Export and Import

MANUFACTURING INDUSTRY:- Manufacturing industry refers to those industries which involve in the manufacturing and processing of items and indulge in either creation of new commodities or in value addition. The manufacturing industry accounts for a significant share of the industrial sector in developed countries. The final products can either serve as a finished good for sale to customers or as intermediate goods used in the production process. Evolution of the manufacturing industry:

Manufacturing industries came into being with the occurrence of technological and socio-economic transformations in the Western countries in the 18th-19th century. This was widely known as industrial revolution. It began in Britain and replaced the labor intensive textile production with mechanization and use of fuels. Working of manufacturing industry: Manufacturing industries are the chief wealth producing sectors of an economy. These industries use various technologies and methods widely known as manufacturing process management.

Manufacturing industries are broadly categorized into engineering industries, construction industries, electronics industries, chemical industries, energy industries, textile industries, food and beverage industries, metalworking industries, plastic industries, transport and telecommunication industries. Manufacturing industries are important for an economy as they employ a huge share of the labor force and produce materials required by sectors of strategic importance such as national infrastructure and defense.

However, not all manufacturing industries are beneficial to the nation as some of them generate negative externalities with huge social costs. The cost of letting such industries flourish may even exceed the benefits generated by them. [pic] A FEW DETAILS ABOUT THE COMPANY WE VISITED:- Office Address : NP23 &24, DEVELOPED PLOT, Ekkattuthangal, Chennai -600097 Primary Industry: Measurment &Testing Instruments Company Logo : This is the companys logo [pic] Hours of Operation:   [pic] Monday :         09. 0 – 18. 30 Tuesday :        09. 30 – 18. 30 Wednesday :  09. 30 – 18. 30 Thursday :       09. 30 – 18. 30 Friday :             09. 30 – 18. 30 Saturday :        09. 30 – 18. 30 Sunday :          09. 30 – 18. 30 BUSINESS SUMMARY:- Devi Polymers Private Limited (Devi) is pioneers in manufacturing Polyester Moulding Compound (PMC), Sheet Moulding Compound (SMC) and Dough Moulding Compound (DMC) in India. Devi started manufacturing PMC’s Polyester Moulding Compounds) in the year 1975 under license from Fothergill & Harvey Ltd. U. K. / Freeman Chemicals, U. K. Devi is one of the largest manufacturers of PMC Compounds in India. The capacity of the plant for manufacturing SMC and DMC is around 10,000 tones per annum. Besides supplying SMC and DMC, Devi also supply SMC and DMC moulded components for the Electrical and Automotive Industry. Devi is one of the leading OEMs supplying SMC and DMC components to almost all Electrical Switchgear Companies in India, such as Larsen & Toubro, Siemens India, GE India, Legrand India, Havels India, Socomec HPL etc. In addition to compounds and OEM supply, Devi has designed & manufactured its own range of Industrial / Engineering Products, catering to various Industrial Sectors in India and also exporting countries like Middle East, Africa, USA etc. PRODUCTS SUMMARY:- 1. Flosto – SMC/GRP Sectional Panel Water Tanks. 2. Duro-Box – SMC/GRP Moulded Weather Proof Enclosures. 3. Duro-Stor- Modular Housing Systems. 4. CAD / CAM / CAE Services: Extensive Tool Room for Manufacture of Hot Press / Injection Moulding Tools, Oem Products, and Special Purpose Machines. 5. Research & Development Capabilities. . Engineering Services: OEM Mouldings, CAD / CAM / CAE Services, Tool Room Facility, Special Purpose Machines, Dust Collector (Pulse-Jet Type), and Duro-STOR Modular SMC/GRP housing systems. 2. SMC / DMC Compounds & Components: FLOMAT – Sheet Moulding Compound (SMC), FLODO- Dough Moulding Compound (DMC/BMC), FLODOMAT – Kneaded Moulding, FLOSTO SMC Panel water tanks, Duro-BOX Polyester enclosures, and SMC Chequered Plates. MANUFACTURERS OF :- Manufacturers of: Hot Press Moulded GRP, (SMC) Sectional Water Tanks, Glass, Polyester Moulding Compounds and Mouldings of Electrical Insulators.

Compression, Transfer & Injection Moulding Facility and tooling. ABOUT US:- Devi Polymers Private Limited (Devi) are pioneers in manufacturing Polyester Moulding Compound (PMC), Sheet Moulding Compound (SMC) and Dough Moulding Compound (DMC) in India. Devi started manufacturing PMC’s Polyester Moulding Compounds) in the year 1975 under license from Fothergill & Harvey Ltd. , U. K. / Freeman Chemicals, U. K. Devi is one of the largest manufacturer of PMC Compounds in India. The capacity of the plant for manufacturing SMC and DMC is around 10,000 tones per annum.

Besides supplying SMC and DMC, Devi also supply SMC and DMC moulded components for the Electrical and Automotive Industry. Devi is one of the leading OEMs supplying SMC and DMC components to almost all Electrical Switchgear Companies in India, such as Larsen & Toubro, Siemens India, GE India, Legrand India, Havels India, Socomec HPL etc. , In addition to compounds and OEM supply, Devi has designed & manufactured its own range of Industrial / Engineering Products, catering to various Industrial Sectors in India and also exporting countries like Middle East, Africa, USA etc. ,

The premium products / services of Devi are: [pic]FLOSTO – SMC/GRP Sectional Panel Water Tanks [pic]DURO-BOX – SMC/GRP Moulded Weather Proof Enclosures [pic]Duro-STOR- Modular Housing Systems [pic]CAD / CAM / CAE Services [pic]Extensive Tool Room for Manufacture of Hot Press / Injection Moulding Tools [pic]OEM Products [pic]Special Purpose Machines [pic]Research & Development Capabilities MAANUFACTURING UNITS :- Devi Polymers is one of the leading companies in the world having well integrated facilities under One roof: Devi Polymers has three manufacturing units in Chennai.

All three units are certified to ISO 9001 quality system. [pic] [pic] [pic] [pic] [pic] [pic] [pic] PRODUCTS :- [pic] OEM Mouldings [pic] CAD / CAM / CAE Services [pic]Tool Room Facility [pic] Special Purpose Machines [pic] Dust Collector (Pulse-Jet Type) [pic] Duro-STOR Modular SMC/GRP housing systems [pic]FLOMAT – Sheet Moulding Compound (SMC) [pic]FLODO- Dough Moulding Compound (DMC/BMC) [pic]FLODOMAT – Kneaded Moulding [pic]FLOSTO SMC Panel water tanks [pic] Duro-BOX Polyester enclosures [pic]SMC Chequered Plates OEM MOULDED COMPONENTS Compounding Facility  :- [pic]

Comprises of controlled storage facility, for resin, fillers, crystals etc. Bulk filler storage and handling with 2 silos of 60 tonnes capacity each width conveying and drying capacity of 3 tonnes per hour. Bulk filler handling capacity with bulk storage and handling of filler with 2 silos of capacity 60 Mt each, including handling and drying capacity of 3 Mt/hrs. Laboratory and test facilities- Components & Products Devi has extensive facilities to test as per relevant British (BS), American (ASTM), German (DIN) and Bureau of Indian (BIS) Standards, required Electrical, Mechanical, Thermal and Chemical Properties.

Mechanical and Thermal Laboratory [pic] •  Izod impact tester •  Abrasion / wear resistance tester •  Mould Shrinkage measurement. •  Martens heat stability tester •  Flammability tester UL 94. V0 •  Barcol Hardness Test Electrical Laboratory : • 1000KV Di-Electric Break down tester • Arc Resistance Tester (ASTM-D495) • Tracking Index Tester. • Volume and Surface resistivity. Chemical Laboratory : • Glass Polyester resin • Glass fiber • Fillers and other raw materials used in manufacture of PMC  • Cure time of compounds Research & Development

Independent R & D team headed by a Doctorate in Chemical Engineering to develop and improve new & existing grades of PMC, testing of products etc. Products list 1)Polyester Moulding Compounds (PMC) [pic] Sheet moulding Compounds (SMC) [pic] Dough Bulk Moulding Compounds (DMC / BMC) [pic] Kneaded Moulding Compounds (KMC) 2)PMC Moulded Components [pic] By Compression (100 gms – 20 Kgs) [pic] By Transfer (100 gms – 800 gms) [pic] By Injection (100 gms – 800 gms) 3)Allied finished products [pic] [pic] MANUFACTURING OF SPECIAL PURPOSE MACHINES:

DEVI have adquate capability to build our own SPM’s including SMC Machines, Moulds & Dies and CNC Equipment etc. , DEVI have a good team of experts, who can design & manufacture required SPMs. DEVI, in the last few years has designed and built a wide range of Special Purpose Machines (SPM) and other development activities, for captive use like: Manufacture of Sheet Moulding Compound Machine capable of thickness 12 mm sheet, with associated (A+B) continuous mixing system [pic]Drilling Machine for Panel Tanks [pic]Design and Development of Pulse Jet type Dust Collectors pic]Design and Development of new range of Enclosures with CAD-CAM & CAE [pic]New product developments by Solid Modeling, Finite Element Analysis and Production of tooling by CAD-CAM machining [pic]Design & Manufacture of Moulding Tools especially compression / injection moulding tools for thermosets ranging from mould weights of 100 kgs. To 13,000 kgs. Water Tank Panel Drilling Machine [pic] [pic] View of Machine in design stage                                                 Machine in operation [pic] A PANEL OF DIFFERENT SIZES :- [pic]  |W |=|Minimum 1m up to 10m |[pic] | | | | | |(Increments in steps of 0. 15m / 0. 5m| | | | | | |/ 1m)  | | | | |D |=|Minimum 1m | | | | | | |up to 3m – without internal steel | | | | | | |support. | | | | | | |up to 10m – with internal steel | | | | | | |support. | | | |H |=|Minimum 1m up to 4m | | | | | | |(Increments in steps of 0. 15m / 0. 5m| | | | | | |/ 1m) | | | Photographs of the SMC Moulded Components of various applications [pic] ELECT COMPONENT-SMC [pic]ELECT COMPONENT-SMC DOUGH MOULDING COMPOUND Dough Moulding Compound (DMC) is a one which comprises of Glass fiber, Polyester Resin, Fillers, Catalyst, Additives, etc. DMC /BMC Compounding Z blade mixers capacity 50 Kg, 100 Kg & 300 Kg.

Bulk filler handling capacity with bulk storage and handling of filler with 2 silos of capacity 60 Mt each, including handling and drying capacity of 3 Mt/hrs. [pic]DOUGH MOULDING COMPOUND [pic] DMC MIXING A FINISHED PRODUCT :- Photographs of external view of the SMC Panel tank. [pic] [pic] • ISO Quality system [pic] • [pic] Devi Polymers Private Limited (UNIT A) – ISO 9001 [pic] • [pic] Devi Polymers Private Limited (UNIT B) – ISO 9001 [pic] • [pic] Devi Polymers Private Limited (UNIT C) – ISO 9001 [pic] [pic] Devi Polymers Private Limited (UNIT C) – ISO 14001  : 2004 — TUV [pic] [pic] | S. Ram Mohan, Manager – Marketing & Devpt. | |(Marketing Division, Unit ‘C’) | |Devi Polymers Private Limited | |NP 23 & 24, Developed Plot,  | |Ekkattuthangal, Chennai – 600 097, INDIA | |  | |Email: [email protected] om | |Telephone: ++91 44 2225 0359, 2225 1502, 2225 0391 | |Fax: ++91 44 2225 0349 | EXPORT PROCEDURE:- The export procedure is carried out as follows: • The overseas customer will send an inquiry to the company. An inquiry refers to the customer’s question on whether the goods they are seeking for is available and easily accessible for the company or not. he exporter may get an inquiry for exports through trade promotion councils or a direct request from the prospective importer from another country. The enquiries will contain information on the details of the product and goods required by the importers from abroad. The inquiry will also specify complete details of the goods like the volume and the value, grading, catalogues, sizes, weights, the international standardization certificates, the expected time of delivery and mode of shipment along with the delivery. • The company will see if the goods they are enquiring about is right in mount and volume and convenient for them to supply. According to the availability of the goods, the company will take up the offer. The exporter will attend to the enquiry by responding through mail and provides details on products through literature and catalogues etc. • If the company has taken the offer, the next step is sending the quotation. A quotation is a form in which the company includes the goods name, nature of the goods ordered, quantity of the goods ordered and price of the goods ordered. The form is drawn up by the company to send to his customer.

The exporter will have to make his offer to the importer in which he will have to submit his quotation on a pro forma invoice and other relevant details like products to be supplied, their rates, quantity, quality, value, details regarding freight, insurance and other charges. He will also quote the time of payment, method of payment,letter of credit if needed, conditions of sale, delivery period and other details on warranty, inspection, approval by home authorities, certification by international standardization authorities etc. • Based on the quotation that is send there will be a negotiation of the prices.

In the quotation form , the company will give the price they have put for the goods. It also shows in which area the company has incurred extra costs for the procurement of goods and the reason for their pricing. Along with this the company will mention the profit they require in the deal. This is submitted to the customer and he will decide if it is appropriate through negotiations. Once the customer is satisfied he will seal the deal. • Once the prices have been discussed and fixed, the next step is to send the purchase order.

A purchase order (PO) is a commercial document issued by a buyer to a seller, indicating types, quantities, and agreed prices for products or services the seller will provide to the buyer. Sending a PO to a supplier constitutes a legal offer to buy products or services. Acceptance of a purchase order by a seller usually forms a one-off contract between the buyer and seller, so no contract exists until the Purchase Order is accepted. Once the importer has accepted the offer made to him, he will have to place an order with the exporter. The exporter has to confirm the acceptance in writing.

He will have to send a pro- forma invoice in triplicate to the buyer and ask him to return two copies duly acknowledged and signed by him so that out of these two copies , one copy can be signed by the exporter too and sent back to the importer buyer. This will signify the confirmation and acceptance of the order by the exporter and an international contract for the export order will become binding between both the parties. • The confirmation and acceptance will result into formation of an export contract between exporter and importer.

The contract will carry details in terms of conditions of the international deal. A normal contract will carry details of goods, quality, quantity, price per unit, total value of the contract, details regarding freight, insurance and other charges. He will also quote the time of payment, method of payment, letter of credit if needed, conditions of sale, delivery period and other details on warranty, inspection, approval by home authorities, certification by international standardization authorities etc • The exporter has to check if he needs license issued for the items which he has received the export order. There are various schemes and finances available for pre shipment finances. The exporters get in touch with the banks and export promotion councils of their respective products as to how to avail these financial assistances. Devi polymers ltd gets its finances from the State Bank Of India. All financial transactions of this company is dealt through state Bank of India. • Once all the formalities have been completed and the exporter has entered into a sales contract with the importer, the exporter has to ensure he manufactures or procures goods as per the specification given in the export contract. The reservation of space in the ship for the goods are made with the help of carrying and forwarding agents. They work as commission agents and will reserve shipping space on commission. The exporter needs to get in touch with them immediately after the export order has been confirmed and book the required shipping berth with the shipping company on the port through which shipping will be taking place. • The importer will specify in the export contract about the standards and specifications to be followed for the packing and marking of goods meant for export.

There are some very important documents that are involved in the process of export. They are as follows: 1. Invoice : An invoice or bill is a commercial document issued by a seller to the buyer, indicating the products, quantities, and agreed prices for products or services the seller has provided the buyer. An invoice indicates the buyer must pay the seller, according to the payment terms. The buyer has a maximum amount of days to pay these goods and are sometimes offered a discount if paid before.

In the rental industry, an invoice must include a specific reference to the duration of the time being billed, so rather than quantity, price and discount the invoicing amount is based on quantity, price, discount and duration. Generally speaking each line of a rental invoice will refer to the actual hours, days, weeks, months etc being billed. From the point of view of a seller, an invoice is a sales invoice. From the point of view of a buyer, an invoice is a purchase invoice. A typical invoice contains • The word invoice, • A unique reference number (in case of correspondence about the invoice), • Date of the invoice.. Name and contact details of the seller,Tax or company registration details of seller (if relevant), • Name and contact details of the buyer, • Date that the product was sent or delivered, • Purchase order number (or similar tracking numbers requested by the buyer to be mentioned on the invoice) • Description of the product(s), • Unit price(s) of the product(s) (if relevant), • Total amount charged (optionally with breakdown of taxes, if relevant) • Payment terms (including method of payment, date of payment, • and details about charges late payment) There are different types of invoices: Pro forma invoice – In foreign trade, a pro forma invoice is a document that states a commitment from the seller to provide specified goods to the buyer at specific prices. It is often used to declare value for customs. It is not a true invoice, because the seller does not record a pro forma invoice as an accounts receivable and the buyer does not record a pro forma invoice as an accounts payable.

A pro forma invoice is not issued by the seller until the seller and buyer have agreed to the terms of the order. In few cases, pro forma invoice is issued for obtaining advance payments from buyer, either for start of production or for security of the goods produced. Pro Forma Invoice: An invoice presented by one company to another for payment for goods prior to their despatch. This method of invoicing is to ensure payment is received and is often the case when two companies have not traded before.

If future trading is anticipated it will then be usual for an account to be set up for the purchasing company with credit facilities. • Credit memo – If the buyer returns the product, the seller usually issues a credit memo for the same or lower amount than the invoice, and then refunds the money to the buyer, or the buyer can apply that credit memo to another invoice. • Commercial invoice – a customs declaration form used in international trade that describes the parties involved in the shipping transaction, the goods being transported, and the value of the goods. 5] It is the primary document used by customs, and must meet specific customs requirements, such as the Harmonized System number and the country of manufacture. It is used to calculate tariffs. • Debit memo – When a company fails to pay or short-pays an invoice, it is common practice to issue a debit memo for the balance and any late fees owed. In function debit memos are identical to invoices. • Self-billing invoice – A self billing invoice is when the buyer issues the invoice to himself (e. g. according to the consumption levels he is taking out of a vendor-managed inventory stock). Evaluated receipt settlement (ERS) – ERS is a process of paying for goods and services from a packing slip rather than from a separate invoice document. The payee uses data in the packing slip to apply the payments. “In an ERS transaction, the supplier ships goods based upon an Advance Shipping Notice (ASN), and the purchaser, upon receipt, confirms the existence of a corresponding purchase order or contract, verifies the identity and quantity of the goods, and then pays the supplier. “[6] • Timesheet – Invoices for hourly services such as by lawyers and consultants often pull data from a timesheet.

A Timesheet invoice may also be generated by Operated equipment rental companies where the invoice will be a combination of timesheet based charges and equipment rental charges. • Invoicing – The term invoicing is also used to refer to the act of delivering baggage to a flight company in an airport before taking a flight. [citation needed] • Statement – A periodic customer statement includes opening balance, invoices, payments, credit memos, debit memos, and ending balance for the customer’s account during a specified period.

A monthly statement can be used as a summary invoice to request a single payment for accrued monthly charges. • Progress billing used to obtain partial payment on extended contracts, particularly in the construction industry (see Schedule of values) • Collective Invoicing is also known as monthly invoicing in Japan. Japanese businesses tend to have many orders with small amounts because of the outsourcing system (Keiretsu), or of demands for less inventory control (Kanban). To save the administration work, invoicing is normally processed on monthly basis. Continuation or Recurring Invoicing is standard within the equipment rental industry, including tool rental. A recurring invoice is one generated on a cyclical basis during the lifetime of a rental contract. For example if you rent an excavator from 1st January to 15th April, on a calendar monthly arrears billing cycle, you would expect to receive an invoice at the end of January, another at the end of February, another at the end of March and a final Off-rent invoice would be generated at the point when the asset is returned.

The same principle would be adopted if you were invoiced in advance, or if you were invoiced on a specific day of the month. 2. Packing list: The packing list refers to a consolidated statement of the contents packed in each large case and the number of such large cases meant for shipment. Such list will mention the • packing date, • name and address of the exporter, • name and address of the importer, • export order number and date • contents of the goods in terms of quality and quantity • weight • special handling instructions • marking numbers to identify the consignment export price will be mentioned in the invoice. 3. Certificate of origin: The certificate of origin as the name suggests certifies the name of the country in which the goods meant for export have been produced. This certificate is sent by the exporter to the importer, as it will be needed by him to get the goods cleared by the customs authority of his country. The customs law of the country may have preferential duty rates for a particular country or the country may have put an embargo on the imports of specific goods from a particular country. The submission of the certificate of origin is required.

The exporters can approach the chamber of commerce, the export promotion council and many other trade promotion councils authorized by government to issue the certificate of origin. 4. Bill of lading: A bill of lading is a type of document that is used to acknowledge the receipt of a shipment of goods. A transportation company or carrier issues this document to a shipper. In addition to acknowledging the receipt of goods, a bill of lading indicates the particular vessel on which the goods have been placed, their intended destination, and the terms for transporting the shipment to its final destination.

Inland, ocean, through, and air waybill are the names given to bills of lading. An inland bill of lading is a document that establishes an agreement between a shipper and a transportation company for the transportation of goods. It is used to lay out the terms for transporting items overland to the exporter’s international transportation company. An ocean bill of lading is a document that provides terms between an exporter and international carrier for the shipment of goods to a foreign location overseas. A through bill of lading is a contract that covers the specific terms agreed to by a shipper and carrier.

This document covers the domestic and international transportation of export merchandise. It provides the details of the agreed upon transportation between specific locations for a set monetary amount. An air waybill is a bill of lading that establishes terms of flights for the transportation of goods both domestically and internationally. This document also serves as a receipt for the shipper, proving the carrier’s acceptance of the shipper’s goods and agreement to carry those goods to a specific airport. Essentially, an air waybill is a type of through bill of lading.

This is because air waybills may cover both international and domestic transportation of goods. By contrast, ocean shipments require both inland and ocean bills of lading. Inland bills of lading are necessary for the domestic transportation of goods and ocean bills of lading are necessary for the international carriage of goods. Therefore, through bills of lading may not be used for ocean shipments. Inland and ocean bills of lading may be negotiable or non-negotiable. If the bill of lading is non-negotiable, the transportation carrier is required to provide delivery only to the consignee named in the document.

If the bill of lading is negotiable, the person with ownership of the bill of lading has the right of ownership of the goods and the right to re-route the shipment. The bill of lading is prepared on the prescribed form of the shipping company and carries the following information: • The shipping company’s name and address • Date and place of shipment • The name of the consigner • Name and destination of vessel • Description and quality of goods • Destination of goods • The private markings and numbers • Invoice number • Date of shipment Gross weight and net weight of consignment • Number of packages • Freight details • Signature and seal of shipping company’s authorized agent Three original sets of bill of lading are issued by the shipping company. The non negotiable copies can also be obtained with clear markings of “non negotiable” for other necessary records. Types of bill of lading are: • Clean bill of lading: A bill of lading is a document issued and signed by a transportation company to show receipt of goods for transportation from and to the point of destination.

A clean bill of lading, simply put, is when the goods received by the carrier (transportation company) are in appropriate condition with no defects or damage to goods and/or packaging. If, for example, the container received by the carrier was damaged, the carrier makes a notation that expressly declares the defective condition of the container. Ultimately, it is the exporter who will be responsible financially because of the damaged container and or package to be shipped. • Claused bill of lading: A bill of lading that shows a shortfall or damage in the delivered goods.

Typically, if the shipped products deviate from the delivery specifications or expected quality, the receiver may declare a claused bill of lading. Being issued a claused bill of lading can be troublesome for most exporters. If the goods are deemed damaged or some quantity is missing, the exporter may have difficulty receiving payment. Because most banks will refuse to accept any claused bills of lading, purchasers relying on letters of credit to pay for the goods will be unable to receive funds if the bill is foul. Trans-shipment bill of lading: If shipping company has to use multi- modal systems of transportation, that is, rail, road, air, shipping company, the ships commanding office can issue a trans shipment bill of lading. • Freight paid bill of lading: it refers to a bill of lading the freight for which has already been paid by the exporter. 5. Shipping bill: Is the principle document needed to obtain permission of the customs to export the goods by sea or air. This document contains details regarding • Exporters name and address Particulars and description of goods under export • Details of the packages of goods • Total number of packages • Total weight • Fob prices • Value as defined in the sea customs and act • Name of the vessel • Port of destination • Interim port before trans shipment to final destination 6. Mate’s receipt: The cargo is handed over to the ship only after all formalities by the custom authorities and port authorities have been completed that is the examination of the goods by the custom’s authorities, and the payment of port charges have been paid by the exporter.

The captain of the ship issues this receipt which contains information regarding name of the vessel, berth, date of shipment, description of packages, identification marks and numbers, condition of the cargo at the time of loading into the ship etc 7. Bill of exchange: An unconditional order issued by a person or business which directs the recipient to pay a fixed sum of money to a third party at a future date. The future date may be either fixed or negotiable. A bill of exchange must be in writing and signed and dated. . Letter of credit: A standard, commercial letter of credit is a document issued mostly by a financial institution, used primarily in trade finance, which usually provides an irrevocable payment undertaking. The letter of credit can also be source of payment for a transaction, meaning that redeeming the letter of credit will pay an exporter. Letters of credit are used primarily in international trade transactions of significant value, for deals between a supplier in one country and a customer in another.

They are also used in the land development process to ensure that approved public facilities (streets, sidewalks, stormwater ponds, etc. ) will be built. The parties to a letter of credit are usually a beneficiary who is to receive the money, the issuing bank of whom the applicant is a client, and the advising bank of whom the beneficiary is a client. Almost all letters of credit are irrevocable, i. e. , cannot be amended or cancelled without prior agreement of the beneficiary, the issuing bank and the confirming bank, if any.

In executing a transaction, letters of credit incorporate functions common to giros and Traveler’s cheques. Typically, the documents a beneficiary has to present in order to receive payment include a commercial invoice, bill of lading, and documents proving the shipment was insured against loss or damage in transit. However, the list and form of documents is open to imagination and negotiation and might contain requirements to present documents issued by a neutral third party evidencing the quality of the goods shipped, or their place of origin.

Letter of credit being an irrevocable undertaking of the issuing bank makes available the Proceeds, to the Beneficiary of the Credit provided, stipulated documents strictly complying with the provisions of the letter of credit, UCP 600 and other international standard banking practices, are presented to the issuing bank, then: • if the Credit provides for sight payment – by payment at sight against compliant presentation • if the Credit provides for deferred payment – by payment on the maturity date(s) determinable in accordance with the stipulations of the Credit; and of course undertaking to pay on due date and confirming maturity date at the time of compliant presentation • if the Credit provides for acceptance by the Issuing Bank – by acceptance of Draft(s) drawn by the Beneficiary on the Issuing Bank and payment at maturity of such tenor draft, or • if the Credit provides for acceptance by another drawee bank – by acceptance and payment at maturity Draft(s)drawn by the Beneficiary on the Issuing Bank in the event the drawee bank stipulated in the Credit does not accept Draft(s) drawn on it, • or by payment of Draft(s) accepted but not paid by such drawee bank at maturity; • if the Credit provides for negotiation by another bank – by payment without recourse to drawers and/or bona fide holders, Draft(s) drawn by the Beneficiary and/or document(s) presented under the Credit, (and so negotiated by the nominated bank ) • Negotiation means the giving of value for Draft(s) and/or document(s) by the bank authorized to negotiate, viz the nominated bank. Mere examination of the documents and forwarding the same to LC issuing bank for reimbursement, without giving of value / agreed to give, does not constitute a negotiation.

Documents called for under letter of credit • Financial Documents: Bill of Exchange, Co-accepted Draft • Commercial Documents: Invoice, Packing list • Shipping Documents: Transport Document, Insurance Certificate, Commercial, Official or Legal Documents • Official Documents: License, Embassy legalization, Origin Certificate, Inspection Cert , Phyto-sanitary Certificate • Transport Documents: Bill of Lading (ocean or multi-modal or Charter party), Airway bill, Lorry/truck receipt, railway receipt, CMC Other than Mate Receipt, Forwarder Cargo Receipt, Delivery Challan… etc • Insurance documents: Insurance policy, or Certificate International Trade Payment methods Advance payment (most secure for seller): Where the buyer parts with money first and waits for the seller to forward the goods • Documentary Credit (more secure for seller as well as buyer) subject to ICC’s UCP 600, where the bank gives an undertaking (on behalf of buyer and at the request of applicant ) to pay the shipper ( beneficiary ) the value of the goods shipped if certain docs are submitted and if the stipulated terms and conditions are strictly complied. Here the buyer can be confident that the goods he is expecting only will be received since it will be evidenced in the form of certain docs called for meeting the specified terms and conditions while the supplier can be confident that if he meets the stipulations his payment for the shipment is guaranteed by bank, who is independent of the parties to the contract. Documentary collection (more secure for buyer and to a certain extent to seller) subject to ICC’s URC 525, sight and usance, for delivery of shipping documents against payment or acceptances of draft, where shipment happens first, then the title documents are sent to the [collecting bank] buyer’s bank by seller’s bank [remitting bank], for delivering documents against collection of payment/acceptance • Direct payment (most secure for buyer) Where the supplier ships the goods and waits for the buyer to remit the bill proceeds, on open account terms Risk situations in LC transaction Fraud Risks • The payment will be obtained for nonexistent or worthless merchandise against presentation by the Beneficiary of forged or falsified documents. • Credit itself may be forged. Sovereign and Regulatory Risks • Performance of the Documentary Credit may be prevented by government action outside the control of the parties. Legal Risks Possibility that performance of a Documentary Credit may be disturbed by legal action relating directly to the parties and their rights and obligations under the Documentary Credit Force Majeure and Frustration of Contract • Performance of a contract – including an obligation under a Documentary Credit relationship – is prevented by external factors such as natural disasters or armed conflicts Risks to the Applicant • Non-delivery of Goods • Short Shipment • Inferior Quality • Early /Late Shipment • Damaged in transit • Foreign exchange • Failure of Bank viz Issuing bank / Collecting Bank Risks to the Issuing Bank • Insolvency of the Applicant • Fraud Risk, Sovereign and Regulatory Risk and Legal Risks Risks to the Reimbursing Bank no obligation to reimburse the Claiming Bank unless it has issued a reimbursement undertaking. Risks to the Beneficiary • Failure to Comply with Credit Conditions • Failure of, or Delays in Payment from, the Issuing Bank • Credit Issued by Party other than Bank Risks to the Advising Bank • The Advising Bank’s only obligation – if it accepts the Issuing Bank’s instructions – is to check the apparent authenticity of the Credit and advising it to the Beneficiary Risks to the Nominated Bank • Nominated Bank has made a payment to the Beneficiary against documents that comply with the terms and conditions of the Credit and is unable to obtain reimbursement from the Issuing Bank Risks to the Confirming Bank If Confirming Bank’s main risk is that, once having paid the Beneficiary, it may not be able to obtain reimbursement from the Issuing Bank because of insolvency of the Issuing Bank or refusal of the Issuing Bank to reimburse because of a dispute as to whether or not payment should have been made under the Credit Risks in International Trade • A Credit risk risk from change in the credit of an opposing business. • An Exchange risk is a risk from a change in the foreign exchange rate. • A Force majeure risk is 1. a risk in trade incapability caused by a change in a country’s policy, and 2. a risk caused by a natural disaster. Devi Polymers are presently one of the leading players in the world in prefabricated GRP panel type water storage tanks. It exports • water tank panels, • Electrical components like fuse gear, switch gear, transformers.

