32nd NA
TIONAL CONVENTION
NATIONAL
OF COMP
ANY SECRET
ARIES
COMPANY
SECRETARIES
HOTEL GRAND HY
AT T, MUMBAI
HYA
7th, 8th & 9th OCTOBER, 2004
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Co-operate to Compete Globally
— Surinder Pal Singh
A-1
Indian Corporate Laws in the Global Perspective
— S M Gupta
A-6
Regulatory Competition : Leading to Reflexive Harmonisation of Laws
— Suresh T Viswananthan
A - 12
Meeting the Giants : Developing Strategies for Global Competition
— S Raji Reddy & P Swarna
A - 19
Global Alliances and Joint Ventures – Critical Inputs and Issues
— K S Ravichandran
A - 25
Managing the Indian MNCs
— P S Hariharan
A - 31
IPRs – A Gateway to Corporate Globalisation
— Leela Jain & Divya Saxena
A - 37
IPRs – A Gateway to Corporate Gloablisation
— Dr V Balachandran
A - 50
Globalisation of Patent Law and Indian Scenario
— Naresh Kumar
A - 55
Intellectual Property Rights – A Gateway to Corporate Globalisation
— M Govindarajan
A - 60
Building Strategies for Future – A Professional’s Approach
— Chandrakumar A Nahata
A - 66
Competitiveness of Professionals vis-à-vis Cross Border
Mergers and Acqusitions
— Rabi Narayan Kar
A - 70
Multi-Disciplinary Partnerships for Export of Secretarial Services
Towards the Basis of Complete Compliance
— C R Padma
A - 76
Co-operate to Compete Globally
CO
TE TO COMPETE GL
OBALL
Y
CO-- OPERA
OPERATE
GLOBALL
OBALLY
SURINDER PAL SINGH*
INTRODUCTION
During 1993, Microsoft’s market value became
greater than that of IBM. Such an event would have
been unthinkable just a few years before, given IBM’s
total dominance of the computer industry. Yet, at the
end of the 1970’s, when IBM choose a small company–
MICROSOFT- to be their partner in developing the
operating system for their PCs, Big Blue’s senior
executives little imagined that their decision was, in fact,
paving the way for such a dramatic reversal of fortunes.
Allied to IBM, Microsoft was able to create and impose
an international standard for personal computing and,
on this basis, to become the world’s undisputed
software leader. Its control of PC operating systems in
fact turned out to be the company’s main asset for
dominating the market for applications software.
This proliferation of collaborative agreements or
strategic alliances is one of the most striking changes
that has occurred in the international business
environment over the last two decades. Hardly a day
goes by without the media reporting the signing of some
agreement between two or more firms. Considered
unusual – indeed suspicious – just a few years ago,
collaborations/alliances are now a fact of life in most
industries. They have become an essential component
in the strategies implemented by most global
companies.
Alliances involve all kinds of companies and take
extremely diverse forms. They are forged by
multinational corporations as well as by small companies.
Virtually all industries – both in manufacturing and
services – as well regions of the world , have been
affected by the rapid growth in inter-firm collaboration.
Alliances also cover a host of substantially different
*
situations and forms. Some of these have been with us
for a great many years, while others have only emerged
more recently.
A study by Prahlad and Doz [1987] of a number of
multinationals, spanning a decade, found that corporate
success at international level was dependent upon the
ability of the multinational to co-ordinate and integrate
global activities while, at the same time, retaining
responsiveness to the demands of local markets and
changing circumstances. More recent researches have
also pointed to collaboration between companies as a
potential source of competitive edge.
THE CONCEPT OF STRATEGIC ALLIANCES
Strategic alliances have become fashionable as they
are discussed in boardrooms around the world and
mentioned constantly in the media. However, what
the term actually means is rarely defined precisely. For
some, strategic alliances link companies and subcontractors together in what is described as extended
companies or as constellations of firms [Lorenzoni and
Ornani, 1988]. The acquisition of minority cross-holdings
is sometimes viewed as a sign of an alliance in the
making. Certain analysts consider alliances “strategic”
if they lead to the creation of a legal entity, a shared
subsidiary distinct from the parent companies [Harrigan,
1985]. For yet others, strategic alliances are pacts with
no clearly identified aim linking large conglomerates to
one another. These “mega deals” as they are sometimes
called, are based primarily on the bond of friendship
and mutual trust existing between senior executives from
both companies.
Although it is impossible to provide a single answer,
fundamentally, the term “strategic alliance” should not
Senior Faculty Member - Strategic Management Area Rai Business School, Rai University, Delhi Campus
A–1
32nd National Convention of Company Secretaries
be applied to any kind of inter-firm links, but should be
reserved for a special type of relationship which, in
particular, makes these alliances so difficult to manage.
Therefore, the key element in the notion of alliance is
that each firm involved in the partnership remains
independent, despite the agreement linking it to its
partners. In other words, in alliances, the partner
companies join forces in pursuit of common goals
without losing their strategic autonomy and without
abandoning their own specific interests[Child and
Faulkner, 1998].
penetrate new overseas markets more quickly, create
synergies, decrease market risks, provide knowledge that
expands a company’s skill base, over-come market
barriers and reduce competition.
In short, if multinational strategic alliances are
planned and managed effectively, they can:— enable overseas expansion and provide access
to new markets
— add value to a firm’s product line
— expand distribution and provide access to
materials
According to this definition of strategic alliance, the
agreement between British Airways and American
Airlines concerning the co-ordination of their routes,
schedules and reservation systems was definitely an
alliance, similar to many other set-ups in the air travel
industry around the world. In the case of British Airways
and American Airlines, both companies remained
independent and each pursued its own strategy, but
benefited from the advantages conferred by the cooperation agreement that linked them to one another.
In the automobile industry, General Motors & Toyota on
the one hand, Chrysler & Mitsubishi on the other, joined
forces to produce small vehicles for the American
market, yet they all remained independent car makers.
This criterion of continuing autonomy of the partner
companies confirms that the Airbus consortium is
undeniably an alliance, since the companies that are
members in the consortium – Aerospatiale of France,
British Aerospace of UK, DASA of Germany and CASA
of Spain – are all independent aircraft manufactures,
pursuing their own agendas and even producing mutually
competing regional transport airplanes – CASA’s CN235,
British Aerospace’s ATP, Aerospatiale’s ATR – to compete
in the market of 35 to 70 seater aircrafts. However, all
four companies decided to work together on Airbus,
without merging or even proceeding with the acquisition
of cross-holdings in each other’s equity.
— develop and improve operations, facilities &
processes, and provide access to new
capabilities, new knowledge and new
technologies
— provide additional financial resources
— decrease risks and enable relatively rapid
adaptation to changing competitive market
forces
— create new opportunities when faced with
increasingly intense global competition
— reduce competition
THE NEED FOR MULTI-NATIONAL STRATEGIC
ALLIANCES
The recent and rapid growth in the number of
strategic alliances can be explained by various changes
in the international business environment. The
globalisation of trade, the acceleration of technological
progress and the disenchantment with mergers and
acquisitions seem to be major driving forces that have
led firms to enter into significant number of co-operative
agreements.
1. Globalisation
OBJECTIVES OF STRATEGIC ALLIANCES
Strategically, alliances can add value to a firm’s
product line or products by adding items or features to
a line, bringing new or existing items to market more
quickly, expanding overseas markets, increasing service
availability and enhancing research and development.
In the distribution area, alliances can provide new
marketing channels, better control over channels and
improved supply. Alliances can help in operations by
creating capacity in new locations, improving efficiency,
adding new technologies and developing new processes.
They can also provide additional financial resources,
A–2
The globalisation process that most industries have
been undergoing is forcing many companies to
expand internationally as rapidly and extensively as
possible. For example, in the telecommunication
industry, Deutsche Telekom, France Telecom and
Sprint created an alliance to form GLOBAL ONE to
address the needs of their international corporate
customers.
One of the main drivers of globalisation is the fact
that customer needs and preferences throughout
the world are rapidly converging. This in turn makes
it possible to produce so called “global products”
i.e. products uniformly suited to all customers,
irrespective of their nationality. Such an opportunity,
Co-operate to Compete Globally
seized by certain competitors, becomes a threat
for others. For instance, the network of alliances
that Matsushita established throughout the world
was instrumental in the success of its VHS standard,
allowing it to diffuse this standard worldwide more
rapidly than Sony’s Betamax system and Phillip’s
V2000. As a result, the VHS standard was eventually
adopted by all VCR manufacturers including Phillips
and Sony.
behind the recent development of strategic
alliances. An alliance makes it possible to avoid the
culture and organizational shock by proceeding step
by step, and gradually adapting the content and
structure of the agreement. What is more, an
alliance is, by definition, limited to a specific area
of co-operation laid down in the agreement. This
scope of collaboration may subsequently be
extended, while those activities of no interest to
one or the other of the partners can be excluded
from the arrangement. This represents a substantial
advantage over a merger.
2. Technical Change
The cost and complexity of new technologies is
increasing rapidly. In fact, industries where
technology is a major source of competitive
advantage, it has become difficult to meet all the
costs or develop all the different capabilities required
for a totally independent strategy independently.
The sheer scale of the resources necessarily
encourages firms to collaborate. The example of
the automobile industry is particularly significant in
this case. The sophistication of modern vehicles is
such that manufacturers can no longer rely
exclusively on their own capabilities. This is why
automobile manufacturers are forging new industrial
relationships with their subcontractors and parts
suppliers, and, through this process, are increasingly
becoming automobile designers and assemblers.The
suppliers, in turn, are given to manufacture those
parts that the car maker can’t be bothered to
produce. This maintainance of excellent partnership
relations with suppliers has become a key strategic
weapon that enables car manufacturers to have
access to all the technologies they need while
achieving competitive costs and high quality.
Companies are also facing an increasing degree of
technological uncertainity. With the increase in the
diversity and complexity of technological know-how,
the range of possible innovations based on this
expertise is growing wider. While the range of
possibilities offered by new research has been
increasing tremendously, individual R&D
programmes are growing ever more expensive and
the chances of achieving technical success and
commercially profitable results has become more
and more uncertain. This is why co-operation is
viewed as unavoidable in many high-tech industries.
By dividing-up the R&D work between the partner
firms, it enables them to share costs, pool their
expertise, and explore a greater number of avenues.
THE CHOICE OF THE MOST APPROPRIATE
MULTINATIONAL STRATEGIC ALLIANCE
The form of alliance to be chosen by the parties
will depend upon several factors. Also, the complexity
of the alliance will depend upon the objectives which
the two parties want to pursue. Normally, alliance
partners tend to seek co-operation on minimum number
of areas in order to avoid over-exposure to the risk of
one of the parties leaving abruptly or finding out too
much. The selection of partners for a consortium will
depend upon matching the resources and skill
requirement of the project with those organizations that
are to contribute to the effort. Organisations with
previous experience of projects of the type proposed
will obviously be among the most in demand as
consortium participants.
ARE MULTINATIONAL STRATEGIC ALLIANCES
UNSTABLE AND HAZARDOUS STRATEGY ?
The instability of alliances, as stressed by many
experts, is not a drawback by itself. One of the specific
features of alliances is that they allow for a certain degree
of reversibility in strategic choices. It follows that some
instability is a logical consequence of this reversibility.
When an alliance is formed, the partner firms may in
fact be seeking some degree of reversibility. When
entering or withdrawing from a given business, a firm
can use collaboration as an initial step towards full entry
or exit, while still maintaining the option of deferring
complete acquisition or divestment, if both partners so
decide. Therefore, for one partner, the alliance may
provide a means to gain access to or to strengthen its
position in a given market, and, for the other, a way to
withdraw gradually from that same business.
3. Disenchantment with Mergers & Acquisitions
GUIDELINES FOR MAKING MULTINATIONAL
STRATEGIC ALLIANCE WORK
The disenchantment that has followed many mergers
and acquisitions seems to be one of the reasons
The benefits that a company derives from a strategic
alliance seem to be a function of three factors – partner
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32nd National Convention of Company Secretaries
selection, alliance structure, and the way in which the
alliance is managed. We look at each of these issues in
turn.
technologies to prevent their leakage to the
other participant. For example, in the alliance
between General Electric and Snecma to build
commercial aircraft engines, GE reduced the
risk of excess transfer by walling-off certain
sections of the production process. The
modularization effectively cut-off the transfer
of what GE regarded as key competitive
technology, while permitting Snecma access to
final assembly.
1. Partner Selection
One of the keys to make a strategic alliance is to
select the right kind of partner. A good partner has
three principal characteristics :— A good partner helps the firm achieve its
strategic goals, whether it is about achieving
market access, sharing the costs & risks of new
product development or gaining access to
critical core competencies. In other words, the
partner must have capabilities that the company
lacks and it values.
Contractual safeguards should be written into
an alliance agreement to guard against the risk
of opportunism by a partner. For example, TRW
entered into three strategic alliances with large
Japanese auto component suppliers to produce
seat belts, engine valves and steering gears for
sale to Japanese owned auto assembly plants
in the United States. TRW drafted clauses in
each of its alliance contracts barring Japanese
firms from competing with TRW to supply US
owned auto companies with component parts.
By doing this TRW protected itself against the
possibility of Japanese companies entering into
the alliances merely as a means of gaining access
to the North American market to compete with
TRW in its home market.
— A good partner shares the firm’s vision for the
purpose of alliance. If two companies approach
an alliance with radically different agendas, the
chances are great that the relationship will not
be harmonious and will end in divorce.
— A good partner is unlikely to try to exploit the
alliance opportunistically for its own ends, that
is, to expropriate the company’s technological
know how while giving away little in return. In
this respect, firms that want to maintain their
reputations for fair play probably make the best
partners.
To select a partner with these three characteristics,
a company needs to conduct some comprehensive
research on potential alliance candidates. To increase
the probability of selecting a good partner, the firm
should collect as much pertinent, publicly available
information about potential allies from informed
third parties including companies that have had
alliances with potential partners, investment bankers
who have had dealings with them, and some of
their former employees to know the potential
partners before committing to an alliance.
— Both parties to an alliance should agree to swap
skills and technologies, thereby ensuring a
chance for equitable gain. Cross-licensing
agreements are one way to achieve this goal.
For example, in the alliance between Motorola
and Toshiba, Motorola licensed some of its
micro-processor technology to Toshiba, and in
return Toshiba licensed some of its memory chip
technology to Motorola.
3. Managing the Alliance
2. Alliance Structure
Having selected a partner, the alliance should be
structured in the following ways so that the
company’s risk of giving too much away to the
partner is reduced to an acceptable level :— Alliances should be designed to make it difficult
to transfer technology not meant to be
transferred. Specifically, the design,
development, manufacture and service of a
product manufactured by an alliance can be
structured so as to “wall-off ” sensitive
A–4
Once a partner has been selected and an appropriate
alliance structure agreed on, the task facing the
company is to maximize the benefits from the
alliance. One important ingredient of success
appears to be a sensitivity to cultural differences.
Differences in management style can often be
attributed to cultural differences. Managers need
to make allowances for such differences when
dealing with their partner. In addition, managing
an alliance successfully means building interpersonal
relationships among managers from different
companies, a lesson that can be drawn from the
successful strategic alliance between Ford and
Mazda. This partnership resulted in the development
of best selling cars such as the Ford Explorer and
Co-operate to Compete Globally
it learns from its alliance partner and then put
knowledge to good use within its own organization.
One suggested approach is to educate all operating
employees about the partner’s strengths and
weaknesses and make clear to them how acquiring
particular skills will bolster their company’s
competitive position. To spread this knowledge, the
managers involved in an alliance should be used as
a resource in familiarizing others within the company
about the skills of an alliance partner.
the Mazda Navajo. Ford and Mazda established a
framework of meetings within which managers from
Ford and Mazda discussed matters pertaining to the
alliance as well as had sufficient non-work time to
allow them to get to know each other. This resulted
in building trust and facilitation of harmonious
relationships between the two companies.
Another major factor determining how much a
company gains from an alliance is its ability to learn
from alliance partners. Gary Hamel, Yves Doz and
CK Prahalad reached this conclusion after a five year
study of fifteen strategic alliances between major
multinationals. They focused on a number of alliances
between Japanese companies and Western
[European or American] partners. In every case in
which a Japanese company emerged from an
alliance stronger than its western partner, the
Japanese company had made greater effort to learn.
On the other hand, western companies regarded
the alliance purely as a cost sharing or risk sharing
device, rather than an opportunity to learn as to
how a potential competitor does business. However,
as a counterpoint, the agreement between General
Motors and Toyota to build Chevrolet Nova is an
example of an alliance which demonstrated a clear
learning asymmetry.
Conclusively, when entering into an alliance, a
company must take some measures to ensure that
CONCLUDING REMARKS
Multinational alliances are emerging as a key factor
on the CEO’s growth agenda, and for good reason.
Multinational alliance structures can enjoy above-average
returns by providing a structure that allows partner
companies to transform performance and lead industry
developments as well as better response to market
changes.
But at times these alliances can be difficult and
unruly affairs, requiring a great deal of senior
management attention. Creating and maintaining a true
multinational alliance capability is too important to be
managed on an adhoc basis. And as successful companies
have shown, focusing on a definite course will bring
clarity to these ventures and help improve performance.
In short, multinational alliances offer too many advantages
to be ignored.
A–5
32nd National Convention of Company Secretaries
INDIAN CORPORA
TE LAWS IN THE GL
OBAL
CORPORATE
GLOBAL
PERSPECTIVE
S M GUPTA*
Corporate Laws in our Country keep on changing to
suit the need of society and growth of trade and industry.
Global developments largely influence these changes.
The recent requirements for countries as per WTO needs
are only one such reason. Globally, the developments,
which aim at liberalization and simplification of various
laws of different countries, have influenced in our country
not only the laws relating to Intellectual Property Rights
but also Foreign Exchange Laws, Competition Laws and
other Corporate Laws. No country, big or small, is free
from the effect of these changes taking place worldwide
and they have to keep updating their framework of laws
in keeping with the need of the hour. While the laws
are being framed by Parliament and Legislatures, they
are dictated by the need of the society and they need to
be continuously amended to meet the aspirations of the
people who are the ultimate users of these laws.
In the Indian context, the process of reforms had
started long ago when the slogan of liberalization,
privatization and globalisation was being heard
everywhere. The Government is committed to protect
the interest of investors to save the capital market and
sustain its growth on a long-term basis without which
industrial growth cannot be achieved. Intellectual
Property has been recognised as one of the most
important assets having large commercial value. Social
and environmental issues have also been the topics for
discussion at all International Forums. Regulatory
framework requires to be strengthened to make the
society free from unhappy incidents which not only affect
the whole society but also put a question mark on the
ethics and fair practices required to be followed by the
business houses as also by the professionals. Some of
the developments in the developed countries necessitated
this debate due to which Corporate Governance has also
become very important in the present Scheme of things.
*
Governance is required for the industry as well as for the
professionals. In the light of these developments, the
United States promulgated the Sarbanes Oxley Act in
the year 2002.
SARBANES – OXLEY ACT OF 2002
The above Act was promulgated by the Government
of United States of America soon after the collapse of
the Enron and the circumstances leading to its failure.
The US government was quick in bringing the above
Act to save its international reputation and they also
speeded up the process of prosecution of the persons
who were under financial, professional or other
misconduct. Everything is now in public knowledge and
the fall out of the happenings is also known to one and
all throughout the world.
The salient features of the above Act are given
below: 1. A Public Company Accounting Oversight Board was
established. The members of the Board will be
appointed by the Securities & Exchange Commission
(SEC) after consultation with the Chairman of the
Federal Reserve Board and the Secretary of the
Treasury.
2. The duties of the Board, inter-alia, include the
following -
FCS, FASM, LL.B, M I M A, Past Chairman - EIRC of the ICSI.
A–6
(a) Registration of Public Accounting Firms.
(b) Establishment of auditing, quality control, ethics,
independence and other standards relating to
the preparation of audit reports for issuer
company.
(c) Conduct inspections of accounting firms.
(d) Conduct investigations and disciplinary
proceedings and impose appropriate sanctions.
Indian Corporate Laws in the Global Perspective
(e) Perform such other duties or functions as
necessary or appropriate.
(f) Enforce compliance with the Act, Rules of the
Board, professional standards and the Securities
Laws relating to the preparation and issuance
of audit reports and the obligations and liabilities
of accountants with respect thereto.
(g) Set the budget and manage the operations of
the Board and the staff of the Board.
3. The Board must notify to the SEC when it imposes
‘any final sanction’ on any accounting firm or
associated person. The Board’s findings and sanctions
will be subject to review by the SEC and the SEC
may enhance, modify, cancel, reduce or require
remission of such sanction.
4. The Act outlines services, which will be outside the
scope of practice of auditors. These non-audit
services are given below:
It shall be unlawful for a registered Public accounting
firm to provide any non-audit service to an issuer
contemporaneously with the audit including the
following: (a) Book keeping or other services related to the
accounting records or financial statements of
the audit client.
(b) Financial information system, design and
implementation.
(c) Appraisal or valuation services, fairness opinions
or contribution–in-kind reports.
(d) Actuarial services.
(e) Internal audit outsourcing services.
7. Each member of the Audit Committee shall be a
member of the Board of Directors of the issuer
company and shall otherwise be independent.
‘Independent’ has been defined as not receiving
other than for service on the board, any consulting,
advisory or other compensatory fee from the issuer
company and as not being an affiliated person of
the issuer company or any subsidiary thereof.
8. The CEO & CFO of each issuer company shall
prepare a statement to accompany the Audit Report
to certify the ‘appropriateness of financial statements
and disclosures contained in the periodic report and
that those financial statements and disclosures fairly
present in all material respects, the operational and
financial condition of the issuer company’.
9. The SEC may issue an order to prohibit conditionally
or unconditionally, permanently or temporarily any
person who violates Section 10(b) of the 1934 Act
from acting as an officer or director of an issuer
company if the SEC has found that such person’s
conduct ‘demonstrates unfitness’ to serve as an
officer or director of any such issuer.
10. It will be unlawful for an issuer company to extend
credit to any director or executive officer.
11. Directors, officers and 10% owners must report
designated transactions by the end of the second
business day following the day on which the
transactions were executed.
12. Each annual report of an issuer company will contain
an ‘internal control report’ as provided in the new
Act and it will also disclose whether it has adopted
a code of ethics for its senior financial officers and it
is also required to publish the contents of that code.
13. A Corporate and Criminal Fraud Accountability Act
also came in the year 2002 providing for the
following : -
(f) Management functions or human resources.
(g) Broker or dealer, investment advisory or
investment banking services.
(h) Legal services and expert services unrelated to
the audit.
(i) Any other services that the Board may determine
by regulation is impermissible.
5. The lead auditor or co-coordinating partner and the
reviewing partner must rotate off of the audit every
5 years
6. The CEO/CFO/CAO or person in an equivalent
position cannot have been employed by the
company’s audit firm during the one-year period
preceding the audit.
A–7
(a) Auditors are required to maintain ‘all audit or
review work papers’ for 5 years.
(b) This Act was a felony to ‘knowingly’ destroy or
create documents to ‘impede, obstruct or
influence’ any existing or contemplated federal
investigation.
(c) Employees of issuer companies and Accounting
Firms are extended ‘whistle blower protection’
that will prohibit the employer from taking
certain actions against employees who will
lawfully disclose private employer information
to parties in a judicial proceeding involving a
fraud claim. Whistle-blowers are also granted a
remedy of special damages and attorney’s fees.
32nd National Convention of Company Secretaries
(d) A new crime for securities fraud has penalties
of fines and upto 10 years imprisonment.
14. SEC was given authority to seek court freeze of extra
ordinary payments to directors, officers, partners,
controlling persons and agents of employees.
15. US sentencing Commission will review sentencing
Guidelines for Securities and Accounting Frauds.
16. SEC may prohibit anyone convicted of securities fraud
from being an officer or director of any publicly traded
company.
NEW TRENDS IN CORPORATE LAWS IN INDIA
Competition Act, 2002
The Indian Market has to gear itself to promote and
sustain fair competition. Accordingly, the existing law
on matters relating to competition - the MRTP Act, 1969,
has been repealed by the Competition Act, 2002. In
the light of international economic developments the
focus of this Act is on promotion of fair competition
rather than curbing monopolies.
Establishment of Competition Commission of India
(CCI) : There shall be established Competition
Commission of India to prevent practices having adverse
effect on competition. The CCI shall replace the existing
MRTP Commission under the MRTP Act, 1969.
This Act seeks to ensure fair competition in India,
by prohibiting trade practices, which cause appreciable
adverse effect on competition. Three such practices have
been identified and shall be regulated by this Act, which
are as follows: -
effect on competition in India. If we consider a situation
where there is a merger between two enterprises abroad,
such as Company in U.K. and Company in U.S.A., which
have subsidiaries in India, then the CCI will have powers
to inquire into such a combination.
Central Listing Authority
A Central Listing Authority (CLA) has been set up
under the SEBI (Central Listing Authority) Regulations,
2003, to bring about uniformity in the varied practices
followed by different Stock Exchanges in respect of listing
of securities. (SMD/Policy/Cir-7/2003, dated 17.2.2003).
This is also the result of undesirable listing of Companies
by different Stock Exchanges based on different
requirements.
Companies (Auditors’ Report) Order, 2003 and
International Practices
In a significant move, the Government came out
with the above order (hereinafter referred to as CARO)
on 12.06.2003 in supersession of the earlier order which
was issued in the year 1988 known as Manufacturing
and Other Companies (Auditors Report) Order
(MAOCARO). This order was to come into force on the
first day of July, 2003, meaning thereby that this Order
will apply to every Report made by an Auditor u/s. 227
of the Companies Act, 1956 (Act) on the accounts of
every company examined by him to which this order
applies for every financial year ending on any day on or
after the commencement of this order, which was 1st
July, but thereafter, the Government came with a
clarification vide General Circular dated 10.11.2003 which
was as follows: (i) While companies to whom this order is
applicable should make serious efforts to comply
with the new order from the effective date,
cases of non-compliance for accounts pertaining
to financial year which closes on 31.12.03 or
earlier, Government would take a lenient view
provided the accounts at least carry MAOCARO
report, if required.
(i) Anti-competitive Agreements,
(ii) Abuse of Dominant Position,
(iii) Elimination/ reduction of competitors in market
achieved through Combination.
An option has been given to the person/ enterprise
entering into a combination to give intimation of the
proposed combination to the CCI who on receipt of
information or suo moto shall determine the effect of
the combination. In terms of the Act, if a combination
has or is likely to have adverse effect on competition
within the relevant market in India, such combination
shall be void.
International Transactions : The Act empowers the
CCI to inquire into agreements, abuse of dominant
position, or combinations taking place outside India, if
they have or are likely to have an appreciable adverse
(ii) However, accounts in respect of financial year
ending on 1.1.2004 or thereafter will have to
strictly follow CARO, 2003. Companies and
professionals who do not comply with the order
will be liable for action as per law.
It is significant to note here that the CARO is in line
with the international Accounting and Audit practices
where reporting by exception is prevalent in most of the
countries and the Auditors are required to take note of
more serious things than the matters, which are done,
A–8
Indian Corporate Laws in the Global Perspective
in the ordinary course of business. They are required to
point out serious irregularities or frauds or anything
detrimental to the interest of shareholders in particular
and public in general. In addition to this, the selfregulation is also practiced internationally now a days
and the Regulatory Authorities are totally relying on the
statements and accounts prepared by companies and
audited by the Auditors and all these entities are required
to self-regulate themselves and protect the interest of
investors and other stake holders.
It may also be noted here that the new CARO, which
has come out in supersession of MAOCARO, will not
apply to banking companies, insurance companies and
Section 25 companies. It will also not apply to a private
limited company with a paid-up capital and reserves not
more than Rs. 50 lacs and which has not accepted any
public deposit and does not have loan outstanding of
Rs. 10 lacs or more from any bank or financial institution
and does not have a turn over exceeding Rs. 5 cores.
The reporting is also totally different from that of
MAOCARO and at several places the Auditor is required
to express his opinion on several issues, which may or
may not depend on the books and records of the
company alone. This is a new trend and the Auditors
have to play a very important role in reporting the true
and fair view of the statement of affairs of a company
under their audit.
National Company Law Tribunal
There was a growing need for empowering the
Company Law Board and reducing the burden of High
Courts by constituting a high-power Tribunal, which could
take up all matters relating to Company Law and other
Corporate Laws at one Forum. Keeping this in view, the
2002 Amendment inserted new Parts IB & IC in the
Principal Act – the Companies Act, 1956 for formation
of National Company Law Tribunal (NCLT or Tribunal)
and National Company Law Appellate Tribunal (Appellate
Tribunal) respectively. Necessary Section - Section 10FA
was also inserted to provide for dissolution of the present
Company Law Board.
Accordingly, on and from the commencement of
the Companies (Second Amendment) Act, 2002 the
Board of Company Law Administration constituted under
sub-section (1) of Section 10E shall stand dissolved and
all matters or proceedings or cases pending before the
Company Law Board on or before the constitution of
the Tribunal u/s. 10FB, shall, on such constitution, stand
transferred to the National Company Law Tribunal and
the said Tribunal shall dispose of such cases in accordance
with the provisions of this Act.
Setting up of Serious Fraud Office
By a Notification No. 344(E) dated 31.03.2003, the
Central Government had brought into force Sections 2
and 6 of the Companies (Second Amendment) Act, 2002
with effect from 1.04.2003. Section 2 of the Second
Amendment Act relates to definitions, while Section 6
relates to insertion of new Parts 1B & 1C relating to
National Company Law Tribunal and the Appellate
Tribunal. Immediately thereafter the Central Government
came out with a Press Note on 4.04.2003, clarifying
that the above Notification of 31st March, 2003 was
issued only to enable the Government to initiate necessary
steps to establish the NCLT and make it operational. It
was further clarified that the subject Notification bringing
into effect Section 6 of the Second Amendment Act will
only set in motion all preliminary steps required for
establishment of NCLT and that upon establishment of
the same a separate Notification regarding constitution
of NCLT will be issued by the Government. Till such
time jurisdiction of the present Company Law Board will
continue to remain unchanged.
A Serious Fraud Office has been recently opened
under the Ministry of Company Affairs to look into serious
allegations of mismanagement and large-scale diversion
of funds by company management. This development
indicates as to how the laws of our country are being
influenced by global developments. Few cases have
already been referred to the Serious Fraud Office.
Appeals from NCLT will go to National Company
Law Appellate Tribunal and from the decisions of the
Appellate Tribunal to the Supreme Court of India. Earlier,
the decisions of the Company Law Board were challenged
before the Hon’ble High Court and then in Supreme
Court. This will help in getting uniform decision on a
particular subject by the Appellate Tribunal instead of
It is significant to note that more and more reliance
is placed by the Government on the Professionals and
they are supposed to play a very important role in
reporting the truthfulness and fairness of financial
statements of a company. For example, the Company
Secretaries are now required to issue Compliance
Certificates for particular size of companies certifying
whether the company has complied with various
provisions of the Companies Act, 1956 or not. These
developments internationally and also in our country are
welcome in so far as the Professionals are getting more
and more importance but at the same time they also
have to play a very responsible role and the Professionals
have to come up and live up to the expectations of the
Government and the public at large as much will depend
on the accuracy of their reporting.
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32nd National Convention of Company Secretaries
getting different decisions on the same matter by
different High Courts.
does not suffer in the Global context when there are so
many international entities in the market.
There may be some delay in constitution of the NCLT
as the amendment was challenged before the Hon’ble
High Court at Madras in R. Gandhi v Union of India.
The matter is pending before the Hon’ble Supreme
Court.
Governance has to be there and more and more
transparency is required in reporting financial statements
by Companies to enable the investors to take an
informed decision before making any investment. The
uppermost concern of the Regulators and the
Government is the interest of shareholders, investors and
other stakeholders and their protection is absolutely
necessary as without their participation no corporate
democracy can develop in any country. These small
investors have to participate in the growth of capital
market and the corporates in turn have to create good
feeling in these investors and have also to service them
and look after their grievances. The Companies have
greater responsibilities not only towards the investors
and shareholders but they also have similar responsibilities
towards the society as they have to meet the aspirations
of their employees, vendors, suppliers, lenders, other
stakeholders and public at large.
