HARISH NATRAJAN PROPOSAL: EXPLORING THE STRATEGIC IMPLICATIONS OF RULES AND REGULATIONS IN SELECTED INDIAN SMALL CHEMICAL COMPANIES

INTRODUCTION

 

 

            This paper proposes the study to investigate the strategic implications of rules and regulations within organizations. Specifically, it will be on the rules and regulations of chemical companies in safety and risk management. The specific focus will be on small chemical companies in India. Specifically, the study will include the following companies: Joshi Electricals and Transformers; Lihar Chemicals; Aarti Industry; and Agrawal Group. Those companies are still considered SME, but are already performing well and are seen as potential competitors in India's chemical industry.

 

The research will be limited only to the output that the respondents from the selected companies will provide, as well as information from literatures that will be cited and reviewed. The reason why this study was chosen is because of the continuous rapid expansion of India's chemical industry (Young, 2003). This is related with the concern of safety practices that should be reflected on the company's rules and regulations on how they handle safety among employees and among the communities. The rapid expansion may mean the need to keep up the track on companies that follow and do not follow the rules and regulations for the chemical industry set up by India's governing bodies. History has taught the country of the danger of not having an effective regulating policy for the chemical industry. One example is the gas leak at the Union Carbide plant in Bhopal, India in 1984 (Young, 1992). Approximately 3,800 people die in the wake of the incident and several thousand other individuals experience permanent and partial disabilities (Union Carbide Corporation, 2005). The tragedy led to increased regulation of the chemical industry and the adoption of the Responsible Care initiative (Young, 1992). Responsible Care is a voluntary initiative within the global chemical industry to promote the safe handling of India's chemical products from inception in the research laboratory, through production, distribution, use and disposal (DOW Agro Sciences, 2005). This and other initiatives may have caused a burden or advantage on chemical companies in India depending of course on their view or how advantageous or important they see the regulation. Of course, companies also have their own policies on safety. Because of the many regulations to follow, SMEs may find it difficult to adjust because of their limited capacity. Through this study, it will be determined what strategic implications do several SME chemical companies India use in implementing different rules and regulations.

 

            This study will be cross-sectional and will utilize both quantitative and qualitative research. The summary of the proposed methodology and other important points will be discussed further in the paper.

 

BACKGROUND

 

 

The Indian Chemical Industry

 

 

The chemical industry of India is experiencing a strong economic performance and growth recently. The Ministry of Chemicals and Fertilizers in New Delhi reported a few years ago that India's Chemical industry output has been growing at double-digit rates in recent years, and has reached Rs1.3 trillion ($28 billion)/year (Young, 2003). This has been the result of India's previous effort to strengthen its chemical industry in the late nineties basically through strategies such as corporate tax reductions designed to encourage business generally, cuts on import taxes and internal duties, and a halving of capital gains taxes applied to non-resident Indians (Robert, 1997). Now, the current overview of the industry is: it totals US$25 Billion + US$5 Billion Fertilisers; contributes to 13% of GDP; and is one of the fastest growing sectors of Indian economy (Indian Chemical Portal, 2005). Its distinguishing characteristics are its being fragmented and dispersed - multi product and multi faceted (Indian Chemical Portal, 2005).Chemicals sold directly to large customers and through distribution channels. Distribution channels mostly consist of stockists and dealers spread all over India addressing small segments and retail market (Indian Chemical Portal, 2005).