It has 3 manufacturing units in Chennai which are all ISO9001 certified and its plant unit ‘C’, the tank manufacturing unit is ISO 14001 certified. Devi polymers give letter of credit for 30 to 90 days depending on the credibility of the customer. It carries out all financial transactions through the State Bank Of India. Devi polymers Ltd exports their products to countries like USA, UK, Gulf countries. Some of its major customers are • Robroy Enclosures, USA • New Basis, USA • Union Fibre Glass, Dubai PROCEDURE OF IMPORT:- Certain procedures have to be followed for the purpose of clearing goods to be imported. Briefly these procedures have been discussed below.

The person in-charge of a vessel, ship or aircraft entering India must call or land only at a Customs Port or a Customs Airport only. It may call or land at any other place only if compelled by accident, bad weather or due to some genuine unavoidable reason. In such a case, he must report to the nearest police station or custom officer of such emergency arrival. In case of import of goods through the land route, the vehicle should follow the approved route and arrive at the approved Land Customs Station only. The person in-charge of a vessel, ship, aircraft or vehicle must submit within 24 hours after arrival at a Customs Area an Import Manifest or Import Report in the prescribed form in duplicate.

This will give details of cargo to be unloaded, unaccompanied baggage, goods to be transhipped, retention cargo, details such as general declaration about the conveyance, stores on the conveyance, private property in possession of the Captain of the aircraft or Master of the ship and other members of crews and Passenger Manifest. Separate declaration has to be given in respect of goods like arms, explosives, narcotics, dangerous drugs, gold and silver. The Import Manifest may be amended only with permission if there was no fraudulent intention. This report is not required if the conveyance is carrying only luggage of its occupants. Sometimes, filing of the Import Manifest is allowed before the arrival of the vessel by the Steamer Agents. This enables the importers to clear the imported goods quickly.

If, everything is found to be in order and berthing accommodation is available to the ship, the Customs Officer grants Entry Inwards. Unloading of cargo can start only after such order is made. The goods are then unloaded from the vessel. However, only those goods which have been mentioned in the Import Manifest can be unloaded. Such unloading can be done only at approved places and under supervision of the Customs Officer on a working day during working hours. However, unloading on holidays and after working hours may be allowed after giving notice to the prescribed authorities and after paying the prescribed fees. After the goods are unloaded, they shall remain in the custody of the prescribed authority (eg.

Port Trust in case of Port and Airport Authority in case of Airport) approved by the Collector of Customs until they are cleared. A tally sheet is prepared after the goods are goods are unloaded. If less than the reported goods are found, insurance survey is immediately carried out. If the goods unloaded are lower than the reported quantity, the shipper is liable to pay penalty upto twice the amount of duty payable on such shortfall in goods. The conveyance will leave only on written order given by the Customs Officer. Such order is given only after all formalities are completed and all duties and other payments due are paid. Duties on stores consumed have to be paid. Important terms used in import

Bill of Entry must be filed in the prescribed form by the Import or his authorised agent giving the prescribed details such as name and address of the importer, importer code, name address and licence number of the Custom House Agent, name of vessel, Rotation Number and date, Line Number, port of shipment, country of origin, country of consignment, number of Bill of Lading, description of packages, number of packages, quantity of goods, description of goods, Customs Tariff Heading, details of exemption from customs duty claimed, invoice number, and value, etc. A declaration that the details are true and there is no other document showing contrary information must also be given. The Bill of Entry may be signed by the importer himself or his Custom House Agent. Bill of Entry are of three types :- 1. Bill of Entry for home consumption: is to be submitted when the imported goods are to be cleared on payment of full duty for consumption of the goods in India. It is white colored. 2.

Bill of Entry for Warehouses : is to be submitted when the imported goods are not required immediately the importer but here they are to be stored in a warehouse without payment of duty under a bond and cleared later when required on payment of duty. This enables the importer to defer payment of Customs Duty until the goods are actually required by him. It is yellow colored. It is also known as “Bond Bill of Entry” since bond is executed for transfer of goods in a warehouse without payment of duty. 3. Bill of Entry for Ex-Bond Clearance : is used for clearing goods from the warehouse on payment of duty. The goods are classified and valued at the time of clearance from the Customs Port. Value and classification are not determined on such Bill of Entry. It is green coloured. The rate of duty payable is that rate which is applicable on the date of removal of goods from the warehouse.

If the rate of duty has changed after goods are cleared from custom port, duty assessed in the yellow Bill of Entry and paid on green Bill of Entry will not be the same. Assessment and Clearance : The document details filed by the importer or his authorized agent are checked and assessed by custom authority and then the goods are cleared. The following are the procedures in this connection: – The Bill of Entry submitted by importer is tallied with the Import Manifest submitted by shipper. If any variance is found between the two, further clarifications for the difference are called for by the Customs authorities. The rate of duty payable will be that rate which is prevalent on the date of presentation of Bill of Entry.

The importer or his agent may present Bill of Entry upto one week before expected date of arrival of the vessel. In such a case duty is payable at the rate of applicable on the date of which Inward Entry is granted and not the date of presentation of shipping bill. However the rate of foreign exchange will be that rate which was prevalent on the date of submission of Bill of Entry. This enables the importer to clear the goods quickly. On presenting of the Bill of Entry, date of presentation is noted. The Bill of Entry is then send to the appraising department for examination. The examiners carry out physical examination of the goods. Packages are opened and examined on a test check sample basis on the basis of which examination report is prepared.

The appraiser classifies the goods, determines the customs value, rate of duty applicable and verifies that the imports do not violate any provision of law. The duty payable is typed by a pin point typewriter. The Importer must pay the amount of duty so determined in cash or by bank draft for clearance of goods. However, regular importers may pay the duty out of the current account balance which they keep deposited with the Customs authorities. Once the duty is assessed, the Bill of Entry is returned to the importer for payment of duty. Duty must be paid within 7 days after Bill of Entry is returned ; otherwise interest at the rate of 20% p. a. is payable. Sometimes, f all documents are in order and the authorities are convinced that there is no violation of any law, the assessment may be done without physically examining the goods. Provisional Assessment may be done in the following circumstances: – • When the Customs Officer is satisfied that importer or exporter is unable to produce the required document or information. • It is necessary to carry out chemical or other test of goods. • When the importer or exporter has produced all documents but the Customs Officer still feels that further enquiry is required. In such circumstances, assessment is done on a provisional basis i. e. on a tentative basis. The importer has to pay the duty assessed and may clear the goods.

However, he has to execute a bond or furnish warranty or security as required by the custom officer for payment of difference, if any. The surplus amount paid, if any, on final assessment is refunded to him and the shortfall, if any, is to be paid by him. If the imported goods are warehoused after provisional assessment, the Customs Officer may require the importer to execute bond for twice the difference in duty, if the duty finally assessed is higher. Sometimes goods are imported in completely knock down condition i. e. CKD ( eg. all the components an parts of a car are imported and they are then assembled in India ). Such packages comprise of several goods, each of which are liable at different rate of duty.

In such a case, if the importer is liable to produce satisfactory evidence regarding break-up value of different parts, duty will be charged at different rates applicable on the basis of such break-up. If break-up is not available, the rate of duty for the entire package will the highest rate applicable among the parts in the package. Import Control : After assessment, the Bill of Entry is sent to the “License Section” where it is checked whether the import complies with the export and import policy of the Government. If any license is required for the import, it is verified whether the goods have been imported against a proper import license.

Such import license is given in duplicate, one copy for customs purpose and another exchange control copy for clearance of foreign exchange by bank. Out of Customs Charged Order : After all the above formalities are completed, the Customs Officer will issue Out-of Customs Order. Goods can be removed only on receipt of such order. Delay due to Customs formalities: Heavy charges known as “demurrage” are payable if goods are not cleared from the Customs Port within 3 days of unloading. If due to Customs formalities, such goods cannot be removed, the Customs authorities issue a certificate stating that delay was due to bonafide Customs formalities or due to bonafide Import Control formalities.

In such a case, the demurrage may be refunded by the Port authorities. Self Assessment of Bill of Entry (Green Channel of Import) This is a special scheme allowed in certain cases for speedy clearance of imports. As the name suggests, the duty is assessed by the importer himself and voluntarily paid by him. Some of the situations where this scheme has been made applicable are Public Sector Undertakings, Government Departments, 100 % export oriented units approved by the Collector and other importers which a proven identity and clean track record. The following are the main conditions of the scheme :- • Goods should not be subject to any import license or import restriction.

They must be goods which fall under the open general list of the RBI. • They must not fall under any negative list of imports • Consignment must be of a single product and not a combination of products. • Sensitive Item are not permitted under this scheme. • Assessment must not require any bond. • Assessment should not require original inspection of goods. • Importer must be regularly importing that item. Bulk imports from manufacturer and test certificate of manufacturer is produced. Under the scheme, the importer must file Bill of Entry having green colour band for identification. Bill of Entry must be self assessed and must be submitted along with proof of previous clearance of goods. | | | | | | | | | | | | | | | | | | | | | | 1. Bill of Entry – Cargo Declaration: Goods imported in a vessel/aircraft attract customs duty and unless these are not meant for customs clearance at the port/airport of arrival by particular vessel/aircraft and are intended for transit by the same vessel/aircraft or transhipment to another customs station or to any place outside India, detailed customs clearance formalities of the landed goods have to be followed by the importers.

In regard to the transit goods, so long as these are mentioned in import report/IGM for transit to any place outside India, Customs allows transit without payment of duty. Similarly for goods brought in by particular vessel/aircraft for transhipment to another customs station detailed customs clearance formalities at the port/airport of landing are not prescribed and simple transhipment procedure has to be followed by the carrier and the concerned agencies. The customs clearance formalities have to be complied with by the importer after arrival of the goods at the other customs station. There could also be cases of transhipment of the goods after unloading to a port outside India. Here also simpler procedure for transhipment has been prescribed by regulations, and no duty is required to be paid. 2.

For other goods which are offloaded importers have the option to clear the goods for home consumption after payment of the duties leviable or to clear them for warehousing without immediate discharge of the duties leviable in terms of the warehousing provisions built in the Customs Act. Every importer is required to file in terms of the Section 46 an entry (which is called Bill of entry) for home consumption or warehousing in the form, as prescribed by regulations. 3. If the goods are cleared through the EDI system no formal Bill of Entry is filed as it is generated in the computer system, but the importer is required to file a cargo declaration having prescribed particulars required for processing of the entry for customs clearance. 4.

The Bill of entry, where filed, is to be submitted in a set, different copies meant for different purposes and also given different colour scheme, and on the body of the bill of entry the purpose for which it will be used is generally mentioned in the non-EDI declaration. 5. The importer clearing the goods for domestic consumption has to file bill of entry in four copies; original and duplicate are meant for customs, third copy for the importer and the fourth copy is meant for the bank for making remittances. 6. In the non-EDI system alongwith the bill of entry filed by the importer or his representative the following documents are also generally required:- * Signed invoice * Packing list Bill of Lading or Delivery Order/Airway Bill * GATT declaration form duly filled in * Importers/CHA’s declaration * License wherever necessary * Letter of Credit/Bank Draft/wherever necessary * Insurance document * Import license * Industrial License, if required * Test report in case of chemicals * Adhoc exemption order * DEEC Book/DEPB in original * Catalogue, Technical write up, Literature in case of machineries, spares or chemicals as may be applicable * Separately split up value of spares, components machineries * Certificate of Origin, if preferential rate of duty is claimed * No Commission declaration 7. While filing the bill of entry and giving various particulars as rescribed therein the correctness of the information given has also to be certified by the importer in the form a declaration at the foot of the bill of entry and any mis-declaration/incorrect declaration has legal consequences, and due precautions should be taken by importer while signing these declarations. 8. Under the EDI system, the importer does not submit documents as such for assessment but submits declarations in electronic format containing all the relevant information to the Service Centre. A signed paper copy of the declaration is taken by the service centre operator for non-repudiability of the declaration. A checklist is generated for verification of data by the importer/CHA. After verification, the data is submitted to the system by the Service Centre Operator and system then generates a B/E Number, which is endorsed on the printed checklist and returned to the importer/CHA. No original documents are taken at this stage.

Original documents are taken at the time of examination. The importer/CHA also need to sign on the final document after Customs clearance. 9. The first stage for processing a bill of entry is what is termed the noting of the bill of entry, vis-a-vis, the IGM filed by the carrier. In the non-EDI system the importer has to get the bill of entry noted in the concerned unit which checks the consignment sought to be cleared having been manifested in the particular vessel and a bill of entry number is generated and indicated on all copies. After noting the bill of entry gets sent to the appraising section of the Custom House for assessment functions, payment of duty etc.

In the EDI system, the Steamer Agents get the manifest filed through EDI or by using the service centre of the Custom House and the noting aspect is checked by the system itself – which also generates bill of entry number. 10. After noting/registration of the Bill of entry, it is forwarded manually or electronically to the concerned Appraising Group in the Custom House dealing with the commodity sought to be cleared. Appraising Wing of the Custom House has a number of Groups dealing with earmarked commodities falling under different Chapter Headings of the Customs Tariff and they take up further scrutiny for assessment, import permissibility etc. angle. Assessment: 11.

The basic function of the assessing officer in the appraising groups is to determine the duty liability taking due note of any exemptions or benefits claimed under different export promotion schemes. They have also to check whether there are any restrictions or prohibitions on the goods imported and if they require any permission/license/permit etc. , and if so whether these are forthcoming. Assessment of duty essentially involves proper classification of the goods imported in the customs tariff having due regard to the rules of interpretations, chapter and sections notes etc. , and determining the duty liability. It also involves correct determination of value where the goods are assessable on ad valorem basis.

The assessing officer has to take note of the invoice and other declarations submitted alongwith the bill of entry to support the valuation claim, and adjudge whether the transaction value method and the invoice value claimed for the basis of assessment is acceptable, or value needs to be redetermined having due regard to the provisions of Section 14 and the valuation rules issued thereunder, the case law and various instructions on the subject. He also takes note of the contemporaneous values and other information on valuation available with the Custom House. 12. Where the appraising officer is not very clear about the description of the goods from the document or as some doubts about the proper classification which may be possible only to determine after detailed examination of the nature of the goods or testing of its samples, he may give an examination order in advance of finalisation of assessment including order for drawing of representative sample.

This is done generally on the reverse of the original copy of the bill of entry which is presented by the authorized agent of the importer to the appraising staff posted in the Docks/Air Cargo Complexes where the goods are got examined in the presence of the importer’s representative. 13. On receipt of the examination report the appraising officers in the group assesses the bill of entry. He indicates the final classification and valuation in the bill of entry indicating separately the various duties such as basic, countervailing, anti-dumping, safeguard duties etc. , that may be leviable. Thereafter the bill of entry goes to Assistant Commissioner/Deputy Commissioner for confirmation depending upon certain value limits and sent to comptist who calculates the duty amount taking into account the rate of exchange at the relevant date as provided under Section 14 of the Customs Act. 14.

After the assessment and calculation of the duty liability the importer’s representative has to deposit the duty calculated with the treasury or the nominated banks, whereafter he can go and seek delivery of the goods from the custodians. 15. Where the goods have already been examined for finalization of classification or valuation no further examination/checking by the dock appraising staff is required at the time of giving delivery and the goods can be taken delivery after taking appropriate orders and payment of dues to the custodians, if any. 16. In most cases, the appraising officer assessees the goods on the basis of information and details furnished to the importer in the bill of entry, invoice and other related documents including catalogue, write-up etc. He also determines whether the goods are permissible for import or there are any restriction/prohibition.

He may allow payment of duty and delivery of the goods on what is called second check/appraising basis in case there are no restriction/prohibition. In this method, the duties as determined and calculated are paid in the Custom House and appropriate order is given on the reverse of the duplicate copy of the bill of entry and the importer or his agent after paying the duty submits the goods for examination in the import sheds in the docks etc. , to the examining staff. If the goods are found to be as declared and no other discrepancies/mis-declarations etc. , are detected, the importer or his agent can clear the goods after the shed appraiser gives out of charge order. 17.

Wherever the importer is not satisfied with the classification, rate of duty or valuation as may be determined by the appraising officer, he can seek an assessment order. An appeal against the assessment order can be made to appropriate appellate authority within the time limits and in the manner prescribed. EDI Assessment: 18. In the EDI system of handling of the documents/declarations for taking import clearances as mentioned earlier the cargo declaration is transferred to the assessing officer in the groups electronically. 19. The assessing officer processes the cargo declaration on screen with regard to all the parameters as given above for manual process. However in EDI system, all the calculations are done by the system itself.

In addition, the system also supplies useful information for calculation of duty, for example, when a particular exemption notification is accepted, the system itself gives the extent of exemption under that notification and calculates the duty accordingly. Similarly, it automatically applies relevant rate of exchange in force while calculating. Thus no comptist is required in EDI system. If assessing officer needs any clarification from the importer, he may raise a query. The query is printed at the service centre and the party replies to the query through the service centre. 20. After assessment, a copy of the assessed bill of entry is printed in the service centre. Under EDI, documents are normally examined at the time of examination of the goods.

Final bill of entry is printed after ‘out of charge’ is given by the Custom Officer. 21. In EDI system, in certain cases, the facility of system appraisal is available. Under this process, the declaration of importer is taken as correct and the system itself calculates duty which is paid by the importer. In such case, no assessing officer is involved. 22. Also, a facility of tele-enquiry is provided in certain major Customs stations through which the status of documents filed through EDI systems could be ascertained through the telephone. If nay query is raised, the same may be got printed through fax in the office of importer/exporter/CHA. Examination of Goods: 23.

All imported goods are required to be examined for verification of correctness of description given in the bill of entry. However, a part of the consignment is selected on random selection basis and is examined. In case the importer does not have complete information with him at the time of import, he may request for examination of the goods b

Eco Accounting

Treatment of Consolidated Environmental Accounting The business activities of companies and other organizations in the modern socio-economic system have expanded in scale, diversified, and become globalized to a degree not experienced previously. A great number of companies have been established corresponding to each purpose, and group management is practiced. In a group management system, the independent decision-making ability of group companies is limited.

At the same time, the primary objective becomes management of the group, limiting the environmental impact of the holding company itself, which essentially consigns functions such as production, sales, and distribution. In such cases it becomes difficult to perceive the actual environmental conservation activities from the data for individual corporate units assembled under a legal structure.

Consolidated data reflecting economic activity is already part of the mainstream in financial accounting, but it is also necessary in environmental accounting to focus on environmental impact within the broader scale of the supply chain to the greatest extent possible, so as to make it possible to understand the costs of environmental conservation within business activities and the benefits derived from them.

It is therefore necessary in environmental accounting as well to ascertain and evaluate data reflecting the actual business activities of the consolidated group (business group), rather than of each individual unit of the company or other organization, in order to understand the actual situation at the company or other organization. Scope of Consolidation The consolidation range for environmental conservation goals has been established corresponding to importance in terms of environmental conservation.

The standards for determining importance take into consideration the particular business group’s environmental impact. In particular, this means specifying the significant areas of environmental impact resulting from the kinds of business activities engaged in by the business group, focusing on the organizations listed below: • Related companies contributing greatly to the volume of environmental mpact based upon environmental performance indicators that take into consideration the significant areas of environmental impact; • Related companies participating greatly in the environmental conservation cost for environmental conservation activities, taking into consideration the significant areas of environmental impact; • Related companies that are judged to have a significant qualitative environmental impact, even if the volume of environmental impact is not great.

Determinations about the consolidation scale may also be made in line with that of the consolidated financial statements. Organization with Significant Qualitative Environmental Impact Organizations that have a significant qualitative environmental impact, even if the volume of impact is not great, the environmental impact of the business group overall include. For example, related companies that handle chemicals with significant environmental impact even if their percentage of the business group’s overall chemical emissions or transport volume is low.

Also, companies performing a significant environmental conservation function, such as those dedicated exclusively to the collection of used products from the market, would be included, even if their percentage of the business group’s overall waste emissions volume is low. Consolidated Environmental Accounting Aggregation Consolidated environmental accounting treats organizations composed of a number of companies as a single entity and aggregates their results.

The typical flow of aggregation proceeds as outlined below: • The consolidation scope is determined; • The environmental accounting data for the individual members of the business group is aggregated • The environmental accounting data for the individual members is combined; • Double booking due to internal transactions is eliminated. Of these, the cost and benefit derived from internal transactions conducted among members of the same business group are combined, and the portion that as double booked is eliminated. (1)Aggregation of Environmental Conservation Cost The double booking of environmental conservation cost through internal transactions conducted among members of the same business group should be eliminated to the greatest extent possible. (2)Calculation of Environmental Conservation Benefit In principle, the environmental conservation benefit calculated for each member of the same business group is to be combined. Benefit clearly double booked is to be eliminated. 3)Calculation of Economic Benefit Associated with Environmental Conservation Activities In principle, the economic benefit calculated for each member of the same business group is to be combined. Benefit clearly double booked is to be eliminated. Treatment of Equity Ratio in Aggregation Methods for aggregating the environmental accounting data for related companies include aggregating the total or gross amount, or aggregating amounts or volume multiplied by the equity ratio of each related company.

Disclosure of Environmental Accounting Information The Guidelines recommend the voluntary disclosure of environmental accounting information from the standpoint of the external functions of environmental accounting, by means of the environmental report. While the Guidelines provide consideration of a simple approach corresponding to the actual situation at a company or other organization, the actual data disclosed is to be determined by the company or other organization itself.

Therefore, it is necessary when disclosing environmental accounting data externally to clarify the preconditions of the data disclosed, so that stakeholders gain a consistent understanding of the environmental accounting data. This chapter outlines the basic items involved in the disclosure of environmental accounting data. The following items are noted with regard to environmental accounting disclosure: * Processes and results of environmental conservation activities * Key items forming the bases of environmental accounting * Aggregated results of environmental accounting

Processes and Results of Environmental Conservation Activities With regard to the aggregated results of environmental accounting, the company or other organization shall provide a summary and the results of the environmental conservation activities it emphasizes, an explanation of the aggregated results of environmental accounting (including an evaluation of large and small figures and the reasons for increases or decreases in comparison with the previous period), and the policies activated with regard to future environmental conservation activities.

Explanation of Aggregated Results of Environmental Accounting The company or other organization shall provide an explanation as follows of the evaluation of its own analysis, so that stakeholders can easily understand the aggregated results. (1) Explanation of Aggregated Results as Related to Management Profile of Company or Other Organization In instances in which changes occurred in the management environment of the company or other organization, such as mergers, breakups, construction or closing of plant facilities, fluctuations in business results, large-scale outsourcing, etc. the details and the effects of these changes on current and future aggregated results are to be explained. (2)Explanation of Aggregated Results as Related to Actual Environmental Impact of Company or Other Organization and Environmental Conservation Activities A background explanation is to be provided when the aggregated results for environmental accounting that reflect the actual environmental impact of the company or other organization, particularly in the even of large figures or striking increases or decreases (including unexpected vents such as occurrences of environmental damage). For example, this would include instances such as a jump in environmental conservation cost, in particular R&D cost, or a sharp reduction in CO2 emissions among the environmental conservation benefit. In such instances, the main causes of changes in business activity volume or production modes would be analyzed. It is effective as well to indicate the environmental conservation goals and progress in relation to the efforts made in terms of environmental conservation activities. 3)Explanation of Aggregated Results as Related to Past Environmental Conservation Activities There is a tendency for the benefit of environmental conservation activities to diminish over the course of time, even when costs are expended in addition to the original amount. In such instances, an explanation of the aggregated results for the current period as related to past environmental conservation activities is to be provided, rather than the simple cost vs. benefit for the period under review.

Key Items Forming Bases of Environmental Accounting (1) Status 1) Target period 2) Scope of aggregation – In the case of business groups, the overall number of related companies, the names of the main related companies, and the criteria for the related companies – In cases in which only certain business are targeted, the names of the business sites and the criteria for the business sites Target Period In cases in which the target period is not the fiscal year, the reasons for that are to be noted.

Also, in cases in which there are related companies within the range of aggregation, i. e. , the business group, that have a target period for environmental accounting different from that of the company or other organization, the names of those related companies and their target periods are to be noted. Scope of Aggregation In establishing the consolidation range, note the attitude toward the importance of environmental conservation within the business group, and describe the actual criteria. 2) Content and Calculation Standards for Environmental Conservation Cost 1)Aggregation of depreciation cost -In cases in which there are no particular costs included in the depreciation cost, make a note to that effect. -In cases in which the period of depreciation used is different from that used in financial accounting, make a note to that effect providing the details and the reasons. 2)Standards for booking complex cost The main details of environmental conservation costs for which differences are aggregated, the aggregation method, and the reasoning concerning costs other than environmental conservation cost -The main details of environmental conservation costs subject to allocation aggregation, the aggregation method, and the allocation standards -For allocation aggregation based on simple methods, the main details of environmental conservation cost for which the total amounts are aggregated -While it is assumed that environmental conservation cost is included, the details of environmental activities not subject to aggregation

Entry for Booking Standards for Complex Cost In cases in which the booking standards differ according to the type of environmental conservation cost, note the details of the main methods used for each. 3) Booking standards when aggregating categories corresponding to environmental conservation activities: * The philosophy and main breakdown of categories for areas of environmental conservation activities * In cases in which the total for categories corresponding to business activities and he total for the areas of environmental conservation activities differ, provide details (3) Details of Environmental Conservation Benefit and Calculation Standards 1)Definition of environmental impact calculated as environmental conservation benefit 2)Calculation formula and reasoning behind the range of measurement of the environmental conservation benefit 3)Period in which the investment benefit used in calculating the environmental conservation benefit is manifest, and the grounds for its selection ) Details and grounds for the physical units and conversion units used 5) In particular, in cases in which environmental conservation benefits at the time goods and services are used or discarded are disclosed, make note of this providing the details, range of calculation, calculation formula, and reasoning 6)The reasoning behind the environmental conservation benefit related to cost for maintenance (4)Details of Economic Benefit Associated with Environmental Conservation Activities, and Calculation Standards ) The range of calculation of the actual benefit, the formula, and the reasoning behind it 1) Period in which the investment benefit used in calculating the economic benefit associated with environmental conservation activities is manifest, and the grounds for its selection 2) In particular, in cases in which the calculation results for estimated benefit are disclosed, make note of this providing the details, range of calculation, calculation formula, and reasoning 4)In particular, in cases in which the evaluation of the economic value of the environmental conservation benefit is disclosed, make note of this providing the details, the reasons that it this value is not connected directly to the profits of the company or other organization, scope of calculation, the basic calculation method for converting each major environmental conservation benefit to monetary value, and the grounds for its selection (5)Aggregation Standards for Consolidated Environmental Accounting 1)The elimination scope of internal transactions conducted within the business group, and the main details 2) Treatment of the equity ratio in aggregation ) If there any discrepancies between the preparation of consolidated environmental accounting data by the company or other organization with that of related companies, provide the main details (6)Revision to Significant Environmental Accounting Policies If a change is made to the significant environmental accounting policies, the status, reason and impact of the change should be stated (explained quantitatively as best as possible). Aggregated Results of Environmental Accounting The environmental accounting aggregation results are to be provided. [Explanation 65] (1)Environmental Conservation Cost This shows the aggregated results summing up the environmental conservation cost from categories corresponding to business activities and the details of the key activities. (2)Environmental Conservation Benefit

This shows the aggregated results summing up the volume of environmental impact according to environmental performance indicators and the environmental conservation benefit. (3)Economic Benefit Associated with Environmental Conservation Activities This shows the aggregated results summing up the actual benefit and other economic benefit. (4)Schedules of Environmental Statements This shows information necessary to supporting the data for environmental conservation cost, environmental conservation benefit, and the economic benefit associated with environmental conservation activities. For example, the following information is effective as support: Aggregation based on categories corresponding to environmental conservation cost characteristics, such as environmental conservation activity areas; -Sampling limited to those costs and benefits related to environmental performance indicators; -Environmental conservation benefit corresponding to cost with the characteristics of cost for maintenance; * Trends in capsule information related to environmental accounting; * Trends in indicators for analysis of the environmental conservation activities. [Explanation 65] Correlation with Other Environmental Report Elements To promote further understanding of environmental accounting, the page of correlating topics found in the environmental report should be stated. In addition, if guidelines other than these guidelines were used, it should be specified. Application in Internal Management 8. Relationship between Disclosed Information and Internal Management Information • The guidelines represent a summary of the basic thinking behind environmental accounting in Japan. This aims toward a comprehensive environmental accounting methodology covering both external data publication and internal application. The environmental management activities of companies and other organizations proceed by establishing a policy for environmental consideration in business activities overall, setting concrete environmental policy goals, creating an environmental activity plan for achieving environmental goals, and executing, evaluating, and revising environmental conservation activities based upon that plan.

