Download Study on Countermeasures of Regulating the Regional Business Cost

Study on Countermeasures of Regulating the Regional Business Cost1
GUO Chunfan1, LI Dingan2
1.Management School of Jinan University, Guangzhou Guangdong 510632
2.Economics and Commerce School of South China University of Technology
Guangzhou Guangdong 510640
[email protected]
；
，
Abstract: Business Cost is an economic lever to regulate regional economic development. Business
Cost has the close relationship with the industrial structure the higher the Business Cost is, the lower of
the proportion of the primary industry and the higher of the proportion of the tertiary industry are. In
order to improve the regional industrial structure upgrading, it becomes the most important task of
government to regulate Business Cost. Based on the analysis of the role of Business Cost and according
to the theory of intervention in the economy, this paper puts forward the solutions of regulating Business
Cost for the government
Key words: the Regional Business Cost; Regulation; Countermeasures; the government
：
1 Introduction
The regional Business Cost is one of the economic indicators which is concerned by investors. The
evaluation and analysis of Business Cost (BS) are important for the investment decision and the
improving the city’s competitiveness. The starting of the BS research in foreign countries is early. In the
middle of 1990s, the magazine of Fortune in America, the Center of Economic and Business Research
(CEBR) in Britain, Japanese Economic and Trade Revitalizing Organization and the World Bank had
done the relative research. From 2002, KMPG the top four accounting firms in the international began to
do the BS research of France, Germany, Italy, Holland, England, America Canada, Japan and so on.
Their research is about the investment return in different cities at the investor angle. But the concept of
BS has not been defined, and the word has not unified.
In China before 2003, there is no special research of BS. In recent year, the domestic scholars have
done a great deal of research, mainly in three aspects: First, the empirical research about the specific
city’s BS; Secondly, the qualitative research about the relationship between BS and the city development;
thirdly, discussions about the concept and content of BS (Yu Minghua, Li lianshui and Chen Kang,
2006). However, it is small about the research of the theory and countermeasures of regulating BS by
government. This paper is qualitative. Based on the analysis of the role of BC, it puts forward the
solutions of regulating BC for government according to the theory of intervention in the economy. The
remaining parts of the paper are: the second part is that the role of BS in the regulating regional
economic development, the third part is that the theory of government regulating BS, the forth part is
that the countermeasures of regulating BS by government and the fifth is the conculsion.
，
2
The Role of BS in the Regulating Regional Economic Development
In a particular region and certain economic and social environment, in order to achieve the
established objectives, economic entities will get economic resources and services for their business.
Transaction costs are happening in achieving the resources and services, BS is the value of the
compensation them and the sum of the various social expenditures. It includes three major costs: the
Factor Cost, the Economic Environmental Cost and the Social Expenditure. There are some
1
This paper is one of the research results of “Study on Business Cost of Guangzhou”, which is supported by
Guangzhou Soft Science Foundation (2006Y1-H0221).
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expenditures just occurred inside the enterprise, the costs which are not of trading with others or social
activities and the fees are not relevant with the business location. These are not BS. BS is a key indicator
of measuring and publicizing the local investment environment, and is an important basis for the rational
industries distribution. As an economic lever of regulating regional economic, its important role are the
followings:
2.1 Guiding the industrial structure upgrading, and adjusting the relationship between regional
economic layout and the industrial structure.
BS has the close relationship with the industrial structure. According to our empirical research (our
another paper) , we got the change law of the three major industries proportion and the BS index (Figure
1), that is the higher the BS, the lower the proportion of primary industry and the higher the proportion
of tertiary industry. The proportion of secondary industry increases firstly and then declines with BS
increasing.