            Despite the success and progress, India's image as a large and successful chemical manufacturer and exporter is not all positive. As mentioned earlier, the gas leak at the Union Carbide plant in Bhopal, India in 1984 (Young, 1992) did not only shake India but the whole global community, resulting in the development of firmer and tighter rules and regulations for the chemical industry globally. Although Union Carbide is a foreign company, India was the place where the incident took place meaning the company was under the regulation of India during that time. Canadian chemical manufacturers drafted a detailed program, called "Responsible Care," that involved codes of practice for transportation, distribution, manufacturing, research and development, and hazardous waste operations (Entine, 1996). One of the aims of Responsible Care is to participate with government and others in creating laws, regulations, and standards to safeguard the community, workplace, and environment (Entine, 1996). India is one of the countries that currently implements responsible care, adopting the policy in 1991 (Young, 1992). After that, many new regulations for the chemical industries were implemented such as the Prevention and Control of Air Pollution Act and the Environment Protection Act (1986), plus Rules on the Handling of Hazardous Chemicals (1989) (Young, 1992). With this many regulation, compliance with it proved difficult to enforce in an industry comprising mainly small, independent companies (Young, 1992). Basically, implementation was less than enthusiastic (Young, 1992).

 

Another issue that delivers a negative image to the bustling Indian chemical company is the issue of illegal chemicals exporting. According to Raj (1998); "India is among three remaining manufacturers of DDT (10,000
metric tonnes capacity) along with China and Mexico. Italy stopped
manufacture of the widely banned persistent organic pollutant (POP)
pesticide earlier this year"

 

Because of such problems, it is difficult for chemical companies, especially Small to Medium-sized Enterprises to implement all regulations at once. Companies now need to provide details about process safety, environmental impact, provision for pollution control, site justification, plus safety and health provisions for employees and precautionary measures for controlling emergencies both on-and off-site. This has caused delays and cost overruns (Young, 1992).

 

SMEs in India's Chemical Industry

 

 

            Small to Medium-Sized Enterprises or SMEs play an important role in India's economy. The SME sector accounts for 40 percent of the industrial production, 35 percent of the total export and provide about 80 percent of employment in the industrial sector in the country (Dangayach and Deshmukh, 2005). The chemical industry is also strengthened mostly by SMEs. Specifically, the Maharashtra state is home to many small chemical industries. It is one of the zones that the government allocated in the early 1990s where chemical industries could set and manufacture chemicals for sale. The zones are spread across the entire state of Maharashtra and the government laid down innumerable rules and regulations as part of the start up procedures. These included registering with the various departments like the explosives, electricity, water, labour, weights and measure, the customs department, the income tax registration etc. Also of the start up procedures for the firms also involve registering with the pollution control department as this has been deemed important by the government due to its entry into the WTO and also as part of its focus to attract FDI. The chemical firms also have to identify the construction and the various infrastructures needed e.g. the offices, laboratory, which has to be laid down in drawing and approved of by the inspector of factories. Aside from those, heavy paper work, long waits for file processing and permissions are also problems. These issues sometimes take the toll during start up by burdening the companies for the extra time in terms of finance. Also due to the erratic power supply in the state the companies during start up have also to identify the usage of generators as a substitute for the frequent power cuts. All these difficulties are in accordance with the regulations mentioned above.

 

STATEMENT OF THE PROBLEM

 

 

            The Indian Chemical Industry can now be considered well-regulated but the effects of such regulations are taking its toll on small companies. For small companies, implementation of such rules and regulations can be a daunting and expensive task because of their limited human and financial capabilities. Based on the study of Miller and McKinney (1995), even corporations are affected by the increase of local and international regulations in manufacturing. Miller and McKinney (1995) concluded: "Industries presently face a challenge to maintain competitiveness and productivity while creating a minimal environmental impact" (p.112). They further stated that: "The conventional concerns of product functionality, dependability, quality, and cost are further complicated by environmental regulatory compliance" (Miller and McKinney, 1995, p.12). However, such regulations are acceptable because today's firms do not only have responsibility to their company but to the economy, ethics and legal aspect as well to the public at large (Lantos, 2001). Thus, strategies are needed in order to effectively mix the responsibilities of the firm. Through this study, we may explore the different strategies used by several small chemical companies in India, specifically: Lihar Chemicals; Aarti Industry; and Agrawal Group. These companies have to abide with the rules and regulations like all other companies. The way they handle the implementation of many regulations may reveal useful strategies that other companies might use. This will further help the growth of India's chemical industry.

