Business and Management: Extended Essay

BUSINESS AND MANAGEMENT
EXTENDED ESSAY
Will relocation to Mahindra World City (SEZ) provide Opel Overseas with Competitive and cost advantage?
Candidate Name: Agam Raj Gupta Candidate Number: 002760-006 Word Count: 3880 School: Step By Step High School
Abstract
Opel Overseas is a Jaipur based handicraft exporter. The geopolitical changes in the last three years have affected the export orders received by the Company . Therefore the Company is looking for alternate strategies to reduce costs and improve its production system be more modern. The Management is therefore exploring methods to help reduce operational costs on one hand and implement changes which will give it an ability to compete globally in the long term. Mahindra World City, a SEZ, has started operating in Jaipur and Opel Overseas is considering relocating its labour intensive Company to the SEZ. The extended essay has researched into the qualitative and quantitative aspects of relocating to the SEZ. The research question therefore is: Will relocation to Mahindra World City (SEZ) provide Opel Overseas with Competitive and cost advantage? The research is primarily based on data collected from secondary sources. The sales and operation records of the Company were the source of gathering information regarding the financial and non-financial aspects of the business. Based on the exploratory research, an in-depth research on the various websites and a study of the SEZ Act Of India was undertaken to get a holistic view of the effect of the move. The collected information was analyzed using tools like SWOT, PEST, and financial ratios. In the end after detailed analysis of the data, it was concluded that relocating to the SEZ was an advantage to the Company as it will give them the advantage of lower costs. Therefore the research concluded that the move to the SEZ should be considered as it would give substantial financial and non financial advantages. However, a detailed business plan should be compiled on the basis of this extended essay, prior to undertaking the move. (289 words)
Candidate Session No. 002760-00
Contents
Abstract ........................................................................................................................... 2 Contents .......................................................................................................................... 3 Introduction ..................................................................................................................... 4 Research Question.......................................................................................................... 5 Research Methodology ................................................................................................... 7 Analysis And Discussion : Shifting to the Mahindra SEZ................................................. 9 1. Benefits of Mahindra World City SEZ .................................................................... 9 2. Financial Analysis ................................................................................................ 14 1. 2. 3. PAYBACK PERIOD ......................................................................................... 14 ACCOUNTING RATE OF RETURN (ARR) ...................................................... 15 Qualitative Analysis ............................................................................................. 16
Conclusion and Recommendation ................................................................................ 20 References .................................................................................................................... 22 APPENDIX 1 Interview with the Director (excerpts) ...................................................... 23 APPENDIX 2: Projected Profit & Loss Account ............................................................. 24 APPENDIX 3: Comparative Chart showing Advantage under EOU & SEZ Schemes ... 26 APPENDIX 4: EXPORT PROCEDURE......................................................................... 28 APPENDIX5 Overview of Mahindra World City ............................................................. 30 APPENDIX 6 Mahindra World City, Jaipur PICTORAL REPRESENTATION ............. 34
Introduction
Opel Overseas is an export house dealing in handicrafts and textiles in Jaipur Rajasthan (India) . The company is over twenty years old and has a steady growth of over 15%1. The Company has been in the forefront of the export business in Jaipur and has sustained growth as its mission. The Company has been operating since the year 1990 and specializes in export of handmade handicrafts like marble artifacts, wooden items and furniture. The products made by the Company are customized according to the preference of the buyer. Therefore the Company has an edge over its competitors who prefer to make the products according to pre decided designs. The European Union and UK are the primary destinations that the organization exports its products to. As the company operates in the international market, the recession which hit the Global economies in the year 2008 left its impact on the exports. The handicraft exports from India which were growing at a rate of over 20% 2 suffered a set back and started declining from the year 2007-08(Fig 1: Handicraft Exports From India).
Source: Handicrafts Export Promotion Council Fig 1: Export of handicrafts from India
1 2
Financial Records: 2007-2010 http://commerce.nic.in/annual2006-07/html/chapter2.html 3 http://www.handmadepapersindia.com/blog/index.php/2010/11/report-card-exports-handmade-paperhandmade-paper-products/
Consequently, the organizations sales declined steeply by over 35% 4 of its average annual gross revenue in the year 2008.. The Company has therefore been forced to look for an alternate strategy in an attempt to revive its falling revenues and profits.
On one hand, the Company is trying to improve its profitability by focusing on markets which were till now untapped by them. These are the developing economies like Russia, and Brazil. However the challenge has been to maintain profitability as the consumers in these countries are cost conscious and do not prefer to pay high prices for innovative designs and superior quality. Therefore, the Company is trying to improve its bottom line by reducing the costs of operations. It has evaluated different cost cutting strategies like subcontracting to purchasing from alternate suppliers.5 However in both the cases the loss of control on production and the adverse effect on quality deterred the Company from adopting either of the strategies.
Research Question
4 5
Appendix 1:Interview with the Director ibid
The primary causes for the Companys problems are a mix of external and internal factors. The main reasons can be attributed to: High production cost The Company specializes in hand made handicrafts and uses very little modern machinery. This increases the cost per unit and the individual nature of products prevents the company from using technical economies of scale. As a result the Company has high cost of operations. Decrease in the number and size of orders on account of global recessionthere has been a reduction in the number and size of orders by almost 30% on account of the global slowdown. The recession which affected the US and Europe has decreased the purchasing power of the citizens6 and consequently the demand too has decreased. Low Profit Margins: The Company uses premium pricing technique. However with the decline in the number of orders on account of recession and increased competition domestically, the Company had to shift to competitive pricing strategy which affected the profit margins negatively7. Therefore the combined impact of rising costs and reduced revenues and profit margins have affected the growth of the Company and have created a problem for its long term viability, Competition From China made products: A drop in the sale has also been registered on account of the increased competition from China which due to economies of scale is able to produce the same products more economically. Therefore the customers have started shifting to Chinese exports.
As per the Director, Mrs. Gupta, taken individually none of the above stated factors would be a cause of grave concern but as all above are happening simultaneously they
66 7
http://business.timesonline.co.uk/tol/business/economics/wef/article3241372.ece Appendix 1: Interview with the Director
are a serious cause of concern. Further, she feels that the time is right to undertake an evaluation of the correct way forward and plan an approach which will help the organization in the long run and after the recovery of the economies from the aftermath of recession. The Company is deliberating on a proposal to purchase a piece of land in the Special Economic Zone(SEZ) being constructed on the outskirts of Jaipur8. The Mahindra Group is creating the SEZ and has named it Mahindra World City. The SEZ is jointly promoted by Mahindra Group9 and the government owned Rajasthan State Industrial and Investment Corporation (RIICO)10. In case the Company decides to relocate the factory it will get cost advantages which will be beneficial for it in the long run. However, in the short term purchasing and setting up a factory means substantial investment and will put even more pressures on a Company reeling under the pressure of reduced orders and revenues. So it is important to research into the effects of the relocation on the organization both financially and non financially. Therefore the dilemma which the Company is facing is that should they purchase this land and relocate to the new site. Therefore the report researched into the proposed move and the research question will be; Will relocation to Mahindra World City (SEZ) provide Opel Overseas with Competitive and cost advantage?
Research Methodology
8 9
Appendix 6: Location Map www.mahindra.com 10 www.riico.com/
The research is based on data collected from secondary sources, however interview of the Director was conducted (Primary research ) to clarify the doubts and help fill the lacunas in information collected.
Secondary Data Source The main sources of information were the Company records on sales and orders received. This was an aid in assessing the revenue versus profit margin factors with reasonable accuracy. A Company profile was also studied to understand the business in detail. The websites of Government bodies like RIICO, Export promotion councils were a source of data on macro economic level while the websites of income tax and sales tax department added to the understanding of the taxation structure prevalent in India. Continual reference to books on financial appraisal were made and the website of Mahindra SEZ11 was an invaluable source of understanding the concept of the SEZ in Jaipur. A detailed study of the SEZ Act of India12 was also done to make sure that the financial impact of the relocation to the Company was clearly understood. Primary Data Source It involves collecting first hand information from the data sources. The only primary research was the interview of the Dirctoe which was taken to help clarify the doubts which arose during the research. The data so collected was analyzed using a mix of planning tools like Qualitative Project analysis and financial tools like Payback Period and the Accounting rate of return.
11 12
http://www.mahindraworldcity.com/jaipur.aspx http://sezindia.nic.in/index.asp
Analysis And Discussion : Shifting to the Mahindra SEZ

