French Revolution Essay

The French Revolution was a very important series of events for all of French history, making a big impact on all the lives of past and present French citizens. There was no one factor was directly responsible for the French Revolution. Years of feudal cruelty and taxing, public revenues and public debt mismanagement contributed to a French society that was on the edge of revolt. The French Revolution, the revolutionary movement that shook France between 1787 and 1799, reached its first climax there in 1789. After taking notice of the falling economy in the late 1700s, King Louis XVI, very self-centered, thought his authority to rule came from god himself. He brought in a number of financial advisors to review the weakened French treasury. Each advisor reached the same conclusion, that France needed a large change in the way it taxed the public, and each advisor was, in turn, kicked out. Eventually the king realized that this taxation issue really did need to be solved so he appointe d a new controller general of finance. The new general of finance suggested instead of taxing the poor, tax the ones that would be able to pay, the nobility, the ones that were exempt from paying taxes before. The nobility refused. Financial ruin thus seemed imminent. The French Revolution was a very important series of events for all of French history, making a big impact on all the lives of past and present French citizens. There was no one factor was directly responsible for the French Revolution. Years of feudal cruelty and taxing, public revenues and public debt mismanagement contributed to a French society that was on the edge of revolt. The French Revolution, the revolutionary movement that shook France between 1787 and 1799, reached its first climax there in 1789. After taking notice of the falling economy in the late 1700s, King Louis XVI, very self-centered, thought his authority to rule came from god himself. He brought in a number of financial advisors to review the weakened French treasury. Each advisor reached the same conclusion, that France needed a large change in the way it taxed the public, and each advisor was, in turn, kicked out. Eventually the king realized that this taxation issue really did need to be solved so he appointed a new controller general of finance. The new general of finance suggested instead of taxing the poor, tax the ones that would be able to pay, the nobility, the ones that were exempt from paying taxes before. The nobility refused. Financial ruin thus seemed imminent. The French Revolution was a very important series of events for all of French history, making a big impact on all the lives of past and present French citizens. There was no one factor was directly responsible for the French Revolution. Years of feudal cruelty and taxing, public revenues and public debt mismanagement contributed to a French society that was on the edge of revolt. The French Revolution, the revolutionary movement that shook France between 1787 and 1799, reached its first climax there in 1789. After taking notice of the falling economy in the late 1700s, King Louis XVI, very self-centered, thought his authority to rule came from god himself. He brought in a number of financial advisors to review the weakened French treasury. Each advisor reached the same conclusion, that France needed a large change in the way it taxed the public, and each advisor was, in turn, kicked out. Eventually the king realized that this taxation issue really did need to be solved so he appointed a new controller general of finance. The new general of finance suggested instead of taxing the poor, tax the ones that would be able to pay, the nobility, the ones that were exempt from paying taxes before. The nobility refused. Financial ruin thus seemed imminent. The French Revolution was a very important series of events for all of French history, making a big impact on all the lives of past and present French citizens. There was no one factor was directly responsible for the French Revolution. Years of feudal cruelty and taxing, public revenues and public debt mismanagement contributed to a French society that was on the edge of revolt. The French Revolution, the revolutionary movement that shook France between 1787 and 1799, reached its first climax there in 1789. After taking notice of the falling economy in the late 1700s, King Louis XVI, very self-centered, thought his authority to rule came from god himself. He brought in a number of financial advisors to review the weakened French treasury. Each advisor reached the same conclusion, that France needed a large change in the way it taxed the public, and each advisor was, in turn, kicked out. Eventually the king realized that this taxation issue really did need to be solved so he appointed a new controller general of finance. The new general of finance suggested instead of taxing the poor, tax the ones that would be able to pay, the nobility, the ones that were exempt from paying taxes before. The nobility refused. Financial ruin thus  seemed imminent. The French Revolution was a very important series of events for all of French history, making a big impact on all the lives of past and present French citizens. There was no one factor was directly responsible for the French Revolution. Years of feudal cruelty and taxing, public revenues and public debt mismanagement contributed to a French society that was on the edge of revolt. The French Revolution, the revolutionary movement that shook France between 1787 and 1799, reached its first climax there in 1789. After taking notice of the falling economy in the late 1700s, King Louis XVI, very self-centered, thought his authority to rule came from god himself. He brought in a number of financial advisors to review the weakened French treasury. Each advisor reached the same conclusion, that France needed a large change in the way it taxed the public, and each advisor was, in turn, kicked out. Eventually the king realized that this taxation issue really did need to be solved so he appointed a new controller general of finance. The new general of finance suggested instead of taxing the poor, tax the ones that would be able to pay, the nobility, the ones that were exempt from paying taxes before. The nobility refused. Financial ruin thus seemed imminent.

