SUNAN MODEL

Sunan model, as it has become known, refers to the collective ownership of Township Village Enterprises (TVEs), the dominant role of the local government and party cadres in rural industrialization, and social services provided by local governments. Under the control of local governments and official, the TVEs were the priority asset of the local economy and the main revenue generator. TVEs can be either collectively owned by local residents in the rural areas of China or mainly owned and controlled by the peasant, however, the rights of ownership on their behalf is still being exercised by the town and village governments (TVG), regardless of their industry, capital structure, or governance style.

Traits of the Sunan Model With the success of the Sunan model in the mid 80s and early 90s, it is important for us to comprehend the factors that contributed to the success of the model. To start off, though TVEs are under the control of the government, the management of TVEs still lies on the hand of the township and village leaders who manage the organization themselves, or by hiring managers. Thus, TVEs are able to acquire high quality engineers with the salaries and remuneration package tied to performance. Moreover, the area within Sunan is never lacked of human resource as it had a high population density. Hence, one of Sunans strength is that it comprises of a strong labor force where shortage of workers is never a problem. Besides being an area with sufficient resources, the culture of Sunan contributed to its success as well. As the tradition of Sunan had all along being a pro-market regional culture, it promotes fair competition and rewards skills and hard work, as compared to a social economic system. Thereby, by adopting a different development strategy, the enterprises in Sunan had become the pioneers for adopting the market economy. Other than abundant resource and pro-market culture, the tradition of Sunan being an industrial area contributed to the success of Sunan as well. As an area with a developed industry tradition, Sunan already encompassed all the pre-requisite for industrial development. Hence, it is without a doubt that the developed industry tradition contributed greatly to the success of Sunan. Additionally, the institutional innovation of the enterprises in Sunan played a significant role as well. As the Sunan model is adopting a TVE system, it resulted in a responsibility system whereby property rights were reformed. Consequently, with the reformed of property rights, the various international capital involvements had lead to the rapid growth of revenue in Chinas industrial gross output. Privatization in the late 1990s

In 1997, the national 15th Party Congress ushered in a sweeping privatisation agenda, in which Beijing called for the sale, merger or closing of the vast majority of small- and medium-sized state-owned enterprises. Orders were sent down from the city govern- ment for the townships and villages to get rid of their money-losing and debt-ridden enterprises. In the first wave, they first sold off those companies with assets under one billion yuan, which were the villages three small-scale but debt-burdened enterprises: the chemical pro- ducts factory, the chemical fibres factory and the paper cartons factory. The second wave of privatization began in mid-1999 and took over three years to complete. Due to the size of the remaining four village enterprises, they could not be sold and purchased outright, but instead had to undergo rounds of shareholding and devaluation of stock or assets or both before the director could claim complete control of the company. Two steps were undertaken: first a divesture of shares between the village and the director, and then, when the director had enough cash, outright privatization. Impact of Sunan Model TVEs play a significant role contributing to Chinas economic growth and development, especially in rural areas. World Bank estimates show that annual growth rate of TVEs from the mid-1980s to the mid-1990s was about 25%. (World Development Report, 1996) By 1995, TVEs accounted for approximately a quarter of Chinas GDP, two thirds of the total rural output, and more than one third of Chinas export earnings (Zhang, 1999). From 1978 to 2003, TVEs provided jobs for 135 million farmers, thereby the proportion of rural employed labours rising from 9.23 to 28.1 per cent, and social labours rising from 7.04 to 17.92%. Farmers incomes from TVEs made up 35.4 per cent of their per capita average income, an increase from the original 8 per cent. In recent years, half of the incremental per capita income of farmers has come from TVEs (FU, Balasubramanyam, 2003). Over the same period of time, TVEs also spent over 200 billion in agricultural and rural growth. They contributed 30.8 billion of farm-related funds supporting agricultural development and rural infrastructure construction just in year 2003 alone. Some TVEs also have grown to become one of the leading enterprises in the agri-business industry by processing agri-products. In 2003, there were more than 40,000 of large-scale enterprises, with added value exceeding 380 billion (FU, Balasubramanyam, 2003). Ultimately, the Sunan model had speeded up the process of Chinas marketoriented reform and provided new ways to reduce poverty caused by poor institutional arrangements. On top of that, the Model hastens the transition of local economic structure as well, as it solved the rural unemployment

problem. Overall, the Sunan model had greatly increased the income of farmers which in turn improved their living standards. As the living standards of the population improved, the Sunan model also brought about an increased in the regional GDP per capita as well. By and large, the Sunan Model had contributed to the rural modernization and instigated urbanization within Sunan.

