in China were from rural areas in inland provinces like Sichuan, Hunan, Hubei, Henan,
Jiangxi, Shaanxi, Anhui and Guangxi. Their families’ livings always depended on their farms. Their low level of annual
household income (US$24-49) forced their young members to rush to the sweatshops in Southern China to explore more
job opportunities to gain more money. As described by per the report by HKCIC on February 2001, the conditions of the
workers in Disney factories in China were really heart breaking. Lower wage, longer working hours, unhealthy working
environment were the facts in those units (Exhibit 7).
According to the AFL-CIO13, “Wal-Mart is the single largest importer of foreign-produced goods in the United States”.
According to Lee Scott, President and Chief Executive Officer “Each of our business units continues to thrive to innovate
and to bring its customers quality products at affordable prices.” and “When it comes to our performance during fiscal
2006, we have a lot to be proud of at Wal-Mart. Our net sales rose 9.5% to a record $312.4 billion. Net income rose 9.4% to
a record $11.2 billion. In 2004, their trade with China alone constituted approximately 10 percent of the total US trade
deficit. In the year of 2004, along with China, about 60% of its products were imported from South Korea, Philippines,
Malaysia, Cambodia, Thailand and Vietnam which were just 6% in 1996.
Panyu United Stationery Products Factory is located in Shipai Village, Dongyong Township, Panyu County, Guangzhou,
Guangdong, in China. It is a Holiday season card, soft and hard-covered notebooks producer and was a supplier for Wal-Mart.
According to a report by China Labour Watch in December 2005, (Holiday Cards of Abuse) over 2000 workers were working
there, produced Christmas related goods for Wal-Mart of worth $768,092 in just a period of 10 days. The messages of the cards,
its colorfulness hardly matched with the lives of the makers of these cards. As per the study of China Labor Watch (2005), the
workers in the Panyu employees used to work 11½ hours a day and 80 ½ hours a week and during the peak holiday rush period
(July, August and September) they had to work 13 ½ hours a day (7.30 am to 9.00 pm), seven days a week, i.e. 94 ½ hours a
week with a return of just 34 cents an hour (20% lower than China’s subsistence-level legal minimum wage).Workers were
forced to work 40 ½ hours of overtime a week (exceeded China’s legal limit by 487 percent. During the slow season also the
workers were required to put in 12 hours shift with 2 hours off for lunch and supper, 6 days a week and 20 hours of overtime per
week and 86.6 hours of overtime each month which exceeded China’s legal limit by 2.4 times. Workers were housed in dark and
gloomy dorm rooms. The workers did not have any right to freedom of association, to organize and demonstrate for more
humane conditions. The factory management prohibits husbands or wives from even visiting the dorm to see their spouses.
During the holiday season maternity leave, leave to get married or to bury a family member who has died were without pay
and authorities strictly denied workers their legal right to national holidays, especially the most important Spring Festival.
Lungcheong Toy factory in Zhouwn Industrial District, Dongguan City, Guangdong Province, produce battery-operated
radio controlled toy cars and trucks for Wal-Mart, Mattel, MGA and others. About three thousand workers working at the
Lungcheong Toy factory in Dongguan City in Guangdong Province specialized in manufacturing radio operated plastic toy
trucks—like MGA’s “Big Foot Ragin’ Monster Truck”. Wal-Mart store purchased about $64.97 in December 2005. As of
December 10, 2005, the legal rights of the Lungcheong Toy workers continued to be systematically violated.
12
“The American Broadcasting Company (ABC) operates television and radio networks in the United States and is also shown on basic cable in Canada.
Created in 1943 from the former NBC Blue radio network, ABC is now owned by The Walt Disney Company and is part of Disney-ABC Television
Group. Its first broadcast on television was in 1948”.
13
American Federation of Labor and Congress of Industrial Organizations, commonly AFL-CIO, is America’s largest federation of unions, made up of 53
national and international (including Canadian) unions, together representing over 9 million workers. The AFL-CIO was formed in 1955 when the AFL
and the CIO merged after a long estrangement. From 1955 until 2005, the AFL-CIO’s member unions represented virtually all unionized workers in the
United States. Since 2005, when several large unions split with the federation, the American Federation of State, County and Municipal Employees
(AFSCME), with over a million members, is the largest union in the AFL-CIO.

Exhibit 7: Working Conditions Of Disney factories in China as of 2001

Source:Be aware of Mickey Disney’ Sweatshop in South China: A report by HKCIC, February 2001
http://www.somo.nl/monitoring/reports/disneychart.pdf
Women workers at Lungcheong were routinely denied their legal right to three months maternity leave with pay. The
factory authority illegally denied Health Insurance to workers and work injuries resulted in termination of work (Article 72
of China’s Labor Code). As per the China Labor Watch’s statement, the new workers had to sign an agreement that stated
on the job injury was not the company’s responsibility.
All overtime work was mandatory in Lungcheong. During the peak season (May to early December), the standard shift was
from 8:00 a.m. to 9:00 p.m., or 13 hours a day, six to seven days a week. Violating the legal norms, the Lungcheong factory
did not pay for national statutory holidays, such as New Years. Authorities also denied legal rights to paid leave to get
married, for the birth of a child, or to bury family members.
There were many young girls below the age of 16 who are working in the factory illegally .As per the study, before inspections,
supervisors used to remind the underage workers to remember the false names and ages on their factory ID cards.
In 2004, a union was established at the Lungcheong plant. But workers hardly knew much about the union’s activities.
They did know very well only one thing that they had to pay 1 Yuan (12 cents) per month to the emergency fund, meant to
provide assistance to destitute workers; especially for new workers who arrived penniless from the countryside.
Lungcheong subcontracted large orders to the Xingyue Toy factory in Guangzhou, where working conditions were much
worse than at Lungcheong. At Xingyue, workers could be at the factory up to 19 hours a day, seven days a week, while
earning just 21 cents an hour. Some Lungcheong subcontractors paid wages as low as 13 cents an hour.
In March 2005, the legal minimum wage in China was raised from 450 Yuan ($55.49) a month to 574 Yuan ($70.78). The
Lungcheong factory actually raised the rate to 570 Yuan. This raised the hourly wage only a nominal 27 percent (from 32
cents to 41 cents).
According to the workers, the wage increase was basically an eye wash. To cope up with the increased wage rate, the
management sped up production lines and increased production quotas. At the same time, fees for dorms and food were
increased. For a 11 feet by 20 feet dorm room (contained 20 bunk beds, three fans), the company charged 30 Yuan ($3.70)
per month to 50 Yuan ($6.17). Each floor had one public bath and shower room. Fees for food increased from 110 Yuan
($13.56) a month to approximately 183 Yuan ($22.56) a month, while the quality of the food further deteriorated.

Lungcheong and its subcontractor Xingyue Toy factory were not the distinct cases. Perhaps it was the Toy industry’s
scenario (Exhibit 8).
Exhibit 8: Working Conditions in Different Industries in China in 2006
Source: Falling Through the Floor. Migrant Women Workers’ Quest for Decent Work in Dongguan,
China. China Labour BulletinCLB Research Series: No. 2, September 2006http://gb.china-
l a b o u r. o r g . h k / g a t e / g b / w w w. c h i n a - l a b o u r. o r g . h k / f s / v i e w / r e s e a r c h - r e p o r t s /
Women_Workers_Report.pdf
Wellco Factory, in Dongguan, Chang’an is a Korean-invested factory was contracted by Nike. As of December 2005, near
about eight thousand workers were working there without signing any contract with the factory. In the sewing department
of the factory, all the workers were women and mostly they were between 18 and 25 years of age.
The workers worked there about 11 hours a day with $30-$42 per month (in 2005). In addition to that, all the workers must
work 2-4 hours overtime with just $0.19-$0.33 per hour of overtime which again violated the Chinese Labor Law and any
kind of refusal caused a fine of $1.20 - $3.61. Sometimes the workers lost the entire day’s pay. After deducting the charges
for housing, meals etc, a worker in a month just got $36.14-$72.29, including overtimes. Every month workers got only 2-
4 days off (those who were working at the factory for one year used to get an annual leave of five days and in the case of
those workers who had been serving since two years or more, they were entitled to an annual leave of seven days). The
workers were working there by a quota system. They had to complete the given assignment in the working day. If someone
failed to do this, they forcefully had to participate in “prolonged work” without any pay.
Moreover at the time of their joining, the workers had to pay a deposit, which was verbally promised as refundable. But
the fact was that it was very difficult to reclaim this amount.
2005s survey of China Labor Watch revealed that the working conditions at the factory were too dangerous for the health
of the workers. The workers and their colleagues were suffering from dizziness, skin irritations, headaches and dyspnea.
The supervisors did not regard the workers’ well-being at all.
Talking was strictly prohibited in working hours in Wellco factory. And if the workers disobeyed this rule, they were fined
$1.20-$3.61.
Most of the workers at Wellco factory were unaware about the factory Code of Conduct. The factory had no trade union.
In March 1997, the assembly production department went on strike because the factory did not pay them their wages. All
the workers who went on strike were fired.
According to several workers, the factory employed children aged between 13-15 in the sewing, handwork and cutting
departments which was a clear violation of China’s Labour Law (which did not allow children under 16 to be employed)
and Nike’s code of conduct (insisted not to employ children under 15).
Nority International Group Ltd was a shoe factory, located in Dongguan, Chang’an County. In 2005, about 6,000-7,000
workers, most of whom were women, worked there. This Taiwanese-owned factory used to produce shoes for Reebok. At
Nority, the normal work week, excluding overtime, was 12 hours a day (8am-11:30am, 12:30pm-4:30pm, and 5:30pm-
10pm), 6 days a week, 72 hours a week and 3-4 days off each month. Workers at Nority were often forced to work an
additional 2-5 hours of overtime (a gross violation of both Reebok’s Code of Conduct and the Chinese Labor Law). By
working in a clearly hazardous environment, bearing so much dust and noise pollution, excessive heat, dangerous fumes
and congestion, the workers used to get only $1.20-$1.45 per day whereas in Dongguan, minimum wage was $1.93 for 8
hours of work, overtime work gave a return to the workers $0.36 an hour ($0.10 below the legal minimum). A fine of $7.23
to $21.67 was charged if someone refused to work overtime and the person refusing to work overtime three days in a row
would be fired. Women workers were fired for becoming pregnant. The factory used to provide food and housing to their
workers by charging $3.86 per month for housing and $4.82-$8.43 for meals per month. Excluding the benefits and adding
the overtimes, each worker made a net amount of $60.24-$72.29 per month.
Here also the workers worked in a quota system. Any failure to fulfill the quota during work hours resulted in overtime
work without pay. At the time of joining, the work deposition of one month’s salary was mandatory which according to the
authorities was refundable, but very rarely they received the amount after they left the job. Before work, calisthenics was
mandatory and whoever missed it could be fined. Talking during the work was strictly prohibited at Nority and there was
also a fine system for the violation of this rule. Per offence, more commonly, the authority charged fines of $7.23-$21.69
and sometimes they could be told to sweep the floors as a warning for minor offences.
KTP Holdings Ltd in Bao’an and Donguan counties produced mostly for Reebok. Adidas and LA Gear was the other
purchaser of KTP. 45-50 percent of dealings of KTP were with Reebok. 4,000-6,000 workers from Hunan, Sichuan, and
Jiangxi provinces were working at the factory of Bao’an. Most of them were women aged between 22-25 years.
The workers at KTP were paid by piece rate. Wages ranged from $60.24-$72.29 per month including the overtime
(compulsory) for 8am to 11 pm schedule, and 2days off in a month(during the peak season the workers did not get a single
day off). As per factory regulation, calisthenics at 7 am was mandatory.
Workers who live in the factory dorms had to pay $9.04 per month. Child care, social security benefits, medical insurance
and bereavement leave were not provided. Fines were common in this factory as well. If someone did not attend the
morning exercise session, then they were fined. Refusal to work overtime would cost a fine of $1.20.There was no trade
union or collective bargaining in the factory.
A Taiwanese shoe company, Yuan Yuen Industrial Holdings Co. Ltd., in Dongguan near the first Special Economic Zone
in China was established in 1989 and from its establishment it had a contract both for Nike and Reebok. From December
2005, about 50,000-60,000 workers from Hunan, Henan, Jiangxi and Hubei were working there. It was registered in Hong
Kong and belonged to the Pao Chen Cooperative. According to a business magazine published in Taiwan, the Pao Chen
Cooperative was the biggest sports shoe producer in the world. About 80 percent workers of Yue Yuen were women and
most of them were aged between 18-22 years.
As per the study, the workers in this factory used to work additional 2 hours of overtime along with their daily norms of
10-12 hours - 60-84 hours in a week (16 hours more than the limit set by Chinese Labor Law) and get a very nominal
return to their services, $48.19 and $72.29 per month including overtime. The respondents reported to the enumerators of
China Labor Watch and National Labor Committee in their survey in December 2005 that failure to work overtime
resulted in a fine. Nobody could leave the factory premises without completing their daily quota.
Social security benefits, health care, child care and bereavement leave were not provided by the factory, although they are mandatory
by law.Health care was also not provided on a regular basis, and less than half said health check-ups were given by the factory.
Workers complained about noise, air pollution and fumes. Many of them had skin irritations, and several suffered from
dizziness and headaches.
Participation in calisthenics was mandatory in Yue Yuen. Workers were not allowed to talk to their coworkers while working. Verbal
abuse and fines were popular methods of punishment in Yue Yuen. Many workers mentioned that for minor offences, they were charged
a fine of $3.61 and if the mistakes were major in the management’s eye, then the fines could be as much as $10.84.
The government trade union existed at the Yue Yuen factory. But it was not for the workers sake rather; it favored the
authorities more.

