Cost Competitiveness—Role Of CMAs

From the Editor’s DeskGreetings!One of the vital means of enhancing productivity and improving quality is through propercost management. It is widely recognized that what Indian manufacturing industry needs themost today is improvement in cost competitiveness. There is a heightened need to improvisethe cost effectiveness of manufacturing processes, while at the same time, maintaining qualityto withstand the pressures of competition is equally essential.India and other developing economies need to address poverty alleviation as well as sustainableroutes to development, while addressing cost issues. Resource-efficient solutions will helpcompanies contribute to this task, as well as add to their global competitiveness. Sustainabilitycan drive cost savings through efficiencies, creating new markets and securing competitiveadvantage.Although it is widely acknowledged that economic growth and competitiveness involve acomplex interactive process of social, political, and institutional change, no single general theorysupports this phenomenon. Perspectives from various disciplines reveal that competitivenessis a comprehensive concept. We can regard the notion of competitiveness as associated withthree major groups of thought. These are: Comparative advantage and/or price competitiveness perspective, A strategy and management perspective, & A historical and socio-cultural perspective.While economists have placed emphasis on price and the country-specific economiccharacteristics of competitiveness, the management and strategy researchers have focused onthe firm-specific characteristics. The focus of sociologists and political theorists has been onvarious social, political and cultural characteristics underlying the notion of competitiveness.From a macro perspective, competitiveness is a national concern and the ultimate goal is toimprove the real income of the community. On this perspective, competitiveness is a very broadconstruct encompassing all social, cultural, and economic variables affecting the performanceof a nation in international markets. On the micro perspective, in order to be competitive, anyorganization must provide products and services for which customers are willing to pay a fairreturn or price. In the long run, in a free enterprise system, competitiveness is measured by theability of the organization to stay in business and to protect the organization’s investments, toearn a return on those investments, and to ensure jobs for the future.The challenge moving ahead for increase in competitiveness is turning cost reduction into costoptimization, which in turn, enables the organization to be cost competitive. Cost managementshould be a tool to push business development and overall growth.The consideration of cost competitiveness starts in the market with pricing. High performersplace significantly more emphasis on understanding competitors’ pricing. Pricing is anincreasingly complex process. To get pricing right, the company must identify the actual costsinvolved in supplying the service or product — right across the enterprise. Understandingthe competitive market is the key to this, but it is also critical to have a full understanding ofhow customer “value” is created and to ensure that full information on costs is available to thepricing decision-maker. A delicate balance is required to successfully deliver price increaseswithout reducing competitiveness. It is becoming increasingly difficult for companies tounderstand the true value they are deriving from their customer base. Correctly identified,this knowledge will help them to improve margins by sustaining revenues and reducing cost,pitching prices more accurately, while maintaining or even improving their customer service.In this issue, we have presented few very pertinent articles on “Cost Competitiveness”. Werecord our sincere gratitude to all the eminent contributors of this issue. Hope the readers willbe highly enriched while going through the articles.Happy reading!The Management Accountant April 201300.ICAI Apr'13 TOC.indd 3813814/8/2013 1:00:01 PM

President’s CommuniqueYou can’t cross the sea merely by standing and staring at the water.—Rabindranath TagoreDear Professional Colleagues,CMA Rakesh Singh, PresidentAs we all know that India is a knowledge-based economy with abundance of capable,flexible and qualified human capital. With this capital we are capable to establish a distinctposition for ourselves in the world. Inspite of this abundance of human capital the growthrate of services decreases from 8.2% in 2011-12 to 6.6% in 2012-13 from the double-digitgrowth of the previous six years. This has contributed significantly to slowdown in theoverall growth of the economy. The business world is changing very rapidly in terms ofstructures, processes and the overall dynamics of highly competitive environment. Thiscalls for efficiency in operations, developing cost competitiveness and ability to leveragestrategic management tools for sustainable growth of the organization. Government hastaken many measures to convert this capital into skilled manpower; but there is still ashortage of skilled manpower to address the mounting needs and demands of the economy.The Cost and Management Accountant has an important role to play in this area. Since theManagement Accounting is a growing field, we have to train youths of the country aboutthe Principles of Management Accountancy. This will help in increasing the growth rate ofour service sector thereby increasing our rate of economic growth. This will also help ourprofession by embedding sustainability and introducing fresh blood to our profession. Therole of Senior CMAs is particularly important in this field of skill development. They have todevelop capable professionals and train them with expertise so that employable skills can bedeveloped among them. This will also help in eradicating unemployment from the country.The Institute is also playing an important role in the area of skill development. The Instituteis planning to organize orientation programs at the school level to make youths focusedand channelize the fresh blood of the country in the right direction. We have also takenmany measures to develop desired skills in our students so that they will be able to touchgreater heights in their career.The emerging scenario mandates CMAs to acquire relevant skills which are needed tosteer the business through the myriad of economic, social, environmental, regulatory andsocially compulsive framework.In order to gear up for meeting the expectations of the stakeholders, CMAs need to acquire /enhance skills in the areas of Verbal and written Communication, Presentation, Negotiation,Financial Modeling, ability to look at the Larger Picture etc. They also need to develop skillsto be able to leverage specialized Cost and Management Accounting tools and techniques forbringing about the desired value addition to their organizations. CMAs have to enhance theirskills of managing people, including appreciation of differentials in attitudes and behaviorsof individuals they get in touch with in the context of their professional interactions.I exhort CMAs to work out their own skill enhancement plans as learning is a continuousprocess and if a person stops learning he may become irrelevant and professionallyredundant in the present business context. The institute will facilitate skill developmentof the members through a series of Seminars, Webinars and other modes of engagementacross regions and chapters.To apprise all the members of the activities / initiatives undertaken by the Departments/Directorates of the Institute, I now present a brief summary of the activities.Professional Development DirectorateMOU with Corporate Law Adviser (CLA)I am glad to inform my members and students that the Institute has signed twoMemorandums of Understanding (MOUs) with Corporate Law Adviser (CLA) on38200.ICAI Apr'13 TOC.indd 382The Management Accountant April 20134/8/2013 1:00:02 PM

