Strategic Management of Business Policy Formulation and Implementation between Bangladesh and India

Course Title: Strategic Management

Course Code: MBA 512

Prepared for

Prof: Muhammad Mahboob Ali, Ph.D.

Visiting Professor of IUB

Prepared by

Mostafizur Rahman 1221544

Shamsher Ali 113060

Abstract

The business relationship between India and Bangladesh is currently of special interest in both countries for a number of reasons. Firstly, there are urgent and longstanding concerns in Bangladesh arising from the perennial, large bilateral trade deficit with India, and from the large volumes of informal imports from India across the land border which avoid Bangladesh import duties. These concerns have been particularly acute on the Bangladesh side in the context of discussions between the two governments of the possibility of a bilateral free trade agreement along the lines of the India-Sri Lanka FTA. Secondly, even though (because of the disparity in the size of the two economies) India’s trading relationship with Bangladesh is much less significant for it than it is for Bangladesh, closer economic integration with Bangladesh is nevertheless seen as a very important way of reducing the economic and political isolation of the seven Indian eastern and north eastern states from the rest of the country. Finally, both countries have long shared common objectives for closer economic integration within the South Asia region, and these have recently been reemphasised by signing on to SAFTA, which takes effect from January 2006. Under SAFTA, the preferential tariffs agreed in the various rounds of SAPTA-- so far largely ineffective in generating much intra-regional trade-- will continue, but a number of ambitious new objectives have been enunciated. These include the eventual elimination of tariffs and non-tariff barriers on trade between the members, the harmonisation of Customs procedures and documentation, the facilitation of banking relationships, and cooperation and improvements in the infrastructure for regional trade and cross-border investments.

Table of Content

Chapter: 1

Introduction, Literature Review Objectives Methodology

Chapter: 2 Strategic Management of Business Policy formulations and Implementation between Bangladesh and India

2.1 General Business Policy of Bangladesh

Chapter: 3 Chapter 3: Bangladesh’s Business policies Formulation

3.1 Non tariff barriers

3.2 General tariff trends

3.3 Para-tariffs

3.4 Bangladesh’s tariff preferences for India.

3.5 Export policies

Chapter 4: India’s Business policies

4.1 Non-tariff barriers to imports.

4.2 Anti-dumping

4.3 What is the relevance of India’s anti-dumping for India’s imports from Bangladesh?

4.4 Export policies of India

Chapter 5: Business policy Implementation for Bangladesh and Indian

5.1 Implications for Bangladesh.

5.2 Implementation for India

Chapter 6: Recommendations

Chapter 7: Conclusion

Chapter: 1 Introduction

Strategic management is a level of managerial activity under setting goals and over Tactics. It entails specifying the organization’s mission, vision and objectives, developing policies and plans, often in terms of projects and programs, which are designed to achieve these objectives, and then allocating resources to implement the policies and plans, projects and programs. Strategic management provides overall direction to the enterprise and is closely related to the field of Organization Studies. In the field of business administration it is useful to talk about "strategic alignment" between the organization and its environment or "strategic consistency

“Strategic management is an ongoing process that evaluates and controls the business and the industries in which the company is involved; assesses its competitors and sets goals and strategies to meet all existing and potential competitors; and then reassesses each strategy annually or quarterly to determine how it has been implemented and whether it has succeeded or needs replacement by a new strategy to meet changed circumstances, new technology, new competitors, a new economic environment., or a new social, financial, or political environment.”

Strategic Management can also be defined as "the identification of the purpose of the organization and the plans and actions to achieve the purpose. It is that set of managerial decisions and actions that determine the long term performance of a business enterprise. It involves formulating and implementing strategies that will help in aligning the organization and it’s environmental to achieve organizational goals. “The function of operations management is to convert organizations inputs into the finished goods or services. The nature of how operations management will be carried out in an organization depends on the nature of the products or services of the organization. The success of the organization generally depends on the control and fulfillment of the business processes. Efficient strategic operations management can lead to an organizations success. Strategic Operations management can be improved in the business organization through business process reengineering, product design and specification, strategic capacity planning for products and services, aggregate planning, improving supply chain management, lean operations, improving waiting time, simulation and carrying efficiency in inventory management as well as project management.