Almost all of the workers in the Yue Yuen factory had no knowledge of Nike’s or Reebok’s Codes of Conduct. The workers
who thought they knew about the Codes were often confusing them with the ISO9002 (the international quality control
standards which products must meet in order to be exported).
Panyu United Stationery Products, Lungcheong Toy factory, Xingyue Toy factory, Nority International Group Ltd, KTP
Holdings Ltd, and Yuan Yuen Industrial Holdings Co. Ltd were not distinct cases where there was a clear violation of
human rights. More or less every where the workers had to face the worst kind of exploitation (Exhibit 8 & 9).
Exhibit 9 Overtime rates in different industries in China in 2006
Source: Falling Through the Floor

Migrant Women Workers’ Quest for Decent Work in Dongguan, China
China Labour Bulletin
CLB Research Series: No. 2, September 2006
http://gb.china-labour.org.hk/gate/gb/www.china-labour.org.hk/fs/view/research-reports/
Women_Workers_Report.pdf
In their Blue Paper on “Developing Human Resources in China (Report No. 3)”, 2006 the Chinese Academy of Social
Sciences reflected the fact that 70% of China’s intellectuals died prematurely from overworking and the scene was much
more pathetic in comparatively advanced areas of eastern and southern coast. In July 2006, the journal Liaowang Dongland
Zhoukan revealed that at least 1 million people in China died from overwork each year in China.

TEARS IN SWEATSHOPS FOR UPLIFTMENT OF THE ECONOMY
Historical Perspective
The World Bank estimated that about 1/5th of human beings on the earth in the 1st phase of 21st century lived under the
international poverty line. And if one could trace the history then this figure was relatively better. World poverty has got
better largely due to the economic success of China and India, the two countries with the largest number of workers in
sweatshops. Economists opined that anti-sweatshops activities might be the cause of worse-off condition of workers in the
third world countries. They boldly stated that “Either you believe labor demand curves are spiraling downwards, or you
don’t”. In the UDCs, choice was not between the high-paid work and low-paid work rather it was between low-paid work
and unemployment and only the right choice might make the nation glorious.
Great Britain and United States used sweatshops as part of the Second Industrial Revolution. Economists’ view was that
sweated industries were the result of “flexible specialized production” which was an urge of the competitive era. Specialization
helped the producers to offer quality products to consumers. And flexibility led to full basket & time delivery of satisfaction.
A flexible producer could efficiently adjust himself with the market demand. To meet new demands, it could expand very
quickly and at the time of downturn could retract very efficiently and in this way became successful to optimize the cost of
operation. Collective efforts of all these flexible producers would ultimately be beneficial for the economy as a whole. They
did not at all obey the social responsibility of production as this was not costless and used to shift all onto society. These
producers used to avoid union rules and legal regulations and restrictions that set wages, benefits, and conditions by working
in hidden shops and moving frequently. They create a secondary labor market, which often involves the most vulnerable of
workers: immigrants (often illegal), young women, and the undereducated. All these were for the sake of society, for the
well being of the economy.
Domestic Manufacturers & Sweatshops
Developing countries needed foreign investment to continue their walking on the road of economic growth. This urge led
them to compete with the others on this earth who had the same will and this allowed the MNCs to dictate their purchase
price. Helplessly these producers tried to produce cheaply by minimizing worker salaries and benefits, and by demanding
the highest levels of productivity from their workers.
Wal-Mart, the retail-giant had a clear policy for their suppliers, “On basic products that don’t change, the price Wal-Mart will
pay, and will charge shoppers, must drop year after year”. They went with the slogan “Save more, Smile more”. Like Wal-Mart,
every retailer did know very well the law of demand. And in order to gain sufficiently, they offered the consumers to buy more
at “discount” prices and seek lowest-cost supplier. Retail chains pressure contracted manufacturers by refusing to pay more than
a rock-bottom price for manufacturing orders. Manufacturers coped-up with this financial squeeze not by compensating from
their own pockets, but by cutting workers’ wages and benefits, and by compromising workers’ physical safety.
One Study showed that in September 2005, Lungcheong Toy factory shipped 10,000 radio-controlled toy trucks (Item #
B7431) to Mattel, landed Customs value of which was total of $157,650. This included the entire cost of production
including all materials, labor (direct and indirect), shipping costs and profit to the factory. At Wal-Mart stores, a single
piece was sold by $29.97. So the mark-up of each truck was $14.40. Another survey by the American Chamber of Commerce
in Beijing during October 2006 revealed the fact that the profit margins for 42% of 1800 US businesses in China was
higher than their average world wide margin. Now the question is that was it the internal competition within the Chinese
economy or the unwillingness of the MNCs to guarantee the legal rights of human resources that was responsible for the
existence of Chinese sweatshops even in the ultra modern era.
Since 1992, Wal-Mart made its suppliers sign a code of basic labor standards. Likewise, others such as Nike, Reebok etc
had their own code of conduct. They did just have only one responsibility that was the investigation of compliance of
these rules and regulations. Nike’s Code of Conduct clearly stated that “employer should provide a safe and healthy
working environment to prevent accident and injury to health”, “workers are entitled to at least one day of rest every
week”, and “workers should have the right to organize”. It was totally against of coerced labor, it insisted not to employ
children under the age of 15. Reebok’s code of conduct stated that workers “are not to work more than 60-hours a week”,
“should have the freedom to choose whether they want to work overtime”. So it’s the manufacturers’ responsibility, to
take care of the human rights. MNCs could do only one thing that was the investigation of the factory environment and
could cancel the agreement if any violations of code of conduct could be traced and this was the only by which they could
respect the human rights. According to Chinese factory managers, all these standards settled by the foreign companies
were one of the promotional tools; it helped them to prove that they were followers of responsible capitalism.
Analysts’ view is that the MNCs didn’t have any willingness to respect human rights. In most of the cases, the factory
authority came to know of the visits in advance. And naturally the authorities managed everything as per the code of
conduct at the time of their visits in order to get a green signal to proceed. Workers also could not be so brave to go against
the factory authority as by doing so they might loose their job.
(Continued on page 40)
Special Economic Zones In The Emerging Economic Scenario:
Issues And Challenges
*Prof. N.K. Sharda
**Dr. Kulbhushan Chandel
***Dr. Raj Kumar
HISTORICAL PERSPECTIVE OF SEZS
China is a pioneer in introducing the concept of SEZ as a part of economic development strategy that it adopted in 1978,
nearly after the 30 years of self-imposed isolation. The need of such economic adjustment in China was felt primarily due
to the reasons that the per capita GNP of China had grown at an average annual rate of 2.5-3.0 percent since 1957, well
below the average of its neighboring countries like Japan and South Korea. The total factor productivity of the Chinese
industry had been either stagnant or declining since 1957. Hence, Deng Xiao-Peng successfully put economic reforms in
the Central Committee of China, which were consequently adopted by the committee. Later, ‘Open Door Policy’ (Kaifang
Zhenze) was formally adopted by Central Committee of China, which visualized that inflow of capital, particularly foreign
direct investments (FDI) and portfolio investments (FPI) can play a significant role in the economic development. Hence,
it was decided to establish SEZs to attract the inflow of foreign investments by exempting investors from regulations
applicable in China. It also provided an excellent infrastructure. In this series, four SEZs had been established by China
along the south-east coast - Shenzhen, Zhuhai, Xiamen and Shantou by 1980. These SEZs were aimed at to serve as the
testing grounds for economic and social reforms. Second, their locations-Shenzhan right next to Hongkong, Zhuhai, adjacent
of Macao and other two opposite to Taiwan-were chosen to facilitate the eventual reunification of China. In 1984, the
concept of SEZs was extended to another 14 coastal cities and Hainan island. To improve the investment in China, new
provisions were made in 1986 and cooperative joint venture law was passed in 1988. In 1995, the concept of SEZs was
extended to Shanghai. Initially only neighboring countries invested in the Special Economic Zones (SEZs), but later on, the
success of SEZs across regions encouraged other countries also to invest in China due to the investment friendly policy
adopted by the government. The policy of SEZs was highly successful to attract foreign investment in China. China’s
approach has been constantly pragmatic to invite foreign investors from every source and allow them to attain the benefits
of the country’s competitive advantages in low labour cost and growth potential in the backward areas. The largest share of
FDI in China has been in the manufacturing sector, this is about 60 percent.
The success of SEZs policy in the transformation and development of Chinese economy highly impressed the Indian
counterparts and in the year 2000, Indian Union Commerce Minister, Murasali Maran also visited China to have an over
view of the experiment. He thought that the policy of SEZs can also be a useful and powerful instrument in the development
of the Indian Economy. Consequently, the policy of SEZs was incorporated in the 1997-2002 Foreign Trade Policy of India.
The annual trade policy 2000-01 was a landmark trade policy for introducing the concept of SEZ in India for the first time.
However, the policy on SEZs in India has failed to produce the desired results in its present form. Hence, the need to make
certain reforms in SEZs policy was realized. The Ministry of Commerce started serious deliberations over making SEZ
policy a successful instrument for the economic development and it was decided that government should enact a separate
SEZ Act. The act was passed by the Indian Parliament in May 2005 which became effective from 10th Feb 2006. The SEZ
Rules 2006 also came into effect the day SEZ Act became effective and extend to the whole of the Indian territory including
J &K. It also overrides any provision, which is inconsistent with the current Act. Globally, SEZs are known by the different
names such as Free Trade Zones, Export Processing Zones, Coastal Economic Open Zones, Economic and Technological
Development Zones etc. It is evident that in manufacturing industries, about half of the FDI has been in labour intensive
products. FDI in service sector contributes about 25 percent of the total investment in China. The overseas Chinese community
appears to be a major investor in China. Due to huge inflow of foreign capital in China, the economy is fast integrating with
the global economy. In this regards, the experience of SEZs have proved to be very significant and helpful in China.
SCOPE:
The concept of SEZs had gained much significance in the present economic scenario because it is essential to integrate
National economy with the World economy. This concept has already proved its vital relevance in the economic integration of
South East Asian Countries and China with the global economy. Though, the concept of SEZs has been adopted by the Government,
yet the social, political and economic circumstances of China and South East Asian Countries are quite different from that of
India. Therefore, there is a need to implement the philosophy of SEZs in India cautiously and transparently. It is also evident that
only few studies have been carried out in India on SEZs which establish the need to critically analyze the
* Director, ICDEOL, Pro-Vice Chancellor, Himachal Pradesh University, Shimla, Himachal Pradesh.
**Assistant Professor, Dept. of Commerce, Himachal Pradesh University, Shimla, Himachal Pradesh.Email: kulbhushanchandel@gmail.com
*** Head, Department of Commerce, Govt. College, Theog, Shimla, Himachal Pradesh.