President’s Communique7th March 2013 for providing online publications ata subsidized rate. Web contents are available throughtheir website on various laws, Acts/Rules, notifications atconcessional subscription rate for members of the Institute@ Rs. 2,700/- (inclusive of service tax) per member perannum. Subscription for students of the Institute is at aspecial price (inclusive of Service Tax) of Rs. 500/- (for oneyear subscription), Rs. 600/- (for two years’ subscription)and Rs. 750/- (for three years’ subscription).Guidance note on Cost Accounting Standard on Utilitieshas also been developed and the same shall be hosted afterthe approval of the council.The detail in this regard is hosted on the Institute websiteand published elsewhere in the Management Accountant.Examination DirectorateNABARD includes Cost Accountant for Stock AuditNational Bank for Agriculture and Rural Development(NABARD) vide its circular dated 30.1.2013, issuedinstructions to all its MDs/GMs/ CEOs of Central Banksand MDs of all State Cooperative Banks, to include CostAccountant also for purpose of carrying out the StockAudit for Working Capital Finance of Central CooperativeBanks and State Cooperative Banks.For full text of this circular readers may please referInstitute website.Delhi VAT Act now also includes Cost Accountants forVAT AuditI am glad to inform members that with the continuedefforts of the Institute, Delhi VAT has included thename of Cost Accountants for regular VAT Audit videnotification dated 11th February, 2013. Delhi VAT notifiedthe procedure and form for filing Audit Report by dealerswhose gross turnover exceeds Rs. 10 crore in 2011-12 or inany subsequent financial years. Earlier, VAT audit underSection 49 of Delhi VAT Act was applicable on dealerswhose gross turnover was more than Rs. 40 lakhs. Howeversubmission of audit report under section 44AB of IncomeTax Act 1961 was considered to be sufficient compliance. Ithad restricted the scope of Cost Accountants for conductingVAT Audit. Now the new notification, issued under theorders of Commissioner, has opened up new avenues forCost Accountants in the Capital of the Country.For full text of this notification readers may please refer theInstitute website.Technical DirectorateContinuing with the development of Cost AccountingStandards the Technical Directorate has come out withthe Draft CAS 17 on Interest and Financing Charges. Theexposure draft of the same has been hosted on the websitefor public comments.The directorate has also hosted on the website an ExposureDraft on Framework of Indian GAAR for public comments.I urge upon the members to forward their views / commentsto the Directorate before the due date.The Management Accountant April 201300.ICAI Apr'13 TOC.indd 383To move forward with time the Directorate has planneda lot of activities. One of those activities is developmentof Water Accounting Standards. I am happy to inform themembers that a concept paper on Water Accounting hasalready been developed.I am happy to inform all the members that the ExaminationDirectorate had successfully held the 2nd Convocation andNational Students’ Convention on 22nd March 2013 atScience City Auditorium at Kolkata under the Convocationand National Students convention Committee. The ChiefGuest was Lt. General A. K. Choudhury, GOC-Bengal Areaand Chairman -Army Institute of Management, Kolkata.Special Guests were Shri Kallol Datta, Chairman &Managing Director, M/s Andrew Yule & Co. Ltd., Prof.D.K. Sanyal, Director (Acting) of Indian Institute of SocialWelfare and Business Management, Kolkata and ShriDebmalya Banerjee, Co-Chairman, ERDC, ASSOCHAM.Thirty Prize winners of Foundation /Intermediate/FinalExamination had come to receive the Prizes from the ChiefGuest. Also 250 Rank Holders of December 2011 andJune 2012 examinations had participated in the AcademicProcession led by the President.Students from Chapters and Regions came to participatein Students’ convention. The students from various regionshad given presentations about the selected topics.CEP 1 DirectorateI am happy to inform that the CEP 1 Directorate hadorganized an in-house International Training programmefor Indian Railways on ‘Finance and Accounts’ for IRASOfficers during 4th–18th March, 2013 at Delhi, NCR,London and Paris.The Institute had organised a programme on ‘FinancialManagement’ for Nepal Electricity Authority during19th–26th March, 2013 at Delhi & Chandigarh.An in-house programme was also organized for ONGCLimited on ‘International Financial Reporting Standards’during 18th–22nd March, 2013 at Kolkata.For the first time the Institute had organized exclusiveprogramme jointly with National Foundation for CorporateGovernance, Govt. of India for Board Members at Chennaion 1st March, 2013 and on 6th March, 2013 at New Delhi.The CEP 1 Directorate had also organized threeprogrammes jointly with National Foundation forCorporate Governance, Govt. of India on ‘Updates onCorporate Governance’. The programmes were held on 9th3834/8/2013 1:00:02 PM