Amendment of Clause 49 of Listing Agreement
relating to Corporate Governance vis-à-vis
Sarbanes Oxley Act
SEBI recently announced complete revision of clause
49 of the Listing Agreement with Stock Exchanges. This
amendment was received by the trade and industry with
a lot of opposition as, according to them, some of the
clauses were outside the purview of SEBI as they amount
to amendment of the Companies Act, which only the
Parliament can do. Moreover, the Companies Bill, 2003,
which was pending, before the Parliament at that time
also contained similar provisions and this Bill was reported
to have been withdrawn. The industry circles felt,
therefore, that bringing amendment to clause 49 at that
junction was not fair on the part of the Regulatory
Authority and it required re-examination. It may be
mentioned here that some of the clauses, which were
introduced by SEBI, were based on a recent development
in our country and in other countries but the international
perspective was required to be understood. The Industry
Circles were of the view that what happened in the
United States may not necessarily happen in India and
hence we, in this country, need not legislate on the
lines of the US Legislation.
SEBI (Prohibition of Insider Trading) Regulations
The Securities & Exchange Board of India (SEBI)
amended Insider Trading Regulations vide a notification
dated 20.2.2002 completely re-writing the earlier
provisions. One of the important aspects of this
amendment was that the Regulatory Authority brought
many provisions of the Sarbanes Oxley Act into these
Regulations.
The following features reflect this thinking: (1) Several definitions were changed and new
definitions were inserted.
The Central Government and the Regulatory
Authorities are watching the situation very closely and
SEBI is also having a relook to the amendment to clause
49 of the Listing Agreement after the report submitted
by the Narayana Murthy Committee. Some of the
controversial points related to appointment of nonexecutive Directors and independent Directors, tenure
of 9 years for Directors, Whistle Blower Policy, definition
of different terms and other related issues.
Now the concept paper on the new Companies Bill
has already come and the Government appears to be
keen on formulating a new Companies Act, 2004
depending upon the suggestions received from different
quarters. It is to be clearly understood by us now that
the developments internationally call for full reform of
Corporate Laws and redefinition of certain things upto a
comfort level for both the industry as well as the
Regulators in such a manner that corporate governance
(2) SEBI may initiate criminal prosecution u/s 24 in
addition to any other action under chapter VIA.
(3) Preparation of a code of internal procedure &
conduct for listed Companies.
(4) Disclosure of holding by Directors and substantial
shareholders.
(5) Provisions for violation of the Regulations
relating to disclosures.
Although some of the new Regulations were needed
but all of them have, over a period of time, proved to be
a little harsh given the conditions in our country. Generally
speaking also all the US situations may not fully fit-in
into our country and we have started realizing lately that
our own laws are much better then the laws of other
countries.
A – 10
Indian Corporate Laws in the Global Perspective
(12) New areas for Practising Company Secretaries
and other Professionals
(13) Deletion of redundant provisions
(14) Misc. matters
Making Indian Intellectual Property Rights Laws
Compatible with Global Trends
We are one of the few developing countries which
have taken initiative to protect Intellectual Property Rights
(IPR) and the same is evident from the fact that our
Government has taken several steps to make our IPR
laws compatible with the TRIPS agreement by making
amendments to Copyrights Act, Trade Marks Act and
the Patents Act. Moreover we have also brought out a
new Designs Act to keep pace with the technological
developments. Necessary Rules and Regulations are also
being brought out to make these laws fully compatible
with the relevant global requirements. The Trade Marks
Act, 1999 was brought into force by a notification-dated
15.09.2003. The recent Copyright (Amendment) Act,
1999 is taking care of the protection of copyright issues
and covers many areas, which were hitherto disputed.
The Patents (Amendment) Act 2002 will take care of
proper registration of Patents and protection of Intellectual
Rights relating thereto. Earlier the Government had
enacted the Information Technology Act in the year 2000
to provide statutory recognition and necessary legal
framework for computer and other cyber related issues.
In our country we are far ahead of other member
countries of WTO in providing due protection to IPR
and setting global legal standards.
The above Bill also met with lot of opposition on
discussion stage itself and the same was withdrawn for
re-examination and or re-drafting so that some of the
unwarranted provisions could be deleted and re-written.
Concept Paper on the Proposed Companies Bill,
2004
The Concept Paper accompanying the draft
Companies Bill 2004 has inter-alia the following
provisions which have also been influenced by global
developments:(1) Insertion of new definitions.
(2) Requirement for appointment of independent
Directors.
(3) Additional reasons for disqualification of
Auditors.
(4) Services which cannot be provided by statutory
auditors.
(5) Appointment and qualifications of Chief
Accounts Officer.
(6) Subsidiary cannot have a subsidiary.
(7) Widening the scope of special audits.
(8) Related Party transactions.
(9) Provisions regarding companies incorporated
outside India.
(10) Alteration in the definition of “officer who is in
default”.
(11) Provision made for ordering Secretarial
Compliance Audit by Central Government.
Shadow of International Developments on the
Companies (Amendment) Bill, 2003
Some of the events worldwide had their share of
effect on the Indian Corporate Laws also. The
Government and the Regulatory Authorities were all quick
to come out with different amendments in different
Laws. While SEBI took care of its Regulations, the
Government was quick in bringing some of the thoughts
into the Companies (Amendment) Bill, 2003 which was
introduced in Parliament on 7.5.2003. This Bill had the
following main features, some of which had the shadow
of the Sarbanes Oxley: (1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
Large Partnership for Professionals.
Formation of Companies – new requirements
Effect of not increasing share capital
Changes in Prospectus
Transfer of Securities
Registers/ documents can be in electronic forms
Provisions for Annual Return and meetings
Dividend
Accounts
Appointment of Auditors
(11) Elaborate changes in appointment of Directors
The Ministry has invited views from different quarters
on the above concept paper after which the Draft Bill
will be finalised for placing before the Parliament. All
the provisions of the above Bill need elaborate discussion
at all levels before the same is converted into an Act.
It may be noted that many of the above provisions,
which were brought by the amended clause 49 of the
Listing Agreement and the latest Concept Paper, are now
being discussed at various Forums. The Government is
committed to protect the interest of small investors and
other stakeholders by enforcing better Corporate
Governance at all levels of corporate management.
Companies being corporate citizens globally are required
not only to create wealth but also to distribute wealth
and enhance shareholders’ value. They are also required
to protect environment and look after their employees,
suppliers and the society at large.
A – 11
32nd National Convention of Company Secretaries
REGULA
TOR
Y COMPETITION : LEADING TO
REGULATOR
TORY
REFLEXIVE HARMONISA
TION OF LAWS
HARMONISATION
SURESH T VISWANATHAN*
— It promotes the flow of information on effective
law making by providing mechanisms for
preferences to be expressed and alternative
solutions compared.
1. WHAT IS REGULATORY COMPETITION ?
Competition is the hallmark of success of the
modern economies. Competitiveness has become a
universal phenomenon that propels economies towards
sustained growth and prosperity. Every component that
constitutes an economy is subject to the incidence of
competition. A regulated economic environment is no
exception.
Fiscal jurisprudence, both intra-nationally and
internationally, does play a vital role in bringing about
economic growth to a particular region. Wealth
maximisation being the motivating factor in a free market
economy, the provincial regulations act as catalysts, if
not a conduit, for attracting wealth towards that region.
States within a country race against each other in
designing an increasingly conducive regulatory
architecture, while the investment friendliness of
sovereign countries are fathomed by the competence
of their regulatory regimes.
2. THE DYNAMICS
COMPETITION
OF
REGULATORY
The common perception is that globalisation of
markets leads to a downward pressure on regulation.
The regulatees have to bear the cost of compliance as
far any regulation is concerned. The regulatees can be
classified into three different classes. They are :
— Permanent Regulatees : Those bodies which
are domiciled in the respective country and
which are part and parcel of that economy.
— Temporary Regulatees : Certain entities are
created for some specific purpose for a short
duration. Examples are Special Purpose vehicles,
Projects on build-operate-transfer mechanism
etc.
The term “regulatory competition” refers to a process
whereby legal rules are selected (and de-selected)
through competition between decentralised, rulemaking entities, which could be nation states or other
units such as regions or localities. Three justifications
are normally given for regulatory competition1:
— Nomadic Regulatees : There are entities that
traverse across various economies in search of
greener pastures. Examples are investment
funds, venture capitalists, technology
collaborators etc. These mobile targets of
regulation reduce their regulatory cost by
moving to jurisdictions with lower levels of
regulation and regulatory costs. Governments
in turn offer easy regulation in order to attract
larger shares of mobile factors and production
processes with the result that regulation spirals
down to ever-lower levels.
— It allows the content of rules to be matched
more effectively to the preferences or wants
of the consumers of laws (Regulatees);
— It promotes diversity and experimentation in
the search for effective legal solutions; and
1
Jean Monnet Working Paper 9/01 “Market Access and
Regulatory Competition” by Catherine Barnard and
Simon Deakin
*
Senior Vice President (Compliance) & Company Secretary, Centrum Finance Ltd., Mumbai.
The mechanism through which competition operates
is mobility of regulatees across jurisdictional boundaries.
A – 12
Regulatory Competition : Leading to Reflexive Harmonisation of Laws
According to C. Tiebout2 , laws are seen as products,
which jurisdictions ‘supply’ through their law-making
activities, in response to the ‘demands’ of consumers
of the laws, that is the regulatees. If supply and demand
can be brought into equilibrium, then, in the terminology
of welfare economics, static or allocative efficiency will
be maximised.
The process cannot work unless effective rulemaking authority is exercised by entities operating at a
devolved or local level. It is argued that a centralised or
“monopoly” regulator would, by contrast, behave like
any other monopoly; contrary to the normal laws of
supply and demand, the price of the product goes up
while the quantity supplied diminishes, so driving a
wedge (a “social cost”) between an optimal economic
outcome and what actually occurs. To avoid this outcome
implies conferring law-making powers on lower-level
units, subject only to the principle that there must be
some level below which further decentralisation
becomes infeasible because of diseconomies of scale.
2.1 The Delaware Effect
A well-publicised example of such a deregulatory
spiral is the American experience with corporate
chartering. In the US, corporate charters are granted by
the individual states. Since all states are required to
recognise each other’s charters, they competed for
incorporations by offering corporate friendly chartering
requirements. In the course of this competition, the
level of protection for the stakeholders namely,
shareholders, employees, customers, and the general
public was progressively lowered. This race was termed
“a race to the bottom”. Since the race was won by
Delaware, the notion that regulatory competition
develops a deregulatory dynamism has been called the
“Delaware Effect”.
Over 40% of New York stock-exchange-listed
companies, and over 50% of Fortune 500 companies,
are incorporated in Delaware. Some commentators have
argued that Delaware’s success in attracting such a high
level of company incorporations has been achieved by
lowering regulatory standards.3 The state has gained
its pre-eminence in the corporate charter market due
2
C Tiebout, “A pure theory of local expenditure” (1956)
64/5 Journal of Political Economy 416.
3
For further details, see C Barnard “Social Dumping
Revisited: Lessons from Delaware” (2000) 25 ELRev
57 and C Barnard, “Regulating Competitive
Federalism, in the European Union? The Case of EU
Social Policy” in J Shaw (ed), Social Law and Policy in
an Evolving European Union, (Oxford, Hart, 2000).
to its ability to attract incorporations even though at the
expense of the interests of the shareholders 4 .
Corporate standards were criticised to be deteriorating,
particularly in respect of fiduciary duties of the directors,
leading to the rights of shareholders vis-à-vis
management being diluted.
As part of this process, Delaware, “a pygmy among
the 50 states prescribes, interprets, and indeed denigrates
national corporate policy as an incentive to encourage
incorporation within its borders, thereby increasing its
revenue”5 . To counter this, the enactment of a Federal
Corporate Uniformity Act, was proposed by W. Cary,
allowing companies to incorporate in the jurisdiction of
their own choosing but removing much of the incentive
to organise in Delaware or its rival states.6
2.2 The California Effect
David Vogel has shown in his book (in 1995) that
economic integration and regulatory competition may
also at times push the level of regulation upwards. Strict
regulation need not be a competitive disadvantage. High
standards may favour domestic producers, because it is
often easier for them to comply inland laws than for
foreign competitors. However it is usual that industry
may occasionally lobby for higher levels of protection.
Once a rich country with a large market has adopted
a higher standard, foreign producers are forced to adapt
if they do not want to lose market access. Foreign
governments may react by raising their own level of
regulation, thus starting a regulatory “race to the top”
in contrast to the Delaware Effect.
In recent decades, California has been the pace
setter in environmental regulations, both nationally and
globally. Environmentally conscious Californians
demanded progressively higher levels of protection
regarding car emissions and other fields, and the
Californian market was large enough to pull other states
along. Hence, the competitive scaling upwards of
regulatory standards has been called the “California
Effect”.
However, upward pressure on regulation may not
only result from competitive dynamics. It can also be
caused by international cooperation. Sometimes,
competing states manage to stop their competition
through collective action and cooperation. The
4
W Cary, “Federalism and Corporate Law: Reflections
Upon Delaware” (1974) 83 Yale Law Journal 663, 669.
5
W. Cary, supra, n.5, 701.
6
Ibid, 701.
A – 13
32nd National Convention of Company Secretaries
deregulatory spiral is then countered by a cooperative
turnaround. Successful standardisation of capital
adequacy requirements in international banking is a
prominent example of cooperative turnaround. It
demonstrates that multilateral cooperation among
nation-states can stop a deregulatory downward spiral
and turn it around into a race to the top.
international regimes as GATT, the Subsidies Code, and
US trade law. Therefore, regulatory competition may
be a more easily available tool than more overt subsidies
and will be the decisive weapon in the international
economic warfare of the coming years.
2.3 Regulatory Subsidies and Incentives
Vertical competition is a phenomenon that
determines whether the state as regulator is a more
effective institution for organizing and conducting the
relevant economic activities than the competition in the
market. In the case of the European Community, there
exists a debate regarding subsidiarity as to whether the
Community is a more effective regulatory institution
than Member States. This is another example of vertical
competition. Here the market and its constituent firms
are viewed as economic organisations existing at different
levels.
It is common for states to offer subsidies and
incentives in monetary terms. But regulatory subsidies
are any one or a combination of the following:
— Cheaper regulatory compliances
— Easier /friendly regulatory operations
— Waiver /exemption from certain regulatory
provisions
— Moratorium on payment of penalties
2.5 Vertical Competition
3. REGULATORY COMPETITION AS A TOOL
FOR FISCAL JURISPRUDENCE
— Lenient penal provisions
— Tax concessions
The simplification of regulatory architecture for the
benefit of encouraging industry and accumulation of
wealth is a common feature amongst competing
economies. This is the foundation on which regulatory
competition is built upon.
2.4 Horizontal Competition
In horizontal competition, states or countries of
similar economic stature compete for economic power
and welfare. In an increasingly global and mobile
economy marked by brutal competition in trade, states
increasingly compete with one another to provide their
firms with the advantage of reduced regulatory costs or
increased regulatory subsidies. States compete, like
firms, for capital and other economic factors.
Governments have several tools available by which to
engage in horizontal economic competition. They may
subsidise production by payments or provision of capital,
goods, or services at artificially low rates. Direct subsidies
on exports or on domestic production are regulated,
with varying effectiveness, under GATT, the Subsidies
Code, the Treaty of Rome (as among European
Community members), and unilaterally under the
national trade laws of various countries, such as the
United States.
A subtler tool available to a government engaged
in horizontal economic competition is to decrease its
level of regulation, in order to make compliance less
costly to the regulatees. Regulatory competition between
states appears generally unconstrained by such
3.1 Consequences of Regulatory Competition
“Competitive Federalism” within a country is a
phenomenon in which efficient rules are “selected”
through the mechanism of competition between states
to attract and retain the factors of production. The
conditions under which this market can be said to work
perfectly are extremely exacting, and legal intervention
is needed to bring about regulatory solutions.
Equally important are regulatory and other legislative
mechanisms which aim to preserve spaces for
experimentation in rule-making, and which promote
regulatory learning through the exchange of information
between different jurisdictions. Known as “reflexive
harmonisation”7 , this approach can be seen operating
in several countries. European Union members are good
examples of those countries that have adopted this
approach. Harmonisation8 of labour and company laws
and the recent emergence of the “open method of
coordination” (OMC) as a technique of regulation in
various economies can be attributed as an outcome of
this phenomenon.
7
S Deakin and C Barnard, “In Search of Coherence:
Social Policy, the Single Market and Fundamental
Rights” (2000) 31 Industrial Relations Journal 331.
8
D Charny, “Competition among jurisdictions in
corporate law rules: an American perspective on the
‘race to the bottom’ in the European Communities”,
in S Wheeler (ed.) A Reader on the Law of the Business
Enterprise (Oxford: Oxford University Press, 1994)
365-402.
A – 14
Regulatory Competition : Leading to Reflexive Harmonisation of Laws
In this context, it is not inaccurate to speak of
“reflexive harmonisation” as an analogy to the concept
of reflexive law9 . The essence of reflexive law is the
acknowledgement that regulatory interventions are most
likely to be successful when they seek to achieve their
ends, not by direct prescription, but by inducing
“second- tier effects” on the part of the regulatees. In
other words, this approach aims to “couple” external
regulation with a self-regulatory process.
3.2 Regulatory Arbitrage
Arbitrage is the economic practice of taking
advantage of a difference in price of the same
commodity or service in two different places. An
arbitrageur buys in the cheap place and sells in the
expensive place. The game is to see whether the
transaction costs of buying and selling can be kept low
enough to make a profit from the price difference. In
other words, this is a terminology used for the trade
happening between two markets that have a price
differential.
However Regulatory Arbitrage denotes the
movement of capital wealth from an ill regulated market
to a well regulated market. Here ‘well regulated’
indicates a market that is optimally regulated. In a
globalised economy, regulations are used as a commodity
which catalyses business growth. Hence states tend to
cater to an economic environment that is conducive to
the growth of business.
Negative integration leads to economic flows of mobility
unleashing arbitrage over regulatory policies. Regulatory
arbitrage is a subset of this practice. In particular, this
phenomenon looks forward to take advantage of places
that are more economically efficient (and thus produce
better and/or cheaper goods and services than over
regulated places) by making their goods and services
available in less efficient places. The Internet obviously
lowers the transaction costs of this kind of regulatory
arbitrage, and, if it can be organized properly, will make
much more of this possible in the future.
Some people fear that worldwide regulatory
arbitrage will create a race to the bottom, with economic
activity gravitating to places where anything goes. This
ignores the fact that regulations are beneficial to every
economic activity. Otherwise big financial firms would
base their offshore operations in places like Barbuda or
9
See generally, G Teubner, Law as an Autopoietic System
(Oxford: Blackwell, 1993); R Rogowski and T
Wilthagen (eds.) Reflexive Labour Law (Deventer:
Kluwer, 1994).
Nevis, which effectively have complete banking secrecy,
rather than Bermuda or the Cayman Islands, which do
not. Additionally, the fact that cases in Bermuda or the
Caymans have ultimate legal appeal to London (since
they are still British Dependent Territories) makes them
more, rather than less desirable. Regulatory arbitrage
drives toward an optimum level of regulation, not a
minimum one.
America is not a top ranking country in terms of
taxation rates and other regulations, but rather in the
middle ranks. Continental Europe and many other
nations have substantially higher tax incidence and
regulatory control. Therefore Continental Europeans,
Latin Americans and many others worldwide find the
United States to be a welcome tax haven. This has been
a significant factor influencing the inflow of foreign funds
to the US over the past decade. This inflow had balanced
America’s large perennial trade deficit. On the other
hand, of course many American individuals and
businesses use regulatory arbitrage to lower their US
tax obligations, most through perfect legal avenues, and
some through illegal sheltering of income.
India needs to learn great lessons from the world
economies as to how this phenomenon can be used as
an effective tool to attract investment and wealth into
the country.
The regulatory system in India in its entirety calls
for a revamp. It is high time that the lawmakers of the
country realise the importance of regulatory competition
and embark upon immediate measures to facelift our
regulatory environment to optimal global standards.
3.3 Importance of Enforcement of Regulations
Regulations are meant to be enforced. The
optimisation of regulatory impact happens only with
stringent enforcement of the applicable regulations. Any
system that does not enable effective enforcement of
regulations defeats the very purpose of any regulation.
In India the levels of enforcement are truly low,
making the penal aspects of regulations a farce. The
regulatees loose faith in the system and become
confident of getting away with the violations they
commit. Corporate Governance suffers because of the
lack of enforcement infrastructure. The stakeholders
ultimately suffer because of the wilful regulatory
violations, which are rampant in the country.
The legislators, the administrators, and the judiciary
have to deal with this menace hand in hand. There
should be a well-conceived regulatory optimisation
campaign organised in the country, which will become
A – 15
32nd National Convention of Company Secretaries
the harbinger of migration of mobile capital into
India.
3.4 Regulatory equilibrium
Reflexive Harmonisation of regulations is a natural
fallout of regulatory competition. There is another
dimension to regulatory competition. This is the
attainment of “fiscal equilibrium”. Certain regulations
like corporate disclosures, accounting standards,
environmental laws, etc. require stringent penal
provisions and strict enforcement mechanism. On the
other hand, certain protective legislations which create
diffidence in the prospective regulatees, regulations
which have prohibitive compliance costs involved, etc.
have to be reworked so as to make them more friendly.
This is an optimisation approach, which will cater to
natural regulatory competition.
As a result of this competition, there will be a
movement of wealth and capital from other economies
to the optimally regulated economies. The flow of such
capital will reduce the economic imbalances of different
regions on the world. The attainment of fiscal equilibrium
is graphically represented below:
COMPETITION
THROUGH
REGULATORY
SOFTENING
MARKET EQUILLIBRIUM
THROUGH FISCAL
OPTIMISATION OF
JURISPRUDENCE
Commission to construct it as a credible threat to the
ability of individual member state governments to pursue
national policies unilaterally. The political use of the
regulatory competition argument in this way seems to
favour cooperation rather than competition.
3.6 Multilateral agreements and protocols
Market integration calls for a general strategy for
achieving a common market through harmonisation of
regulatory requirements. Regulatory harmonisation
reduces disparities among between contracting markets.
Convergence of contrasting regulatory standards and the
practices that follow them is supposed to be conducive
to the achievement of a single market. Under mutual
recognition, only basic, essential principles are
prescribed, setting minimum standards of regulatory
action, and leaving the detailed arrangement to be
implemented independently by each member country
in its domestic law. It should be emphasised, that
adopting the mutual recognition approach is based on a
very strong premise, namely, that all the member
countries generally share similar regulatory views and
are willing, politically, to allow certain activities within
their territories to be regulated in tandem with those of
foreign countries. A corollary of the mutual recognition
could be that it might lead to a “regulatory competition”.
What is meant by regulatory competition is not really
harmonisation, but deregulation resulting in “a race for
the bottom”. In such a race, States attract businesses
by promulgating liberal statutes and entice businesses
to take advantage of lower standards through a
“regulatory arbitrage”. Unhealthy competition in this
direction could be catastrophic in economic terms.
Harmonisation of the legal and transactional systems
amongst the European countries has enabled cross
border transactions in securities amongst all Euro
countries. To a great extent, the pervading Euro also
has enabled this phenomenon. The European Central
Securities Depositories Association (ECSDA) has played
a vital role in shaping up cross border transactions and
settlement amongst all the European countries.
COMPETITION
THROUGH
REGULATORY
HARDENING
3.5 Cooperation Vs. Competition
European Commission perceives regulatory
differences to be undesirable as it will interfere with
the common market or result in what is seen as unfair
competition. Hence, the Commission has embarked
upon harmonisation in general without reference to the
scale of economic arbitrage to be expected. We can
observe this from Commission’s efforts in fields as
disparate as taxation (where economic arbitrage is very
much prevalent) and environmental regulation (where
economic arbitrage is much less). It seems that regulatory
competition plays a role only in so far as it allows the
4. INTERNATIONAL COOPERATION IN CAPITAL
MARKET REGULATIONS
The onset of economic liberalisation interfaced with
technological evolution, has been a propelling parameter
for integration of all markets, globally. Harmonisation of
trading practices is becoming the order of the day,
securities market being no exception. The advent of
Internet trading and seamless settlements have been
the harbingers of a new era, which is bound to culminate
in the securities trading being extended beyond
A – 16
Regulatory Competition : Leading to Reflexive Harmonisation of Laws
geographic frontiers. Defining the exact place of
incidence of many an event in the virtual marketplace
has defied legal intelligence, and consequently
transnational jurisdiction is becoming a matter of great
significance.
The term “stock market integration” is used
assuming such phenomena as multiple listing, cross
border trading, and provision of investment services by
foreign firms. Often, these activities are also referred
to as internationalisation of domestic stock markets.
Market integration is also used to describe a situation in
which financial assets having the same profile of risk
and return are priced similarly. The two meanings of
integration though not exclusive, are indeed strongly
connected, since multiple listing and international trading
lead to integration in its economic meaning.
4.1 Accounting Barriers to Globalisation of Capital
Markets
The differing accounting systems of the industrial
countries of the world are an impediment to further/
faster integration of the world’s securities markets. The
diverse accounting systems are also a hindrance to
greater efficiency in capital allocation that would follow
from greater globalisation of those markets. The differing
systems reduce comparability among companies and
their securities and thereby increase the asymmetric
information fog for lenders and investors who are not
familiar with that accounting system.
Equivalently, different accounting systems increase
the transactions costs of achieving comparability.
Different accounting systems increase the “economic
distance” between securities markets and thereby
encourage lenders and investors to “stay home” and
devote their capital largely to their local securities
markets10 .
Further, any uniform accounting system that would
realistically be adopted is likely to embody higher
standards than are found in much of the developing
world’s economies. The single standard would thus be
the vehicle for raising accounting standards in economies
where improvements in standards would yield large
benefits.
However, with multiple systems, there can be
adaptations to national circumstances 11 , and the
“straightjacket” of a single system is avoided. Also,
multiple systems permit experimentation and innovation
far more readily than does a single system. Further, with
multiple accounting systems, a process of “systems
competition” can proceed. If enterprises find one
accounting system to offer lower costs of raising capital,
they will tend to gravitate toward that system.
4.2 Advantages of Accounting Competition
The current environment is one of competing
national accounting systems, with the International
Accounting Standards (IAS) providing a second system
that is available in some countries for some companies.
The US, however, has refused thus far to permit the
IAS to become a second system in the US. This
competition can occur because the imposition of an
accounting standard applies only to the corporate bodies
that choose to list its securities on an exchange within a
particular country; that listing requirement does not
restrict the residents of that country to buying only the
securities of the companies listed in that country. The
competition between accounting standards is limited
and muted, however, because distance and foreign
nationality of a securities trading house generally add to
the direct costs and to the asymmetric information fog
confronting lenders and investors and thus discourage
trans-national lending and investing decisions.
The logic of competition between accounting
systems need not be restricted just to competition
between countries; it can be extended to competition
between systems within a country. This is happening
currently in those countries where the IAS are accepted
alongside the domestic accounting system.
5. COMPETITION IN THE INDIAN REGULATORY
SYSTEM
State administered regulatory competition is not new
to India. The various Indian states compete with each
other by offering fiscal incentives, backward area
benefits, tax holidays and concessions etc. But the real
competition in terms of disclosures, environment
protection, labour laws, local administrative laws, local
revenue laws etc. has never been thought of by political
India.
Upon studying the trends in mobile capital flowing
from countries of surplus, the vital issues to be addressed
by our country emerge. These issues are discussed in
the following paragraphs.
5.1 Regulatory Uncertainty
10 See, for example, Choi and Levich (1990, 1991).
11 See, for example, the summary in Saudagaran and
Meek (1997) and Ball (2001).
There exists a serious level of uncertainty as far as
Indian regulatory maters are concerned. The rules and
A – 17
32nd National Convention of Company Secretaries
administrative circulars made by the Government from
time to time as empowered by the statutes create most
of the uncertainty. These can be amended / changed at
the whims and fancies of each Government formed from
time to time. The entire presumptions of macro and
micro analysis while starting a project may go topsyturvy because of such regulatory changes.
The menace of corruption dovetailed with lethargic
and un-businesslike approach of Governmental
functionaries are factors that largely impede external
capital coming to India. To weed out these menaces, it
need a cultural sea change in the socio-political fabric
of the country. This appears next to impossible within
the existing framework of regulatory affairs.
The tinkering with direct and indirect laws during
the budget exercise every year leads to uncertainty and
consequent anxiety and nervousness in the financial and
industrial markets. Projects requiring huge capital outlay
may get hampered due to faulty regulatory changes and
the investors will be forced to take a calculated risk while
deciding to invest in India.
It is to be understood that regulatory competition
can thrive only on a healthy legal system. Archaic
legislations which foster corruption should be identified
by a task force and redrafted in such a way that the
procedural formalities do not lead to procrastination and
corruption.
This is one of the major deterrents for foreign
investments coming to India.
5.2 Corruption and “Red-Tape” ism
Our country has become notorious for endless gross
corruption. Corruption in India has become a part of
daily life. The corrupt practices can be bifurcated into
“retail” (petty corruption happening at local
administration departments, motor vehicle departments
etc. affecting the public at large directly) and “wholesale”
(large scale corruption happening at top levels involving
Government departments, corporate entities and
politicians).
Sl. No. Legislations required to be
optimised through regulatory
HARDENING
5.3 Necessity for Regulatory Transformation
As discussed earlier, our country required a
systematic and comprehensive regulatory architecture,
which will gear up the country for regulatory competition
with competing economies. The following is a
suggestive list of legislations, which require optimisation
in terms of quality. The upward arrow suggests that these
statutes need to improve in terms of quality and rigour
of punitive enforcements. The downward arrow denotes
that these laws need more friendly provisions to attract
mobile capital into the country and which will cease to
facilitate corruption.
Sl. No
Legislations required to be optimised
through regulatory SOFTENING
1.
Corporate Disclosures under various
statutes
1.
Income Tax Act
2.
Companies Act
2.
Central Sales Tax Act
3.
Securities Contracts Regulation Act
3.
Customs Act
4.
Environment Protection Laws
4.
Central Excise Act
5.
Information Technology Act
5.
Electricity Acts of various States
6.
Copyrights Act
6.
Transport Corporation Acts of various states
7.
Patents Act
7.
FEMA
8.
Consumer Protection Act
8.
Local Administration and Revenue related
laws
9.
Competition Act
9.
Industrial Licensing
A – 18
Meeting the Giants : Developing Strategies for Global Competition
MEETING THE GIANTS : DEVEL
OPING STRA
TEGIES
DEVELOPING
STRATEGIES
FOR GL
OBAL COMPETITION
GLOBAL
S RAJI REDDY & P SWARNA*
INTRODUCTION
The economic reforms initiated in 1991 which were
carried on by the successive Governments have opened
the doors for global organisations participation in the
Indian Market. While this is a welcome feature from
the point of view of the customer, it had thrown open
certain challenges to the Indian Companies. Prior to
1991, Indian companies were surviving in the protected
environment. The companies which have visualized
the impact of the reforms have taken steps to see that
they survive in the liberalized environment with the well
established and reputed international brands. The
companies which have forecasted the impact in the early
part of 1990s are successfully operating their businesses
today and those who could not plan or visualize have
perished. A company that constantly changes and
accepts that there are better ways to do things than the
way they are done today, is the company that will survive
in the global market.
Company Secretary being the link between the
Board of Directors and the other senior leaders in the
organization has a significant role in preparing the
organization to survive in the liberalized scenario. To
keep pace with the contemporary demands and
situations, the statutes have become dynamic as ever
before and the role of Company Secretary has stretched
and become much more pivotal particularly with
reference to Corporate and Industrial Laws. Since the
initiation of the reform process, significant changes have
been brought in statutory provisions applicable for
Corporates. Change provides impetus to the
organisation. When corporations around are changing,
even if it doesn’t change, it gets automatically
repositioned.
*
In this paper we have made an attempt to briefly
explain the impact of the reform process initiated in
1990s and the impediments the corporates are facing
in the liberalized market place and the strategies that
can be looked into to face the competition from global
companies.
REFORMS IN THE ECONOMY
Dramatic, sweeping and far-reaching changes have
taken place over the last decade, not just in India but
across countries. Years back, it would have been hard
to believe that such a metamorphosis would take place
in the economic scenario of the country — which is
leading to changes, not just in business and industry,
but in our very psyche, attitudes and in our way of
thinking.