While these environmental management activities are executed by the entire organization as a whole, each of the management units is more closely departmentalized so as to improve the effectiveness of these activities. Therefore, each type of internal management information is accumulated in the prescribed management unit. Environmental accounting must function to provide joint quantitative data on environmental conservation activities covering not only disclosure but also internal management within this flow of environmental management activities. [Explanation 66] [Explanation 67] (1)Arrangement of Data for Use in Disclosure The environmental accounting data that is published externally is drawn from the same sources as that ascertained in detail for internal management purposes.

Specific information drawn from that body of information is summarized and adjusted for external publication. (2)Application in Internal Management The management units of a company or other organization operate according to factory, department, product line, etc. , depending on their management objectives. It is important to define clearly the data necessary to these management objectives at the initial planning stage, so that the environmental accounting information is applicable to internal management. [Explanation 66] Link to Management Information The environmental accounting information is closely connected to other management data, such as financial, personnel, and facility information.

Therefore, companies and other organizations may contrive to effectively combine environmental accounting information with other management to implement multifaceted revisions of their environmental conservation activities. Also, the publication of some of this management information can also be helpful in leading to a proper evaluation of the company or other organization by external parties. [Explanation 67] Diagram of Application of Environmental Accounting Data The environmental management activities of companies and other organizations proceed along the following management units. Of the data accumulated during this process, the data for environmental conservation costs and environmental conservation benefits are adjusted as environmental accounting data, and may be of use in disclosure and internal management. • I 1. Identification of environmental isseus related to business activities Overview of regulations and environmental issues related to business activities 2. Creation of a policy for environmental consideration in overall business activities – Clarification of the approach toward the environment as an organization 3. Establishment of environmental objectives for realization of the environmental policy Setting and application of environmental performance indicators Numerical targets are established in terms of the order of precedence of efforts upon referral to the demands of society and trends at other companies 4.

Determination of an environmental activity plan and budget for realizing environmental objectives * Application of environmental accounting information for cost and benefit 5. Execution of environmental conservation activities based on the environmental activity plan * Fulfillment of efforts at the various levels, such as product units and departmental units 6. Aggregation of environmental accounting data (The categories depend upon the internal management segments of the company or other organization) Clear indication of the breakdown of cost per aggregated unit 6-1 Internal use (evaluation and revision) -Evaluation and revision based on environmental conservation cost and the degree of achievement of environmental objectives as revealed through analysis of the budget and results Evaluation of the actual results of the company or other organization’s own programs * The internal aggregation/publication matrix 6-2 External use / External environmental accounting| * Reorganize the data based upon reference to the Environmental Accounting Guidelines,disclosure via the environmental report * In addition to the Guidelines, use of the company or organization’s own manual in reorganizing the data -Ascertainment of the degree of achievement of environmental objectives (Ascertainment of the environmental conservation benefit based on environmental performance indicators)” Overall View of Environmental Accounting Data [pic] 8. 2 Development of Tools Focusing on Internal Management

The environmental accounting information in internal management is used particularly in the area generally referred to as environmental management accounting. In addition to the Guidelines, there already exists research into various environmental management accounting methods, such as those for introducing new thinking into cost control for individual products, contributing to the decision making process concerning facility investment, and developing innovations in process control and budget management. It is important for companies and other organizations to proceed with efforts corresponding to their actual situations by using the products of this research.

Various methods according to application Environmental cost matrix method Target area By product Facility investment Production and distribution processes Methods Cost planning system that takes the environment into consideration Lifecycle costing Facility investment decision-making methodology Material flow cost accounting Business results evaluation system that takes the environment into consideration Source: Ministry of Economy, Trade, and Industry “Environmental Management Accounting Methodology Workbook” (June 2002) Indicators for Analysis Using Environmental Accounting Data 9. 1Meaning and Role of Indicators for Analysis

The meaning of the aggregated results can be indicated from various perspectives through the use of indicators for analysis of the environmental conservation activities, which combine the various environmental accounting aggregation categories and the business activity indicators. Also, period comparison of these indicators makes it easy to check the progress of the company or other organization’s environmental conservation activities. Furthermore, these indicators may be used in internal management as targets for environmental conservation efforts. 9. 2Concept and Content of Indicators for Analysis The indicators for analysis using environmental accounting data are as follows: 1)Indicator for Analysis of Proportion of Total Scale of Business Activities Consisting of Environmental Conservation Activities It is necessary to evaluate the relative magnitude of environmental conservation cost in comparison with the scale of business, in addition to the absolute cost. This indicator is provided through the following formula: Environmental conservation cost / Overall cost including environmental conservation cost •Actual example* Cost of R&D for environmental conservation / Overall R&D cost Sales of products that take the environment into consideration / Total operating revenues (2)Indicator for Analysis of Effectiveness of Environmental Conservation Benefit vs.

Environmental Conservation Cost The effectiveness of the environmental conservation benefit as reflected in the degree to which the desired benefit has been gained through the input of environmental conservation cost is very important. This indicator is provided through the following formula: Environmental conservation benefit / Environmental conservation cost •Actual example* Degree of energy productivity7 improvement / Environmental conservation cost made for that purpose Water usage productivity8 improvement / Environmental conservation cost made for that purpose Recycling usage rate9 improvement / Environmental conservation cost made for that purpose Energy productivity = Added value / Total energy input volume 8Water usage productivity = Added value / Total energy input volume 9Recycling usage rate = Volume of recycled material used / (Volume of recycled material used + Total natural resource input volume) (3) Indicators for Analysis of Relationship Between Business Activity Volume and Environmental Impact Volume While the environmental conservation benefit is basically ascertained according to the difference in the total volume of environmental impact, it is also vital to pursue business growth potential. Evaluation analysis of the relationship with business activity volume is effective in achieving the dual goals of environmental consideration and economic growth. a.

Environmental Impact Volume per Unit of Business Activity Volume This is the environmental impact volume per unit of business activity volume, and is referred to as environmental impact intensity. This indicator is provided through the following formula: Environmental impact volume / Business activity volume •Actual examples* Greenhouse gas emissions volume / Added value Waste emissions volume / Added value Emissions volume of chemicals subject to prescribed control / Sales of certain products b. Business Activity Volume per Unit of Environmental Impact Volume This is business activity volume per unit of environmental impact volume, and is referred to as environmental efficiency.

This indicator is provided through the following formula: Business activity volume / Environmental impact volume •Actual examples* Added value / Total energy input volume Added value / Total water input volume Sales of certain products / Input volume of chemicals subject to prescribed controls Environmental Accounting Disclosure Format and Internal Management Tables 10. 1 Disclosure Format for External Publication The Guidelines recommend common formats for disclosure of the environmental accounting aggregation results as given in the following examples, with the goal of promoting uniform understanding throughout society as a whole. [Explanation 68]

It is not necessary for companies and other organizations to publish at the outset all environmental conservation cost, environmental conservation benefit, or economic benefit associated with environmental conservation activities. Depending upon the current duration and goals of the efforts being made by the company or other organization, it is acceptable to begin by publishing only the environmental conservation costs, and to proceed in stages thereafter. Even in such cases, it is important to maintain consistency with the main statements and those for auxiliary details, and to proceed with efforts to engage in the publication of external data. Environmental Accounting Aggregation Results • Format for Publication* • •Main Statements* ) Environmental Conservation Cost (Categories Corresponding to Business Activities) 2) Environmental Conservation Benefit 3) Economic Benefit Associated With Environmental Conservation Activities •Schedules of Environmental Statements> 1)Environmental Conservation Cost (Categories Corresponding to Areas of Application of Environmental Conservation Measures) 2) Cost vs. Benefit Comparison for Main Environmental Performance Indicators 3) Environmental Conservation Benefit Related to Costs for Maintenance 4) Trend Chart for Summary Environmental Accounting Data for the Three Most Recent Periods 5) Trend Chart for Indicators Used for Analysis for the Three Most Recent Periods Explanation 68] Disclosure Format That Conforms to the Actual Situation Companies and other organizations may use the disclosure format recommended in the Guidelines as a reference in adopting their own disclosure format that most appropriately expresses the individual data of the company or other organization. In such instances, the content of that format, the calculation methods, and the relationship with other published data is to be noted so as to provide proper understanding of the format adopted. Main Statement 1) Environmental Conservation Cost (Categories Corresponding to Business Activities) Scope: Target Period:*• Unit: ? Environmental Conservation Cost* • Categories Corresponding to Business Activities* | |Category |Key Activity and the |Investment |Cost | | |Outcome | | | |(1) Business Area Cost | | | | |Breakdown |(1)-1 Pollution Prevention Cost | | | | | |(1)-2 Global Environmental Conservation | | | | | |(1)-3 Resource Circulation Cost | | | | |(2) Upstream/Downstream Cost | | | | |(3) Administration Cost | | | | |(4) R&D Cost | | | | |(5) Social Activity Cost | | | | |(6) Environmental Remediation Cost | | | | |Total | | | | – In the case of costs that are not applicable to any of the above categories and are entered in (7) “Other cost”, disclose the content in “Important Basic Environmental Accounting Categories”. Main Statement 2) Environmental Conservation Benefit Scope:- • Target Period-Unit: ? |Environmental Conservation Benefits | | | |Environmental |Environmental Performance Indicators (Units) |Previous Period • |Current Period |The Difference | |Conservation Benefit | |Base Period- | |• Environmental | |Categories | | | |Conservation | | | | | |Benefits- | |Environmental |Total energy input volume(J) | | | | |Conservation Benefit |Energy input volume by type(J) | | | | |Related to Resources |Input volume of specially controlled | | | | |Input |substances(t) | | | | |into Business Activities|Input volume of circulated resources(t) | | | | | |Input volume of water(m3) | | | | | |Input volume of water by source(m3) | | | | | |*** | | | | |Environmental |Volume of greenhouse gas emissions(t-CO2) | | | | |Conservation Benefit |Volume of greenhouse gas emissions by type or | | | | |Related to Waste or |by emissions activity t-CO2- | | | | |Environmental Impact |Volume of specially esignated chemicals | | | | |Originating from |transferred or emitted(t) | | | | |Business | | | | | |Activities |Total waste emissions volume(t) | | | | | |Final waste disposal volume(t) | | | | | |Wastewater volume(m3) | | | | | |Water quality(BOD,COD)(mg/l) | | | | | |NOx- Sox emissions volume(t) | | | | | |Foul odor- Highest concentration- (mg/l) | | | | | |*** | | | | |Environmental |Volume of energy used at time of use(J) | | | | |Conservation Benefit |Volume of output of materials causing an | | | | |Related to Goods and |environmental impact at time of use(t) | | | | |Services Produced from |Volume of output of materials causing an | | | | |Business Activities |environmental impact when discarded(t) | | | | | |Volume of products recirculated, such as | | | | | |products, containers, and packaging collected | | | | | |after use(t) | | | | | |Volume of containers and packaging used(t) | | | | | |*** | | | | |Other

Environmental |Volume of emissions of materials associated | | | | |Conservation Benefits |with transport that cause an environmental | | | | | |impact(t) | | | | | |Transport volume of products and materials- | | | | | |t- km- | | | | | |Surface area, volume of contaminated soil-m2- | | | | | |m3- | | | | | |Noise- dB- | | | | | |Vibration- dB- | | | | | |*** | | | |

The selection of actual environmental performance indicators is to be made based on correspondence to the actual situation at the company or other organization. Main Statement 3) Economic Benefit Associated with Environmental Conservation Activities Scope: Target Period:*• Unit: ? |Economic Benefit Associated with Environmental Conservation Activities* Actual Benefits* | |Details of Benefit |Amount | |Revenue |Operating revenue from the sale of recycled waste products and used products | | | produced through key business activities | | | |• •• | | |Cost Reduction|Reductions in energy costs through energy conservation | | | |Reductions in waste disposal costs through resource | | | |• •• | | |Total | | Please note the details of the actual benefit correspondent to the actual situation at the company or other organization. When disclosing estimated benefit, the premises and reasoning behind the calculation method selected should be made clear, so as not to cause misunderstandings amongst stakeholders. Schedules of Environmental Statement 1) Environmental Conservation Cost (Categories Corresponding to Areas of Application of Environmental Conservation Measures) Scope: Target Period:*• Unit: ? Environmental Conservation Costs* Categories Corresponding to Areas of Application of Environmental | |Conservation Measures* | |Categories |Details of measures |Investment |Cost | |• • Cost related to global warming measures | | | | |• • Cost related to ozone layer protection measures | | | | |• • Cost related to air quality conservation measures | | | |• • Cost related to noise and vibration | | | | |• • Cost related to environmental conservation | | | | |measures for the aquatic, ground, and geologic | | | | |environments | | | | |• • Cost related to waste product and recycling | | | | |measures | | | | |• • Cost related to measures for reducing chemical | | | | |risk and emissions | | | | |• • Cost related to natural environmental conservation| | | | |••Other costs | | | | |Total | | | | * The selection of the main areas of environmental conservation activities is to made based on correspondence to the actual situation at the company or other organization. This table is merely a basic representation of Main Statement 1). When the actual range of environmental conservation cost differs, please note the details. [Explanation 34] * Schedules of Environmental Statement 2) Cost vs. Benefit Comparison for Main Environmental Performance Indicators Volume of Greenhouse Gas Emissions Previous period (base period):Current period:Environmental conservation benefits: Target year:Target figure:Degree of attainment: Details of environmental conservation activitiesEnvironmental conservation costs: Total Other environmental conservation benefits concerning measures to prevent global warming •Appropriate notes* Example) Fluctuation analysis of environmental performance indicators Total Waste Emissions Volume Previous period (base period):Current period:Environmental conservation benefits: Target year:Target figure:Degree of attainment: Details of environmental conservation activitiesEnvironmental conservation costs: Total Other environmental conservation benefits concerning waste or recycling activities •Appropriate notes* (Example) Fluctuation analysis of environme Volume of Specially Designated Chemicals Transferred or Emitted Previous period (base period):Current period:Environmental conservation benefits: Target year:Target figure:Degree of attainment: Designated chemicals

Details of environmental conservation activitiesEnvironmental conservation costs: Total Other environmental conservation benefits concerning chemical handling measures •Appropriate notes* (Example) Fluctuation analysis of environmental performance indicators This table contains categories extracted from Main Statements 1) and 2) so as to provide a more thorough explanation of items in which stakeholders have a strong interest. * Schedules of Environmental Statement 3) Environmental Conservation Benefit Related to Cost for Maintenance |Details of Cost for Maintenance |Target |Details of attainment | | | | | | | | | | | | | | | | | | | | | | | | – This table excerpts the cost with maintenance characteristics and the details of actual activities from the categories in Main Statement 1), and provides explanation of the corresponding environmental conservation benefit. Schedules of Environmental Statement 4) Trend Chart for Summary Environmental Accounting Data for the Three Most Recent Periods |The Period before |Previous period |Current period | | |previous | | | |• Environmental Conservation Cost | | | | |Investment | | | | |Cost | | | | |• -he Environmental Performance Indicators Concerning Environmental | | | | |Conservation Benefit | | | | |Total energy input volume | | | | |Input volume of specially controlled substances | | | | |Input volume of water | | | |Volume of greenhouse gas emissions | | | | |Volume of specially designated chemicals transferred or emitted | | | | |Total waste emissions volume | | | | |Wastewater volume | | | | |• Economic Benefit Associated with Environmental Conservation | | | | |Activities | | | | |Actual benefit | | | | |Other benefit | | | | Schedules of Environmental Statement 5) Trend Chart for Indicators Used for Analysis for the Three Most Recent Periods |The Period before|Previous period |Current period | | |previous | | | |Proportion of the total scale of business activities consisting of | | | | |environmental conservation activities | | | | |Proportion of total R&D cost consisting of R&D costs for environmental | | | | |conservation goals | | | | |Proportion of total investment amount consisting of investment for | | | | |environmental conservation goals | | | | |Proportion of total operating revenue consisting of sales of products that | | | | |take he environment into consideration | | | | |Efficiency of environmental cost and benefit in specific areas | | | | |Energy productivity | | | | |Degree of energy productivity improvementn Envionmental | | | | |conservation costs | | | | |Water usage productivity | | | | |Water usage productivity improvement Environmental conservation costs | | | | |Recycling usage rate | | | | |Recycling usage rate improvement- Environmental conservation costs | | | | Energy productivity• Added value / Total energy input volume * Water usage productivity • Added value / Total energy input volume * Recycling usage rate• Volume of recycled material used / • Volume of recycled material used + Total natural resource input volume* Management Tables for Internal Use The following examples of management tables for internal use (“internal management tables”) are provided so as to encourage the use of environmental conservation cost in internal aggregation and management at companies and other organizations. Please employ these where appropriate. In using these internal management tables, please establish clear account headings, environmental performance indicators, and the business sites, organizations, etc. that are subject to management, based upon an examination of the actual situation at the company or other organization and of what types of organizations are to be subject. When such internal management tables are actually used, the roles of each organization functioning as a management unit (department, business site, related company, etc. ) are to be composed according to the management unit period (monthly, quarterly, semi-annually, annually, etc. ) in the making of the tables. The role of the managing department executing overall control is to aggregate all of the internal management tables for each management unit. [pic] (1) Environmental Conservation Cost A) Example: Per Business Activity 57 B) Example: Per Area of Environmental Conservation Activity |De ta ils o f |Investment |Cost | | |Investment/ | | | | |De ta ils o f | | | | |Me a s u re s | | | | | |Tangible | | | |Fixed | | | |Assets | |Environmental | | | |Conservation Benefit Related |Total Energy | | | |to Resources Input into | | | | |Business Activities | | | | |Input Volume |Energy Input | | | | | |Volume by Type |Purchased electricity | | | | | |Oil | | | | | |Natural gas | | | | | |Liquefied petroleum gas (LPG) | | | | | |Coal | | | | | |New energy | | | | | |••• | | | |Input Volume of Specially | | | | |Controlled Substances |Input volume of circulated resources | | | | |••• | | | |Input | | | | |Volume of Water |Input Volume of | | | | | |Water by Source |Water supply | | | | | |Water for industrial use | | | | | |Underground water | | | | | |Seawater | | | | | |Riverwater | | | | | |Rainwater | | | | | |••• | | |Environmental | | |Conservation Benefit Related |Volume of | | | |to Waste or Environmental | | | | |Impact Originating from | | | | |Business Activities | | | | | |Greenhouse |Volume of | | | | |Gas | | | | | |Emissions | | | | | | |Greenhouse Gas Emissions |Carbon dioxide* CO2″ | | | | |by Type or by Emissions | | | | | |Activity | | | | | | |methane* CH4« | | | | | |Dinitrogen oxide* N2O” | | | | | |HFC | | | | | |PFC | | | | | |SF6 | | | |Volume of Specially Designated Chemicals | | | | |Transferred or Emitted | | | | | |••• | | | |Total Waste Emission Volume | | | | | Final waste disposal volume | | | |Wastewater Volume | | | | | |BOD« biochemical oxygen demand* | | | | |COD* chemical oxygen demand* | | | | | | | | |Other | | | | | |NOx emission volume | | | | |Sox emission volume | | | | |Odor | | | | | |••• | | 59 (3) Economic Benefit Associated with Environmental Conservation Activities A. Examples of Revenue Detail |Volume |Value |Revenue | | | | |Sales Volume |Other Income |Extraordina ry| | | | | | |profit | |Revenue from the sale of recycled products and of | | | | | | |unusable products produced through key business | | | | | | |activities. | | | | | | |• •• | | | | | | |Total | | | | | | B. Examples of Cost Savin Detail |Volume |Value |Cost | | | | | |Category of Environmental Conservation Activity |Investment |Cost |Target |Result |Evaluation of | |Planning Systems | | | | |Attainment | |• tems Concerning | | | | | |to Managemant of | | | | | |Whole Organization | | | | | | | | | | | |Input volume (physical volume) |Cost (monetary amount) | | | |Total |• : Materials input volum |A: Materials cost |D: Processing cost |Amount equivalent to product| | | | | |cost in financial accounting| |Product |• Materials input amount in |B: Amount equivalent to |E: Amount equivalent to |Cost for product portion | |portion |product portion (Product |materials cost in product |processing cost in product |only | | |manufacturing amount) |portion |portion |• B + E’ | | | |• B = A x’ /•• |• E = D x’ /•• | | |Non-product |• : Materials input volume |C: Amount equivalent to |F: Amount equivalent to |Amount equivalent to cost | |portion |for non-product portion |materials cost amount for |processing cost for |for non-product portion | | |(Difference between • and |non-product portion |non-product portion |• C F« | | |• ) |”C = A x* /• • |• F = D x • /• • | | | |• •••••• | | | | 68

Differences Between Managerial Accounting and Financial Accounting

Managerial Accounting What Does Managerial Accounting Mean? – The process of identifying, measuring, analyzing, interpreting, and communicating information for the pursuit of an organization’s goals. This is also known as “cost accounting. ” – Managerial accounting is used primarily by those within a company or organization. Reports can be generated for any period of time such as daily, weekly or monthly. Reports are considered to be “future looking” and have forecasting value to those within the company.

Financial Accounting What Does Financial Accounting Mean? – Reporting of the financial position and performance of a firm through financial statements issued to external users on a periodic basis. – Financial accounting is used primarily by those outside of a company or organization. Financial reports are usually created for a set period of time, such as a fiscal year or period. Financial reports are historically factual and have predictive value to those who wish to make financial decisions or investments in a company.

Differences between managerial accounting and financial accounting The key difference between financial and managerial accounting is that financial accounting is aimed at providing information to parties outside the organization, whereas managerial accounting information is aimed at helping managers within the organization make decisions * Confidentiality and type of information Management Accounting is the branch of Accounting that deals primarily with confidential financial reports for the exclusive use of top management ithin an organization. These reports are prepared utilizing scientific and statistical methods to arrive at certain monetary values which are then used for decision making. Such reports may include: • Sales Forecasting reports • Budget analysis and comparative analysis • Feasibility studies • Merger and consolidation reports Financial Accounting, on the other hand, concentrates on the production of financial reports, including the basic reporting requirements of profitability, liquidity, solvency and stability.

Reports of these nature can be accessed by internal and external users such as the shareholders, the banks and the creditors. * Regulation and standardization While financial accountants follow Generally Accepted Accounting Principles (GAAP) set by professional bodies in each country, managerial accountants make use of procedures and processes that are not regulated by a standard-setting bodies. However, multinational companies prefer to employ managerial accountants who have passed the Certified Management Accountant (CMA) certification.

The CMA is an examination given by the Institute of Management Accountant, a professional organization of Accounting professionals. This certification is different and distinct from the CPA or Chartered Accountant certificate. * Time Period Managerial Accounting provides top management with reports that are future-oriented, while Financial Accounting provides reports based on historical information. However, Management accountants based their reports on historical values, while employing statistical methods to arrive at future values.

There is no time span for producing managerial accounting statements but financial accounting statements are generally required to be produced for the period of 12 previous months. * Other differences • There is no legal requirement for an organization to use management accounting but publicly-traded firms (limited companies or incorporated companies whose shares are bought and sold on a open market) must, by law, prepare financial account statements. • In management accounting systems there is no requirement for an independent external review but financial accounting annual statements must be audited by an independent CPA firm. In management accounting systems, management may be concerned about how reports will affect employees behavior whereas management concerns are about the adequacy of disclosure in financial statements. (BAC) |  |  |  | |  |Financial Accounting |Managerial Accounting | |  |External persons who make financial decisions |Managers who plan for and control an organization| |1.

Users | | | |  | | | |  | | | |  |Historical perspective |Future emphasis |2. Time focus | | | |  | | | |  |Emphasis on verifiability |Emphasis on relevance for planning and control | |3.

Verifiability | | | |versus relevance | | | |  | | | |  |Emphasis on precision |Emphasis on timeliness | |4.

Precision versus | | | |timeliness | | | |  | | | |  |Primary focus is on the whole organization |Focuses on segments of an organization | |5.

Subject | | | |  | | | |  | | | |  |Must follow GAAP and prescribed formats |Need not follow GAAP or any prescribed format | |6.

Requirements | | | |  | | | |  | | | Meaning of Cost The amount paid, charged, or engaged to be paid, for anything bought or taken in barter; charge; expense; hence, whatever, as labor, self-denial, suffering, etc. , is requisite to secure benefit. – Standard cost is the estimated cost of material, labor, overheads and other costs for each unit of production or purchase in a given accounting period. It is used as the benchmark against which cost variances and financial performance are measured, the valuation for inventory and a basis for pricing. Types of Cost

Costs are expenses the company has to pay during the production of its product. There are 3 main types of costs, these are: fixed costs, variable costs, and semi-variable costs: • Fixed costs: Costs that don’t change over a period of time and don’t vary with output. E. g. salaries, rent, tax, insurance, heating and lighting. Fixed costs can also be called indirect costs as they are not directly associated with the final product. Fixed costs have to be paid even if the company is not producing any goods. Variable costs: Costs that vary directly with output so when output increases, variable costs also increase. E. g. raw materials, electricity. Variable costs can also be called direct costs as they are directly associated with production. • Semi-variable costs: These costs have fixed and variable elements. E. g. a person working for the company may have a fixed salary but may also earn commission on sales. Total costs are calculated by adding together fixed, variable and semi-variable costs.

Managed Care Philosophy and Initiatives Directed at Prevention and Health Maintenance. the Nature of the Problem of Vaccinations and Access to Vaccines Relative to Prevention and Health Maintenance. the Steps Taken to

Introduction. Managed health care is a system that is used to control the financing and the method of delivery of healthcare services to those individuals who are enrolled is specific types of healthcare plans such as Preferred Provider Organizations (PPO) and Health Maintenance Organizations (HMO). Managed healthcare main goal is to ensure that the care that is received by the patient is not just routinely done so that the providers are making a high profit but to ensure that providers are delivery a high quality of care that is also cost effective.

Managed care philosophy and initiatives directed at prevention and health maintenance within the managed health care. The manage care philosophy was designed with the intent of placing emphasis on the maintenance of health rather than performing expensive interventions. The operators of the managed care plans are paid a specific amount of money per month for each patient to provide them with a clean bill of health so to speak. It is important that these organizations put themselves in the position where they are focusing on the prevention of certain illnesses such as heart disease, diabetes among others.

The nature of the problem of vaccinations and access to vaccines relative to prevention and health maintenance. Health maintenance organization (HMO) is also in the business that I would term as preventative medicine, vaccination of patients can be classified as a prevention measure. Having access to vaccines takes into consideration the patients access to medical care. Some individuals however are classified as disadvantageous in relation to access to care, for example elderly, less education and African Americans.

Vaccinations are a main constituent of preventative medicine; some studies indicated however that effort should be placed on improving and maintaining the safety and access of vaccines across the various age groups and ethnicities. There are also several controversies regarding the vaccination of children and many parents continue to refuse to have their children vaccinated. Another study showed that during the winter of 1997-1998 the need for influenza vaccination delivery was painfully clear when there was a high rate of respiratory illness which led to a critical shortage of bed s and mass congestion in the emergency departments.

With such major scare the local hospital and the Department of Health launched a collaborative program to increase influenza vaccine coverage in the community. This was done by increasing the number of individual that were vaccinated which would result in a close moderation of the severity of lower respiratory tract illness during the winter season. To accomplish this however certain procedure will have to be in place for example to public needs to be aware of the providers intent and plan of action have to be in place to enhance the delivery of the vaccine.

The steps taken to improve quality. It is important steps are taken to increase the rates of immunization while ensuring a safe delivery. The immunization records should be maintained at least at federal level for a long period of time. It is believed that the introduction of the point-of-service data entry there was a big increase in the quality of immunization. There was also an introduction of an automated immunization due reminder and a monthly report to several providers on the patient’s immunization status. There was also a comparison of the immunization rate per provider.

Several programs were put in place to ensure that vaccination is delivered to as many individual as possible, for example there was an attempt to reduce the number of individuals that was unvaccinated by having a delivering the vaccines to patients regardless of their ability to pay. Improving vaccine from a clinical point of view takes into consideration the efficacy of the vaccine which is studied using the FDA approved research that evaluates whether or not the vaccine actually protects individuals against the disease that the vaccination is supposedly providing prevention against.

The vaccine used should also be cost effective in other words it should gear towards saving both lives and money. Many vaccines are equipped with what is referred to as disease burden criteria which is expected to prevent diseases with significant morbidity. Using this can reduce the risk of spreading the disease through person to person contact. What works and what does not? What worked in my opinion is the fact that physicians take the interest of the patients to heart and hence their focus was on keeping people healthy.

The implementation of point-of-service data entry showed increased in the utilization of the HMO immunization registries. An automated immunization reminder for patients is also an effective measure and so are the provider’s monthly reports. What would not work is when physicians have a conflict of interest that is they serve both HMO, other communities’ patients the patient are not always provided with the best treatment options nor access to vaccinations. My recommendations for further or continued improvements.

My first recommendation would be to develop a level of trust between the patient and the provider in doing so the provider will have a wider population to be more receptive of the vaccination and even to have their children vaccinated also.. There should also be a continuous effort to identify strategies and even some form of software to enhance or improve the quality of the immunization records with a managed care facility for example. How does your previous essay on Breast Cancer screening apply to the issue of vaccinations?

I believe that my previous study o breast cancer screening applies to this issue of vaccination in the concept of individuals being reluctant to accept care in some situation. If we should take for example those individuals who does not want to have their children vaccinated for fear of either getting sicker than they were prior to receiving the vaccination or for religious believe. On the other hand there are individual who are willing and ready to accept the vaccination but because of the category that they are placed in they are unable to receive it. Often times these are to poorer group with takes into consideration ethnicity also.