Chapter 2 Literature review

1. Highlighted four approaches to strategic management, utilizing different factors that organizations may face. These are the Classical, Procession, Evolutionary and Systemic approaches. Each paradigm is suited to specific environmental factors, of which global firms have faced over the past 4/5 decades (Whittington 2001)

2. An SME (Small and Medium Enterprise) may employ an entrepreneurial approach. This is due to its comparatively smaller size and scope of operations, as well as possessing fewer resources. An SME's CEO (or general top management) may simply outline a mission, and pursue all activities under that mission. (Jone 2000)

3. The initial task in strategic management is typically the compilation and dissemination of a mission statement. This document outlines, in essence, the raison d’être of an organization. Additionally, it specifies the scope of activities an organization wishes to undertake, coupled with the markets a firm wishes to serve.

4. In introduced the idea of matching the organization's internal factors with external environmental circumstances. This core idea was developed into what we now call SWOT analysis by Learned, Andrews, and others at the Harvard Business School General Management Group. Strengths and weaknesses of the firm are assessed in light of the opportunities and threats from the business environment. (Philip Selznick 1957)

5.Business Policy defines the scope or spheres within which decisions can be taken by the subordinates in an organization. It permits the lower level management to deal with the problems and issues without consulting top level management every time for decisions. Business policies are the guidelines developed by an organization to govern its actions. They define the limits within which decisions must be made. Business policy also deals with acquisition of resources with which organizational goals can be achieved. Business policy is the study of the roles and responsibilities of top level management, the significant issues affecting organizational success and the decisions affecting organization in long-run.

.

Objectives

1. To know the Business Policy between Bangladesh and India

2. Find out the business policy formulation and implementation between Bangladesh and India

3. What are the steps are maintain to do the business between Bangladesh and India

Methodology

For this report much information had been collected from different published articles, journals, brochures and web sites. All the information incorporated in this report has been collected from the secondary sources. This study is based on a theoretical knowledge.

Chapter: 2 Strategic Management of Business Policy formulations and Implementation between Bangladesh and India

Business Policy defines the scope or spheres within which decisions can be taken by the subordinates in an organization. It permits the lower level management to deal with the problems and issues without consulting top level management every time for decisions. Business policies are the guidelines developed by an organization to govern its actions. They define the limits within which decisions must be made. Business policy also deals with acquisition of resources with which organizational goals can be achieved. Business policy is the study of the roles and responsibilities of top level management, the significant issues affecting organizational success and the decisions affecting organization in long-run.

Business policies are guidelines-statements (guide to plans & decision making) to facilitate predetermined objective on the mode and manner in the structural & functional aspects to achieve the objective formulated as plans at all levels of management in the business organization.

2.1 General Business Policy of Bangladesh

✓ To act on commercial consideration with due regard to the interest of industry, commerce, depositors, investors and to the public in general.

✓ To provide financial assistance to projects subject to their economic and commercial viability.

✓ To arrange consortium of financial institutions including merchant banks to provide equity support to projects and thereby spread the risk of underwriting.

✓ To develop and encourage entrepreneurs.

✓ To diversify investments.

✓ To induce small and medium savers for investment in securities.

✓ To create employment.

✓ To encourage Investment in IT sector.

✓ To encourage Investment in joint venture capital/project

✓

Chapter 3: Bangladesh’s Business policies Formulation

There is a detailed description and analysis of Bangladesh’s business policies in the recent World Bank trade policy Overview report. This section summarizes some of the main findings of that report that are relevant for the Bangladesh’s trading relationship with India, and includes new information that is now available for 2004/05, especially on Bangladesh’s para-tariffs which during 2004/05 continued to increase their role in Bangladesh’s policies of protecting domestic producers from import competition. Various aspects of Bangladesh’s import policies are considered first and at most length, since they would be most directly affected if there were an FTA between India and Bangladesh. This is followed by a brief discussion of some relevant aspects of export policies.