 

Aim and Objectives of the Study

 

 

The aim of the study is to identify the process and different difficulties of implementing rules and regulations experienced by Lihar Chemicals, Aarti Industry, and Agrawal Group, and to determine the strategies they use to implement those effectively, at least in their view.

 

The following are the objectives of the study:

Ø      Survey and interview senior managers of Joshi Electricals and Transformers, Lihar Chemicals, Aarti Industry, and Agrawal Group.

Ø      Conduct literature review.

Ø      Analyze the results of the survey and interview.

Ø      Develop a strategy framework for implementing rules and regulations.

 

RESEARCH QUESTIONS

         

Specifically, the study will concentrate on the different strategies or strategic implications used by small companies in India in implementing rules and regulations. The following research questions will be answered:

 

1.         What are the rules and regulations currently implemented by Joshi Electricals and Transformers, Lihar Chemicals, Aarti Industry, and Agrawal Group?

2.         What are the process and different difficulties they encounter in the implementation of those rules and regulations?

3.         What strategies do they use to implement the rules and regulations them effectively?

4.         What strategic implications would be effective for small chemical companies in India in implementing rules and regulations?

           

All the research questions will be approached through the utilization of surveys and interviews to the companies mentioned. The first question will be approached through a checklist survey that representatives of the company will be required to fill up. They will then be asked to identify the difficulties they experienced in each of those rules and regulations in terms of implementation by answering an open-ended question. The last two questions (3 and 4) will be approached through personal interviews with senior managers of the companies. Hopefully, their experiences will help provide insights to the study and help design a useful conclusion.

 

SIGNIFICANCE OF THE STUDY

 

            As a director for 5 years in a chemical firm, the researcher sees that this study will benefit greatly the small chemical firms in India - especially those that are still in the process of start-up - mainly because it may reveal important strategic implications for implementing rules and regulations that they may try to use to their advantage. Not only will the study be able to identify the difficulties of implementing regulations, but it will also or may also develop a useful framework of handling rules and regulations implementation effectively.

           

            The study is also significant to the study of management because it may reveal new management techniques or develop new management frameworks for small companies.

 

The study is also significant for the researcher personally and for the whole SME chemical companies in India because studying the procedures for the various government bodies and also identifying them will help set up business successfully - identifying the procedures and knowing the different strategies that the selected companies use will give an advantage of being ready with the required paperwork to be submitted to the agencies.

 

METHODOLOGY

 

 

            As mentioned, quantitative and qualitative research method will be both used in the study. Quantitative method will be used to quantify the frequency and percentage of difficulties that will be identified. On the other hand, quantitative method will be useful in knowing deeply the strategies that the companies use.

 

Primary and Secondary Data

 

 

            Primary data will be the survey and interview results, while secondary data will be literature reviews. Literatures will provide as a guide when interpreting both qualitative and quantitative data. The focus of literature will be on the rules and regulations in the chemical industry, the capabilities of SMEs to abide to the regulations, and the strategies used in implementing regulations.

 

Sampling

 

            All managers of the SMEs included in the study will be surveyed. Thus, the sample rate will be 100%. For this, convenience sampling will be used because the companies only have few managers. A semi-structured questionnaire will be sent to them. The questionnaires can be finished from 10 to 20 minutes but the respondents can take their time if they want.

 

            Directors will be interviewed regarding the strategies they use in implementing the rules and regulations. Interviews will be recorded so that it can be tabulated later for better analysis.

 

Analysis

 

            Quantitative data will be analyzed with the use of the latest SPSS software. The frequency and percentage of the items will be determined. On the other hand, interviews will be tabulated. Useful strategies will be considered based on their effectiveness.