Particularly, in the industrial sector, almost all
industrial licensing was abolished except those that
concerned locational or environmental considerations.
In the earlier days a significant effort went in obtaining
requisite licenses and permits, which also caused a lot
of unproductive activities. The restrictions under the
Monopolies and Restrictive Trade Practices Act were
also reduced. Private entry requirements (including those
for equity participation) for both domestic and foreign
players have been eased. Those sectors that were kept
exclusively for the public sector, such as power, airlines,
telecommunication and mining have all been opened
up.
Today India provides exciting investment
opportunities. Inviting global players into the Indian soil,
putting up joint ventures worldwide and joining hands
with them in diverse fields.
The authors are the members of the Institute of Company Secretaries of India and presently working in a large private sector
company.
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32nd National Convention of Company Secretaries
The notable feature of our reform process is that
today the Governments of various states have realized
the importance of good governance and are competing
with each other to put in place policies which will attract
private enterprise initiative and capital. Governments and
people have started realizing that this is the only certain
route to prosperity.
WHY GLOBALISATION ?
When the liberalization/globalization process was
initiated in 1991, it was not by choice but by compulsion
of the economic scenario prevailing at that point of time.
There were hardly any foreign currency reserves. The
whole country was surviving in a protected environment.
An entrepreneur had to waste lot of his valuable time
to set up an industry, a customer had to wait for years
together to get the available vehicle (not desired), an
individual had to obtain number of approvals to travel
abroad, a company could not market its strengths in the
international market, an NRI could not invest in the Indian
securities, number of restrictions were imposed on the
foreign investment. The globalization process did
attempt to resolve majority of these concerns though
more needs to be done. While this process did result
in certain benefits, it had thrown out challenges to the
Indian corporates.
Without the globalization, India would have been
totally marginalised. As an economist remarked, “There
is no force as powerful as an idea whose time has come.”
It not only facilitated multinationals’ entry into India,
but also provided exciting and challenging opportunities
to Indian companies, to become truly global, by
venturing out.
What we are witnessing today is the shrinking of
the globe and the way things are happening, the globe
will be further shrinking. The corporates have the
flexibility to carry on their business activity in a place
where it is more cost effective.
This gives, developing countries a chance, to
industrialise on a global scale. It is for India, to capitalise
on those emerging opportunities, for industrialisation in
the global context.
its own collaborator in Japan —- a total reversal. Japan
was a large exporter, of viscose fibre to the world. Today,
an Indian Company’s plants have captured a large
segment of the ASEAN market, forcing the Japanese,
to scrap 30% of their country’s viscose fibre capacity.
While these are welcome features of the liberalisation,
the company’s should give due importance for the
ecological balance. In our anxiety to manufacture more
to capture the global market, we should not loose sight
of the environmental concerns. A proper balance has
to be maintained between business and the eco-balance.
Further, the areas like Telecommunications, Insurance
etc. are opened for Foreign Institutional Investors and
Indian firms were allowed to raise funds from offshore
markets through GDRs/ADRs. As a result, Globalisation
has opened the floodgates for the Indian industry of
the vast reservoir of international capital. From being
closeted in a shell, we are now becoming global in
ownership. So far, the participation in the ownership
has been from the other countries in the Indian capital
market. With the Government of India announcing the
regulatory provisions for IDRs, the Indian investor is
getting a chance to acquire the securities of foreign
companies which could not have been even dreamt a
decade ago.
The trends of doing business have changed and it
is being driven by stakeholder centric prime being
customer. The quality of products and services rendered
are improved. The major beneficiary of the gloablisation
process is the customer. The focus of the business has
been changed from Supplier to Customer. The
manufacturers have become more quality/cost conscious
as they have to compete with the international brands.
The competition has become more stringent in the
FMCG sector as number of MNCs are supplying quality
products at a competitive price. The dumping of
international brands in the FMCG sector had changed
the very living style of the Indian consumer. For example,
the consumer today need not carry the hard cash and
he can flash the plastic card wherever he goes be it for
shopping, or for a lunch with his family or friends.
There are Indian Companies who utilized the
opportunities created by globalisation and benefited. For
example, Thailand used to import Carbon Black from
Japan. Today, the plant set up by an Indian Company
after the globalisation, in Thailand, exports Carbon Black
to Japan —- a breakthrough. Thailand used to import,
Epoxy Resin from Japan. Today, the plant set up by an
Indian Company in Thailand exports Epoxy Resins, to
A – 20
In short, Globalisation has the following advantages:
— Expanding trade
— Increased customer base
— Technological advantage
— Higher returns and portfolio diversification
— Economies of scale
— Lower manufacturing cost
Meeting the Giants : Developing Strategies for Global Competition
POSITION OF INDIAN COMPANIES
Multinational corporations are migrating and flocking
into India, and creating a platform for local as well as
export markets. There are some uncomfortable fallouts
to this invasion. One of the negative fallouts has been,
that in several branded consumer goods, Indian
manufacturers have virtually called it a day. This has
already happened in products such as soft drinks,
toiletries and others and is likely to happen in other
areas also. In consumer electronics like TV, as also in
several other industries, foreign multinationals are taking
and securing a stranglehold over equity ownership, thus
subjugating the role of the Indian entrepreneur.
Companies have to learn to live with the changes and
to struggle and fight.
IMPEDIMENTS FOR INDIAN COMPANIES TO
COMPETE MNCs
In order to be competitive in the liberalized scenario,
the Indian companies need to cross several hurdles.
Some of the major issues to be addressed are discussed
hereunder:
Infrastructure
Infrastructure is the biggest bottleneck for the Indian
companies. Though our country is surrounded by water
on three sides, we do not have efficient and adequate
number of ports in place which are very important for
transportation. The lack of paved roads, expressways,
highways and flyovers is preventing the efficient flow
of goods and passengers throughout India with huge
economic loss. The Government has initiated steps in
this direction but the pace of it needs to be improved.
Having rolled out the red carpet for one and all, we
should yet restrain our euphoria. Industry needs
infrastructure. The deficient infrastructure can choke
economic activity. Power, is chronically short throughout
the country.
of Internet and E-commerce. But, Indian companies are
still lagging in acquiring the latest technologies in various
sectors.
The need for greater R&D efforts and ability to
absorb the latest technology and innovative know-how
to achieve international quality standards and improve
product quality is critically important for the growth and
development of the Indian industry.
Taxes
Even though the Government has given some tax
incentives in some areas of trade, the present tax
structure is still hindering the Indian products to make
internationally competitive. Harmonisation across States
and the implementation of modern tax structures, that
widen the tax base in an equitable manner, would
facilitate the industry and trade further.
Unfair Anti-dumping Duties by Developed Countries
Apart from increased tariffs, there are unfair antidumping duties levied by developed countries. To make
matters worse, anti-dumping laws are framed, unfairly
in favour of developed countries. These measures
hamper globalisation of Indian industry.
Other Major Hindrances are
— Excessive transportation and storage costs
— Differing product needs due to culture, income
levels, climate and so on
— Delays in responding to market needs as well
as longer lead time to physically transport
products, can make them obsolete and dated
— Attitude of the entrepreneurs
— Differing market tasks
— Intensive local services
Public Sector Undertakings
— Rapidly changing technology
As far as the working of the PSUs is concerned,
which supply the inputs, such as petroleum products,
coal, power, transportation, etc., have to become
efficient, because these inputs, constitute a large part
of the cost of production. To make public sector
undertakings efficient, it is important, that they be
allowed to function independently. These PSUs have
to rise to the occasion and prove that they are as good
an organisation as that in the private sector.
Obsolete Technology and the need for R&D
The doors have opened even for small manufacturers
and propriety businesses to go global, with the advent
— Government impediments
— Resource impediments
The acceleration in the industrial growth cannot take
place without tapping into the opportunities offered by
the international economy in terms of markets,
investment and technologies. But in doing so,
vulnerabilities have to be identified and addressed.
Despite the several hurdles Indian industry needs to
become vibrant, dynamic and outward looking, for
availing the opportunities created by the globalisation
and liberalisation.
A – 21
32nd National Convention of Company Secretaries
STRATEGIES TO MEET GLOBAL COMPETITION
To be globally competitive on the world stage, Indian
corporations urgently need to transform themselves for
becoming globally competitive. Some of the initiatives
to be taken up by Corporates are:
World Scale Plants
While setting up a plant, do not only look at the
Indian market. Look at the world market also as the
globe is shrinking day by day in terms of access to goods.
The companies should plan to put up an economical/
world size plant. The days of fragmented capacities are
over. This helps to achieve economies of scale.
Best Technology
Companies need to do a thorough research with
regard to the available technologies and get the best
technology that is available worldwide. They should not
compromise by getting the second best. Choosing the
most effective technology, which ensures the best
product quality and ensures cost effectiveness, is to
withstand international competition.
R&D
R&D is one area which most of the Indian companies
do not want to spend. The approach is always what is
in return for spending. While it is a good concept to
ask oneself this question before spending any money,
when planning for R&D, one does not know the results
before hand. Therefore, R&D could be one exception
to this best principle of spending corporate money.
R&D need to be institutionalized and the amount need
to be spent fruitfully. With companies becoming
stronger, they will find it hard to get technology as others
foresee threat to their own dominance, therefore
companies need to develop their own technology
through in-house R&D.
Innovation is the key to achieving a competitive
advantage in the international market. Innovation in its
broadest sense includes new technologies, new ways
of managing or discovering new market segments.
Competitive advantage obtained through innovation can
only be sustained by further innovation.
Quality Mantra
When the market place was protected, and the
business scenario was supplier dominated, whatever
product is manufactured that used to be dumped on
the customer and they never had a choice to think of
other. In these circumstances, quality does not make a
big difference. However, in the liberalized scenario,
the customer has plenty of choices to choose.
Therefore, the focus of the companies should be to add
value to customer, be it in monetary terms (competitive
price) or non-monetary terms (quality product,
satisfaction, best of the class product, etc). One must
never compromise on quality. Even though, in the short
run, it is an expensive exercise, in the final analysis quality
always pays and pays handsomely.
Even small firms can obtain ISO certifications and
improve their people, processes and purposes in order
to cater to the global customers. Today, the customer
sensitivities have become very important for the
companies. In order to provide consistent, qualitative
service, the companies should put in place suitable
processes with the clear cut norms for delivery of various
services. Six Sigma methodology can be adopted while
setting up new processes or for improving the existing
processes. Six sigma methodology is an excellent tool
which is effectively used by multinational companies
such as GE. This is also being used by some of the top
Indian IT service providers like Satyam, Wipro in setting/
improving their processes. In six sigma terms, a process
is said to be operating at six sigma level, if that process
deliverables are delivered with defect rate not exceeding
3.4 in a million transactions.
Continuous Improvement
The companies should adopt the path of continuous
improvement as the customer needs/desires change with
the time. Today’s luxuries will become tomorrow’s
necessities. It is human tendency to ask for more, so is
the customer. Therefore, the companies should inculcate
the philosophy of continuous improvement, in all spheres
of management activity across the organisation. This
philosophy should be communicated at all levels in the
organisation. This psyche must be all pervasive, be it in
quality improvement, cost cutting, labour and staff
management, in-house R&D, assimilating the latest
technology. Only such painstaking, constant and
consistent attention to attaining excellence, will ensure,
that Indian companies can remain cost and quality
competitive, survive and come out ahead, in this globally
competitive market place.
Once a firm establishes a competitive advantage, it
tends to become complacent and does not keep pace
with changing competitive environment, which needs
to be changed.
Benchmarking against the Best
Benchmarking is extremely important, particularly
for the companies that trade globally and have to face
A – 22
Meeting the Giants : Developing Strategies for Global Competition
international competitors. However, now it is equally
crucial for domestic players as well. Ever since the Indian
economy has opened up, the nature of the market has
changed and competition has increased.
Benchmarking has fast emerged as the most
powerful tool. It provides a focus on to the external
environment enabling to set realistic performance targets
and achieve the same by understanding world class
practices.
the company with great deal of strategic flexibility.
Strategic flexibility is the ability of the company’s
strategies to ensure that the company does not get
trapped in business dead-ends. It gives the strategists
some leverage in order to enable the company to swiftly
adapt to unpredictable changes in the strategic
environment. Factors like portfolio breadth and low
breakeven thresholds are some of the key sources of
strategic flexibility.
Portfolio Breadth
Search for Alternative Markets
The better business strategy now would be to focus
on narrower market segments and build sectorial
expertise. This need not be a limiting exercise, because
markets as they grow and develop naturally get cut into
thinner silvers over time. The best example of this
strategy is the Indian software companies which came
to limelight with the Y2K problem faced by the US
companies. After successfully fixing this Y2K issue, they
concentrated on providing value added services relating
to application softwares. Having gone through the US
market, they have expanded their operations to other
parts of the Globe like Europe, Asia Pacific regions and
African countries.
Think Global and Act Local
In order to be a truly global organisation, there is a
need to ‘Think Global and act local’. The business
strategies must be carved to reach the local markets.
For example, the latest Coke campaign picked the very
Indian expression of ‘Thanda’ for a soft drink clearly
emphasizes this. Companies need to understand the
customer desires, their language and their living
standards.
Re-focus on People Development
For Indian companies to be global in the true sense,
we should not only have a global presence but also
employ a global workforce. The focus on people
development, empowerment and organisation binding
ultimately leads to higher productivity. Successful
organisations have understood that it is only the people,
who can make an impact on its business. Continuous
training and development of the people is very important
to be successful in the global market place. People
should be trained on the latest tools and technologies.
Strategic Flexibility
In business, it is not always possible to predict the
future and yet so much depends on accurate projection
of future scenarios. The ideal strategy is one that equips
In industries characterised by high product
obsolescence rates, companies operating on a single
product platform are at a disadvantage. If any new
revolutionary player introduces a product that renders
the existing platform obsolete, the players have virtually
nothing to fall back on. Experts recommend covering
all bases with a wide product portfolio. There is nothing
radical or revolutionary about this piece of advice; it is
what investment advisors have been harping on – don’t
put all your eggs in one basket! Similarly, companies
that have a wide portfolio end up covering a major
portion of or even the entire market.
Mergers, Acquisitions
Mergers and acquisitions will help offset loss of new
product options, improve R&D efforts and improve
distribution to penetrate markets. In today’s competitive
environment, companies are increasingly seeking out
weak and strong companies to find out if the combination
will create a more competitive, cost efficient company
than either one individually. The strong companies
combine to gain a greater market share or to achieve
greater efficiency. The same is true for weaker
companies who know they can’t survive as independents.
They will often contact each other to see if a merger
can be effected and retain some of the business the
companies have developed as well as some of the
employees.
ROLE OF COMPANY SECRETARIES
As the statutory provisions have kept on changing,
the role of the company secretary in an organisation
has also been changing. Thanks to the concept of
dematerialisation, the role of company secretary has
changed drastically as the need to spend time on transfer
of shares and related issues has been reduced drastically.
Being the compliance officer of the company,
Company Secretary has a greater role in preparing the
organisation for facing the competition from global
organisation. While establishing the processes for various
types of services, the company secretary should ensure
A – 23
32nd National Convention of Company Secretaries
that the established processes do not contravene the
provisions of the applicable laws. In ISO parlance, the
certifying agencies are not going to verify whether the
set process complies with the applicable provisions or
not. They will ensure that what has been documented
has been followed. The onus of setting a process which
is in accordance with the applicable provisions lies with
the company.
During the past couple of years, the buzz word in
the corporate sector has been the compliances under
the Corporate Governance Norms. The company
secretary has significant role in ensuring that the
organisation complies with the said norms thereby
creating reputation for the organisation at various forums.
Since the Globalisation has opened opportunities
for the companies to tap the foreign funds by floating
GDR/ADRs, FCCBs etc., the company secretary has
significant role in preparing the organisation, fixing the
issue size, price, timing of the issue, ensuring that the
applicable Indian as well as other countries laws are
complied with. In deciding the size, price, the company
secretary can advise the corporate effectively so that
the overall cost of capital is reduced and shareholder
wealth is maximized.
Overall, what globalization had done to corporates
in India is to raise the service bar. If companies are to
establish themselves in the tough new world, they need
not only to scale this bar but to set new records.
Companies should ensure the customer loyalty by
providing cost effective qualitative product/service.
Since the Indian companies have the flexibility to
open their businesses outside India, the compliances
under the applicable statutes of the other countries is a
challenge before the Company Secretary which was not
the case earlier as there were no such opportunities.
With the companies getting their shares listed on the
overseas stock exchanges, the role of the company
secretaries has become much more challenging as they
need to comply with both under Indian Laws as well as
the other country’s Laws where the shares are listed.
THE ROAD AHEAD….
Joint Ventures, Strategic alliances will be the order
of the day so that the strengths of individual companies
are complemented with each other.
The challenge of globalization in the new century
is not to stop the expansion of global market but one of
settings rules and institutions for stronger governancelocal, national, regional and global - to preserve the
advantage of global market and competition but also to
provide the enough space for human, community and
environmental resources.
REFERENCES
Company Secretary being an expert in interpretation
of various Laws, can effectively interpret the provisions
of the global trade agreements to the organisation’s
interest. Company Secretary need to continuously
update on the happenings on the regulatory environment
of not only in India but in the countries where the
companies’ business interests are in existence.
A – 24
1. The articles published in the website
“themanagementor.com” in September, 2004;
2. The report published in the website
“abnamroindia.com” in September, 2004;
3. Approach paper to the Tenth Five Year Plan
(2002-2007) published in September 2001;
4. Chartered Secretary journal for the month of
June 2004;
Global Alliances and Joint Ventures — Critical Inputs
GL
OBAL ALLIANCES AND JOINT VENTURES —
GLOBAL
CRITICAL INPUTS AND ISSUES
K S RAVICHANDRAN*
INTRODUCTION
Opening up of trade barriers has its own impact on
the economy of a country. The needs of consumers
rule the roost and all innovations and inventions are need
based. Globalization is the hour of need. When countries
find the benefits of globalization, laws in that country
are relaxed. It is usual for the innovators to ensure that
the benefits are always far reaching so that more and
more laws are relaxed and restrictions in the market
place are removed. While legislations might appear to
be driving business possibilities, it is actually the business
potential that drives the legislators to frame legislations
suiting the needs from time to time. Thus it is true to
say that where the legislative exercises are dynamic and
current, the economy tends to be vibrant.
BACKGROUND
same way, the infrastructure developed and industries
established will remain in India notwithstanding the
possible repatriation of capital or pulling out of capital.
Indians are inherently strong to live with poverty in an
impoverished manner and they have enough experience
to withstand difficulties and emerge like phoenix.
Therefore there is no need to worry that entry of multinationals would result in elimination of Indian Industry.
Rather permitting them to do business in India and
enabling Indians to do business in other countries will
spread unity beyond the territorial waters of India and
India is already well known for her unity in diversity
within the nation. Therefore confidently foreign capital
could be permitted flow into the country. In a like
manner, it is necessary to permit flow of capital from
India.
GLOBAL SCENARIO – DRIVING FORCES
A look at the dynamics of regulations in the last 12
years after the introduction of the New Industrial Policy
would reveal that a lot of progressive measures in various
fronts have been casting a cumulative but positive effect
upon the economy. Until 1991, the economy was in
the need of a driving force. Suddenly when the new
industrial policy was announced, whether out of
necessity or otherwise, there was a whiff of fresh air.
The mindset was reset over night and today India is
emerging as a knowledge capital and she is all set to
become a international force to reckon with. Leading
multi-national firms are vying with each other for a share
in the cake that she possesses. All roads lead to India is
the truth.
The global scenario has been changing very fast.
The world is witnessing a make over. Economies are
merging. Cross-country investments find interesting
acceptance and consumers rule the roost. The industrial
captains are always on the look out for new emerging
markets and success in one market drives them to
replicate the success in other potential markets. A new
market in a new country naturally calls for a new local
partner. The local partner finds the offer lucrative and
an enterprise in the form of a joint venture country is
thus born. As long as the thinking is identical as there is
no conflict between the parties, the joint venture
operates successfully.
Opening of trade barriers will not make India a
dependent economy. In the pre-independence era,
when British left India they did not and they could take
along with them all the enterprises they created. In the
Competition drives technological development.
Competition from within a country is different from crosscountry competition. Innovations and inventions do not
take place merely because human beings would like to
*
M.Com., LL.B, FCS, Partner, S Srinivasan & Co., Company Secretaries, Coimbatore.
A – 25
32nd National Convention of Company Secretaries
be creative or simply because human beings tend to
get bored with existing facilities. Innovations and
inventions do happen out of necessity to meet the
challenges of competition. Cost cutting and value
addition are two mantras that get highlighted in a highly
competitive world. Monies flow into the stream of
production in order to be able to face competition and
deliver the best possible goods at the convenience and
affordability of the consumers. Global Competition drives
people to think big and it makes them fit to face global
challenges. Thus global competition drives enterprises
and entrepreneurs to become fit globally. Benchmarking
takes place globally. Thus industry and professions strive
to assess the impact of opening up of trade barriers and
achieve global competence. India, being a country
capable of affording low cost but high quality education,
should aim to train her people to expand their vision
and make them think globally.
LEGISLATIONS IN OTHER COUNTRIES
When planning JVs abroad, it is necessary to look
at the laws prevailing in the said country in relation to
various matters. A peep into the Wisconsin Law as
applicable to limited liability companies would reveal
what it provides regarding the relationship between
members and the company and the liability of members
to third parties.
Agency Power of Members and Managers
(b) Each manager is an agent of the limited liability
company, but not of the members or any of
them, for the purpose of its business. The act
of any manager, including the execution in the
name of the limited liability company of any
instrument, for apparently carrying on in the
ordinary course of business the business of the
limited liability company binds the limited
liability company unless the manager has, in
fact, no authority to act for the limited liability
company in the particular matter, and the
person with whom the manager is dealing has
knowledge that the manager has no authority
to act in the matter.
(3) No act of a member or, if management of the limited
liability company is vested in one or more
managers, of a manager that is not apparently for
the carrying on in the ordinary course of business
the business of the limited liability company shall
bind the limited liability company unless in fact
authorized at the time of the transaction or at any
other time.
Liability of Members to Third Parties
(1) The debts, obligations and liabilities of a limited
liability company, whether arising in contract, tort
or otherwise, shall be solely the debts, obligations
and liabilities of the limited liability company.
(1) Except as provided in sub-section (2), all of the
following apply:
Except as provided in ss. 183.0502 and 183.0608,
a member or manager of a limited liability company
is not personally liable for any debt, obligation or
liability of the limited liability company, except that
a member or manager may become personally liable
by his or her acts or conduct other than as a member
or manager.
(a) Each member is an agent of the limited liability
company, but not of the other members or any
of them, for the purpose of its business.
(b) The act of any member, including the execution
in the name of the limited liability company of
any instrument, for apparently carrying on in
the ordinary course of business, the business
of the limited liability company binds the limited
liability company unless the member has, in
fact, no authority to act for the limited liability
company in the particular matter, and the
person with whom the member is dealing has
knowledge that the member has no authority
to act in the matter.
(2) If management of the limited liability company is
vested in one or more managers, all of the following
apply:
(a) No member, solely by being a member, is an
agent of the limited liability company or of the
other members or any of them.
(2) Notwithstanding sub. (1), nothing in this chapter
shall preclude a court from ignoring the limited
liability company entity under principles of common
law of this state that are similar to those applicable
to business corporations and shareholders in this
state and under circumstances that are not
inconsistent with the purposes of this chapter.
Case Study – Powers of Manager
Consider the said Wisconsin law. It could be
observed that when a manager takes charge of the affairs
of the JVCO, members do not have the agency
relationship with the company. It is essential to analyse
the possible powers that could be conferred upon the
manager of a JVCO from two perspectives. One
essential perspective would whether the laws in the
A – 26
Global Alliances and Joint Ventures — Critical Inputs
country would permit such exercising of powers. For
illustration, the requirements under the various sections
of the Companies Act could pose a difficulty. Another
perspective would be when the investor who already
holds a substantial stake might ask for the power to
nominate the manager also and the other party might
find it very skewed. All these matters require thorough
discussion in the context of the laws abroad.
In a typical JV, if the following were the independent
powers of the manager of a proposed JVCO, many
pertinent questions would arise and one has to be careful
in dealing with such matters not only in the perspective
of the understanding of the parties to the JV but also
based on the applicable provisions of law.
— To do all other acts as the Manager reasonably
determines are necessary or advisable to carry
out the business of the Company.
REGULATORY FRAMEWORK IN INDIA
Foreign Direct Investment
As per the Master Circular on Foreign Investments
in India dated July 1, 2004, the investment in India from
non-resident sources is prohibited in the following cases:
(i) Business of chit fund, or
(ii) Nidhi Company, or
(iii) Agricultural or plantation activities, or
(iv) Real estate business, or construction of farm
houses,
— To establish reserves and thereafter maintain
the reserves in amounts as the Manager deems
appropriate;
(v) Trading in Transferable Development Rights
(TDRs),
— To approve the subdivision, improvement,
development, lease or sublease of any portion
of the Company’s property;
(vi) Retail Trading,
(vii) Atomic Energy,
(viii) Lottery Business,
— To borrow money and procure temporary,
permanent, conventional, or other financing on
terms and conditions, at rates of interest, and
from parties as the Manager determines, and,
in connection with the financing, if security is
required for the financing, mortgage or grant a
security interest, in any portion of the
Company’s other assets;
(ix) Gambling and Betting,
(x) Housing and Real Estate business,
(xi) Agriculture (excluding Floriculture, Horticulture,
Development of Seeds, Animal Husbandry,
Pisiculture and Cultivation of Vegetables,
Mushrooms etc. under controlled conditions
and services related to agro and allied sectors)
and Plantations(other than Tea plantations).
— To ensure the Company’s activities and property;
— To enter into agreements with an individual, a
general partnership, a limited partnership, a
domestic or foreign limited liability company, a
trust, an estate, an association, a corporation,
or any other legal or commercial entity for
property management services, property
improvement or development, other real estate
services, that the Manager deems consistent
with the Company’s purpose, and pay from
the Company’s funds the consideration required
under the contracts or agreements;
Other Salient Features for Investments In India
— To pay out of the Company’s funds, all fees
and expenses incurred in the organization and
operation of the Company;
— To perform all other acts customary to conduct
the operations of the Company;
— To appoint a registered agent or change the
registered office;
— To retain attorneys, accountants, and other
professionals on behalf of the Company;
A – 27
— Save as aforesaid, investments can be made
either with the specific prior approval of the
Government of India, the Secretariat for
Industrial Assistance/Foreign Investment
Promotion Board (SIA/FIPB) or under the
Automatic route.
— Even for matters falling under the automatic
route, approval from SIA/FIPB could be
obtained by way of abundant caution. Approvals
are granted within a maximum time of 6 weeks.
— The Automatic Route is not open for those nonresident investors who have/had a previous
financial / technical / trademark collaboration
in an existing domestic company engaged in
the same or allied activity.
— If the activity or manufacturing item of the
issuer company requires an Industrial License
under the provisions of the Industries
32nd National Convention of Company Secretaries
(Development and Regulation) Act, 1951 or
under the locational policy notified by
Government of India under the Industrial Policy
Resolution 1991 or the investment is sought in
excess of the prescribed sectoral limits
Automatic Route is not available and in such
cases, specific approval of FIPB would be
required.
Software Technology Park or in an Electronic
Hardware Technology Park may issue shares or
convertible debentures to a person resident
outside India in excess of 24 % provided it
conforms to the sectoral ceilings.
List of Activities for which Automatic Route of RBI is
not available
— A person resident outside India (other than a
citizen of Pakistan, Sri Lanka or Bangladesh) or
an incorporated entity outside India, (other than
an entity in Bangladesh or Pakistan) has the
general permission to purchase shares or
convertible debentures or preference shares of
an Indian company subject to certain terms and
conditions.
1. Domestic Airlines
— The Indian companies also have general
permission to issue partly convertible
debentures/ partly convertible preference
shares subject to certain conditions. Companies
can issue NCDs only to NRIs/PIO by means of
a public issue only. The coupon rate on partly
convertible preference shares/partly convertible
debentures should not exceed SBI’s prime
lending rate plus 300 basis points.
6. Print Media
— Trading is permitted under automatic route with
FDI upto 51 % provided the Indian company is
primarily engaged in export activities, and the
undertaking is an export house / trading house/
super trading house / star trading house.
Government also permits certain trading
activities under FIPB route, as mentioned in
Annexure ‘B’ to Notification No. FEMA 94/
2003-RB dated 18th June 2003. Retail trading
falls under the prohibition category.
— A company which is a small scale industrial unit
and which is not engaged in any activity or in
manufacture of items included in
Annexure A(A) to Notification No. 94, may
issue shares or convertible debentures to a nonresident, to the extent of 24% of its paid-up
capital. Such a company may issue shares in
excess of 24% of its paid-up capital if –
(a) It has given up its small scale status,
(b) It is not engaged or does not propose to
engage in manufacture of items reserved
for small scale sector, and
(c) It complies with the sectoral ceilings.
— An Export Oriented Unit or a unit in Free Trade
Zone or in Export Processing Zone or in a
2. Petroleum Sector (except for private sector oil
refining)
3. Investing companies in Infrastructure & Services
Sector
4. Defence and Strategic Industries
5. Atomic Minerals
7. Broadcasting
8. Postal services
9. Courier Services
10. Establishment and Operation of satellite
11. Development of Integrated Township
12. Tea Sector
List of Activities for which FDI is Prohibited
1. Retail Trading
2. Atomic Energy
3. Lottery Business
4. Gambling and Betting
5. Housing and Real Estate business
6. Agriculture (excluding Floriculture, Horticulture,
Development of seeds, Animal Husbandry,
Pisiculture and Cultivation of vegetables,
mushrooms etc. under controlled conditions
and services related to agro and allied sectors)
and Plantations (Other than Tea plantations)
Joint Venture and Wholly Owned Subsidiaries Abroad
Overseas investments, as per the Master Circular
dated 01st July 2004, of the Reserve Bank of India (RBI),
in Joint Venture (JV) and Wholly-owned Subsidiaries
(WOS) are important avenues for promoting global
business by Indian Entrepreneurs. Global investments
by Indian Entrepreneurs fetch foreign exchange earnings
to the country in terms of dividend, royalty, technical
know-how fees and in addition, invariably the
investments result in acquisition of properties. As per
the master circular, Indian parties are prohibited from
A – 28
Global Alliances and Joint Ventures — Critical Inputs
making any investment in any foreign entity engaged in
real estate business or banking business. Under the
automatic route, the basic criteria seem to be the net
worth of the Indian party and the circular permits
investment in automatic route upto 100% of the net
worth of the Indian party. Where the investment is
proposed to be made in Bhutan or Nepal, it should be
made only in Indian Rupees. Investment in Pakistan is
prohibited under the automatic route. In respect of
proposals not covered by the automatic route and not
falling under other specified categories including raising
funds through ADR / GDR issues or investment under
“swap or exchange of shares” arrangement, prior
approval of the RBI is required.
engaged in the field of software where the
consideration for purchase does not exceed
US$ 10,000 or its equivalent per employee in
a block of five calendar years; the shares so
acquired do not exceed 5% of the paid-up
capital of the Joint Venture or Wholly Owned
Subsidiary outside India; and after allotment of
such shares, the percentage of shares held by
the Indian promoter company, together with
shares allotted to its employees is not less than
the percentage of shares held by the Indian
promoter company prior to such allotment.
(d) purchase of foreign securities under ADR/GDR
linked stock option schemes by resident
employees of Indian software companies
including working directors provided purchase
consideration does not exceed US$ 50,000
or its equivalent in a block of five calendar
years.
General permission has been granted to a person
resident in India who is an individual
(a) to acquire foreign securities as a gift from any
person resident outside India; or
(b) to acquire shares under Cashless Employees
Stock Option Scheme issued by a company
outside India, provided it does not involve any
remittance from India, or
(c) to acquire shares by way of inheritance from a
person whether resident in or outside India;
(d) to purchase equity shares offered by a foreign
company if he is an employee or a director of
an Indian office or branch of a foreign company
or of a subsidiary in India of a foreign company
or an Indian company in which foreign equity
holding is not less than 51 per cent.