concept of SEZs. In the present research paper, an attempt has been made to evaluate the issues, challenges and implications
of SEZ policy in the emerging economic scenario in India.
OBJECTIVES:
The major objectives of the study are:
1) To examine the Government Policy on SEZs.
2) To analyze the issues and challenges of SEZs in the present economic scenario and to make certain suggestions.
METHODOLOGY:
SEZs policy is a very wide subject. It has all-round impact on Indian economic, social, political and technological environment.
The scope of the present study includes SEZs Policy Act 2005, WTO, IMF, World Bank and certain other SEZ related
studies. It also encompasses the Indian Industrial sector, external sector, agriculture sector, social sector and environmental
analysis both social and biological. SWOT analysis has been applied to analyze the issues and challenges of SEZ in the
emerging economic scenario. Delphy method is also used to analyze the government policy on SEZs.
SEZ POLICY IN INDIAN SCENARIO
The SEZ Act 2005 and SEZ rules 2006 provide enough guidelines to the developer, Govt. and entrepreneur of SEZ units,
for the establishment, development and management of SEZs in India. The act specifically defines the SEZs as “Duty Free
Enclaves” within a country, which are to be treated as foreign territory for compliance of various legislation and in particular
fiscal legislation. These zones are called special economic zones as they are governed by the special legislative policies and
system, which are not otherwise applicable in India. The philosophy of SEZs was adopted in India for the attainment of
economic objectives such as: to enhance foreign trade, to attract foreign investments, technological and know how
advancement, infrastructure development, development of backward regions, employment generation etc. It was observed
that why the policy of export promotion zones established in the past had not been very successful and why the government
has to shift to the policy of SEZ. It was also decided to convert the four former ‘export promotion zones’ Viz., Santa Cruz,
Kandla, Vizag and Cochin into SEZs. The SEZ Act States that SEZs can be established by the central government, State
Governments or by any person individually or jointly for manufacturing the goods and rendering the services or for both or
for trading and warehousing activities. The application for setting up an SEZ has to be made by the developer to the State
Government. The government has to forward the application to the Board of Approval within 45 days of receipt of application.
The application to set up SEZ can also be sent directly to Board of Approval. While forwarding the application, the State
Government has to ensure that the requirements for minimum area of land has been fulfilled or not by the applicant.
The SEZs are broadly divided into five categories such as multiproduct SEZs, sector specific SEZs, gems and jewellery, bio
tech, non conventional energy SEZ and free trade and warehousing SEZs. The minimum area required for the establishment
of these SEZs is 1000ha, 100ha, 10ha, and 40ha respectively. In case of special states, the minimum area required is reduced
to 200ha , 100ha, and 50ha in relation to multi product SEZs and sector specific SEZs respectively. No change of minimum
area requirement has been made in case of other SEZs. The special states include Assam, Meghalaya, Nagaland, Manipur,
Tripura, H.P., J.K., Sikkim, Goa and UTs. There are two separate designated authorities in the process of development of
SEZs i.e. Board of Approval headed by an Additional Secretary in the Ministry of Commerce and Industry and Approval
Committee headed by Development Commissioner. BOA is designated authority for the approval of SEZs and other related
issues and Approval Committee is the designated authority for setting up units in SEZ. There are two main players in the
development and establishment of SEZ i.e. developer and entrepreneur. Developer is a person who has been granted, the
letter of approval and develops the SEZ. Entrepreneur is a person who sets up a unit in the SEZ. The SEZ Acts offers various
incentives for SEZ Developers and SEZ units which are as follows.
INCENTIVES FOR DEVELOPERS
Duty free imports and procurement of goods for the development and operation of SEZ.
Income Tax exemption for a block of any 10 years in 15 years.
Freedom to allot developed plots to approved units on commercial basis.
Foreign funds to develop the townships.
CONCESSIONS FOR SEZ UNITS
A duty-free enclave that is treated as a foreign territory for trade and tariffs
License free imports.
Custom duty exemption on imports.
No excise on capital goods, raw materials procured in domestic market.
Supplies to SEZ units from domestic territory area (DTA) are treated as deemed exports.
100% income tax exemption for a block of five years, 50% for two years and upto 50% of ploughed back profit for the
next three years.
For offshore financing units, 100% income tax exemption for three years and 50% for two years.
Freedom to subcontract even abroad.
In manufacturing, barring a few sectors, 100% FD through automatic route.
No cap on foreign investment for 55% reserved items.
The developers of multi-product zones need to have a net worth of at least Rs 250 crores and a minimum investment of Rs
1,000 crores whereas for the developer of sector specific zones, it requires at least 50 crores as net worth and minimum
investment of Rs 250 crores. SEZs act issued the guidelines for the developers of sector-specific SEZs that they can build
maximum of 7,500 residential houses, a 100-room hotel, and a 25- bed hospital and have an office space of upto 50,000 sq.
meters in the non-processing area. While in multi-product zones, developers can build 25,000 residential houses, a hotel
with 250 rooms, a 100-bed hospital and office space of not more than 2.50 Lakh sq. meters. The area within the SEZ can
be classified as processing and non-processing area, which is demarcated by the Development Commissioner of SEZ. As
per the present guidelines, 25 per cent to 35 per cent of the area will be the processing area and 75 percent to 65 per cent area
will be the non-processing area. This non-processing area will be used for the development of social infrastructure. The
activities in the development of social infrastructure includes building of basic infrastructure, water and sewage treatment
plants, office space, shopping area, schools, houses, hospitals, recreational and sports facilities, restaurants and power and
gas connections. SEZs would provide world class infrastructure to attract local and foreign investments. Furthermore, the
State Governments will acquire the land at market rates. In the policy of SEZs, the question of land acquisition and potential
displacement has been left unattended by the Union Government because the land is under the jurisdiction of state subject.
It is pertinent that the Central Government approves the SEZs but the State Governments are responsible for allocating the
land and only those proposals for SEZs will be approved for which the land used is either wasteland or barren land or not a
very good farm land. The Board of Approval has decided that proposal for setting up SEZs on prime agricultural land would not
be cleared. The Central Government further made it clear that the area of double cropland should not be more than 10 percent of
the total area required for setting up of SEZs. While the balance 90 percent must be single crop, waste and barren land.
ISSUES, CHALLENGES AND IMPLICATIONS OF SEZS IN EMERGING ECONOMIC SCENARIO
In the emerging economic scenario, every country of the world is under immense pressure to increase the efficiency and
competitiveness. India has decided to go forward with the programme of economic reforms to enhance its competitiveness
globally. Therefore, adoption of SEZ policy is an outcome of this situation and the philosophy of SEZ has now come to stay.
What is essential is an effective implementation of the policy so that it could secure the twin objectives of economic
development and welfare of society. No doubt, the philosophy of SEZ has been very successful in China and it could be
equally helpful in India but the government should properly address the issues that are emerging out of the implementation
of SEZ concept. The issues, challenges and implications that may crop up out of implementation of SEZ policy are discussed
in detail as follows. The Agricultural sector of the economy will be worst affected by the policy of SEZs. Land, which is an
essential component is now receding due to the developmental activities and increasing population pressure. Consequently,
the land-man ratio is declining. The SEZ Act states that only those proposals will get approved which are on either barren
land or single crop land or only 10% of total land used for SEZ could be fertile land. This is very unfortunate on the part of
the Government that on one side, land is squeezing due to population pressure and on the other hand, Government is
framing such policies which are unfavorable for the agricultural sector. If we want to achieve the growth target of 8 to 10%,
then the contribution of the agricultural sector is essential for achieving this overall G.D.P. growth rate. But this is not
possible under the current policy of SEZs. The Government should review the policy of SEZs and should make laws that
only barren land or least fertile land should be used for SEZs. The land, which is cultivated land, permanent pastures,
grazing land, fallow land, village common land, cultivable waste, land under miscellaneous crops and trees should be
strictly prohibited to be used for SEZs. The life of a farmer is not only depended on cultivated land but also on pastures,
grazing land, forest land and common village land. Till date, the Government has approved near about 400 SEZs, which
according to an estimate require 2.80 lakh hectare land i.e. 2800 sq.km. area. Notwithstanding, the Government’s assurances
that no farm land will be given to SEZs developers, the State Governments are providing all types of land to these SEZs.
Many SEZs in Haryana, Punjab, Maharashtra, Andhra Pradesh, Madhya Pradesh, and in other States have mostly allocated
the prime agricultural land. Hence, agricultural land will be reduced by 2.80 lakh hectare. According to a report by Agriculture
Ministry, about 13 lakh hectare agricultural land have been used for non-agricultural purposes during 1999-2005. In 1999-
2000, the total agricultural land was 1942 lakh hectare which has been reduced to 1892 lakh hectare. The network of SEZs
will further affect the agricultural land. This decline in agricultural land will have a deep impact on the production of all
food grains. The production of food grains includes the production of cereals and pulses. The production of all food grains
in 2004-05 during Kharif season was 14.58 quintal per hectare and 20.54 qtls. per hectare during rabi season. If 2.80 lakh
hectare land is taken as base, then production of food grains will decline by 2.80,000 x 14.58 = 4184460 qts during kharif
season and 280,000 x 20.54 = 5894980 quintal during rabi season. Hence the production of food grains will reduce by
(4184460 + 5894980) 10, 07,944 quintals. The share of cereals in food grains was 93.5% and in pulses the share was 65%
in 2003-04 (P.K. Dhar pp. 311). It is evident from this study that impact will be more on cereals. It is pertinent to mention
here that India is not self sufficient in case of pulses and the policy of SEZs will further affect the production of pulses. The
policy will not only affect production of food grains but also affects the annual growth rate of food grains. The annual
growth rate of food grains was 2.4% during 1964-65 to 2004-05, which may also decline. The decline in the production of
cereals and pulses will adversely affect the food security situation in India. Regarding the food security situation, our
country is facing a dismal situation where millions of people remain underfed and the problems of starvation are raising its
ugly head. The availability of cereals and pulses per capita per day was 427.4 gram and 35.9 gram respectively in 2004. The
per capita per day food grains availability is (427.4 + 35.9 gram) 463.3 in 2004 whereas annual food grains availability is
168.99 kg. per capita. Where as, per capita food availability in China and U.S. are 325 kg and 850 kg. respectively. Hence,
the policy of SEZs will be a challenge to the food security situation in India because due to decline in cultivatable area, the
production of cereals and pulses will further decline and consequently it will affect the net food grains availability. Thus
India may face acute food grain crisis in future as population is increasing and per capita food availability will decline due
to decline in cultivated land. This food grain crisis will have deep impact on India and its precious foreign exchange
reserves. To solve the food crisis problem in India, the Government will have to import food grains from other countries.
Even at present we are still deficient in pulses and vegetable oils and we are importing these commodities in huge quantity.
Hence, due to affect on foreign exchange reserve, our development work will suffer a lot. The crisis of food security
problem may also affect the general price rise situation in the country. As we know, in the recent period the prices of
commodities are rising very steeply and inflation had reached 7% in the month of April, 2008. Hence, the policy of SEZs
will further deteriorate the situation of prices in India. This will make the life of common man very miserable. Therefore, it
is essential to save the fertile agricultural land of India in larger interests and the low biological potential area or only barren
land should be earmarked for the development of SEZs. There is enough data to complete such work speedily.
Since land is a state subject and as per the guidelines of SEZ Act, it is essential for State Govt. to provide land for approved
SEZs. In this way State Govt. are playing the role of middlemen between SEZ developers and farmers and forcing the
farmers which is unfortunate on part of the Government. Ministry of Commerce and Industry has cleverly declared SEZ as
public utility services, so that State Governments can utilize the Land Acquisition Act 1894 to acquire the land for private
companies. Whereas there are provisions in the Land Acquisition Act, 1894 that Government can only acquire the land only
for those projects which are of public utility like roads, railway tracks, hospitals etc. Hence, the Act is misused as an
instrument for acquiring the control of land for the private companies. There is pressure on states to acquire land for
approved SEZs.The Government should declare SEZs as private utility service so that the misuse of Land Acquisition Act
and other Acts in force may be avoided.
SEZ Act States that 75% or 65% of land acquired by SEZ can be used for non-commercial purpose. In the non-commercial
area, land will be used for the development of social infrastructure e.g. restaurants, educational institutions, hospitals etc.
This lacuna in the SEZ Act and more economic incentives attract the industrialists to block the large piece of land. This
mass grabing of agricultural land is giving rise to the business of real estate. A Morgan Stanley report suggested that many
of the applications are made in rush just to block the piece of land. Social worker Medha Patekar also labeled allegations
against Mega Company that they have purchased land at Rs. 1 lakh per acre and bargained with foreign investors for Rs. 4
crore per acre. This huge earning of money out of the sale and purchase of land leads to the situation of large scale grabbing
of agriculture land. The grabbing of land has two impacts- one, this system is going to create a new kind of society i.e.
corporate feudal society and second, it has deep impact on marginal and small farmers, which constitute 78% of the total
holding in India. This conspiracy of land grabbing will push this section of society to the below poverty position. The RBI
had also directed the nationalized banks to treat SEZs as real estate and ruled out any commercial finance to the developers
of these zones. It is pertinent to note here that as compared to China’s SEZs, Indian SEZs are very small in size and large in
number. Till date, China has only six SEZs and they too are stretched across hundred of kilometers, for instance Hainan
SEZ is as big as Kerala and Shantou is 234 sq. kms. whereas in India the total number of applications for SEZs are about
500 and approved SEZ are 400. The minimum size of SEZ in India is 10 hectares out of which only 3.5 hectares can be used
for commercial purpose and 6.5 hectares for the development of social infrastructure. This creates the doubt against the
success of SEZ policy in India and raises the question that how an SEZ of small size can boost the growth of the industrial
sector. There are two reasons behind it- one, our SEZs are very small in size and second they are using 35% of the area for
commercial purpose. The findings of Morgan Stanley report in June 2006 suggest that the minimum sized SEZ should be
somewhat between 40-50 sq. miles. To setup the SEZ of a proper size, the Government should merge the small SEZs to
make a big SEZ. Further it is also suggested by many economists that 50% of the area of SEZs should be utilized for
industrial purpose and Government should develop a proper mechanism to plug these loopholes. The lack of transparent
mechanism of land acquisition has bred corruption and led to massive losses for the Indian exchequer. The attractions
towards real estate business and incentives of tax sops attract the SEZ developers. This situation may lead towards the
diversion of capital and investment from non- SEZ area to SEZ areas which may have deep impact on urban employment.
The big threat of SEZ policy is displacement of millions of farmers, artisans, landless people, small businesspersons and
others. As it is estimated that land required from SEZs is 2, 80,000 hectares and average holding size in India is estimated
about 1.3 hectare. Consequently, it will displace about 215,385 families of farmers and if one family has near about seven
members then it will affect about 15, 07,692 farmers. Apart from farmers, millions of landless laborers and artisans will
also be displaced. The displacement of millions of people without any social and economic security will create unrest in the
society. Regarding the displaced masses, nothing has been made clear in the SEZ policy .The Government has no concrete
and transparent plans that will help the rehabilitation of farmers. India is keeping a very poor record of rehabilitation of
farmers and tribal people, whose land has been taken away. Till date the government has failed to solve the rehabilitation
problem of about 10 crore farmers and tribals, who were displaced under the various development plans. There are 50 to 60
lakh displaced people in Jharkhand only and every fourth person is a displaced one and further among these displaced
people one is tribal. The mass displacement of millions of people will create social tension and regional imbalances in the
society, which may also increase the rate of crime in India. The strength of landless, homeless and slum dwellers is going to
increase due to the policy of SEZs. The policy may also have an adverse impact on rural employment. There is already a
high degree of unemployment and under employment among the agricultural workers in the country. The unemployment
rate has increased from 6.2% in 1993-94 to 8.6% in 2004 in rural India based on current daily status. The displacement of
people from rural area will further aggravate the problem of unemployment in rural areas of the country. The situation of
unemployment will also be worst in urban areas as many industrialists are making efforts to shift their industries to SEZ
area to attain the benefits of tax sops. Apart from this social and economic impact, the establishment of SEZs and displacement
of millions of people will also adversely affect the ecology and environment. No one seems to be worried for the environmental
loss being caused by the SEZs, neither Ministry of Commerce nor Ministry of Finance and Environment.
Many special economic zones are coming up around the major cities and developed areas of India. The policy of SEZs will
create serious regional disparity or imbalance in our economy. India is already experiencing huge regional imbalances as
many states are economically advanced and some others are backward. RBI recently, in its annual report mentioned that
SEZs could aggravate an uneven pattern of development as industrialists may pull out resources from less developed areas
to advanced areas. India’s renowned firms have applied for more than 500 SEZs and 400 have been approved and the states
with most number of SEZs are Maharashtra, Andhra Pradesh, Tamil Nadu, Karnataka, Gujarat, Haryana, Uttar Pradesh and
Punjab. Against it in the north- eastern states, hilly states and economically less developed states, there are a few SEZ
applicants. No firm is ready to set up SEZs in backward states and areas. Hence, the policy of SEZs will further increase the
regional imbalances. This regional imbalance may further increase the mass migration of people from less developed areas
to more developed areas and will breed the seed of social tensions at later stages. Marathi and Northern Indian dispute in
Maharashtra is one such example. When the local residents feel economically and politically suffocated, then they may
raise the voice of separatism.The Khalisthan movement of Punjab, Ghorkhaland movement of West Bengal, North Eastern
separatist movements and other separatist and regional movements and outbursts in the country can be seen in this perspective.
The issue raised for the formation of separate states is also supported by such ill logics. Therefore, to maintain national
unity and integrity, the Government should scientifically analyze the implications of the SEZ policy.
The main objectives of economic development are the development and utilization of human resources and improvement in
overall quality of life of the people. There is a direct relationship between human development and overall economic
progress. National Institute of Public Finance and Policy estimated a revenue loss of 1, 75,000 crores by 2011, resulting
from the loss of income tax, excise and custom duty. This financial loss has been estimated when the number of SEZs
approved was 182, but now the number of approved SEZs has reached about 400 and hence, the financial loss to the
Government exchequer has also increased manifold. Dr. Raghuram Rajan, chief economist at IMF expressed concern that
India, with its big fiscal deficit finds difficulty to afford this revenue loss and this may affect the central assistance for the
development of social sector. Consequently, budget allocation to health, education, poverty alleviation programmes and
public distribution system and other developmental schemes will get affected. On the one hand, the Government would find
it difficult to fulfill its social obligations and on the other hand, the functioning of the Government would be affected due to
cash crunches .We know that India is the biggest democracy in the world and the constitution offers certain fundamental
rights to its citizens. Any law that violates the fundamental rights is null and void. The SEZ act has deep implications not
only for fundamental rights but also for labour laws. The SEZ act does not allow trade union activities in the SEZ areas.
This not only violates the constitution but also violates the preamble of International Labour Organization. For these
reasons, these SEZs are “undemocratic enclaves” within the “democratic India”. Therefore, this seems to be the genuine
requirement of the time that Government of India should carry a sincere review of the Act and work properly over the
crystal chokes of the policy. It should lay down certain new norms to limit irrational numerical growth of the SEZs and
make enough amendments in the SEZ Act so that labour laws could be implemented and labour interests safeguarded.
CONCLUSION
The shift from an agricultural economy to industrial economy is essential and vital for the economic development and
employment generation in any country. The apparent harm to the interests of farmers, artisans, landless people, laborers,
small businesspersons and others is inevitable, but there is no other way as the agriculture sector is incapable of providing
the jobs of satisfaction to the new generation. Industrialization is the only way out to meet these urgencies and it’s a globally