3.1 Non tariff barriers

During the late 1980s and early 1990s, most explicit QRs were abolished. Of the continuing restrictions the most important by far was the ban on textile fabric imports for use in the domestic market, which protected the textile industry. This was finally removed in January 2005. But there are still QRs on the import of chicks, eggs, salt and some packaging materials, and also on a few other products (e.g. mosquito insecticides) ostensibly for health, safety environmental and other grounds. Various permits, clearances and approvals are also required for extensive lists of other products, even though they are not formally subject to import licensing. In addition, the Bangladesh Bank requires that all imports be financed by an LC issued by an authorized bank in Bangladesh, and until December 2003 it required the importer to deposit a 30% cash margin. Moreover, in order to curb imports when the central bank thought the foreign exchange situation was weak, the margin was periodically increased for particular commodities. In the various studies undertaken as part of this project, except for sugar and textile fabrics, explicit QRs did not emerge as an impediment or special issue either for Indian exporters or in Bangladesh, possibly because the products still subject to QRs were not covered in the studies. Import procedures in Bangladesh and the resulting transaction costs for importers were also not covered explicitly, but they did come up in some of the work in India on transaction costs and the financing of Indian exports to Bangladesh. In particular the Bangladesh Bank LC rules and more generally the credibility of the Bangladesh banks were reported to constrain Indian exports to Bangladesh, and as one of the factors responsible for illegal practices in the border trade, especially at the Petrapole-Benapole border cross imported through its sea ports. Restrictions on what land border Customs posts are allowed to handle also exist on the Indian side, as discussed previously in the section on India’s trade policies.

| | | | | |
| | | | | |
|BDT In Million |31 | | | |
| |28 | | | |
| |25 | | | |
| | | | | |
| |24 | | | |
| |31 | | | |
| |20 | | |
| | | | |
| | | | |
| | | | | |

1998 99 00 01 02 03 04 05 06 07 08 09 10

During the first part of the period covered by the India-Bangladesh trade study, the last four of the protective para-tariffs listed above were in force, and since July 2004 when the regulatory duties were discontinued, the last three have been in force. The IDSC for the most part is an across-the-board import tax at a flat rate from which relatively few imported products are exempt. During FY 04 and 05 the rate was 4%, so the effect in most cases is just to increase the Customs duty by this amount. In 2004/05 this means that the four standard Customs duty “slabs” of 25, 15, 7.5 and 0 percent are in practice 29, 19, 11.5 and 4 percent, and the distortionary effects resulting from the dispersion of the four Customs duty rates is actually slightly reduced. Resulting from the maximum Customs duty (25%) and the IDSC tax (4%) and with VAT applied to both imports and the domestic product, was 28.5%. But in 2004/05 the average final consumer good protection rate was 37.3%, reflecting the effect of the selective para-tariffs. Also, during the 10 years since 1995/96 there has been no downward trend in this protection rate despite reductions in Customs duty rates during the period and the discontinuance of the license fee in 2002/03. By contrast the average protection rates on basic raw materials, intermediate goods and capital goods are much lower, and in the case of raw materials and intermediate goods have been trending down since 1998/99 The downward trend in intermediate good tariffs is especially marked, and suggests the existence of a consistent policy which seems to have started in about 1998/99, of increasing the protection to the processing margins of import competing industries selling in the domestic market, by pushing up the tariffs protecting their outputs while reducing the tariffs on their intermediate inputs. One of the key reasons for these much lower protection levels and divergent trends during the five years is the much lower incidence of the selective para-tariffs among raw materials and intermediate goods, and to a lesser extent capital goods Thus, in 2004/05 the selective para-tariffs added 12.75 percentage points to the average protection of final consumer goods, but only 0.87, 1.30. And 3.06 percentage points respectively to the average protection of raw materials, intermediate goods and capital goods.

So far the effects of the para-tariffs on average protection levels have been discussed, but the essential feature of these instruments is that they are selective and flexible and provide wide discretion in deciding the level of protection to be afforded to particular products and the firms and industries that produce them. For example, the government can decide whether to impose a 15%, a 35% or a 90% supplementary duty on top of a normal Customs duty, whether or not to provide a domestic VAT exemption, or perhaps to provide a combination of both. In this way the para-tariffs directly contradict and appear to have largely undermined a number of key objectives of the 1990s tariff reforms, which were to cut tariffs and make them more uniform, reduce their complexity by cutting the number of Customs duty slabs, and in these ways to also reduce the scope for discretion in decisions on protection levels.