President’s CommuniqueMarch, 2013 at Jammu, on 24th March, 2013 at Nagpur andon 31st March, 2013 at Bhubaneswar. All the programmeswere well received by the participants.CEP 2 DirectorateIt is a matter of pleasure for me to inform you that CEP2 organized an Interactive session on “Post BudgetAnalysis-2013-14” on 7th March 2013 at New Delhi andthe same was conducted in other parts of the country aswell. The session was well received by the members.The Institute in association with PHD Chamber ofCommerce and Industry organized a Seminar on“Practical Aspects of Cost Accounting Records and CostAudit” on 18th March 2013 at PHD House New Delhi.Overwhelming response was received from the Industryand the members. The Seminar was quite interactive withShri BB Goyal, Advisor (Cost), MCA and queries were welladdressed.During the month Regional Councils and Chaptersactively conducted around 70 programs of professionalrelevance across country covering Howrah, Coimbatore,Jaipur, Faridabad, Ludhiana, Pune, Thrissur, Navi Mumbai,Durgapur, Madurai, Guwahati, Noida, Kanpur and so on.Hyderabad Centre of ExcellenceThe following events and activities that have taken placeduring the above period at Hyderabad Centre of Excellence: On 9th March, a Half Day Program on “Cost AuditPerformance Management Framework “was conducted.CMA A.V.N.S. Nageswara Rao was the speaker. On 15th March, Special Interest Group (SIG) Meetingwas conducted at our HCE Premises. The theme of themeeting is Infrastructure. The Meeting was attended byProf Sanjay Kallapur of ISB and Couple of CEOs fromthe Infrastructure Sector. On 21st March, GENPACT conducted campus interviewsfor the Final completed students of our Institute On 24th March, the Business Valuation and CorporateRestructuring Course were started at Hyderabad. SixParticipants have enrolled in to the course.International AffairsIt was a matter of pleasure to welcome Mr. FayezulChoudhury, CEO, IFAC, when he visited Delhi office of theInstitute on 12th March 2013. The meeting with the CEOwas attended by me, Vice President and senior officials ofthe Institute. Issues of mutual benefits as well as regionaldevelopment were discussed during the meeting.I had the privilege to visit Dubai alongwith CMA SanjayGupta, Central Council Member and CMA Kunal Banerjee,Past President of the Institute and address the media on38400.ICAI Apr'13 TOC.indd 38415th March 2013 at Dubai. The members and the studentsof this region were informed about the various initiativestaken by the Institute in the recent past. As we all know thatgreater responsibilities have been thrown on the shouldersof the members in practice by the Ministry of CorporateAffairs. It was informed that many circulars changing therequirement of maintaining the cost records, dispensingwith format based maintenance to principle based, changein the method of appointment and filing of the cost auditreport in XBRL mode have been issued. Institute organizedvarious training programs to guide and provide support tothe members, issued many new guidance notes, provideda user friendly software tool for generating the instancedocument for the Cost Audit Report & Compliance reportin XBRL mode and opened helpdesk to exclusively dealwith member queries on XBRL filings.It was heartening to inform the members and studentsof Dubai region that with these initiatives the memberssuccessfully met the challenge and filing was completedwithout any hindrance.I once again remind the members that the Institute isorganising an International Professional Summit onthe theme “New Approach to Sustainable Growth” atThe Leela Kempinski Hotel, Gurgaon on 26th & 27thApril 2013. This Summit will provide a networkingplatform to interact with International Delegates as wellas Board Members, CFOs, Financial Controllers, SeniorManagement, CMAs in industry & Practice, Complianceofficers etc. I request all the members to come in largenumber to attend the summit. The Summit website hasbeen launched. Members may online register for thesummit.Benevolent Fund for the Members of theInstituteI request all the members of our Institute to become LifeMembers of our Benevolent Fund, which was institutedwith an objective of extending financial assistance to itsmembers and their families at the time of distress anddeath. The members and others are requested to donategenerously for the noble cause.I wish all the members and their family on the occasion ofBaisakhi, Ram Navami and Mahavir Jayanti.With warm regards,(CMA Rakesh Singh)PresidentThe Institute of Cost Accountants of India1st April 2013The Management Accountant April 20134/8/2013 1:00:02 PM