the proportion of
the three industries (%)
100
90
the primary industry
80
70
60
50
40 the secondary industry
30
20
the tertiary industry
10
0
BS
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Figure 1 the relationship between the industrial structure and BS
The process of the industrial structure upgrading is with the proportion of the primary industry
dropping and the proportion of the tertiary industry increasing, that is a process of development and
evolvement with the industrial structure of a country or regional rationalizing and high gradating. In
every region, the main restrictive factors of structure upgrading are the regional economic development,
the existing industrial structure and the conditions of funds, talents, technology, and labor and so on. The
costs of capital and labor resources are the important component of the Factor Cost. So a region can get
the aim of regulating the economic layout and industrial structure by control the BS. For example, in
order to support the emerging high-tech industries, BS could be reduced appropriately to decrease the
threshold of entering a competitive market. And in order to restrict the excessive competitive industries,
BS could be increased appropriately to increase the threshold of entering the competitive market.
2.2 Supporting for the high-tech industry, especially the development of the small and
medium-sized high-tech private enterprise
The small and medium-sized enterprises (SMEs) are the important force for industrializing and
innovation of the high-tech industry. But at present in their development, SMEs are being restricted by
finance difficult, lack of qualified personnel, narrow channels of accessing to information and so on. In
order to promote and support the small and medium-sized high-tech private enterprise, the government
can improve the model of supervision and service to reduce the Economic Environmental Cost for
SMEs.
2.3 Increasing the social and economic costs to enhance the social responsibility of enterprises
The enterprise can not operate and manage without a specific natural and social environment. In
their operation and development, enterprises should not only get the biggest profits, but also take the
social responsibility for the employees, consumers, communities and the environment. At this stage of
China, the social responsibility awareness of the enterprise is not strong. Comparing with the developed
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countries, there is still a very big gap. In light of this situation, it is beneficial to enhance the enterprise’s
social responsibility by adjusting BS. In the proportion of all costs, the social and economic costs will be
increased.
2.4 Supporting the undeveloped areas to develop and utilize its resource comprehensively, and
promoting the regional economic to develop in balance
Balanced development of the regional economy is the objective demand for building a harmonious
society, and the industrial gradient shift can drive the region to develop commonly. With economic
development, the BS such as the costs of labor and operation are rising in the developed areas. It must
urge some labor-intensive industries gradually to transfer to the undeveloped areas where the BS is
lower. Thus this can drive it to develop its economy. And if it wants to change the traditional model of
developing resources and to improve the ability to utilize resources comprehensively, the undeveloped
areas should combine the local rich resources with the advanced science and technology in the process
of undertaking industrial transferring.
2.5 Adjusting the foreign trade structure
At present in China, the foreign trade structure is imbalanced. The foreign trade dependence is high,
and huge trade surplus exists. They have been causing trade friction with high incidence. With the
international industries transferring, China becomes the largest developing country of absorbing the
foreign direct investment and the base of processing trade for the foreign enterprise mainly. So the
volume of processing trade is in the high proportion of the total trade. This is the main reason for the
huge trade surplus.
If the country wants to adjust the imbalance of the foreign trade structure, it should change the way
of absorbing the foreign investment and the strategy of attracting investment. The preferential tax rates
resulted in the low BS. By raising BS appropriately, it could limit the foreign manufacturing industry
with high energy consumption, high pollution and natural resources products to enter into China. Thus
this could achieve the goal to reduce the foreign exchange reserves and trade surplus by expanding
technology and importing equipments.
3 The theoretical basis for government regulating BS
Government is the main body of regulating the regional BS. Its essence is that the government
intervention the economy. The researching of the government intervention by the Western economics
has experienced several periods: the ideas of government intervention by the mercantilism and
physiocracy in 15th century, the laissez-faire views by Adam Smith represented the classical political
economics, the Keynesian’s theory of government intervention in the 1930s and the “restoration” of free
market system in the end of 1960s. But it is undeniable that the government has always played a key
role in the economic development. In the practical economy, because the mixed economic system is in
the majority, the degree of government intervention economy has become the discussion focus. The
“degree” means that the government should “Do Something and Not Do Something” in the market
economy. “Doing Something” is that the government should intervene suitably by economic means,
such a as supplying public goods and service, making up the market imperfection and the asymmetric
information, internalizing the economic external, limiting the monopoly to maintain the order of market.