These are two top issues for discussion in the media at the moment with the recommended change in breast cancer treatment and the recommendation for the H1N1 vaccines. Conclusion From the study it can be concluded that the intervention that is directed towards the vaccination of older children and families who has a low educational background may help in the improvement of vaccination rates among these individuals who are seen as high risk. Asthma care quality for children should also be of interest to researchers. References Medline Plus (2004). Immunization. Retrieved on October 15, 2004, from http://www. lm. nih. gov/medlineplus/immunization. html. Michael F Parry, Brenda Grant, Anthony Iton, Patricia D Parry, & Diane Baranowsky. (2004). Influenza Vaccination: A Collaborative effort to improve the health of the community. Infection Control and Hospital Epidemiology, 25(11), 929-32. Retrieved November 24, 2009, from ProQuest Medical Library. Sangeeth K Gnanasekaran, Jonathan A Finkelstein, Paula Lozano, Harold J Farber, & et al. (2006). Influenza Vaccination among Children with Asthma in Medicaid Managed Care. Ambulatory Pediatrics, 6(1), 1-7. Retrieved November 24, 2009, from ProQuest Medical Library.

Recommendations for a Travel Agency

SIBM-Pune MBA-I HR Indian Tour Operators Analysis of Customized Tour Services Submitted By: Sumedha Bhardwaj (32156) Sonal Bhat (32157) Bhavika Mehta (32227) Esheet Modi (32228) Mahim Mongia (32229) Jyoti Saxena (32241) Contents 1. Executive Summary 2. Analysis Approach 3. Competency Model for Tourism Agents 4. Field Research: Onsite Mystery Shopping 5. Problems: People and Processes 6. Solutions and Evaluation of Alternatives 7. Recommendations 8. Conclusion Executive Summary

Customized Tours form an important part of the services offered by leading travel companies. Though the level of expertise in the group tours space is very good, customized tours because of their very complex nature, require a great deal of travel agent involvement. This requires competent and motivated travel agent workforce very responsive to customer needs. This space has been facing problem on three fronts: people, processes and systems to execute a customer order.

The analysis would be focussing on People and Processes part of such agencies. This report would discuss the approach of analysis, suggest competency model as a basis to evaluate people problems as well as a reference for recruitment and training, enlist insights gathered from mystery shopping, identify the problems based on this primary research and recommend set of solutions which can be implemented for both people and processes.

The client can choose a combination of solutions for various sub headings according to what is feasible and suitable to him. It has been consciously tried to recommend a solution which is easy to implement, requires minimal changes in the organization, involves minimal or no cost and practically possible. One of the main assumptions in the analysis is that management policy promotes ‘customer first’ philosophy and lays stress on human resources.

People – Recruitment – Training – Performance Appraisal Customized Tours Processes – Information Management – Hub and Spoke Model – Process Streamlining Scope of the Analysis Analysis Approach Travel Companies Visited: Kesari, Girikand, Cox and Kings, Kuoni Location: EGYPT Duration: 10 days, flexible up to 12-14, in end March Approach: ? ? ? ? ? ? ? ? ? Mention requirement as honeymoon package for gifting to your brother on his marriage Egypt DEFINITELY, Spain and Portugal TENTATIVE (Observe if they catch the clue) Need to make it special (Observe if they catch the clue) Add ODD destinations: Red Sea Coast, Sakkarah, Siwa Oasis Ask specifically about VISA, Money, Veg Food, Travel within Egypt, Airlines, 5* Hotel Rate the experience with people on a scale of 1-5 in the competency model excel sheet Based on weighted score, get a consolidated score for each travel company under each competency Draw correlation conclusion between actual company performance and the consolidated score Identify the problems based on the research and quantitative analysis Devise possible solutions and recommend an appropriate combination Setting questionaire and field research (Mystery Shopping) Setting Competency Framework (For evaluation of each company) Correlation analysis Problem identification Revisiting the best experience company for insights Recommend possible solutions Competency Model for Tourism Agents Competency framework plays an important role in all aspects of talent management: talent acquisition, talent development, performance management and talent separation.

A good competency framework, thus, should strengthen the various talent management processes. Managers can leverage the competency framework while bringing out job descriptions. Competency Model designed for this analysis contains 3 broad competency areas Competency Area Behavioural Description Often referred to as “soft skills”; represent personal attributes Weightage 0. 3 Knowledge Basic academic knowledge 0. 5 and skills required in tourism industry General managerial skills required for the workplace 0. 2 Managerial Evaluation Various weights are given to each competency area (comprising of a set of competencies) based on the desirability of the trait in the travel agent.

A comparative study is shown in the excel sheet in where each company is given point on a 5 point scale (5 – absolute presence of the trait, 1 – absolute absence of the trait) for each competency with in a competency area. These individual competency points are then summed up for each competency area, the sum then multiplied with the corresponding weights and a sum total of the scores is obtained. A higher score indicates that the company has higher level of favourable competencies in the travel agent. Benefits ? ? ? ? Indicates the areas of improvement Guidelines for recruitment processes including job description Helps in designing the training modules Find gaps in performance and provides a framework to evaluate individual performance Field Research: Onsite Mystery Shopping 1. Cox & Kings ?

Very responsive and warm o When asked for customized trip, they were quick to respond and asked for a day’s time o They asked for the basic details as to how many days, tentative date etc. o Asked us to write on a piece of paper what all places we wanted to visit and the contact details o When asked about the exchange rates, they gave the printout of the same ? They had a fixed format for even the honeymoon package for couples already ? Did not respond in a day and had to call them up for asking the quotation ? Follow up was after that was good o They clarified a few points and sent the quote for the same as per our requirements 2. Girikand ?

Not very responsive o Nobody was willing to attend to the queries o Conversed in local language o Lack of warmth (no one was smiling) ? Lack of knowledge as far as foreign tours are concerned o More proficient in domestic tour – even suggested one o Long time taken to get the information ? Willing to arrange for a customized package ? Operational inefficiency o Database team had already left at 6pm o No response from central office also ? Not proactive o We had to suggest them to contact us after getting the information o They asked us to send them a mail as a reminder for the quote o No follow up done even after receiving the mail from us ? They suggested for a coach instead of a car citing the advantages 3. Kuoni ? Lack of warmth – No smiles ?

Responsive o Had no readymade catalogue but made an itinerary when asked for ? Operational Issues o Took Time to provide required information due to database server issue ? Not proactive o Did not ask for details or make suggestions o No contact through email but through phone only initially o No follow up done 4. Kesari ? Closes at 6 PM on a prime working day in Pune ? Responsive o Customer rep gave the card and contact details Problems: People and Processes Problems with the Staff ? Sales persons given targets to achieve, which focuses on the volumes to be achieved, so incentive required for catering to the FIT (Free Individual Traveller) is missing Employees fail to understand hat, there are more profit margins, so in reality chase to achieve volumes for profits, as no incentives given by the top management for the promotion and service delivery to FIT, and performance measured only on the volume achieved Training received only catering to the group tourism, so there is no extra knowledge about the travelling and exploration in the employee, about different countries, so the FIT suffer Lack of sufficient data and information in the available database at work, so the employees require a lot of time in searching the required information and details As most of the time the employees are presses for time to cater to groups, they are left with no time to cater to FIT As the companies are in operation for a long period of time, the travel agents and the staff therefore, think that they are the professionals in the business, but in reality they lack professional methods of working as there is lack of proper training of business and methods of work Personal bias of the employees for neglecting FIT, because their focus is on earning fast money by employees, as everything is already structured and planned for a group, so there is minimal work Lack of understanding of employees about their growth prospective in the organization, causing lack of loyalty ? ? ? ? ? ? ? Problems with the Management ? More and more pressure on the employees to achieve more volume in sales targets of tour packages, to meet prior deal argets with hotels and airliners, as money is already paid in advance for availing group discounts and low rates, and Popularity of the firm also depends on higher volumes achieved Reluctance of the top management to employ more employees to cater to the FIT, thus causing over burdening of work on a few employees Lack of universities and formal education centres providing the required knowledge to enter the industry, posing a Staffing problem, to the top management, as there is no special qualification required for a job in this industry No incentives given for the sale of packages to FIT More attention on poaching employees from other operators based on the employee’s tour selling ability, leading to lack of loyalty in the employees, causing high attrition rate Even as the top management understands that more profits can be obtained by selling more to the FIT, they still have to focus only on high volumes, as the company image goes don if there is low volume, and the shareholders are pleased only when they see high sales, and higher numbers. So FIT suffer in the bargain to please the shareholders ? ? ? ? ? Solutions and Evaluation of Alternatives Data Management As all the details of the prices of the Airline tickets and the Hotels and Tours packages are received at least 3 months in advance, the agency has ample time to arrange the information proper into a word document. How this can be done is shown below: ?

The data about the prices and the offers are not received daily or monthly, but are received by the travel agents season wise, so the information available does have not to changed or renewed at a very frequent rate The data about different countries and the set or model tour packages can be prepared in advance and saved Along with the set tours, the agent can also prepare a document in which the prices of the different destinations of the same country, along with the price quotes of the places to visit and lodging & boarding can be maintained. Thus when the customer wants a customized tour package, this document can be used to prepare the quotes of the trip as per the requirements An excel database with one consolidated interface and one excel sheet per country (containing country specific data) can be created. ? ? ?

Lack of information of the destination If the staff members do not have the information about the destination where the customer wants to travel to, the following are the options that he has to obtain all the required information: ? Most of the travel agencies have a tie up with a local tour operator in different countries who cater to the customers’ trip during their visit to that country, so the staff can contact their tour operator, and get all the information required for a visit to their country by the customer. These tour operators also have set tour packages and also have a list of different things the tourists can do during their visit to their country.

This can easily be used for obtaining fast information about the prevalent rates and passed on to the customer If the travel agent does not have a tie up with any tour operator in the country the customer wants to visit, then he can use the internet to browse the web site of the tourism board of that country. The site generally contains all the information about which places to visit, what different things that the tourists can do in their country. Thus a lot of information can be obtained from this source. If any specific information is not available on the web site, there are always the contact numbers or mail addresses of the tourism boards which can be used to solve the query. ? ?

Moreover, all the national airlines of the countries also have information about the different tour operators that can be contacted in their country. Along with that, the web sites of these airlines also have a suggested itinery of what all a tourist can do while visiting their country. Along with that, if the travel agent wants to plan the trip for the customer, the airlines has a tie up with Hotels and tour operators themselves, so this can be booked for the customer as well Thus to-day the flow of information has become very fast and easily available, which can be used by the travel agents for their benefits. How to respond when the customer wants to do something apart from the normal tour?

Again the tourism department site has all the information what all different things apart from the suggested itinery that can be ventured and tried by the customer in their country. There is a separate section which has all the details of such excursions. For example: ? ? ? The tourism board site of Switzerland would have the information about the firms that are providing skiing lessons on the Zuomfrow glacier, their rates and timings. The tourism board site of Germany would have details about the Beer festival happening in their country, the timings and the season when it occurs The tourism board site of Egypt would have the information about rafting places in the Nile Thus all the information can be obtained and a customized tour package for the customer can be prepared effectively by the travel agent.

Co-ordination and customer response The staff members who are catering to the FIT (Free Individual Traveller), have to play the role of a co-ordinator between the different departments in the office like the ticketing, hotel booking, Visa and Accounts departments. When the employee plays a role of a co-ordinator, he keeps check on the different departments by demanding the confirmation of the bookings of the air-tickets, hotels and visa. Thus he can keep a check on these departments to obtain his work efficiently and timely, and at the same time can keep the customer fully informed about the progress on the package for his tour. Moreover, timely receiving of the payment for the tour of the FIT can also be made possible, and the customer would know exactly when and how much payment is to be made, so the funds can be arranged by him on time.

Thus by doing do, customer satisfaction can be achieved and the image and brand value of the firm can increase. Creating a separate FIT (Free Individual Traveller) department ? In the existing agency, the management can hire staff for the sole purpose of catering to the FIT, who would be trained only for such job, thus catering to the need of devising a customised tour package for such tourists Or else, the company have a separate department of experts in the FIT field, with the knowledge about the different countries at the company Head quarters only, whose sole job would be to answer all the queries of all the offices about the information required for catering FIT, along with planning packages for the FIT who come to HQ.

Thus time can be saved and work can be done more efficiently, as only this team has to keep on updating their information about the various tours, events, and excursions available in different countries along with changes that take place from time to time Another option would be to have a call centre by the company, which would hire employees for the sole purpose of answering all the queries about the different countries that crop up at all the offices. These employees can be given expert knowledge about the various countries that the customers travel to by exposing them to the certified courses available about the different countries on the tourism board sites, which are free of cost, thus become certified experts for providing travel solutions to that country Chennai ? ? Lucknow Pune HQ Mumbai Chandigarh Domain Experts Delhi Ahmedabad Kolkatta HUB and SPOKE Model Certified courses on Countries The tourism boards of the different countries have certified courses, which include specialized and complete knowledge about visiting and travelling their country.

The course includes: ? The different places that a tourist can travel in their country, and what different activities that a tourist can explore in the country apart from the usual sight-seeing ? The modes of travel available in the country and the pattern of operation of these modes of transport ? The different events that take place in the country on a regular basis along with their timings, costs and frequency (E. G Opera in Sydney, Australia) ? Special events and shows (like Cannes film festival, Milan fashion show, France auto show, T20 Cricket World Cup) happening in the countries during a particular year, along with the methods of access and booking plans

This certification courses are free of cost provided by the tourism boards for their specific countries. After the employee obtains this certification, he would have thorough knowledge of the country for which he would obtain the certificate. This certificates once obtained cannot be held for a life time, but for retaining the certificate, time to time updating is necessary. Here is no restriction on the number of certificates that an employee can obtain, so as per his calibre, he can obtain as many certificate for as many countries as he wants. Recruitment Recruitment of the right talent in the travel industry forms one of the critical issues. Traditionally, the approach is ? ? ? Recruit people ith ANY qualification who can speak reasonably well Stress on attitudes more than skills, salary issues with qualified people Bosses perspective dominant- no scientific process What is needed? ? ? ? Develop clear job descriptions based on the competency framework Use of IT in recruitment Develop a relationship with local colleges. In the final year, provide them with a tourism diploma along with an academic partner. Industry ready course, win-win for both. ? Training There are a number of things that are necessary to be kept in mind and to be taught to the staff catering to the FIT. The following is a list which shows a few important areas of training: ?

Before training the employee in the area of business of the firm, the employee needs to be taught the English language proficiently, as the employee would be in direct contact with the customers, and if he is not able to explain the customer the deals available clearly, then, the customers would never be able to gain the knowledge and information required for travel to the destination of his choice The employees have to be made very particular in recording the information of the requirements of FIT, and also their personal information, as any faults are intolerable To teach the art of co-ordination between the different departments, so that the work can be easily disseminated to departments of ticketing, Hotel and tour bookings, Visa and passport handling, and accounts Training in deviating the customer to agree with the deals given by the staff, which would work in the favour of the company, along with adhering to all the requirements of the customer on the tour. For E. G. the FIT want to travel to New Zealand on the 18th of November, with a family of 4, and on the other side, there is a tour of our company leaving also for New Zealand, but on the 16th of November.

If the staff is able to convince the FIT to travel on the 16th instead of 18th of November, there are a lot of advantages that the travel agency as such would be able to obtain. Like the agency has tie up for tours with the airline company for discounts on bulk tickets, and with the Hotels for group bookings, so the travel agent can book additional 4 tickets at the discounted prices and sell them on a premium at high price to the FIT, or can also pass on the benefits to the FIT. By doing so, the customer is also satisfied on getting cheaper deal, plus the customised package which is as per the requirement of the FIT is also taken care of, by providing the itinery as per his requirements, thus creating satisfied FIT.

Plus the prior deals made by the travel firm on the volume with the airlines and the Hotels can also be reached, which in turn leads to better brand value of the company, so better bargaining power for deals on travel for the travel agency. ? ? ? This would lead to employees having better knowledge about their area of work, more clarity on the methods to be followed. Leading to the employees being able to educate the customers in a better and an elaborate way, thus leading to higher customer satisfaction, repeat business and higher image of the company, as well as increasing profits manifolds. Performance Evaluation Performance evaluation is a method to evaluate the job performance of an employee; it is used as a means for incentives, increments and promotions.

Various performance indicators are taken into account for measuring the performance. For travel agency employees, following aspects can be worked upon ? ? Incentive based on conversion rate – Associating incentives to the number of successful sales e. g. for every 5 sales done a commission of 5% of the sale Customer feedback – Feedback forms filled in by the customer can be taken into account to gauge the attitude and behaviour of the employee- can be used for Performance Appraisal Efficiency regarding the sending of documents, invoice, answering customer queries, etc. ? ? Recognizing performance via websites, company notice boards etc. Recommendations 1.

The travel agency can train the existing staff by providing specialized knowledge about the different countries by certified courses to cater to FIT. 2. The travel agency can have or hire special staff for catering to only FIT. 3. There can be a specialized staff only at the head-quarters with the overall knowledge about the different countries and can provide all the other offices with the information as and when required. 4. The company can set up a call centre where the staff with adequate knowledge about the countries and all the activities and excursions possible in those countries, and their sole purpose would be to answer all the queries about the FIT about special packages for FIT in different countries. 5.

As the company has nationwide exposure, there can be a number of FIT at different places at one point of time, at different offices, in turn creating a pool of FIT for the company, which would then give the Management of the firm, a better bargaining power with the Airlines for tickets, the Hotels and Tour Operators for better deals, thus leading to better profits. 6. The company can streamline the processes by giving a flowchart and a checklist which can be used during the first, intermediate and final meeting with the customer. Conclusion The client can implement the recommended solutions and have improved performance provided proper periodic checks are done during implementation.

Authoratarian and Totalitarian Dictators

Totalitarian and Authoritarian Dictators: A Comparison of Fidel Castro and Alfredo Stroessner Author(s): Paul C. Sondrol Source: Journal of Latin American Studies, Vol. 23, No. 3 (Oct. , 1991), pp. 599-620 Published by: Cambridge University Press Stable URL: http://www. jstor. org/stable/157386 Accessed: 27/10/2008 04:48 Your use of the JSTOR archive indicates your acceptance of JSTOR’s Terms and Conditions of Use, available at http://www. jstor. org/page/info/about/policies/terms. jsp.

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Totalitarian and Authoritarian Dictators: A Comparison of Fidel Castro and Alfredo Stroessner PAUL C. SONDROL Personal dictators remain a key feature of contemporary regimes termed ‘authoritarian’ or ‘totalitarian’, particularly in their early consolidating phases. But there is still disagreement over the seemingly ideological, polemical and indiscriminate use of the term totalitarian dictatorship as an analytic concept and tool to guide foreign policy formulation. 1 Jeane Kirkpatrick elevated the taxonomy to a vociferous level of debate with a article.

Entitled ‘Dictatorships and Double Standards’, 1979 Commentary the work raised anew semantic hairsplitting concerning the qualitative differences between all previous tyrannies and those bearing organisational similarities with the Nazi, Fascist or Stalinist prototypes. 2 Some have sought to do away with the totalitarian construct as merely a product of the Cold War. Others argue against the comparability of right- and left-wing regimes. Still others argue that totalitarianism is a concept applicable only to the epoch between Mussolini’s assumption of power in 1922 nd Stalin’s death in 195 3. 3 More seriously, Kirkpatrick’s thesis implied the immutable nature of totalitarianism, an assertion belied by recent events in Eastern Europe. Despite the general validity of some of these objections, and even if one harbours doubts about the universal explanatory power of this schema, I suggest that the totalitarian/ authoritarian dichotomy remains a powerful and effective tool to highlight and compare distinctive features of Castro’s Cuba and Stroessner’s Paraguay. 4 1See Robert C. Tucker, ‘The Dictator and Totalitarianism’, World Politics, vol. , no. 4 (I965), pp. 555-82. For a review of the scholarly debate concerning the concept of 2 3 totalitarianism, see Carl J. Friedrich et al. , Totalitarianism in Perspective (New York, I969). Jeane J. Kirkpatrick, Dictatorships and Double Standards (New York, 1982). Menze (ed. ), Totalitarianism Reconsidered (Port Washington, NY, I981), pp. II-34. See Karl Dietrich Bracher,’The Disputed Concept of Totalitarianism’,in Ernest A. 4 My thanks to an anonymous reviewer for reminding the author of this caveat. The article was revised with these and other comments in mind.

Paul C. Sondrol is Assistant Professor in the Department of Political Science at the University of Colorado, Colorado Springs. J. Lat. Amer. Stud. 23, 599-620 Printed in Great Britain 599 600 Paul C. Sondrol and totalitarian dictators Table i. Characteristics authoritarian of Totalitarian Charisma Role conception Leader as individual Leader as function Ends of power Public Private Corruption Official ideology Limited pluralism Legitimacy High No Yes Yes No Low Yes No Relatively high Authoritarian Low Yes No No Yes High No Yes Relatively low

The intensely personal element of leadership common to both forms of autocracy differs. Key dichotomies between authoritarian and totalitarian dictators centre around three foci shaping the subsequent discussion. (i) Unlike their bland and generally unpopular authoritarian brethren, totalitarian dictators develop a charismatic ‘mystique’ and a mass-based, pseudo-democratic interdependence with their followers via the conscious manipulation of a prophetic image. (2) Concomitant role conceptions differentiate totalitarians from authoritarians.

Authoritarians view themselves as individual beings, largely content to control and maintain the status quo. Totalitarian self-conceptions are typically teleological. The tyrant is less a person than an indispensable ‘function’ to guide and reshape the universe. (3) Consequently, the utilisation of power for personal aggrandisement is more evident among authoritarians than totalitarians. Lacking the binding appeal of ideology, authoritarians support their rule by a mixture of instilling fear and granting rewards to loyal collaborators, engendering a kleptocracy.

Table I highlights these differences. In Latin America, Fidel Castro of Cuba and Alfredo Stroessner of Paraguay represent cases reflecting the similarities and differences of the totalitarian/authoritarian taxonomy. In Cuba and Paraguay, the dictatorship is/was extremely personalist. Both Castro and Stroessner totally dominated their respective regimes for over thirty years, becoming by the early I98os the longest-ruling leaders in the Western hemisphere. In both regimes a single mass-based party structure penetrated civil society, buckling it to the regime.

Beyond those similarities, however, Castro and Stroessner diverge almost completely, occupying polar extremes both in ideological orientation and in their role conceptions concerning the ends of political power. CastroandStroessner compared 6o0 This paper analyses and explicates the diametrics of the totalitarian and authoritarian dictatorship via comparison of Castro and Stroessner. Examining how closely Castro and Stroessner approximate the prototypical models helps to determine the utility of these intellectual constructs and whether it is justified for scholars indiscriminately to label Castro totalitarian and Stroessner authoritarian.

The study shows that Castro is quintessentially totalitarian in his charismatic appeal, utopian functional role and public, transformative utilisation of power. Stroessner remained at base an authoritarian dictator, lacking ideological vision and employing tyrannical power for essentially private ends. Yet, a proto-totalitarian atmosphere pervaded his dictatorship, including a mass base and totalist ‘impulse’ to penetrate the military and bring other organisations under his personal control.

Moreover, both dictators share a common, Latin American caudillo heritage buttressing their power, conceptually absent from the larger, general taxonomy. A conclusion summarises these findings and argues for retention but reevaluation of the totalitarian construct. Totalitarianand authoritariandictators The nature of dictatorship informs a long history of scholarship. Plato, training Syracuse’s young tyrant Dionysius II in philosopher-kingship, describes in his Statesmanthe ideal lawless utopia where the pre-eminent ruler, in unfettered flexibility, adapts the art of dictation to changing circumstances.

The statesman must be absolute, argues Plato, for only he perceives the just society and necessary social transformations to achieve that end. Plato’s visionary satrapy is identified by some as a forerunner of the totalitarian leadership doctrines of the twentieth century. 5 Aristotle’s Politics reflects Plato’s tremendous influence. But Plato’s mythical statesman concentrated on public ends: ideal rule for the common good. Aristotle’s tyrant (the unteachable Dionysius, again) ruled for essentially selfish purposes: to extract as much as possible for personal gratification.

This ‘perversion’ of just government expresses the oldest and most corrupt form of non-democracy: authoritarian dictatorship. 6 Niccolo Machiavelli and Thomas Hobbes extended Aristotle’s authoritarian construct while Jean Jacques Rousseau refined Plato’s ideal state, anticipating the pseudo-democratic nature of modern totalitarianism. The Prince expressed Machiavelli’s blueprint for the autocratic seizure and maintenance of power. Hobbes’ Leviathan argued for the absolute authority of state over citizenry to guarantee security in a ‘brutish’ world.

Rousseau’s The Social Contract argued that the ‘general will’ and 5See Karl Popper, The Open Society and Its Enemies: The Age of Plato, vol. I (Princeton, 1945). 6 Aristotle, Politics, Book v, 9 (London, 1941). 602 Paul C. Sondrol infallibility of the collective people legitimised government. Modern totalitarians justify their dictatorships as a reflection of this volontege’nerale that only the dictator truly discerns. 7 Classic totalitarian and authoritarian precursors intersect in Max Weber’s pioneering analysis of’ charismatic’ leadership. Charisma (the gift of grace) is heaven-sent, irrational, emotive and popular.

Weberian charisma consists in a leader’s apparent possession of superhuman qualities; a messianic vision and role in determining the course of human events. Charisma also implies a close personal union between inspirational leader and willing followers, legitimising rulership. The leader bears the collective will of the people. Tenure is not dependent upon the superficiality of elections; rather, the leader is ‘elected’ from on high. 8 Dictators such as Hitler, Mussolini and Stalin defined themselves in terms of prophetic, personal qualities elevating them beyond the rank and file.

Their dictatorships created a mystical bond with the masses, merging authority with control and representation into a leadership principle and (FiihrerprinZip) absolutist regime (Fihrerstat). The unique mission and transcendental qualities of these totalitarians were functional requisites to their ideological imperatives demanding the wholesale destruction, restructuring and expansion of state and society, domestically and internationally. Totalitarians thus appear to possess what Hannah Arendt calls a ‘truer reality’ than the flawed perceptions of mere mortal men, justifying breakthrough measures to achieve some fated destiny. As evidenced by Hitler, Stalin, Mao and Castro, totalitarians, unlike authoritarians, envision not only a transformed domestic society, but also an expanded national influence on the world’s stage. A symbiotic relationship looms between the totalitarian’s demand for constant agitation, enthusiasm and unanimity and a confrontational foreign policy posture towards an external enemy: the pursuit of a great and noble aim and the need to vanquish the enemy totally are required to maintain the system in a permanent state of mobilisation, to deflect internal sociopolitical tensions, and thus repeatedly re-equilibriate the system.

Few authoritarians are imbued with such a self-appointed global role – often taking on messianic dimensions – as the totalitarian, who invariably embarks on an expansionist, internationalist course. 10 in 7Niccolo Machiavelli,ThePrince (New York, 1952); Thomas Hobbes, TheLeviathan, George C. Christie (ed. ), Jurisprudence(St Paul, I973), pp. 297-357; Jean Jacques Rousseau, TheSocialContract (New York, I954). See also J. L. Talmon, TheOrigins of Totalitarian Democracy (New York, I966). 8 H. H. Gerth and C. Wright Mills (eds. ), From Max Weber:Essaysin Sociology (New York, I958), pp. 46-9. 9 Hannah Arendt, The Origins of Totalitarianism (New York, I95I), pp. 33-75. 0 The author gratefully acknowledges a second anonymous reviewer who suggested totalitarianinternationalistposture. analysingthe characteristic Castro and Stroessnercompared 603 Moreover, while pressing for increasing politicisation, integration, conscientisation and conversion, totalitarians concomitantly attempt to reduce, desocialise, detach or destroy commitment to other foci of allegiance, such as the Church, guild, region or family in order to narrow diversity of thought and opinion.

Harmony in the political sphere is to derive solely from the messianic leader. As the personification of the state, party and people and the embodiment of their interests and aspirations, charisma is institutionalised. 11 Charisma defines the functions the totalitarian fulfils in the political system. This dictator is the ‘moving spirit’ of the totalist state. 12 Arendt conveys the sense of centrality and unsurpassed concentration of power in the leader’s hands: In the center of the movement, as the motor that swings it into motion, sits the Leader… [within] an aura of impenetrablemystery which corresponds to his ‘intangible preponderance’. As the subsequent analysis of Castro illustrates, the totalitarian functions to unify and personify the movement. The leader’s indispensability emanates from his uni-personal command and assumption of blanket responsibility, justifying all measures to accomplish revolutionary, historic, possibly even apocalyptic change. Lower functionaries are thus relieved of responsibility for drastic actions taken to destroy the ancien regimeand usher in the new order. 14 The myth of complete unity between dictator and masses exists to effect total societal restructuring, not simply personal goals.

The totalitarian fulfils certain needs of the system, but he is not sustaining personal, private-regarding aggrandisements. Ideological dedication to utopian futures substitutes for mere materialistic concerns. Whatever the psychological motivations, the empirical goals of totalitarians are decidedly public, not private. Expanding and updating the original Weberian formulation, the charisma so often ascribed to totalitarian dictators is a combination of prophetic vision and magnetism, but also includes the politics, ideological persuasion, mass propaganda and terror by which the dictator establishes a one-man tyranny.

Not anticipated by Weber is the chiliastic vision, democratic veneer and particularly the modern technological sophistica1 Leonard Schapiro, Totalitarianism (New York, 1972), p. 22. Sigmund Neumann, The PermanentRevolution: The Total State in the Worldat War (New York, 1942), p. 43. 13 Arendt, Origins, p. 361. 12 14 For the psychology of subordinate behaviour under totalitarianism, see Hannah Arendt, Eichmannin Jerusalem: A Report on the Banality of Evil (New York, I963). See also Stanley Milgram, ‘Obedience to Authority’, Journal of Abnormal and Social Psychology,vol. 7, no. 4 (I963), pp. 37I-8. 604 Paul C. Sondrol tion of totalitarianism. Together, these components make totalitarian dictatorship a sui generis form of autocracy outside the scope of classic conceptualisation. Friedrich and Brzezinski note the inadequacy of Weber’s, or any other traditional typologies, in distinguishing this form of leader from previous satraps. ‘There is no particular reason for inventing a weird term to designate this type of leadership, other than to say that it is “totalitarian “. ‘5 Dictatorial behaviour emanates in large part from role expectations.