In all other cases, which are not covered by general
or special permission, approval of the Reserve Bank is
required to be obtained before acquisition of a foreign
security.
Residents are permitted to acquire foreign securities,
if it represents –
(a) qualification shares for becoming a director of
a company outside India provided it does not
exceed 1% of the paid up capital of the
overseas company and the consideration for the
acquisition does not exceed USD 20,000/- in a
calendar year.
(b) rights shares provided that the right shares are
being issued by virtue of holding shares in
accordance with the provisions of law for the
time being in force.
CRITICAL ISSUES
Apart from regulatory aspects, in every joint venture
or alliance, whether in India or abroad, there are bound
to be certain key issues which require thorough
discussion in a free, fair and transparent manner. When
identity of minds emerges, there will be no further
complication. Being a business venture requiring
substantial cross country investment, apart from
compliance of all statutes and taxing provisions, there
has to be clarity in several matters. Once clarity of
thought is achieved, even 50%:50% partnership would
not be bad. In fact, such a partnership would ultimately
maintain the equilibrium at all times. When the JV parties
see a reasonable prospect of the Joint Venture Company
(JVCO) continuing without any problem for a period of
5 years and if the pay back period is 5 years or less than
the same, the parties can proceed to sign the
memorandum of understanding. The parties should strive
to achieve a balanced role for both of them. One party
may have a controlling stake but other party might offer
the buy back which would alone make the project
succeed. There will be balance. Similarly one party may
have a controlling stake but the other party may provide
the technology or Intellectual property. There will be
balance.
Relevant Questions
(c) purchase of shares of a JV/WOS abroad of the
Indian promoter company by the employees/
directors of Indian promoter company which is
A – 29
— What is the role of each party ?
— Whether the parties envisage financial
collaboration only or technical only or both ?
— How the management of day-to-day operations
(including administration) will be organized ?
32nd National Convention of Company Secretaries
— If one party would nominate the MD / Manager
of the JVCO, will there be any conflict of
interest? Will the parties be able to continue
their business plans in their individual capacities
in their own companies despite JVCO ?
— Whether the parties contemplate a buy back
arrangement for the products manufactured by
JVCO ?
— Whether the parties contemplate a marketing
or other supporting arrangement for the
products manufactured by / operations of
JVCO ?
— Whether chairmanship of the JVCO will be
rotated between the parties on annual basis ?
— Will the parties maintain or would like to
maintain ‘shareholding parity’ so that both the
parties continue to maintain the same ratio at
all times ?
— How will the parties meet additional funds
requirements? How will the parties react if one
party is unable to bring adequate funds at the
time of need?
CONCLUSION
For global alliances and joint ventures, the drive
would normally come businessmen who are always on
the look out for business opportunities. The drive could
also come from professionals who are able to identify
the potential and understand the needs of parties and
bridge them. Thus professionals could not only facilitate
but also make things happen. A professional is one who
accomplishes the tasks accepted by him within the
agreed time and in the best possible manner. A
professional could use his imagination to bring in new
strategies. Strategies could usher in the emergence of
new alliances. It is essential to keep in mind that the
doctrine of inevitable elimination operates on its own
and it does not need any trigger. Unless strategies are
current and relevant taking into account the emerging
global issues and needs, they may not be able to
surmount the operation of the said doctrine.
A – 30
Managing the Indian MNCs
MANAGING THE INDIAN MNCs
P S HARIHARAN*
INTRODUCTION
In the true sense of the word, Indian MNCs have
emerged only recently. Tapping overseas markets was a
necessity to earn foreign exchange to pay for imports.
Later on 100 % export oriented units were set up to
exploit global market. Exports are a necessary but not a
sufficient condition for globalisation. But, of late, some
companies have begun to tread the untrodden path of
setting up decentralised overseas operations and not
merely earning revenue for the home office. The winds
of change have penetrated the Great Wall of China.
Sundaram Fasteners, which acquired a manufacturing
unit in UK in Nov 2003,recently made a foray into
China. Software companies such as Infosys,Wipro and
TCS have set up businesses abroad. Asian Paints
acquired Berger International and became one of the
top ten decorative paints companies in the world. Moser
Baer has emerged as one of the largest players in the
optical storage media while Essel Propack has become
the number one in manufacturing laminated tubes with
a 30 % global market share. The Aditya Birla group
which set up manufacturing units in South-East Asia and
Africa is now establishing itself in China, Canada and
Australia. As a result, almost 30% of their revenue comes
from operations around the world. A leather goods
manufacturer in the far South has captured a good share
of high-fashion market abroad. Ranbaxy has emerged
as one of the top five generic drug makers. Tata Tea
acquired Tetley in the year 2000 while Tata Motors have
taken control of Daewoo Commercial Vehicle Company
in South Korea from a Rs.465-crore deal. Indian MNCs
have really arrived though small in number. In another
decade many Indian companies would be having their
presence in many countries. This article deals with major
aspects of managing Indian MNCs and the role of
company secretary in that context.
*
POINTS
TO
BE
GLOBALISATION
CONSIDERED
FOR
When companies set sight beyond the Indian
shores, the path is long and arduous. It is not as easy as
setting up an overseas office. “ Unless you are a strong
player in the home country, it would be dangerous to
venture abroad “, Mr. Suresh Krishna, Chairman and
Managing Director of Sundaram Fasteners Limited. Why
globalise ? The points can be considered as follows;-
ACS.
A – 31
(a) Globalisation involves new markets, production
efficiency, technology transfer and spreading
business risks and warding of competition
(b) In the alien country globalisation is accepted
as a national policy
(c) Growth of a particular business or product has
been steady in spite of general business
downturn
(d) Quality is the watchword and only those entities
which value quality as of paramount importance
can venture into overseas operations. It is the
high quality of our software products and
services that helped in getting a sizeable share
of the global market.
(e) Political risks also are to be considered while
operating in multiple locations. No one would
venture into Iraq for setting up business. Some
companies have deferred their plans to enter
Bangladesh in view of the present disturbed
conditions.
(f) It has to be well understood how the alien
country is political friendly with India
(g) Market: A proper interpretation of customer
needs and preference of the market are to be
32nd National Convention of Company Secretaries
studied. What is the extent of competition?
What is the cost of initial market entry? A new
brand in the overseas market has to be
established and the product should offer better
value compared to similar products.
Competition from well established local players
and multinationals with deep pockets is to be
encountered
(ii) Assessing the demographics of the target
market and developing sales strategy
appropriately.e.g. Coke can expect higher sales
in Muslim countries where alcohol consumption
is prohibited
(iii) Adapting products to local tastes and needs e.g.
Nescafe sold as Bru in South India where they
prefer coffee with a filter coffee taste
(h) Intellectual property rights like logos, trade
marks and designs are to be adequately
protected
(iv) Projecting the brand through a core product.
Marlboro is the public image of cigarettes
though it sells food items also. The cash cow is
used to provide the cream, not just milk
(i) Managing new customers and investors in the
alien country is to be properly done
(k) What are the legal and taxation environment
in the alien country ?
(v) Respecting national buying prejudices.
Advertisement cannot be globally
homogenized. Literal translation of one
language in one country to local language in
another results as repellant
(l) What litigations are to be encountered
pertaining to/challenging patents ?
(vi) Enforcing homogeneity in quality areas. The
flavour of coke should be the same world over
(m) Infrastructure facilities such as supplier base,
supply chain management, financial services,
distribution channels, warehousing and
dealership network are to be studied well.
(vii) Putting the service support in place before
penetrating the market. The sale is only the
first step. It is the guarantee of back up services
that burnishes the brand image. When Leyland
trucks from India were sold to African countries
under World Bank aid, the sales suffered since
neither spares nor qualified mechanics were
around
(j) Managing currency risks and fluctuations is an
important aspect of overseas operations
THE PROCESS OF GOING GLOBAL
What is the mode of entry abroad? The choice
typically comes down to one of three approaches
(viii) Staying patient. It took 17 years for Japan to
penetrate US car market
(a) produce at home and export abroad
(b) enter into a contractual agreement, such as
licensing a technology or enter into a
management contract without actually owning
substantial assets abroad
(ix) Code of corporate ethics. Passing on reduction
in tariffs to the price of the end product. Like
reduction of excise duties resulting in lower
prices of PCs. High tariffs of BSNL resulted in
surrender of more than two million telephone
connections when cheaper mobile phones were
introduced
(c) own and control assets abroad by having joint
venture or through majority ownership
These choices are given in the attached
illustration.(Annexure I)
(x) Creating national perception e.g. miniaturization
of Japanese products, which work trouble free
for years together.
GLOBAL BRAND
Shakespeare said: “What is in a name? A rose by
any other name would smell as sweet.” He was obviously
not a marketing man. In today’s global market, the name,
or more precisely the brand is everything. Companies
have no choice but to create brand images. It is well
known that the world’s top ten brands are: Coca –Cola,
McDonald’s, Disney, Kodak,Sony,Gillette,MercedesBenz, Levis,Microsoft,Nescafe etc.Brand building has to
follow the following rules:
LEGAL FRAMEWORK
(i) Providing value perception. Bajaj scooters
provide value perceptions
A – 32
(a) Due diligence, legal formalities and paper work
are important and integral parts of any venture
in a foreign country. The practices/experiences
in different countries are not uniform. For
example, in one country the host may do all
the legal paper work while in another, the Indian
company may have to engage a battery of
lawyers and pay hefty legal fees. Sundaram
Fasteners Ltd; are reported to have engaged
Managing the Indian MNCs
their own lawyers in UK for due diligence and
all legal paper work at a fees of about Rs.60
lakhs which was about 5% of the total cost of
acquisition. Besides this, the company secretary
had to spend considerable time sorting out the
legal issues. The other legal points to be
followed are a plethora of laws relating to
operating in an alien country -pertaining to
environment, employment of locals, job
protection in the case of takeovers, foreign
investment, dividend repatriation, taxes, terms
of joint venture agreement, appointment of
expatriates etc. In some cases the buyer is
responsible for the past violations of the seller!
(d) The important means by which many MNCs
resolve international disputes is through
arbitration. The two commonly used
organisations for international arbitration are the
International Chamber of Commerce (ICC)
located in Paris and the International Centre
for Settlement of Investment Disputes (ICSID)
located in Washington.
NEGOTIATIONS
(a) An understanding of the legal framework
enables one to negotiate terms to mutual
advantage. The eventual conclusion of an ideal
transaction must not only be distributive-which
is sharing the benefits equally. It must also be
integrative which is sharing the benefits in a
mutually advantageous manner.
(b) Numerous laws and institutions have come into
existence to regulate the world trade .Such laws
and institutions, at both international and
national levels, constitute an important part of
the environment in which an MNC has to
conduct their worldwide business. In the U.S.A.
there are various such institutions viz. US
Department of Commerce, Office of the US
Trade Representatives, the WTO etc and the
European Commission outside US. Therefore,
Indian companies wishing for global trade must
be familiar with these laws not only because
they are means to take redress from ‘unfair’
competitive practices, but also because such
laws often invoke against them. In many crossborder transactions that has potential legal
consequences, the Indian company must know
which law prevails in the country to be entered,
the court to which it is adjudicated and about
the enforcement mechanism across the
borders.
(c) With increased role of cross-border flows of
capital, technology, people, knowledge and
other resources, there are many instances in
which the actions undertaken or conduct in one
country can affect citizens in another country.
The particular areas of concern are
(b) In business, a skillful negotiation involves a
‘win-win’ strategy where both gain some
ground and depart as gratified friends. A good
negotiator records the negotiations as they
progress, and exchanges the minutes with the
co-negotiator and implements the conclusions
within the time frame. A company secretary is
an ideal candidate for this purpose because of
his training. The best person with whom to
negotiate is someone who knows himself and
who knows his field thoroughly. The best
negotiator enjoys the challenge of negotiating.
He has the ability to think clearly and rapidly.
He is cool and collected, patient, emotionally
controlled and slow to take personal offence.
While he is generally a good communicator,
he need not be articulate. He should have the
ability to analyse objectively and flexibility is
an important quality.
FINANCIAL ASPECTS
(a) General
(a) the international antitrust issues
(b) multinational bankruptcy
(c) product, process and environment liabilities
across the borders
(d) trade disputes
(e) protection of intellectual property
(f) trade offs between business in host country
and foreign policy in the home country
A – 33
Financing of overseas ventures will depend on the
method of entry abroad as given in Annexure I. It
could be entirely from internal accruals or raising
equity or debt at home or raising funds in foreign
markets. Bharat Forge raised Rs.350 crores
domestically to finance acquisition of a German
forging company. Tatas have revealed their plans
about creating a fund for acquisitions abroad. TCS
raised more than Rs.5400 crores through its
IPO.Unless a company has a strong financial position
and a history of continued growth, venturing into
the international arena would be disastrous. Today
an AAA- rated company has a host of most
32nd National Convention of Company Secretaries
favourable funding options. The aspects to be
considered are:(a) whether each subsidiary should stand on its own
legs or on a pool of funds and centralised
financial control
(b) transfer of funds
(c) financing patterns
(d) minimization of taxes and interest costs
(e) control over transfer prices
(f) gains and losses arising out of
(i) transactions involving foreign currency
(ii) transactions with a foreign branch
(iii) transactions of a foreign subsidiary
company
(iv) forward exchange contract with an
international bank
(g) reporting/submission of financial statements
with regional with regional and world-wide
consolidation
(b) Capital Markets
In raising resources from capital markets in the world
across, one sees structural differences in the capital
markets around the world, such as US,Japan,Swiss/
German,Euro markets as well as India. These
differences will be in characteristics, regulatory
framework, credit rating, method of organizing,
instruments, documentation and benchmarks. There
is a real need for harmonization of global capital
markets. The differences arise due to differences
in (a) taxation (b) accounting, reporting and
disclosures (c) corporate governance (d) huge
volumes of cross-border securities transactions
(e) transaction costs (f) fragmented financial market
infrastructures (g) absence of convertible currency
(h) multiple regulators (i) lack of information and
(j) legislative and regulatory impediments.
(c) Exchange Rate Risks
MNC operations require a thorough knowledge of
techniques of managing exchange rate risks. These
techniques are matching, multilateral netting,
leading and lagging, invoicing and currency clauses,
forward currency transactions, currency futures and
options, currency swaps and export/financing
insurance. Arising out of the instability of exchange
rates, the different accounting of transactions and
translation gains and losses in different countries
and different tax treatment of such gains and losses
should be decided upon.
HUMAN RESOURCE DEVELOPMENT
(a) Indian companies have shown a marked preference
to send their own men to man overseas jobs subject
to restrictions in the appointment of expatriates.
They have an option of posting their own senior
managers abroad, hiring non-resident Indians with
global experience or hiring locals in each country.
Many companies agree that when playing in an alien
market, hiring locals have an advantage. But
recruitment of locals is fraught with all sorts of
sensitive issues including political compulsions. It
took Ford. Motor Company, a pioneer which went
overseas eight decades ago, before they could have
their first non-American CEO. But things are slowly
changing. Ranbaxy has hired Europeans, British,
Chinese and American executives for overseas
operations. In any overseas operations, people come
from different backgrounds, different cultures and
different languages.
(b) The profile of an overseas manager is that he should
have high self-reliance with a cross-cultural
background, an ability to adjust to new situations
and understanding/knowledge of a language other
than English. He is expected to be comfortable with
surprises and ambiguity. People with global mindsets
should be continuously rethinking of boundaries and
changing their directions and behave accordingly.
As Peter Senge mentioned in his book,” the Fifth
Discipline”, managers of learning organizations
need to have a ‘system view’ of the world, which
requires an intuitive, right-brain ability to understand
different levels of business vision, missions, and
strategy and to grasp their implications for global
structure, culture and people. Global managers
should also be flexible enough to meet with the
needs of the organization and to constantly adjust
to global and local demands through co-ordination
and allocation of the organisation’s resources. Global
manager must have sensitivity to cultural diversities,
which few people possess naturally.
(c) The global managers should have clear mindsets.
Globalisation demands that the manager be a true
leader. Managers with global mindsets have to
balance conflicting forces- functional, geographical
and operational. A global manager must learn to
live with conflict management rather than resolution.
People with global mindsets should trust process
rather than structure to deal with the unexpected.
They should value diversity and multi- cultural
teamwork. Teamwork and team play are
fundamental filters for a global mind. On the HRD
A – 34
Managing the Indian MNCs
front 100 % involvement of the employee is a must.
The four human resource dimensions for competitive
advantages are (a) creating a learning environment
(b) ensuring grass root level participation
(c) galvanizing performance orientation and (d)
evolving a culture for executing organized change.
(d) The key word is professionalism. Naturally attitude
towards work, appreciation of different cultures and
values and communication skills are among the first
areas that a global manager has to improve upon.
The global business manager’s overall goal is to
capture the full benefit of integrated worldwide
operations.
(e) Worldwide teams are an integral part of
multinational operations. Ford Motor Company has
demonstrated how it runs a complicated design and
engineering process with nearly 1000 participants
in five continents.
“I am trying to be the glue between everyone in
the team worldwide, so I visit each of the teams
once in a year”, says the Manager in charge of
Ford Design and Engineering Process. Technology
can’t replace the chemistry of personal contact and
coaching. At Hewlett-Packard, the European export
administration manager has a team of 35 in several
countries. “Without communication (by e-mail,
voice mail, teleconferencing or telephone) you can’t
have a remote team”. Successful management of
remote teams entails overcoming distance, culture,
time zones and technology. Managing remote
teams tends to work best with people who are
disciplined and clear about objectives and when
the leader pays attention to relationship and different
styles. As per Diana Tracy, a US based empowerment specialist, empowerment is basically is a good
sound relationship. Real power to an organization
comes from empowering people. Empowered
teams are among the most innovative organizational
applications in recent times. A self-directed work
team has greater commitment to work, learns faster,
communicates better and solves more problems.
As a result, quality and productivity improve,
operating costs are reduced and changes are better
managed. Multinational managers and multicultural
teams need to have shared values, vision, objective,
business performance, rewards and profits. The
intensifying involvement of workforce is
development of human resource in the right
direction.
THE ROLE OF THE COMPANY SECRETARY
The company secretary has a great role to play in
the effort of Indian companies spreading their wings
abroad because of his skills in competition, tax and
corporate laws of other countries, techniques of buy or
takeover of foreign companies, process of due diligence,
negotiating strategies and valuation skills. The company
secretary probably will be the first appointment in creating
a global Indian MNC because of the spadework to be
done with particular reference to legal formalities. It is
quite possible that an Indian company going overseas
will have two distinct company secretaries, one for
domestic operations and another for overseas (MNC)
operations. In fact he would be like a pilot to take off
smoothly for going global. In the words of Mr.Ratan
Tata : “We would be truly global when we are an
international company operating in many geographies,
becoming an entity of the world, rather than being an
Indian company located in different countries.” The role
of the company secretary which will be exciting and
rewarding in this context needs not be
overemphasized.
A – 35
32nd National Convention of Company Secretaries
A – 36
IPRs — A Gateway to Corporate Globalisation
IPRs — A GA
TEW
AY TO CORPORA
TE
GATEW
TEWA
CORPORATE
GL
OBALISA
TION
GLOBALISA
OBALISATION
LEENA JAIN* & DIVYA SAXENA**
INTRODUCTION
The term “intellectual property” in the globalized
scenario, has recently become topical, with the
international agreements being entered among various
developed and developing countries. It is a term that
describes the ideas, inventions, technologies, art works,
music and literature that are intangible when first created,
but become valuable in tangible form as products.
Although tangible assets such as land, labour and
capital used to be the yard sticks of economic health,
this is no longer the case. The new drivers of wealth in
contemporary society are knowledge based assets. IP is
the commercial application of imaginative thought to
solving a technical or artistic challenge. It is not the
product itself, but the special idea behind it, the way
the idea is expressed, and the distinctive way it is named
and described.
The bricks-and-mortar economy is, thus, being
replaced with the economy of ideas in which IP has
become one of the major currencies. In the new
economy, wealth is generated through creating and
capturing the value of knowledge. Throughout the history
of human civilization, wealth was based on the
possession of physical assets. Today, however, the
paradigm has changed, and knowledge has become the
new wealth.
GLOBALISATION AND IPRs
“Globalization means different things to different
people” (Bhalla, 1998). The term is used generally to
refer to a phenomenon defined or measured by flows
of trade and investment between countries (Bhalla,
1998; James, 1998).
*
Company Secretary, Ganesh Polytex Ltd., Kanpur.
**
Executive Partner, S. K. Gupta & Co., Kanpur
An analysis of the implications of globalization of
information on international and domestic intellectual
property rights and legal regimes is a complex endeavour.
An appropriate starting point seems to be to define the
components of the issue: globalization, information,
intellectual property.
For some, globalization is a means towards strong
national and international economies; for others, it
represents ever greater influence of developed nations
and transnational entities, along with significant changes
in understandings of sovereignty. Intellectual property
rights have developed into a tool to serve economic
and monopolistic interests of corporations and
information-rich states. The intellectual property rights
most relevant to globalization of information issues are
copyrights and patents.
In order to achieve 1% share of global trade and
the 2020 vision of a developed country, the platform of
non-discriminatory, rule- based, multilateral trading
system is required. A clear effect of globalization of
information is a trend towards harmonization or
standardization of intellectual property laws, in the
direction of greater protection.
FACTORS AFFECTING IPRs
Political will, a legislative framework, vital
institutions, and an IP culture can be considered essential
components of the IP-empowered society. Let us
examine these components individually:
A – 37
— Political Will : The political environment,
Governmental policies and legislations should
be efficient, honest and practical to place a high
value on an IP culture in which all members of
32nd National Convention of Company Secretaries
the public are fully aware of the positive impact
which IPRs can bring to bear on economic,
cultural, and social development, domestic and
foreign trade, international investment, and
technology transfer. It is the first component in
the chronological and developmental evolution
of the IP-empowered society and it is essential
that leaders set the tone as well as the example.
— Legislative Framework : While the necessity for
political will cannot be underestimated, IPRs
are literally born from a country’s national
legislation. That legislation must be
commensurate with the obligations contained
in the international IP treaties and conventions,
particularly the Paris and Berne Conventions,
and the TRIPS Agreement. It is also important
that the legislative framework reflects a fair
balance among all of the various interested
circles, which include but are not limited to
the private sector and industry, the public,
consumers, and government. The key role of
this component, the legislative framework,
underscores that the rule of law is one of the
most important underpinnings of the IPempowered society.
— Vital Institutions : No institution can function
without good people doing their jobs well. A
scenario in which human resources are not
properly supported is doomed to either failure
or negligible results. Institutions must be
sensitive to the value of IPRs and they must
not create barriers to growth of trade by
hindering the processing and development of
knowledge based assets.
— IP Culture : This component is last, not because
it is the least important, but because it follows
the other components in chronological and
developmental evolution. In an IP culture
governments and agencies seek to increase
value and raise standards of living, by advocating
an increased use of IP as a tool for economic
growth. The private sector, from Multinational
Corporations to Small and Medium size
Enterprises and Sole-Proprietorships, recognizes
the value of IP in knowledge-based industries.
IT and communications technology are
emphasized and employed effectively.
innumerable domestic legal systems, as well as regional
and international regimes and bilateral and multilateral
treaties and agreements. As international or regional
treaties or agreements are adopted or ratified, responsive
or agreed changes to domestic law takes place. A brief
of the various agreements and treaties are given herein
below:
The General Agreement on Tariffs and Trade
(GATT) Originated after World War II (1939-45).
The Agreement was originally a part of a draft charter
for an International Trade Organization (ITO). The
“Havana Charter” of the ITO contained the GATT, which
governed trade, and also wide-ranging rules relating to
employment, commodity agreements, restrictive
business practices, international investment and services.
GATT was signed by 23 nations at a Trade Conference
in 1947 and became effective in January 1948. The ITO
failed to win ratification by the US Congress in 1950
and never came into being. However, the GATT
remained in use to govern international trade. The GATT
came into force in 1948. Till 1994 (when it was replaced
by WTO), GATT had eight “rounds” of negotiations
which reduced tariffs and struggled to produce rules to
govern international trade. The last round of
negotiations, called the Uruguay Round, began in 1986
and ended in 1994 which headed for opening trade in
investments and services among contracting States and
strengthening protection for intellectual property. It also
provided for establishment of the WTO which replaced
the GATT. The 1994 GATT Treaty was one of the most
ambitious agreements to be signed by such a large
number of States.
The World Trade Organization (WTO) came into
existence in 1995 by an international treaty signed by
all the 128 Member States of the General Agreement
on Tariffs and Trade (GATT). WTO is the only
international organization dealing with the global rules
of trade between nations. The highest authority of WTO
is the Ministerial Conference. It constitutes of
representatives of all member countries usually trade
ministers. The Conference convenes at least every two
years. WTO has other subsidiary bodies which carry out
day-to-day activities. The General Council composed
of all WTO members reports to the Ministerial
conference. The General Council also convenes in two
particular forms; the Disputes Settlement Body and the
Trade Policy Review Body. The General Council
delegates its responsibility to three other bodies:
LEGISLATIVE DEVELOPMENT OF IPRs
The field of international intellectual property law
is itself complex. By definition, this subject is a web of
A – 38
— The Councils for Trade in Goods,
— Trade in Services and
IPRs — A Gateway to Corporate Globalisation
— Trade-related Aspects of Intellectual Property
Rights.
The headquarters of WTO are at Geneva,
Switzerland. Its main functions are :
— Administering WTO trade agreements
— Acting as forum for trade negotiations
— Handling trade disputes & Monitoring national
trade policies
— Technical assistance and training for developing
countries
— Co-operation with other international
organizations
WTO Structure
All WTO members may participate in all councils,
committees, etc, except Appellate Body, Dispute
Settlement Panels, Textiles Monitoring Body, and
Plurilateral Committees.The chart 1 depicts the basic
structure of WTO along with their respective
activities.
The World Intellectual Property Organization
(WIPO) : “The Convention establishing the World
Intellectual Property Organization” was signed at
Stockholm in 1967 and came into force in 1970. It is
one of the specialized independent agencies of the
United Nations (UN) system of organizations. A Union
consists of all the states that are party to a particular
CHART 1
A – 39
32nd National Convention of Company Secretaries
treaty. Member countries of such Union follow certain
common rules, standards and practices. The `Unions’
founded on the multilateral treaties in the various fields
of intellectual property are administered by the WIPO.
WIPO also provides a framework and the services
necessary for revising these treaties and establishing new
ones. It requires a constant effort for international
cooperation and negotiation.
The WIPO has its headquarters at Geneva. It has
four different organs — the General Assembly, the
Conference, the Coordination Committee and the
International Bureau of WIPO.
There are three major functions of WIPO:
— Registration activities
— Promotion of inter-governmental co-operation
— Substantive or programme activities
In general, the role of WIPO is to make the World
a better place by striving to accomplish this in accordance
with the WIPO mandate, which is to promote the
protection of intellectual property and to seek a proper
balance among all of the various interested circles.
Towards these goals and objectives, WIPO will strive
for simplification and improvement of procedures,
harmonizing substantive provisions of national laws
towards the establishment of a user-friendly IP system,
by making use of the present global protection systems,
such as the Patent Co-operation Treaty (PCT) and the
Madrid system, more appealing, less complex and less
costly for creators, and more efficient through the
application of state-of-the-art information technologies
within the Organization. The role of WIPO in the 21st
century will be greatly enhanced through its current
programs to upgrade and expand its use and deployment
of IT.
The Agreement on Trade Related Aspects of
Intellectual Property Rights (TRIPS) Agreement.
The TRIPS Agreement which is binding on all WTO
members entered into force on January 1, 1995. The
Agreement is based on negotiations held during the
Uruguay Round of multilateral trade negotiations on
aspects of intellectual property rights which impacted
the international trade. The Uruguay Round of
negotiations was concluded on December 15, 1993.
The TRIPS Agreement is contained in an Annex to the
WTO Agreement establishing the World Trade
Organization (WTO) which began to work on January
1, 1995. The TRIPS Agreement is often described as
one of the three ‘Pillars’ of the WTO. The other two
are trade in goods and trade in services. The TRIPS
Agreement makes protection of intellectual property
rights an integral part of the multilateral trading system
as embodied in the WTO.
Though TRIPS Agreement entered into force on
January 1, 1995 no member of WTO was obliged to
apply the provisions of the TRIPS Agreement before
the expiry of one year following the date of entry into
force of the Agreement that is before January 1, 1996.
In addition to the transition period of one year applicable
to all countries including the developed ones the
Agreement allowed countries different periods of time
to delay its provisions. Developing country members of
WTO were granted a delay of a further period of four
years from the date of application of the Agreement
(that is until January 1, 2000). Moreover, a developing
country which is obliged by the Agreement to extend
product patent protection to types not previously
patentable in that country (for example India) was given
an additional period of five years (that is until January 1,
2005) before applying the provisions of the Agreement
to such products. Least developed country members of
WTO are not required to apply the provision of the
Agreement for a period of 10 years from the general
date of application of the Agreement. In the WTO, least
developed countries are those recognized as least
developed countries by the United Nations. Presently
there are 48 least developed countries on the UN list.
All of these are not members of WTO. It should be
highlighted that all members, even those availing
themselves of the larger transitional periods, are required
to comply with obligations on national treatment (equal
treatment for foreign and domestic individuals and
companies) and most favoured-nation treatment (nondiscrimination between foreign individuals and
companies) as stipulated in the TRIPS Agreement.
While members are free to determine the
appropriate method of implementing the provisions of
the TRIPS Agreement within their own legal system
and practice, a basic principle concerning the nature
and scope of obligation under the TRIPS Agreement is
that members must implement the provisions under the
Agreement and accept the treatment provided for in
the Agreement to the nationals of other members.
Members are free to implement more extensive
protection than is required provided that such additional
protection does not contravene other provisions of the
Agreement.
The TRIPS Agreement stipulates that the membercountries of WTO must comply with the substantive
obligation of the Paris Convention on Industrial property
A – 40
IPRs — A Gateway to Corporate Globalisation
and the Berne Convention on Copyright (except the
provisions on moral rights) in their most recent versions.
All the substantive provisions of these two main
Conventions are incorporated by references. WTO
member countries under TRIPS Agreement are not only
required to apply these main provisions but also to apply
them to individuals and companies of other WTO
member countries. In addition to these main provisions
TRIPS Agreement has introduced additional obligations
in areas not addressed or inadequately addressed by
these Conventions. For this reason, the TRIPS
Agreement is sometimes referred to as “Berne and ParisPlus” Agreement.
Budapest Treaty : The Budapest Treaty on the
International Recognition of the Deposit of Microorganism for the Purposes of Patent Protection” was
signed on April 29, 1977. The Treaty, which was
subsequently amended on September 26, 1980, provides
for the deposit of micro-organisms in an International
Depository Authority.
On 14 January 2000 there were 48 members of
the Budapest Treaty. Only those countries which are
members of the Paris Convention are qualified for
becoming members of the Budapest Treaty. India is not
a member of the Treaty.
Biodiversity Convention : This was the result of
the growing realization of the need to arrive at balanced
interface between intellectual property convention and
issues related biodiversity, biotechnology and bioconservation. The convention, which was proposed in
1992 at the RIO “Earth Summit”, has been ratified by
more than 169 countries. Among its key features are:
— The conservation and sustainable use of
different components of bio-diversity.
— Fair and equitable sharing of benefits arising
out of the utilization of genetic resources.
Eurasian Patent Convention (EAPC) : It was
formed by the Members of the Commonwealth of
Independent States (CIS) on August 12, 1995. However,
it started functioning from January 1, 1996 with its office
at Moscow. For patenting in all Member States of EAPC
an inventor needs to file only one patent application
with a single payment. The official language is Russian
and follows the first-to file system. The term of patent
is 20 years.
Geneva Convention : The Geneva Convention for
the Protection of Producers of Phonograms against
Unauthorized Duplication of their Phonograms
concluded on January 1, 1997. The Convention,
administered by the International Bureau of WIPO,
provides for “the obligation of each contracting state to
protect a producer of phonograms, who is a national of
another contracting state against the making of
duplicates without the consent of the producer.