accepted truth now. China has proved this with its man power resource and it has not only survived as a political system but
also emerged as a major world power. Conversely, Soviet Union had to face adverse effects and even a collapse to turn out
as a defunct state. India also has the potential to compete with China with its man power resource. That is why India has
adopted the SEZ policy, which has already proved its significance as an engine of economic growth in China. In this
research paper, the impact of SEZ policy on agricultural sector, food security situation, displacement of masses, imbalanced
regional development, external sector, employment situation and labour laws has been studied in detail. To make the SEZ
policy successful, the Government has to address the issues and challenges that are emerging out of implementation of SEZ
policy. Though we have followed this model from China, yet the Government has not fully endorsed it. The Government
should fix the priorities of SEZs. There is a mad race for the SEZs as the Government have approved 400 SEZs till date.
However, in China until now there are 14 SEZs only. In India, the Government should identify the areas and should limit the
number of SEZs. This blind rush for SEZs will not only affect the present structure of industrialization but will also prove
the biggest failure on the part of government exchequer. The business of real estates and getting exemptions from tax seems
to be the real motive behind the investors. The SEZ policy can prove as an engine of economic growth but it requires
determination, discipline, transparency and political will in governance. If the Government is sincere and willing to exploit
the economic potential and social objectives of SEZ, then it has to make amendments in SEZ Act or it will widen the gap
between the ‘Suffering India’ and ‘Shining India’.
SUGGESTIONS
The following suggestions are made in respect of the philosophy of Special Economic Zones (SEZs) in India.
1. The farmer’s land is not only the means of generating income but is also a source of life security. Therefore, regarding
the displaced farmers, government should offer reallocation package by ensuring them jobs in special economic zones.
2. In China, the displaced farmers are given urban hukou status. A Hukou was a locality residence license that allowed the
hukou holders to assess social benefits and local public goods such as health, education facilities and goods at subsidized
prices. In addition to financial compensation, these tangible benefits will make compensation packages more effective
and farmer resistance can be addressed in a better way.
3. The policy of compensation should be transparent and compensation should not only be at present market value but it
should be decided after assessing the future income from that land. Displaced peasants should be ensured jobs in and
out of SEZs.
4. It is also suggested that land should be given on lease to the developers of SEZs and in addition to monitory compensation;
peasants should be given perpetual royalty as dividend is given to shareholders.
5. The Government of India should make it mandatory that more than 50 percent area of SEZs be utilized for manufacturing
activities so that it could also be ensured that SEZ policy has been kept away from the land grab Mafia. It will also
discourage the development of neo-corporate feudalism.
6. It should also be ensured that while approving the SEZs for a particular area, the ecological loss should be properly
assessed and a complete social-cost benefit analysis be carried out.
7. The concept of SEZs should basically mean to develop immense backward area. Therefore, the Government should
carefully ensure and identify the areas for SEZs so as to remove the regional imbalances caused due to the implementations
of the SEZ policy.
8. The Government should discourage the establishment of small sized SEZs. The small sized SEZs should be merged to
make it bigger ones. It will be helpful for the Government to manage and control it in an effective way.
9. Government should make transparent and scientific policy for the rehabilitation of displaced people before approving
SEZs for a particular area.
10.Although, it is evident that the concept of SEZ has contributed significantly in China but simultaneously it has also
created numerous problems in China. Therefore, the Government of India should implement the concept of SEZs by
taking into consideration the social, political, ecological and economic circumstances of India only.
11. The Government should ensure the implementation of labour laws in SEZ areas to bridge the rift of bitterness between
capital and labour relations.
12.To discourage the business of real estate, the land ceiling for SEZs should be fixed.
13.The Government should identify priority areas for the establishment of SEZ’s. Hence, SEZs should not be a general
phenomenon; rather it should be specific one.
14.Encouragement should be given for those SEZs which will attract foreign technology and are only export-oriented.
15.Government should limit the land ceiling area for the development of industrial activities that should not be more than
25 per cent of the total land in any case.
Lastly, we can say that if the aforementioned suggestions are considered fairly and rationally by the policy makers, the concept
of SEZ can be a powerful and healthy means to transform rural economy into manufacturing economy and finally to accelerate
the pace of overall economic development. Or else, it will be a complex amalgam of infinite and uncontrollable problems.
BIBLIOGRAPHY
http://www.sezindia.nic.in
Ahya Chetan, Sheth Mihir, The SEZ Rush, Morgan Stanley research, India Economics, 21 June,2006.

“Ethics In Business and Value Addition”
A Case: Polyhydron Pvt. Ltd., Belgaum-Karnataka (India)
*Dr D.N.S Kumar
**Spardha Khera
INTRODUCTION
The new millennium has given way to the growth of knowledge based, seamless global society, characterized by constant
rapid change quite difficult for an average mind to even gauze.The Indian economy is in transition from government control
and stagnation to one of free market economy, competition, and innovation.The Government of India initiated the economic
reforms in 1991.The government went about putting an end to the license – permit raj; automatic approval of foreign
investment up to 51% in most industries, opening up of the insurance sector etc. India is also one of the members of the
World Trade Organization (WTO).The agreements of the WTO specify that equal treatment should be given to both domestic
and imported products and there should be no discrimination among the member countries.Thus, the Indian economy will
further integrate with the global economy, and at the same time, Indian industries will face fierce competition in the
globalized economy.
In the last two decades of the 20th century, business throughout the world was rocked by scams and other unethical behaviors.
People began to realize the damage such conduct could have on the image of the respective products/services and countries.
Acceptability of products/services of the concerned companies and their credentials were at stake.This resulted in a greater
demand for ethics and values in conducting a business.
In the new millennium it has become imperative for businesses throughout the world to conduct business ethically, in order
to survive, grow, and thrive.The process of globalisation of the Indian economy will make it inevitable for all the Indian
businesses to evolve into ethical organizations; else their very survival will be at stake in the seamless global economy of
the new millennium.
At this stage, one underlying issue is-
Are ethics and ethical practices new to Indian Business Environment?
The answer is “NO”.
i) In Bhagvad Gita, Lord Krishna says that a manager must look upon the task that has been set for him, or that he sets for
himself not in terms of personal gain or profit, but purely in terms of its fulfillment and the satisfaction that it gives him.
ii) In the Aryan ethical code, sons inherited their father’s debts along with his property.
iii) Artha Shastra lays it down as a duty to keep complete accounts and be audited for their clarity and truth.
But unfortunately (In India) in the 20th century, especially after Independence till the year 1991, the Indian economy was
strictly controlled by the Government under the pretence of safeguarding the interest of the people. Competition was
considered to be bad. As a result, the economic growth was paralyzed, monopolies were created and a few companies were
able to reap the benefits through exploitation of all the stakeholders.
Customers had no choice but to purchase low quality goods at exorbitant prices, managerial talent and time was spent more
on managing the power centers and less on Creativity, Innovation, and Improvement.
During License Raj, strategic planning for industry was done more at Shastri Bhavan and Yojana Bhavan, and less in the
boardrooms.Not to miss, the Indian economy was also racked by the infamous stock scams that involved top brokers,
respected banks, and other financial institutions of the country.
WHAT ARE ETHICS?
The word ‘ethics’ comes from the Greek word ‘ethos’ meaning character or custom. According to Robert C. Solomon,
Professor in Philosophy, ethics suggest two basic concerns:
i) Individual character, including what it means to be “a good person” and
ii) The social rules that govern and limit our conduct, especially the ultimate rules concerning right and wrong, which we
call morality.
Business ethics is the study of what constitutes right and wrong, or good and bad human conduct in a business context.
RELATIONSHIP BETWEEN PERSONAL ETHICS AND BUSINESS ETHICS:
The relationship is very much integrated and cannot be separated. As organization is of people; moral and ethical decisions
will be taken only when people in the organization have studied and taken it seriously about ethics in general and moral
values in particular.
* Associate Dean and Professor of Finance, Alliance Business School, Bangalore. Email: dnsk2000@yahoo.com
** Research Associate, Alliance Business School, Bangalore. Email: spardhakhera@yahoo.co.in

