shyam term paper

8/8/2019 Shyam Term Paper

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ROLE OF COSTING IN GLOBALISATION (ANTIDUMPING,COST

REDUCTION,COST CONTROL)

SUBMITTED TO:

PROF.JAWAHAR BABU

ASSOCIATE PROFESSOR

SUBMITTED BY:

SHYAM.K

(09BA029)

II MBA, FINANCEA

2009-2011

KARUNYA SCHOOL OF MANAGEMENT

KARUNYA UNIVERSITY

COIMBATORE - 641114


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INTRODUCTION

The globalization process has been neatly described as the expansion of free-market relations

and economic liberalism. Financier George Soros has defined its essence as the development

of global financial markets, the growth of transnational corporations, and their increasing

domination over national economies. A less restrictive definition by Peter Dicken sees

globalization, or the complex interaction between Trans-National Corporations and states set

within the context of a volatile technological environmentas something much less fundamentally

economic than the previous quotations suggest.

Seemingly determined to place globalization within a more inter-disciplinary conceptual

framework, Britains Department for International Development define the big G as the

growing interdependence and interconnectedness of the modern world through increased flows

of goods, services, capital, people and information. The process is driven by technological

advances and reductions in the costs of international transactions, which speed technology and

ideas, raise the share of trade in world production and increase the mobility of capital. Or, in

laymans terms, how our lives are becoming increasingly intertwined with those of distant

people and places around the world economically, politically and culturally.

Thus, in many ways, globalisation is many things to many people, the definitions each adopts

largely conforming to his or her own particular worldview or set of social and economic

circumstances, experiences or prejudices. Seeing globalisation merely in terms of economic

liberalism ignores the powerful effects of cultural exchange, both benign and destructive. Seeing

globalisation as some battle for hegemony between nation states and powerful non-state actors

ignores the non-global actuality of most trans-national business. As human geographers point

out, global processes are in fact complex strata of varied relationships and interactions

connecting and influencing people in diverse places and organizations. World environments and

histories are not shaped in some predetermined fashion from above. Rather, theyre shaped by a

multitude of forces, frequently change, and are experienced differently from place to place and

person-to-person.

All that said, any understanding of globalization has at its heart two main notions free trade and

the role government have in it.


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The free market economic system, as currently practiced, has been shown to promote more

economic growth and prosperity than any other economic system. Of the four main economic

systems, two, traditional and market, are not currently practiced A form of traditional economy

may be practiced by remote tribes in New Guinea or the Amazon but of course this takes place

within the sovereign territory of a recognized nation state. Pure market economies dont exist

and are unlikely to as long as governments exist and special interest groups have their ear. The

two systems most familiar to us from the 20th

Century are planned and mixed economies. Since

the collapse of the Soviet system, planned economies are not as prevalent as they once were but

still exist in states like North Korea, Iran and Cuba. While the current phase of globalization has

been spurred by that collapse, the negative effects of economic liberalism, particularly in

emerging and less developed nations, could give rise to another era of centrally planned

economies. Popular discontent with economic upheavals has been exploited recently by autocrats

like Venezuelas Hugo Chavez to return his countrys economic system back a more familiar

command system.

Economic Systems

Market

y Productive resources privately ownedy Allocation of resources determined automatically by the price system

Traditional

y Productive resources owned by the tribey Allocation of resources determined by leaders or tribal groups

Mixed

y Productive resources mainly privately owned but with some state ownershipy Allocation of resources mainly determined automatically by the price system but with

some government influence

Planned

y Most productive resources owned by the statey Allocation of resources mainly determined by the state

.


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Figure 2: International trade openness

Our understanding of how globalised the world actually is challenged when we study the

economic statistics of first world nations. While the United States symbolises globalisation for

many people around the world it is sobering to consider that nine-tenths of what Americans

consume is produced within the U.S. While the first wave of globalisation in the 19th

Century

was in many ways an outcome of British economic policy, three-quarters of British shop

purchases are of domestically made goods, nine-tenths goods from within the E.U

So why is it that purported freemarket economies can in practice be relatively closed to trade?

There are many obvious reasons. Culturally, locally made food products are more likely to

appeal to the New Zealand palate than, say, the Mongolian one because they are made by people

who understand Kiwi tastes. Many services, for example hairdressing, can only be traded locally.

These factors are examples of the naturally occurring restraints on globalisation. Other restraints

can be summed under the notion of protection, the deliberate policy on the part of governments

to erect trade barriers such as tariffs or quotas in order to protect domestic industries from

foreign competition.