1. Benefits of Mahindra World City SEZ
Opel Overseas is an Export Oriented Unit13 and accordingly gets benefits from State and Central Government schemes for such units. The proposed shift to the SEZ may add to these benefits and a study of the total financial benefits and a comparison with the existing business is required prior to taking any decisions. The research shows that the primary benefits will be: Decrease in Cost accruing from: Increase in period for exemption from the income tax and other taxes Opel Overseas has not been paying income tax in accordance with the benefit accorded to the EOUs in India. Yet this benefit is granted till the year 201014 only. Therefore from the financial year 2011-2012, the Company will have to pay income tax at the normal levels. Therefore a shift to the SEZ will help the company to save Rs. One lakh 15 fifty thousand( at current profit levels of tax), which it may have to pay form the financial year 2011-12 No duties levied on goods purchased or imported for the unit at the SEZ. This includes goods required for production or maintenance of the new production unit.
16
Usually duty component for the imported raw material
and machines at approx 35% of the value. Hence, the items imported by the firm are more expensive to this limit by approx 15%. The Company will
13 14
http://www.stpiconsultancy.com/eoubenefits.html http://www.stpiconsultancy.com/eoubenefits.html 15 1 lakh=.1 million 16 http://www.stpiconsultancy.com/about_sez.html
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save on the costs of importing the machinery and tools from China and Germany. The company is planning to modernize its setup along with the relocation decision and so the exemption from import duty will help it get benefits to the tune of 35%17 on import costs as savings in import duty. (As stated by the director they think it will be a good idea to plan for new machinery as the ones being currently used are outdated and they would like to import world class machinery rather than source local ones, especially s they do not have to pay a duty. Further, the Company will also be able to use more efficient machinery leading to savings in the production costs. The operative unit at the SEZ would be able to claim for service tax refund for services which are availed of from outside the tax free export zone 18. This will further help the organization to further reduce costs. The Purchase/Sale transactions would not attract any VAT or C.S.T 19 charges20 Currently non- SEZ units have to incur a cost by way of service tax to the tune of about 12.33% on banking charges, transport charges, courier charges, security services and maintenance services/charges. The Sales Tax itself is at the rate of 4 % of the invoice value. In addition they have to pay a local tax known as Local Sales Tax, which is commodity dependent but is at an average of 10 %. If the company relocated to the SEZ then they have will a substantial cost savings of 4 % on all raw material inputs and on local sales tax and service tax. A decrease in the tax to be paid will help reduce costs and so boost the profit margins, allowing the Company to be more competitive in the international market.
17 18
http://www.infodriveindia.com/indian-customs-duty/44219014-for-other-machinery.aspx http://www.business-standard.com/india/news/sez-units-get-service-tax-relief/350968/ 19 Central Sales Tax 20 http://stpam.org/str/note-special-economic-zone-vat
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The current land prices at Ajmer Road, Jaipur where the SEZ is located are Rs. 636 per sq feet21 approximately. The land at Mahindra SEZ is available at a subsidized rate of Rs22. 240 per sq feet. As compared to the current market price, it is a saving of almost 200% on the purchase of the land. These cost advantages can be used to offset and purchase the machinery from other countries.
Apart from the cost savings the other benefits include:
Speeding up the Exim Process: The SEZ has special customs area staffed with custom officers which will deal with units within the SEZ. Therefore, as their focus is only these units so the whole process becomes faster, leading to substantial savings in time which may be utilized by the Company for other purpose.
The SEZ can have 100 % Foreign Direct Investment (FDI).23 Therefore in future if the wants to undertake growth using a foreign partner or would like to sell the business to a Foreign Company, then the options are available to Opel Overseas on account of the permission being granted by the Government for the same. Thus the use of Brownfield expansion 24 is available for Opel Overseas.
21 22
http://www.zamanzar.com/Jaipur/Ajmer+Road/Commercial-Property-Prices.html $1= Rs.45.5 approx 23 http://www.sezindiainvest.com/