Business today cannot be developed only with technocrats; it needs a good synergy of technocrats and managers. Therefore,
management students who can base their decisions on ethical standards and build their individual and organizational reputation
on integrity are very much needed. So, business schools should mould their students to be managers of high integrity who
will be capable of taking ethical decisions in any organization they join.
Evolving one’s organization into an ‘ethical’ organization is much easier said than done. But it is not impossible.
In this paper, the authors have made an attempt to highlight the ethical practices and effects of the same at Polyhydron
Private Ltd., Belgaum (Karnataka).
“Visiting this temple of ethical management is a great learning
experience for me. My optimism now has a solid practical proof.”
- Avinash Dharmadhikari,
I. A. S. ( Retd. )
PPL – A TEMPLE OF ETHICS

Polyhydron Pvt. Ltd., (PPL) is a flag ship company of Polyhydron Group of Companies. It was established in 1982 and
manufactures Hydraulic Radial Piston Pumps, Valves and Accessories. Its products are priced unbeatably low, and PPL has
changed the price marginally in the last 25 years.It has maintained this strong marketing strategy through careful
implementation of Just–in–time Production system, Kanban System etc., where waste elimination is the key.
Polyhydron is known for its ‘Ethical Management’. At PPL, honesty is not a policy, but ‘the policy’. It believes in building
quality from the SOURCE. Self-inspection is the Best Inspection is also its policy.
A. MANAGEMENT BY SOUL:
What good ethical behavior comes down to is soul – where you house your values, your purpose in life, including the
picture of the kind of person you want to be. Without your Soul, you have nothing to guide you.
The soul that Shri. Suresh B. Hundre CMD calls as “Jiva” of Polyhydron is deep rooted in the culture, and is expressed as
a mission statement.
“We will nurture an ethically managed organisation. We will not exploit our Customers, Employees, Suppliers, Government,
Society, and Nature”.
B. CODE OF ETHICS:
a. Each of the employees is responsible for both the integrity and consequences of his own actions.
b. Each and every employee must follow the highest standard of honesty, integrity, and fairness.
c. The company expects that no employee will undertake any activity while on the company premises or while engaging
in company business, that is immoral or that could in any way harm or embarrass the company and its customers.
C. MANAGING WITH A CONSCIENCE:
You don’t have to cheat to win
PPL has adopted by replacing the old “we” against “them” mentality with a new perception of “us” that encourages the growth
of profitable relationships with employees, customers, clients, suppliers, and alliance partners. It stimulates, creativity, adaptation
to change, promoting excellent service, and communication, builds trust, and energizes the work force.
D. PROFIT MAKING IS NOT BAD:
Profits generate funds (taxes) for the government, which in turn serves society and the nation. Profits also provide wages
for the employees. But, the manner in which the profits are made should be ethical.
The chart below, developed by S. B. Hundre, depicts the relation between the goal, means, and the time required to
accomplish the goal. GOAL
TO MAKE MONEY
02 – 05 YRS 05 – 10 YRS 10 – 20 YRS FOREVER
Unethical Unethical Ethical Ethical

Business Business Business Business
Unethical Ethical Unethical Ethical

Way Way Way Way

Therefore, the goal should be to make money now, as well as in future, and not just now.
PPL operates under the overall umbrella of ethical management, which guides all the decisions taken by the organization.
Hundre says, “I will live up to my values and never compromise”.
E. GENERAL PRACTICES:
i) Processes
a. Material b. Paper c. Ideas.
ii) Factory–within–factory
iii) The basic unit of time at PPL is a week
iv) Negative inventory turnover (for some)
v) No Stores Department
vi) Single source of supply
vii) All unnecessary paper work has been eliminated
viii) No Receptionist, i.e., open door system.
ix) S. B. Hundre’s beliefs for ethical management are as follows:
a. Trustworthiness. b. Making money ethically c. Transparency d. Freedom to think individually
e. Congenial living conditions f. Access to advanced technology g.Freedom of expression
h. A reason to live and lead life i. An opportunity to learn j. Tension free atmosphere
x) An organization to get information from employees before it is needed and not after
xi) No Supervisors, S. B. Hundre says “Supervisor’s basic job is policing, and we trust our employees and do not want
to police them, and therefore we have “eliminated Supervisors”
xii) Value addition bonus for employees.
xiii) Welfare Activities:
a. Robin Hood Scheme. b. Vehicle Scheme. c. Janata Policy
xiv) Marketing without Marketing Department
F. MANAGEMENT BY WORKING ALONG (MBWA):
Suresh B. Hundre rubs shoulders with the machine operators, administrative staff, designers, and even computer programmers.
He believes it is necessary to work, and says – even though faults may be found in his work, but not in one thing, his
commitment to work.
Nothing motivates a man more than to see his
boss putting in an honest day’s work.
G. IDEAS IN PROCESS:
At PPL, it is the knowledge of workforce; the training and intention of engineers; know-how of workmen, and dedication
and commitment of the Managing Director Shri. S. B. Hundre, that have not only improved the factory efficiency but also
discovered new, innovative products worth millions of rupees ( to name few; Lever optd., Directional Control Valve in
2002 – 03, Feed and power Hand Pumps in 2001 – 02, Mono Block Directional Control Valve in 2001 – 02, Pilot operated
pressure Relief Valve in 2001 – 02, Joystick controlled pilot oil unit in 2001 – 02, Cartridge Directional Control Valve in
2001 – 02, Radial Piston Pumps 11 p.m. 750 bar and Solenoid Directional Control Value).
H. EFFECTS OF ETHICAL PRACTICES:
The more ethical and knowledge intensive the Company is, the greater the M/B Values.
M/B value of PPL in comparison with world players
Company Market Value ( M ) Book Value (B) M/B
IBM $ 70.7 Billion $ 16.6 Billion 4.25
Microsoft $ 85.5 Billion $ 930 Million 91.93
PPL - Belgaum Rs. 1,719.75 Lakhs Rs. 749.90 Lakhs 2.29
I. CONCLUSION
It can be said that, managing business ethically is no longer an option in the new millennium. To evolve any business in to
an ethical practice, one requires tremendous efforts and commitment of people at all the levels in the organization. This has
been proved at Polyhydron Private Ltd., Belgaum, a Medium Scale Industry.
Through ethical practices, Shri. Suresh B. Hundre, CMD of PPL has been able to satisfy all the Stakeholders. The contributions
are as follows: (Continued on page 41)
Ethical Acceptability of Neuromarketing- Relevance,
Limits and Limitations
* Nazia Sultana
** Ram Nangunoori
The human brain is arguably the most complex biological organ in the known universe with billions of cells making
millions of connections with other cells into the complex repertoire of behaviour exhibited by humans. Psychologists,
behavioural scientists, economists, marketers are all concerned with the study of nervous system as there is an intimate
relationship between various aspects of individual behaviour including thoughts, cognitions, decisions and our physiological
system. Neuroscience has recently seen a surge of applications in marketing research to understand consumer behaviour.
Neurological research is being tested as a new source of evaluating the initial and ultimate “emotional impact” of advertising
and marketing beyond what individuals can assess.
Let’s understand what Neuroscience is all about. Neuroscience is a branch of scientific and clinical knowledge dealing with
the nervous system, particularly the brain. It is a science that deals with neurons, their patterns that influence the decision-
making process. And marketing as such is a process of creating awareness, propagating and inducing a positive buying
behaviour on the part of the current and potential consumer. Marketers believe that neuroscientists should supplement all
their efforts that are destined to bring consumers in the marketing realm. Neuromarketing is an emerging field that applies
medical technologies such as fMRI to scan the brains of people as they consume particular products or look at the
advertisements. It aims to discover what kind of stimuli trigger neural responses. Marketing initiatives tries to influence
human behaviour and grow market share/achieve tangible results of profitability by understanding the human condition.
Ethical questions need to be answered when considering modern advertising techniques:
What responsibility, if any, does a company hold for honestly educating the consumer about its product/service?
Is it ethical to use technological advancements to sell products/services?
Is it the buyer’s responsibility to be aware of these strategies and not allow them to manipulate their emotions?
Ethical behaviour as such implies conducting one’s life in complete accord with a firmly held set of values and principles.
These principles may be derived from religious beliefs, philosophical understanding, and social norms etc. The question is
that whether creating tools that attempt to reveal preferences, choices and responses to specific products and campaigns
ideas is ethical or not. Some have aired criticism that neuroscience may reveal too much about the brain to those who would
seek to use the information to their advantage. The major concern is that everyday a person could be made vulnerable to the
mechanisms of persuasion that neuroscience reveals.
Neuromarketing is an applied extension of neuroscience. The application of brain scan technology to marketing, especially
the use of fMRI gave rise to the term. Conventional marketing influences both, how people experience the brand and the
resultant emotional memories; and how people experience the advertising and the resultant emotional memories. Marketing
comprises of the management of the emotional memories of both the brand and all its communications. Using experimental
methodologies combined with imaging and other neuroscience tools can better help marketers understand the mechanisms
of decision-making, choice, preference, risk seeking or avoidance. Brain wave recording devices have been available
through decades but now they can pinpoint more precisely which regions are active as people respond to products or make
brand choices or are exposed to advertisements.
LITERATURE REVIEW
Let us throw some light on various studies done so far in application of neuroscience to the field of marketing and its
criticism. In 1957, Vance Packard wrote “The Hidden Persuaders”, a book about marketing that featured harsh criticism of
“psychology professors turned merchandisers”. Packard opined that marketers were using the resources of the social sciences
to understand consumer’s irrational and emotional urges to increase the product consumption. Rita Carter (2000), “Mapping
the mind”, London, Phoenix, uses a wonderful analogy that brain-scan machines are opening the territory of the mind as the
first ocean-going ships once opened up the globe. However, she cautioned that our exploration and the vision of the brain
that we now have is probably no more complete or accurate than a sixteenth century map of the world.
Various studies have used -verbal reports, behaviour and segment reactions. But mostly, the focus has been on correlation
with so called “known-centres” such as reward centre, self referencing centre, face recognition, liking centre, anticipation
centre etc. As a result, neuromarketing studies have been increasingly pointed to various “known centres” in the brain.
Javier Cervantes et al.,(details in reference) , have presented that marketing research is often still limited to traditional
methodologies or qualitative techniques that can fall prey to subjectivity and purely descriptive analysis. Medical
methodologies - such as the exploration of the human brain using Neuroimaging (and especially functional Magnetic
* Assistant Professor, Department of Commerce, Osmania University College for Women, Hyderabad. E-mail: 01.nazia@gmail.com
** Vice President, RGS Infotech Inc., 3620, Pelham Road, # 124, Greenville-SC 29615, U.S.A. Email: ramnagunoori@gmail.com