Arguments to support protective practices are many. Some are economic arguments; others

based more on political or emotive concerns. A major argument and one that carries a lot of

weight with voters is that protection is necessary to combat unemployment. This argument is at


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its most attractive during recessionary periods, as most dramatically seen in the depression of the

1930s. The arguments points to the benefit gained by diverting expenditure away from imported

goods to locally made economies. Not only do the workers in that industry benefit through

secure employment, but the local businesses they trade with benefit too.

THE CASE FOR PROTECTION

Arguments for the protection of domestic industryEconomic Arguments

Non-Economic ArgumentsMajorMinor

Political motivationEnvironmental protection

Strategic reasonsInfant industry argument

To combat unemploymentTo promote diversification in trade

Retaliation for tariffs imposed by other countriesTo protect a home market

Protection against competition of cheap foreign labourTo prevent dumping.


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world production has risen due to their specialization, even though before their decision they had

an absolute advantage over their neighbours in the production of both commodities. Tied to this

theory is the principle known as Says Law, often summarised as supply creates its own

demand Overall supply of jandals and singlets has increased, and with higher productivity and

wages comes the increased ability of bothMundanians and Lalanians to consume more.

When Ricardo made his arguments in the 19th Century, the structure of world trade was quite

different from today. In 1888, 76% of world trade was in agricultural commodities and 9% in

manufactures. One hundred years later agricultural products only accounted for 9% of world

trade, 57% of it being in manufactures and 34% accounting for servicesIn todays economy it is

more important for a nation to develop competitive advantage in advanced industrial production

than its ability to benefit from the comparative advantage of inherited endowments of factors of

production like land and minerals. While traditional thought focused on cost efficiencies due to

factor or scale advantages, now advantage is created through continuous innovation and change.

Critics of globalisation as currently manifested point to the apparent effects of Comparative

Advantage theory as applied by bodies like the IMF in developing nations. While the theory

suggests that a countrys income will be enhanced by moving resources from less to more

productive uses, Stiglitz suggests that in practice resources in the developing world are often

moved from low productivity uses to zero productivity uses. After liberalising their trade under

developed world pressure, developing countries see their inefficient industries close due to

competition from their more efficient foreign competitors. While Comparative Advantage would

suggest that new, more productive jobs would be created once the old, inefficient industries and

protectionist policies have gone, in reality job creation is more a result of capital and

entrepreneurship, two things that developing nations are most lacking .

Proponents of free market theories point to decentralisation of control, economic motivation of

producers and consumers, efficiencies of production and the rapid communication of information

on market activity to consumers and producers are inherent strengths of the systemThe key

strengths of the free market have been summarised as:

1. Adam Smiths free market invisible hand co-ordinates economic activity, thusremoving the need for a huge bureaucracy of planners.


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2. Consumers have powerful economic incentives to learn and maintain skills that arevaluable to other people. Likewise, producers have powerful economic incentives to

produce goods and services that people value.

3. Producers have powerful economic incentives to produce goods and services usingproduction methods that minimise resource use and minimise waste.

4. Information is quickly and efficiently generated and passed on to consumers andproducers that prevent shortages and surpluses of goods.

There are also apparent weaknesses in the system, though whether these manifest themselves due

to the imperfection of the system or the inadequacy of its implementation is open to debate.

These apparent weaknesses include the propensity for the free market to create winners and

losers, characterised by wide gaps between rich and poor. The move towards a more freemarket

economy has seen great social upheaval in many nations across the world. Commenting in the

early 1990s Graeme Hunt pointed out that freemarket structural changesuch as deregulation

or greater consumption does not necessarily produce immediate economic gains. In fact, through

increasing unemployment, it can have the reverse effect. The dilemma most politicians face is

to balance the need for good economic policy against the short-term pain like unemployment that

some of those policies can create. As Buchholz has it, we may define good economics as

policies that produce positive gains even though victims may be created. Because even good

economic policies often produce victims, economists have a very tough time persuading

democratic governments to take good advice. Good economics may not be popular economics,

especially in the short run

The human features of globalisation are naturally the most controversial. On one hand an

economist like Legrain can say that we will never live in a truly global world as long as

geographical and local cultural differences remain. Legrain suggests that humans are largely

sedentary creatures, preferring to stay in their own patch rather than moving to outside

unknowns. The great human feature of the first era of globalisation was the spectacular mass

migrations of people across the world. America largely welcomed and absorbed millions of Irish,

Germans, Italians, Russians, Scandinavians etc. Masses more settled in Australia, New Zealand,

South Africa and Latin America. Non-European migrations saw millions of Indians and Chinese


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spread to every corner of the world. All were prompted largely by poverty, lack of opportunity or

repression in their own lands. Free and easy movement of labour is now a luxury relatively few

can achieve. Even once highly in demand Europeans face stringent residency rules to come to

countries like New Zealand or the U.S. The poor Irish who sailed in squalid, but legal, coffin

ships to America have now been replaced by poor Asians sailing in highly illegal coffin ships to

Australia. The salient feature of globalization is that it allows financial capital to move around

freely: by contrast, the movement of people remains heavily regulated. Soros believes that the

globalisation of financial markets has radically transformed the ability of the post-1945 welfare

state to tax capital, and thus provide a social safety net for those segments of society least able

to adapt to the quantum changes in the labour market. Without freer movement of people,

globalisation will remain only a partly evolved notion.