24
A brownfield expansion means adding on to an existing facility. (source: http://www.steelguru.com/glossary/category/6/Brownfield_Expansion.html)
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The SEZ Company can borrow up to US$500 million(approx equivalent to INR 2500 million) in a year without any maturity restriction through recognized banking channels25. The value of loan sanctioned depends on the business plan and the credit rating of the Company. This will be an important source of finance for the organization as it will allow the Organization to borrow large sums of money for a longer period of time. Hence, allowing the organization greater flexibility in arranging for loans and also undertaking aggressive growth plans or capital investment.
Single window clearance for Central and State level approvals- this will help the firm get rid of the red tapism and will lead to faster working around the bureaucracy.
Further, Mahindra World City has26 the following features which will be advantageous to the Company : World class infrastructure: Keeping the needs of the exporters in mind and the problems faced by them on account of poor infrastructure, the MWC27 has invested to ensure that the infrastructure is world class, with abundant power and water so that the units in the SEZ do not lose production hours. External economies of scale: Due to availability of skilled manpower from nearby villages, the supply of manpower is ensured. A one stop logistics Solution: The SEZ has an area earmarked for Inhouse logistics and Warehousing zone. This will facilitate the movement from the SEZ of the custom cleared goods and as the degree of specialization will be high, so improvement in service levels will be seen.
25 26
http://sezindia.nic.in/index.asp http://www.mahindraworldcity.com/jaipur.aspx 27 Mahindra World City
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Dedicated handicraft zone : The SEZ has exclusive areas marked according to the type of products being produced. So due to all the handicraft firms being clustered together, there may be many ancillary firms available leading to time and cost savings due to external economies of scale.
The additional benefits are that the SEZ has Public Utilities like; Details of Accident Prone Areas Road Map/Road Details E mail Addresses and Telephone Numbers Accident/Trauma Care Centers
While these facilities are not essential yet their presence will benefit the organization as the presence of these services will create a good image in the minds of the employees and buyers regarding the concern which the Company has for emergency situations. Analysis of the data collected to understand the benefits of relocation to the SEZ clearly show that the Company stands to get substantial cost advantage which will have the overall effect of decreasing the cost of operations and improve profit margins. However, prior to undertaking any decision a financial cost benefit analysis of the decision is a prerequisite.
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2. Financial Analysis
After considering the cost advantages to Opel Overseas of relocating to the SEZ, investment appraisal techniques were used to understand the attractiveness of the project.
1. PAYBACK PERIOD
The initial investment required for setting up the factory is estimated to be Rs. 4.75 million28. The source of funds for the project is internal accruals and loan from the bank29. Years Cash Inflow Operating (all figures in Cost million) (4.75) 5 5.1 5.2 5.4 5.5 4.3 4.1 3.8 3.7 3.3 .7 1 1.4 1.8 2.2 .7 1.7 3.1 4.9 7.1 Net Inflow Cash Cumulative Cash Inflow
0 1, 2 3 4 5
Table 1:Fund Flow Statement Calculating the payback period. Time taken to Recover the funds: Amt to Be Recovered/inflows =3 years 4.3 months Therefore the company will recover Rs. 4.75 million in approximately 3 years and 4.3 months. The payback period is short enough to make the project financially attractive.
28
Appendix 1: Interview Of the Director ibid
29
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2. ACCOUNTING RATE OF RETURN (ARR)
The Calculation of ARR is based on Table 1 pg 14
ARR= (Annual Profits/Initial Investment)*100 Total Profit = 71 47.5 = 23.5 Average Profit = 4.7 ARR = (4.7 x 100) / 47.5 = 9.89% = 23.5/5
The investment appraisal techniques return a payback of 3 years and 4.3 months and an ARR of 9.89%. Both the figures are attractive enough to make the relocation financially attractive. Moreover, the cost savings in operations coupled with the high ARR and a short Payback Period make the project a financially lucrative decision both in the short and the long run.
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3. Qualitative Analysis
The final decision to undertake a project depends not only on the financial advantages but also on a host of non financial factors. Therefore, it is important to understand the non financial advantages and risks which will accrue to the business as a result of this business decision. Capital Gains The current premises of the organization which is located at Amer Road, Jaipur can be easily sold or rented. This is because it is at prime location. The funds raised from the sale may be utilised to finance the relocation and purchase of the new factory. This will help to reduce the dependence on loans which may be expensive and prevent the retained profits from being completely used up. External Economies Of scale The area is expected to benefit from external economies of scale as the presence of handicraft exporters in close proximity will encourage skilled manpower and specialist mechanics and support firms to setup in the vicinity. This will be advantageous as the Company may otherwise have to spend money on hiring labour on increased wages. Further transportation of samples, documents and shipments is another area of concern in the current business structure. Non reliable service on account of low cost advantages has often affected the delivery time of the Company. If the Company relocates, this issue is addressed as there will be a presence of major international cargo and courier movers, providing service at competitive rates. Improved Quality Standards Quality check at the SEZ would by default improve the quality of production and positively impact the business by creating the image of superior quality. The handicrafts would easily be able to establish their supremacy over the other inferior look alike which have flooded the market. The buyer/importer would be able to easily understand the Companys commitment to authentic designs and quality.