Resonance Imaging) - and their application to marketing research are able to fill this gap, and to at least partially explain
the underlying neurophysiological processes of consumers’ decisions and perceptions. This opens up the possibility of a
better understanding of the potential impact of different marketing elements. This paper gives a comprehensive introduction
of the application of neuroimaging methodologies to consumer research, and focuses on consumers’ purchasing decisions,
as well as discussing the opportunities and limitations offered by such an approach. Valérie Morrisson and Pierre Gomy,
(details in reference) are of the opinion that neuroscience, in particular, dramatically improved industry knowledge of how
memory works, and how attitudes develop. This paper draws on research into emotional and implicit attitudinal measures, and
argues that ‘hidden’ effects are important to understanding how advertising works. Among its findings were that engagement
with an ad, and recall of it, lies in the ‘emotional’ reactions consumers have; advertising can also change or reinforce previously
held brand perceptions; and that consumers do combine rational action with more emotional behaviour.
David Penn, (details in reference) offers a critical discussion of neuromarketing (the application of neuroscience to marketing).
Since 2003, there appears to have been little progress to justify the prediction then made that it would become a key part of
the decision-making process, and it is now generally considered that neuroscience complements, but does not supersede or
replace, conventional research. The key reason is that it can only tell that there has been a response, not the nature of that
response, so a huge amount of subjective interpretation is needed to make sense of brain-imaging data. However, neurological
techniques do pick up unconscious emotional responses. As such, the most interesting challenge may be at the frontier
between the cognitive and the emotional brain.
Hilke Plassmann, et al., (details in reference) proposed that marketing actions, such as changes in the price of a product, can
affect neural representations of experienced pleasantness. The paper provides evidence for the ability of marketing actions
to modulate neural correlates of experienced pleasantness and for the mechanisms through which the effect operates.
In the long term, neuromarketing will be far more socially welcome for applications that focus on products and causes with
a clear social benefit-application like road safety messages and persuading people to give up smoking or to resist over-
eating. Developing and testing strategies that are designed to cure rather than create social pathologies is hard to argue with.
Used in this type of application, neuromarketing will be refined to public applause rather than public alarm.
LIMITS OF NEUROMARKETING
Myth and mystique will be difficult to dispel and will prompt regulation to constrain neuromarketing. Marketers should
influence thinking, feeling and willingness of a potential consumer, but there is no clear indication of genes that are activated
to influence thinking, feeling and willingness. For argument sake, let us say, we have identified set of genes (G) that are
activated and will generate set of enzymes (E) that will influence thinking process of a consumer and lead to a positive
buying behaviour towards the product. Now the question arises is, how to induce the activation of gene set G and generation
of enzymes set E. We cannot use medical pills/tools to induce this physical change in the mind of buyer that causes
neurological impact for positive buying decision. In essence, even if we precisely find set of neurons that participate in
positive buying decision of a consumer, we still need to influence these neurons, genes and enzymes which is already taken
up under the conventional means of advertising and marketing.
Even if we have not identified the neurological changes that are taking place in the buyer’s mind to influence positive
buying behaviour, it only indicates that we did not understand the chemical processes that are taking place internally. But
we already influenced the buyer using conventional methods of marketing and advertising. Companies scan the brains of
a representative sample of its prospective customers, assess their reactions to the company’s products and advertising and
tweak the corporate image accordingly. Companies place test subjects in MRI (Magnetic resonance Imaging) machines and
analyzing their brain activity. MRI scanning offers the promise of concrete facts- an unbiased glimpse at a consumer’s mind
in action. It is noted that to an MRI machine, one cannot misrepresent ones responses. We believe that fMRI only gives
insights about the snapshot of brain during the decision making process. But it will not explain how to instigate the brain to
reach to that state. It has to be done by using conventional methods of marketing only.
We can examine how the study of process is irrelevant to the actual activity of marketing by taking the example from our
“Sweet-ball Theory”. For a cook to cook it, all he/she needs to know is the recipe consisting of condensed milk, flour, sugar
and sugar syrup wherein flour is mixed with condensed milk and other ingredients to make fine balls of the flour which are
fried in oil. But if we try to understand the taste of the same by taking it to the lab and decompose it and try to find how many
sugars are bonded with how much of flour at what ratio and temperature etc, it would make an interesting study. But we will
not be able to explain the taste well. On the other hand, if you just eat it, we will be able to explain it much better. Similarly,
if we try to explain the process of neurological changes that are taking place in the process of making positive decisions, we
will just consider the snapshot of the brain but it doesn’t really facilitate us much. To manipulate the brain to get it to that
state, we still need to depend on conventional methods of marketing. Thinking, feeling and willingness are the aspects that
generate different states within the brain that may make consumers to take decisions but to get to those states we still need
to use conventional marketing considering the well known social, economical and environment factors.
Ralph Nader’s “Commercial Alert” in their website has condemned neuromarketing experiments as unethical. They opine
that Neuromarketing is likely to be used to promote “human disease and suffering”. Chris Firth of the Institute of Neurology
in London, “A probe inside the mind of the shopper”, puts it in more realistic perspective stating that just because one can
see and measure the increased level of activity of the brain, it doesn’t mean that they are more authoritative than the person
actually thinking or feeling. There are some limitations to neuroscience techniques as it serves to tell us what happens in the
brain or what is activated when we make decisions or are in the process of making decisions or responding to outcomes. It
does not however give us any insight into why we make these decisions and why we respond in the manner that we do.
‘Discovering the feeling’ has largely been neglected in traditional research. Researchers have even tried to physically
record the emotions a respondent is experiencing through a variety of techniques like fMRI, galvanic skin response, and
smile /frown muscle movement. But these approaches have only served to reinforce the idea that measuring emotions is
difficult. Current research methodologies concentrate on the overly cerebral approach and force respondents to make logical
connections to explain their behaviour. This has three serious flaws:
• Often respondents can’t tell us why they did something because they don’t understand it themselves (although this
doesn’t necessarily stop them from trying).
• Direct questioning results in respondents logically projecting from what they know about the brand – giving us a list of
imagery that the brand portrays and what they believe makes sense.
• This type of research results in an over reliance on intuitive analysis.
ETHICAL ACCEPTABILITY OF NEUROMARKETING
There is, of course, nothing inherently problematic about the use of scientific technology to advance commercial interests
(Eaton and Illes, 2007). But the use of technology that probes the inner workings of the human brain, especially beyond
what one might divulge in traditional behavioral testing, raises substantial ethical issues. Neuromarketing, like human
cloning or embryonic stem cell research, stirs the question of whether or not its application in the real world is ethical. A
number of studies are now being made under a more socially acceptable label-Neuroeconomics. A code of ethics needs to
be framed for implementation of neuroscience to marketing. Mounting social pressure may see the required changes especially
if neuromarketing technology delivers on its promise and finds wider use.
Critics point out that ‘the brain’ is an enigma and just because we can see neurons firing doesn’t mean we always know what the
mind is doing. For all the admirable success, neuroscientists do not yet have an agreed-upon map of the brain. Neuromarketing
may be able to speak out the difference between advertisements that people merely like and those that are actually effective.
Creating an immediate bond between consumer and product is the dream of every company. With the help of neuroscience,
marketers claim that companies can know with certainty whether their products are making that special connection. Neuromarketing
studies obtain objective information about the inner workings of the brains of consumers without resorting to the subjective
reports that have long been the mainstay of marketing studies. Thus, neuromarketing purports to provide qualitatively different
information, ostensibly superior to that obtained by traditional means, about the economically valuable topic of consumer
preferences. Yet it raises several ethical concerns on its applicability like protection of various parties who may be exploited by
the deployment of neuromarketing and protection of consumer autonomy if neuromarketing reaches a critical level of effectiveness.
Neuroethics comes as a rescue in proactively dealing with ethical issues unique to knowledge about and manipulation of the
human brain to offer guidance for beneficent and non-harmful deployment of neuromarketing techniques. The issue that advanced
technology in the neurosciences, in particular fMRI, might allow invasion of the inner sanctum of private thought needs to be
addressed. The question is whether it is ethically correct to use the new tools of neuromarketing that provide sufficient insight
into human neural function to allow manipulation of the brain such that the consumer cannot detect the artifice and that such
manipulations result in the desired behavior in at least some exposed persons. Such neuromarketing is not to be encouraged as
it would represent a major incursion on individual autonomy.
CONCLUSION:
Like genetically modified human organs, cloning and stem cell research, some applications will be desirable but others will
require guidelines and ethical code of conduct or even legislation from regulatory authorities to control the direction of
technology to business in general and marketing in particular. Whatever be the outcome, it should be taken in the right spirit
that research in business should be used to understand the consumer better and make their life better. There would surely be
a long-lasting conflict between the marketers using neuroscience to attain marketing goals and those condemning its use to
influence consumer decisions to help consumers retain control over their minds.
BIBLIOGRAPHY
1. David Plunkett, The advertiser, October 2007, pp93-96, “ Head Games”
2. David Penn, Admap, January 2008, pp27-29, “Beyond neuroscience-whatever happened to neuromarketing”
3. Emily R.Murphy, judy Illes and Peter B.Reiner “Neuroethics of neuromarketing” supported by Institute of Neuroscience, Canada, Dana Foundation, the British Columbia
Knowledge development Fund, Greenwall Foundation and MacArthur Foundation.
4. Hilke Plassmann, John O’Doherty and Baba Shiv, published online 2008 January14.doi:10.1073/pnas.0706929105 PMCID2242704, The National Academy of Sciences of
the USA “ Marketing action can modulate neural representations of experiences pleasantness”
5. Javire Cervantes, J.Philipp Hillenbrand, Alejandra Ruiz-Contreras and Oscar Prospero Garcia, ESOMAR, Latin America Conference, Mexico City, May 2008, “ The
secrets of neuromarketing –reading consumer’s minds”
6. Max Sutherland, Feb 2007, Inaugural Australia Neuromarketing Symposium, “Neuromarketing: what’s it all about?”
7. Valerie Morrison and Pierrie Gomy, ESOMAR, Worldwide Multimedia Measurement (WM3), Budapest, June 2008, “Should we forget advertising awareness? Measuring
emotions and implicit attitudes”
8. Priya Shah, 06/01/2005, “Neuromarketing : Smart Marketing or Jedi Mind Control Trick?” www.wenpronews/topnews/2005/06/01
9. Neuroscience and Marketing –Avenues for further research www.psychwiki.com/wiki.NeuroscenceandDecisionmaking#Neuroscience, retrieved 26.Sept.2008
10. www.standford.edu/group/stanscimag/volume4-1/pdf4-1/buyButton.pdf

Leadership Through Competing And Caring
* Dr. P.K. Jain
** I.P. Singh
*** Minakshi Jain
INTRODUCTION
“Leadership is not a private reserve of a few charismatic men and women. It is a process ordinary people use when they are
bringing forth the best from themselves and others. Liberate the leader in everyone, and extraordinary things happen”.
Leadership is defined by what we do, not the role we are in”. Some people in “Leadership Roles” only can perform as
Leaders, they are bosses not leaders. Conversely, many people have no formal leadership role and yet are excellent leaders.
In today’s fast changing world, we all need to be leaders. To lead is to show the way by going in advance. To lead is to guide
or direct a course of action. To lead is to influence the behaviour or opinion of others. We all need to be leaders, regardless
of our formal title or role. The process of becoming a leader is the same as the process of becoming a highly effective human
being.Leadership development is personal development.
LEADERSHIP - COMPETING AND CARING
These are two words that seemingly do not belong in the same sentence, but on deeper reflection are the two most critical
guiding principles for the growth of a developing nation. To grow economically, a country’s people and corporates need to
compete effectively not just among themselves but also with their global counterparts.
For overall development, a country must continuously ‘Care’ about the underprivileged sections of the society, to ensure
their development and contribution to this growth. If our efforts do not include the empowerment of all, the nation cannot
sustain a medium to long term progress graph. In fact in the absence of this ‘Caring’, there is fear of increasing social
disparity, leading to internal instability.
THE ROAD TO COMPETITIVENESS: CREATING LEVERAGE THROUGH CARING AND
MENTORING
About a hundred years ago, when modern business organizations were conceptualized, Management built a world of squares,
boxes and pyramids.The world operated on principles of control, order hierarchy and other concepts such as climbing the
ladder, top and bottom, etc. In this world, rank equaled authority and the CEO sat at the top of the pyramid looking down
at the rest of the organization.But there is revolution going on currently. Global competition and blurring boundaries
indicate that the old rules and structures are inapplicable in the current environment. There is cynicism inside the organization
that is structured in the conventional way. The tightly boxed structure and the organizational hierarchy are killing the
innovativeness, spirit and morale of the employees.
There is also a new set of the organizations that have emerged or are emerging, which lead with a difference. A new more
inclusive, language of leadership is being developed – “Learning to lead people and not contain them”, “Followership
comes from trust”.
Jack Welch once stated, “Ten years from now, we want magazines to write about GE as a place where people have the
freedom to be creative, a place that brings out the best in everybody; an open, fair place where people have sense that what
they say matters and where that sense of accomplishment is rewarded – both in the pocket book and the soul”.
The Importance of People in the organization is aptly reflected by the title that
Mr. N.R. Narayana Murthy of Infosys has chosen for himself: Chairman and
Chief Mentor. Over the years, one of the obvious focus areas that Mr. Narayana
Murthy has highlighted is the people, their development and his desire to create
an entrepreneurial mindset within his large organization.
PRINCIPLES - A LEADER MUST FOLLOW TO CREATE
AN ORGANIZATION OF MOTIVATED, DEDICATED
AND SUCCESSFUL EMPLOYEES:
1. Develop and communicate a Common Shared Vision:
Across organizations, industries and countries are undergoing change; leaders
have to work harder to carry their communities and constituencies with them. Fig. 1 Climbing Pyramid
* Assistant Professor & Head,Department of Entrepreneurship,SLIET, Longowal, Punjab. E-mail: pardeep_jain2000@yahoo.com

** Assistant Professor & Head,Department of Architecture,National Institute of Technology, Hamirpur – 177005, H.P. E-mail: ipsingh@nitham.ac.in
*** Professor,Department of Architecture,National Institute of Technology,Hamirpur – 177005, H.P. E-mail: minakshi@nitham.ac.in