The Organisation Africaine de la Proprite
Intellectuelle (OAPI) : It was formed in 1958 by the
twelve former French Overseas Territories that gained
independence. A single patent granted by OAPI from
any of its regional offices become separately effective
in all the Member states. However, when a Member
State revokes a patent in its territory it remains effective
in the other Member States.
Lisbon Agreement : The Lisbon Agreement for
the protection of appellations of origin 1 and their
International Registration was concluded in 1958. The
Agreement was subsequently revised in 1967 and was
amended in 1979. The Agreement is open to the states
party to the Paris Convention. The competent authorities
of contracting states can get such name registered by
the International Bureau of WIPO in Geneva.
Locarno Agreement : The Locarno Agreement
establishing an International classification for industrial
designs concluded in 1968 and then it was amended in
1979. The Agreement established a classification for
industrial designs. The classification consists of 32 classes
and 223 sub-classes. The Agreement is open to States
party to the Paris Convention.
Madrid Agreement : The Madrid Agreement for
the repression of false or deceptive indications of source
of goods, which was concluded in 1891, was revised at
Washington in 1911, at the Haugue in 1925, at London
in 1934, at Lisbon in 1958 and at Stockholm in 1967.
According to this Agreement “all goods bearing a false
or deceptive indication of source, by which one of the
contracting states, or a place situated therein, is directly
or indirectly indicated as being, the country or place of
origin, must be seized on importation, or such
importation must be prohibited, or other actions and
sanctions must be applied in connection with such
importation.” The Agreement provides for the cases
and the manner in which seizure may be requested and
affected.
1.
A – 41
Geographical name of a country, region or locality which
serves to designate a product originating therein, the quality
and characteristics of which are due exclusively or essentially
to the geographic environment, including natural and human
factors.
32nd National Convention of Company Secretaries
Nairobi Treaty : The Nairobi Treaty on the
Protection of the Olympic symbol came into existence
in 1981. The Treaty is open to any State Member of
WIPO, the Paris Union, the United Nations or any of
the specialized agencies brought into relationship with
the United Nations. All States which are party to the
Treaty are under the obligation to protect the Olympic
symbol - five interlaced rings - against use of commercial
purposes without the authorization of the International
Olympic Committee. The Treaty also provides that,
whenever a license fee is paid to the International
Olympic Committee for its authorization to use the
Olympic symbol for commercial purposes, part of the
revenue must go to the interested National Olympic
Committee. India is a signatory to the Nairobi Treaty.
Nice Agreement : The Nice Agreement
concerning the International Classification of Goods and
Services for the purposes of the Registration of Marks
which was concluded on June 15, 1957. The Agreement
came into force on April 8, 1961. This was subsequently
revised at Stockholm in 1967 and then at Geneva in
1977. The agreement was further amended in 1979.
The Agreement which is open to the states party to the
Paris Convention established a classification of goods
and services for the purposes of registration of trademarks
and service marks. The classification consists of 34 classes
for goods and 8 for services and an alphabetical list of
some 11,000 items of goods and services.
North American Free Trade Agreement
(NAFTA) : It is an agreement between three countries
namely USA, Canada and Mexico. The Agreement came
into force in January 1994 with the objective of
harmonizing the intellectual property rights in the
Member States by providing a framework for efficient
utilization of resources through trade liberalization. The
Agreement has no provision for setting up of a common
patent office or evolving guidelines for common filing
of patent or granting of patents.
Paris Convention : The Paris convention for the
protection of industrial property concluded in 1883,
was completed by an interpretative protocol in Madrid
in 1891, was revised from time to time at Brussels (1900),
at Washington (1911), at the Hague (1925), at London
(1934), at Lisbon (1958) and at Stockholm (1967) and it
was further amended in 1979. The Convention, which
is open to all states, applies to industrial property in the
widest sense including inventions, marks, industrial
designs, utility models, trade names, geographical
indications and the repression of unfair competitions.
Berne Convention : Berne Convention on
Copyrights administered by WIPO for the protection of
literary and artistic work was originally formulated in
1886 and has been revised several times thereafter.
Berne Convention imposes more binding constraints on
national copyright laws than the Paris Convention imposes
in respect to industrial property rights. First, the Berne
Convention stipulates a minimum duration of protection,
something that is not specified in the Paris Convention.
Moreover, unlike the Paris convention, it spells out the
scope of coverage by item, the mode of protection (that
is ‘automatic’ — non-registered) and provides a list of
exclusive rights. Hence the level of harmonization in
national copyright laws has been considerably greater
than in industrial property laws. While there is no
international patent, trade mark or design, there is in
effect international copyright.
Rome Convention : The Rome Convention for
the protection of performers, producers of phonograms
and a Broadcasting Organization (1961), secures
protection in performance of performers (actors, singers,
musicians, dancers and other persons who perform
literary or artistic works, producers of phonograms and
broadcasts of broadcasting organizations). The Rome
Convention is open to States party to the Berne
Convention or to the Universal Copyright Convention.
The Convention is administered by WIPO jointly with
the WTO and UNESCO. The Convention has no provision
for the institution of a union or a budget. It has an intergovernmental committee composed of contracting
States, which considers questions concerning the
Convention.
Strasbourg Agreement : The Strasbourg
Agreement concerning the International Patent
Classification concluded in 1971 which was further
amended in 1979. The Agreement established the
International Patent Classification (IPC) which divides
technology into eight sections with approximately
67,000 sub-divisions. Each sub-division has a symbol
consisting of Arabic numerals and letters of the Latin
alphabet. The appropriate IPC symbols are indicated on
each patent document. The appropriate symbols are
allotted by the national or regional industrial property
office that publishes the patent document. Every year
over 1,000,000 appropriate symbols are issued. The
Agreement is open to States party to the Paris
Convention.
Vienna Agreement : The Vienna Agreement
establishing an International Classification of the
figurative elements of marks concluded in 1973. The
Agreement established a classification for marks which
consists of or contains figurative elements. The
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IPRs — A Gateway to Corporate Globalisation
classification consists of 29 categories, 144 divisions and
1,569 sections in which the figurative elements of marks
are classified. The Agreement is open to States party to
the Paris Convention.
Union of Protection of Plant - Varieties (UPOP)
Convention: This was signed in 1961 and came into
force in 1968. Subsequently the Convention was revised
in 1972, 1978 and 1991. The Convention addresses
the condition for entitlements to offer protection to a
plant breeder of a new variety. A breeder will be entitled
to such protection provided the variety is distinctly
different from the commonly known existing variety.
The Trademark Law Treaty : It was adopted on
October 27, 1994 at a Diplomatic Conference in
Geneva. Its purpose is to simplify and harmonize the
administrative procedures in respect of national
application and the protection of marks. The Treaty does
not deal with the substantive parts of trademark law
covering the registration of marks. The Treaty contains
no obligation for a contracting Party to be a party to
other International Conventions. However, it provides
in Article 15 that Contracting Parties must comply with
the provisions in the Paris Convention which concern
marks.
The European Patent Protection (EPC) : It came
into force in 1973. It is administered from the European
patent office in Munich. An applicant can file a single
patent application with the European Patent office and
obtain patent protection in one, several or all of the 19
contracting States. The patent application can be filed
in any one of the three official languages viz. English,
French and German. While a patent issued by EPC
confers on the inventor the same rights as one entitled
by a national patent granted in a designated State but
enforcement issues are dealt with by National Courts
individually. It may be noted that the decision of the
Court in one contracting State is not binding on the
court of another contracting States.
The European Community Patent Convention:
It was created by the members of the European Union
on December 15, 1975. The main objective of the
Convention, which is called Community Patent
Convention (CPC), is to eliminate post-grant limitations
of the EPC System.
The African Intellectual Property Organization
(ARIPO) : This was created under the Lusaka Agreement
on December 7, 1976. It consists of the English speaking
African nations. The ARIPO is mainly concerned with
pre-patent grant proceedings on behalf of the Member
States. Once the patent is granted it comes under the
jurisdiction of the national laws of each of the Member
States.
The Patent Cooperation Treaty (PCT) : It came
into force on January 14, 1978 and became operational
with 18 contracting States on June 1, 1978. The Treaty
seeks to simplify the filing and processing of patent
applications worldwide. In fact it is part of an ongoing
international attempt of WIPO to rationalize and facilitate
the process of obtaining patent. It is often described as
being the most significant advancement in international
co-operation in this field since the adoption of the Paris
Convention itself. PCT does not grant patent. It facilitates
obtaining national patents in several countries. It consists
of two phases - an international phase and a national
phase. The international phase consists of a centralized
filing and searching procedure (PCT Chapter I) and
optional international primarily examination (PCT
Chapter II). The national phase concerns with the final
patent granting procedure before the national or regional
industrial property offices. The filing of only one
international application has the same effect as if separate
national or regional applications had been filed in all
the countries which the applicant designated in his
international application. PCT becomes relevant only
when one is interested in filing patent application in
several countries. India joined the PCT with effect from
December 7, 1998.
The Hague Agreement Concerning the
International Deposit of Industrial Designs : It was
adopted within the framework of Paris Convention in
November 6, 1925. The Agreement came into force
on June 1, 1928. Subsequently it has been revised on a
number of occasions. Its main aim is to enable protection
to be obtained for one or more industrial designs in a
number of States through a single deposit filed with the
International Bureau of WIPO. An international deposit
does not require any prior national deposit. It is made
directly with the International Bureau of WIPO by the
depositor or his representative on a form provided free
of charge by the International Bureau.
PROTECTION OF IPRs
Globalization, technological development, and the
Internet have brought a new realization of the worth of
IP to entrepreneurs and innovators, and both are waking
up to the need to protect it and to build “a strong bridge
between invention and the market place.”
The significant, positive impact that the protection
of IP places on the technological progress of a country
can be clearly seen at the macro - economic level. But,
until recently, it was hard to assess the value of IP at the
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32nd National Convention of Company Secretaries
micro level, partly due to the lack of viable methods of
valuation. Following are the various tools for protection
of IPRs as identified under the international laws:
Objectives of IPM
IP Management
objectives :
— Copyrights and related rights
serves
the following
— Reduces Risk, Cost & Process Life System
— Trade Marks
— Discovers new source of revenue
— Geographical Indications
Areas of IPM
— Industrial Designs
IP Management tools to enable the Corporate
Managers to deal with the following issues effectively
and efficiently:
— Lay out Designs of Integrated Circuits
— Protection of Undisclosed Information (Trade
Secrets)
— To reduce redundant R & D activities;
— Patents
— To spot patent infringers more swiftly;
— Plant varieties
— To share technologies among R & D community
more efficiently;
IPR MANAGEMENT : BUSINESS STRATEGIES TO
LEVERAGE INTELLECTUAL PROPERTY
Intellectual property management (IPM) is
becoming a major element in corporate business
management. It affects Mergers & Amalgamations
(M&As), generates Joint Ventures, forges co-operative
R&D agreements, and is the basis of licensing
agreements. Companies are forging alliances with each
other in order to heighten the value of their IP and to
obtain mutually beneficial competitive advantages.
Strategic positioning of IP assets can make a difference
to a company’s profit. Such strategic positioning
enhances revenue through better deployment of R&D
and market intelligence, and facilitates licensing income,
as well as the potential for M&As. Intellectual property
assets can contribute significantly to a company’s market
value. Microsoft is said, for example, to have a book
value of US$90 billion. However, its market capitalization
value is estimated to be around US$270 billion. The
major part of the extra $180 billion is said to come from
IP assets, including trademarks, patents, trade secrets,
and know-how. In order for corporate management to
maximize the assets of a firm, a deliberate effort must
be made to understand and focus on IP in the business
world.
IP management, formerly confined to legal
departments, is increasingly being handed over to
proactive IP departments. This is especially true in some
of the new technology firms which are developing so
fast and making huge investments in R&D. The trouble
is that intellectual capital is a very plunderable good: it
can be stolen quite easily, copied and then sold without
authorization patenting is seen as being important to
researchers.
— To penetrate into better market strategies for
IP;
— To prioritize an IP portfolio to identify assets
that drive value;
— To make informed decisions on maintenance,
commercialization or donation of IP assets;
— To identify technology spin-off opportunities;
— To strengthen a position in technology transfer
negotiations;
— To determine the economics of IP
enforcement;
— To evaluate the commercial prospects for
primitive stage R & D;
— To convert goodwill-based valuation to market
based valuation.
The chart 2 depicts the various areas/ opportunities
in the field of IP Management as a business
panorama.
VALUATION OF INTELLACTUAL PROPERTY
ASSETS;
VALUATION
TECHNIQUES:
PARAMETERS,
METHODOLOGIES
&
LIMITATIONS
With the growing realization of the hidden value of
IP, companies are increasingly managing and wielding
their intellectual properties, not just as defensive
protection against intellectual theft, but as an active and
powerful tool to sharpen their competitive edge, increase
their sector influence, and enhance their reputation as
market innovators.
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IPRs — A Gateway to Corporate Globalisation
CHART 1
A true value of an IP asset is what the market will
pay for it i.e., ultimately, the market judges what an IP
asset is worth. The prevention of free-riding is a key
economic rationale of all IPRs.
Reasons for Valuing IP Assets
— Assessment of the value of Intellectual Property
Assets promotes Technology transfer
— Assessment of the value of Intellectual Property
Assets facilitates investment in Industry.
Parameters for Valuation of IP Assets
Like the valuation of any other asset, there are several
reasons why valuing IP assets is important for a business.
Common reasons are:
(a) Corporate valuation for shareholders
(b) Corporate mergers and acquisitions
(c) Management buy-out and buy-in
(d) Privatization of public entity
(e) Fund raising
(f) IPO
(g) Financial Reporting
(h) Assignment or acquisition of an IP asset itself
(i) Licensing in or out an IP asset
(j) Investment in the IP asset (e.g., for further
development)
Reasons (a) to (g) relate to the value of a business
as a whole whereas (h) to (j) relate to transactions
involving the IP asset itself.
Importance of Valuation of IP Assets
— Assessment of the value of Intellectual Property
assets helps raise public awareness of the
importance of Intellectual Property.
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— Clearly, asset valuations (re-valuations) will be
reflected in the book value of the business.
However, the book value is rarely the value
placed upon a business by its owners. The
difference between the book value of a business
and a higher valuation is the value of the
Intangible assets.
— Intangible assets can be classified further as
Identifiable Intangible Assets and Unidentifiable
Intangible Assets. Identifiable Intangible Assets
are typically IP assets like: Patents, Copyright,
Design, Trade Secrets and know-how,
Trademarks and Brand-names. Unidentifiable
Intangible Assets i.e., goodwill etc should only
be recognized on acquisition, and moreover,
should be amortized over their useful life.
— Unidentifiable Intangible Assets that are
internally created should not be recognized on
the business balance sheet.
— It is much more difficult to make a valuation of
intangible assets because the value of intangible
assets is dependant upon the presence or
expectation of earnings. This requires making
predictions about the future. The future is
always easier to predict with hind-sight!
32nd National Convention of Company Secretaries
valuations will fluctuate with the valuation of the
Company’s Shares. However, the market place by
valuing the Company above its book value is making
a judgment on the value of the IP assets and their
potential to produce ongoing benefits for the
Shareholders in future.
— For valuation purposes, some IP assets may be
grouped and treated as a single asset.
— At the international level, the International
Accounting Standards Committee (IASC), an
independent private sector body, has also been
working to develop internationally acceptable
Accounting Standards. The IASC publishes its
Standards in a series of pronouncements called
International Accounting Standards (IAS). In
1998, IASC published IAS 38, a revised Standard
on intangible assets. It applies to expenditures
on advertising, training, start-up, and R&D
activities. One of the main features of IAS 38
is the requirement that an intangible asset
should be recognized in financial statements
only if it is an identifiable asset that is controlled
and clearly distinguishable from an enterprise’s
goodwill. Intangible assets should be amortized
over the best estimate of their useful life.
2. Cost Based (Historical Cost & Replacement
Cost)
Historical Cost Method
Historical Cost [H] is the actual cost incurred in
creating and developing an IP. This is relatively easy
to calculate from funds invested [F], factored-up
for the time cost of money [T] (based on a risk free
interest rate). This method is easy to use for the IP
assets in the R & D phase. The Historical cost method
provides a guide for the minimum return needed
to justify an investment in an IP asset but it should
not be the sole basis for valuing an IP asset.
METHODS OF VALUATION
Hence, H = F +T
The methods for the valuation of IP so far developed
are either qualitative or quantitative. Qualitative methods
provide different scores or rankings based on certain
assessment criteria. Valuation methods for IP must be
robust, verifiable, transparent and give best estimates
on a reliable basis. There are four main approaches:
However, there are limitations of this approach. There
is no direct co-relation between expenditure on a
particular IP asset and its subsequent revenue
potential in the long term. Early stage R & D and
patenting can be costly, but the product or process
may never reach the market for technical or
commercial reasons. Trying to establish a new trade
mark can be costly but the mark may fail if customers
do not like it. On the other hand, the market may
grow significantly and a modest investment in an
IP asset, might lead to a large success.
— Market Value of Company less the Net Tangible
Assets
— Cost Based (Historical Cost & Replacement
Cost)
Replacement Cost Method
— Comparable Market Valuation
— Economic Benefits
1. Market Value of Company less
Tangible Assets
the Net
This approach can be used to value IP assets of
public companies. Here:
— Net Tangible Assets = Total Assets [A] –
Total Liabilities [L] – Intangible Assets [I].
— Market Capitalization [C] of a listed
company= The Price Per Share * The Number
of Shares Issued.
— Goodwill (Unidentifiable Asset) * = 10%
of Total Capitalization i.e.,10% * C.
Hence, IP Assets = C – (N+U)
Obvious weaknesses with this valuation approach
are that IP assets are not valued individually and
A – 46
The Replacement cost valuation [R] is based upon
an assessment of the cost to replace the IP asset or
to develop an alternative one. To carry out the
valuation, an estimate is made of the time and
resources needed to bring an asset to the same
stage of maturity as the IP asset being valued. The
method can also factor in risk and estimates of future
cost and benefits although this complicates the
calculation but no more so than for discounted cash
flow valuations.
A seller of an IP asset can use the replacement cost
valuation in negotiations with a buyer to argue that
it would cost an equivalent amount to create an
alternative IP. Moreover, if a buyer chooses to
develop an IP asset alternative, there is no certainty
the alternative would work as successfully or enjoy
the same level of IP protection as the IP asset in
question.
IPRs — A Gateway to Corporate Globalisation
Life Cycle Costing: NPV: DCF
To take the previous example: the seller might factor
in to the valuation a reasonable risk premium [M]
to counter balance the technical risk in developing
the IP asset. Thus:
In order to work out the present value of a new IP
asset (or value at a future date) it is necessary to
calculate:
R = (F + T) x M
— The cost of design, research, development,
production marketing and distribution;
3. Comparable Market Valuation
In comparing the characteristics of Patent Rights
with Real Estate, a market valuation of assets is the
most straight forward and acceptable approach as it
results from the judgement of a buyer and seller
on what is a fair value. For comparable market
valuation to be valid must be an active market that
is trading comparable assets. If these market
conditions do not exist, finding reasonable
comparisons becomes more subjective and hence,
valuations become less reliable.
— The life of the product or process;
— The life of the associated IP, and
— The timing and quantum of the income stream.
Risk and inflation factors can be applied also. This
is sometimes known as ‘life cycle costing [LCC]
and it brings the IP asset to a Net Present Value
[NPV].
For an IP asset underpinning a product or process
that is already generating an income stream, a basic
discounted cash flow [DCF] method of valuation
should suffice. This also leads to the NPV of the IP
asset.
In the case of trading IP assets themselves, the
market is not normally sufficiently active, nor is there
sufficient public information about details such as
price and IP characteristics, to allow reliable
comparisons.
In nut shell, for valuation of an IP asset it is
important to identify: the IP to be valued (Patents,
Copyright, Design, Trade secrets and know-how,
Trademarks, Brand-names); for whom the valuation
is being done; the purpose of the valuation; the
date of the valuation and to choose a valuation
method that is appropriate for the relevant
circumstances. This should be tested using
alternative valuation methods. Normally, many
assumptions need to be made and valuing IP assets
has the character of being more of an art than a
science.
However, databases on IP valuations are growing
and the ‘Interbrand’ survey data on brand values of
leading global corporations is informative both on
the value placed on brands and methodology used.
(See : The World’s Most Valuable Brands 2000
www.interbrand.com/league_chart.html)
In valuing brands, Inter brand examines three areas:
the future economic earnings expected from the
branded business; the role of the brand in
generating those earnings; and the risk profile of
the brand’s expected earnings.
DIFFICULTIES IN VALUING IP ASSETS
4. Economic Benefits Valuation
The Economic Benefits method is based upon the
principal that an IP Asset must produce a net
economic benefit during its life in order to have
any value. In other words, the benefit of the asset
over its life time must exceed the cost. Moreover,
the net economic benefit must be sufficiently large
to provide a rate of return commensurate with the
investment risk. These are basic requirements for
an investor or an owner of an asset.
In the R & D phase of innovation, a project and
associated IP are a liability not an asset, since there
is a consumption of capital and generally no income
and, a beneficial outcome is certain. Moreover,
during the life of an IP asset the benefits from it
may arise in an uneven way.
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— The disclosures on intangible assets should
enable users to understand the types of
intangible assets that are recognized in the
financial statements and the movements in their
carrying amount (book value) during the year.
— Grouping IP assets creates difficulties in
ascribing the appropriate economic benefit.
— In many countries, recognition of IP as a natural
part of management’s responsibility has not
included the practice of assessing its value.
— Experts have not found a robust method that
could fully satisfy firms in different sectors of
industry and this may also be another reason
which prevents many firms from systematically
assessing the value of IP.
32nd National Convention of Company Secretaries
LICENSING AND MARKETING OF IPRs
Licensing of intellectual property rights is an
effective tool for achieving business goals like expanding
an existing business (extending the territory or the nature
of business) or improving the quality of the goods or
services and thereby its market position.
A licensing agreement is a partnership between an
intellectual property rights owner (licensor) and another
who is authorized to use such rights (licensee) in
exchange for an agreed payment (fee or royalty). A
variety of such licensing agreements are available, which
may be broadly categorized as follows:
enterprises pooling their resources with the objective
of implementing a common business purpose. Often,
in such agreements, one party will contribute technology
or know-how of which he is the proprietor and the other
party may contribute financial and expertise of his own
to the project. The joint venture will, therefore, often
include a license agreement concluded by the parties
concerned to regulate the use of the proprietary
information and compensation for its use.
Franchise or Trademark License Agreements
A trademark license agreement or a franchise
agreement may be the right preference where:
— Technology License Agreement
— Marketing a product or service and the brand
(trademark) or design (industrial design) of that
product is owned by others, or
— Trademark Licensing and Franchising Agreement
— Copyright License Agreement
In the international context, a formal licensing
agreement is possible only if the intellectual property
right to be licensed is also protected in the other country
or countries of interest to the organization. Protection
of intellectual property in such other country or countries
is a pre-requisite to exercise the legal rights to put any
restriction on its use by anyone else. In the following
paras we may view the various circumstances in which
these different kinds of licensing agreements may be
entered into.
Technology Licensing
— Improving the quality of the product or
manufacturing a new product by using the rights
owned by others in the form of a patent, utility
model, or know-how protected by a trade
secret, then acquiring such rights through a
technology licensing agreement may be the
right solution, or
— Entering a market or extending the existing
market for a product for which the organization
owns the rights to a patent, utility model or
know-how protected by a trade secret, then
authorizing another to use such process or
product through a technology licensing
agreement may be the right solution.
By a technology licensing agreement the licensor
authorizes the licensee to use the technology under
certain agreed terms and conditions. It is, therefore, a
contract freely entered into between two parties and
contains terms and conditions so agreed.
Joint Ventures
A joint venture may consist of any variety of
business relationships that involve two or more
— Entering or expanding the existing market for
the product or service for which the
organization owns the rights conferred by a
trademark, or industrial design.
Through a franchise agreement the owner of certain
technical or other expertise who has usually gained a
reputation in connection with the use of a trade or service
mark (the franchiser) may team up with another
enterprise (franchisee) who will bring in expertise of his
own or financial resources to provide goods or services
directly to the consumer. The franchiser will ensure,
through the supply of technical and management skills,
that the franchisee maintains the quality and other
standards in relation to the use of the trade or service
mark which often require certain standardized features.
Copyright License Agreements
A copyright license agreement may be considered
where:
— Manufacturing, distributing or marketing the
results of the literary and artistic efforts of
creators, or
— Entering a market or expanding or extending
the existing market for the literary and artistic
efforts of the enterprise
Here one more important issue arises as to why
is Intellectual Property crucial for Marketing the
Products or Services of an organization ?
For most Corporates, marketing products or services
is a major challenge. A marketing strategy should
establish a clear link between the products or services
and the organization, as the producer or provider of
such products or services. That is to say, customers
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IPRs — A Gateway to Corporate Globalisation
should be able to distinguish, at a glance, between your
products or services and those of the competitors and
associate them with certain desired qualities.
Strategies for Marketing
In the present era of lucrative and at the same time
cost effective marketing schemes, it has become the
need of the date to adopt the aggressive marketing
strategies as the life cycle of a product, also stays very
short. Further, as the WTO deadline nears, Companies
are trying to stitch together survival strategies and a
presence overseas is an important part of those. The
overseas opportunity is difficult to fathom, but is mindboggling for Indian Companies. However, success
abroad could alter the pecking order back home.
Globalizing the home markets for Intellectual Property
Rights would involve increasing R&D expenditure both
here and abroad, setting-up global marketing networks,
and acquiring production facilities in regulated markets.
Indian outfits with global ambitions are just starting to
grow up. Forming alliances and working with partners
in non-core areas like marketing and distribution may
also be adopted as an effective marketing tool for IPRs.
impacted the globalization of the concept of Intellectual
Property Rights’ Protection and their proper valuation.
In the present international scene, India will see a new
sun-rise post December, 2004 with the advent of
implementation of TRIPS Agreement in the Indian Legal
Framework. In India, where most of the Corporates are
not presenting the value of their Intellectual Properties
in their Statement of Affairs, in the wake of fresh and
innovative IPR Management strategies, the Intellectual
Properties shall be positioned well in Corporate Balance
Sheets. Since the IPRs are plunderable goods, the
Corporates are becoming more and more aware about
their protection as well as proper valuation. Further, in
the spirit of globalized market scenario the better
marketing and licensing strategies would be the key
indicators for future role of IPRs in positioning the
Corporates at a commanding scaffold.
BIBLIOGRAPHY
LOOKING FORWARD
1. Official Website of WIPO- www.wipo.int
2. Official Website of WTO- www.wto.org
3. The Economic Times Newspaper
4. Business Standard Newspaper
Intellectual property, when efficiently used, is an
important tool in creating an image for the business in
the minds of the current and potential customers and in
positioning the business in the market. The International
Treaties and Agreements have, to a greater extent,
A – 49
5. http://arthur.meu.unimelb.edu.au
6. The TRIPS Agreement
7. www.pharmabiz.com
32nd National Convention of Company Secretaries
IPRs — A GA
TEW
AY TO CORPORA
TE
GATEW
TEWA
CORPORATE
GL
OBALISA
TION
GLOBALISA
OBALISATION
DR. V. BALACHANDRAN*
INTRODUCTION
The IPR stands for Intellectual Property Rights. As
it relates to the commercial and industrial activities so
may also be called as Industrial Property Rights, further
it is concerned with the intangible property, so may also
be called as Intangible Property Rights, still further as
industrialists are concerned with IPRs mainly in the context
of monopoly/exclusive protection and rights for their
investment, so one may call it as Investments Protection
and Rights.1
AREAS OF INTELLECTUAL PROPERTY RIGHTS
The TRIPs Agreement deals with seven areas of
IPRs:
— Patents
— Industrial Designs
— Copyright and related rights
— Trademarks
— Geographical indications
MEANING OF INTELLECTUAL PROPERTY
Intellectual capital has two components-human
capital and intellectual assets. He says, ’’human capital
is the tacit knowledge that walks out the every morning,
when you take that tacit knowledge and you codify it in
some way-physical documents, software, all kinds of
things—then it is defined as intellectual assets. The
subset of intellectual assets, things that can be protected
with a legal status like a patent or copyright, then become
intellectual property.”
CHARACTERISTIC FEATURES OF INTELLECTUAL
PROPERTY
— Layout designs of integrated circuits
— Protection of undisclosed information
The intellectual property laws namely the Copyright
Act, Patents Act, Trademarks Act and Designs Act are
designed to encourage the development of art, science,
and information by granting certain property rights to
artists who are original thinkers and inventors in arts and
sciences. The need for protecting the intellectual property
rights is based upon the basic argument that innovators
require some incentives and recognition. They must be
provided some monopoly power through the process of
patenting and protecting their intellectual property right.
Of course one may argue that protection, for whatever
*
purpose it is meant, is in a way against the principles of
market and competition. One may argue that innovators
do not need protection because in a competitive global
environment, the innovators and the producers who,
through their proficiency and dexterity innovate fast and
at lower cost, would be able to capture market and make
genuine profits as a result of efficient management of
their intellectual and capital resources. However, the
proponents of protection do not accept this market
principle for the benefit of more powerful innovators.
Intellectual Property of whatever species is in the
nature of intangible incorporate property. In each case,
it consists of a bundle of rights in relation to certain
material object created by the owner. In respect of
patent, the property consists of the exclusive right to
use the invention patented, to grant licences to others
to exercise that right or to sell that right to a third person.
Human beings can be justifiably happy that they are
intellectually the most developed species of the animal
kingdom. Greater mental abilities in people enable
qualitative change in the labour force by facilitating human
M.Com., M.Phil., FCS, BGL, PH.D., Reader in Corporate Secretaryship, Alagappa University, Karaikudi.
A – 50
IPRs — A Gateway to Corporate Globalisation
capital formation as an essential ingredient of economic
progress.2
In the field of IPR, one can easily decipher two
different forces at work. On the one hand, there is a
view that the scope of IPR needs to be further expanded
and the rules, much more rigorously imposed. The
developed nations are vociferous in their demand and
complain that the IPR regulations are not only woefully
inadequate but are also seldom effectively enforced,
particularly, in the developing countries of the world.
On the other hand, the developing countries hold a
diametrically opposite view which is pointed out by
Cornish, one of suspicion and criticism even of the
existing IPR regulations.3
NEED FOR INTELLECTUAL PROPERTY LAWS
The objective of enactment of statutes governing
IPRs is to ensure that adequate standards of protection
exist in member countries. At this juncture, it is to be
observed that the IPRs are protected around the world
and they are brought under common international rules.
When there are disputes over IPRs , the WTO’s disputes
settlement system is now available. Following issues
are comprehensively covered by the TRIPs agreement.
BASIC PRINCIPLES OF TRADING SYSTEM
— How basic principles of the trading system and
the other international intellectual property
agreements should be applied.
— How to give adequate protection to intellectual
property rights.
— How countries should enforce those rights
adequately in their own territories.
— How to settle disputes on the intellectual
property between members of the WTO.
— Special transitional arrangements during the
period when the new system is being
introduced.
HOW TO PROTECT INTELLECTUAL PROPERTY
RIGHTS
The extent of protection and enforcement of
intellectual property rights varied widely around the
world. Differences in statutes gave rise to innumerable
tensions among the developed and developing countries.
Difficulties also arise in working out adequate rewards
for the endeavours in terms of number of years for which
patent or copyright should hold good and also in
apportioning this equitably if there is more than one
beneficiary. These difficulties abound all the more in
newly emerging areas like bio-technology, computer
software and cable diffusion. Moreover, there is also
the problem that many, particularly, in research institutes
and academic institutions in developing countries are
unaware of IPR and hence are unable to reap its benefits.
MARKETING OF INTELLECTUAL PROPERTY
There are innumerable ways in which “Value” can
be extracted from intellectual properties. The owner can
convert them into a product that fits in with his current
line of business. In other words, as a owner, he enjoys
unfettered right over the property. Licenses to patents
or copyrights or trademarks are often combined with
transfer of know-how. The owner of intellectual
properties sell or license them. These licenses provide
royalty revenues to the owners of the intellectual property
and help distribution of products and technologies to
business who might not otherwise have had access to
them.