“No Doing Something” means the government should not intervene too much, especially the
spontaneous which the “invisible hand” can regulate. If the government can not “Do Something”, that
means the government failure exists, the economy will be in the stage of market free; if the government
can not “No Doing Something”, this market failure will make the economy to be in the stage of planned
economy. Neither the free market system nor the planned economy system can achieve the effective
allocation of resources.
BS is composes with three parts: the Factor Cost, the Economic Environmental Cost and the Social
Expenditure (Table 1). The Factor Cost is regulated by the market system. With supporting the emerging
high-tech industry purposely, the government could reduce land, labout costs and operating fees by
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specific “perferential policies” in a period. The Economic Environmental Cost and the Social
Expenditure is closed with the government “Doing Something”. The Economic Environmental Cost will
be reduced if the government improves the service efficiency, perfects the legal enviroment and
strengthens the transportation and information. So the government “Doing Something” in the regulation
of BS is mainly of improving the public service efficiency, perfecting the supporting facilities such as
transportation, communication and logistics. Only by this, the perfect market system and the improved
economic environment will be established.
Table 1 Evaluation Index System of BS
the first grade the
second
grade
indexes
indexes
Labor Cost
the price of material, the price of equipment, the price of
construction engineering
the primary industry, the secondary industry, the tertiary industry
Land Cost
the price of housing land, the price of business land
Capital Cost
the profit rate of social average capital, financing cost
Rent(factory building, office building), management cost, the cost
of labor services supplied by society
administrative approval, working efficiency, service attitude,
government honest
transportation convenience capability,
other transportation
facilities
Material Cost
Factor Cost
Operating Cost
government efficiency
infrastructures
Economic
Environmental
Cost
social
development
status
level of marketization
industry cluster
Social
Expenditure
the third grade indexes
legal
system
environment
fee for environment
conservation
social charity fee
housing fund
taxation
、
urban ecological environment, public sanitation, social security
level of market standard, intermediary service
the layout and cluster of industry, the fees of
market exchange
rights protection for legal person, commercial litigation
pollution charge, treatment cost
pension insurance, unemployment insurance, medical insurance
Housing fund
circulation tax, income tax, various additional charge, resources
tax and so on
In a certain economic area, the BS is restricted by the specific economic and social environment.
That is to say BS has rationality. When the government regulates the BS, it must clear the strategic
positioning of the city or region. The government should draw up a BS to be beneficial for the leading
industries and the pioneer industries. Reference from “the Ideas of Adjusting a City BS” by Yu Minghua,
Li Lianshui and Chen Kang (2006), this paper raised a comparison at two levels and some regulation
ideas (Figure 2). One level is to compare the goal BS with the BS of the existing and similar region.
This can definite the direction and magnitude of BS regulation. That is to say reducing or rising BS
under the government intervention. Another level is to compare the adjusted BS with the objective BS to
reflect the results. The idea not only meets the BS demand of the target enterprises, but also reflects the
dynamic process of BS adjustment with considering the realities of the city of region competitiveness.
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the regional economic environment
the strategic positioning of
the regional economy
development
the objective industry structure,
the pioneer industries
which need support especially,
the objective layout of the regional economy
The Economic
Environment Cost
the Factor Cost
the Social Expenditure
the comparison with the existing of
the regional industrial structure
reducing the BS to support
the regional leading industries
rising the BS to restrict the
imbalance industries and regional
the relative reasonable industrial structure
of the region after regulation
Comparison
Figure 2 the comparison of the BS at two levels and the idea of the government adjustment BS
4 Countermeasures of government regulating BS
With the economic development and the industrial structure upgrading, BS is constantly changing.