The position assumed carries certain objectives and performance demands. Totalitarian dictators seek a ‘passion for unanimity’ – the ideal of conflictlessness and the total politicisation and participation of all in society. More than just an autocrat depriving people of rights and perpetuating his rule, the totalitarian is a creative, revolutionary force, attempting to refashion man and culture, working ‘in the amorphous raw material of history itself’ as the ideocrat Ivanov asserts in Koestler’s Darkness at Noon. 16 Authoritarians normally labour under no such prophetic illusions.

Possessing no desire for the total mobilisation and restructuring of society or the creation of a ‘new man’, they sense their own limitations, the intractable nature of social relationships and the non-malleability of culture. Authoritarians are less concerned about those disaffected, as long as they do not challenge the regime. Dictators of this ilk boast no agenda to penetrate and change the thoughts and values of peoples; they settle for political control. Shakespeare’s King Henry V captured the authoritarian’s view, saying, ‘Every subject’s duty is to the king; but every subject’s soul is his own. 17 The totalitarian despises, intends to obliterate and replace the moribund old order; a Burkean revulsion for the excesses of radicals and revolutions permeates the authoritarian milieu. Order and the veneration of tradition prevail. 18 Power, tempered by custom, conventions, understandings and the more pluralist nature of society, constrains these leaders. Totalitarian dictators view opposition, even neutrality, as treason. Stroessner exhibited a marked intolerance for mere absence of opposition, but stopped short of Castro’s addiction to unity.

True totalitarians possess millennial aims that demand all be anointed in the exclusive claim to the truth, compelling men to compete for degrees of dedication, for levels of devotion. By contrast, authoritarians generally view obedience as the absence of overt resistance. A certain amount of token opposition (as Carl J. Friedrich and Zbigniew K. Brzezinski, Totalitarian Dictatorship and Autocracy, 2nd ed. (New York, 1965), p. 44. 16 Arthur Koestler, Darkness at Noon (New York, 1941), p. 8z. 17 William Shakespeare, King Henry V (Cambridge, MA, 1954), p. I00. 8 Edmund Burke, Reflectionson the Revolutionin France (New York, i966). 15 Castro and Stroessnercompared 605 existed under Stroessner) may even be allowed to channel off discontent and create a democratic facade. ‘Limited pluralism’ – tolerated patterns of semi-opposition not controlled by the regime, that exist and even criticise without fundamentally challenging the dictator- is absent from true totalitarian dictatorship. While certain authoritarian regimes may practice terrorism on a totalitarian scale in the attempt to instil fear in the public at large (the Argentine military of the late 1970s), no attempt is made to efashion social relations nor emasculate all autonomous groups except those created by the State. 19 Limited pluralism reflects the circumscribed goals of authoritarians. Dictators like Stroessner strive to command and avoid challenges to their rule, not to transform social reality. Bereft of utopian goals requiring a mobilised and penetrated polity, true authoritarians (unlike Stroessner) do not seek mass approbation; they rely on fear rather than involvement and are satisfied with acquiescence or apathy. Ideological commitment to a visionary future informs larger tasks for totalitarians such as Castro.

They not only command and manage, but strive to organise consent, to develop a broad consensus and inspire the polity to engage in societal upheaval by state-directed action. A final area of differentiation concerns the ends of non-democratic rule and the corruption of the dictator. Corruption represents a type of privateregarding behaviour exploiting public political authority for essentially private material motivation and advantage. 20 As Lord Acton recognised, no absolutist regime can be immune from this type of graft.

Regarding the dictator, however, a qualitative difference exists. Power utilised for essentially private ends is endemic in authoritarian dictatorship. Lacking the constraining ideological goals and roles which normatively bind totalitarians, Stroessners, Somozas and Trujillos treat the national patrimony essentially as a huge private domain. Lacking a prophetic vision, authoritarian support is based not on a shared ideology, but on a vaguer ‘mentality’ or secular spoils system engendered by interests created by the dictator’s rule. Personal aggrandisement distinguishes authoritarians.

Stalin’s, Hitler’s Mao’s or Castro’s dictatorship was/is not directed to the personal enrichment of the dictator, his family or cronies. These leaders could never have sustained their prophetic charisma, or the admiration and loyalty of their people (including intellectuals and foreigners), had they not based their rule on higher, impersonal principles and objectives than simply lining their own pockets. Totalitarians may fuse the public and See Juan Linz, ‘An Authoritarian Regime: Spain’, in E. Allardt and Y. Littunen (eds. ), Cleavages,Ideologies,and Party Systems (Helsinki, 1964), pp. 291-341. 0 Stephen D. Morris, ‘Corruption and the Mexican Political System’, Corruption and Reform, no. 2 (Dordrecht, Netherlands, I987), pp. 3-I5. 19 606 Paul C. Sondrol private in their zeal for ideological objectives, but a boundary exists between the public treasury and the private wealth of the ruler. Increasingly that wall is breached as one moves along the spectrum in the authoritarian direction. 21 Charisma, role and corruption, then, distinguish totalitarians and authoritarians. Totalitarians are visionaries, destined to direct and embody the will of the mobilised masses towards the millennium.

As agents of history, they are motivated and legitimised by a far higher calling than personal greed. Authoritarians harbour no such illusions about either themselves or the malleability of man, values or society. No ideological vision of a utopian future informs their role. They function to perpetuate power, maintain order, enrich themselves and buy the loyalty of their coterie concomitant to a more pluralist environment. Distinctions between totalitarian and authoritarian dictators categorise non-democratic leadership types intelligibly. This framework bears directly on the subsequent analysis.

Fidel Castro- totalitariandictator Fidel Castro is the totalitarian dictator of communist Cuba. Overwhelming governmental power encroaches upon virtually every aspect of Cuban life. No autonomous groups or non-regulated ‘counter-revolutionary’ forms of behaviour exist independent of Castro. After more than thirty years, he remains not only the inspirational lzdermaximo (maximum leader), guiding the transformation of people and culture in Cuba, but also the messianic comandante, exhorting the constant anti-imperialist struggle (lucha) for a revolutionary brave new world via Cuba’s internationalist foreign policy in Africa and Asia. 2 In Castro, stark absolutism is cast in mystical terms: 21 Juan J. Linz, ‘Totalitarian and Authoritarian Regimes’, in Fred Greenstein and Nelson Polsby (eds. ), Handbookof Political Science,vol. 3 (Reading, Mass. , 1975), pp. 260-2. A clear exception is Romanian Nicolae Ceausescu, whose overthrow and execution on 25 December 1989 revealed a palatial life-style. However, Ceausescu’s megalomania and prophetic delusions – more than mere greed – prompted his plundering. Also, the Eastern European regimes had totalitarianism imposed upon them.

Unlike Castro, Hitler, Mussolini or Mao, Ceausescu or East Germany’s Erik Honecker did not achieve supreme power by leading their own revolution, but rather through Soviet-sponsored intra-party competition. See Mary Ellen Fischer, ‘Idol or Leader? The Origins and Future of the Ceausescu Cult’, in Daniel N. Nelson (ed. ), Romania in the I98os (Boulder, 1981), pp. I17-4I. 22 For Castro’s symbiosis of the totalitarian regime’s domestic needs (militancy, agitation) and its confrontational, expansionist foreign policy, see Richard Fagen, ‘Mass Mobilization in Cuba: The Symbolism of Struggle’, Journalof InternationalAffairs, vol. 0, no. 2 (1966), p. 267. More current and detailed is Jorge I. Dominguez, To Make a World Safe for Revolution(Cambridge, Mass. , 1989). Castro and Stroessnercompared 607 [Castro]remainsthe ideologue, the guerrillaleader,the founder,the heroic leader who defied not only foes (Batista and the United States) but also friends (the Soviet Union). He… is the inspirational source of political mobilization and support. Marxist-Leninismand the [CommunistParty] are painted in his own colors… Only in Nazi Germany has the personal element accounted for so much. 23

Castro is the dominant force creating and amalgamating the political regime with a mobilised Cuban civil society. When the totalitarian template of prophetic charisma, function, and dictatorship for impersonal purposes is laid over Castro, the match is almost perfect. Additionally, Castro’s totalitarian dictatorship superimposes a deeper, Latin American caudilloheritage. The centrality of Castro to Cuban totalitarianism rests largely in his charismatic leadership and embodiment of the Revolution. During the long struggle against the Batista dictatorship, Castro remained the undisputed guerrilla leader, ideologue and caudillo.

He led the bloody attack on the Moncada barracks that launched the Revolution in I953. Castro’s trial speech ‘History Will Absolve Me’ became the creation myth for the regime -the moral imperative crystallising the reasons for rebellion -and remains the fundamental, venerated and legendary scripture of the Revolution. Castro co-founded the 26th of July Movement, the main opposition to Batista during the insurgency. He commanded the Granma expedition from Mexico and the rebel army it spawned that fought the guerrilla war and ultimately took power.

Finally, Castro imposed, nurtured and guided the Marxist-Leninist framework on the revolutionary political system he stood above. 24 Castro’s charisma and personal interrelationship with Cuba’s masses reflects the totalitarian mystique. The messianic quality is a pillar of regime legitimation. Richard Fagan argues that Castro’s followers see him as blessed, protected and acting in concert with larger historical forces not always visible to more ordinary men. Accordingly, Castro alone retains the right to determine the ‘correct’ direction of the Revolution. 5 Jorge Dominguez sees Castro’s spellbinding ‘History Will Absolve Me’ speech as a clear articulation of totalitarian messianism. Castro depends not upon superficial elections; he is ‘elected’ by an historical, supernatural force and authority. Castro both commands and represents; the leader is not a ‘sovereign’ imposing himself upon followers. Rather, it is Castro who follows the people and history: 23 24 Roy Macridis, ModernPolitical Regimes (Boston, 1986), p. 209. Fidel Castro, Revolutionary Struggle 7947-79I8: Selected Works of Fidel Castro, edited by Roland E. Bonachea and Nelson P.

Valdes (Cambridge, MA, 1972). 25 Richard Fagan, ‘Charismatic Authority and the Leadership of Fidel Castro’, Western PoliticalQuarterly, vol. i8, no. 2 (I965), pp. 275-84. 608 Paul C. Sondrol History-as-god elects the revolutionary leader to act with and for his followers… The cause, the idea, history incarnatein the people elects the leader to serve, to implement, and hence to rule: the essence of charismatic legitimation. 26 Castro functions as an essential instrument of the totalitarian movement in Cuba. Attachment to Castro and the mass following he generates substitute for political and party organisation.

Castro’s absolutism during the early years of revolutionary Cuba provided the substance and sustenance of the new order. During the critical formative decade of the i96os, few permanent stable institutions – even as basic as the political party – emerged. Consequently, revolutionary ideology and legitimacy blurred with the persona of Castro. 27 Castro’s personality cult permeates the regime. Although declaring himself a Marxist-Leninist in December of 1961, the ideology of socialist Cuba quickly bore the unique stamp of Castro. Fidelismo, argued revolutionary ideologue Che Guevara, formed something distinct from Marxist-Leninism.

While the latter stresses historical determinism and a vanguard party organisation, fidelismois non-specific, anti-organisational and undogmatic; a ‘revolution without blueprint’ retaining the highly personalised leadership of Castro via the ‘close dialectical unity which exists between the individual [Castro] and the masses’. 28 Theodore Draper views ‘Castroism’ as representing a particular crossfertilisation, blending Latin America’s personalist and revolutionary tradition and Europe’s socialist tradition. Draper interprets Castro as a novel, Latin American socialist caudillo, needing to justify power ideologically. Castroism is a leader in search of a movement, a movement in search of power, and power in search of an ideology. ’29 This analysis strikes a responsive chord amongst Latin Americanists. While Castro possesses charisma, vision, ideology, rhetorical gifts and intellect, these ‘totalitarian’ qualities are necessary but not sufficient factors to explain his iron grip over Cuban political life for a third of a 26 27 28 and Jorge I. Dominguez, Cuba:Order Revolution (Cambridge,Mass. , I978), pp. I97-8. William M. LeoGrande, ‘Party Development in Revolutionary Cuba’, Journalof InterAmerican Studies and World Affairs, vol. 1, no. 4 (I979), pp. 457-80. in Ernesto Che Guevara, Man and Socialism Cuba (Havana, 1967), p. I7. For expanded in see, (New analysisof fidelismo among others, Regis Debray, Revolution theRevolution York, 1967); and Edward Gonzalez, Cuba UnderCastro: The Limits of Charisma (Boston, 1974), pp. I46-67. Gonzalez perhaps best explains this blending of personalism and ideology into fidelismo, comparingit to Stalinismwhere partyand state institutions were subordinateto the fiat of the dictator. By this definition,fidelismo appearslittle different from the fiihrerstat of Germany. 9 Theodore Draper, Castroism: Theory and Practice (New York, I965), pp. 48-9. An additional perspective that probes Castro’s mindset is a Rand Corporationstudy by and EdwardGonzalezand David Ronfeldt, Castro,Cuba, the World (SantaMonica, CA, I986). CastroandStroessner compared 609 century. Like all Latin American strong-men, Castro benefits from a caudillotradition: ‘the union of personalism and violence for the conquest of power’. 30 This heritage augments personal autocratic power and imbues the region with the ‘spirit of caudillaje… an ethos which grants individual deference and respect on the basis of taking and holding public power . 1 As Castro’s precursor, the caudillo was a political buccaneer whose personal power was the notable characteristic. Caudillossuch as Argentina’s Juan Manuel de Rosas whom Domingo Faustino Sarmiento castigates indirectly in Facundo,or Paraguay’s Jose Gaspar Rodriguez de Francia, fictionalised in the Roa Bastos novel Yo El Supremo,supported their rule by machismoand leadership qualities, not theoretical and abstract dejure powers. 32 The caudillo possessed and exhibited an extraordinary charismatic virility, moral authority and penchant for the naked exercise of power.

The Venezuelan pensadorLaureano Vallenilla Lanz, describes the caudillo as a ‘democratic caesar’, whose authority is founded on the unconscious suggestion of the masses. Vallenilla Lanz was not analysing totalitarianism, nor Castro, when he cast the democratic caesar as the personification of the people, the ideals of society, always representing the collective will of the masses, yet the similarities are striking. The caesar’s (Castro’s) moral and political authority transcends law, constitution, political party or principle. He is ‘democracy personified… the nation-made man.

In him are synthesised… democracy and autocracy. ’33 The tradition of political power as personal identifies the leader with the state and defines the role of charismatic dictators like Castro. As the maximum leader, Castro fulfils a psychic functional requirement in Cuban society, still permeated by the hispanic traditions of caudillaje. Castro embodies in his own attractive and legendary mannerisms – bravado, machismo, a superb intellect, hidalgo generosity – those inner qualities that Cubans themselves feel and would like to manifest, were they only able to do so. 4 30 Robert Gilmore, Caudillismand Militarism in Venezuela (Athens, Ohio, i964), p. 47. See 31 32 33 34 also William S. Stokes, ‘Violence as a Power Factor in Latin American Politics’, WesternPolitical Quartery, vol. 5 (I952), pp. 445-68. Glen Caudill Dealy, The Public Man (Amherst, 1977), p. 33. Caudillajetypifies a style of life oriented to the values of public leadership. The word itself may be translated as the domination of a caudillo. Domingo Faustino Sarmiento, Facundo: Civiligaciony Barbarie (Buenos Aires, i959); Augusto Roa Bastos, Yo El Supremo(New York, I986).

Laureano Vallenilla Lanz, CesarismoDemocrdtico (Caracas, I96i), p. 207. Translation by author. See the more general analysis by Eric Wolf and James C. Hansen, ‘Caudillo Politics: A Structural Analysis’, ComparativeStudiesin Societyand History, vol. 9, no. 2 (95 7), pp. I68-79. 6 o Paul C. Sondrol Castro’s personality cult is congruent with the totalitarian model, but also derives from a more general Hispanic caudillo tradition. Unique Cuban/Latin American aspects supporting Castro’s dictatorship are variables conceptually absent from the larger, general totalitarian taxonomy formulated by Friedrich, Linz and elaborated by Kirkpatrick. 5 Castro’s totalitarianism also manifests itself in a vision concerning the ends of total power. Rampant private privilege under Fulgencio Batista and Castro’s ideological orthodoxy regarding the redistributive public purposes of revolutionary government combine to imbue him with a rigid revulsion to materialism, graft and corruption. Material incentive is anathema to Castro’s core revolutionary ideals and laissez faire decentralisation threatens his political control over the economy.

Continual railings against ‘evil money’, personal enrichment, exhortations regarding improbity and appeals to the ‘higher values’ of revolutionary consciousness (conciencia),sacrifice and discipline particularly distinguish Castro from other hemispheric despots. The characteristic totalitarian utopianism is evident in his public orations: Perhapsour greatestidealismlies in having believed that a society that had barely begun to live in a world that for thousands of years had lived under the law of ‘an eye for an eye… , the law of egoism, the law of deceit and the law of exploitationcould, all of a sudden, be turned into a society in which everybody behaved in an ethical, moral way. 36 Castro remains personally immune to the proverbial corruption affecting autocrats long in power. As head of state, he enjoys a degree of luxury and privilege, yet on a modest scale compared with many Latin American presidents, and even Communist leaders elsewhere.

Far from ascetic in his taste for good scotch whisky or his once-famous penchant for cigars, Castro seems, however, to have no interest in the more base accoutrements of power, such as fancy clothes, philandering liaisons, or wealth. The Sierra Maestra legend informs Castro’s habitual wearing of the olive-green uniform and guerrilla beard, perpetuating the spartan guerrilleroimage. His female companion of thirty years’ standing, Celia Sanchez, died of cancer in I980. Castro’s revolutionary elan demands that he remain above reproach, and no personal scandal has ever besmirched this reputation.

Castro also demands rectitude from other public officials. While oldstyle theft of public funds or bribery occasionally occurs, unscrupulous public officials are automatically branded enemies of the state and 35 Friedrichand Brzezinski,Totalitarian Dictatorship; Linz, ‘Totalitarianand Authoritarian and Kirkpatrick,’Reflections on Totalitarianism’,in Dictatorships Double Regimes’; Standards, pp. 96-1 38. 36 Fidel Castro, Granma Weekly Review (20 Sept. 1979). Castro and Stroessnercompared 6II socialism. Apostasy is punished severely, with public confession, disgrace, and stiff prison sentences.

The mid-i989 drug-smuggling scandal, trial and execution of one of the nation’s most decorated military officers, General Arnaldo Ochoa, along with four other high-ranking officers, illustrates this and subsequent points. 37 Periodic moral rectification campaigns and persecution of officials for corruption also serve other ends. First, Castro’s rhetoric accompanying anti-corruption campaigns pre-empts public debate or scrutiny of fundamental regime flaws, allowing him to mobilise support and escape system-level accountability by blaming ‘scapegoats’ for an inability to attain revolutionary goals.

Second, episodic purges against high officials like Ochoa pulverise opposition or nascent ‘limited pluralism’ (actual, potential and imagined) while still in embryonic form; thus re-establishing totalitarian elite cohesion. 38 Finally, the ceremonial ‘uprooting of the evil in society’ helps rejuvenate popular faith in the moral integrity of Castro’s regime, reinforcing faith in the egalitarian goals of the Revolution. 39 Scarcities and privations mount in Cuba as Castro continues to appeal to moral incentives.

But his commitment to probity and demands that all share in the ideals and burdens of the Revolution helps sustain affective supports (diffuse, generalised attachments) even while instrumental supports (specific, utilitarian considerations) wane. 40 Fidel Castro’s rule conforms to the syndromatic features of totalitarian dictatorship superimposed over a deeper, Latin American caudilloheritage. Castro remains the charismatic leader; he functions as the indispensable prophet and ideologue guiding Cuba towards a socialist utopia, and utilises his dictatorship for impersonal purposes.

Corruption has dwindled from pre-revolutionary days. When it appears, it is used as a diversion from structural flaws, including the dysfunctionality of Castro’s centralisation of power. Alfredo Stroessner – authoritarian dictatorship and proto-totalitarianism General Alfredo Stroessner’s long rule and precipitous fall provides an apparent textbook case for conventional perceptions of the quintessential authoritarian dictator: a soldier in mufti, corrupt, repressive, standing for nothing more than personal aggrandisement, anti-Communist and 37 For transcripts of the show trial, see Vindicacionde Cuba (Havana, I989).

For an analysis of this aspect in the Ochoa episode, see the commentary in the New York Times Review of Books, ‘Fidel and Religion’, 7 Dec. 1989. 39 Morris, ‘Corruption’, pp. 3-I5. 40 Dominguez, Cuba, pp. 229-33; also Tad Szulc, Fidel: A Critical Portrait (New York, 1986), p. 8i. The terms ‘affective’ and ‘instrumental’ supports come from David Easton, ‘A Reassessment of the Concept of Political Support’, British Journalof Political Science,vol. 5 (1975), pp. 435-57. 38 612 Paul C. Sondrol eventually overthrown. But, while stereotypes abound, Stroessner’s has argely remained a forgotten dictatorship in comparison with other, better-known hemispheric despots, such as Castro. The dearth of serious study stems from Paraguay’s geographic isolation, lack of great power investment or Cold War considerations and Stroessner’s own low profile. Stroessner, if discussed at all, is usually dismissed out-of-hand by illinformed and inaccurate generalisations. A closer examination, utilising the rubric of (i) charisma; (2) role; and (3) corruption, reveals important similarities and contrasts with both Castro and the totalitarian/authoritarian taxonomy.

While his regime was at base an authoritarian personalist (not military) dictatorship, a totalitarian ‘impulse’ pervaded Stroessner’s rule, including a militant, mass-based party apparatus and a penetrated, politicised armed forces. Stroessner’s longevity had little to do with personal charisma. He was never a prophetic leader proselytising utopian futures. In personal demeanour, Stroessner is described as a ‘taciturn man… heavy and ponderous in his movements’. 1 In contrast to spellbinding orators such as Castro, Stroessner was given to rather pedantic patriotic banalities and boring recitations of his regime’s economic improvements. Yet Stroessner appeared to be relatively popular. Interviews with Paraguayans, the general impression gained from field research, and corroboration by other scholars and US intelligence officers support the view that Stroessner relied on a base of popular support buttressed by a 42 disciplined mass party. 4 Few twentieth-century dictators last a third of a century relying on hamfisted repression alone.

Paraguayan acceptance of Stroessner stemmed from the nation’s political culture, Stroessner’s own manipulation of Paraguayan values, and his control over the three mainstays of his regime: the Colorado Party, the military and corruption. No nation in Latin America has a more firmly rooted authoritarian legacy than Paraguay. Throughout its history, the political culture approximates Samuel Huntington’s ‘praetorian society’, characterised by the weakness of effective political institutions, lack of consensus among groups concerning legitimate methods of resolving conflicts and a continual involvement of the military in government. 3 Spanish colonial rule was mixed with ideological thought control perpetrated by the early 41 Richard Bourne, Political Leaders of Latin America (New York, I970), p. IOI. Interviews with, among others, Adriano Iralla Burgos, Director, Oficina de Estudios Paraguayos, Universidad Cat6lico, Asunci6n, 5 June 1988; these conclusions confirmed in interview with Jack Martin, Political Officer, US Embassy, Asunci6n, 7 June 1988 and conversation with Paraguayan specialist Paul H. Lewis, Asunci6n, 12 June 1988. 43 Samuel P. Huntington, Political Order in Changing Societies (New Haven, I968), pp. 42 192-263.

Castro and Stroessnercompared 61 3 regulating every aspect of Jesuits who established a system of reducciones, daily life for a century among the native Guarani Indians in the i6oos. Sterile despotism continued after independence by the dictatorships of Dr Jose Gaspar Rodriguez de Francia (1814-40), Antonio L6pez (I84I-62) and Francisco Solana L6pez (i862-70). Francia set the early tone. Emerging from the wars of independence in the i8ios determined to break the resistance of the upper classes and refashion Paraguay into a unique and autonomous nation, Francia created a hermit police state by sealing off the borders: … here was a totalitarianatmosphereabout the [Francia]regime that was more governments elsewhere in South oppressive than the brutal but chaotic caudillo America … spies and informers were ubiquitous … terror was systematic. 44 Continuing with the two Lopez’, a tradition of extremely repressive dictatorship was ingrained into the national consciousness. These caudillos ruled during the formative generations of Paraguay’s history, perpetuating a traditional intolerance to opposition and dissent, political repression, exaggerated adulation of strongman leadership and political monism.

Involvement in two of the bloodiest wars (the Triple Alliance, I865-70 and the Chaco, I932-5) in the continent’s history enhanced the position of the armed forces as major political actors and national saviours, fostering a history of martial intervention in politics. The decidedly fascist cast to the military regimes headed by Major Rafael Franco, Marshall Felix Estiggaribia and General Higinio Morinigo throughout the I93os and 1940S reinforced the traditional xenophobia permeating Paraguayan political culture, enshrining authoritarian values.

These strongmen buttressed the norms of resistance to and suspicion of ‘foreign’ ideas, as in democratic ideology and systems of government not geared to the realities of the Paraguayan experience. 45 This monotonous history of dictatorship with only brief and chaotic interludes of open government paved the way for Stroessner’s own golpe in 1954. Such a persistent authoritarian pattern is an underlying factor nurturing and sustaining a soldierly elite vested in militarism and producing a public psychologically habituated to dictatorship.

Knowing no other political arrangement than authoritarianism, the people boasted no expectations of a more balanced polity. Politically naive, apathetic and xenophobic, Paraguayans accepted Stroessner (exalted, appropriately as ‘El Continuador’) more or less willingly as congruent with the milieu. 46 44 45 Alfredo Seiferheld, Nazismoyfascismo en el Paraguay (Asunci6n, 1985), pp. 2II-I6. 46 autoritaria p. 23. See also Guido Rodriguez Alcala, Ideologia (Asunci6n, I987). Paul Lewis, Socialism, Liberalism and Dictatorship in Paraguay (New York, i982), On these and relatedpoints, see Paul C.

Sondrol, ‘Authoritarianism Paraguay:An in vol. 3, no. Analysisof Three ContendingParadigms’,Review Latin American Studies, of i (I990), pp. 83-105. LAS 23 23 614 Paul C. Sondrol A crucial determinant of Stroessner’s longevity centred on his recognising the importance of ceremony and symbolism in Paraguayan culture. Stroessner effectively manipulated the myths and values of the nation to lend legitimacy to his dictatorship, approximating the archetypical caudillodescribed by Hugh Hamill: The success of the caudillo is not only the numberof yearsin power but also … he skill with which he weds himself to the patriotic mythology, history, folk, customs, religious observances, fraternal and kinship groups, national psychology, and political traditions. 47 Stroessner’s communion with Paraguayans took two seemingly contradictory forms – the ‘common’ and the ‘regal’ style. Stroessner was a perfectly approachable and familiar figure to Paraguayos,practising a petitionary form of rule in keeping with Paraguay’s ‘shirt-sleeve populism’. 8 Congruent with the egalitarian nature of Paraguayan society, Stroessner devoted an enormous amount of time to parochial concerns, including photo opportunities with schoolchildren, meetings with wellwishers, consultations with leaders of industry, business and labour, average citizens, or any complainant with a problem, often of a personal nature, who felt the right to go directly to the President. At least prior to Nicaraguan ex-President Anastasio Somoza’s assassination in 1980, Stroessner drove himself without protection to the local chess club in downtown Asunci6n and played any and all challengers who happened to stop. 9 Stroessner ruled a small nation of 3. 5 million for almost two generations. By I985, 70 % of the population had grown to adulthood knowing no other leader. Stroessner’s apparent folksiness and availability, aside from the obvious public relations benefit, was functional to his conception of role and rule. Stroessner had no larger utopian vision than keeping himself in power. He may or may not have cared about political popularity – which was impossible to gauge empirically given restrictions on press and free expression. But being surrounded in the Presidential Palace by sycophants had an isolating effect.

Travelling the country and meeting with ordinary citizens, regional military commanders or local party officials afforded Stroessner continued access to new channels of information, keeping him abreast of a changing political environment. This sort of ‘constituency service’ distinguished Stroessner from more removed authoritarians who simply retired to corpulent languor in the presidential palace and never visited the country. 50 It also legitimated Stroessner by making him appear 47 48 Paul H. Lewis, Paraguay Under Stroessner(Chapel Hill, I980), p. 108. 49 Bourne, Political Leaders, pp. i82-5.

America(New York, 1965), p. 13. in Hugh Hamill, Dictatorship Spanish 0 See Frantz Fanon, The Wretchedof the Earth (New York, 1966). Castro and Stroessnercompared 61 5 responsive to the people. Stroessner’s singular ability to play the role of ombudsman in redressing local grievances was similar to the personal link that Castro performs. Stroessner’s pre-eminence, like Castro’s, allowed him to bypass institutional channels for decision-making and to determine policy or course corrections by fiat. Stroessner alone commanded the attention to galvanise public opinion behind regime initiatives.

He was no mere figurehead. Stroessner, like Castro, was the ‘great helmsman’ and guiding spirit of the Stronato(the Stroessner regime). 51 Personal inspection tours, often unannounced, allowed Stroessner to serve, as does Castro, as his regime’s ‘intuitive barometer of popular sentiment, sounding out public opinion and eliciting criticism from the rank and file’. 52 Stroessner’s direct, common touch was important in cultivating and maintaining mass allegiance over many years. Stroessner proved equally adept at the more regal functions associated with chief-of-state duties.

He presided over the nation’s most important ceremonial occasions with a solemnity that a still traditional, highly religious and intensely nationalistic populace appreciated. Glittering occasions such as the feast days of San Blas, Corpus Christi, or Heroes Day and Chaco Armistice, found the President laying a wreath or giving a patriotic speech. Stroessner headed the pomp and pageantry surrounding visits by foreign heads of state, trade delegations or military missions, ceremonies which received heavy coverage by the local, controlled press and were followed closely by the people.

As citizens of a small, poor country, Paraguayans obviously enjoyed and took pride in these displays of the importance of the nation, its traditions, and the dignity that Stroessner displayed. 53 Machiavellian designs to maintain power fail fully to explain Stroessner’s longevity. Retaining control clearly was the overriding goal, but other motives existed. Stroessner was a patriotic hero of the Chaco War. Like Castro, Stroessner exhibited in his personal mannerisms and style of leadership the same sorts of qualities his countrymen admired.