Thus, when it comes to marketing of intellectual
property, Sullivan remarks, “It’s not uncommon for one
or two people in an organization to be innovative and
say, ‘I did this one deal where we licensed some
technology.’ What is uncommon is to actually have a
strategy that is supported by the organization, a strategy
that says, ‘We are going to be looking at these things on
a systematic basis, and we’ve got a whole set of processes
in place for us to examine these things over time.’
Intellectual assets that are unique and valuable to
the company are probably marketable to others if the
organization is willing to share the assets and determine
the likely buyers. According to Frank, “Every company
with intellectual property has the potential for licensing.
It’s not just technology companies anymore. Insurance
companies and banks are now getting patents on their
new methods of doing business.” In the world of mergers
and acquisitions, the value of a company’s intellectual
assets has become increasingly important.
Intellectual property in a brand plan becomes critical
as business incubator or investors need to understand
and accept the coherence of the brand idea including its
protection. New or original knowledge and/or creative
expression of ideas, protectable by the system of
intellectual property (IP), underpin their competitive
advantage and success. Therefore, a brand plan should
cogently reflect how the firm plans to protect, manage
and leverage its intellectual property assets for brand
success. Patents for Brands provide exclusivity for the
commercialization of inventions and often play a crucial
role in convincing investors or lenders. One or more
patents along with industrial design registrations reflect
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32nd National Convention of Company Secretaries
as a proof of brands ability to dissuade competitors using
original or aesthetically attractive features of the brand.
Therefore, a brand plan should integrate intellectual
property and reflect the steps that are planned to develop,
register and effective use of intangible assets to win and
retain market share from competitors. While integrating
intellectual property, operational elements that makes
the brand innovative like, challenge, customer focus,
creativity, communication, collaboration, completion and
contemplation should also be considered.
The financial benefits of selling off or licensing such
intellectual assets aren’t tough to understand and
quantify. Nonetheless, a potential seller needs to address
plenty of concerns. Do you have, or can you afford, an
infrastructure that can identify, package and put a price
on marketable assets?
HOW DO YOU FIND BUYERS FOR YOUR
ASSETS ?
How can you be sure that what you are marketing
isn’t giving away company secrets and cutting into your
competitive edge ?4
A true global corporation views the entire world as
a single market; it does not differentiate between
domestic market and foreign markets. There is only
one market, the global market. To meet global
competition, “all institutions have to make global
competitiveness a strategic goal. No institution, whether
a business, a university, or a hospital, can hope to survive,
let alone to succeed, unless, it measures up to the
standards set by the leaders in its field, any place in the
world.”5
R&D OUTSOURCING SET FOR RAPID GROWTH
Increasing awareness about Intellectual Property (IP)
and the thrust on creating a regime for its enforcement
have led to gradual but certain growth of research and
development (R&D) outsourcing by multinational
corporations. According to recent studies including by
the National Association of Software and Services
Companies (Nasscom), the R&D activity in an outsourcing
mode is set to grow as the IP protection takes centre
stage for software services and products within India.
The Indian ICT industry, despite its credentials, has faced
recurring criticism of not creating enough IP and paucity
of original technology has remained a challenge for
players making significant strides in the other
departments of the IT software and services. A recent
study of Nasscom and KPMG stated that R&D outsourcing
to India has gone up over the years in areas such as IT,
pharmaceuticals, biotechnology and engineering and
design services. The Indian IP environment is set for a
transformation and a number of trends are now gaining
visibility within the Indian market that are fuelling the
move towards IP creation.
The research study published by Nasscom points out
that within the embedded systems segment the R&D
outsourcing will account for revenues of around $1.5
billion by 2004-05. Already, Indian business process
outsourcing (BPO) services companies are training their
attention on the development of embedded system tools
such as microcontrollers and design of hardware and
software. In the case of VLSI (very large system
integration) and chip design market, the potential is
estimated to grow into a $808 million by 2005.
Further, research initiatives in basic electronics, digital
electronics, VLSI design, circuit layout and design,
verification and logic design will assume additional
importance over the next few years. Information security
and areas such as cryptography, biometrics and security
auditing are also expected to grow. Areas such as high
performance computing, wireless and mobile
applications, nanotechnology and DSP (digital signal
processing) are set to witness more activity over the next
few years. The nature of R&D spend is getting directed
towards specific product or service-related attributes in
the form of experimental development work.6
INTELLECTUAL PROPERTY RIGHTS AND BENEFIT
SHARING
Many companies have developed programs for
sharing best-practices information, devised unique
business performance reporting processes or compiled
state-of-the-art manufacturing safety standards. Whether
that know-how resides in a three-ring binder or is
embedded in a software program, it may turn out to be
hidden gold.
Recognizing the vital importance of protecting
intellectual property and ensuring that nobody misuses
traditional knowledge by ignoring the real knowledge
holders, National Innovation Foundation (NIF) has created
an Intellectual Property Section. The section, consisting
of a National Coordinator and fellows, conducts prior art
searches in order to analyse the innovations and to assess
their viability for getting patents and other means of
intellectual property protection. The intellectual property
section drafts the patent specifications and other related
legal documents.
Some of the premier Intellectual Property firms and
intellectual property institutions are providing pro-bono
help for filing patents for innovators. NIF has also been
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IPRs — A Gateway to Corporate Globalisation
able to file several patent applications in United States.
It is hoped that the coming year would see more firms
taking interest in working with NIF on pro bono basis.
NIF as well as its associates GIANs, have already
filed 46 patent applications and three design and
trademark applications in India and USA. Many
applications are ready for filing. The IP section has also
been providing advice on related aspects of Intellectual
Property Law, drafting of legal documents like NDA,
MoU, transfer of technology agreements, etc, for
other institutions like Centre for Innovation, Incubation
and Entrepreneurship (CIIE), IIM Ahmedabad, and all
GIANs.7
LICENSING AND FRANCHISING
Licensing and franchising, which involve minimal
commitment of resources and effort on the part of the
international marketer, are easy ways of entering the
foreign markets. Under international licensing, a firm in
one country (the licensor) permits a firm in another
country (the licensee) to use its intellectual property (such
as patents, trade marks, copyrights, technology, technical
know-how, marketing skill or some other specific skill).
The monetary benefit to the licensor is the royalty or
fees which licensee pays. In many countries, such fees
or royalties are regulated by the government; it does
not exceed five per cent of the sales in many developing
countries.
WHAT IS COMPULSORY LICENCING ?
The Controller of Patents can give licence to a third
person/ persons to use the patent rights of the patent
holder under specified circumstances of the Act. Any
person interested in a patent in the public domain can
make an application to the Controller requesting him to
grant the licence in his favour on the following grounds:.
1. That the reasonable requirements of the public
with respect to the patent have not been
satisfied, or
2. That the patented invention is not available to
the public at a reasonably affordable price, or
3. That the patented information is not worked in
India.
The interested person can make the application only
after three years from the date of grant of the patent to
the patent- holder. The Controller may grant the licence
if he is satisfied about the three grounds provided for
the application by third persons. Again the terms of grant
of license to a third person/s are left to be decided by
the Controller as he deems fit. Since the matter of
granting the compulsory license fixing the terms including
the fixation of royalty to the patent-holder tantamount
to compulsory take over of the hard earned rights of the
patent holder, the Act and the Rules should be amended
after thorough discussions with the industry at large, to
provide elaborate guidelines to the Controller.
Franchising is “a form of licensing in which a
parent company (the franchisor) grants another
independent entity (the franchisee) the right to do
business in a prescribed manner. This right can take the
form of selling the franchisor’s products, using its name,
production and marketing techniques, or general business
approach.”8
International licensing/franchising have grown very
substantially, Czinkota and Ronkainen succinctly describe
their attractiveness or reasons for popularity:
“As an entry strategy, it requires neither capital
investment nor knowledge and marketing strength in
foreign markets . By earning royalty income , it provides
an opportunity to exploit research and development
already committed to licensing reduces risk of exposure
to government intervention in that the licensee is typically
a local company that can provide leverage against
government action. Licensing will help to avoid host
country regulations that are more prevalent in equity
ventures. Licensing may also serve as a stage in the
internationalization of the firm by providing a means by
which foreign markets can be tested without major
involvement or capital or management time.”9
In the TRIPs text, Article 31 deals with the
determination of the grounds for the granting of
compulsory licensing. This article permits strictly
compulsory licensing only when the patentee fails to
comply with the obligation to import the patented
product in sufficient quantities into the country. Although
Article 31 permits national laws to include the granting
of compulsory licensing on grounds of anti-competitive
practice, dependent patents, national emergency and
non-commercial public use, the terms and conditions
under which a compulsory license may be granted are
too onerous.
There is a world of difference between the
significance of the grounds provided for the issue of
legitimate compulsory licenses in the national legislations
of developing countries (including some developed
countries) and the grounds provided in Article 31. The
existing legislations of developing countries allow
compulsory licensing to be used whenever the patented
invention is not produced locally on a commercial scale
and to the fullest extent possible. The provision granted
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32nd National Convention of Company Secretaries
for the issuing of compulsory licenses for non-commercial
public use, national emergency and extreme urgency
(Article 31.6) is an inadequate measure, and can hardly
be treated as a substitute for what is today regarded as
grounds for the granting of compulsory licensing in the
national legislations of many developing and developed
countries. In how many situations would the country
really resort to the grant of compulsory licenses for the
manufacture of patented inventions at government
cost ?10
A GATEWAY TO CORPORATE GLOBALISATION
Intellectual Property Rights, no doubt, are gateways
to corporate globalization. Many corporates develop new
revenue streams by selling and licensing such intellectual
assets like patents, copyrights, trademarks and even
business processes, methods and procedures. On
account of unprecedented developments in Science and
Technology, many corporates have developed ‘new
designs, new processes, new products with innovative
ideas/skill. As these IPRs yield substantial revenue to
the innovative concerns, they are very much concerned
with as to how to protect these invaluable IPRs. The
royalty income has to be properly managed to fetch a
reasonable return. The issues to be considered include
the following:
required to update their knowledge in IPR, but also
develop skills of documentation of intellectual assets.
They are also required to review various case laws on
IPR and try to decipher the implications of various case
laws. No doubt, the opportunities in this area are
abundant. However, to confront with global competition,
Company Secretaries have to face equally arduous
challenges. Professional Institutions like ICSI can prepare
distinct modules for the Company Secretaries to provide
necessary inputs to facilitate them to become consultants
for Intellectual Property Laws and Procedures.
REFERENCES
— How best the ‘royalty’ be used for betterment
of corporates ?
— How much has to be invested again in R&D ?
— How to widen the marketing base for their
products ?
— What sort of strategies to be adopted to face
global competition ?
— How to manage Intellectual Property in the wake
of globalization ?
CONCLUSION
1. Dr. J.S. Rekhi, Intellectual Property Rights, Laghu
Udyog Samachar, January March, 2000, p.20.
2. Schultz. T.W.(1961), “Investment in Human
Capital,” American Economic Review, vol.52,
No.1 March, pp.1-17.
3. Cornish, W.R.(1989), Intellectual Property,
Patents, Copyrights and Trade Marks, Sweet and
Maxwell, London.
4. Carol Orsag Madigan, “Capitalizing on
Intellectual Capital.”
5. Peter Drucker, Management Challenges for the
21st Century, New York, Harper Business, 1999
p.61.
6. The Hindu Business Line, 6th May 2004, p.5.
7. www.nif.india.org.
8. Donald W Hackett, “The International
Expansion of U.S. Franchise System”, in
W.J.Keegan and C.S.Mayer (Eds.) Multinational
Product Management, Chicago. AMA,
1979,pp.61-81,cited by Czinkota and
Rhonkainen, International Marketing, Chicago,
The Dryden Press, pp.392-393.
9. Ibid. p.386.
As hardcore Professionals, Company Secretaries can
provide effective support to Indian Corporates in the
areas of Intellectual Property Rights. Not only they are
A – 54
10. Dinesh Abrol, ‘Intellectual Property Rights in
the Uruguay Round: A Review of the India
Debate, Allied Publishers, June 1995, p.140.
Globalization of Patent Law and Indian Scenario
GL
OBALIZA
TION OF P
ATENT LAW
GLOBALIZA
OBALIZATION
PA
AND INDIAN SCENARIO
NARESH KUMAR*
INTRODUCTION
In patent law, the trend has been towards
globalization and unification. India has taken a policy
decision to be a part of the global. The nation is
committed to seize the opportunities and meet
challenges of the emerging scenario. India is one of
the founder members of the World Trade Organization
(WTO). India is also a signatory to the Patent
Cooperation Treaty (PCT) under the World Intellectual
Property Organization (WIPO). The WTO’s Trade Related
Intellectual Property Rights (TRIPs) agreement covers a
wide range of intellectual properties. The PCT is a
multilateral mechanism outside the WTO, but
functioning in cohesion with the WTO, striving to find
international solutions for technical and procedural
questions that are germane to the increasingly global
patent system. Indian laws are world class in areas like
trademarks, copyrights, designs and geographical
indications. In case of patent law also the Government
is committed to bring it in line with the global standard.
In this context, an attempt is made to discuss the global
legislative, regulatory and institutional system of patent
law. The salient features and proposed amendment in
the Patent Act, 1970, are also critically examined. Finally,
a few practical suggestions are made to protect the
interests of the Indian pharmaceuticals and
agrochemicals sectors.
GLOBALIZATION OF PATENT LAW
WTO AND TRIPs
The WTO came into being in 1995 to ensure that
trade flows as smoothly predictably and freely as possible.
The WTO’s intellectual property agreement amounts
to rules for trade and investment in ideas and creativity.
*
The rules state how copyrights, patents, trademarks,
geographical names used to identify products, industrial
designs, integrated circuit layout designs and undisclosed
information such as trade secrets should be protected
when trade is involved. “Patent” is the exclusive right
for disclosure of a new and useful process or product.
Under the TRIPs, “patentability” of a subject matter is
defined as a combination of `novelty’, involvement
of 'inventive step’ and capacity for `industrial
application’.
Patent is the most important of TRIPs for industrial
development. The preamble of the TRIPs, therefore,
recognizes the public policy objectives of national system
for the protection of intellectual property. It also takes
care of the special needs of the least developed country
(LDC) members in respect of maximum flexibility in the
domestic implementation of laws and regulations in order
to enable them to create a sound and viable
technological base.
Article 8 of the TRIPs enunciates the important
principle that “members may, in formulating or amending
their laws and regulations, adopt measures necessary
to protect public health and nutrition, and to promote
the public interest in sectors of vital importance to their
socio-economic and technological development,
provided that such measures are consistent with the
provisions of the Agreement.”
Patents are essentially territorial in nature. An
inventor has to file his application in each country where
he seeks to protect his invention. It means that a
multinational company (MNC) having a patent right for
a process or product in the United States of America
(USA) would have to get a fresh patent registered in
India to enforce its patent rights in India.
FCS, FICA, MBL, LL. B, M A Economics, Advocate - Business Laws & Visiting Professor, IIFT, New Delhi.
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32nd National Convention of Company Secretaries
WIPO AND PCT
The WIPO, a United Nations body, governs the PCT
system. The PCT was concluded in 1970, amended in
1979 and modified in 1984 and 2001. India being a
signatory to the PCT, has ratified and adopted provisions
for the PCT compliance in 2002.
The PCT is a platform for more cohesive patenting
system for the world. It makes it possible to seek patent
protection for an invention simultaneously in each of a
large number of countries by filing an ‘international’
patent application. Such an application may be filed by
anyone who is a national or resident of any member
state. The underlying object is to deal with
harmonization of patent filing procedures, avoid hardship
and reduce cost of patenting a process or product. In
order to effectively pursue these objectives, the PCT
also delves into areas like defining parameters and
criteria for patent examination and registration.
The PCT provides preferred system for filing patent
applications. It is simple and easy - one application in
one language to be filed in one office only. It replaces
the filing of multiple applications in different national
jurisdictions. It may, however, be noted that the PCT
is only a patent filing system and does not ensure
granting of patent. The PCT envisages filing of an
international application, conducting international search,
international publication and international preliminary
examination. It is on completion of this process that the
role of the regional/national offices starts. It is pertinent
to note that the decision to grant or reject patents in
the national phase is taken exclusively by the regional
or national patent offices on the basis of the principles,
standards and guidelines stipulated for the grant of
patent. The developing countries, therefore, feel that
the PCT system governs not only technical issues, but
also impinges on sovereign rights of nations to decide
on ‘patentable subject matter’.
PATENT LAW TREATY (PLT) AND SUBSTANTIVE
PATENT LAW TREATY (SPLT)
Both the PLT and SPLT are governed by the WTO.
The PLT is a parallel and complementary move to make
patent system of countries more uniform by procedural
simplification and equivalence. India has so far not signed
the PLT. The SPLT is newer attempt to deconstruct the
substantive issues of patenting. The SPLT is for ‘greater
substantive harmonization of the patent laws of member
states’ which is ‘desirable objective’. Indeed, there is a
great deal of overlapping among the PCT, PLT and SPLT
and they are expected to mutually cancel and unified
by 2010. The draft is under negotiation in the WIPO’s
Standing Committee on Patents (SCP).
The developing countries are against the PCT and
SPLT draft because these provide for ‘TRIPs plus’
protection and benefits to applicants/patent holders at
the cost of ‘third party’ and ‘public interest’. The
contention of developing countries is that TRIPs allow
flexibility in respect of novelty, inventive step, utility,
priority date, prior art, public domain, disclosures,
descriptions, extent of claims, grant, refusal or revocation
of patents etc. Each of these, on the other hand, is
defined/drafted in the PLT/SPLT to favour the applicants/
patent holder. These treaties are means to prescribe
the requirements for patentability and regulate grant or
rejection of patents, in a manner which is advantageous
to the developed world and detrimental to the interest
of developing world.
An analysis of the trend of filing patent applications
during 2001 and 2002 indicate that 74 per cent of the
applications were from the USA, Germany, Japan, UK
and France, while about 18 per cent from other OECD
countries namely Sweden, Korea, Switzerland, Australia
and Canada. Even Israel and China have only one per
cent share each, while India, South Africa, Singapore,
have less than five per cent share each. Less than five
per cent were from the less developed and the least
developed countries. The share of most of the least
developed countries is less than 0.1 per cent and in
some cases even nil. Whereas MNCs hold more than
80 per cent of patents, only about 10 per cent of national
patents in most of the developing and least developed
countries are held by their citizens. The developing
countries, therefore, contend that the position is unlikely
to improve in the next two decades. The proposed
‘international search’ facility for scrutiny of patent
applications by a few designated patent offices and the
written opinion on patentability by an authority
comprising these offices, proposed as a part of PCT
reforms, would lead to erosion of autonomy and
encroachment upon the authority of national
authorities.
THE TRIPS AND PLT/SPLT
A study of the provisions of the TRIPs and PLT/
SPLT show that they are different. First, whereas
compliance of the TRIPs is mandatory for the WTO
members, the developing countries are free to accept
or reject PLT/SPLT on various grounds. Second, the
TRIPs would be more focused on commercial aspects
of patent and dispute settlement with the WIPO’s
ironing out differences in technical and procedural
matters.
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Globalization of Patent Law and Indian Scenario
INDIAN PATENT ACT, 1970
The Patent policy has a chequered history in India,
which dates back to 1856. It is interesting to note that
the Indian Patents and Designs Act of 1911 was
amended in 1970 to the disallow product patents for
pharmaceuticals and agrochemicals. This spurred the
growth of domestic industry by producing and marketing
drugs, including those patented outside India.
The WTO regime required all its members to put
in place adequate patent protection regime in their
countries. A transition time up to 01-01-2005 has been
given for developing countries and an additional ten
years for least developed countries.
The Patent Act, 1970, provides for grant of patent
for any invention of new process involving an inventive
step and capable of industrial application. A “ patentable
invention” is something “new, involving an inventive
step, and capable of industrial application’, and anything
that does not satisfy the criteria would be ineligible for
grant of patent. The essential element of an inventive
step is that such invention is not known earlier to a
skilled person who is in that industry.
The Act provides for process patent. It means that
the manufacturer can patent the way a product is
manufactured, but not the unique attributes of its
product. This enables local manufacturers to introduce
new products by reverse engineering rather than
creating a sound Research and Development (R&D) base.
The Government has, during the past three decades,
been trying to amend the Patents Act, 1970, to bring it
in line with the TRIPs regime. The introduction of patent
protection regime would fundamentally change the
business model of Indian industry. The apprehensions
of Indian pharmaceutical industry is that the MNCs would
increase the prices of patented drugs beyond the reach
of ordinary consumer, if the product patent would be
allowed.
First Amendment
The first Patents (Amendment) Act, 1999, provided
for Mailbox applications and Exclusive Marketing rights
(EMRs) in line with Articles 70.8 and 70.9 of TRIPs with
retrospective effect from 01-01-1995. The applicant is
required to make a corresponding application in another
country and receive marketing approvals in India as well
as in that country. As per Indian regulatory framework,
an EMR holder is entitled to a marketing monopoly for
five years from the date of grant or up to the time a
product patent supercedes it. However, despite more
than 4,000 pending applications, not a single EMR was
granted till end 2003.
Second Amendment
The second Patents (Amendment) Act, 2002, was
an attempt to make the Patents Act, 1970, compliance
with the TRIPs regime and, at the same time, protecting
the interests of local industry. The amendments, interalia, provides for a uniform 20-year tenure for all patents
and a number of inventions, like traditional knowledge,
which are not patentable. The most important
amendment pertains to compulsory licensing –
appropriation of patent rights by the Government for
itself or on behalf of another indigenous manufacturer,
on a number of criteria. The twin objectives were –
protection of public health and ensuring that patented
inventions are worked on a commercial scale in India
without delay and to the maximum extent.
The provision of compulsory licence empowers the
Government to overlook patent rights and issue a licence
to a third person to manufacture and market the
patented product in public interest. Any person
interested in a patent in the public domain, can apply
to the Controller General of Patents (CGP), after three
years from the date of grant of the patent to the patent
holder, to grant compulsory licence on one of the
following grounds:
— Reasonable requirements of the public with
respect to the patent have not been satisfied;
or
— The patented invention is not available to the
public at a reasonably affordable price; or
— The patented information is not worked in India.
The CGP can also provides compulsory licence at
the instance of the Central Government in respect of
any patent in circumstances of national emergency or
extreme urgency or public non-commercial use. The
CGP has, however, to give to the patent-holder an
opportunity to raise his objection before the grant of
compulsory licence. The CGP can also terminate the
compulsory licence on the ground that the circumstances
for compulsory grant of patent no longer exist.
The CGP makes public the specifications of the
“invention” for which the patent is applied for, within
48 months of the date of filing. Any objection to possible
grant of the patent has to be registered within four
months of such mandatory publication and meanwhile
grant of patent is withheld until the grounds of objections
are examined. Anybody can oppose a patent before its
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32nd National Convention of Company Secretaries
grant on 11 specified grounds, including ambiguous
specifications, previous public knowledge of the
invention, suspect of fraud as well as concealment of
information.
invention (defined as per novelty, inventive step and
industrial application) and non-disclosure or wrongful
mentioning of the source and geographical origin of
biological material.
Proposed Third Amendment
It is proposed to shift the onus of proof on defendant
for process patents. This means that instead of the
applicant of the patent giving evidence that another
company has copied its process, the defendant would
be required to prove that it has not copied the process
if it has produced an identical product.
The major issues in the third Patents (Amendment)
Bill, referred for fine-tuning by Inter-Ministerial
discussions, include definition of invention, granting of
patent to new chemical entities along, dropping pregrant objection and data protection for clinical dossier
required to be submitted to the regulatory authority for
marketing approval of a drug.
The TRIPs regime does not allow exclusion of
inventions that are new, useful and non-obvious over
the prior art and that subjects should be patentable if
based on underlying scientific principle and if it involves
an inventive step. According to patent experts in
pharmaceutical sector, patents are normally granted to
a product (a specified molecule) or a process
(manufacture process of the molecule) of a general
class. As there are various processes and different
combinations and compositions, a single medicine can
be protected by a number of separate patents.
Invariably it becomes necessary to protect a later product
where it is found that a sub-group of that family is more
promising, or where it is found that the new molecule
works more effectively with the combination of another
molecule. Against this backdrop, the Indian industry is
seeking restriction of the scope of patentability to New
Chemical Entity (NCE) alone, and not to innovations that
surround the new molecule. This is to check ever
greening of patent protection by the MNCs.
It is proposed to grant product patent in certain
chemical processes, including pharmaceutical, food,
biotech, biochemical and microbiological sectors. This
is to check the tendency of Indian companies
circumventing patent rights of MNCs by manufacturing
the newly patented products by reverse engineering.
It is proposed to drop the provisions for “pre-grant
opposition” to curtail the right of objection prior to grant
of patent. The Patent Controller would be empowered
to dispose of the representation and go ahead with
sealing of the patent. There would be no provision for
appeal against the decision of the Controller. This is to
reduce the time span for processing of patent applications
and achieve a zero backlog position.
It is proposed to provide only two grounds for
“representation” against a patent application that is
“published but not granted” – patentability of the
It is proposed to provide adequate opportunity to
object, or seek repeal of a patent after its sealing.
It is proposed to provide mere data protection of
data furnished by MNCs to the regulators from unfair
commercial use, but disallow data exclusivity as a tool
to extend the market exclusivity beyond the period of
original patent protection.
The MNCs compaign spearheaded by PhRMA, a
US-based alliance of Big Pharma has been clamoring for
data protection policy. Data exclusivity is ‘protection for
new drugs and agrochemicals data furnished with the
authorities for regulatory clearances, from unfair
commercial use by anybody other than the innovator’.
The Indian companies feel that data protection policies
are a clear ploy for ever-greening of patents - to extend
the life of a patent even when the patent is invalidated.
This can hamper the progress of biogenerics, where
India has great strength.
CONTROVERSIES
The Indian Pharmaceutical Alliance (IPA) has
expressed its apprehensions particularly over the
amendments pertaining to ‘definition of patentability’
and scrapping the ‘pre-grant opposition’ facility.
The IPA fears that in the absence of a clear definition,
MNCs would be able to prolong patents by seeking the
exclusivity for new uses or dosage forms of same
invention. Whereas the MNCs who want to strengthen
the patent regime, the Indian companies wants adequate
safeguards by defining patentability criteria
unambiguously to tackle rational health emergencies and
protect their business interests. They want that the
definition of ‘patentable invention’ should clearly state
what makes an “invention” patentable. For example,
new form of previously patented compounds,
polymorphs, metabolites, isomers, etc., should be
excluded from patentability. The IPA also feels that
withdrawal of the pre-grant opposition to patents would
lead to grant of frivolous or fraudulent patents. The
Government of India, however, holds the view that the
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Globalization of Patent Law and Indian Scenario
proposed Patent Bill adequately takes care of repudiating
the grant of frivolous patents.
secure market advantage over Indian
pharmaceutical products. These products are
being marketed by Indian companies by using
clinical trial data already available. The provision
of data exclusivity will delay introduction of
generic Indian products in the market and mean
large profits for MNCs. Moreover, such a
provision does not come under the purview of
the patent law and the issue needs to be delinked from patent protection. It may be noted
that Article 39.3 of the TRIPs agreement does
not oblige member countries to provide for
fixed term data exclusivity with regard to test
or other data submitted by the first applicant.
India, therefore, need not provide for a fixed
term data exclusivity.
SUGGESTIONS
The following suggestions deserve careful
consideration to protect the interest of the Indian
industry:
1. The right to patent should be for ‘basic research’
particularly for pharmaceuticals. Patentability
should be restricted to drug/medical molecules
as recommended by the Mashelkar
Committee. If the marginal changes or
improvements to previously patented
compounds are allowed, these could lead to
ever-greening of patents, delaying the entry
of generics and rise in prices of drugs.
2. Life-form including micro-organisms should be
specifically excluded from patentability because
the WTO has yet to complete its review on
this.
3. The ‘pre-grant opposition’ for a patent under
the Act should not be taken away because it
facilitates elimination of frivolous patent claims.
The Patents Office in the USA has been unable
to cope up with the unmanageable volume of
claims. Patent examiners are unable to do
justice with scrutiny of more than 1,000
applications a day filed in the Patent Office.
4. The provisions of compulsory licensing should
be on reasonable commercial terms as provided
under Article 31 of the TRIPs in cases of public
health crisis. It should ensure a win-win
situation. Patent holders, making substantial
investment in research and development (R&D),
should be allowed a reasonable return. The
licensee of compulsory patent, exploiting the
licensed technology, should pay fair license fee.
The society also gains in terms of availability
better quality of products at competitive price
by a fair arrangement. The Government should,
by a balancing act, ensure that compulsory
licensing of patent fulfills the expectations of
not only the patent holder and licensee, but
also the society as a whole in terms of
availability of life saving drugs at affordable
price.
5. The MNCs compaign for data exclusivity should
not be allowed because it is a ploy of MNCs to
CONCLUSION
All over the world, Indian scientists, engineers and
chemists are recognized for their talent, skill and
competent in basic research. They file a large number
of patent applications in the US and EU. The Indian
knowledge can be gainfully harnessed for India’s
progress. What is needed is higher level of R&D
investment and proactive patent support policy from the
Government, particularly chemical, biotech and
pharmaceutical sectors.
MNCs in the pharmaceutical industry have been
reluctant to introduce their latest products in Indian
market because of weak regime of patent protection.
The national interest demands that the Government of
India should, while amending the Patents Act, use the
flexibility available under the TRIPs agreement to strike
a balance between the demands of MNCs and domestic
industries.
India, having taken a policy decision to be part of
the global system, has to comply with the TRIPs regime.
The Indian pharmaceutical sector comprises both large
and small companies. The larger ones are capable of
developing new uses, new derivatives and new delivery
systems for the existing drugs. They are already
competing in global markets to some extent. In order
to compete and emerge stronger in the global market,
the large companies have to upgrade their R&D and
smaller ones realize that there is no short cut to R&D.
They have to obtain optimal patent protection in India
and abroad. The earlier they act, the better it would be
in the emerging global scenario.
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32nd National Convention of Company Secretaries
INTELLECTU
AL PROPER
TY RIGHTS — A GA
TEW
AY
INTELLECTUAL
PROPERTY
GATEW
TEWA
TO CORPORA
TE GL
OBALISA
TION
CORPORATE
GLOBALISA
OBALISATION
M GOVINDARAJAN*
INTRODUCTION
Globalization is a process which draws countries out
of their insulation and makes them join the rest of the
world in its march towards a new world order.
Globalization is a natural urge of the human society
breaking the barriers of isolation and preventing the
countries from exploiting the factors of developments
that lie in other countries. Technological revolution in
transport and communication transformed the entire vast
world to a global village. A multitude of men and women
are travelling every day from one end of the world to
the other exploring tremendous opportunities. Huge
stock of goods and services are moving their places of
origin to new markets. This is possible by the continuing
efforts of the countries since the world wars forming of
GATT later converted into World Trade Organization. It
is the only international body dealing with the rules of
trades between nations. The WTO agreements made
the foundation of multilateral trading system which
include— trade without discrimination;
— freer trade;
— predictable policies;
— fair competition.
The agreements of WTO for the two largest areas
of trade - goods and services - have three broad
principles which are — General Agreement on Tariffs and Trade (GATT);
— General Agreement on Trade in Services
(GATS);
— Trade Related Aspects of Intellectual Property
Rights (TRIPs).
*
The objective is to promote the economic
growth of all trading partners and the development
of developing countries through the expansion of trade
in goods and services by applying the rules of WTO
with modifications necessary to take into accounts its
special features.
INTELLECTUAL PROPERTY FOR BUSINESS
In the increasingly knowledge driven economy
intellectual property is a key consideration in day-today business decisions. New designs, brands, trade
marks, patents etc., come into the market continuously
as a result of continuation in innovation and creativity .
The enterprises are often the driving force behind such
innovation. The invention is nothing but the intellectual
property. The intellectual property relates to the creation
of human mind and human intellect. Intellectual property
is characterized by certain rights as to that of rights in
moveable and iinmoveable properties. It has also
limitations such as right to use and licence and also
limited duration in certain cases. It is a right exclusive,
non visionary and most vulnerable. The revolutionary
changes in technology makes the business into a
competitive oriented. The technology invented today
will become obsolete in the next year. The business in
a country has to face the challenges of the competition
not only in the domestic country but also in the global
market. Due to adoption of liberalized economic policy
any business entity can start any business in any part of
the world. This not only increases the competition but
also increases the cost of production. But at the same
time the business entity is to maintain the quality of the
goods or services to retain its customers. Letus take the
example of Telecom. Industry in India. Department of
Telecom., the monopoly in field of teleccom., was
compelled to convert into public sector undertaking
B.Sc., M.A., B.L., ACS, AICWA, MBA. BSNL, Madurai.