At the core of much economic debate is the question of government and what role it does or

should play in the economy. When an eminent economist like Joseph Stiglitz says, I believe

governments need to and can adopt policies that help countries grow but that also ensure that

growth is shared more equitably, we could nod our head at the noble sentiment, but still

question the statement. What is the relationship between policy and practice? Should

governments stay out of economics? If not, to what degree should they interfere? Is human

equity possible or desirable or simply some unnatural, though laudable sentiment? Theories on

effect of government policy have been a central feature of economic history.

Mercantilistssaid government generally helps the economySmithians said that government

hurts. Keynesians said government helps. Monetarists said government can help, but often hurts.

Public Choice economists said that governments usually hurtsRational Expectations

economists laugh at all their predecessors and proclaim that government intervention is an

illusionwhich cannot change reality very much

New Zealand in 2006 has a sprightly, if vulnerable, mixed market economy characterised by

solid freemarket policies and cautious, if growing, government intervention. Our national

prosperity is largely centred on the continuation of the globalizing process, particularly the

creation of truly open markets in the first world economies. The effects on New Zealand society

of a global economic retreat into protectionism and isolationism would be severe.


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ANTIDUMPING: A VILLAIN IN INTERNATIONAL TRADE

While other trade barriers such as tariffs and quotas have been considerably reduced under the

role of GATT/WTO, antidumping activities are threatening to become the most important trade

restricting device. Thinking about antidumping as a modern trade instrument, one might find it

hard to imagine that the origin of antidumping practices dates back to a century ago when

Canada adopted the first antidumping law in 1904.

Prior to the 1980s, there were only a few countries who were relatively active in pursuing

antidumping actions. They are nowadays regarded as 5 traditional users, and these include

Canada, the United States, the European Union, Australia, and New Zealand. Today the situation

changes a lot. More than 75 countries (treating the EU as one) have adopted antidumping law

and the number of antidumping investigations has risen sharply during the last two decades.

The increasing use of antidumping policy has gained a lot of attention from policy makers as

well as academics. The 1990s witnessed a fast growing body of literature concerning several

aspects of antidumping. This leads economists to a consensus that antidumping actions do a lot

more harm than good. An eminent trade theorist, Arvind Panagariya, even suggests that

antidumping should be outlawed.

According to the WTO rules, a firm is said to dump if it sells its product in another country at a

price less than the normal value. The normal value is defined as the price it charges in its local

country, or in a third country, or the constructed price (the constructed price is calculated by the

authority concerned when the first two are unavailable). Therefore, it does not matter whether a

foreign firm sells at a higher or lower price than the domestic ones; as long as the price charged

in the domestic country is below that in its own country, the firm can be found allegedly

dumping.

Nevertheless, one may still believe that dumping is unfair because products of the same quality

should be priced equally wherever they are sold. But, thinking about it more carefully, it is rather

strange if the prices are identical everywhere. There are so many factors that make price differ

across markets; tariff, market size, demand structure, and so on. Moreover, dumping can be


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Impact of Antidumping

The AD filing trends world over during the post-WTO era indicate that it is spreading although

there is a small decline in number of cases petitioned in year 2003 as per the WTO report. Many

countries have only recently enacted AD statutes and they are now filing increasing number of

cases. It is important to take note of main characteristics of AD investigation. It involves to

questions: one, was their unfair pricing(namely price discrimination or below cost sales), and

second did the dumped imports cause injury. In general, reply to the first question is always

positive.


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CONCLUSION

Antidumping trade protection has a variety of unique features that set it apart from more

traditional form of trade policy. At best in contemporary parlance it may be termed as a kind of

trade terrorism. AD has nothing to do with fair trade. It is simply another tool to improve the

competitive position of complainant firm against the foreign competitors. It is a modern form of

protection. The AD reform encounters many hurdles. Use of AD laws around the world is

widespread and increasing alarmingly. It is being patronized by vested interests. There are well-

organized protectionist lobbies to secure political support for their position on AD issues. The

most important obstacle the AD reform faces from ignorance about its operation and practice.