Because he was so typically Paraguayan – authoritarian, ultra-nationalist 51 Gonzalez, Cuba Under Castro, pp. 82-5; The StroessnerEra (Boulder, 1990). 53 Paul Lewis, Socialism, p. 69; Carlos Miranda, 52 Gonzalez, ibid. , p. I84. The author remembers attention in Asunci6n riveted on Stroessner’s June 1988 speech before the United Nations General Assembly on (of all topics) nuclear disarmament. The speech was carried live via direct satellite feed on both of Paraguay’s television networks.

It was patently crafted for domestic consumption; being more a nationalistic defence of democracy ‘Paraguayan style’. The cameras remained glued to Stroessner. Later, it was revealed the General Assembly was almost empty of spectators who were boycotting the speech in protest against Stroessner’s dictatorship. The speech was a huge success in Asuncion. 23-2 6 6 Paul C. Sondrol and xenophobic – Stroessner succeeded in eliciting an almost irrational admiration on the part of many Paraguayans more characteristic of a totalitarian like Castro.

While he dedicated his energies to maintaining power, Stroessner also clearly believed in the conservative, patriotic and religious values of the society from which he emerged. He saw nothing incompatible in the manipulation of those symbols to support his rule. Stroessner’s durability thus rested on considerable skill as an astute politician. An unquestioned administrative capacity, coupled with a penchant for details, long work hours and a ruthless obsession for personal power helped him overcome initial opposition from within the Colorado Party, bureaucracy and military. 4 Identifying himself with the century-old Colorado Party, Stroessner secured a popular base for his regime; a key difference from other contemporary right-wing dictatorships in Latin America, such as Brazil (1964-84) or Argentina (1966-72; 1976-82). Stroessner’s decision to collaborate with the Colorados was a pretext to bring the party under his formal control. A pseudo-totalitarian ‘caesarist’ impulse to expand the scope of his control pervaded the Stronato. 55 purging the Colorados of dissidents, By Stroessner adeptly transformed the organisation into a personalist vehicle of his dictatorship.

By 1976, no factions divided the Colorados; everyone was a stroessnerista. Since the only avenue to a modicum of safety, prosperity and power lay with the hegemonic regime, allegiance and proximity to Stroessner became the sine qua non of political survival. Moreover, a fanatical partisanship akin to totalitarian cadres, clearly going beyond that normally associated with rightist, conservative authoritarian regimes, handed Stroessner a weapon shared by Castro: a disciplined, militant mass-based party totally subservient to the dictator. Stroessner reorganised the Colorados along verticalist lines.

Membership was structured (and later computerised) through a national network of seccionales subseccionales and (branches and block wards). Similar to Castro’s Committees for the Defense of the Revolution, these grassroots organisations functioned to maintain party discipline and militancy, keep a registry of members, disseminate propaganda, dispense welfare and patronage to correligionarios (party brethren) and keep oppositionists under surveillance. Under Stroessner, a key criteria for securing employment in government was political affiliation and the growing bureaucracy represented n 54 For Stroessner’s consolidation of power, see Leandro Prieto Yegros, El Coloradismo Eterno Con Stroessner,tomo I (Asunci6n, 1988). 55 The term comes from Lanz, Cesarismo Democrdtico. See also Franz Neumann’s conceptualisation of the term in his The Democratic and Authoritarian State (Glencoe, I957), P. 236. Castro and Stroessnercompared 617 enormous patronage network for loyal Colorados. Party headquarters became the central agency for public sector sinecures. In a poor country like Paraguay, a good job in the burgeoning popular sector engendered loyalty to Stroessner.

As head of this spoils system, Stroessner was the ultimate patronand thus counted on a loyal bureaucracy directly responsive to his policy preferences. With only lip service paid to merit, Stroessner enjoyed almost complete control over tenure, salaries, promotions, pensions and retirement. Party bureaucrats were also required to make mandatory ‘contributions’ to Colorado coffers. Stroessner never relinquished formal command as head of the military that brought him to power in 1954, and he intervened directly in troop movements and promotions of all officers.

Not satisfied with mere obedience, he introduced political criteria (Colorado Party membership) for promotions and assignments, oaths of loyalty to Stroessner personally, and penetration via indoctrination in Stroessner’s thoughts and pronouncements. 56 As a counterweight to the military, Stroessner created a parallel structure; a I,5 00 man elite presidential escort regiment of heavily armed soldiers, each carefully screened by the secret police before being allowed to join. 7 Ameliorating Stroessner’s totalitarian leanings, however, was the absence of any ideological imperative to restructure society and values as in Castro’s Cuba. Moreover, while mirroring Castro’s almost complete domination over the regime he headed, loyalty to Stroessner was not based on any comprehensive and intellectually elaborate ideology or charisma, but rather on a mixture of fear and rewards threatened and offered to his collaborators.

Linz terms this form of leadership ‘patrimonialism’ whereby the binding norms and relations of bureaucratic administration are constantly subverted by the personal arbitrariness of the ruler. 58 Loyalty to Stroessner by core regime elites – party hacks, bureaucrats, cabinet ministers and army officers -was ultimately based on the establishment of personal, reciprocal ties of faithfulness and obligation. Anthropologist George Foster calls these clientelistic relationships ‘dyadic contracts’ that ‘tie people… of significantly different socioeconomic status (or orders of power), who exchange different kinds of goods and services’.

Lower ranking members of the contract anticipate protection, See, for example, Dr Augusto Moreno, La epocade Alfredo Stroessner: Valoracionpolitica, histdricayfilosofica(Asunci6n, I966); Ubaldo Centuri6n Morinigo, Stroessner,defensorde las instituciones democrdticas (Asunci6n, I983); Alfredo Stroessner, Politicay estrategiadel desarrollo(Asunci6n, 1986). 57 This personal Presidential Escort Regiment fought the motorised Cavalry Divisions headed by General Andres Rodriguez in the coup of 3 Feb. I989. Approximately 300 men from both sides died in the fighting. 8 Linz, ‘Totalitarian and Authoritarian Regimes’, pp. 259-63. 56 6 8 Paul C. Sondrol economic aid and security while higher status members of the dyad expect fealty, deference and service. 59 These interweaving clientelist links characteristic in Latin America are an authoritarian theme of Paraguayan political culture, intersecting at the apex of the national authority structure under Stroessner’s dictatorship. Frederick Hicks argues that emphasis on reciprocal loyalties and It obligations forms the basis for caudillismo. ad been transcended in most of Latin America by 1870, but continued under Stroessner, featuring personalist rule supported and maintained by the creation of a loyal following of retainers rewarded by ‘… wealth or the power to bestow patronage through control of access to the sources of wealth’. 60 Cronyism, corruption and contraband were essential components binding subordinates to Stroessner. Lacking the ideological consensus found in Castro’s Cuba, Stroessner substituted more materialistic inducements for loyalty.

Moreover, unlike high-profile, accessible (but also easily controllable) and strategic Cuba, Paraguay’s geopolitical position as a small, landlocked, isolated country bereft of great-power investment or Cold War considerations made racketeering a logical consequence. Many high-ranking military officers enjoyed lucrative side interests involving rich sinecures in state monopolies controlling major commercial areas, providing a front for the narcotics, contraband and prostitution trades.

Foreign companies (mostly Argentine and Brazilian) owning close to 80% of the nation’s legitimate large businesses made regular payoffs to Colorado bureaucrats to evade taxes and governmental red-tape. 61 Stroessner’s enormous black market racketeering bought complicity and support from leading figures in the armed forces, businessmen and politicians resulting in elite groups owning a personal stake in Stroessner’s rule and spoils system. An oft-repeated phrase heard in Asunci6n, reportedly turned by Stroessner himself, summed up the nefarious 59 George M.

Foster, ‘The Dyadic Contract’, American Anthropologist,vol. 63 (I96I), pp. idem. , ‘The Dyadic Contract II’, ibid. , vol. 65 (I963), pp. I,281-94. I,173-92; Quotation from p. 1,281. 60 Frederick Hicks, ‘Interpersonal Relationships and Caudillismoin Paraguay’, Journal of InterAmerican Studies and World Affairs, vol. 13 (1971), pp. 89-i i. Quotation from p. 99. 61 General-President Andres Rodriguez, long a Stroessner intimate before turning on him, is considered by law enforcement authorities to be Paraguay’s No. I drug trafficker.

See The Arizona Daily Star, 5 Feb. i989. The assassination of deposed Nicaraguan dictator Anastasio Somoza was rumoured to be linked to a faction of the officer corps surrounding Rodriguez, for Somoza’s parvenu involvement in the military’s international cocaine trade. See COHA’s Report on the Hemisphere,30 Sept. 1980. For more on military corruption, see Washington Carlos Maria Lezcano G. , ‘Lealtad al General-Presidente’, InvestigacionesSociales EducacionComunicacion ISEC, vol. 6 (Asunci6n, 1986), p. 3. Castro and Stroessnercompared 619 hilosophy thus:’ It is necessary to foment criminality, because criminality produces complicity and complicity produces loyalty’. 62 Conclusion The Stroessner and Castro dictatorships offer parallels merging Latin American authoritarian, totalitarian and caudillorule. Both Stroessner and Castro were and are the critical fulcrums of their respective regimes. Both autocrats cultivated a personality cult, fanatical following and dominated a single, official mass-based political party organised along personalist lines.

Beyond these similarities, however, the two dictators diverge. Castro is a pure totalitarian. Stroessner was largely authoritarian, yet a protototalitarian urge pervaded his rule. Castro remains the charismatic, visionary ideological strongman. Stroessner possessed no ideology beyond social conservatism, rabid anti-Communism, maintaining and increasing his power. Castro is needed, not just as a person, but as a function to sit at the centre of his movement, to guide, give shape and lend it legitimacy. Stroessner’s ‘function’ was Stroessner in power and little else.

Loyalty to Castro is based on a blend of revolutionary, public-spirited ideological utopianism and caudillismo, creating a psychological and emotional identification between leader and followers. In Stroessner’s but also corruption, bound elites together in felonious regime, caudillismo, via a notorious web of clientelistic ‘contracts’. And yet, the complicity political backwardness and traditions of Paraguay afforded Stroessner’s predatory sultanism a degree of popularity with the very masses repressed by his retainers. Castro conforms to the larger, general totalitarian taxonomy.

He evokes leadership comparisons with Hitler, Mussolini, Mao or Stalin. He is Cuba’s charismatic maximum leader and continues to dominate a political system largely his own creation and bearing his indelible stamp. Revolutionary Cuba without Castro is almost inconceivable; no better measure of his influence exists. Stereotypes of Stroessner’s long rule abound, but are largely inaccurate as no perfect analogy to his dictatorship exists. The Stronatowas never a military junta or faceless bureaucratic-authoritarian dictatorship.

Neither the collective Paraguayan military nor the Colorado Party ruled Paraguay: Stroessner ruled. Stroessner was not simply primus inter pares within an oligarchy; he was a personalist dictator, totally dominating the political regime. Stroessner even appeared relatively popular for an authoritarian 62 Robert J. Alexander, ‘The Tyranny of General Stroessner’, Freedom at Issue, vol. 41 Quotation from interview with journalist and author Guido (1977), pp. I6-I7. Rodriguez Alcala, 7 June I988, Asunci6n. Translation by author. 20 Paul C. Sondrol autocrat. Mass acceptance of Stroessner stemmed from Paraguay’s unique authoritarian heritage, Stroessner’s own belief in and manipulation of the nation’s socio-cultural values, his control of a mass-based official party, the penetration and politicisation of the military and corruption binding the regime’s elites. Fidel Castro and Alfredo Stroessner mirror the diametrics of totalitarianism and authoritarianism in ideological orientation, role conception, and the public versus private ends of dictatorship.

Examination reveals how they intersect as unique examples of personalist dictatorship in Latin America. Analysis of Stroessner, in particular, implies that totalitarian and authoritarian dictatorships are relative rather than absolute concepts. Stroessner’s regime inched towards totalitarianism, but the rudimentary nature of the political system, the limited pluralism and parameters of custom and convention conspired to render it authoritarian in actual application. Dictatorships are ‘more’ or ‘less’ totalitarian.

Instead of Platonic ideals or rigid typologies, research should focus on directions, impulses and trends. This, however, is not to deny the valuable purpose totalitarianism serves in comparative analysis. Simply calling Castro’s or Stroessner’s ‘personalist’ or ‘single-party’ regimes utterly fails to capture the distinguishing features of such systems, other than their being autocracies. Totalitarianism continues to distinguish dictatorships such as Castro’s and Stroessner’s, but in these cases, less in kind than in degree.

The Tata Group

WORKING PAPER: 06-03 Mar. 2006 The Tata Group after the JRD Period: Management and Ownership Structure by Ram Kumar Kakani & Tejas Joshi XLRI, Jamshedpur 831001, India E-Mail: [email protected] ac. in Last updated in Feb. 2008 Electronic copy available at: http://ssrn. com/abstract=889394 XLRI Working Paper: 06-03 2 The Tata Group after the JRD Period: Management and Ownership Structure1 Ram Kumar Kakani & Tejas Joshi E-Mail: [email protected] ac. in Abstract Complex ownership structures are a common phenomenon across Asian business groups.

There has been a large amount of international work focusing on the various aspects of ownership structures and strategies adopted by international business groups. In the Indian literature, we found little work, especially with respect to case studies. In this paper, we use public information of a well known business group (the Tatas) passing through a major restructuring and document the development of ownership structure. The country’s second-largest conglomerate, the Tata group, with year 2005 revenue of over Rs. 0,000 crores (US$ 20 billion) and core interests ranging from steel, cars and telecommunications to software consulting, hotels and consumer goods, ¬has come a long way since JRD Tata passed the leadership mantle to Ratan Tata, in 1991. We examine the interrelation of ownership structure, corporate strategy, and external forces for one of the largest conglomerate from India. In all Tata group affiliates, control is enhanced through pyramidal structures, and cross-holdings among affiliates.

This case study on the oldest business empire also explores the rationale behind these moves and examines the tensions and complementarities between stronger ownership ties among group affiliates. While bridging ties among group affiliates does benefit the new leadership in creating a more cohesive business group yet the findings hold enough water to conclude that these moves are contradictory to the interests of the minority shareholders in the individual operating companies (i. e. , its own affiliates).

Key Words: Business Groups, management control, conglomerates, ownership structure, cross ownership, cash flow rights, corporate governance, agency costs, India, and pyramids. The authors would like to express that the discussion and analysis mentioned herein is purely for academic purposes with no other intentions whatsoever. The author wishes to acknowledge the feedback from S Rajagopalan, Dr. Jittu Singh, Dr C Krishna Kumar, Dr Pingali Venugopal, Dr. Parthasarathi Banerjee, and Dr. Rajeev Sharma. The views from seminar participants (at XLRI Jamshedpur and IIM Kozhikode) have also helped.

However, the views mentioned in the paper are personal. 1 Electronic copy available at: http://ssrn. com/abstract=889394 XLRI Working Paper: 06-03 3 The Tata Group after the JRD Period: Management and Ownership Structure || “One hundred years from now, I expect the Tatas to be much bigger than it is now. More importantly, I hope the Group comes to be regarded as being the best in India — best in the manner in which we operate, best in the products we deliver, and best in our value systems and ethics. Having said that, I hope that a hundred years from now we will spread our wings far beyond India … ? Ratan Tata 2 || 1. Introduction A pleasant December evening breeze blew through the Jubilee Park of Jamshedpur3. Reputed businessman, Mr. Satyanarayana Bansal4 was on his usual evening walk, part of his life style for over four decades. Bansal, a retired Tata Steel employee had come to Steel City after graduating in Metallurgy from the illustrious Indian Institute of Technology (IIT) Kharagpur. Thus, began his life long stint with the Tata Group, and his affection for Steel city which made him take a decision to settle here.

Bansal was a member of the old guard and had seen winds of change at the helm and across the group during his career. He had seen the successes, failures, achievements and controversies that had encircled the group for over half a century. During the walk, Bansal was chatting and the discussions spanned a array of topics ranging from politics to the Tata Group. Invariably, Bansal was a storehouse of insights into the Group, its culture, its philosophy and anecdotes of course. But this December evening was slightly different, in the sense of the experiences Bansal was sharing.

His voice had a serious and nostalgic undertone to it. He was sharing his perspective on the transition of the Tata Group; on what he felt was not the same about it as before. As the sun set past the horizon, Bansal smilingly said, “The Tata Group has just started doing business” Perhaps this statement had a deep rooted meaning that probably S. Bansal put forward in a very subtle manner. Did he mean that the group had started deviating from its corporate values and ethical standards for which it was respected for over a century?

We had been reading news articles about the Tata Group changes for quite a few years now. There was definitely something more to it than met the eye. We decided to take this in more detail especially at the changes the group had undergone in the last decade. 2 3 From the website, http://www. tata. com/0_about_us/management/chairmans_chamber/index. htm (Dec. 2007) Jamshedpur is a beautiful city in the eastern part of India, created by the Tata group. This incident was in the year 2005. 4 Names have been changed to protect confidentiality. XLRI Working Paper: 06-03 4

We use the following path to discuss our case analysis based research work: In section 2, we review the existing literature on ownership structure of business groups with respect to cross ownership and pyramids. Section 3 gives an overview of the Tata group; it also describes the recent changes and the restructuring exercise under the new leadership. In Section 4, we present the empirical data and an analysis-cum-discussion of the findings. The data and information we use has been obtained from very reliable sources such as CMIE-PROWESS package, websites of stock exchanges5 and the Tata Group.

To draw inferences we also make use of the interviews and articles on the Tata group in reputed Indian magazines such as Business World, Business India, and Business Today. All these data sources have been used extensively by researchers in India and hence are highly trustworthy. We end our paper in Section 5 with our conclusions and limitations of the study. 2. Literature Review Introduction to Cross Holdings Sinha (1998) argued that cross holdings have economic significance and must be taken into account in both equity investment and lending situations.

Cross holdings and the stability of relationships that result, probably allow Japanese and Korean companies to adopt a longer-term perspective in their decision making, than is possible in the US. They concluded by stating that cross holdings increase the debt bearing capacity of firms and should not be completely eliminated during credit analysis. Khanna and Palepu (2000) presented an empirical analysis of diversified Indian business groups in relation to corporate scope and institutional context.

The performance of firms affiliated with diversified business groups with unaffiliated firms in the emerging economy of India is compared. The authors interpret their findings to suggest that concentrated owners generally do not seem to affect performance positively, as evocative evidence that groups might have settled into quiet life equilibrium. Commenting on Japanese keiretsus, Tam (2001) stated that the new accounting standard puts a dent in corporate cross holdings – the glue holding many of them together.

It mentions how cross holdings have traditionally provided companies with a base of stable shareholders; preventing takeovers and shielding management from shareholder pressure. This has contributed to Japanese companies’ low emphasis on dividends, shareholder meetings and investor relations in general along with less float (in their securities) leading to illiquidity and price volatility. Companies are now under pressure to revalue cross holdings and sell off those cross holdings whose stock prices have underperformed in order to improve their balance sheets.

Using a twelve year empirical study on 240 Indian business groups, Kakani (2002) found that diversified Indian conglomerates destroy shareholder value and have poor financial performance compared to the focused business groups. The work commented on the complex web of cross Websites of the National Stock Exchange (www. nseindia. com), the Mumbai Stock Exchange (www. bseindia. com), and the securities regulator, SEBI website (www. sebi. gov. in) 5 XLRI Working Paper: 06-03 5 holdings of diversified conglomerates and resulting lack of transparency being one of the prime drivers behind the results.

Patel et. al. (2002) studied the relationships between Transparency & Disclosure scores and crossholdings for 19 emerging markets including India. For most of the countries including India, correlation between cross-holdings and Transparency & Disclosure (T&D) score is negative, whereas correlation between price-to-book ratios and T&D scores is positive. This might imply that groups with complex cross holdings are not as transparent in their dealings and so their stocks may be lower priced in the marketplace by the investor community as compared to those of independent firms.

Clark and Wojcik (2005) using German corporate data found a significant negative relationship between ownership concentration and the average daily rate of return (as measured by closing stock market prices). A reason mentioned in the paper for this was that the portfolio investors are concerned about the potential for exploitation – that is, the likelihood that their place as minority shareholders and largely passive owners at that may be exploited by other better placed owners with greater access to private information.

One can conclude the above literature discussion has an overwhelming support on the negative effects of Cross Holdings. If we combine the above literature review with the statement made by S Bansal then it raises a storm of questions in ones mind. Suspicions on the concurrency between the words and actions of the most revered business house in India need a very objective method of evaluation. 6 3. The Tata Group The House of Tatas is one of the oldest business groups in India. Not many Indians would need an introduction to the House of Tatas.

The group is largely operated through a holding company, namely, Tata Sons. We provide a brief historical overview and then proceed with describing the recent restructuring exercise and other changes made. 7 Established by Jamsetji Tata in the second half of the 19th century, the Group has grown into one of India’s biggest and most respected business organizations, largely due to the entrepreneur’s vision, their commitment, and its fortitude in the face of adversity (Lala, 2004). Of the ventures that did bear fruit while Jamsetji was alive, the Taj Mahal Hotel in Bombay has to rank highest.

Legend has it that Jamsetji set his mind on building it after being denied entry into one of the city’s hotels for being an Indian. His sons, friends and business associates were sceptical. His sisters chided him by asking, “Are you really going to build a eating house? ” The Taj turned out to be a bit fancier than that. Soaked in luxury, it was the first building in Bombay to use electricity One also needs to appreciate the researchers’ constraint regarding access to information and data. Usually the data and information available within the public domain about such controversial issues is very limited.

In fact, a similar work on other major groups (say, Reliance group) would be much more difficult as most of the data is kept in a veil of secrecy. 7 A large amount of literature work in Indian business history and corporate strategy has researched into the Tata group. For an excellent reading on the Tata groups, see, Khanna and Palepu (1998), Lala (1995), and Piramal (1998), 6 XLRI Working Paper: 06-03 6 and the first hotel in the country to have American fans, German elevators, Turkish baths, English butlers and whole lot of other innovative delights. In 1938, JRD Tata was elevated to the top post in the Tata Group, taking over as chairman from Sir Nowroji Saklatvala. He was the youngest member of the Tata Sons board. Over the next 50odd years of his stewardship the group expanded into chemicals, automobiles, tea and information technology. Breaking with the Indian business practice of having members of one’s own family run different operations, JRD pushed to bring in professionals. He turned the Tata Group into a business federation where entrepreneurial talent and expertise were encouraged to flower.

JRD Tata9 JRD Tata was born in Paris in 1904, the year Jamshetji died. JRD’s education was constantly interrupted and at twenty-one when he came to settle in India, his father, a director of Tatas, took his son to the room of John Peterson, who was then director in-charge of Tata Steel. Thus began JRD’s training and his tryst with business. At the age of thirty four, he was made chairman of Tata Sons. Right from the beginning JRD stamped his style of working on the organization. He started the process of devolution of power for the democratization of the Tatas.

JRD hand picked many of the Tata company chairmen. He was also at the helm during the nationalization of many Indian businesses like Tata Airlines (1953) and the insurance arm of the Tatas, the New India Assurance Company (1971). Even as the Tata companies became legally independent under the dismantling of the managing agency system in 1970, a semblance of unity was maintained by a network of intercorporate shareholdings, weekly cross-company directors’ meetings and JRDs dynamic personality and moral force.

JRD once commented after the abolishment of the managing agency system, on his role as chairman of the company: “My being chairman (of Tata Sons) today is very different from what it was before 1970, when the managing agency system operated … Today the companies are free to operate independently and in fact they do. Today, except in Tata Sons I do not wield any kind of executive authority. But because I am senior in age, I operate more on the basis of influence and confidence … … There is something absurd in so far as we have no more interest than any other shareholder in most of the companies.

We get nothing extra for managing them. For example, till 1978, 90 percent of my time went between Air-India and Tata Steel as the chairman of both, and what did Tata get out of it? In Tata steel we are only shareholders like any other and … we get nothing. ” JRD encouraged his hand picked chairmen to operate their companies autonomously within the perimeters of the Tata philosophy of professionalism and ethical business practices. As a result, chairmen of larger Tata affiliates had grown accustomed to ruling their domains without 8 9 Refer to www. tata. com for more details.

Harvard Case Study: House of Tata, 1995: The Next Generation and Creation of Wealth by R M Lala XLRI Working Paper: 06-03 7 interference from the Tatas for decades. Although these affiliate commanders all traded on the Tata name – one of the most respected brand names in India – they cherished their independence and vehemently protected their empires. Under JRD Tatas leadership the group professionalized management to a degree that a few other indigenous business houses had done. JRD Tata was a consensus man, and the emotional glue which held all the group companies together. Ratan Tata10

Ratan Tata, the son of one of JRDs cousins was an open trusting man and a shy soft spoken individual. He was called back from the US in 1962, where he worked as an architect, in order to work for the Tatas. In 1981, he was elected as chairman of Tata Industries Ltd (TIL), which he was to turn around from a small company into a group strategy think tank. Ratan’s 1983 “Tata Strategic Plan” would place TIL as the group’s vehicle for growth in high technology businesses in four areas (advanced electronics, biotechnology, advanced materials, and alternative energy) and would gradually phase out ‘sunset’ businesses like textiles and cooking oil.

Other goals included increasing Tata ownership in group companies, and exploring joint ventures in the government. However the implementation of the “Tata Strategic Plan” was held back by the Tata culture of independence – the various Tata company chairmen, who collectively held TIL’s entire share capital, were unwilling to fully support Ratan’s plans. In March 1991, Ratan was nominated by JRD to the Tata Sons chair. Ratan found himself as the head of a conglomeration of companies, that were described by one Tata director as “no longer existing as a group except in their culture and name. It is only because of the financial institutions which are the major shareholders that Tata management is allowed in these companies. ” Ratan’s first major challenge was to consolidate a group of individual companies which, under powerful chairmen or managing directors were going their own way. Ratan changed the retirement age for the chairmen and managing directors to tackle this issue. His victory against Russi Mody reinforced his position as the man in command of the situation and won him the respect and trust of many of the group company’s stalwarts. 1 Ratan Tata’s Strategies12 Ratan Tata implemented a number of strategies to unite, refocus, and modernize the group. We shall have a brief look at five significant strategies: The revival of Tata Administrative Services (TAS) TAS, a department of Tata Services Ltd. had been recruiting talented individuals for management career acceleration in group affiliates since the 1950s. TAS had been successful compared to other domestic companies in retaining people but the prestige had waned somewhat in recent years.

Ratan promoted TAS as a ‘premium career’ and elevated the program’s status among up-andcoming business leaders through media exposure. TAS was to become a group talent resource by 10 11 Harvard Case Study: House of Tata, 1995: The Next Generation and Creation of Wealth by R M Lala http://www. indiareacts. com/columns/full_column5. htm 12 Harvard Case Study: House of Tata, 1995: The Next Generation and Creation of Wealth by R M Lala XLRI Working Paper: 06-03 8 enlarging the program and improving the mobility of TAS participants among group companies.

New TAS recruits (mostly MBAs) were to work in a range of industries in the group. The compensation packages offered to TAS recruits were also redesigned to match the market rates. These efforts to revive TAS and make it a destination of choice for talent paid off well for Tata Sons and all the group companies which opted to participate in the TAS program. The Jardine Matheson deal Ignoring the concern of many experts over the entry of foreign firms into the Indian industry, Ratan sold a 20% stake in Tata Industries Limited (TIL) to the colossal Hong Kong based Jardine Matheson group for Rs. 1. 6 billion. Ratan planned to use this capital influx to fund venture start ups promoted through TIL. Although Jardine probably would not receive a dividend for 5 years it had the same rights as the other Tata companies: to occupy a TIL board seat, to be involved in project planning and to invest in new projects promoted by TIL. Ratan anticipated that Jardine would contribute expertise in a wide range of businesses activities, such as retailing and distribution, real estate, hotels, engineering, construction, and financial services. A Jardine associate described Ratan as a careful planner and thinker.

The Tata Brand Ratan Tata decided that the group needed a stronger collective identity. The principal move Ratan considered was to undertake the responsibility of promoting a unified Tata brand which could be used by all companies which would subscribe to the Tata Brand Equity scheme. Each company that subscribed to the scheme would derive the benefits of the centrally promoted Tata brand. Ratan proposed that the subscribing Tata companies each pay a contribution, the amount of which would depend upon each company’s association with the brand. Contribution would range from 0. 0% to 0. 25% of each company’s net income excluding taxes and non-operating. 13 Participating companies would require subscribing to a code of conduct ensuring uniformly high standards of quality and ethical business practices. 14 Tata Sons planned to use the fee money to build a national and later international group brand image by emphasizing on the core values and ethics, largely through advertising. Tata Sons estimated that meaningful domestic brand promotion would cost around Rs 300 million per annum, much more than the commission collected.

The board of directors of various Tata companies passed a resolution in 1995 in accordance with this arrangement. However the scheme generated debate in the media. Some Tata shareholders resented Tata Sons’ attempt to assert itself beyond the limits of an ordinary shareholder; and a few others went so far as to say that the Tata name had not necessarily been the reason for the success of their companies. 13 Fee schedule: right to use the Tata name in both company banner and products, 0. 25%; right to use the Tata name in either the company banner or products, 0. 5%; right to be perceived as a Tata company, 0. 10%. 14 Inclusion under the Tata Brand Equity Scheme was subject to two qualifiers wherein the company must be a signatory to the group’s code of conduct and comply with the Tata Business Excellence Model (TBEM). Group firms would reportedly be evaluated on the seven critical criteria that comprise the TBEM – leadership, strategic planning, customer and market focus, information and analysis, process management, human resource focus and business results.