They need to value people and emotions, make things interesting and most importantly provide inspiration. Herb Kelleher,
Chairman, President and CEO of Southwest Airlines, one of the most successful national airlines in America says, “Our real
accomplishment is that we have inspired our people to buy into a concept, to share a feeling and an attitude to identify with
the company – and then to execute.
2. Treat People differently, based on their strengths:
It is up to the leader to develop a deep understanding of each of his/her employees, their strengths and weaknesses, their
motivators and personal ambitions. With an adequate understanding of these elements for each individual, the leader can
channelise and leverage each employee’s energy in the most effective manner.
3. Set high standards, but give people the freedom and responsibility to do their job:
High standards along with adequate degree of freedom transform people to be creative and resourceful. It is important to
make people feel liberated at the job – to be creative, to think out-of-the-box. On the other hand, without this freedom, to
experiment and be creative employees end up becoming puppets that can only follow the orders of their superiors and lack
all leadership and entrepreneurial qualities.
4. Make Communication a Priority:
Employees have a deep rooted need to be informed about what is happening at all levels in the organizations. The President
of an International organization has one-to-one, twenty minutes conversation with each employee in his organization about
ideas, improvements and whatever is on the employee’s mind. He devotes about 170 hours to this task every year and feels
it is time well spent.
5. Anything is possible if you Share the Glory:
Giving another the chance to claim credit and bask in the praise is an effective and often easy way to get results. Success
and its recognition can be the best motivators for the employees in the organization.
6. Responsibility – “If it’s to be, it’s up to me”:
Leadership means accepting responsibility for all choices in life. They refuse to succumb to the ‘Victimitus Virus’ (“It is all
their fault and there is nothing I can do”).
7. Passion and Commitment:
Successful people are energized by a love for what they do because it brings them ever closer to who they are. They overcome
apathy and cynicism, develop a burning commitment to their cause, and with discipline, achieve their dreams and desires.
Sant Balbir Singh Seechewal, Chairman of Ek Onkar Trust took the cause of cleaning the rivulet “Kali Bein” (once associated
with Guru Nanak Dev and it had been reduced to a dirty drain). With extraordinary leadership qualities of Sant Seechewal,
the clarity of his vision and his ability to inspire the masses, he steered his movement through the labyrinths of politics and
his vision and ability to inspire, all played a major role in bringing his mission to completion. However, the Sant himself is
the first to comment that it is the ‘Sangat’– the people – who have made the difference. They have transformed a dirty drain
into a pristine river and have shown the way.
CONCLUSION:
Leaders don’t motivate with rewards and punishments. They engage people’s hearts as well as their minds. They get them
involved and participating. They actively nurture the ‘being’ on culture of the group, not just the “doing”. The list above is
no way comprehensive. Each leader has to discover what applies best in his/her organization and best suited to his/her
personal style. However, if the overall realization exists that the people of the organization are going to be at the core of the
organization’s sustenance and growth; and adequate efforts are made to align the employees’ energies with those of the
motivators, success cannot be elusive.
The more the world changes, the more Leadership Principles stay the same. Leadership Principles are timeless. And they
apply to all of us, no matter what role we play in society or organizations. Genuine leadership comes from within. It is
authentic and based on honesty, integrity, trust and ensuring consistency with our stated values and principles.
BIBLIOGRAPHY
1. Frances Hesseibein, Paul M. Cohen, The Drucker Foundation: Leader to Leader.
2. Arie D Geus, The Living Company.
3. Peter Drucker: What the Nonprofits are Teaching Business: Managing for the future.
4. W. Chan Kim and Renee A. Mauborgne, Parables of Leadership.
5. Robert Tannebaum and Warren D. Schmidt, How to Choose a Leadership Pattern.
6. People’s Power Sant Seechewal shows the way. The Tribune dated 7th October, 2008. Page 10.

Minimizing Fuel Expenses In Fleet Management By Using
Theory of Constraints
*K.Velmanirajan
1.0 INTRODUCTION:
The profit directly relates with fuel consumption after investment of the initial amount. The fuel consumption plays the
major role in fleet management. There are different types of humans in handling the vehicles. Due to the difference in
drivers, there is change in fuel economy. Beyond that the maintenance also plays the role. By maintaining the vehicle
properly, there is an improvement in fuel economy. Less amount of fuel consumption increases the profit of transport
management.
1.1 FLEET MANAGEMENT:
Fleet Management involves maintaining workshops, trip management, managing fuel filling stations and labour management.
Providing efficient leaders and cost effective fleet management services are the key factors determining the efficiency of fleet
management. This can be achieved through a visionary leadership team that is committed to the perpetual pursuit of excellence.
The best way to predict the future is to create it. Strategic planning, benchmarking, and goal achievement can determine the
destiny of the Fleet Management Division. Specific goals and objectives with time lines, can be utilized to maintain the highest
standards of excellence in fleet management and administration. Vehicle acquisition and disposal, assignments and utilization,
repair and replacement, commodity and service bids, and fueling of the fleet, also need to be satisfied.
1.2 THE TOC CONCEPT:
The concept of the TOC is,
· Every system must have at least one constraint. If it were not true, then a real system such as a profit making organization
would make unlimited profit. A constraint therefore, “is any thing that limits a system from achieving higher performance
versus its goal” (Goldratt, 1988, p.453).
· The existence of constraints represents opportunities for improvement. Contrary to conventional thinking, constraints
should be viewed as positive, not negative. Because constraints determine the performance of a system, a gradual
elevation of the system’s constraints will improve its performance.
1.2.1 USES OF THEORY OF CONSTRAINTS:
Some of the relevant uses of the TOC are listed below:
· Improved quality of products and services
· Drastic increase in profitability
· Management of statistical fluctuations
· Improved competitive position.
TOC has evolved into a philosophy that can be extended towards service industries in different facets. TOC provides a good
way among constraints based approach. TOC also helps in determining whether the resources are fully deployed to have the
most impact on the overall performance of the company.
2.0 OBJECTIVE OF THIS PAPER:
Use of the TOC concept in Automobile business for its continuous development and trails to break the constraints instead
of governing it is our innovative objective. Thus, this research is designed to achieve the following objectives:
· To coin a method of connection between Fleet Management , Fuel Consumption and profits;
· Develop desirable qualities of Drivers;
· Develop professionalism in handling difficult operation and vehicle conditions;
· Understand the benefits of fuel economy; and
· Understand and apply management tools in profit limiting system.
2.1 ASSUMPTIONS FOR TOC IN BUSINESS
The assumptions that are used to develop TOC in implementation of fuel economy in transport department are
1. The goal of the transport department is to make profit in all aspects.
2. Throughout fuel quantity variable is used as a way to measure improvements.
2.2 PROBLEM DEFINITION:
“Integrate the use of the theory of constraints to evolve fuel economy approach for continuous development and profit in
the transport department”.
* Senior Lecturer, Dept. of Automobile Engineering, K.L.N. College of Engineering, Pottapalayam - 630611, Sivagangai District, Tamil Nadu
E-mail: kvmrajan@yahoo.com

2.3 PROBLEM ENVIRONMENT:
Our management has 23 buses, 1 minibus and 7 LMVs. To maintain those vehicles, we have 2 mechanics and 1maintenance
supervisor beyond the vision of transport officer. There is an accountant to manage the accounts.
The strategy adopted for the function of the transport department towards positive motivation approach and observation in
initial records shows us the difference in fuel economic performance of the same class of vehicles. It needs to fill the gap in
improvement side when compared with efficient operating vehicle.
TOC is one of the continuous improvement tool applied in many areas. It can be extended to profit maximization in service
industries. Study on fuel economy and its issues in automobile service industries and their continuous improvement
possibilities are discussed in the following sections.
3.0 SOLUTION METHODOLOGY
In complex environments, each system is facing a number of critical problems for holding their operation in the growing
trend. In order to face the problems, the transport department has to make a number of attempts and approaches to reach
their goal. Fleet management consumes money for fuel, maintenance and labour. Out of these, fuel plays the major role in
sizing the total expenditure of fleet management. Hence we consider fuel economy for reducing the total cost of fleet
management. Maintenance also plays a role in determining the fuel economy. So that we consider fuel economy integrated
with maintenance for evolving the goal. Theory of Constraints is taken as a tool to break the constraints available to bring
out maximum profit from better fuel consumption.
TOC will continue to be a tremendous tool for profit improvement regardless of the nature of the problem. Although
priorities and success factors may change, the industry can utilize TOC as an effective framework for identifying, prioritizing
and solving issues that constrain the profit of the transport department.
3.1 THE FOCUSING PROCESS USING TOC
The working principle of TOC provides a focus for a continuous improvement process. The principle consists of five
focusing steps (Goldratt, 1990) [4], which are summarized below within the defined problem area.
Step 1: Identify the system’s constraints:
Constrains under consideration:
Some of the constrains evaluated from the transport department are:-
o Unskilled driving o Maintenance of vehicle o Record maintenance o Road type
o Improper loading[GCW] o Condition of vehicle o Traffic situations o Improper reporting
o Frequent change of drivers o Rolling friction o Fuel quality o Drive line friction
o Air resistance o Auxiliaries o Idle timing o Weather o Improper time management[speed]
Maintenance:
Maintenance can be subdivided into two:
• Lubrication • Cleaning, inspection and adjustment
Lubrication:
In an automobile, different parts need different types of lubricants for their state of operation. The parts moving from
normal speed to high speed need lubricating oil. Such parts are engine bearing, cams and gears. Some of the slow moving
parts need heavier lubricant or grease. Such parts are joints, pivot pins, spring shackles etc.
Check the engine oil level daily morning, add oil up to maximum mark on dip stick if the level is low.
Replace the engine oil for every 15000 kms.
Use the grade of fuel as per manufacturer’s recommendation.
Replace the gear oil and crown oil for every 24,000 kms.
Lubricate the free wheel of starter with some special grease and plunger with some thin oil.
Lubricate the wheel and steering system properly.
Cleaning:
Clean the FIP regularly.
Clean the exhaust line (manifold, exhaust pipe, catalytic converter, and blower).
Clean the engine cylinder, piston & piston rings.
Clean the sump regularly.
Clean the fuel filters with kerosene for every 5000 kms.
Clean the injector nozzle regularly.
Clean the air filter with heavy blow of air.
Inspection:
Maintenance schedule differs from vehicle to vehicle. Hence the maintenance is done periodically or on basis of mileage.
Periodical maintenance is split up into different periods such as weekly, monthly, yearly etc.
Daily inspection:
o Check engine oil level o Check water level in radiator o Check fan belt tension o Check air cleaner
o Check tyre pressure o Check brake pedal toe-board clearance o Check clutch pedal toe-board clearance
Driving mode:
Each person drives the vehicle in a different manner. Some adopt rash driving just for style but it increases consumption of
fuel. Some drive the vehicle with average speed and during sudden changes in acceleration, its very effective.