The supporters of AD law believe that it is in its present form is necessary to combat unfair

trading practices and thereby ensure a level playing field. The AD law in its current form will

distort foreign competition and inflict injury on normal trading practices. It is too handy

instrument to make use of it. The negotiations on this issue should be treated urgent to prevent

the erosion of market access. If the WTO negotiations that focus exclusively on specific changes

on AD agreement is bound to fail. There is need for critical evaluation of basic concepts,

principles and objectives of the AD agreement. The effort should be to reduce yawning gap

between the ADs accepted objectives and its actual practice. Development dimension should be

brought into the AD agreement with the introduction of special and differential treatment in

favor of developing countries.


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ROLE OF COSTING IN GOBALISATION -COST REDUCTION:

Importance of Cost Reduction

The importance of cost reduction programs within a company cannot be overstated. Companiesthat are losing money, need to increase profits, or must become more competitive need to cut

expenses in order to succeed. Knowing how to implement effective cost reduction strategies can

be the determining factor in the survival of a business.

Keeping a Competitive Advantage

A good manager understands the importance of cost reduction to the health of a company.

Bloated expense accounts can eat up profits quickly. A cost reduction plan is one that focuses onlowering costs in every business activity. The activities vary by type of business but the concept

of cost reduction does not vary.

The importance of cost reduction plans is related to the most common reasons why expenses

must be cut in a business.

y Need for increased profitsy

Improved competitive standingy Preserve company resourcesy Reduce wastey Improved productivity

It is not easy to compete in the market today. Rising prices, shifting fuel rates, global

competition, varying labor rates around the world, and spiraling health insurance costs have

made cost control a moving target. Sometimes it seems that a company gets one set of expenses

under control, and in the meantime, another area of the company begins experiencing cost

overruns. It is a never ending battle to maintain company profitability.


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The importance of cost reduction strategies cannot be understated, especially when a company is

struggling to maintain profitability. Areas that can be reviewed for expense reductions include

the following.

y Telecommunicationsy Leasesy Materialsy Office suppliesy Maintenance costsy Renty Utilities

When a company must generate more cash as fast as possible, management will have to decide

which costs can be most effectively reduced. If the reduction is needed quickly, expenses cut

first will normally be those that are not fixed or directly tied to production. It is not a good idea

to drastically reduce expenses that produce the company product or service without careful

evaluation.

If your company understands the importance of cost reduction as a tool to increase profitability,

the company will have a much better chance of remaining profitable no matter what stage of theeconomic cycle is occurring. That is because cost reduction is an effective tool that can be

responsive to a company's need.Managing expenses is just as important as managing revenue.

A regular review of costs can prevent a company from wasting money resulting from 'bad

habits'. No matter whether it is good times or bad, the importance of cost reduction strategies

never changes.


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ROLE OF COSTING IN GOBALISATION-COST CONTROL:

According to CIMA, standard costing "is a control technique which compares standard cost and

revenues with actual results to obtain variances which are used to stimulate improved

performance." Therefore, this definition underscores that a standard cost is equivalent to a

planned cost. When planned or standard costs are compared with actual costs or results, this

yields a variance that can be used to analyze performance with a view to improving it.

A critical aspect of standard costing is identifying the resources necessary for producing outputs,

whether goods or services. The planned cost used in the standard costing technique is an example

of a budgeted cost. Standard costs are applied to direct materials, direct labor and production

overhead (including fixed and variable overheads). In using the standard costing technique, the

following steps are necessary:

1. There must be an established estimate of the cost of goods or services.

2. Information about actual costs must be collected

3. The variance between the actual and planned costs must be evaluated

Standard costing is a useful control technique that, like any other, has its merits and demerits.Using the technique seems simple enough, but the groundwork behind it is rather intensive. For

instance, there must be agreement on what standard to use and managers must be aware of the

impact of the standard on employee morale and behavior. However, that standard costing helps

with budgeting, control, improved efficiency and another method of valuing stock, among other

benefits, makes it a valuable technique.

There are significant implications to modify the priorities on managerial accounting. The

production-line manufacturing industries are supreme for a highly prepared standardized cost

accounting systems move toward. The service and marketing industries are not (1990). They

need an importance on decision-making techniques that are elastic and timely. Marketing

comprises demand-creating and demand-servicing activities. The demand-creating activities are

called promotional and include advertising and selling functions. The demand-servicing


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activities are called logistics or physical distribution and include all physical movement functions

from the production line to the ultimate consumer. Contemporary cost systems have not yet

content the informational necessities of the marketing career. Marketing managers are repeatedly

asking for accounting expenditure classifications that will augment their decision-making

capability (, 1994). There will continue to be a growing insists for managerial accounting

methods in the field of marketing. In the managerial accounting of Toyota, the company does not

put emphasis on the capacity, timing, and recording of costs, however on the understanding and

analysis of cost data for decision making. The effect is that a wide variety of descriptive

adjectives have developed in managerial accounting to allow for more precision in the

interpretation of the data. Each adjective used with cost gives it a more precise meaning ( 1990).