Participating companies would be eligible for recognition with the JRD Quality Value award modeled after the Malcolm Baldrige National Quality award in the USA. XLRI Working Paper: 06-03 9 Restructuring Ratan’s views on restructuring, shortly after taking over, “I think we were in many more areas than we should have been in and we were not concerned about our market position in each of those businesses. I think the needs today are that we define our businesses much more articulately and that we remain focused rather than diffused, and that we become more aggressive than we used to be. The objectives for restructuring were defined clearly. These included: (a) Returns must be greater than cost of capital; (b) Each company must be the industry leader occupying one of the top three positions; and (c) The business identified must have potential for high growth and should be globally competitive. Having decided on these objectives, there were clear strategies for exits and entries. There was a break from the earlier sentimental approach to businesses that have been built over decades.

Ratan Tata decided to exit the businesses of soaps and toiletries, cosmetics, consumer electronics, pharmaceuticals, computer and telecom hardware, branded white goods, paints, oil exploration services, cement, textiles … equally fervent was his expansion/entry into businesses identified as having high growth potential. These included passenger cars, auto components, retailing, telecom, power and insurance. Appendix 1 gives a list of businesses the group entered and quit. Injecting Capital in Tata Sons Through its primary holding company i. e. Tata Sons, the Tatas held minority shares in group companies ranging from 0. 01% to 15%. In order to increase its stake in its affiliates, Tata Sons15 determined that they would need to raise a total of Rs. 7 billion in 1995-96, to realize a 1 percent increase in stake in each of the major Tata companies. To raise the necessary funds Tata Sons invited subscriptions to a Rs. 3 billion rights issue on September 1995. The shares were made available to Tata group affiliates (at a premium) through the renunciation of shares by various charitable trusts (having the rights). 6 The additional money would be raised by internal generation, debt, and other strategies. While it was legal for Tata group companies to purchase Tata Sons shares and vice versa, collusion between the companies to exchange shares would be a violation of law. The media queried Ratan’s plans; concerns stemmed partly from debate that the selling price of Tata Sons shares had been overvalued. From an analyst’s point of view, the deal seemed to lack any benefit for the investing companies. It was estimated that the interest cost on the Rs 3 billion investment would be Rs. 50 million, whereas even a 100% dividend declaration by Tata Sons would yield only Rs. 30 million. Ratan argued that the shares would appreciate immensely if Tata Sons were to go public, and no shareholders had yet officially complained of the illiquid nature of the Tata Sons investment. But one foreign investor admonished the participation of the Tata companies in the 15 16 Pallonji Shapoorji Mistry owned 18. 4% stake in Tata Sons. A few years earlier the Government had adopted a regulation forbidding public charitable trusts from investing in the private corporate sector. XLRI Working Paper: 06-03 0 Tata Sons rights issue thus, “…This (diversion of capital) won’t do the Tatas any good”. There was a lot of criticism from various media writers. 17 4. Findings and Discussion Tata Sons and Group Companies Cross Holdings We now look at the Tata group holding company i. e. , Tata Sons and some of their big affiliate’s corporate characteristics especially with respect to their changing cross holding ownership pattern. Table 1: Ownership Structure of Tata Sons Stakeholder Stake FY 9418 Tata Trusts 78. 0% Tata Group Affiliates Not Available (but much less than 1%) P. S. Mistry 17. 5% Tata Family 3. % Stake FY 05 65. 9% 12. 8% 18. 4% 2. 9% 17 18 See, for example, Sucheta Dalal’s writings in the Financial Express newspaper. Estimates based on a Business World Article and other references. Business World is a reputed Magazine from India. XLRI Working Paper: 06-03 11 Table 2: Increase in Cross Holdings after the Tata Sons Rights Issue in FY96 (Rs in million) Tata Sons Financial Numbers Major group Value of Tata Sons stake in group companies Tata Sons companies19 shares bought by companies Parameter FY 96 FY 05 FY 96 FY 95 FY 96 FY 05 Book value 8,990 80,350 Tata Iron & Steel 688 2. % 8. 5% 19. 8% Market Value 19,900 n/a Tata Motors 688 1. 8% 2. 7% 21. 9% Paid up Capital 179 404 Tata Power 370 5. 6% 6. 3% 28. 7% Reserves 6,236 79,286 Tata Chemicals 569 7. 9% 8. 2% 11. 2% Tata Tea n/a 7. 6% 8. 6% 14. 7% Indian Hotels 250 13. 3% 13. 3% 12. 3% Note: (a) All amounts in Rs millions; (b) Year ending is 31st March As seen in table 1, the ownership structure of Tata Sons has changed after the rights issue.

Although information about exactly how many companies invested in Tata Sons and to what extent was difficult to get, but we have enough data to conclude that the major companies did subscribe to the rights issue as can also be seen from the tables 1 and 2 above. The route followed by Tata Sons to increase their shareholding was the creeping acquisition20 route from the market. The rights issue followed by a creeping acquisition of shares in group affiliates was a crucial step in the overall strategy to increase the cross holdings between Tata Sons and group concerns.

It does provide Tatas a lot of comfort by increasing their management control and also in avoiding hostile takeover battles. But, if we combine information of Table 1 with the information of Table 2, we observe that there is a need for scrutiny. It was using the independent company shareholders money (herein, Tata Group affiliates) to increase Tata Sons stake in the company itself. Consequently, Tata Sons used this money to increase their stake in these Tata Group affiliates. 21 19 In March 1991 the shareholding pattern was even lesser.

As per BSE Official Directory, the Tatas combined shareholding in March 1991 in Tata Steel was 7. 5%, Tata Motors was 15. 3%, and Tata Power (erstwhile Tata Electric Companies) was 1. 7%. Worse was the situation in 1988 when the stake of Tata group in Tata Steel was a mere 3% (Khanna, 2001). 20 Creeping Acquisition is a process in which the promoters of a company who hold less than 50% of its shares, increase their stake by buying 2% of the company’s equity (the maximum permissible) each year, until they have acquired a majority stake, either by making an open offer to the share holders, or buying from the open market.

In 1998, the securities regulator, SEBI decided to increase the creeping acquisition limit of promoters to 5% and also allowed promoters to increase their stake using this route to a maximum of 75% (earlier 51%) in a company. In 2002, SEBI decided to curtail the availability of the creeping acquisition route to promoters who hold more than 55 per cent in a company (from the earlier 75%). 21 One way to argue in favor of cross holdings is to state that this benefit will give access to the affiliate company shareholders by giving them access to the upside of high growth Tata affiliate concerns such as Tata Consultancy Services.

This they would receive by way of dividends declared by Tata Sons in future (after the rights issue). But, the counter argument would remain that portfolio diversification of assets and investment management can be done by an individual/institutional investor on their own (or by investing in the mutual funds). XLRI Working Paper: 06-03 12 Group Companies Increasing Investment Activities Now we go through related financial numbers of major Tata group affiliates over the past fifteen years.

Table 3: Group Dealings of Tata Motors (Rs. in millions) 1991 1995 2000 2005 Receivables from group companies 27 724 3,771 5,468 Investment in group companies 0 1,909 2,874 19,422 (mainly Tata Steel and Tata Finance) Sales 25,508 56,403 87,309 202,765 PBDIT (Profit before Depreciation, Interest, and Tax) 3,704 7,527 9,243 23,369 Assets 16,975 41,369 90,028 139,946 Net Worth 5,831 14,203 37,541 41,113 Receivables from group companies as a percent of Sales 0. % 1. 3% 4. 3% 2. 7% Investment in group companies as a percent of Assets 0. 0% 4. 6% 3. 2% 13. 9% Investment in group companies as a percent of Shareholders Funds 0. 0% 13. 4% 7. 7% 47. 2% As per table 3, Tata Motors has performed well in sales growth over the years. Its investments in group companies has risen phenomenally over the period which points to increasing stakes in other group associates. Table 4: Group Dealings of Tata Steel (Rs. n millions) 1991 1995 2000 2005 Receivables from group companies 106 60 330 6,900 Investment in group companies (mainly Tata Motors, 405 2,057 6,077 13,897 Tata Power & Tata Construction & Projects) Sales 21,922 45,487 74,988 167,270 PBDIT (Profit before Depreciation, Interest, and Tax) 4,861 7,909 12,919 61,659 Assets 33,854 77,845 121,198 166,959 Net Worth 14,241 26,880 53,449 70,599 Receivables from group companies as a percent of Sales 0. 5% 0. 1% 0. 4% 4. 1% Investment in group companies as a percent of Assets 1. 2% 2. 6% 5. 0% 8. 3% Investment in group companies as a percent of Shareholders Funds 2. 8% 7. 7% 11. 4% 19. % Tata Steel is the most important company in the group apart from Tata Motors. As seen from table 4, sales and profits have grown consistently over the period. Tata Steel has generated substantial amount of funds from internal sources to fuel its expansion plans. External funds are miniscule compared to internal funds. Receivables from group companies have risen consistently over the period, which may be seen as leeway to group companies. Investment in group companies has also gone up substantially over the period which reflects the groups strategy of increasing the cross holding between the group companies to thwart hostile takeover bids.

XLRI Working Paper: 06-03 13 Table 5: Group Dealings of Tata Power (Rs. in millions) 1991 1995 2000 Receivables from group companies 0 54 2,058 Investment in group companies 0 1,922 3,690 (mainly VSNL & Tata Teleservices) Sales 4,740 10,599 14,046 PBDIT (Profit before Depreciation, Interest, and Tax) 791 3,082 5,435 Assets 6,510 21,539 36,806 Net Worth 2,309 10,445 18,565 Receivables from group companies as a percent of Sales 0. 0% 0. 5% 14. 7% Investment in group companies as a percent of Assets 0. 0% 8. 9% 10. 0% Investment in group companies as a percent of Shareholders Funds 0. % 18. 4% 19. 9% 2005 1,087 20,206 39,565 12,335 93,862 51,364 2. 7% 21. 5% 39. 3% Tata Power has shown a huge jump in sales and profits in the last five years due to the merger of the three power companies and this is also the reason for a substantial jump in its total assets, net worth and gross fixed assets over the last five years. Merger has led to decrease in its group receivables. We also observe from table 5 its ten fold increase in its investment activities (in group associates) in the last one decade. Table 6: Group Dealings of Tata Chemicals (Rs. n millions) 1991 1995 2000 Receivables from group companies 83 73 0 Investment in group companies 2 996 1,981 (mainly Indian Hotels & Titan) Sales 2,994 4,983 15,194 PBDIT (Profit before Depreciation, Interest, and Tax) 1,316 3,655 4,924 Assets 10,417 23,296 34,575 Net Worth 3,345 8,249 16,931 Receivables from group companies as a percent of Sales 2. 8% 1. 5% 0. 0% Investment in group companies as a percent of Assets 0. 0% 4. 3% 5. 7% Investment in group companies as a percent of Shareholders Funds 0. 0% 12. 1% 11. 7% 2005 0 3,876 30,979 6,728 45,919 19,978 0. 0% 8. 4% 19. 4%

Table 6 also depicts a similar story of good sales and profits growth in Tata Chemicals. Investments in other Tata affiliates again are very much in line with our overall hypothesis of increasing cross holdings. XLRI Working Paper: 06-03 14 Table 7: Group Dealings of Tata Tea (Rs. in millions) 1991 1995 Receivables from group companies 138 120 Investment in group companies (mainly Tata Chemicals, 226 1,207 Tata Investment Corp , Titan & Tata Coffee) Sales 2,943 3,991 PBDIT (Profit before Depreciation, Interest, and Tax) 1,061 1,085 Assets 3,593 5,467 Net Worth 1,628 2,888 Receivables from group companies as a percent of Sales 4. % 3. 0% Investment in group companies as a percent of Assets 6. 3% 22. 1% Investment in group companies as a percent of Shareholders Funds 13. 9% 41. 8% 2000 6 5,990 9,133 2,201 13,526 8,521 0. 1% 44. 3% 70. 3% 2005 358 7,804 8,930 2,057 15,402 10,489 4. 0% 50. 7% 74. 4% Tata Tea has increased its sales and profits over the period (see table 7). As seen in FY2005, the investment in group companies is more than three times its PBDIT which possibly indicate that the company is not getting much benefit from such an investment and this move is actually hurting shareholder interests.

This can be considered as something which is not in line with good corporate governance practices. Table 8: Group Dealings of Indian Hotels (Rs. in millions) 1991 1995 Receivables from group companies 34 20 Investment in group companies 30 303 Sales PBDIT (Profit before Depreciation, Interest, and Tax) Assets Net Worth Receivables from group companies as a percent of Sales Investment in group companies as a percent of Assets Investment in group companies as a percent of Shareholders Funds 1,563 367 2,325 716 2. 2% 1. 3% 4. 2% 2,983 981 3,606 1,856 0. 7% 8. % 16. 3% 2000 2,043 3,364 6,186 2,043 15,644 9,590 33. 0% 21. 5% 35. 1% 2005 6,435 5,617 8,880 2,538 26,102 11,282 72. 5% 21. 5% 49. 8% Table 8 gives the numbers for Indian Hotels. The picture depicts that the company has the highest group dealings. The receivables from group companies and also the investment in group companies have increased to a huge extent over the last ten years. Receivables from group companies stand at above 70% of the sales of the company. One needs to probe these numbers to make further conclusions on Governance related aspects.

Appendix 2 gives similar financial numbers for other smaller Tata group affiliates, namely, Voltas (table 9), Titan (table 10), Rallis (table 11), Tata Metaliks (table 12), Tata Tinplate (table 13), Tata Sponge Iron (table 14), and Tata Coffee (table 15). The picture is very similar for companies which are making profits such as Voltas but for companies which are struggling such as Rallis we XLRI Working Paper: 06-03 15 find that there are no investments in group affiliates. There are extreme cases, for example, Titan’s PBDIT has decreased while its intra-group investments have increased.

Turnaround companies such as Tata Tinplate, Tata Metaliks, and Tata Sponge Iron (which have just started having good numbers) have also made a modest beginning by investing in group companies. Due to lack of sufficient history, we have not presented the numbers of some large Tata affiliates such as Tata Consultancy Services, and Trent. Trends in Dividends of Tata Group Companies Another way of looking at the whole issue could be from the benefits perspective of a long-term minority shareholder in one of these large Tata group affiliates.

Table 16 tracks down the dividend payments of some of these Tata group affiliates: Table 16: Annual Dividend Per Share Payments of Tata Affiliates (as a % of the Par Value) Year 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Indian Tata Tata Tata Tata Tata Hotels Steel Motor Power Chem Tea 55 75 85 85 85 85 100 80 70 80 100 35 45 45 40 40 40 50 40 80 100 130 60 60 80 55 30 25 0 0 40 80 125 30 35 35 37 37 42 50 50 65 70 75 65 65 65 65 50 50 50 50 55 55 65 60 60 65 101 110 101 90 70 70 85 100 Rallis Nelco Titan Voltas TRF 45 10 45 0 45 0 50 0 60 0 60 0 0 0 100 10 0 10 0 0 10 n/a 30 33 33 25 26 26 26 15 10 10 20 35 27. 25 27. 5 0 30 0 35 12 20 12 22 12 26 18 26 25 12 30 26 50 30 Tata Metlik 0 0 0 0 0 0 12 23 25 35 60 Note: These figures are not adjusted for any bonus issues and stock splits22. Source: CMIE-PROWESS and ISI Emerging Markets Database If we compare these dividend payment trends (see table 16) with the trends in the cross investments of these affiliates (tables 3 to 15), one can observe that the increase in cross holding investments by group companies has risen at a much rapid pace compared to the increase in the dividend payments to shareholders.

These differing trends give a hint at the major objective of these organizations and the intent of the group. Capturing the Changes in Cross Holding Structure We observe that the ownership pattern of various Tata group affiliates gives us the increasing indirect holding of Tatas over these companies. Table 17 summarizes the total equity stake held in companies by Tata Group affiliates. The last column shows the change in the number of group companies holding the stake from 2000 to 2005. 22 To our knowledge only Tata Steel has issued bonus shares (recently).

No other listed Tata group company had done bonus issues (or similar non-cash rewards). XLRI Working Paper: 06-03 16 Table 17: Number of Holding Companies for each Group Member and their Total Stake Company Total stake by Tata Group No. of Holding Companies Tata Sponge Tata Metaliks Tata Finance23 Tata Construction & Projects Voltas Indian Hotels Tata Advanced Materials24 Tata Honeywell Tata Coffee Tata Tea Tata Chemicals Tata Investment Corp Tata Power Tata Elxsi25 Tata SSL26 Tata Steel Tata Motors Tata Infotech27 2000 39. 7 46. 7 17. 9 26. 5 25. 0 16. 6 90. 7 20. 8 50. 6 28. 9 24. 2 62. 5 31. 1 38. 1 87. 0 24. 5 23. 74. 8 2005 41. 5 47. 7 87. 7 27. 2 27. 6 30. 0 Amalgamated Sold off stake 50. 7 28. 6 28. 6 60. 6 32. 3 38. 1 Amalgamated 26. 7 34. 2 74. 9 1 –> 2 1 –> 1 1 –> 5 1 –> 2 2 –> 2 3 –> 5 1 –> 1 3 –> 3 3 –> 3 3 –> 6 2 –> 2 2 –> 1 2 –> 2 2 –> 3 1 –> 1 Note: (a) For counting the number of holding companies, we only consider holding companies having more than 1% stake; (b) We have not been able to gather enough information about some other affiliates such as Tata Consultancy Services and Tata Industries. Source: CMIE-PROWESS, and Bombay Stock Exchange Database

Table 17 gives us some more inputs. We observe that the group has largely increased its indirect holding over these affiliates during the five year period. It is also consolidating firms in similar business into one. Secondly, we also observe that the ownership of these Tata group affiliates is becoming more dispersed i. e. , the number of holding companies is increasing. Apart from the primary holding company (Tata Sons), we observe that there are many other Tata group controlled investment firms which are part of this complex holding pattern (say, Tata Industries, Kalimati

During the last five years (2000-05), the Tata group lent Tata Finance around Rs 300 crore, which was converted into equity. Post conversion, the Tata group’s stake jumped to above 85% from 65%. Of the Rs 300 crore that was pumped in, Tata Sons invested Rs 160 crore, while Tata Industries chipped in with Rs 140 crore. In 2005-06, Tata Motors amalgamated Tata Finance with itself. 24 Tata Advanced Materials Ltd was making losses since 1993 and was referred to BIFR in 1999. In 2001, Tata Industries acquired the stake held by public in the company. 5 Tata Sons, the holding company of the group bought out the entire stake held by Tata Industries, the original promoter of Tata Elxsi in 2003. The inter se transfer was part of the group’s plans to integrate all IT companies with TCS. As most group IT companies are likely to be merged into TCS. 26 Tata SSL was amalgamated with Tata Steel in 2003 27 Tata Infotech was merged into TCS on April 2005, although the BSE website still shows it as a separate company. 23 XLRI Working Paper: 06-03 Investments, Aftab Investment Corp, Ewart Investments and Sheeba Properties). 28 17

Now that we have reasonably documented the major changes in the investment patterns of Tata Group and its affiliates, we now go ahead and depict the probable crossholding pattern of the group in the years 2000 and 2005. Figure 1: Structure of Tata Groups Listed Firms during financial year 2000 29 39. 74 Tata Sponge Iron Tata Motors Ltd 4. 68 9. 13 Tata Metaliks Tata Finance Ltd 17. 88 Tata Industries Ltd Tata Construction & Projects Ltd 26. 47 87. 03 2. 87 Tata Power Co Ltd Tata Advanced Materials Ltd 90. 73 15. 37 11. 03 Tata Honeywell Ltd 9. 8 Tata Investment Corp Ltd 15. 7 Tata Coffee Ltd 50. 59 15. 06 6. 14 4. 21 Tata Tea Ltd 7. 68 Tata Chemicals Ltd 10. 14 28. 27 9. 54 8. 69 Tata Telecom Ltd 31. 75 1 2. 4 19. 17 Tata Sons Ltd Tata SSL Ltd 46. 66 Tata Iron & Steel Co 19. 86 18. 98 Tata Elxi Ltd Tata Infotech Ltd 74. 18 14. 17 9. 81 Note: (a) Shown above is the Equity Ownership Pattern of major Tata affiliates having more than 1% as of FY 2000; (b) Tata Sons is the primary holding company of the group. Most of the firms are held by Tata Sons and Tata Industries. The Tatas control 83. 03% in Tata Sons and 74. 18% in Tata Industries.

The ownership structure of Tata group shows signs of both “pyramid” and “cross-shareholding” structures in-group firms. A “pyramid” denotes a hierarchical chain by which a family controls a 28 The available information on shareholding pattern of listed affiliates suggests the following investment companies being active – (a) Aftab Investments: Holdings in Nelco 1. 24%, Tata Investment 3. 01%; (b) Kalimati Investment Company: TRF 1. 56%, Titan 8. 74%, Tinplate Company 1. 24%, Tata Investment 1. 07%, Tata Construction and Projects 14. 07%, Tata Finance 1. 45%; (c) Ewart Investments: Holings in Rallis 1. 5%, Tata Investment Corp. 1. 58%; (d) Sheeba Properties – Holding in Tata Finance 2. 82%. We also find some other entities in the list of persons acting in concert such as Jamsetji Tata Steel, Navajbai Ratan Tata Trust, Sir Dorabji Tata Trust, and Lady Tata Memorial Trust. 29 Taken from a research paper by Jayesh Kumar titled “Capital Structure and Corporate Governance”, XIMB XLRI Working Paper: 06-03 18 firm, and cross holding happens when a controlled firm owns any shares in its controlling shareholder or in the firms along that chain of control (including any indirect means).

The Tata family owns equity in core affiliates (i. e. Tata Industries Limited and Tata Sons Limited which are not publicly traded firms, majority of the stake in these two firms are held by 66 philanthropy trusts mainly headed by Tata family members). In India, cross-shareholding between two firms is common. For instance, Tata Investment Corporation Ltd holds 9. 8% in Tata Chemicals Ltd, and 6. 14% in Tata Tea Ltd, while Tata Chemicals Ltd holds 15. 37% in Tata Investment Corporation Ltd directly. Tata Tea holds 4. 21% in Tata Chemicals Ltd and Tata Chemicals Ltd holds 7. 8% in Tata Tea Ltd. In sum, affiliates have cross investments in each other by owning them singly or jointly (or other means) and the group has control over all these entities with lesser investment of its own. Figure 2: Structure of Tata Groups Listed Firms during financial year 2005 1. 74 39. 74 Tata Sponge Iron Tata Motors Ltd 4. 66 8. 61 9. 26 Tata Finance Ltd 1. 45 12. 41 Tata Construction & Projects Ltd 14. 07 8. 74 Titan Industries Ltd 1. 03 42. 7 Tata Industries Ltd 38. 15 Tata Sons Ltd Kalimati Investment Co 7. 92 31. 75 1. 6 3. 38 1. 07 7. 53 Tata Investment Corp Ltd 15. 37 Tata Coffee Ltd 50. 67 23. 79 15. 06 5. 46 7. 15 Tata Tea Ltd 7. 68 Tata Chemicals Ltd 11. 0 8. 0 3. 11 Voltas 12. 94 Indian Hotels 1. 16 80. 64 2. 87 Tata Power Co Ltd 28. 74 Tata Consultancy Services Tata Metaliks 30. 18 Tata Elxi Ltd Tata Infotech Ltd 74. 18 46. 66 Tata Iron & Steel Co 19. 8 22. 36 2. 06 Note: (a) Shown above is the Equity Ownership Pattern of major Tata affiliates having more than 1% as of Year 2005; (b) Tata Sons is the primary holding company of the group.

Most of the firms are held by Tata Sons, Tata Industries, Tata Investment Corporation, and Kalimati Investment Company. The Tatas control more than 83% in Tata Sons and more than 74% in Tata Industries. Information on the other holding arm, Kalimati Investment Company is not available. XLRI Working Paper: 06-03 19 5. Conclusion One of the enduring themes of the corporate world in the last decade has been the restructuring effort of large corporate houses. The restructuring efforts have been quite high in countries going through the process of liberalization and globalization such as India.

Restructuring efforts in India usually involve issues related to managing the ownership structure for having good management control and also it involves building enough defenses to avoid possible hostile takeover battles. We undertook to study the Tata group as probably the best example of a large Indian business group that has gone through a great deal of restructuring and changes in ownership pattern over the past few years. We were primarily interested on looking at the changes in cross holding pattern and its influence on various issues related to management control and corporate governance.

The Tatas used to manage their companies with very small equity stakes. 30 Prior to restructuring, in 1991, the Tata group was a loose confederacy of 300 companies having sales of around Rs 86 billion and controlling an asset base totaling more than Rs 85 billion with minor ownership stakes. As a consequence the chairmen of larger affiliates had grown accustomed to ruling their domains without interference from the Tatas and once in a while competing with each other in a similar line of business.

Ratan Tata decided to change all of this and have more control. The Tata group restructuring involved various steps such as building Tata brand, reviving its managerial recruitment and retaining practices (through, reviving TAS), changing the portfolio of business lines, and most importantly making the group more cohesive, and controllable. Using various published information, we looked at the changes in their corporate characteristics of various Tata group companies.

While the brand name of the Tatas would have ensured that there would be little risk to loss of management control still the group decided on increase its ownership stake in its affiliates. Surely, a stake of at least 26% would have made it morally and legally easier to manage them. An increase in the cross holding structure of group companies combined with pyramid structures provided a mechanism for the Tata group to control firms within the group without necessarily having significant equity investment.

We found that the group has indeed achieved higher control. For example, the number of internal battles played in the media has gone to zero. We also observe that in their quest to increase stakes in group companies, the Tatas can be said to have hurt the investor’s interests. In the last ten years, we observe that using crossholdings the Tata Sons, other investment companies and other major affiliates have increased their shareholding in major companies beyond the required 26 per cent. This 26% stake was a limit required to protect against hostile takeover bids.

An increased complexity in the cross holdings among group companies is a classic counter takeover defense strategy. There is nothing illegal about it but there are many other ways in which it could have been done with safeguarding the shareholders interests. For example, we observe that most of the well to do Tata group companies have increased their investment in other group companies at a rapid pace compared to the slow rise in their dividend payments raising issues of misusing the trust placed by other investors in them. Hence, we believe, Mr Bansal was right. 0 One of the popular anecdotes in initial 1990s used to be the fact that the Birlas had a higher stake in Tata Steel than the Tatas. XLRI Working Paper: 06-03 20 The advantages of having higher crossholdings are: (a) helps in aligning the incentives of the Tata group affiliates; and (b) helps in sharing of information among group affiliates. The disadvantages of having higher crossholdings are: (a) reduction in transparency of the companies; (b) allows companies to take actions in the group management interests ignoring other shareholder interests (i. e. without fear of reprisal from capital markets). Cross holding as observed in Japanese keiretsus can also result in affiliates creating a mutual understanding to not disturb the status quo i. e. , creating a quite life equilibrium position (see, Bergloff and Perotti, 1994); and (c) cross holdings forces an individual shareholders portfolio diversification i. e. , the shareholders (in any one of the Tata company) begin to hold a much more diversified portfolio of shares. Literature is laced with a large number of empirical papers providing the negative effects of increasing cross holdings.

A divergence in cash flow rights and control rights may exacerbate agency costs as it provides incentives and opportunities for controlling shareholders to expropriate wealth from minority shareholders of firms in which they have low cash flow rights to firms in which they have higher cash flow rights (see, Marisetty, 2005). This can be done by tunneling/ transfer of assets and earnings. There are many business groups which have adopted crossholdings and intra-group transactions. In Asia Pacific countries it is a common practice. We would like to mention that this study on the Tata Group is part of a larger study on Indian business groups.

The work on other business groups is on going. Some of the Indian groups worth mentioning are Reliance, Thapar, and RPG. One has to look at other groups crossholdings to come out with stronger conclusions. Limitations and Further Scope Our study has all the limitations which a case-based study normally carries. To our knowledge, in India, this is one of the few case studies in this direction attempting to link crossholdings, with control and governance. One can take the research further. A deeper analysis would need a higher level of quality and quantity of data. One can isolate and see the effect of increase in shareholding alone.

One can also look at the other alternate strategies that could have been adopted by the group. One can probe the findings by looking at the strategic intent for the long term in mind and for which sometimes short term shareholder interests need to be sacrificed. For example a company might reduce its dividend payments or forgo collections from group companies and invest the funds for expansion only to give shareholder higher returns in the future. We observe the popular media stating that some of the larger business groups (such as Aditya Birla, and Bajaj) have adopted a different position and they have been untangling their cross holdings.

An interesting study would be to compare and see at the processes adopted by them, looking at the related agency issues (if any) and also compare the style and financial performance vis-a-vis the Tata group. XLRI Working Paper: 06-03 21 References Abeggin, James C. and G Stalk, Jr. , 1985, Kaisha: The Japanese Corporation, Harper International Bergloff, Erik and E Perotti, 1994, The Governance Structure of the Japanese Financial Keiretsus, Journal of Financial Economics, p. 259-284. Business World, August 2003 Cover Story titled “The Enigma Called Pallonji Mistry” Clark, Gordon and D.

Wojcik, Jan 2005, Economic Geography, “Financial Valuation of the German Model: The Negative Relationship between Ownership Concentration and Stock Market Returns”. Clark, Rodney, 1979, The Japanese Company, Yale University Press Dalal, Sucheta, http://www. suchetadalal. com/articles/display/1/299. article Dutta, Sudiipta. , 1999, Family Business in India, Response Books: Sage Publications Green, Milford B. and R B McNaughton; 2005, Changes in Inter-corporate Ownership and Aggregate Industry Diversification in the Canadian Economy 976-1995, SSRN Download, www. ssrn. com Kakani, Ram Kumar; 2002, Financial Performance and Diversification Strategy of Indian Business Groups; Unpublished Doctoral Dissertation; Indian Institute of Management (IIM) Calcutta. Khanna, Tarun and K Palepu, 1998, Harvard Case: “House of Tata, 1995: The Next Generation”, Harvard Business School Khanna, Tarun and K. Palepu, 2000, the Journal of Finance, Vol 55, “Corporate Scope and Institutional Context: An Empirical Analysis of Diversified Indian Business Groups”.

