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Discussion Papers
I want to ensure you that I am going to add new subjects to my career the Accounting practices from time to time.
1- JOINT VENTURE
Veronica Moss is a small British firm, which makes wedding dresses. It is now expanding into European markets but, to be successful, it needs to increase its production and keep costs as low as possible. Recently the firm has not been able to depend on a regular production of dresses. Labour turnover has been high, and it has been difficult to get workers to do overtime.
To solve the problem the managing director, Mr. William, looked for other ways of making the wedding clothes. In the end he came up with an interesting solution. This was to have a joint production agreement with a Chinese corporation. Under the agreement, a factory in the province of Guandong (south china) will manufacture dresses for the European market and share production costs with Veronica Moss.
It took Mr. William less than a year to arrange the deal with the Chinese. This was unusually quick. Luckily, a Chinese businessman now living in England but who originally came from Tungwan, in Guandong helped him. This man, who was experienced at dealing with Chinese trade officials, gave useful advice during the negotiations.
There was another reason why the deal was completed quickly. At present, china is encouraging foreign investment – especially in the south. The government knows that the country needs foreign help to modernize its industry. Also joint ventures with overseas companies create employment and earn foreign currency. To make deals easier to arrange, the government is allowing provincial officials to negotiate directly with foreign businessmen.
Veronica Moss’s contract is a fairly standard one for this type of venture. The Chinese will provide the factory, which is rent-free, and the workers. They will produce
1000 garments a week, which the British firm will buy at a price of P-sterling 1.50 each. In addition, a 5% annual price increase has been written into the contract for each of the next ten years.Veronica Moss will invest P-Sterling
50,000 in the project. Half of this will be used to install machinery, such as cutting and stitching machines. The rest will be spent on renovating the interior of the building. All the patterns, measurement specifications and cloth will be supplied by the British.The management of the factory will be shared. While the manager and technical director have been appointed by the Chinese, the British firm has chosen a Chinese executive as advisor on quality control.
When the garments are finished, they will be delivered to customers in Europe and Scandinavia. Recently, Veronica Moss has been considering using Chinese made fabrics such as silk to make wedding dresses. Although the dresses would be expensive, they might appeal to buyers in the United States-the biggest market for wedding clothes.
The ‘wedding’ between Veronica Moss and the Chinese corporation is special. It is the first joint production agreement to be negotiated directly between a British firm and a Chinese one. No embassy or government was directly involved in the deal.
Discussion Papers * "Net profit earned need not to be represnted by cash in hand or bank;Or net loss mean that there is no liquid cash" . DISCUSS AND SEND.