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The investment in technology will create better stock control and prevent pilferages and spoilage of the raw material. This in turn will ensure that the product is of the highest quality and standard. Contemporary Production Facilities The existing factory is old and outdated as per the present and future requirements. Building a new factory will help the Company to use the modern technology and infrastructure to create a production facility which is not only efficient in production but is also aesthetically appealing. The modern infrastructure and equipment will help create an image of the Company as one which sets and meets high quality standards. Moreover, the new premises will also allow the organization to implement the health and safety norms as per the prevalent standards. Therefore if any customer was to visit the factory, the Company will be able to prove their commitment to quality easily. This in turn may improve orders and revenues. Centralized operations and effect on Labour The Current facilities of the Organization are scattered in different areas with the production facility located in Amer Road, the design facilities in another part of the town at Old City and the export office in C scheme. This makes it difficult for the owners to coordinate and increase the cost of travelling within the city. With the new facility being set up all the departments will be housed at one location. This will make better coordination possible, which in turn is expected to increase productivity.
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Labour Costs The SEZ is located in Mahapura, which is on the outskirts of Jaipur. As a result the Company will have access to skilled labour which currently resides in Mahapura30. This will generate cost savings to the company as it will not have to retrain the labour. Quantitatively, this will result in cost savings to the tune of 6% of the total operating costs31. Therefore, while the Company may have to hire new labour as the existing ones may not wish to relocate on account of the increased distance. The current labour force resides mainly in Amer32(North Of Jaipur), which is about three km from the existing factory. The proposed site is on the other side of the town (South Of Jaipur) which would increase the commuting distance by almost forty kilometers.
Uncertain Future However despite the bulk of the factors being in favour of the relocation, the impact is primarily due to the cost savings and modernization of the factory. There is no certainty that the relocation will help in getting more orders as the decrease in orders has been on account of macroeconomic environment and external factors like increase in domestic and international competition. Therefore while the Company may improve profit margins on account of lower costs it will not be able to improve revenues if the marketing team is unable to create and capitalize on the business opportunity the new factory may present.
30
Appendix1: Interview Of the Director Financial Records 2007-10 Employee Profiles and Records, Opel Overseas, 2010
31
32
19
Unemployment And Demotivated workforce. The move to the new premises involves greater distance to be travelled by the workforce. As most of the workers are in the lowest rung (Physiological Needs)of the Maslows pyramid of Needs(Fig 3), as they are on daily wages. They are dependent on the Company for their livelihood.
33
Fig 2: Abraham Maslows Hierarchy Of Needs
The relocation will cause them to travel a distance greater than forty kilometers per day, and also increase their travel expenses. This increase will decrease their net income and so they will feel motivated. This will affect their operational productivity and may increase their labour turnover. Therefore the Company has to plan ahead to ensure that employees are not retrenched and or demotivated.
33
http://arellevalla.com/2009/07/30/5-levels-of-a-mans-needs/.html
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Conclusion and Recommendation
Based on the research carried out, the relocation appears to be a strategic move which will accrue both financial and non financial advantage to the organization. The conclusions drawn are; The primary motivator for moving to the SEZ is the extension in the exemption from Income Tax which the Company will receive for the next five years and a smaller percentage after that. The current income tax exemption is set to expire after the fiscal year 2010-11. There will be external economies of scale on account of close proximity of other handicraft exporters. The Company will gain substantial cost advantage on account of better productivity due to new machinery and modern setup. Improved coordination within the Company will result due to all the departments being located at one place rather than being scattered all over Jaipur. Thus, the relocation of Opel Overseas will be profitable for the Company and is recommended. The recommendations are based on the cost advantages which will help the Company remain competitive and regain the high levels of profitability it was enjoying prior to recession. There are concerns about the way the things will develop in the future but the Company need to address the marketing issues separately and use the new premises as a means to prove its commitment to quality. Using this report as a base, the Company may commission a project feasibility analysis to understand the move to the SEZ in greater detail.
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Limitations and Future Research The research was undertaken in an objective manner. However, there may be elements of biasness due : Lack of competitor analysis; there was reluctance on the part of the promoters of the Mahindra SEZ, to provide details about the customers who had already purchased the land in SEZ. So competitor analysis was not possible, and the effect of how having competitors in the area will negatively impact the business operations was not calculated Hesitation of directors to provide accurate financial data. The owners did not wish to provide accurate financials due to confidentiality issues. However the estimations provided by them were cross checked to ensure their accuracy to a large extent. The tax policy is up for review in the year 2013 and any changes in the taxation structure proposed by the government will affect the accuracy of the report and consequently will affect the decision of the Company. The report also did not undertake network analysis to estimate the time required before the operations can be started in the SEZ and so it is recommended that the Company undertakes project management which may use the elements from this report.
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References
Hoang, Paul. (2007), Business And Management, Melbourne: IBID Press. Milling, Brian E. (April 2001),The Basics of Finance: Financial Tools for Non Financial Managers, iUniverse.com http://www.caclubindia.com/books/manual_sez_ftwz_ifsc/ accessed on 28.11.10 sezindia.nic.in/ accessed on 14.12.10 www.mahindraworldcity.com http://economictimes.indiatimes.com/
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APPENDIX 1 Interview with the Director (excerpts)

