INTERNATIONAL BUSINESS ASSIGNMENT

INTRODUCTION:

Special economic zones (SEZs) in India are certain localities which offer tax and
other incentives to their resident businesses.

Up until 2000, India did not have SEZs, and instead had a number of export
processing zones (EPZs), which, although similar in structure to the modern SEZ,
failed to attract many firms to India.

The government, accordingly, introduced the SEZ in April 2000. Structured

closely on the already successful model of China, they are designed to help
stimulate both foreign and domestic investment, boost India’s exports, and create
new employment opportunities.

India’s Special Economic Zone Act, 2005 further amended the country’s foreign
investment policy and converted its EPZs to SEZs, with notable zones
including Santa Cruz (Maharashtra state), Cochin (Kerala state), Kandla and Surat
(Gujarat state), Chennai (Tamil Nadu state), Visakhapatnam (Andhra Pradesh
state), Falta (West Bengal state), Noida (Uttar Pradesh state), and Indore (Madhya
Pradesh state).

Since the Act’s promulgation, the Indian government has also accepted proposals
for additional, far smaller SEZs, which must be proposed by developers to the
Indian Board of Approval.

The SEZ Rules, 2006 lay down the complete procedure to develop a proposed SEZ
or establish a unit in an SEZ.

As of September 2017, 221 SEZs are in operation, and by January 2018, a

massive 423 have received formal approval for operation.

How China is different from India.

 Sops: Foreign-funded enterprises in the Chinese SEZs had to pay a uniform
income tax of 15 per cent against the standard 33 per cent. Profits were tax-
 exempt for the first two years. And a maximum of 50 per cent of the profits
between years three and five were taxable.
 Different exchange rate system: China used a different exchange rate
system in the initial years to kick-start investments (a unified exchange rate
was introduced later in 1994).
 Powers of Governor: The governor of the SEZs in China (equivalent to the
Development Commissioner in India) has enormous powers, including the
right to approve projects involving investments up to $ 30 million and also
to grant concessions and incentives to foreign investors.
 Flexible Labor Laws: Foreign companies in the Chinese SEZs enjoy
tremendous flexibility in terms of labor laws. Employment is contractual,
the wages – subject to a minimum between 120 per cent and 150 per cent
higher than state-enterprise wages – are fixed by the companies themselves,
and retrenchment is permitted.
 Size: The Chinese SEZs are spread over a vast area of 330 sq. kiss. Even the
small Pudong SEZ is spread over 1,30,000 acres.
 Infrastructure: The SEZs of China are well connected with the latest
telecommunication network and latest means of transport.
Comparison between China and India SEZs
LOCATION :

If you look at the above image, all the zones are located strategically. Many are
located close to ports. This makes water transport cheaper than it already is. Only
some are not located close to ports. They are located close to borders. This
facilitates easy trade with nearby nations.

Size
China's zones are not many in number but they are huge in size. To give an idea,
the entire province of Hainan is an SEZ.

Hainan covers an area of 33,000 sq. km. Mumbai covers an area of almost 1000
sq. km. This means that China has an SEZ almost 33 times the area of Mumbai.

Size means everything in an SEZ. India has SEZs which are barely 10-20 hectares
in size. You cannot fit in huge industries in such a minuscule amount. Also India
does not locate SEZs strategically.

LAWS:

China has amazingly business friendly laws. Corporates need to give only one
month's notice to an employee before firing him. Contrast that to India, where you
need to follow a lengthy to fire an employee if your company has more than 100
employees.
China's labor laws are highly flexible to the detriment of the labor class. In India
the labor class is highly pampered because of the previous government's faulty
policies.
Also, China being a dictatorship can acquire land quite easily. In India Land
Acquisition faces a lot of problems. Land problems are the main reason why SEZ
in India is not as good as China.

Advantages that SEZs in India had:

 Large NRI base.
 Familiarity with Western concepts of business practices.
 Western style legal redress system.
 Low labor cost.
 Large English speaking workforce.
 Huge untapped potential in terms of resources, industrialization and
modernization.
 Large and growing domestic market.
Advantages that SEZs of China had:
 Chinese SEZs were close to regions with a high concentration of
overseas.
 Chinese. Nearly 80 per cent of the investment (in SEZs) was from the
overseas Chinese.
 Land is under the State control and hence could be given free or at a
minimal cost to the units.
 Chinese SEZs had a geographic advantage with most of the SEZs
located near the ports unlike the Indian SEZ’s that are more in the
mainland.
 Chinese SEZs have strong ties with Hong Kong.
 Cheap labor and finally o The Global reach of Hong Kong
entrepreneurs.