Kumar, Jayesh, 2005, Capital Structure and Corporate Governance, Xavier Institute of Management (XIM) Bhubaneswar Faculty, Working Paper, Indian School of Business Website Lala, R M; 2004, “The Creation of Wealth: The Tatas from the 19th to the 21st Century, Penguin Viking Publishers Lamont, Owen A. and C Polk; July 2000; Does Diversification Destroy Value? Evidence from Industry Shocks; Working Paper No 521, The Center for Research in Security Prices, University of Chicago, Graduate School of Business Marisetty, Vijaya B. 2005, Corporate Ownership Structure and Earnings Informativeness of Indian Firms, Indian Statistical Institute (ISI) Delhi Conference Proceedings, http://www. isid. ac. in/~planning/seminar/abstracts/23_9_2005. html Merrill Lynch Report – DSP Merrill Lynch India Limited, 17 April 2002, Restructuring in India – The Tata Group by Jyotivardhan Jaipuria Moores, Ken and Mary Barrett; 2002, Learning Family Business: Paradoxes and Pathways; Ashgate Publishing Company Patel, Sandeep, L. Bwakira and A.

Balic, Emerging Markets Review, Dec 2002, Vol 3, Issue 4, “Measuring transparency and disclosure at firm-level in emerging markets”. Piramal, Gita; 1998, Business Legends, Penguin Books. Sampath, D, 2001, Inheriting the Mantle, Response Books: Sage Publications Sinha, Ranjan, Sep/Oct 1998, Vol 54, Issue 5, Financial Analysts Journal, “Company cross-holdings and investment analysis”. Tam, Augie, April 2001, Japan Inc. New Accounting Standards and Corporate Cross Holdings Website of the Tata group (such as www. tata. com/tata_sons/releases/20020809_condemns. tm) Websites of various newspapers such as, www. blonnet. com/2002/08/09/stories/2002080902800100. htm and http://www. indiareacts. com/columns/full_column5. htm XLRI Working Paper: 06-03 22 Appendix 1: Tata Groups Portfolio: Businesses In and Out The group has aligned its businesses into seven core sectors namely: Engineering, Materials, Energy, Chemicals, Services, Consumer Products, and Information Systems & Communications. The table below shows the diversification pattern followed by the group, the businesses they exited and the new sectors they entered.

Diversification pattern of the Tata Group Industry entered Industry exited Textiles Hospitality Steel Power Cement Soaps & Cooking Oils Paper and Publishing Aviation Chemicals Consumer electronics Locomotives & Commercial Vehicles Cosmetics Aviation Air-Conditioning Pharmaceuticals Tea & Coffee Software & Information Technology Locomotives Watches Financial Services Auto components Soaps & Cooking Oils Telecom Passenger Cars Cosmetics Pharmaceuticals Retail Bearings Cement Insurance Oil Drilling & Textiles Paints Heavy Vehicles Specialty Steel

Year 1874 1902 1907 1910 1912 1917 1931 1932 1939 1940 1945 1952 1953 1954 1958 1962 1968 1970 1984 1994 1996 1998 1999 2000 2001 2002 2006 2007 XLRI Working Paper: 06-03 23 Appendix 2: Financial Numbers of Other Tata Group Companies Table 9: Group Dealings of Voltas (Rs. in millions) 1991 1995 Receivables from group companies 48 196 Investment in group companies 20 191 Sales PBDIT (Profit before Depreciation, Interest, and Tax) Assets Net Worth Receivables from group companies as a percent of Sales Investment in group companies as a percent of Assets Investment in group companies as a percent of Shareholders Funds 6,248 482 4,332 749 0. % 0. 5% 2. 7% 8,108 770 8,658 1,647 2. 4% 2. 2% 11. 6% 2000 117 428 7,903 483 6,357 1,538 1. 5% 6. 7% 27. 8% 2005 34 505 14,497 755 10,588 1,935 2. 2% 4. 8% 26. 1% Table 10: Group Dealings of Titan (Rs. in millions) 1991 1995 Receivables from group companies 0 0 Investment in group companies 0 206 Sales PBDIT (Profit before Depreciation, Interest, and Tax) Assets Net Worth Receivables from group companies as a percent of Sales Investment in group companies as a percent of Assets Investment in group companies as a percent of Shareholders Funds 1,062 274 1,654 332 0. 0% 0. 0% 0. 0% 2,803 600 4,019 1,485 0. % 5. 1% 13. 9% 2000 521 211 6,322 966 6,907 2,008 8. 2% 3. 1% 10. 5% 2005 1,072 487 11,373 932 8,195 1,772 9. 4% 5. 9% 27. 5% Table 11: Group Dealings of Rallis (Rs. in millions) 1991 1995 Receivables from group companies 87 4 Investment in group companies 31 288 Sales PBDIT (Profit before Depreciation, Interest, and Tax) Assets Net Worth Receivables from group companies as a percent of Sales Investment in group companies as a percent of Assets Investment in group companies as a percent of Shareholders Funds 3,617 191 1,922 456 2. 4% 1. 6% 6. 8% 6,784 433 3,172 652 0. 1% 9. 1% 44. 2% 000 30 273 14,528 1,068 8,102 1,572 0. 2% 3. 4% 17. 4% 2005 0 6 6,229 707 4,642 1,461 0. 0% 0. 1% 0. 4% XLRI Working Paper: 06-03 24 Table 12: Group Dealings of Tata Metaliks (Rs. in millions) 1991 1995 2000 Receivables from group companies n/a 0 0 Investment in group companies n/a 0 0 Sales PBDIT (Profit before Depreciation, Interest, and Tax) Assets Net Worth Receivables from group companies as a percent of Sales Investment in group companies as a percent of Assets Investment in group companies as a percent of Shareholders Funds n/a n/a n/a n/a n/a n/a n/a 438 48 617 238 0. 0% 0. 0% 0. % 937 105 676 287 0. 0% 0. 0% 0. 0% 2005 0 4 3,123 1,061 2,037 1,022 0. 0% 0. 2% 0. 4% Table 13: Group Dealings of Tata Tinplate (Rs. in millions) 1991 1995 Receivables from group companies 0 0 Investment in group companies 0 0 Sales PBDIT (Profit before Depreciation, Interest, and Tax) Assets Net Worth Receivables from group companies as a percent of Sales Investment in group companies as a percent of Assets Investment in group companies as a percent of Shareholders Funds 1,895 115 933 229 0. 0% 0. 0% 0. 0% 2,383 192 3,847 1,202 0. 0% 0. 0% 0. 0% 2000 0 0 1,500 344 3,920 884 0. 0% 0. 0% 0. 0% 005 0 2 2,653 683 3,805 1,275 0. 0% 0. 1% 0. 2% Table 14: Group Dealings of Tata Sponge Iron (Rs. in millions) 1991 1995 2000 Receivables from group companies 0 0 0 Investment in group companies 0 0 0 Sales PBDIT (Profit before Depreciation, Interest, and Tax) Assets Net Worth Receivables from group companies as a percent of Sales Investment in group companies as a percent of Assets Investment in group companies as a percent of Shareholders Funds 152 73 393 -73 0. 0% 0. 0% 0. 0% 538 110 579 261 0. 0% 0. 0% 0. 0% 1,254 236 1,094 505 0. 0% 0. 0% 0. 0% 2005 0 8 2,671 1,038 1,979 1,319 0. 0% 0. % 0. 6% XLRI Working Paper: 06-03 25 Table 15: Group Dealings of Tata Coffee (Rs. in millions) 1991 1995 Receivables from group companies 0. 3 12 Investment in group companies 1. 5 2 Sales PBDIT (Profit before Depreciation, Interest, and Tax) Assets Net Worth Receivables from group companies as a percent of Sales Investment in group companies as a percent of Assets Investment in group companies as a percent of Shareholders Funds 262 75 358 192 0. 1% 0. 4% 0. 8% 768 358 674 323 1. 6% 0. 3% 0. 6% 2000 3 74 2,157 551 1,885 1,218 0. 1% 3. 9% 6. 1% 2005 212 87 1,987 436 3,000 1,732 10. 7% 2. 9% 5. 0%

Abc Is It Still Relevant?


SIGNIFICANT VALUE FROM STRATEGIC AND OPERATIONAL PERSPECTIVES. O ver the past several years, consultants, practitioners, and academic investigators have noticed that activity-based costing (ABC) methods, developed to improve decision support and the accuracy of cost- and profit-measurement systems, too often have yielded less than the desired results. For example, Robert S. Kaplan and Steven R. Anderson state, “Many companies abandoned activity-based costing because it did not capture the complexity of their operations, took too long to implement, and was too expensive to build and maintain. 1 Further criticism of ABC appeared elsewhere. “Straightforward in theory, ABC proved notoriously difficult in practice. It involved defining ‘activities’ and trying to judge (often subjectively) how much overhead each used. And it had to be done regu- larly. Companies got fed up, and many abandoned it. From 11th position in the 1995 annual survey of the most widely used management tools (Bain), it fell to 22nd place (in 2002). ”2 Studies of ABC use have reflected this dissatisfaction with the technique.

The Bain & Company annual tools surveys in 2003 and 2005 reported use of activity-based management (ABM) at 50% and 52%, respectively, with associated satisfaction scores below the average for all tools used. Similar results were reported in the SUNYAlbany, Hyperion, and Pepperdine Study (SHAPS surveys): During the same period, they found a decline in the perceived value of ABC compared to its usage. 3 Despite the negative results of these studies, there are many case studies and anecdotal reports of organizations that have adopted ABC methods and reported sat-

M A N A G E M E N T A C C O U N T I N G Q U A R T E R LY 31 SPRING 2009, VOL. 10, NO. 3 isfaction with the value they provide. These companies consider their ABC methods an investment worth the time and resources committed to them. One motive for conducting this research was to seek an answer to the question: “What distinguishes successful implementations of ABC methods from those that have not succeeded? ” B R AG S U R V E Y Table 1: Demographics of Survey Respondents North America Europe Middle East Asia Africa South America 52. 1% 13. % 12. 8% 12. 1% 6. 8% 2. 4% By geographic region: In order to study the use of ABC methods (and other issues related to the design and use of costing and profitability methods), we formed the Business Research and Analysis Group (BRAG) and conducted a survey sponsored by the Institute of Management Accountants (IMA®) and other professional associations. 4 Table 1 shows the distribution of survey respondents by region, type of unit, and business sector. Of the 348 survey respondents, slightly more than half were located in North America.

The survey was completed most frequently from the perspective of the respondent’s organization as a whole. Fifty-four percent of the respondents were in the service sector, and 40% were from manufacturing. The positions held by respondents were fairly evenly distributed among executives (16%), directors (13%), senior managers (16%), analysts (19%), managers (23%), and others (14%). C O S TAND By organizational level: Whole company Group/division Department Subsidiary Plant Unit Branch Other By business sector: Services Financial

Wholesale/Retail Trade Consulting Business Communications/Utilities Computer/Software Transportation Healthcare/Medical/Legal Education Total Metal/Rubber/Plastics Machinery Food/textiles Electronics Chemicals Paper/Printing 12. 1% 8. 2% 7. 7% 6. 6% 4. 9% 4. 7% 3. 6% 3. 6% 2. 5% 53. 7% 54. 8% 15. 2% 9. 0% 8. 7% 5. 1% 3. 7% 2. 5% 1. 1% P R O F I T- M E A S U R E M E N T THE M E T H O D S AC R O S S VA L U E C H A I N The assignment of costs to products, customers, or other cost objects has always been a thorny issue. For external reporting, production costs must be assigned to products for both income and asset reporting purposes.

For operational cost control, strategic decision making, and performance measurement purposes, however, many organizations also capture and assign costs from the other functions in the internal value chain. What methods are used to measure costs and profits across the value chain, and does their usage vary by function? We identified the most frequently used types of methods as: x Actual costing, x Normal costing, x Standard costing, and x Activity-based costing. Manufacturing 12. 1% 7. 4% 6. 8% 6. 8% 6. 0% 2. 7% Total 39. 5% Public Administration/Government/ Not-for-Profit Conglomerate Total

Total 6. 0% Total 0. 8% 100. 0% M A N A G E M E N T A C C O U N T I N G Q U A R T E R LY 32 SPRING 2009, VOL. 10, NO. 3 While the set of costing method types is as diverse as the kinds of operating systems, most organizations in the survey chose from this short list. In fact, most companies used more than one of these methods. Figure 1 shows the use of these method types across the value chain. From Figure 1 we can reach the following conclusions: x With the exception of production-related costs, a significant proportion of costs is not assigned to cost objects. For production costs, standard costing is still “king of the hill” with a usage rate of 42%. x Contrary to common belief, ABC methods are used across the entire value chain at approximately the same rate. ABC is not a production-specific method. As to the overall satisfaction with the ABC method, our survey results refute many of the assertions that ABC increasingly is being abandoned. We asked 141 organizations to indicate their use or nonuse of ABC. Of these, only four (2. 8%) previously used ABC but no longer use it, and 22 (15. 6%) considered ABC but chose not to implement it.

To explore the specifics in more detail, we looked at the benefits and concerns that respondents related about cost- and profit-measurement systems. BENEFITS AND AND CONCERNS ABOUT C O S T- P R O F I T- M E A S U R E M E N T S YS T E M S In order to judge the value of ABC, it is helpful to identify commonly reported benefits of cost- and profitmeasurement systems and their prevalence. Figure 2 shows the level of agreement and disagreement regarding benefits commonly reported by our survey respondents. The most frequently reported benefits include: 1. Useful for product decisions, such as pricing, design, and outsourcing. . Helpful for product/service profitability analysis. Figure 1: Use of Costing Methods Across the Value Chain M A N A G E M E N T A C C O U N T I N G Q U A R T E R LY 33 SPRING 2009, VOL. 10, NO. 3 3. Helpful for making operational improvements. 4. Useful for performing budgeting, planning, and per- formance evaluation. Figure 2 shows that managers agree that their costand profit-measurement systems provide a wide variety of benefits. The three lowest-scoring benefits relate to commonly claimed benefits of the ABC method: activity-cost information and accurate allocation of overhead (indirect) costs.

More disagreed than agreed that their system was able to accurately trace activity costs to final cost objects. In a similar way, more disagreed than agreed with the statement that their system could accurately trace overhead costs to final cost objects. Overhead allocation and activity-cost measurement are clearly of concern to managers. To investigate whether ABC methods address these issues, we recast the responses into two groups: ABC users and ABC nonusers. Figure 3 makes it abundantly clear that ABC methods address these issues and constitutes strong evidence of the value of ABC methods.

Only one in four nonusers agrees that the costs of activities are traced accurately to products or services, whereas almost 70% of ABC method users agree that this benefit is realized. Similar results apply to overhead cost tracing. Finally, less than 40% of ABC nonusers receive accurate costs of activities, while more than 70% of ABC users benefit from such cost knowledge. It is not surprising that the two benefits directly related to activities—the focus of ABC—are realized to a greater extent in such systems, but overhead allocation to cost objects is important in non-ABC methods as well.

The substantial difference in benefits realized from ABC makes it clear that ABC methods warrant serious consideration, especially in organizations with significant overhead costs. Figure 2: Benefits of Cost- and Profit-Measurement Systems Disagree Agree Disagree Agree Disagree Agree Disagree Agree Disagree Agree Disagree Agree Disagree Agree Disagree Agree Disagree Agree Disagree Agree Disagree Agree M A N A G E M E N T A C C O U N T I N G Q U A R T E R LY 34 SPRING 2009, VOL. 10, NO. 3 Figure 3: Comparisons of ABC to Non-ABC Users on Three Key Benefits Our system accurately traces activity costs to final cost objects Agree

Disagree Our system accurately traces overhead costs to final cost objects Agree Disagree Our system provides accurate information on the costs of all activities in the Agree organization Disagree Our system accurately Disagree traces activity costs to final cost objects Agree Our system accurately Disagree traces overhead costs to final cost objects Agree Our system provides Disagree accurate information on the costs of all activities in the organization Agree What are the main concerns of managers regarding their cost-measurement systems, and do ABC methods help alleviate these concerns?

Figure 4 identifies a variety of possible concerns and tells how users of ABC methods and non-ABC methods view each. The major concerns for both groups include: x Need to find a better way to allocate costs. x Allocations do not reflect how resources are used (lack of cause-effect). x Information is not timely. x Updating the system is difficult. While organizations that apply ABC methods share these concerns, the level of concern about these issues, M A N A G E M E N T A C C O U N T I N G Q U A R T E R LY 35 SPRING 2009, VOL. 10, NO. 3 s well as the others listed in Figure 4, is uniformly less than expressed by those that use non-ABC methods. This finding indicates that use of ABC methods at least somewhat helps alleviate managers’ concerns with their cost-measurement systems. ABC AND C O S T A L L O C AT I O N : H O W A R E TO INDIRECT COSTS BEING ASSIGNED COST OBJECTS? other methodologies in use. These three methods are: x Equal allocation: Resource cost is allocated equally to all objects that consume the resources. x Output-based allocation: Resource cost is allocated according to an output-related allocation base. ABC allocation: Resource costs are accumulated into activity cost pools. These cost pools are allocated to objects based on how much of the activity is consumed by the objects. Among those surveyed, the most popular method is output-based allocation, with 60% of organizations using this method for part of their allocations. The second most popular method is ABC, with a usage rate of just under 50%. Although ABC is more than an allocation method, the primary attribute differentiating it from other methodologies is how it accumulates and allocates resource costs.

Our survey asked respondents to identify the methods used to allocate indirect costs. We presented three major methods of allocation along with the option to specify Figure 4: Managers’ Concerns with Their Costing Methods: ABC vs. Non-ABC Users ABC systems alleviate managers’ concerns with their costing systems. Non-ABC It is difficult to update the model with new results data ABC Non-ABC It is difficult to design, build, or maintain the allocation calculations ABC Non-ABC ABC Non-ABC The reports do not provide useful information It is very difficult to update system with current results

ABC Non-ABC ABC Non-ABC ABC Non-ABC ABC Non-ABC ABC Non-ABC Need to find better ways to allocate cost accurately Cannot allocate precisely enough (bad allocations basis) Allocations are too complex (formulas are too complicated to understand) Allocations do not reflect how our business processes consume resources Information is not timely (cannot make timely business decisions based on it) ABC Non-ABC We don’t understand how allocations are assigned (come from a black box) ABC Percent of Respondents with Major or Moderate Concern M A N A G E M E N T A C C O U N T I N G Q U A R T E R LY 6 SPRING 2009, VOL. 10, NO. 3 ABC is viewed as having value, even among firms that do not currently use that methodology. When asked to specify what the mix of allocation methods would be in the organization’s ideal allocation system, managers surveyed had a significant bias in favor of ABC: More than 87% of organizations’ ideal costing systems would include some form of ABC. Given that such a high number of respondents envision including ABC as part of their ideal cost allocation system than currently do so (about 50%), adoption of ABC may increase in the future.

DECISION SUPPORT AND ABC The major types of decisions that are supported by cost- and profit-measurement systems are financial, operational, and strategic. How do ABC methods sup- port these decisions compared to others? Figure 5 compares the perceived usefulness of ABC and non-ABC methods to support these decisions. It contains the mean response, on a scale of 0 to 6, to the statement that a given type of costing method supports a given type of decision making. Figure 5 also shows that, in general, ABC methods provide greater levels of decision support than do nonABC methods.

This improved level of support spans the spectrum of decision making across financial, operational, and strategic areas. Furthermore, ABC methods are better integrated with budgeting and planning processes. All this indicates that companies using ABC feel better equipped to apply their results to management decision support (activity-based management). Figure 5: Decision Support Comparison: ABC vs. Non-ABC Methods Our Costing System Supports Decision Making and Is Integrated with Budgeting and Planning M A N A G E M E N T A C C O U N T I N G Q U A R T E R LY 37 SPRING 2009, VOL. 10, NO. 3 PRODUCT AND C U STO M E R

P R O F I TA B I L I T Y M E T R I C S profitability decisions, most (approximately 60%) nonABC methods do not. SUPPORT FOR From a strategic perspective, an essential criterion for any decision support system is the accurate measurement of product and customer profitability. Strategic decisions such as pricing, product and customer mix, and product and customer rationalization are among the most vital to organizational competitiveness. Although product profitability has been the primary focus of management attention for many years, the identification of profitable customers has gained prominence recently.

As shown in Figures 6 and 7, regardless of the type of costing method used (ABC versus non-ABC), almost all companies agree that both product and customer profitability should be measured. Whereas most (nearly 60%) ABC methods support both product and customer ABC The value and usage rate of activity-based costing methods have recently been the subjects of debate among practitioners and academics. Prior surveys indicate that the usage rate of ABC has leveled over the past several years and that questions are being raised as to its value relative to its cost of implementation.

In this study we examined the usage rate and relevance of ABC as a cost- and profit-measurement system. Our results are summarized as follows: x ABC methods are deployed across the internal value chain, and the vast majority of organizations continue to use them. Figure 6: Customer Profitability Measurement: ABC vs. Non-ABC Percent of Respondents Does not but should provide Does not but should provide Does and should provide Does and should provide M A N A G E M E N T A C C O U N T I N G Q U A R T E R LY 38 SPRING 2009, VOL. 10, NO. 3 Figure 7: Product Profitability Measurement: ABC vs. Non-ABC

Percent of Respondents Does not but should provide Does not but should provide Does and should provide Does and should provide x Managers surveyed believe that accurate overhead planning processes. x ABC methods support strategic product/customer x x x x allocation and activity cost information is lacking in non-ABC methods, while ABC methods address these needs. ABC methods alleviate managers’ concerns regarding the accuracy of cost allocations, the cause-effect relationship between allocations and resources consumed, the timeliness of cost/profit information, and the capability to update systems.

The substantial gap between current usage rates of ABC methods and their desirability in ideal systems may portend increased use. ABC methods provide greater support for financial, operational, and strategic decisions. ABC methods are better integrated into budget and emphasis decisions better than non-ABC methods. Our results provide ample support for the conclusion that ABC methods do indeed provide significant value to managers. We believe the use of ABC provides companies with superior cost- and profitabilitymeasurement systems.

Perhaps it is time for more organizations to take another look at adopting activity-based costing methods? s William O. Stratton, Ph. D. , CMA, is professor of accounting at the Udvar-Hazy School of Business at Dixie State College of Utah in Saint George, Utah. You can reach him at (310) 980-1644 or [email protected] edu. M A N A G E M E N T A C C O U N T I N G Q U A R T E R LY 39 SPRING 2009, VOL. 10, NO. 3 Denis Desroches is a principal for the enterprise planning field with Oracle Corporation. You can reach him at (905) 751-6403 or denis. [email protected] com. Raef A. Lawson, Ph.

D. , CMA, CPA, CFA, is vice president of research and Professor-in-Residence for the Institute of Management Accountants (IMA®). A member of IMA’s North Jersey Shore Chapter, you can reach him at (201) 965-0017 or [email protected] org. Toby Hatch is a senior strategist for enterprise performance management with Oracle Corporation. You can reach her at (416) 347-0704 or toby. [email protected] com. E N D N OT E S 1 Robert S. Kaplan and Steven R. Anderson, “Time-Driven Activity-Based Costing,” Harvard Business Review, November 2004. 2 “Easier than ABC,” The Economist, October 23, 2003. Raef Lawson and Toby Hatch, “Executing Strategy with Scorecarding: Best Practices from Around the World,” Hyperion 2005 Global Solutions Conference. 4 The other associations included the Association of Chartered Certified Accountants (ACCA), American Institute of Certified Public Accountants (AICPA), Chartered Institute of Management Accountants (CIMA), Society of Management Accountants of Canada (CMA-Canada), CAM-I, Financial Executives International (FEI), and Oracle Corporation. M A N A G E M E N T A C C O U N T I N G Q U A R T E R LY 40 SPRING 2009, VOL. 10, NO. 3

Facebook Analysis

Facebook Faces Up Case Analysis December 15, 2009 Case 3 Background and overview Facebook was launched in February 2004 by Harvard undergrad students as an alternative to a student directory or what they are use to at Harvard. This site got immediate popularity among students, then spread like wildfire as they have over three fifty million register users and six billion hits a month. Facebook is a real business that brings in over one seven hundred million dollars in revenue a year. Facebook inventor Mark Zuckerberg created what was known as thefacebook. com.

However this site made its way to other universities and then to the world with new uses signing on every day from good and bad, rich to poor and even famous celebrities logging in daily. Analysis and Identification of the Problem Problems seems be lurking around Facebook every since it made its day view in 2004. Facebook is just as popular as www. myspace. com all do the target audience which is about every age group. One such problem is that Facebook has lost their core audience, which is College Students as it was intended for, as a student had to show proof he or she belongs to a college.

Statement of Related Assumptions Main problem that Facebook faces is; one they are growing too fast too quick and have grown over 118% according to Techcrunch. com. With this rapid growth Facebook experiences problems from High profile uses as they get solicited, and Mark Zuckerberg was sued by fellow college classmates for alleging stealing ideals. Facebook located in Palo Alto, California with revenues in the 716 million. Finally Facebook is the world’s largest social networking site in the world in just five years.

In conclusion Facebook has many vultures on the sidelines waiting to take a punch and a stab at Facebook revenues. Alternatives Facebook could sale to one of the many offers like Yahoo. com who offered them 750 million dollars and all the issues would be inherited by the buyer. Facebook has over seven hundred employees in their Head office in California and a very costly overhead to keep the doors open. Owners and investors would do well if they sold but they have turned every offer away to keep what they invented. Summary and Conclusion

High demand is what made Facebook take off for college students and to remain very loyal to college students that had education e-mail address. Research has shown that Facebook has hit all age groups as Facebook was only for targeting college students. Now the very young to senior citizens have joined the world’s largest social networking website. Facebook has had their share of problems like the BBC reported that a 16 year old blackmailed fellow students to have sex as the case was heard in December 2009 in Wisconsin.

Facebook needs to have a strict enforcement what really is going on to ensure that cases like the Wisconsin does not offend, hurt and possible make people to commit suicide like the sexting cases in our public and private schools. References Gabbay, N (November 5, 2006). Facebook Case Study: Offline behavior drives online Usage. Why profile on Startup review. Retrieve December 22, 2009 from http://www. startup-review. com/blog/facebook-case-study-offline-behavior- drives-online-usage. php Arrington.

M (October 31, 2008). Facebook May be Growing Too Fast. And Hitting The Capital Markets Again. Retrieve December 22, 2009 from http://techcrunch. com/2008/10/31/facebook-growing-problem/ Pearce-Robinson (2008). Facebook Faces Up. Strategic Management, 11th edition. Business week case. McGraw-Hill. BBC News (December 22, 2009). Facebook sex scam US Teenager makes plea bargain. Retrieve December 22, 2009 http://news. bbc. co. uk/2/hi/americas/8427599. stm [pic][pic][pic][pic][pic][pic][pic][pic][pic][pic][pic][pic][pic][pic][pic]

Annalysis of Annabelle Lee

?Annabel Lee: The Last of Poe’s Genius Edgar Allan Poe died on October 7, 1849 in Baltimore, Maryland. (Bily) Before that date he wrote many excellent poems, including “Annabel Lee. ” Although “Annabel Lee” is considered “the demented reflection of a madman” (Bily), it conveyed his everlasting devotion and compassion for his Annabel Lee. “Annabel Lee” uses repetition, ballad form and even his insanity to emphasize his love for his dead companion. Repetition or “haunting rhythm” (Bily) played a large role in “Annabel Lee. ” The repetition engraves the events of the poem in the readers mind. Within individual lines […] such as ‘But we loved with a love that was more than lovers,’ are almost numbing; the reader is not expected to pause […] and analyze its logical sense, but simply to experience the “love” after “love” and derive the sensation that way. ” (Bily) This numbing effect is only a portion of Poe’s ingenious poem, which is “a characteristic of ballads that Coleridge […] considered an integral part of the ballad’s approach. ” (Bloom) “Using repetition to suggest the circularity and insufficiency […], Poe posits a love so pure that the word ‘love’ cannot encompass it. (Bloom) Also according to Bloom, “Repetition […] emphasizes the lover’s despairing sense of his ‘left-behindness,’ his inability to go beyond. ” Burton Pollin refers to “Annabel Lee” as “Poe’s simple ballad and probably his most universally popular poem. ” (133) Ballads are generally romantic and meaningful. Poe’s use of ballad form poetry creates a sense of passion and commitment for his Annabel Lee. Poe’s standard ballad form is written with a rhyme scheme of abab; the first and third lines have four metric feet, and the second and fourth lines have three feet. Bily) He uses “waive-like cadence” (Bily) and ”all the shorter lines in the poem end with the same e sound” (Bily). “Instead of adhering to his standard ballad stanza form, the poet [Poe] tacks on two more lines” (Bily). The ballad of Poe is original yet classic at the same time. By the fifth line of the poem, “the control begins to slip. ” (Bily) Through all of the pain caused by the deaths of loved ones, Poe’s grip on reality seems to become vague. Throughout the poem, Poe accuses those who tried to separate him from his Annabel Lee: angels, demons and kinsmen. Paranoia in the second through fifth stanzas is clear. ” (Bily) “When Annabel Lee’s ‘highborn kinsmen’ come to entomb her dead body […] all he can see is that they are taking her ‘away from me. ’” (Bily) Ultimately, “Annabel Lee” doesn’t reflect sanity nearly as much as it reflects insanity. “Annabel Lee” is timeless and will always have some relation to all lovers’ fates, but it means so much more that lies beneath the surface. It lulls the reader into a dream-like state with its oceanic structure until awoken with brakes in the pattern of meter.

It’s romantic and wistful ballad structure keeps the reader hooked, and its unrealistic storyline makes it that much more intriguing. “Annabel Lee” by Edgar Allan Poe is an insane, romantic, and lulling piece of literature. Bibliography Bily, Cynthia A. “Annabel Lee Essay” Masterplots II: Poetry, Revised Edition. Salem Press, Inc. 2002 Bloom, Harold “Thematic Analysis of ‘Annabel Lee’” Bloom’s Major Poets:Edgar Allan Poe Harold Bloom. Infobase Publishing, 1999. 73-76. Pollin, Burton R. “Traces in ‘Annabel Lee’ of Allan Cunningham’s Poem” American Notes & Queries May/June 1984: 133-135