In order to improve the competitiveness of a city or region and to create a good operating environment
for enterprises, the government should regulate BS actively. This requests the government adjust it
initiatively and positively by the economic lever and the relative policies of industries. It is the function
of government intervention economic indirectly under the market economic system. According to the
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idea of the government regulating the BS, the specific countermeasures are the following:
4.1 Regulating the BS according the strategic positioning and the development goal
The different city or region has the different strategic positioning and the development goal. So do
the leading industries and the pioneer industries. Only the strategic positioning and the development
goal being definite, the BS will be determined according the target industrial structure, the pioneer
industries needed to support especially and the target layout of the region. When adjusting the BS, the
government should do research the current regional BS, and compare it with the target BS to clear the
direction of the regulation. This can make the regional BS consistent with the planned development
especial the structure adjustment.
The BS regulation is not to reduce or to increase blindly. The leading industries and the imbalanced
industries should be distinguished. For the former, the BS should be reduced. The ways are controlling
prices by different price policies of land grant, improving the rate of the land allocation, and solving the
problem of land deficiency by improving the capability of land using. At reducing the labor cost, the
government should make the plan of talents development to bring in them, and innovate the system to
upgrade the local talents quality. In order to support the leading industries or the target enterprise, the
labor cost should be reduced by establishing the platform of talents development and carrying out the
talents strategic. For the latter, the BS should be increased. In order to restrict the imbalanced enterprises,
the government should raise the price of the primary land market, the local tax, stipulated fees, fees for
the infrastructures and the public services. These can attract the talent-intensive, fund-intensive
enterprises, or the enterprise of finance, trading and shipping. If the enterprises with low technology or
low knowledge are forced to transfer or leave this region, its entering threshold will be improved.
4.2 Dynamic regulation the BS
From the dynamic angle, on the one hand, with the improving of the economic development, the
change of BS is rising consistently. The process of industrialization in the developed countries has
shown it. The operation of enterprise is affected by BS. In order to support the enterprise to be bigger
and stronger, it is necessary for the government to establish an administrative group with the
responsibility of researching BS and paying attention to the dynamic BS. By the BS being monitored
and adjusted appropriatly, its weakness could be found timely. And the BS could be endured by the
enterprise. Meanwhile, with different sizes and properties, different enterprises have the different
obligation. The government should take different policies to avoid the unfair.
On the other hand, the BS is changing with the change of the global economy and the
macro-economic control policy. Especially in this year, enterprises are facing many difficulties because
of the slowdown of the world economy, the rising of material prices, the affected production by the
power shortages, the restriction of the macro-economic policy, barriers of international trade and so on.
The material price is one of the important parts of BS. The power shortages have made many enterprises
to buy generating equipments. With the increasing of the material cost, the Factor Cost is rising.
Tightening the money supply has resulted in the loan difficult. EU constantly introduces new measures
of environmental protection, and increasing the fees such as application fee, factory censored fee,
approval and registration fees, supervision and reinspection fees and so on. All the fees are the
compulsory charging of product certification. These have made the Economic Environment Cost and the
Social Expenditure increasing. So the BS has increased. But the affected factors can not be controlled by
the enterprise itself. The government should take the relative measures to reduce the BS to help
enterprises to pull though difficult times. The Factor Cost is adjusted mainly by the market, so the
government should take the reduction of the Economic Environment Cost and the Social Expenditure as
the focus. The followings are the specific measures:
A. Introducing the policy allowing the petty loan. The government should allow the Natural Person,
the Enterprise Legal Person and other social organizations to fund the limited liability companies or
limited companies to manage the petty loan. This can decrease the dependence of SMES to banks. The
tension of capital chain can be solved.
B. Canceling some fees. In order to decrease the burdened of enterprises, some fees should be
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canceled, such as the Site-exploitation fee and the exchange settlement fee.
C. Carrying out the Responsibility System of Domestic Sales (RSDS). With the RMB appreciation,
the export enterprise is facing survive crisis with the profit being smaller and smaller. The government
can raise the export rebate rate and select some enterprises as pilots of domestic sales too. For example,
in Donguang city of Guangdong Province, the Foreign Trade and Economic Bureau is selecting 80
enterprises as pilots of domestic sales to implement RSDS.