 

Procedure

 

            Literature review will be conducted to know and familiarize more about the topic. The semi-structured questionnaire will be constructed with the guide of the literatures that will be reviewed. The questionnaire will focus on asking respondents about the different rules and regulations they follow, the steps which they implement it, and the barriers and difficulties they experience throughout implementation. A letter of consent will be sent to the companies. Upon approval, the questionnaires will be sent to the companies through email. The questionnaires are expected to return after 1 week. The results will be analyzed using the latest SPSS. SPSS means Statistical Package for the Social Science, and is a "statistics computer software" used for computing statistical data easily.

 

The top 5 rules and regulations, and top 5 barriers will be the focus on the interview. Questions for the personal interviews will be formulated. The directors of the company will be personally asked about the strategies they have implemented or adopted along the way just to make sure that they implement the rules and regulations effectively. The interview sessions will be recorded and will be conducted through video conferencing. The conversations will be transcribed and important points will be written and included in the study.

 

A conclusion will be made based on the results of the interviews, surveys, and literature search as well. Hopefully, a useful framework will be developed.

REFERENCES:

 

Dangayach, G.H. and Deshmukh, S.G. (2005). Advanced manufacturing technology implementation: Evidence from Indian small and medium enterprises (SMEs). Journal of Manufacturing Technology Management, Vol. 16 No. 5; pp. 483-496

 

DOW AgroSciences (2005). India Responsible Care (online). Available at: http://www.dowagro.com/india/responsible/ [Accessed: 1/20/05].

Entine, J. (1996), After Bhopal: Responsible Care (online). Available at: http://www.jonentine.com/articles/after_bohpal.htm [Accessed: 2/20/06].

Indian Chemical Portal (2005). Chemical Industry Overview (online). Available at: http://www.indianchemicalportal.com/chemical-industry-overview/ [Accessed: 1/20/06].

 

Lantos, G.P. (2001). The boundaries of strategic corporate social responsibility. Journal of Consumer Marketing, Vol .18, No. 7; pp. 595 – 630.

 

Miller, P.E. and MacKinney, M.M. (1998). Analyzing effects of regulatory compliance in manufacturing. Industrial Management and Data Systems, Vol.98, No.3; pp.108–112

 

Raj, D. (1998). Environment: India, a Major Exporter of Killer Chemicals. Inter Press Service English News Wire; 11/11/1998

 

Robert, W.J. (1997). India's Budget Seeks to Boost Chemical Sector, Chemical Market Reporter; 3/10/1997 (online). Available at: http://www.highbeam.com/library/doc3.asp?DOCID=1G1:47194675&num=14&ctrlInfo=Round18%3AProd%3ASR%3AResult&ao=&FreePremium=BOTH [Accessed: 1/20/06]

 

Union Carbide Corporation (2005). Chronology (online). Available at: http://www.bhopal.com/chrono.htm [Accessed: 1/20/06].

 

Young, I. (1992). India. (environmental responsibility of the chemical industry)(Responsible Care). Chemical Week; 6/17/1992

 

Young, I. (2003). Industry continues to expand rapidly. (India Country Focus) (chemical industry), Chemical Week; 9/24/2003

 

 

 

APPENDICES:

 

Appendix A. Respondent Information

 

Joshi Electricals and Transformers

Director: Mr Kaustubh Joshi

A small scale enterprise involved in the manufacture of transformers. This company is the only firm in India to have developed a unique light bulb technology for installation in theatres.

 

Lihar Chemicals

General Manager: Mr Mahendra Shahane

Lihar chemicals is in the set up stage to start a small scale manufacturing firm and also the main source of my research..

 

Aarti Industries

Director: Mr Bharat Chedda.

Aarti Industries controls over 32 small business units in the manufacture of speciality chemicals and bulk drugs.

 

Agarwal Group

Manager: Mr Alexander Joshua

Agarwal group is involved primarily in the manufacture and trading of Iron ores.