Fuel efficient driving:
Fuel-efficient driving is a manner of driving intended to reduce the fuel consumption of an automobile. Apart from driving
technique, the other factors contributing include technical aspects of the car, road conditions, and fuel quality. Though in
some cases these may be outside the driver’s control, any attempt to conserve fuel may prove rewarding to him or her, for
reasons of personal, financial, or global concern.
One method of improving fuel efficiency is by driving at constant, conservative speeds. This allows the engine to operate
powerfully without being hindered by the aerodynamic drag associated with high speed.
Road condition:
o More obstacle o Speed brakes o Traffic jam & signals o Curves or bends in road
Improper loading:
o Load the vehicle to their capacity o Load the stock equally in the cabin
Controlling of fuel consumption:
Tuning: Always keep the vehicle properly tuned up to get maximum mileage.
Brake binding: Brake drag not only puts extra load on engine resulting in high fuel consumption but can be a reason for
accidents, due to poor brakes.
Clutch: If the acceleration is poor when the accelerator pedal is pressed, one of the reasons could be the slipping of the
clutch. Slipping of the clutch will waste a lot of fuel.
Clogging of air cleaner: The air cleaner is clogged with dust. There will be restriction in flow of fresh air and then fuel
consumption will increase.
Tyres: Running a vehicle with low air pressure causes load and drag on drive mechanism resulting in high fuel consumption.
Exploit the system constraints:
These constraints are evaluated and ranked based on driver survey. The survey rating was made for the following constraints.
The survey was made at different level and handling of drivers. The results of the ranking is
Rank for constraints identification:
Sub-ordinate all other processes to the above decision: Rank for constraints identification:
The maintenance and its related impacts show us the top priority among
other constraints and all other constraints are sub-ordinate to it and need Sl.no Constraint Rank
negligible consideration. For first attempt we consider maintenance and
in second attempt driving mode is the constraint. To elevate the constraints 1. Driving habit 2
one and two, we use two attempts and these are discussed in following 2. Maintenance 1
sections.
Step 4: Elevate the system’s constraints: 3. Road type 3
In this step, the identified constraint is analyzed in detail, which involves
study and survey of the maintenance procedure towards fuel efficiency 4. Higher load 5
and decides the type of service required. The possible ways of 5. Speed 4
improvement and its route cause can be worked out by exploring this
constraint to find the better solution from them.
The feasible way is to study the real needs in maintaining a vehicle by considering the study samples of K.L.N.C.E transport
buses. Analysis tools, like fishbone diagram, can represent the limiting factors of this analysis.
Fuel consumption deciding parameters:
Mainly two parameters affect the fuel consumption:
• How the vehicle has been driven
• How the vehicle has been maintained
Step5: Continuously improve the quality and avoid managerial inertia
Some of the effective strategies for improving the fuel economy by maintenance are discussed as under;
Maintenance can be arranged in various ways:
• Written contract with commercial mechanics.
• Development of an in-house maintenance program.
• A combination of any of the above.
Several factors should be evaluated in deciding on a maintenance arrangement:
• Extent to which the transit system wants to maintain control over maintenance.
• Interest in using an employee as a mechanic to maintain control.
• Effectiveness of communication if service is provided in-house versus privately.
• Cost to the system.
• Availability of the proper facilities.
• Ability to recycle or dispose of oil/fluids.
• Availability of equipment to lift vehicles.
• Availability of a complete set of tools.
Suggestions for initiating a maintenance program are:
• Obtain a list of authorized maintenance facilities from vehicle vendor(s).
• Work with the transit system’s transit project manager.
• Talk with transit systems that have established maintenance programs.
• Make use of maintenance software.
• Take advantage of training offered by professional transit organizations, vendors, manufacturers, etc.
Maintaining a good scheduled maintenance program
Scheduled maintenance is performed at predetermined inspection intervals. The intervals are usually determined by accumulated
mileage, time or condition of specific parts. Scheduled maintenance helps keep public transit vehicles on the road.
An organized program of inspections, scheduled service, and immediate adjustments or repairs increase vehicle safety,
vehicle useful life and minimizes mechanical failures.
Perform Daily Vehicle Inspection
Daily inspections can detect problems at an early stage and are crucial to a successful preventive maintenance program.
Prior to departure, the driver performs these inspections, and records the results on a Daily Vehicle Inspection Checklist.
Record starting mileage, date, and vehicle number
Inspect each item on the checklist, and make a check mark if it is satisfactory.
Describe problems that are found. If a problem affects safety, it should be reported to the mechanic for correction before the
vehicle starts its run.
Implement a Maintenance Schedule
After a maintenance system has been selected, a basic maintenance schedule should be reviewed with drivers and mechanics.
Mechanics should become familiar with the scheduled maintenance requirements for each of the transit system’s vehicles.
Most scheduled maintenance information, covering the chassis, bus and major subcomponents, can be found in the applicable
owner’s manuals. Some vendors and manufacturers offer training. Follow the manufacturer’s maintenance schedule contained
in the owner’s manual. Maintenance checklists can also be developed.
Maintain a Comprehensive Maintenance Record
A good maintenance program should also include a comprehensive maintenance record or file for each vehicle in the transit
system. This file provides:
o A quick reference guide. o A complete history of repairs.
o An indication of fuel consumption and mileage trends. o A record of responsibility for repairs.
o A record of the amount of time a vehicle is out of service. o A list of chronic problems.
Rotating buses between routes and/or locations
Schedule newer buses for work at farthest locations, which is away from maintenance facilities. Rotate buses between rural
and urban routes so that wear and tear on vehicles is equalized.
By adopting this methodology for evaluating constraints to achieve customer satisfaction and organizing workshops earns
the increased profit. The constraints are again evaluated and the step 1 to 4 continues until we keep the workshop at the
desired profit level.
4.0 RESULT AND DISCUSSION:
In the conventionally used system, the mileage of a vehicle is determined by filling the fuel in the fuel tank, noting the
odometer reading and noting the odometer reading when the fuel gets exhausted in the fuel tank. The ratio of difference
between odometer reading gives the total kilometers run by the vehicle to the number of litres of fuel filled in the tank gives
the mileage of vehicle.
• Let X1 be the odometer reading when the fuel is filled
• Let X2 be the odometer reading when the fuel is exhausted.
• Let n be the total no of litres of fuel filled
Mileage = X2-X1 / n
Table: 1 Record of fuel consumption
Bus code Kilometre run Diesel consumption
April 2005 May 2005 April 2005 May 2005
Q 705 878 219 200
V 1258 1066 317 249
L 1486 452 472 137
Total 3486 2396 1008 586
Total cost of transport operation= fuel cost +maintenance cost +labor wages + documents (F.C permit, insurance)
Except the fuel cost, all the other costs are assumed as constant for this work. Also we have taken Fuel Cost Rs: 35/lit,
average mileage run/vehicle per month=1000.

Table: 2 Mileage Improvement
Bus code Month & year
April 2005 May 2005 Percentage increase
Q 3.2 4.3 1.1
V 3.0 4.3 1.3
L 3.1 3.9 0.8
Table: 3 Cost analysis
Bus code Fuel consumed Cost of fuel in Rs Savings in Rs
April 2005 May 2005 April 2005 May 2005
Q 312.50 232.55 10937.05 8139.25 2797.8
V 333.55 232.55 11674.25 8139.25 3535
L 322.58 256.41 11290.30 8974.35 2315.95
Total 968.63 721.51 33902.05 12525.28 21376.77
There is an improvement observed and fuel cost was saved.
5.0 CONCLUSION:
By using the theory of constrains, we break out the selected constrain and attain the improved profit based on fuel consumption.
The constraints selected for this work based on the survey made are poor maintained vehicle producing less mileage and
poor driving skill towards fuel economy. There is an improvement in less fuel consumption in May compared with April, so
profit is attained by the transport department in May. Average saving per vehicle per month is Rs 7125. Total cost saving
will be Rs 1, 63, 875, if all heavy vehicles are playing in the routes. In this work we have achieved a considerable improvement
in the profit by considering one of the strategy (Theory Of Constrains) and the fuel economy is also improved. We can
extend this work for maximizing the profit of transport industry in considering all cost function.
Acknowledgement: The author thanks the President, Secretary, Director, Principal, Vice Principal, Dean (Admin), Dean
(ARD) of KLNCE for their support, encouragement and facility provided to carry out this work. Also the author is thankful
to the R&D department of KLNCE for financial assistannce to conduct this research work.
BIBLIOGRAPHY
1. John H. Blacksone, “Theory of Constraints- a status report”, International Journal of Production Research, Vol.39, No.6, PP1053- 1080 (2001).
2. HEAVY VEHICLES Technology Description, U.S. Climate Change Technology Program – Technology Options for the Near and Long Term, August
2005 – Page 1.1-7
3. Panyiotis “Fandoudas and Bruce Gurd,” The implications of the theory of constraints for Management Accounting- a case of the pricing decision,”
International Graduate school of Management, Adelaide (2000).
4. Tradable Fuel Economy Credits- Impact and Effectiveness of Corporate Average Fuel Economy Standards by James L Sweeney, August 12, 2001.
5. www.clean-diesel.org
6. Improving Fuel Economy and Saving Fuel in Mexico, Lee Schipper, Ph. D.,Director of Research,The WRI Center for Transport and Environment.
7. “Success Story- Advanced Diesel Technologies”, Help Manufacturers Meet 2007 Emissions Standards , U.S. Department of Energy, Freedom CAR
and Vehicle Technologies Program(202) 586-8032.
(Continued from page 21)
One internal industry documents review by Business Week revealed another fact that maximum factories in China used to
keep double sets of books. In the past 4 years, the percentage of Chinese manufacturers caught in submitting false payroll
records has risen from 46% to 75%. According to Tang Yinghong, Former Administrator of Ningbo Beifa Group, “Tutoring
and helping factories deal with audits has become an industry in China”.
Nike and some other companies thought that improvement in the method of production might reduce the labor-hour
requirement. But was it possible to change the profit-seeking mind of the producer which helps the economy to grow-up?
BIBLIOGRAPHY
1. http://www.usmra.com/china/Labour%20Law.htm
2. http://www.chinalaborwatch.org/upload/Wal-MartPanyuReport.pdf
3. http://www.chinalaborwatch.org/upload/toyindustryreport.docThe Toy Industry in China: Undermining Workers’ Rights and Rule of LawA report by
China Labor WatchSeptember, 2005.
4. http://gb.china-labour.org.hk/gate/gb/www.china-labour.org.hk/fs/view/research- reports/Women_Workers_Report.pdfFalling Through the FloorMigrant
Women Workers’ Quest for Decent Work in Dongguan, ChinaChina Labour BulletinCLB Research Series: No. 2, September 2006
5. Source:Be aware of Mickey Disney’ Sweatshop in South China: A report by HKCIC, February 2001http://www.somo.nl/monitoring/reports/
disneychart.pdf
6. Why Has China’s Economy Taken Off Faster than India’s? June 2006 David E. Bloom, David Canning, Linlin Hu, Yuanli Liu, Ajay Mahal, and
Winnie Yip1 http://www.hsph.harvard.edu/pgda/Bloom_Canning_China_India.pdf
7. http://en.wikipedia.org/wiki/Image:Prc1952-2005gdp.gif#file
8. http://knowledge.wharton.upenn.edu/papers/download/BCG-Wspecialreport-final.pdf
9. http://neweconomist.blogs.com/photos/uncategorized/20060318_chinaswagecostchallenge_bw.gif
10. http://knowledge.wharton.upenn.edu/papers/download/BCG-Wspecialreport-final.pdf
11. The Changing Face of China ATKEARNEYhttp://www.atkearney.com/shared_res/pdf/ChinaOffshore_S.pd

(Continued from page 30)
To employees :Increase in Salary, Productivity Bonus, Efficiency Bonus etc.

To Customers :I) Depots Close to Customers Business houses.
II) Quality product at minimum cost and in time.
To Suppliers : Single Supplier, Prompt Payment and Constant
Assistance.
To Government : Prompt in paying advance Income – tax (won an award for the same ).
To Society : Liberal donations and continuous financial assiatance to needy people.
To Fellow businessmen : Constant effort to propagate the advantages of ethical business practices.


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From the Editor’s Desk

Prabandhan: Indian Journal of Management • September-October, 2008 1

VOLUME : I NUMBER:1 Rs. 125/- SEPTEMBER-OCTOBER, 2008

PRABANDHAN: INDIAN JOURNAL OF

2 Prabandhan: Indian Journal of Management • September-October, 2008

Prabandhan: Indian Journal of Management • September-October, 2008 3

4 Prabandhan: Indian Journal of Management • September-October, 2008

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6 Prabandhan: Indian Journal of Management • September-October, 2008

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8 Prabandhan: Indian Journal of Management • September-October, 2008

Prabandhan: Indian Journal of Management • September-October, 2008 9

Source: The Changing Face of China ATKEARNEY

10 Prabandhan: Indian Journal of Management • September-October, 2008

Source: The Changing Face of China

Source: The Changing Face of China

Prabandhan: Indian Journal of Management • September-October, 2008 11

12 Prabandhan: Indian Journal of Management • September-October, 2008

Prabandhan: Indian Journal of Management • September-October, 2008 13

Exhibit 6(b)China’s Economic Growth Since 60s

14 Prabandhan: Indian Journal of Management • September-October, 2008

Prabandhan: Indian Journal of Management • September-October, 2008 15

16 Prabandhan: Indian Journal of Management • September-October, 2008

Prabandhan: Indian Journal of Management • September-October, 2008 17

Exhibit 8: Working Conditions in Different Industries in China in 2006

Prabandhan: Indian Journal of Management • September-October, 2008 19

Source: Falling Through the Floor

20 Prabandhan: Indian Journal of Management • September-October, 2008

22 Prabandhan: Indian Journal of Management • September-October, 2008

26 Prabandhan: Indian Journal of Management • September-October, 2008

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28 Prabandhan: Indian Journal of Management • September-October, 2008

PPL – A TEMPLE OF ETHICS

02 – 05 YRS 05 – 10 YRS 10 – 20 YRS FOREVER

Unethical Unethical Ethical Ethical

Unethical Ethical Unethical Ethical

Prabandhan: Indian Journal of Management • September-October, 2008 29

Prabandhan: Indian Journal of Management • September-October, 2008 31

Prabandhan: Indian Journal of Management • September-October, 2008 33

* Assistant Professor & Head,Department of Entrepreneurship,SLIET, Longowal, Punjab. E-mail: pardeep_jain2000@yahoo.com

34 Prabandhan: Indian Journal of Management • September-October, 2008

Prabandhan: Indian Journal of Management • September-October, 2008 35

36 Prabandhan: Indian Journal of Management • September-October, 2008

Prabandhan: Indian Journal of Management • September-October, 2008 37

Prabandhan: Indian Journal of Management • September-October, 2008 39

40 Prabandhan: Indian Journal of Management • September-October, 2008

To employees :Increase in Salary, Productivity Bonus, Efficiency Bonus etc.

Prabandhan: Indian Journal of Management • September-October, 2008 41

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