COVER THEMECost Competitiveness—India’s PresentScenario and theRoad AheadR. BalajiB.Com., MBAAccounts Officer in BSNL, TrichyIntroductionMarket is a place where buyers and sellers meet andneeds of both the groups are satisfied. Marketsinclude not only physical places but can well beexpanded to online spaces. Normally, we do cost-benefitanalysis before buying a product or availing a service.Once, this cost-benefit analysis remained the domain ofpeople having some kind of financial and technical literacy.However, with the availability of internet, people cansimply utilize the services offered by a host of web-sites fordoing cost-benefit analysis. Generally, people give thumbsup to a product that offers more benefits for less cost. Also,markets around the world are having one thing in common.That is, competition. Since markets are characterized byfierce competition and buyers are armed with informationMaindriverand analytical tools to make informed decisions thanksto the World Wide Web, organizations have no choicebut to remain competitive. Cost competitiveness is thekey to stay in the race. However, cost competitiveness ofan organisation’s products or services depends heavily onthe environment provided by the country in which theorganization is a member. Hence, the objective of thisarticle is to understand the present scenario in our countryand the progress that our country is expected to make inthe years to come.Major Factors Contributing to a Country’sCost CompetitivenessThe following table shows the major factors driving acountry’s competitiveness and India’s rankMost importantsub-componentsRank ofIndiaCountry Securingthe first placeTalent driven innovation Quality and availability of researchers, scientists andengineers Quality and availability of skilled labour4GermanyEconomic, trade, financial andtax system Tax rate burden and system complexity Clarity and stability of regulatory, tax and economicpolicies6GermanyCost and availability of labourand materials Cost competitiveness of materials Availability of raw materials2ChinaSupplier network Cost competitiveness of local suppliers Ability of supply base to innovate in products andprocesses5GermanyLegal and regulatory system Stability and clarity in legal and regulatory policies Labour laws and regulations6GermanyPhysical infrastructure Quality and efficiency of electricity grid, IT andtelecommunications network Quality and efficiency of roads, ports, airports andrailroad networks6GermanyEnergy cost and policies Cost competitiveness of energy Ongoing investments to improve and modernize energyinfrastructure4ChinaThe Management Accountant April 201301.ICAI Apr'13 Cover Theme 1.indd 3853854/8/2013 1:00:56 PM

COVER THEMELocal market attractiveness Size and access of the local market Intensity of local competition5ChinaHealthcare system Cost of quality healthcare for employee and society Regulatory policies(e.g., Pollution, food safety, etc.,) thatare enforced to protect public health6GermanyGovernment investments inmanufacturing and innovation Government investments in R&D: Science, technology,engineering and manufacturing Private and public sector collaboration for long-terminvestments in R&D: Science, technology, engineeringand manufacturing5ChinaFrom the above table, we can understand thatGermany is rated as the most competitive on 6 out of the10 major factors driving the competitiveness and China israted the best on 4 factors. Hence it is pertinent here tostudy the favourables in these two countries so that wecan understand the requirements to make India the mostcompetitive country.Favourables of GermanyTalent Driven Innovationl Presence of umpteen number of R & D institutesl Government support to Science and Technologyl Close links between industry and universitiesl Dual System of vocational training which bridgesthe gap between classroom instruction and workexperiencel Nearly half of German high-school students take

385 Cost Competitiveness—India's Present Scenario and the Road Ahead by R. Balaji 389 Cost Competitiveness — Role of CMAs A Soft ware Industry Perspective by K.V.N. Lavanya 392 Cost Competitiveness And Role of CMA by A. Saha 394 Cost Competitiveness — the Sustainable Business Strategy by Dr. D. Mukhopadhyay Taxation 397 Tax Titbits