Some indication of the selective use of the Para-tariffs to provide high protection levels is given Table 4.5. This reproduces the total protection rates in 1997/98 and 2003/04 for a sample of 55 products and product groups analyzed in the World Bank trade policy overview report and adds the total protection rates in 2004/05 for the same products. For most industries producing this group of products, there has been a massive increase in tariff protection during the years since 1997/98, even though protection rates were high to start with. Between 1997/98 and 2003/04 the simple average protection rate for the group of products went up by approximately 24 percentage points, from 50.8% to 74.7%. It increased for 50 of the 55 products, in most cases very substantially e.g. processed seafood from 35% to 88%, milk powder from 47% to 62%, sugar from 47% to 85%, sweet biscuits from 47% to 131%, cement from 25% to 66%, soaps and detergents from 61% to 98%, plastic tableware from 51% to 91%, textile fabrics from 65% to 72%, glass and glass products from 47% to 85%. For only five of the products did the total protection rate decline, and this reduction was minimal and from already high levels e.g. the salt protection rate fell from 150.8% to 143.2%, and the protection rate for after shave preparations fell from 64.6% to 54.6%. During 2004/05, the total protection rates of most of the products in this group fell, but the majority remained considerably higher than they had been in 1997/98. The average protection rate of the group declined to the still very high level of 66%, with protection rates of individual products and product groups ranging from 47.2% to 141%.“End user” tariff concessions. As well using the para-tariffs to raise the protection for the outputs of domestic industries, the government has developed a system of special “end user” tariffs which provide low concessional tariffs on the inputs and capital equipment for specified industries or for specified uses. In 2004/05, corresponding to the 6667 MFN tariff lines, there were 2503 “end user” concessional tariffs often more than one for the same product. These concessional tariffs are much lower than normal MFN tariffs, and in the case of machinery and parts used by exporters, the concessional protective tariff is zero. On average the “end user” tariff was 7.4%, and 10.5% if the zero machinery and part tariffs for exporters are excluded. This compares with the average MFN protective rate of 26.6% and with the following protective structure if only the four normal Customs duties and IDSC tax are imposed: These two industries, the end user concessions do not appear to be systematically used to increase the effective protection (processing margins) of import substitution industries. Instead, this is generally done by applying the lower standard Customs duty rates to inputs and adding para-tariffs to the protection for final products

For example, the HS chapter covering plastics and plastic products includes the following protective tariffs:

|HS code | | |2009/10 protection |
| | | |rate % |
| | | | |
|3924.10.00 |Plastic tableware & kitchenware | |83.7 |
|3924.90.90 |Household toilet articles of plastic | |83.7 |
|3922.10.00 |Baths, showers, sinks, washbasins of plastic |59.7 |
|3922.20.00 |Lavatory seats and covers | |59.7 |
|3922.90.00 |Toilet systems of plastic | |59.7 |
|3918.10.00 |Floor coverings of PVC | |47.2 |
|3918.10.00 |Floor coverings of other plastics | |47.2 |
|3919 |Plastic adhesive rolls and foil | |47.2 |
|3920 |Plate, sheet, film of plastic-other | |47.2 |
|3901-3914 |Plastic polymers in primary form |(PVC, polyethylene, polystyrene etc) |18.5 |
| | | | |

Source: World Bank, 2011”Bangladesh and Indian business Policies

The high protection rates for the final products on this list (and for other final plastic products not shown here) are due to supplementary duties (applied to 35 products in this chapter) and the use of the protective VAT in combination with a supplementary duty in the case of tableware,

Kitchenware and household toilet articles. Para-tariffs are not applied to the intermediate plastic polymers which are just subject to the 15% Customs duty and the 4% IDSC. The protection rate for a variety of other final plastic products (presumably not yet produced in Bangladesh?) is generally 28.5%. Similar patterns of tariff escalation are found both within and between other HS tariff chapters: for example the average MFN tariff for iron and steel is 13.6% while the average protective tariff for iron and steel products is 30%, and closer investigation of these two product groups and others will almost always reveal cases of much steeper tariff escalation, where Para-tariffs have been applied to finished products.

The end user concessions are more important for machinery and equipment, where the protective tariff for machinery and parts used by firms selling in the domestic market is 7.5% and zero for the same machinery and parts if they are used by “100% export oriented” firms. Most users of machinery in Bangladesh probably benefit from these concessions since the 7.5% “capital machinery” concession for non-exporters applies to about 40% of the tariff lines in the two principal HS chapters covering non- electrical and electrical machinery. Without these concessions many machines would cost more, since the same standard MFN tariff structure applies to them as shown above for plastic products i.e. Customs duties of zero, 7.5%, 15% or 25% corresponding to protection rates of 3.48%, 10.98%, 18.48% and 28.48%. But the concession is not available unless the machines are used as capital equipment to produce something else, and a close look at these chapters reveals a number of products-mostly durable consumer goods probably being produced domestically-with very high protection rates.

For Example:

|HS code | |2009/10 |
| | |protective rate % |
| | | |
|8415.1010 |Domestic air conditioners