 

Appendix B. Literatures Reviewed

Below are the literatures that I have read so far. My previous experience has given me a overview about some generalistic procedures concerning small scale chemical industries. The books and articles that I have mentioned below have been useful to me in understanding the nature of small business and also the reasons for the various small business to exit from this business.In the literature review I have also read articles by authors explaining about the government policies and their impact on the industry in general and the small scale industries particularly.The books also have given me an insight into the economy and their impact on the small business and also the knowledge about financing of the Small industries by the banks and the nature of loans.some of the literature review I have viewed includes:

 

Debroy.B,Small scale industry in india,Large scales exit problems.edition 2004,Academic Foundation

Summary: This book talks about the problems faced by the small scale entrepreneur and the reasons for bankruptcy.it also highlight on the credit procedures and insolvency problems faced by the small scale business.This book is very useful for me as it helped me identify the issues in small scale industry.

 

Kapila.u,Indian Economy:Issues in development,planning and sectoral aspects.4^th Edition,Academic Foundation

Summary: This book is useful to me as it talks about the various issues of planning,land reforms,Industrial finance,Small scale industries.It then goes on to give an insight into the demographic factors and the problems of planning and development.

 

FICCI: Bank financing for the SSI,March 2004(Site ref)

Article published by the Indian chamber of commerce a governing body looking into the aspect of Bank finance for the small scale industries.This article was particularly helpful to me to understand the bank financing for the SSI sector in the past.

 

Subramnya.M.H.B,Small-scale industries in India in the globalisation era: performance and prospects.International Journal of Management and Enterprise Development(IJMED),Vol 2,No 1,2005,Inderscience.
Summary:This literature  talks about the small scale industries with reference to employment,output and exports.This was helpful to me to understand the impact of globalisation for small scale industries.

 

 

 

 

Pathak.H.N,Problems of small scale entrepreneurs: Report on a study based on Gujarat. Industrial development bank of India

Summary: This book talks about the problems faced by entepreneurs in Gujrath,a small Industrial state in the west coast of India.It talks about the problems of land,Infrastructure,taxes borne by the small scale businesses across this state.This book helped me identify the different aspects of taxation and infrastructure which I intend to undergo during the course of my own business.

 

C.M.Dsouza,Integrating Environmental Management in Small Industries of India

Electronic Green Journal,Issue 14,spring 2001 Earth day,ISSN 1076-7975

Summary: This paper investigates the performance of small scale industries and highlights the importance of small scale industries on the economy.This paper talks about the problems of small scale manufaturers some of which include regulative compliance and technical problems,labour problems and enviromental performance.It then goes about to give suggestions to solve some of the enovirnmental problems.

 

Frese,How to Plan as a Small Scale Business Owner: Psychological Process Characteristics of Action Strategies and Success. Apr2000, Vol. 38 Issue 2, p1-18, 18p.Journal of small business management

This Journal gives an insight into the various strategies to be adoped by the small scale owners and doing the things according to the order of importance.This was useful to me because it helped me understand the importance of doing the right things first.

 

Small But powerful,Article,Business India Intelligence; 05/01/97, p9, 2p, 1 chart, 1 graph

This article explains the populist measures adopted by the government towards the small business and the advantages that business gain from them in terms of taxes.These has given me an understanding of the small business policies of the Indian Government.

 

Deakins.D,Entrepreneurship and small firms.3^rd Edition,Mc Graw Hill Publications.

This book talks about the start up issues in small business,the growth firms and entrepreneur,which was enligtning as it helped focus on my topic of start up.

 

These books helped me identify the small scale business contributing immensely to my knowledge and helping me focus on the topic of my research.

Appendix C. Timetable

 

	5-Feb	15-Feb	1-March	25-April	10-May	25-May	5-June	25-Aug
PROPOSAL
Introductory Chapter
Literature Review
Research Design
Survey-Questionnaire
Conducting The Survey
Conducting Interview
Data Collection
Preliminary Analysis
FINAL ANALYSIS
Submission Of Project