The companys cost has been defined as a sacrifice of resources incurred for a future benefit orobjective. The resources that are sacrificed are in the form of cash or cash equivalent, such as

payment in kind, or the incurrence of a liability. Toyota is expecting the future benefit that refers

to assets such as inventory, machinery, equipment, property, and intangibles ( 1990) . The

expenditure for a future benefit (asset) that lasts only during the current period is a cost that is

expensed. For example, the cost of office supplies used in the current fiscal period is classified as

an expense because it does not have benefits that carry over to future fiscal periods.

Toyota is also implementing a cost objective thatis a product for which the total or unit cost is to

be determined. A cost objective may be the product manufactured or the service performed, or it

may be a department, a process, or a function, all of which are referred to as cost centers (1991).

The cost center is the smallest unit for which costs are accumulated for reporting and analytical

purposes. Since Toyota is a traditional Japanese company, they are still implementing the

traditional cost accounting systems utilized in the United Kingdom and are being challenged by

corporate financial and production executives and by professors of both accounting and

production management ( 1987). A major controversy over the relevance of the traditional cost

accounting systems has emerged. There are two opposing viewpoints, one that points directly to

the traditional cost accounting system as a major contributor to the diminution of productivity in

selected U.K. industries, and the other viewpoint that the cost accounting system is not a direct

cause of production problems. Those who support the first position propose a major overhaul of

traditional accounting systems in order to solve production problems resulting from world-class


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competition (1987). Those who take the opposing viewpoint are convinced that the production

systems need the overhaul and that the traditional accounting systems cannot directly cause

production problems. They point out that management accounting cost systems is already

flexible and custom designed so that only minor tune-ups are necessary to accommodate the

changes brought about by world-class competition. The key characteristic of the direct cost

Toyota is traceability to the cost object, such as the product (, 2005). In the traditional financial

accounting system, only direct materials and direct labor are assumed to be traceable to the

product. A computer-integrated manufacturing system (CIMS) incorporates production changes

that make it possible to trace some overhead directly to the product. There is one significant

change in cost accounting that may be necessary because of the pressure to change the

production process; the change is in the definition of overhead (, 2005). At present, all factory

overheads are assumed to be indirect, not traceable to the product.

In the case of Toyota if some of the overhead costs under CIMS production processes can be

directly traced to each product line, then overhead should no longer be assumed to be inherently

indirect, and should be divided into direct overhead and indirect overhead (, 2005). Direct

overhead is that which can be traced to the product just as direct material and direct labor.

Indirect overhead will have to be allocated to product lines as before. This concept is not new,

but it has not been emphasized or foreseen as a panacea for the problems created by the pressures

to change the production process

The following list describes the most important objectives of computer-integrated manufacturing

systems of Toyota ( 2005):

1.Increase product quality.

2.Shorten the time required for non-value added activities, for example, machine set up time.

3.Reduce inventory levels and push-through versus pull-through methods.

4.Develop flexible manufacturing systems where feasible.


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Work toward a fully integrated and coordinated production system operated by a centralized

computer.

Toyota tries to preserve its homegrown economic model such as the values it practices in its

business practices to be able to retain their competitive advantage (1990). Indeed, it is a hard task

for the company to preserve its locally conceptualized model while maintaining linkages with the

global economy. However, because critical success factors are established as key aspects needed

by a company, this has become easier in dealing with the issue of globalization.

Although the core values which have distinguished the management of Toyota are still retained,

the company has stepped out to shine for the rest of the world (2005). The latest developments in

the company proved that it is stronger than ever, emerging victorious from otherwise

discouraging situations such as the adverse effect of the strong yen. The company had a strong

financial performance with increased net earnings of $10.2 billion and increase global sales by

9.9 percent. This has narrowed the gap with General Motors and tied with Ford which gives

credence to predictions that the company will take over as the worlds largest automaker by

2015.


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BIBLIOGRAPHY:

y Lynch, R. (2003), Corporate Strategy, 3rd ed., Prentice Hall Financial Times.y Macmillan, H. & Tampoe, M. (2000), StrategicManagement, Oxford University Press.y www.wikipedia.comy www.google.com.

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