Q1. What are the problems faced by the company due to the economic slowdown? The Problems faced by the company at the present scenario are: Less orders in the factory. High cost of production. Low profit margins. Competition from substitutes from china which are cheaper.
Q2. What is the USP Of the company? What are your main markets The USP of the company is its Products that are fused with a classical Indian look. They are primarily exported to the US and Europe. Q3. How has the recession affected your company? What has been your strategy Sales have decreased almost 40%. The customers have stopped buying or prefer to deal in low price products rather than quality based ones. We have tried a variety of things from concentrating in alternate markets like Brazil and Russia to subcontracting our products, however there have been many disadvantages so we have stopped them for now. Q4. What is the average income tax you pay? We are an EOU so we dont pay tax. But after 2010-11 the tax benefit will end. Q5. What are the cost cutting strategies you are looking for? As a Cost cutting strategy our only focus is at relocating to SEZ. However we are not sure as the investment amount are approximately Rs.48 lacs approx. Q6. What are the strengths and weaknesses of your company? Strengths- Brand name, good quality and designs Weakness- High cost of production, old machinery and scattered office premises all over the town
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APPENDIX 2: Projected Profit & Loss Account

During the year First year Cost Production To Opening Stock To Purchase To Consumable To Salary/Wages/Bonus (Staff Welfare, Labor Charge) To Packing Expenses To Freight To Electric & Water 32000.00 25000.00 216000.00 Amount 0.00 1200000.00 535000.00 1550000.00 Sales/Revenue By Sales Amount 50,00,000.00
To Printing & Stationery To Postage & Courier To Travelling Expenses To Office Expenses To Vehicle Expenses To Selling/Distribution Exps. To Deprecation To Pre-operative Exps.
5000.00 4000.00 18000.00 12000.00 20000.00 35000.00 100000.00 50000.00
To Profit
3,70000.00 5000000.00 Total 5000000.00
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Particulars
Amount
Particulars
Amount
Capital Account Share Holder Fund 3000000.00
Invest land in Sez Machinery Assets Generator, Cutting machine,
2900000.00
Unsecured Loan
1700000.00
Ultrasonic machine, packing Mac., etc, machine 1000000.00
Provision/ Outstanding Exps.
50000.00 Sundry Debtors Cash & Bank Balance Security & Other Advance Pre-operative Exps. 100000.00 200000.00 250000.00 300000.00
Total
4750000.00
Total
4750000.00
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APPENDIX 3: Comparative Chart showing Advantage under EOU & SEZ