Case Study of Sunan Model TVE development in transition Sunan (Suzhou) From 1990 to 1994, the total industrial output value of TVEs in Suzhou jumped from 36 billion yuan to 179 billion yuan, with an average annual growth rate of 49 percent. But in 1994 to 1995, the industrial output value of Suzhous TVEs fell from 179 billion yuan to 123 billion yuan, a decline of 31 percent. The privatization thrust accelerated in the late 1990s, when TVEs in Sunan underwent two waves of institutional change. The first wave, in 199798, focused on privatising money-losing medium and small TVEs and promoting individual businesses and private enterprises. Because large money-losing TVEs could hardly find qualified buyers, they were left for the second wave, which began in late 1998 and reached its peak in 2000, and pressed the directors of the large TVEs to either buy the company or take a share in the company if they were unable to buy it out. By 2000, it was reported that more than 95 per cent of TVEs in southern Jiangsu had adopted some kind of property rights reforms. TVE development in Shuang Village Shuang village is about 30 minutes drive south of Suzhou in the southern Jiangsu region. In 2000, Shuang village had 1343 residents in 350 households, occupying a total area of 2.1 square kilometres. Between 1984 and 2001, the number of village enterprises increased from one to seven, while their industrial output raced ahead at an average annual growth rate of 60 per cent, from 250,000 yuan in 1984 to 790 million yuan in 2001. Shuangs collective economy shifted onto a privatization track in the mid-1990s, and was fully completed in the spring of 2002 after the village government gave away its last share of a loss-making company. Ye ar 197 4 TVEs Events First TVE launched is a chemical products factory (among the first TVEs in Sunan)

198 5 198 7 199 3 199 7 199 8

A metal foundry and a paper cartons plant were started Chemical fibre factory started A differential polyester chip factory was founded Acrylic fibre chips factory Colour master batch factory, manufacturing dyeing materials for polyester chips

In the 1970s and 1980s, Shuangs enterprises were run under traditional collective ownership, called collective unified management ( jiti tongyi jingying). Until mid to late 1990s, the conventional collective ownership was gradually replaced by a profit-sharing system in Shuang and its nearby villages.

INTRODUCTION OF SMES IN CHINA

Moving on from Sunan model, this section of the report would elaborate more on the SMEs in China. SMEs, the so called Small and Medium Enterprises are becoming the focal point of attention all over the world. As SME play a significant role for a countrys growth and employment, SME are more often than not regarded as a high potential for a countrys economic development. In the case of transition economies like China, the emergence of a new system of property rights (Privatization) had brought along a new market for SMEs to dwell in. Previously, before Deng Xiaopings journey to the South in 1992, it was customary that virtually all large-size enterprises were state-owned, with the categories of collectively and individually owned companies virtually identical to SME. Thereafter, enterprises with foreign capital or joint-stock companies are considered enterprises of large size as well. However, in the recent years, changes in the policies of transition and a general trend of structural convergence of classes of enterprises according to other criteria other than size had posed some serious difficulties with categorizing SMEs correctly. Case Study of SME Nevertheless, with regards to the Shanghai BSM, this report shall introduce a few SMEs in Sunan along with some traits/characteristics of these SMEs: Seagate Technology International (Wuxi) Co. Ltd ()

Seagate Technology International (Wuxi) Co., Ltd opened in July 1995, with facility of 58,000 square meters and workforce of 9,000. Seagate Wuxi has earned many honors in the decade, including Top Exporter of Foreign Enterprises in Jiangsu Province, Top 100 Remarkable Foreign Investment, and Top 100 Wuxi Industrial Enterprise (2004-2005), 2007 Outstanding Contribution Award for Investments in Jiangsu Province, 2007 Top Ten Tax Payer in Wuxi New District, 2008 Wuxi Safe Production Class A Enterprise. Located in the Wuxi-Singapore Industrial Park, Jiangsu Province, the Wuxi plant underwent a major expansion in 2002. The 50,000 square meter stateof-the-art facility houses automated printed circuit board assembly lines, hard drive product lines and testing operationsall designed to address the increasing demand for volume production in the region. Today Seagate Wuxi is the companys largest hard drive manufacturing facility. The plant also plays a strategic role in establishing the companys leadership position in the worlds fastest growing technology market. Seagate Wuxi combines top-notch manufacturing technology with a highly qualified team of engineers. Teams actively practice corporate initiatives such as Supply Chain Management, Six Sigma and Lean Manufacturing. These components combine to create greater efficiency and superior quality, matched only by a high standard of excellence. This is evident through the recognition the Wuxi operation has garnered over the years. Since opening in 1995 the plant has earned the distinction of top foreign company by export value in the Jiangsu Province. Seagate Wuxi also enjoys strong support from the local government. Amtek (Suzhou) Precision Engineering Ltd () Amtek Engineering Ltd. designs, manufactures, and assembles metal, plastics, and rubber components and products. Its products include metal stamping and tooling; casings for PCs and workstations, servers, network products, uninterruptible power supplies, and set top boxes; rubber/metalbonded parts for printer rollers; and racks and enclosure systems. The company serves various industries, including automotive, computer and computer peripherals, consumer electronics, electrical, mass storage, and telecommunications. Amtek Engineering Ltd. was formerly known as Amtek Engineering Pte Ltd. and changed its name to Amtek Engineering Ltd. in 1987. The company was founded in 1970 and is based in Singapore, Singapore. It has CNC laser and turret presses in Singapore, Thailand, Malaysia, and Mexico.

QUESTIONS

On the basis of the above case related to the TVE experience in China comment on the following. Each of the following has to be answered in 100 words
COST BENEFIT ANALYSIS OF THE 3 MODELS OF DEVELOPMENT COMMENT ON AMTEK AND SEAGATE TECHNOLOGY AND HOW DO THEY REFLECT THE SUNAN MODEL IN THE LIGHT OF THE 3 DEVELOPMENT MODELS WHICH ONE DO YOU THINK CAN BE APPLICABLE IN INDIAN CONTEXT

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