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Intellectual Property Rights — A Gateway to Corporate Globalisation
termed as Bharat Sanchar Nigam Limited to face the
competition in the Telecom. Industry on the arrival of
private operators under the liberalized scenario. Foreign
Direct Investment has been allowed to the extent of
74% in the Telecom. Sector by the present government.
The consumers witnessed the tariff war arising between
the competitors in the telecom Industry which are
slashing the rates now and then. Thus it is inevitable for
the business to go for innovation and forming Research
and Development centers. It is, therefore, required to
protect the intellectual property rights. If it is left
uprotected, a good invention or creation may be lost to
large competitors who are in a better position to
commercialize the product or services at a more
affordable prices leaving the original inventor or creator
without any financial benefit or reward. The Intellectual
property protection is helpful in— preventing competitors from copying or closely
imitating a company’s products or services;
— avoiding wasteful investment in research and
development and marketing;
— creating a corporate identity through a trade
mark and branding strategy;
— the undisclosed information including trade
secrets and test data;
The features of TRIPs agreement are — non compliance of the provisions will be
subjected to the dispute settlement within the
framework of WTO;
— intellectual property protection;
— rights of the inellectual property holders;
— exception to the right;
— minimum terms of protection;
— extensive protection than the specified
agreement;
— procedures and remedies available to enforce
the rights with the assistance of judicial
authority.
“The TRIPs agreement is considered as the
minimum standards. The members are free to provide
more extensive protection of intellectual property if it
desires. The agreement gives transititional periods to
members to meet their obligations in the following way— one year to developed country members
(1.1.1996)
— negotiating licensing, franchising or other
intellectual property based contractual
agreements;
— five years to developing countries (1.1.2000)
— eleven years to the least developed countries
(1.1.2006)
— increasing the market value of the company;
— acquiring venture capital and enhancing access
to finance;
— obtaining access to new markets.
TRIPs AGREEMENT
The TRIPs agreement is a multilateral trade
agreement that is binding on the members of World
Trade Organization. It is compulsory for the member of
WTO to become the member to the TRIPs agreement.
The TRIPs agreement came into effect from 1.1.1995.
The TRIPs agreements covers the following intellectual
property rights:
— copy right and related rights;
— trade marks including service marks;
— geographical indications including appellations
of origins;
— industrial designs;
— patents including protection of new varieties
of plants;
— the lay out designs (topographies) of integrated
circuits;
Article 67 of the TRIPs agreement provides that
developed country member shall provide, on request
and on mutually agreed terms and conditions, technical
and financial cooperation in favour of developing and
Least developed country members, which include the
assistance in preparation of laws and regulations on the
protection and enactment of intellectual property rights
as well as on the prevention of their abuse and support
regarding the establishment or reinforcement of
domestic offices and agencies relevant to these matters,
including the training of personnel. To facilitate the
implementations of TRIPs agreement on cooperation
between WIPO and WTO which came into force with
effect from 1.1.1996.
Article 31 of the TRIPs agreement provides for the
grant of compulsory licences on certain conditions. That
is, a government can licence a producer other than the
patentee to produce the patented product. This gives
governments the powers to check abuse of intellectual
property lights. Since the agreement does not specify
all the circumstances under which compulsory licences
can be granted, the legislation can cover among the
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32nd National Convention of Company Secretaries
other things the requirements of public health , public
non commercial use, anti-competitive practices and
when the patentee has refused a voluntary licence on
reasonable commercial terms. It is, therefore, better
enact to suitable legislations that derive the maximum
possible advantages from the TRIPs agreement than to
engage in domestic wrangling. WIPO has no mandate
to interpret the provisions of the TRIPs. However within
its mandate WIPO continues to provide legal and
technical assistance to countries on the implementation
of TRIPs agreement.
VALUATION OF INTELLECTUAL PROPERTY
Since the competition is increasing the importance
of intellectual property is also on the increase. It has
greater value in economic development and it attracted
due attention from every corner of the world. The right
of the intellectual property is considered as the property
like that of moveable or immoveable property. The value
of intellectual property is based on the business
environment in which it resides and the competitive
environment. There are several situations where the
value of intellectual property ought to be estimated,
such as merger and acquisitions, joint ventures, foreign
collaborations, manufacturing, purchase or distribution
agreements etc., In any of the above the assessment of
the value of intellectual property of a company is very
much required to take right decision at right time to
optimise the use of intellectual properties. Cost is
considered while acquiring the intellectual property. It
is better to purchase an established trade mark or a
patent protected techniquie rather than to develop an
alternative.
Intangible assets such as brands or goodwill have
until very recently been excluded from the balance sheet
owing to difficulties of attribution a sensible value carrying
to them. Moreover the accounting standards prevent
the accounting for intellectual property despite its
economic value. Investments in intellectual property are
long term investments. Therefore the company should
have the information about its intellectual property rights.
In respect of valuation of intellectual properties the
current and potential value of the intellectual property
are to be assessed. The valuation methods are cost based,
market based and economic based. Inflation, cost of
capital profit margins etc., are the important facts to be
considered in valuation of the intellectual property. The
assets pertaining to the intellectual property should
produce profits. In valuing the IP the assessment of risk
connected to the future IP earnings is also to be
identified. The IP should have legal protection otherwise
it has no value. It is therefore required for a country to
maintain a good legal system for the protection of the
IP creating values.
EFFECTIVE MANAGEMENT OF IP
The company can improve the competitiveness and
strategic advance by managing the intellectual property
effectively. Effective management means more than just
protecting the inventions, trade marks, designs or copy
right. It is the company’s ability to commercialize the
inventions, marketing its brands, licensing its know-how,
concluding joint ventures and other contractual
agreements including IP and effectively monitoring and
enforcing its IP rights.
CHALLENGES
Though effective management of IP gives the fruit
of better competitiveness and profit, devising business
strategy by using IP is an increasingly critical task for
business entities worldwide. Insufficient information on
the relevance of IP in day-to-day business, high costs
associated with obtaining and enforcing IP rights,
perceptions that the IP system is esoteric, too
cumbersome and time consuming lead to the slowness
in protecting the intellectual property assets.
PROTECTION OF IP
The protection of intellectual property involves two
categories viz., domestic protection and international
protection. The laws enacted in a country in respect of
intellectual property shall have the protective measures
of IP.
PROTECTION IN INDIA
Being the member of WTO and signatory to the
TRIPs agreements India brought amendments to the
intellectual property laws in consonance with the
provisions of international law. India enacted the
following laws relevant to Intellectual property— Copy Right Act, 1957;
— Patents Act, 1970;
— Trade Marks Act, 1999
Copy Right
Sec. 14 of the Act defines the term ‘Copy right’ as
to mean the exclusive right to do or authorise the doing
of acts prescribed in case of literary, dramatic or musical
work, computer work, artisitic work, cinematograph film
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Intellectual Property Rights — A Gateway to Corporate Globalisation
and sound recording. The following are the protections
available under Copy Rights Act:
1. The term of copy right is for the life time of
the author plus 60 years after his death. In
case of joint authorship the terms of copy right
is construed as a reference to the author
who dies last.
2. The term of the copy right in respect of
cinematograph films, sounds records etc., - 60
years from the beginning of the calender year
next following the year in which the work
has been first published.
home country on reciprocal basis. The term of
copy right in India to the foreign work will
not exceed that conferred by the foreign
country.
Trade Mark
A Trade Mark means a mark capable of being
represented graphically and which is capable of
distinguishing the goods or services of one person from
those of others and may include shape of goods, their
packaging and combination of colours.
1. Trade mark may be registered with Registrar of
Trade mark for 10 years and can be renewed
for the successive period of 10 years.
3. The term of the copy right in respect of
broadcast reproduction rights is 25 years.
2. A registered propreitor of a trade mark can
prevent others from using identical or
deceptively similar trade mark in relation to any
goods in respect of which the mark is
registered.
4. The term of the copy right in respect of
performer’s right is 50 years.
5. The copy right Board —
— grants compulsory licences in respect of
Indian works withheld from public;
— grants compulsory licences to publish
unpopularised Indian work;
3. Suit can be filed in District Court which may
grant injunction or at the option of the
plaintiff, either damages or an account of profit.
— grants compulsory licences to produce and
publish translation of literary and domestic
work;
4. Intellectual Property Appellate Board is to hear
the appeals against the decisions of Registrar
and matters incidental thereto.
— grants compulsory licences to reproduce
and publish literary, scientific or artistic work
for certain purposes;
Patent
— settles the disputes arising out of copy
right;
— determines the royalty payable to the
owner of the copy right.
6. Section 55 provides civil remedies for
infringement of copy right by way of injunction,
damages, accounts and otherwise as may be
conferred by law for the infringement of copy
right.
7. Section 57 provides for the protection of special
rights of the author known as moral rights
according to which an author of copyright work
can restrain or claim damages in respect
of any distortion or manipulation of the work
or any other action in relation to the said
work which would be prejudicial to his honour
or reputation.
8. Section 40 empowers the Government of India
to extend the benefits of all or any of the
provisions of Act to works first published in any
foreign country, that is available in the
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1. In order to meet the obligations under
Articles 70(8) and 70(9) of the TRIPs
Agreement of WTO a new chapter IVA was
inserted in the Patents Act which deals with
the EMR (Exclusive Marketing Rights) with effect
from 1.1.1995.
2. The Act also provides compulsory licences to
an exclusive right to sell or distribute.
3. The term of patent is 20 years from the date of
filing the patent.
4. Section 48 of the Patent Act provides that a
patent shall confer on the patentee the
exclusive right in the case of product patent to prevent third parties from making, using,
offering for sale, selling or importing for those
purposes that product in India and in case of
process patent - to prevent third parties from
the act of using that process and from the act
of using, offering for sale, selling or importing
for those purposes the product obtained directly
by that process in India.
5. Suit may be filed in a District Court for
infringement of patents.
32nd National Convention of Company Secretaries
of dispute related to the abusive registration and use of
internet domains.
PROTECTION UNDER WTO AND WIPO
Disputes Settlement Board: (DSB)
The mechanism of settlement of disputes on IP
under WTO regime is through the Disputes Settlement
Board. The following are the elements of disputes
settlement procedure:
1. Consultation is the first stage of the proceedings
which aims at a mutually agreed solution.
2. If no mutually agreed solution is arrived at, the
aggrieved party may request the Disputes
Settlement Board for the establishment of panel
which would make recommendations to
Disputes Settlement Board.
3. Disputes Settlement Board adopts the report
of the panel unless it decides by consensus not
to adopt it.
4. Appeal may be filed to WTO’s Appellate Body.
On filing of appeal the decision taken by
Disputes Settlement Board is suspended.
5. Disputes Settlement Board adopts the report
of the Appellate Body unless it decides by
consensus not to adopt it.
6. Enforcement of the decision.
Role of World Intellectual Property Organization
(WIPO)
WIPO Arbitration and Mediation Center was
established in 1994 to offer Alternate Disputes
Resolution. Developed by leading experts in cross border
dispute settlement the procedures offered are widely
recognized as particularly appropriate for technology,
entertainment and other disputes involving intellectual
property.
Disputes on Internet Domain Name
A domain name is the address of Web site that is
intended to be easily identifiable and easy to remember.
Domain names have become business identifiers and
even trade mark themselves, which attract potential
customers to their web site.
The disputes on domain name arise from the
practice of cyber squitting which involves the preemptive registration of trade marks by third parties as
domain names. The Cyber squitters exploit the procedure
of domain name registration and register the names of
trade marks, famous people or business with which they
have no connections. After that they put the domain
names for auction or sale to the company or person at a
higher cost.
The ICANN (Internet Corporation for Assigned
Names and Numbers) is responsible for the management
of the top level domains. ICANN adopted UDRP
(Uniform Domain Name Dispute Resolution Policy) based
on the reports on the WIPO with effect from 1.12.1999.
The UDRP permits complainants to file a case with a
resolution service provider specifying the domain name
in question; the respondent or holder of the domain
name; the registrar with whom the domain name was
registered and the grounds of the complaint WIPO taking
into the circumstances of each dispute, appoints an
expert ‘neutral’ or ‘panelist’ to review the dispute and
issue a decision. The decisions are based on the
following factors — whether the domain name is identical or
confusingly similar to a trade mark or service
mark in which the complainant has rights;
The WIPO Arbitration and Mediation Center offers
clauses, rules for— Mediation - a non binding procedure in which
a neutral intermediary, the mediator assists the
parties in reaching the settlement of the
dispute;
— Arbitration - a neutral procedure in which
dispute is submitted to one or more arbitrators
who make a binding decision on the dispute;
— Expedite Arbitration - an arbitration procedure
that is carried out in a short time at reduced
cost.
The WIPO rules are appropriate for all commercial
disputes. It also administers procedures for the resolution
— whether the respondent has any rights or
legitimate interest in the domain name;
— whether the domain name was registered and
is being used in bad faith;
The decision on the dispute on the domain name
may either be cancelled, transferred be sustained. No
compensation can be claimed. No injunctive relief is
also available. A domain name case filed with WIPO is
normally concluded within two months. Fees are also
much lower than normal litigation.
COMMERCE AND IP
The internet at present exhibits a remarkable
expansion in its capacity to disseminate information,
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Intellectual Property Rights — A Gateway to Corporate Globalisation
knowledge and content. It has thrust the IP system to
the center of the debate over the future shape of the
online world. The long term influence of internet is not
clear. However it presents a host of complex
opportunities and challenges for the intellectual property
community. WIPO launched the Digital Agenda during
1999 at WIPO International Conference on Electronic
Commerce and Intellectual Property which was approved
later by WIPO member states at their General Assembly.
The WIPO Digital Agenda is as follows:
in respect of the interoperability and
interconnection of electronic copy right
management systems and their metadata;
the online licensing of the digital expression of
cultural heritage;
the online administration of IP disputes;
— to introduce and develop online procedures for
the filing and administration of international
application for the PCT, the Madrid system
and the Hague agreement at the earliest
possible date;
— to broaden the participation of developing
countries through the use of WIPO NET and
other means for
— access to IP information;
— to study any other emerging IP issues related
to e-commerce
— opportunities to use their IP assets in ecommerce;
— and where appropriate develop norms in relation
to such issues
— to promote the entry into force of WCT
(WIPO Copy Right Treaty) and WPPT
(WIPO Performances and Phongrams
Treaty;
— to coordinate with other international
organizations in the formulation of appropriate
international positions on horizontal affecting
IP in particular
— to implement the recommendations of the
report of the WIPO Domain name process
and pursue compatibility between identities
in the real and virtual worlds by establishing
rule for mutual respect and eliminating
contradiction between the domain name
system and IP system;
— to develop rules for determining the
circumstances of IP liability of online service
providers;
— to promote adjustment of institutional
frame work for facilitating the exploration of
IP in the public interest in a global
economy and on a global medium through
administrative co ordination and where desired
by users the implementation of practical system
— the validity of e-commerce
— jurisdiction.
CONCLUSION
More is to say about the importance of intellectual
property in business sectors. It is the initial state and yet
to travel more distance in long span of time. Hope the
better developments in future due to the globalization
procedure and effective monitoring of the organizations
of WTO which is the main body for the development
of international business. The communication and the
development of technology will definitely bring sea
changes in future in the intellectual property area which
would be the challenges for the professionals particularly
Company Secretaries who are in whole time
employment as well as in whole time practice in
globalization.
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32nd National Convention of Company Secretaries
BUILDING STRA
TEGIES FOR FUTURE —
STRATEGIES
A PROFESSIONAL'S APPROACH
CHANDRAKUMAR A NAHATA*
The changes, which are taking place in the
economic and social environment and particularly the
spectacular advances in technology are posing challenges
to the corporate professionals. The present day economy
is opening up and its prime characteristics are
liberalisation, privatisation and globalisation. In this
background, expectations of users of the services,
regulators and every one concerned stand changed.
Moreover, global competition in corporate world, in the
knowledge based economy, is continuously raising
demand for consultation in terms of merger, de-merger
acquisition, e-business, international movements, cross
border transactions, IPRs etc. Hence, the role of
Company Secretary has become extremely critical. He
must take advantage of the winds of change and must
not shy away from them.
traditional professionals act on changing environment
very late. “I will do the things the way I had been doing
long back.” That is the attitude, generally, many people
have and that becomes internal hindrance in professional
development.
As any business or profession is exposed to various
risk factors, our profession is no exception to it.
Profession of Company Secretary is exposed to variety
of risk factors. These risk factors can be classified as
Internal, Technological, Legislative and Competitive risk
factors.
TECHNOLOGICAL RISK FACTORS
INTERNAL RISK FACTORS
Internal risk factors are those hiding within self.
These risk factors are within control of person himself
and are not generally affected by external environment.
These are in a way individual limitations, which can be
overcome. The main internal factor is high focus on
legal recognition for professional development.
Generally our focus is on legal recognition to Company
Secretary under various statutes. We need to understand
that this is not the only area. Our profession has given
us competence to deliver much more than just
compliances. Second such attitude wide persisting is
*
After entering into the professional field, members
generally do not attend programmes to upgrade
knowledge and sharpen skills. However, of late Institute
has brought the concept of CPE and now situation is
improving. Poor communication skills is also hindrance,
which every professional needs to address and over
come. After getting professional qualification people
generally look for job avenues instead of going for
practice. Lack of entrepreneurial skills is also an internal
risk factor.
Now the business and economy has become
technology driven. Information, Communication and
Transportation technologies are redefining how the
business is done. To name few are: Capital Market and
Banking is integrated through Straight Through
Processing. Artificial Intelligence helps to solve
complicated problems. Corporate compliances are taking
place on click of mouse. Secretarial softwares and
websites has made it possible for even single Company
Secretary to handle the work which was taken care of
by say 5 or 10 Company Secretaries. ERP package has
made right from entry of basic data to generation of
Balance Sheet and MIS reports fully automatic and
broken various hierarchies in organisation structure.
Technological development has affected our
profession to a great extent. If the professionals try to
take advantage of the same it can become a boon to
B.Com. ACA, DISA, ACS. Deputy Manager with National Dairy Development Board (NDDB), Anand.
A – 66
Building Strategies for Future — A Professional's Approach
him and if he shy away from it then it will become risk
factor.
LEGISLATIVE RISK FACTORS
After establishment of the role of corporate
governance the concept of self-governance is fast
emerging. In the era of self-governance, need for high
regulatory control will be a question. Corporate laws
are being simplified. Experts suggest simplification of
laws for small companies. Coming time will witness
simplified corporate laws. This may be good for economy
and corporate world but for a compliance officer it will
pause a big challenges. We need not focus just on
legislative compliances. That is the only solution.
COMPETITIVE RISK FACTORS
With liberalisation and globalisation of economy
there is competition not only within the territory but
also from all over the globe. We are required to compete
with global players as well. With excellent means of
communication and transportation facility, locational
boundaries have become irrelevant.
Apart from competition at international level there
is heavy competition at domestic level as well. Distinction
between services provided by different professionals is
reducing. Various provisions of statute book require
certification either by Chartered Accountant or Company
Secretary or Cost Accountant. Various regulators and
other organisations have started their own courses like
SEBI, NSE etc. Private institutions are getting recognition
from Government and Regulators. These are some of
the competitive risk factors.
highest challenges lies before second category i.e.
members in practice having their operations at small or
medium scale, provide traditional services of
compliances.
To overcome this difficulty, we need to form the
strategies and address various issues individually:
WHAT SHOULD BE THE OBJECTIVES ?
To start with we need to fix the objectives. Setting
the objective is equally important task as finishing the
task. If the objectives are not properly set we may end
up getting something, which we never wanted or
looking for. To determine our objectives we may take
the help of mission and vision statement of Institute of
Company Secretaries of India, which take care of present
day challenges before company secretaries.
Mission statement of Institute of Company
Secretaries of India targets :
“To continuously develop high caliber professionals
ensuring good corporate governance and effective
management and to carry out proactive research and
development activities, for protection of interest of all
stakeholders, thus contributing to public good”
Vision statement of Institute of Company Secretaries
of India targets :
“To be global leader in development of professionals
specialising in corporate governance”
If we look at the Mission statement and Vision
statement we can break down the same into a model
objectives of any corporate professional firm, a
professional firm, which encompasses need to expand.
With this background now the question arises:
—
—
—
—
Where do we stand ?
What does a Company Secretary do ?
What does he wants ?
Is he satisfied with the present scale of work ?
— To expand the size of operations and thereby
become leading corporate professional
— To explore emerging areas
— Develop multidisciplinary services, and like wise
Are his potentials fully explored ?
A solution to these questions is little more
complicated. Lets try to find out the solution to these
questions.
If we look at the types of job being done by
Company Secretary, we can functionally classify
Company Secretaries into three categories: Members
in service, Members in practice – small size and
Members in practice – large size, consulting firms etc.
Risk factors, which we discussed above, are faced
by all three category of Company Secretaries. But
Continuous professional development
Best corporate governance practice
Global presence
Specialised professional services
We can add few more to the above list. The
objectives set above are model objectives only. It keeps
on varying with individual goals and needs. But these
objectives are key to the pursuit of professional
excellence.
WHAT IS THE NEED OF THE DAY ?
As a company secretary we are supposed to do a
lot of compliances everyday: ROC, Board meeting, Stock
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32nd National Convention of Company Secretaries
Exchange, Banks, Shareholders, SEBI, RBI, Labor laws,
Consumer laws and much more. But that is not the end
of the world for corporate professionals. Is that not just
a job of a watchdog ?
The users of services of profession have become
more conscious of the services rendered by the
members and they expect increasing amounts of value
addition in services rendered. They demand value
addition in several fronts. They demand advisory services
backed by huge updated knowledge base. They demand
services in large scales. They demand services, which
require skills of other disciplines. To meet all these
demands we need huge updated multifarious knowledge
base with international flavour. To ensure our existence
we have to compete with professionals from other
disciplines.
Lack of Brand Name
As the commercial organisations enjoy strong brand
value, a firm of Company Secretary or practicing company
secretary does not enjoy the same. Clause no. 6 in
Schedule I to Company Secretaries Act, 1980 prohibits
company secretary in practice to solicit his services.
Multinational consultancy firms are on advantageous
position in this front since they are enjoying the brand
name.
The Myth “Small is Beautiful”
General belief is that the small is beautiful. But that
is not complete. Small is beautiful but big is beneficial.
That is the mantra of today’s economy.
In the commercial environment earlier prevalent in
India, there was no external economic impetus or
regulatory encouragement. But the present day industry/
commercial trends are reflected in: increasing size of
business operations, increasing standards, mergers
acquisition, demand for single window concept in
professional services, necessity of providing integrated
services, increasing level of international trade, increasing
complexity of laws and consequential need for
compliance etc.
With increasing level of complexity we have to adapt
to the different model of our activity. We need to
expand in terms of size to gain the benefits of emerging
opportunities.
Globalisation of Firms
Business Process Outsourcing (BPO) service industry
is rapidly expanding. Indian service providers have
demonstrated the ability to compete globally. Industry
all over the world has realised the benefits of
globalisation of operations. As the operations of the
clients are spread over the globe, our service needs
also change. Requirement of multi-locational
professional services increases. As a company secretary
we need to look for areas of expansion in terms of
locational boundaries. Industry looks for services, which
is available at their ease and convenience. Cost
effectiveness has become need of the day.
Due to advent of Internet, communication facility,
excellent transport facility the world has become smaller.
Therefore, users of professional services need not look
for service providers in their own region and can get
from any part of the world.
Strategic Alliance
Compliances and settlement of transactions has
become more complicated due to global operations.
Industry demands specialization to fulfill their objectives.
The need for specialisation is partly taken care with large
sized professional service firm. But that does not serve
the purpose always. Strategic alliance with global leaders
in respective fields complements the need. If we look
at the trend today, all large sized consultancy firms have
entered into strategic alliances with specialized partners.
Strategic alliance not only contribute in improving the
level of service but also helps to adapt to global service
and quality standards, the practices followed world over
etc.
Exploring New Areas
In today’s dynamic world style of functioning
changes very fast. New areas are emerging every day.
Very recently advent of commodities trading, IPRs, online
security, systems audit has thrown lots of opportunities
for professionals. It is upto the profession to catch the
opportunities in time. In this fast changing world threats
and opportunities goes hand to hand. We need to
explore new areas, enter into new segment, and fulfill
expectations of the society.
Multi Disciplinary Partnership
Though existing regulations governing Company
Secretary, Chartered Accountant and other professionals
do not allow members to go for multi disciplinary
partnership. Institutes are now looking for opening up
of this area. The day is not very far when Company
Secretary will be allowed to enter into alliance with
Chartered Accountant, Cost Accountant, MBA, MCA
and Lawyer. That is typically the requirement of present
day. When our client needs assistance in the areas of
finance, accounting or legal matters, many of our
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Building Strategies for Future — A Professional's Approach
professional colleagues have to rush to our fellow
professional brothers who can join us to sort out the
issue though on informal basis. But that is only a work
around solution, which our profession or any other
profession has adopted since number of decades. Now
the time has come to accept the challenges of changing
business practices and need of the economy and
industry. Now if this area is opened up, it will give new
dimension to the profession in India.
With these strategies in mind our profession can
definitely take on the challenges before us. More and
Corporate Laws
more number of Indian companies are going overseas
to raise funds. We can also cater to the needs of Indian
MNCs coming up these days.
MODEL CORPORATE FINANCIAL SERVICES
PROVIDER
With this background if we try to visualize the model
corporate financial service provider, the picture, which
comes to my mind, is presented in the Table below.
There could still be many other such areas, which can
probably fall in the table.
Direct & Indirect Taxes
Resource
mobilization
Arbitration and
reconciliation
Corporate
Financial
Services
Provider
Risk management
DRP/BCP services
Statutory Audit
Management
consultancy
Investment
planning
Human resource
management
IPR and Trademark laws
A – 69
Merchant Banking services
32nd National Convention of Company Secretaries
COMPETITIVENESS OF PROFESSIONALS VISA-VIS
VIS-A
CROSS BORDER MERGERS AND ACQUISITIONS
RABI NARAYAN KAR*
BACKDROP
Competition is understood differently by different
people. While the dictionary meaning clearly defines it
as rivalry between two parties for supremacy, a contest
for some honour, prize and advantage, or a struggle
among organisms for resources, the colloquial and the
business use points to different interpretations. In
business, competition is used synonymously with
achieving a target, excellence, reaching a benchmark.
Competitiveness refers to the degree to which a country
can produce goods and services under open market
conditions that meet the test of foreign competition
while maintaining and expanding domestic real income
with the objective to raise productivity (both capital and
labour) towards international best practices.
In the nineties, the trend turned more complex with
companies facing unprecedented uncertainties. Global
competition, technological breakthroughs,
deregulations, shifting consumer tastes and volatile forex
markets have made long term planning difficult. Further,
encouraged by the forces of liberalization and
privatization and driven by strategic considerations, cross
border mergers and acquisitions (M&As) have become
more and more conspicuous in recent years. This refers
to the number of acquisitions made by companies in
foreign countries. Such transnational or cross border
M&As have been motivated by a variety of strategic
considerations, which often differ from those which drive
purely domestic acquisitions. The path towards cross
border M&As is not a straight forward approach or
extension of the path adopted for domestic mergers
and acquisitions. Cross border M&As are much more
complex due to differences in the political and economic
environment, corporate culture and organization,
tradition and conventions, tax rules, law and accounting
*
principles between the countries of the acquirer and
the target company. In this competitive business
environment, individual companies do not possess all
the skills and technology required to exploit the global
market and to handle the changed scenario. In this
backdrop, the professionals are expected to guide not
only their own companies but also their respective
professions towards the path of competitiveness. In this
paper, an attempt has been made to analyse several
aspects of cross border M&As which is having an impact
on the competitiveness of the companies and
professionals.
RECENT TRENDS IN CROSS BORDER M&AS
Cross border M&As particularly those with giant
transnational companies (TNCs) spending vast sums of
money to take over firms in other countries, are one of
the most visible aspects of globalisation. Such M&As
are now the most important form of FDI, far outstripping
investment in new facilities (‘greenfield’ investments)
in terms of value. While most such M&As take place
within the industrial world, they are also increasing in
importance in the developing world (largely in the form
of acquisitions since mergers with local firms are
relatively uncommon)1 .The total value of cross-border
M&As increased from US$ 74.5 billion in 1987 to US $
720.1 billion in 1999. Around 60 per cent of the crossborder M&As were in the manufacturing sector in the
late 1980s, followed by about 32 percent in the tertiary
1
According to UNCTAD estimates, around 80 percent
of FDI in the developed countries consists ofCross
Border M&As. In the developing world, Cross-Border
M&As reached a peak in 1998 at about $70 billion, 40
percent of total FDI inflows. World Investment Report
2000.
FCS, Deptt. of Commerce, Shaheed Bhagat Singh College (E), University of Delhi.
A – 70
Competitiveness of Professionals vis-a-vis Cross Boarder Mergers and Acquisitions
sector and less than 10 per cent in the primary sector.
The trend of cross-border M&As seems to have reversed
between manufacturing and tertiary sector, the latter
accounting for a little over 60 per cent in 1999, while
the manufacturing sector’s share has fallen below 40
per cent and the share of primary sector has become
negligible. The main reason behind the rising trend of
M&As in the tertiary sector is the greater degree of
liberalization of the services sector, particularly the
financial services. In the services sector, the industries
with highest levels of cross-border M&As in 1999 were
telecommunications, energy and financial and business
services like banking, finance and insurance etc. In the
manufacturing sector, the leaders were automobiles,
pharmaceuticals, chemicals, food, beverages and
tobacco etc. In the primary sector, mining and
petroleum, extraction of mineral oils and natural gas
are the notable industries with the highest M&As.
Although the share of developing countries in the total
cross border M&As is low, it has been rising in the
1990s.
Among the developed countries, western European
firms are most actively engaged in cross-border M&As
in 1999 with a total of $354 billion in sales and $519
billion in purchases .Bulk of these transactions were
among the European Union driven by the introduction
of the single currency and measures promoting greater
regional integration. The United Kingdom has emerged
as the single largest acquirer country, mostly acquiring
firms in the US. The US continued to be the single largest
target country with M & As sales of $233 billion to the
foreign investors in 1999.
The value of cross-border sales has gone up from
$1.7 billion in 1987 to $64.5 billion in 1999.Cross-border
purchases among developing countries have also
increased from $2.6 billion to $41.2 billion during the
same period. Among the developing countries, Latin
America and the Caribbean accounted for almost 60
per cent of total transactions, followed by Asia (slightly
less than 40 per cent). Major sellers among the
developing countries were Argentina, Brazil, Republic
of Korea, Chile, Poland etc. In the developing countries,
the principal acquirers have been TNCs based in
developed countries. Of late, European firms have
replaced US firms and have become the largest acquirers
accounting for more than two-fifth of all highest M&As
among the top five countries belonging to both the
regions are given below (Table). India does not figure
among the top five developing countries either by sales
or by purchases.
TABLE
Cross-border M&As : Top Five Countries During 1999
Developed Countries
Name of Country
Developing Countries
Amount ($ million)
A. By Sales
Name of Country
Amount ($ million)
A. By Sales
1. United States
233032
1. Argentina
19183
2. U.K.
125403
2. Brazil
9396
3. Sweden
59618
3. Rep.of Korea
9057
4. Germany
41938
4. Chile
4032
5. Netherlands
38497
5. Poland
3561
B. By Purchases
B. By Purchases
1. U.K.
209543
1. Bermuda
2. United States
112426
2. Iran
4382
3. Singapore
4048
3. Germany
84421
18815
4. France
82951
4. Brazil
1901
5. Netherlands
48429
5. Mexico
1839
Source : World Investment Report 2000, United Nations.