Schemes
Source: http://finance.indiamart.com/exports_imports/export_financing/export_units/index.html
Sr.
No. Benefits Income Tax SEZ 100% tax holiday for a period of 5 years and 50% benefit for 5 years thereafter. 50% for an additional 5 years on plough back of Profits. No time limit mentioned. Units setting up anytime will avail the same benefits. Goods for infrastructure development maintenance i.e. construction material allowed to be imported / procured indigenously duty free SEZ units / developer exempted from payment of Service Tax Exempted on the goods procured indigenously EOU
100% IT tax holiday up to 31.03.2009 or first 10 years whichever is earlier
Construction Material
Goods for infrastructure development maintenance i.e. construction material not allowed to be imported / procured indigenously duty free EOUs not exempted from payment of Service Tax, however CENVAT credit is allowed for service tax paid No CST exemption, however CST reimbursement to be claimed from jurisdictional DC
Service Tax
Central Sales Tax
5 6 7 8
DTA Sale Trading Unit Domestic Procurement Benefit to DTA supplier
Limited DTA sale up to 50% of FOB value of exports permitted on allowed on payment of full customs payment of concessional rate of duty as applicable on imported goods duty Trading units are allowed be set up in SEZ Supply from DTA to SEZ are physical exports Trading units not permitted to be set up under EOU scheme Supply from DTA to EOU considered as deemed exports
For supplies from DTA, benefit of DEPB/DFRC/Advance License available. The drawback/claim of rebate applicable as in case of
For supplies from DTA, benefit of deemed export drawback/OFRC/Advance license / Refund of terminal excise duty
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physical export No cost recovery charges recoverable for the customs staff deputed during office hours. Exclusive customs staff deployed in the SEZ for handling customs work
available Cost recovery charges for Merchant Overtime recoverable for the customs staff deputed even during office hours. No exclusive customs / central excise staff for handling customs / Central Excise work relating to the unit Duty free goods (except capital goods) to be utilized within the validity period of 03 years
Cost recovery charges
10
Period of utilization
Duty free goods (except capital goods) to be utilized within the validity period of LOP
11
Foreign Investment
100% FDI investment permitted through automatic route for SEZ manufacturing unit and formal FIPB approval not required All import / export documentation and assessment formalities to be completed in the zone itself No routine examination of exports / import goods by customs Private Bonded Warehouse License not required SEZ can only be set up in the SEZ notified under section 4 of the SEZ Act
Formal FIPB approval required as per sectoral guidelines
12
Customs Documentation
All import / export documentation and assessment formalities to be completed at the respective port of import / export Examination of exports / import goods by customs except in cases where self certification is allowed Private Bonded Warehouse License is required No such requirement for EOU, EOU can be set anywhere in the country on standalone basis provided the area has been declared as warehousing stations Minimum investment limit of 01 crore in plant & machinery required except under certain specified sectors such as software, handicrafts, etc.
13 Examination of Goods
14
Warehousing License
15 Location Requirements
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Investment Requirements
No minimum statutory investment limit prescribed
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APPENDIX 4: EXPORT PROCEDURE