4.3 Perfecting the industry chain to promote the regional industry cluster
A perfect chain includes labor division and cooperation, ancillary products, technology services and
material supply. If a perfect industrial chain is formed, as the component units the industrial sector will
get the agglomeration economic benefit and the efficiency of regional industrial division. The supply
and demand among enterprises in every industry will achieve balance. This leads the costs of material,
parts matching and shipping to decrease. Under the market system, the government should make a
policy to integrate and improve the resources allocation, and connect the intermittent industrial divisions
to a series, or gather the upper and down correlative enterprises together. On a long view, it is benefit to
form a reasonable layout of industrial chain by promoting industries and enterprises matching. Currently,
it can help enterprises to decrease the logistics cost and the transaction fees, and reply different troubles.
4.4 Changing the managing functions, increasing the educational input and improving the security
and living environment to increase the degree safety of investment
The transparent and public degree of government affairs affects the BS directly. Governments at all
levels should change the managing model of “supervision first, service second”. On one hand, the
government should speed up the informatization to providing a platform for enterprises to get the policy
and information. On the other hand, the government should foster a sense of service. In order to create a
sound environment for business and optimize the market environment further, the government should
not only strengthen the infrastructure such as communication, transport, logistics and finance, but also
simplify the approval procedure and reduce fees to improve the efficiency of public service. A legal
government, responsibility government and service government should be established.
Talent is the key element for the enterprise development. If the region has aggregated the
high-quality talents, it will be benefit to the enterprise which is modern service industry and high-tech
enterprise. Therefore the government should improve the policies of attracting and employing talents,
the talent could come and retain. At the same time, the government should increase the investment for
vocational training, establish a platform of high level training, introduce the advanced concepts and
methods of vocational education from the developed countries, and build a training system in line with
international practice. The destination is to improve the local labor quality.
In a region, the security environment is one of the important symbols for investment. A good
security environment is the inner requirement of market economy. And it is an important guarantee for
the foreign corporations and SMEs developing healthy and rapidly. The government should establish a
policy and law system that is benefit to the development and grandness of the market economy. When
enforcing the law, the government should be strict, justice and civilized. If the government could play
the role of comprehensive management, improve the prevention and the security feasibly, the Economic
Environment Cost will become better.
5 Conclusion
This paper makes the following contributions: (1) the role of BS in the regulating regional economic
development; (2) the theory of the government regulating BS; (3) how to regulate the regional BS.
BS is the value of the compensation and the sum of the various social expenditures, which are
happening when enterprises achieve the resources and services in a region and certain economic and
social environment. It includes three major costs: the Factor Cost, the Economic Environmental Cost
and the Social Expenditure. The role of BS can play in regulating the regional economy from: (1)
promoting the industrial structure upgrading; (2) guiding the policy being made; (3) enhancing the social
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responsibility of enterprises; (4) balancing the regional economic development; (5) adjusting the foreign
trade structure.
When the government regulates the regional BS, it should “Do Something and Not Do Something”.
In order to improve the competitiveness of a city or region and to create a good operating environment
for enterprises, the specific measures of government should regulating BS include: (1) regulating the BS
according the strategic positioning and the development goal; (2) dynamic regulation the BS; (3)
perfecting the industry chain to promote the regional industry cluster; (4) changing the managing
functions, increasing the educational input and improving the security and living environment to
increase the degree safety of investment. Especially in the current situation, enterprises are facing many
difficulties such as the slowdown of the world economy, the rising of material prices, the affected
production by the power shortages, the restriction of the macro-economic policy, barriers of
international trade and so on. The government should take the relative measures to reduce the BS to help
enterprises to pull though difficult times: (1) introducing the policy allowing the petty loan; (2)
canceling some fees; and (3) carrying out the Responsibility System of Domestic Sales (RSDS).
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