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32nd National Convention of Company Secretaries
Cross-border M&As can have important implications
for host countries. They tend to lead to substantial
restructuring of existing facilities. They can lead to a
repositioning of the acquired enterprise in global and
local markets and to consolidating international networks
of production, innovation and marketing (Maucher,
1998). They may involve significant layoffs and
technological changes. Cross-border M&As are often
looked upon with suspicion and trepidation by
developing countries. Many industrial countries also
dislike the idea of national enterprises or property being
taken over by foreign companies. However, developing
countries feel more vulnerable because of the inherent
asymmetry: their firms are not generally in a position to
take over firms in the industrial countries from which
most TNCs come and are more concerned with
promoting the development of domestic
entrepreneurship. Yet, there is a very strong revealed
preference on the part of TNCs to enter developing
countries by using the M&A route for market entry or
growth and restricting this route may well mean keeping
out valuable FDI.
According to an UNTAD report, one of the recent
features of the mergers and acquisitions game is that
M&As among large TNCs, resulting in even larger TNCs.
This has driven other major TNCs to improve towards
restructuring or making similar deals with other
companies and to look for new areas for growth.
Industries that have displayed high levels of cross-border
M&A activity include automobiles, pharmaceuticals,
chemicals, food, drink and tobacco in the manufacturing
sector, and telecommunications, energy and financial
services in the services sector. At a more detailed level
of classification, M&A activity in the radio-telephone
(mobile telephone), transport and storage, and
communications industries was by far the highest in
recent years, followed by life insurance and telephone
communications (excluding radio-telephone and
electronic services). All of these industries have long
attracted large-scale cross-border M&As, partly because
of liberalization and deregulation moves within them.
This may be instrumental in changing the shape of the
industry structures whereas for example, the total
number of major automobile manufacturers may well
decline to 5-10 by 2010. Similarly, in the pharmaceuticals
sector, lots of mergers and acquisitions have been taken
pace. The major players in the game include Glaxo
Smithkline Beecham, Pfizer, Warner and Hoechst-Rhone.
This trend towards mergers and acquisitions is also
accelerating the sale of non core operations or affiliates
by firms and acquisitions of similar operations from other
firms. This indicates a strategic shift by TNCs to focus
on their core activities. Even some of the TNCs may be
termed as serial acquirers which include General Electric,
Cisco, AT&T and Microsoft in America.
The European serial acquirers list includes CRH and
WPP. CRH, a building materials group has been based
in Ireland. The group relies on M&As strategy to increase
its presence in 19 countries. This company buys small,
often family owned building companies. During 2000,
it acquired 60 enterprises at a cost of $10.3 billion and
the following year it spent $1.15 billion on acquiring
123 enterprises. WPP, a global advertising group, has a
remarkable merger and acquisition track record, having
merged with leading advertising agencies including
Ogilvy & Mather, J. Walter Thompson and Young and
Rubicam. Clifford Chance, a leading law firm, also
employed merger and acquisition strategy for fast track
growth towards global legal practice. In the year 2000,
it completed mergers with Punder, a German firm and
Rogers & Wells an American firm.
The liberalization regime followed by MRTP
restrictions, liberalization of foreign investment policy
and the SEBI take over code have opened doors for
cross border M&As in India. The FDI inflow to India on
account of acquisitions of shares increased from $ 11
million in 1995-96 to $ 400 million in 1998-99. For
example, we may take the case of cement industry in
India, which has witnessed a number of domestic
mergers and acquisitions and resultant consolidation, has
been witnessing the entry of and expansion of global
cement majors. The French cement major, Lafarge,
which made a market entry with the acquisitions of
TISCO’s cement unit for Rs 550 crore has moved onto
strengthen its position by acquiring Raymond’s cement
unit for Rs 785 crore.. Italcementi, the Italian cement
major, through its group company Ciments Francais,
opened its door to India by the acquisition of the K.K
Birla group’s Zuari cements.
IMPACT OF CROSS-BORDER M&As
Some of the Experts in this field, recognized that
cross-border M&As are not simply a transfer of
ownership, but could have a positive impact on the host
economy. The impact of cross border M&As has
transformed the local industrial structure, through transfer
of managerial skills and new technologies(e.g. crossborder M&As are a way to circumvent stringent
intellectual property right regimes), addition to
productive capacity resulting from additional sequential
investment, the possibility of integrating quickly into
global production networks and to access global markets,
improved productivity and profitability of acquired firms,
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Competitiveness of Professionals vis-a-vis Cross Boarder Mergers and Acquisitions
and inducing the adoption of a long-term vision and
strategy by the Government. Further, they help in availing
resources in the host country through increase in
government revenues, additional investments and
increases in exports. They are also instrumental in the
formation of lobbies to negotiate with creditors and
suppression of local anti-competitive groupings.
There was general recognition that the effects of
cross-border M&As on competition deserve special
attention by policy makers. Governments need to have
national competition laws in place to deal with these
effects and to disseminate a culture of competition. Such
a culture is now embedded in many countries including
ours. At the same time, competition policy needs to be
better integrated with other policies. Control of crossborder M&As goes beyond traditional competition policy
concepts and needs to take into account the contestability
factor of markets.
and China. The major obstacles in attracting global
investments can be identified from the following
paragraph.
According to World Business Environment Survey
2000, India lags in terms of infrastructure. Transportation
costs in India are much higher than China and from
many countries of Latin America and other East Asian
countries. Delays and inefficiencies at Indian ports are
major reasons for transportation cost disadvantage for
Indian exporters. Competitiveness also affected by
regulatory functions, service delivery, governance. Some
of the other factors blocking our competitiveness are as
follows :
— Indian management spends much more time
(15.9 per cent) dealing with government
officials. (China-11.4 per cent; 4.3 per cent in
Latin America).
— 85 per cent of Indian firms made irregular
payments to officials. (No Chinese data).
The post integration issues are one of the most
important areas in case of cross border M&As. The issues
which include cultural clashes, employee lay offs, wage
structure and top management turnover are the critical
areas having wide policy implications. It is a popular
belief that cross border M&As lead to employee lay
offs. However, in a study of US mergers and acquisitions,
Weston (1999) has found that employment has grown
over the years in spite of the increasing M&A activity.
Jobs lost in restructuring have been offset by new jobs
in the growth areas of the economy.
— Investment climate in different Indian states is
directly related to the per capita state domestic
product.
— Labour productivity in India is among one of
the lowest, however, negative impact of low
labour productivity is countered by low wage
cost.
— Mean time taken at Indian customhouses while
exporting is 10.3 days as compared to 7 days
in Korea and Thailand.
CHALLENGES AHEAD
These cross border M&As have given altogether
new dimensions to the professionals to think and deliver
fast so that the competitiveness could be improved.
According to OECD (1992) National Competitiveness
refers to the degree to which a country can produce
goods and services under open market conditions that
meet the test of foreign competition while maintaining
and expanding domestic real income. The objective is
to raise productivity (both capital and labour) towards
international best practice, so that domestic consumers
benefit. Firm-level Competitiveness reflects firm-level
strengths in coping with business environment
(technology, policies, skills, and regulations)
According to WEF World Competitiveness Report
2003, India’s competitiveness has improved over the
years. This reflects in Business Competitiveness Index
where India stands at 37 out of 80 (China 45, Brazil
34). In the Growth Competitive Ranking, India stands
at 56 out of 102 (China 44, Brazil 54).In the recent
past, large part of global investments has gone to Brazil
— Energy cost in India is also on higher side as
compared to Taiwan and Korea by 17 per cent.
— Higher interest cost is another major
disadvantage for Indian manufacturers; it is
higher by nearly 1.5 percentage points as
compared to Philippines and Thailand.
Further, it is the job of professionals and their bodies
to address the negative impact of cross-border M&As
where the labour unions have strong apprehensions.
The apprehensions regarding loss of employment may
be valid in the short term. On employment effects, some
experts noted that, in some cases, layoffs are inevitable
if the target company was run inefficiently. It was also
noted that M&As can lead to increased employment in
the long run. The need for policies to deal with massive
layoffs was stressed. Some experts pointed out that
political economy cannot ignore short-term
unemployment problems, even if these are acceptable
under economic theory. There is obviously a need to
retrain unemployed workers, especially where there is
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32nd National Convention of Company Secretaries
a huge skill gap, to help them move from one industry
to another. Mention was made of the possibility of setting
up a special fund for this purpose, with contributions
from foreign investor’s .However, in the long term, the
workers and employees may be benefited from the new
opportunities and horizons. Hence, the professionals
need to train and develop the employees to face the
new challenges.
In the case of least developed countries, the
challenge of dealing with cross-border M&As is
compounded by the need to improve or to put in place
the general regulatory framework. A number of these
countries do not have a competition law or any
regulatory body to oversee industry regulation. There is
a lack of well trained technical staff or lawyers, and
financial services are often inadequate. There is an
obvious need for technical assistance in these countries.
PATHWAYS TOWARDS COMPETITIVENESS
Experts from the business sector dealing with crossborder M&As stressed that the main driving motivations
behind cross-border M&As relate to the need to grow
on global markets and to act quickly. Under competitive
pressures, speed is a determining factor between buying
and building, buying is generally preferred, as it allows
rapid market penetration. In this cross cultural
environment, “Speed is our friend, time is our enemy”
towards competitiveness. While acting fast, professionals
need to keep in mind the basic principles of
coordination, co-operation, collaboration and
commitment.
There has been emergence of a large number of
high-technology small and medium sized enterprises
(hi-tech SMEs) in the service and high-technology
sectors. Within last couple of years, we have seen a
booming growth of small knowledge/service-based
outfits (e.g., Consultants, software developers, service
providers, event management firms, training/
recruitment service providers, marketing agencies, etc.),
which require, source and absorb a large segment of
talent from the market. But managing talent is not just
managing the skill scarcity. The technological and
business discontinuities also increase skill obsolescence
at a phenomenal rate. The increasing pace of change is
not only making many past competencies obsolete, but
is also throwing up skill requirements which are too new
to be taught in the finishing professional institutes. These
and such other environmental change imply that the
professionals will need to rethink the employee value
proposition they offer. In spite of all the rhetoric, talent
is still the most under-managed resource in most
companies. The need is to go beyond the traditional
practices for attracting, retaining and developing talent.
Further, professionals need to work towards creating
a knowledge-sharing culture. While many companies
have created intranets, and have got the technical
infrastructure in place, it is also a common experience
that sharing of knowledge and information does not
happen automatically. In fact, often the organizational
structure, performance management systems, practices
and procedures themselves discourage people from
sharing knowledge with peers (we need to remember
that the traditional organizational designs were aimed
at controlling/monitoring free-flow of knowledge, and
not for facilitating it). New HR innovations would be
needed to create structures, systems and processes
which encourage Knowledge sharing among
organizational members.
Research and development provides the edifice
through which professionals and their bodies could be
better prepared to face new challenges. There is an
acute deficiency of data with respect to M&As in general
and value of M&As in particular in India. Only the
Securities & Exchange Board of India (SEBI) from 1997
onwards maintains a limited database on M&As relating
to the companies registered on Indian stock exchanges.
This, however, provides a partial picture of M&As in
India. The database maintained by a few private agencies
is neither elaborate nor fully reliable as they are not
available for public use on a regular basis. The Centre
for Monitoring Indian Economy (CMIE) is the only agency
which has been publishing data on M&As in India on a
regular basis since January1997. Hence, there is an
urgent need to maintain a comprehensive data base on
mergers and acquisitions like Merger Acquisition
Statistics of USA and Dealogic of Europe so that
comprehensive research and training programmes can
be undertaken.
Further, it has been observed that, Annual Reports
do not provide adequate information on mergers and
acquisitions. There is need for a more systematic and
purposive transparent reporting on the M&As activity in
the Indian corporate sector. The present format for
reporting the shareholding pattern needs to be modified
to reflect the ownership and control characteristics
better. Given the level of aggregation and classification
it is not possible from the present format to identify
controlling interests and their stake in the risk capital.
Shareholding of controlling interests should be identified
separately in each of these categories namely, foreign
shareholding, inter-corporate investments and top 50
individual shareholders.
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Competitiveness of Professionals vis-a-vis Cross Boarder Mergers and Acquisitions
CONCLUSION
In the corporate history of India, the first merger
wave is underway. This has assumed strong momentum
in the post liberalisation period, particularly in the second
half of the 90s.India’s share, however, remains very low
so far as cross-border M&As are concerned. Although
the liberalisation programme has progressed considerably,
the degree of openness is perceived to be low by the
overseas investors. Infrastructure bottlenecks are still a
major problem. The second generation reforms,
particularly the real sector reforms, are underway. A
competition policy has been formulated which would
take care of the issue of market dominance. Although
quick and radical reforms have downside risks,
opportunities should not be lost so that there could be
an early restructuring of the Indian industries. This would
surely increase productivity and competitiveness of Indian
industry. Strong change forces have produced new forms
and increased intensity of competition. In response to
the massive changes in environment forces and new
forms of competition, firms and professionals have had
to make many forms of adjustments. Cross border
M&As and restructuring are elements of the multi
faceted adjustment processes put in motion. The
responses by business firms and their management of
turbulent environments and the challenging new
competitive pressures have produced winners and losers.
We have to keep in mind that firms which stand still
would invite sure extinction from the environment.
REFERENCES
CMIE : Economic Intelligence Service, Monthly Review
of the Indian Economy, various issues, CMIE, Mumbai.
Government of India (1999): High Level Committee on
Competition Policy & Law, Chairman, S.V.S. Raghavan.
Fred Weston et . al., [1998] : Mergers, Restructuring
and Corporate Control. PHI, New Delhi.
Hopkins, H. Doland (1999): “Cross-border Mergers and
Acquisitions: Global and Regional Perspectives”, Journal
of International Management, 5, pp. 207-239.
Kumar, Nagesh (2000): “Mergers and Acquisitions by
MNEs: Patterns and Implications”, Economic and Political
Weekly, August 5, pp.2851-2858.
Kar, Rabinarayan;(2003) : “Corporate Governance Isuues
in Mergers and Acqusitions”. Chartered Secretary,
Vol.xxx111, Aug, pp 1181-1183
Lichtenberg, Frank R., and D. Siegal (1992) : Corporate
Takeovers and Productivity - Massachusetts Institute of
Technology.
Scherer, F.M., (1988): “The Market for Corporate
Control: The Empirical Evidence Since 1980,” Journal
of Economic Perspectives, 2, 1, pp. 69-82.
SEBI (1997): Securities and Exchange Board of India
(Substantial Acquisition of Shares and Takeovers)
Regulations 1997, SEBI, Mumbai.
SEBI (1997): Justice Bhagwati Committee Report on
Takeovers, SEBI, Mumbai.
Simon, Peck and Paul, Temple, ed,[2002].: Mergers and
Acquisitions: Critical Perspectives on Business and
Management.4 volumes, Routledge, London and New
York
United Nations (2000), World Investment Report 2000:
Cross-border Mergers & Acquisitions and Development,
United Nations Publication.
A – 75
32nd National Convention of Company Secretaries
MUL
TI-DISCIPLINAR
Y P
AR
TNERSHIPS FOR
MULTI-DISCIPLINAR
TI-DISCIPLINARY
PAR
ARTNERSHIPS
EXPOR
T OF SECRET
ARIAL SER
VICES
EXPORT
SECRETARIAL
SERVICES
TOWARDS THE BASIS OF COMPLETE COMPLIANCE
C R PADMA*
“A place for everything and everything in its place“
is the slogan of basis of management.
Management is required for any type of organisation,
be it a commercial or non-profit motive one.
Again an organisation can take the constitution of
either a proprietory concern, partnership, society, trust,
private/ public/ government/ Sec 25/ foreign
companies/ foreign branches and the like.
above mentioned, there are umpteen number of
formalities to be complied with, qualifications to be
maintained, limits to be observed and prescriptions and
procedures to be performed by it, irrespective of the
fact whether the entrepreneur/ partner/ EC member/
director/ promoter knows them or not.
Management of any of the above type of
organisation is complete, only if it covers the entire range
of its activities. It starts from the formation of idea for
the function and incorporation of the specific entity,
embraces the planning and control of the maintenance
of the same and it ends alongwith the last rituals of
winding up/ closure of that organisation.
The starting, running, developing, stagnating,
closure of any organisation can be transacted subject to
the adherence of legal compliance prescribed for each
of them for each of their activities in each of their stages.
The statutory requirements vary in a wide range and
many of us would wonder to know the number of them–
India is famous not only for complicated and lengthy
procedures but also for the number of applicable
enactments.
Throughout this conception, birth, functioning,
shuffle, defunction, and end of life of the organisation
To emphasise this point an attempt is drawn in the
following Table.
MEMORANDUM OF BRIEF ON THE VARIOUS TENTATIVE FORMALITIES TO BE COMPLIED
WITH BY ANY ORGANISATION UNDER THESE ENACTMENTS
Name of enactment
Major heads of compliance
Constitution of India
Intra-vires Preamble, Basic Rights and Basic Duties. Adherence to directive
principles of state policies, tax policies and three lists, Parliament procedures,
challenging enactment/ provisions of any law, legal representation and
execution of 5 types of writ right before courts to sue and be sued etc.
Companies Act / Societies Act
of respective States / Indian
Trusts Act / Indian Partnership Act
Incorporation, conduct of Board meetings and GMs, maintenance of
minutes, creation and maintenance of statutory registers, preparation and
filing of annual return and annual report and any other event based forms
and returns, provision of advice based on the limitation and boundaries of
the Act with respect to the functions of the company, conduct of internal,
cost, secretarial compliance and statutory audit, maintenance of records
and registers, mergers, takeover and shift of management, exercise of
*
M.Com., FCS, B.L., Company Secretary, Coimbatore.
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Multi-Disciplinary Partnerships for Export of Secretarial Services
Name of enactment
Major heads of compliance
securities holders’ rights, legal representation before CLB/ NCLT and courts
to sue and be sued etc.
R B I – N B F C Regulations,
Chit and Nidhi Companies
Regulation, Mutual and Benefit
Fund Regulations
Opinion on applicability, registration, maintenance of registers and
documents, filing of time based and event based forms and returns,
compliance of formalities, limitations and boundaries fixed in the Act,
Rules and executive legislations, advise on new combination / operations/
projects, co-ordination for the maximum of advantage to the organisation
in a given policy and situation, aiding set up intra-vires Rules for the concern,
monitoring the execution of the same, provision of MIS, legal representation
before tribunals and courts to sue and be sued.
IndustriaL Policy of State and
Centre, Exchange Control
Manual, Plan outlays of CG and
SGs etc.
Advise on the applicability and extent, definition of the limitations, coordination with the department concerned, formulation of projects and
plans, surveillance audit, certification and reports etc.
Income Tax Act, Wealth Tax Act
Registration of company and getting PA number, TDS number, administration
of funds, consultation, planning and auditing of accounts, income and
profit planning, maintenance of statutory registers and records, filing of IT
return, form 3CD and other relevant forms and audit report, remittance of
TDS amount, remittance of advance tax, provision of TDS certificates, WT
applicability & registration and compliance of formalities of filing returns
and other documents, obtaining assessment orders under both laws, followup and provision of clarification, legal representation before tribunals and
courts to sue and be sued etc.
Customs Regulations, Central
Excise Act
Applicability and registration, commodity classification, definition of
manufacturing process, valuation, raising of invoice, maintenance of records,
registers, compliance of limits and formalities, filing of all relevant forms
and returns, legal opinions and clarifications on operations, legal
representation before tribunals and courts to sue and be sued etc.
Service Tax
Registration and obtention of R C, maintenance of statutory registers and
records, filing of monthly forms, returns and annual returns, collection of
invoice with tax and remittance of the proceeds by next month/ quarter
and compliance of other formalities related to the same, legal representation
before tribunals and courts to sue and be sued.
C S T Act and respective States
General Sales Tax Act
Opinion on applicability, registration, maintenance of registers and
documents, filing of time based and event based forms and returns,
compliance of formalities, limitations and boundaries fixed in the Act,
Rules and executive legislations, advise on new combination / operations/
projects, co-ordination for the maximum advantage to the organisation in
a given policy and situation, aiding set up of intra-vires Rules for the concern,
monitoring the execution of the same, provision of MIS, legal representation
before tribunals and courts to sue and be sued.
Shops and Establishments Act
of respective states along with
subsidiary Acts like Maternity
Benefits Act etc.
Registration under the parent and subject Acts, creation and maintenance
of registers and forms, obtention of yearly holidays, fixing of working hours
etc, filing of monthly, half-yearly and annual returns, formation and
maintenance of service rules for the employees of the company, legal
representation before BoC, tribunals and courts to sue and be sued
etc.
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32nd National Convention of Company Secretaries
Name of enactment
Major heads of compliance
Factories
Act,
Industries
(Development and Regulation)
Act, Industrial Disputes Act,
Workmens’ Compensation Act,
Trade Union Act, Payment of
Wages and Minimum Wages
Acts, Payment of Bonus Act,
Gratuity Act, Apprentices Act,
Child Labour Prohibition Act,
Contract Labour (Abolition
and Regulation) Act
Opinion on applicability, registration, maintenance of registers and
documents, filing of time based and event based forms and returns,
compliance of formalities, limitations and boundaries fixed in the Act,
Rules and executive legislations, advise on new combination / operations/
projects, co-ordination for the maximum advantage to the organisation in
a given policy and situation, aiding set up of intra-vires Rules for the
concern, monitoring the execution of the same, provision of MIS, legal
representation before BoC, tribunals and courts to sue and be sued.
Employees Provident Fund and
Miscellaneous Provisions Act
and Employees State Insurance
Act
Consultation on the applicability or exemption of the Acts and the extent
of applicability of the same on the company, registration under the Acts,
obtention of number for the company and the employees, creation and
maintenance of master file of employees, registers, filing of monthly and
annual returns, filing of returns on the new recruitment and cessation of
service, accident, disease and disorder follow-up, legal representation before
tribunals and courts to sue and be sued etc.
S E B I Act and Securities
Contracts (Regulation) Act,
Securities Act
Listed public entities qualifications, issue planning, prospectus vetting, issue
management, reporting, listing, compliance of listing agreements, securities
transfer, demat, financial results publication, general meeting, dividend,
corporate governance, compliance of accounting standards, disclosures,
legal representation before tribunals and courts to sue and be sued etc.
SEBI Regulations on Merchant
Bankers, Mutual Funds, FIIs,
Portfolio
Managers, Issue
Managers, Transfer Agents,
Registrars, Depository Participants and Demat Agents, Asset
Managers, Brokers, Underwriters etc.
Opinion on applicability , registration, maintenance of registers and
documents, filing of time based and event based forms and returns,
compliance of formalities, limitations and boundaries fixed in the Act,
Rules and executive legislations, advise on new combination / operations/
projects, co-ordination for the maximum advantage to the organisation in
a given policy and situation, aiding set up of intra-vires Rules for the concern,
monitoring the execution of the same, provision of MIS, legal representation
before tribunals and courts to sue and be sued.
F E M Act, Foreign Contribution
Regulation Act, Foreign Trade
Regulation and Development
Act, R B I Act, Exim Policies,
Industrial Policy, E C G C, ECB,
FIPB, FIIA, etc.
Application situation, formalities, pre-requisites, qualifications, planning,
registration submission of periodical returns and forms, monitoring the
limits and general maintenance of foreign equity obtention, foreign
technology obtention, ECB by FIIs, OCBs and NRIs, setting up of
foreign branches, registration of entity in foreign country, appointment of
foreign agent, dealer, provision of service to foreign country / person by
company and directors, export and import of products and other services,
legal representation before tribunals and courts to sue and be sued etc.
Intellectual Property Rights
Acts – patents, trademarks etc.
Opinion on applicability, registration, renewal, maintenance of registers
and documents, filing of time based and event based forms and returns,
compliance of formalities, limitations and boundaries fixed in the Act,
Rules and executive legislations, advise on new combination / operations/
projects, co-ordination for the maximum advantage to the organisation in
a given policy and situation, aiding set up of intra-vires Rules for the concern,
monitoring the execution of the same, provision of MIS, caution notice,
legal representation before tribunals and courts to sue and be sued.
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Multi-Disciplinary Partnerships for Export of Secretarial Services
Name of enactment
Major heads of compliance
Information Technology Act
Legal opinion on applicable events, framing of terms and conditions in
consonance with the same, employee monitoring, firewall and other
protection and execution, co-ordination with the complaint, legal
representation before courts to sue and be sued.
Environmental Pollution, Water
and Air Pollution Acts, Forests
Act, National Environment
Tribunal Act etc., and the
applicable Rules made thereunder
Opinion on applicability, registration, renewal, permission and approval
for growing and severing trees, maintenance of registers and documents,
filing of time based and event based forms and returns, compliance of
formalities, limitations and boundaries fixed in the Act, Rules and executive
legislations, advise on new combination / operations / projects, coordination for the maximum advantage to the organisation in a given policy
and situation, aiding set up of intra-vires Rules for the concern, monitoring
the execution of the same, provision of MIS, co-ordination with Collectorate
and Panchayat office, legal representation before tribunals and courts to
sue and be sued.
SIC Act [ B I F R]
Advise on applicable conditions, formalities for application and registration,
compliance of other formalities, advise on the effect of legislations, legal
representation before BIFR/ AAIFR and courts to sue and be sued.
M R T P Commission, Competition Act
Opinion on applicability, registration, renewal, maintenance of registers
and documents, filing of time based and event based forms and returns,
compliance of formalities, limitations and boundaries fixed in the Act,
Rules and executive legislations, advise on new combination / operations/
projects, co-ordination for the maximum advantage to the organisation in
a given policy and situation, aiding set up of intra-vires Rules for the concern,
monitoring the execution of the same, provision of MIS, caution notice,
legal representation before Commission and courts to sue and be sued
Essential Commodities Act,
Standards of Weights and
Measures Act, Sale of Goods
Act, Transfer of Property Act,
Easement Act, Indian Contract
Act, Registration Act, Carrier
Acts – Sea, Road, Railway and
Airway Act, Road
Tax,
Entertainment
Tax
Act,
Expenditure Tax Act and
Research and Development
Cess Act, etc.
Specific and general application study, preparation of agreements, terms
and conditions based on the clauses, inter and intra-company bye-laws,
compliance of formalities, limitations and boundaries fixed in the Act,
Rules and executive legislations, advise on operations, co-ordination for
the maximum advantage to the organisation, monitoring the execution of
the same, provision of MIS, MBE, legal representation before tribunals and
courts to sue and be sued.
Arbitration Act
Framing of rules, Arbitration assignment hearing, representation, counsel
and judgements, execution of awards and its audit, legal representation to
sue and defense on being sued.
Negotiable Instruments Act,
Banking
Regulation
Act,
Recovery of Debts Due to
Banks Act, Securitisation Law,
SBI Act and other bank and
Financial Institutions charters
of both CG and SGs
Advise on applicability and trouble shooting, advise on preventive methods
for performing assets, compliance of formalities, preparation and
presentation of projects and approvals, syndication of loan and negotiations,
preparation and presentation of CMA and other time based statements,
monitoring of limits and events, representation before bank / F I officials,
legal representation before tribunals and courts to sue and be sued
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32nd National Convention of Company Secretaries
Name of enactment
Major heads of compliance
Consumer Protection Act,
Representation of People Act,
Public Liability Insurance Act
Advise on applicability and its extent, situation handling, advise on
preventive methods, aiding set up of intra-vires Rules for the concern,
auditing and monitoring the execution, legal representation before forum,
tribunals and courts to sue and be sued.
Insurance Acts and
Regulations
IRDA
Registration, compliance of formalities, filing of forms and returns, advise
on best coverage, co-ordination with IRDA and TPA, surveyor, valuers etc,
preparation of claim forms, written statements, legal representation before
lok adalat, tribunals and courts to sue and be sued.
Land Ceiling Act and other
land laws and State legislation
Legal opinion on applicability, compliance of the formalities, advise on
new combination, monitoring the execution of formalities, real estate
advise, representation before local and Government authorities, legal
representation before tribunals and courts to sue and be sued.
State E B Acts, IREDA, etc.
Registration, renewal, exchange, transfer, tension changes, new project
sanctions, windmill, solar and other energy, execution formalities,
compliance of standards, legal representation before authorities for
negotiation and before courts to sue and be sued.
Specific Industries Act – like
Catering
Establishments,
Mines, Plantation, Explosives,
Boilers, etc.
Applicability, registration, renewal, compliance of formalities, work situation,
filing of forms and returns, legal representation before tribunals and courts
to sue and be sued.
Motor Vehicles Acts of States
and its miscellaneous Acts
Advise on applicability and extent, trouble shooting, after-math formalities
in casualties and accidents, compliance of FIR and hospital documents,
legal representation before lok adalat, courts to sue and be sued
Code of Criminal Procedure,
Civil Procedure Code and
Indian Evidence
Act,
Limitation Act, TADA, POTA
etc.
Advise and legal opinion on the given situation, legal representation before
police, enquiry, enforcement and other officials and courts to sue and be
sued.
State High Court and
Proceeding Rules
SC
Legal advise on the situation and its handling, legal representation to sue
and to defend on being sued .
Law of Tort, Public Interest
Litigation
Advise on applicability, its extent and on sovereign functions, nuisance,
accident, vicarious liability, legal representation before courts to sue and to
defend on being sued.
Local and Municipal Laws –
Town and country planning,
water supply, property tax,
fire
service
registration,
sanitary
inspection,
professional tax,toll, cess, etc.
Registration, renewal, filing of forms and returns, compliance of formalities
and limits as to jurisdiction, asset value, etc., aiding in framing of rules for
the concern, real estate projects [landscaping, plots, flat promotion and
other construction], consultation and execution, definition of limits of
operations, legal representation before authorities, and courts for
negotiation and to sue and be sued.
Respective law of land of
foreign operations and transactions,International Law, Air
and Sea Traffic Regulation,
Double Taxation Avoidance
and other Treaties / Agreements between nations
Advise on applicability, extent and liability, compliance of formalities, report
and certification, surveillance audit, legal representation before authorities
and courts to sue and be sued.
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Multi-Disciplinary Partnerships for Export of Secretarial Services
Name of enactment
Major heads of compliance
United Nation’s Protocol
Advise on the applicability and its extent to particular clientele/ transaction,
stand of the country of representation, adherence audit, compliance of
formalities, submission of reports, G8 and other representations, General
Body participation etc.
WTO Regulations
Membership particulars, surveillance audit on do’s and don'ts of world
trade and India’s policies/ reaction on the same, Most Favoured Nation
concept adherence, Dispute Settlement Body representation, representation
of nation on WTO forum, compliance of accepted policies and its terms
like TRIMS etc.
[The list is not complete and only a bird’s eye view
of conglomeration. We have a minimum of 5000 plus
number of Central Government Acts itself]
(I) CENTRAL
ENACTMENTS,
STATE
LEGISLATION, LOCAL / MUNICIPAL RULES,
POLICIES and
(II) INTERNATIONAL PEACE/ WAR LAWS,
TREATIES BETWEEN NATIONS, UNITED
NATION’S PROTOCOL, WTO REGULATIONS
ETC., are to be complied with prima-facie on
the applicable fields/ events and times.
In a nutshell, anyone concerned with any
commercial or non-commercial organisation should know
and adhere to what are prescribed in all/ applicable
above legislations. “Ignorantia juris non-excusat” and so, ignorance of any of the provisions of the above
laws or belated compliance of the same may prove
disastrous to the PURPOSE for which they are formed/
run.
Here comes the need for the professional
management of these organisation and obviously there
arrives the need for the COMPLETE COMPLIANCE of
all the above formalities.
This can be made possible only if there is multidisciplinary partnership among various institutes like
ICAI, ICWAI, IIM, Bar Association, AIII, CAIIB, ICFAI
and the like.
In fact, if we professionals are able to make
(i) our client organisations run successful
(surveillance) and
(ii) our living also dignified (survival)
In this above mentioned scenario of innumerous
and complicated formalities, in whatelse field and
wherelse place we will fail !!
If this purpose is felt in the heart by one and all in
our as well as other Institutes, the basis is laid firm and
healthy. The story of asking the blind to explain how an
elephant felt like will not happen and a comprehensive
arena is set.
With this basis, WHEREVER we go, we will be
identified as a complete forum and be the winners for
WE CAN provide SINGLE-WINDOW solutions and
compliance for all the statutory requirements of the
organisations at any time and from time to time. Our
professionals will emerge in flying colours in the global
competition.
A – 81