The following chart sums up the viability and business prudence to move to the Mahindra World City SEZ of Opel Overseas:
Export procedure
The procedure for export from Special Economic Zone through seaports or airports or Inland Container Depot or Container Freight Station or Land Customs Station or by Post or by Courier or by Personal Carriage, as the case may be, shall be as under: If services are exported in non-physical form, the export value is to be furnished by the Unit on self certification basis as per the instructions of the
EXPORT PROCEDURE
Reserve Bank of India.
Filing of the shipping bill
Assessment of shipping bill
Examination of goods in SEZ
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Movement of export consignment
Let export order given on the basis of self certification by the Unit
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APPENDIX5 Overview of Mahindra World City

Infrastructure Development Sector consists of Mahindra GESCO, Club Mahindra Holidays, Mahindra World City, Mahindra Water Utilities, Mahindra Consulting Engineers and Mahindra Infrastructure Developers. Mahindra World City works on the concept that high quality infrastructure and a liberal and supportive business environment can only promote more foreign investments. The Mahindra Group is a key player in providing world-class infrastructure through the Mahindra World City brand. The City's plug-n-play infrastructure and well-planned township helps create a great working environment and an amazing living experience. Mahindra has successfully developed India's first World City at Chennai. After this milestone, the Group plans to come up with two more such projects, one at Jaipur and another at Pane. Mahindra World City, New Chennai - Corporate India's first operational Special Economic Zone (SEZ) and India's first Integrated Business City is promoted by the Mahindra Group and TIDCO (Govt of Tamil Nadu Enterprise). It is a public-private initiative.
Situated on the NH45, Mahindra World City is located 45 km from Chennai city and is 30 mins away from Chennai international airport. Spread over 1,400 acres (5.7 km), Mahindra World City is well connected by both road and rail links, with Paranur railway station on site.
Mahindra World City is divided into 3 sector-specific Special Economic Zones (IT/ITES; Apparel and Fashion Accessories and Auto Components), a Domestic Tariff Area and a Residential / Social zone. Mahindra World City today has over 35 customers with leading companies like BMW, Braun, TTK Group, CapGemini, Infosys, Nestronics, Mindtree, Renault, Nissan, Wipro, Timken and TVS Group of companies, among others.
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Mahindra World City, Jaipur - Following the success of Mahindra World City, New Chennai, and the second Mahindra World City was established in Jaipur. Inaugurated in December 2006, Mahindra World City, Jaipur is spread over an area of 3,000 acres (12 km). Promoted by the Mahindra Group in partnership with Rajasthan State Industrial Development and Investment Corporation Ltd (RIICO, an agency of the Government of Rajasthan). Mahindra World City, Jaipur is being developed as a multiproduct Special Economic Zone on the format of an Integrated Business City.
Besides these exclusive zones, there will also be a Domestic Tariff Area (DTA) catering to the demand of domestic industries. Mahindra World City, Jaipur will also have a dedicated Logistics and Warehousing Zone for the manufacturing companies in order to provide complete end to end solutions.
Mahindra World City, Jaipur has one of the largest IT/ITeS centric SEZs under development in India. The total area spread over 750 acres (3.0 km) is under development and has already attracted top companies such as Deutsche Bank, Infosys, Wipro, Nagarro, Truworth, Tech Mahindra and QH Talbros among others. A Technology Park Evolve promoted by Mahindra World City, Jaipur will also come up as part of the IT / ITeS SEZ. Set in a campus of 25 acres, the Technology Park will lease built-up space for IT/ITES companies. Mahindra World City Karla (Pune District) - an Integrated business city with a multiproduct Special Economic Zone and a Domestic Tariff Area, Mahindra World City, Karla will be spread over an area of 3000+ acres with separate zones for IT/ITES, Manufacturing, Warehousing and Logistics. Jointly promoted by the Mahindra Group and MIDC, (a Government of Maharashtra undertaking), Mahindra World City, Karla is located off the Mumbai-Pune Expressway. Around 2 hours from Mumbai, Mahindra World City, and Karla is close to Mumbai and Pune airports and the two international
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seaports, JNPT and Mumbai seaports.
Advantage of Mahindra world city
Master planned by Jurong Constructions, Singapore, Mahindra World City will be truly international in every way. From wide roads to seamless internet connectivity, every little detail will be taken care of. Also a unique plug-n-play format will offer a quick startup and reduced cost of ownership. The City gives you an opportunity to operate in a totally supportive environment and profit non-stop.
A modern Business City, Mahindra World City will be replete with state-of-the-art infrastructure, flexible tenancy formats and with wide roads, potable water, power, Telecom and data connectivity.
Fail-safe utilities in the form of stable power through an in-zone sub-station and unlimited bandwidth through an optic fibre network.
Mahindra World City provides double benefit - Fiscal benefits, Tax Holidays and Hassle free operations coupled with world class Physical & Social Infrastructure .
The benefits include: Multiple tenancy formats Plug-n-play infrastructure Well connected with a wide road network Fail proof power grid, water supply and data connectivity Fibre optic communication backbone DTA at Mahindra World City indeed offers suppliers to the SEZs, EoUs and companies looking at tapping domestic markets an unparallel advantage. Premium housing facilities 24 / 7 medical care Schools and educational institutions
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Banks and ATMs Telephone exchange and post office Clubs and recreation centers Retail malls and Community centers Mahindra World City, Jaipur The splendor of Rajasthan Promoted by Govt. of Rajasthan through RIICO and Mahindra Group. Both RIICO and Mahindra Group joined hands and signed Shareholders Agreement on 25th June, 2006. Integrated business city spread over in 3000 acres. Mahindra Lifespaces 74% RIICO 26% Directorship (No. of Directors) Mahindra Lifespaces 6 RIICO 4
Shareholding / Participation in ownership of the Company
Focus sectors IT / ITES Light Engineering including Automotive/Auto Component Handicrafts Apparel Gems & Jewellery Logistics and Warehousing DTA & Social Infrastructure Master planners: JURONG Consultants Pte Ltd, Singapore. Landscaping consultants: Site Concepts, Singapore. Development of residential and social infrastructure is planned to have holistic & inclusive development.
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APPENDIX 6 Mahindra World City, Jaipur PICTORAL REPRESENTATION
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BUSINESS AND MANAGEMENT

Candidate Session No. 002760-00

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Financial Records: 2007-2010 http://commerce.nic.in/annual2006-07/html/chapter2.html 3 http://www.handmadepapersindia.com/blog/index.php/2010/11/report-card-exports-handmade-paperhandmade-paper-products/

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Appendix 1:Interview with the Director ibid

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http://business.timesonline.co.uk/tol/business/economics/wef/article3241372.ece Appendix 1: Interview with the Director

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Appendix 6: Location Map www.mahindra.com 10 www.riico.com/

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Analysis And Discussion : Shifting to the Mahindra SEZ

Usually duty component for the imported raw material

http://www.stpiconsultancy.com/eoubenefits.html http://www.stpiconsultancy.com/eoubenefits.html 15 1 lakh=.1 million 16 http://www.stpiconsultancy.com/about_sez.html

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http://www.infodriveindia.com/indian-customs-duty/44219014-for-other-machinery.aspx http://www.business-standard.com/india/news/sez-units-get-service-tax-relief/350968/ 19 Central Sales Tax 20 http://stpam.org/str/note-special-economic-zone-vat

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Apart from the cost savings the other benefits include:

http://www.zamanzar.com/Jaipur/Ajmer+Road/Commercial-Property-Prices.html $1= Rs.45.5 approx 23 http://www.sezindiainvest.com/

A brownfield expansion means adding on to an existing facility. (source: http://www.steelguru.com/glossary/category/6/Brownfield_Expansion.html)

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http://sezindia.nic.in/index.asp http://www.mahindraworldcity.com/jaipur.aspx 27 Mahindra World City

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Appendix 1: Interview Of the Director ibid

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2. ACCOUNTING RATE OF RETURN (ARR)

The Calculation of ARR is based on Table 1 pg 14

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Fig 2: Abraham Maslows Hierarchy Of Needs

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Conclusion and Recommendation

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APPENDIX 1 Interview with the Director (excerpts)

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APPENDIX 2: Projected Profit & Loss Account

5000.00 4000.00 18000.00 12000.00 20000.00 35000.00 100000.00 50000.00

3,70000.00 5000000.00 Total 5000000.00

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Capital Account Share Holder Fund 3000000.00

Invest land in Sez Machinery Assets Generator, Cutting machine,

Ultrasonic machine, packing Mac., etc, machine 1000000.00

Provision/ Outstanding Exps.

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APPENDIX 3: Comparative Chart showing Advantage under EOU & SEZ

100% IT tax holiday up to 31.03.2009 or first 10 years whichever is earlier

Central Sales Tax

DTA Sale Trading Unit Domestic Procurement Benefit to DTA supplier

Cost recovery charges

Formal FIPB approval required as per sectoral guidelines

No minimum statutory investment limit prescribed

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APPENDIX 4: EXPORT PROCEDURE

Reserve Bank of India.

Filing of the shipping bill

Assessment of shipping bill

Examination of goods in SEZ