Opportunity and Threat of Cadbury

Opportunity First of all , Cadbury should increase in market potential of developing counties. Especially expand into the emerging markets of Nigeria ,China and Russia, based on their growing populations, increasing consumer wealth and increasing demand for confectionery products. So that It would be a potential market for Cadbury. Moreover , based on their strong brand name , Cadbury can try doing different types of businesses like innovatively doing Co-Brand Marketing with other brand industries . Ingredient branding in food industries for example published chocolate milk ,ice cream even chocolate tofu pudding. Also doing complementary branding like published T-shirt and accessories . Besides the market , Cadbury should responds to change in consumer tastes and preferences because consumers are more concern health nowadays , low-fat, organic and natural confectionery demand appears much stronger . So that a healthier snacks with lower calories need to be developed. For example Cadbury should launch some links which led to sugar-free & center filled chewing gum varieties and Cadbury premium indulgence treat. Last but not least , Cadbury can put more effort on reducing costs even increasing efficiency . For instance , Moving production to low cost countries, where raw materials and lab our is cheaper besides India . Because Cadbury ‘s production lines are mostly located in high cost countries like Australia and US . And also reducing internal costs like doing global sourcing , procurement , efficient supply chain and wise investment . Threat First of all , Cadbury will face the intense competition against other branded suppliers even global competitors . According to above statistic , Mars-Wrigley and Nestle are the main competitors especially Mars-Wrigley the strongest market sharing in total confectionery . When they set an aggressive price and promotion activity , it ‘s possible to occur price wars in the market which will induce a main threat for Cadbury. Especially affecting their marketing sharing and profits . For example there would be seasonal sales slumps all year round which will reflect to an increase in cost of raw material needs . Second one is â€Å"Copycat† problem. Especially when Cadbury expand into developing countries like China, based on their unhealthy legal system , it ‘s easy to appear â€Å" Copycat† problem which will totally affect their profits , market sharing and their unique images . For example Tempo Tissues is the mainâ€Å" Copycat† problem sufferer when entering in China market . Many fakes products have approached in the market. Last but not least , due to its confectionary products , It ‘s important for them to be aware of upcoming threats . For example taking notes of the changes in the consumers ‘ buying trends . For example low-fat, organic and natural confectionery demand appears much stronger . So that they should shift from chocolates to healthy snacks , otherwise there may be tarnish the Cadbury ‘s brand name and totally affect their income .

Purpose of higher education Essay

The purpose of higher education has been a topic of debate for many years. There was a long period when the majority agreed that higher education is the key to success, there is nothing to argue about that. However, nowadays, regarding having higher education as an investment, many people, especially students, think that what they lose is much bigger than what they gain from higher education. In other words, they believe that what higher education brings them does not deserve what they pay for it. In my opinion, what we benefit from higher education cannot be measured by money. For me, the highest purpose of higher education is to create prepared minds, which are priceless. At the same time, the unfortunate results that students get from higher education, I believe, are due to the dishonest ways they use to deal with the exams and unpleasant situation when having higher education. Stop cheating and understand thoroughly the purpose of higher education, we will definitely recognize the benefit we gain from it. Cheating, as mentioned above, is the act of using dishonest methods to get rewards or to deal with obstacles. Regarding the scene of higher education, cheating includes â€Å"cribbing homework, plagiarizing essays from the Internet, or texting test answers to a friend’s cell phone† (Studies Shed Light on How Cheating Impedes Learning, Sarah). Students just do anything they can to get an â€Å"A† and graduate with their degree on time. However, it is just the delusion of success. The highest purpose of higher education is not to have as many graduated students as possible. Teachers can just take the pen and give as many As to students as they want, then their jobs are done. Students do not even need to attend the exams. Nevertheless, that universities hold exams is not to set scores for students. Exams are meant to check whether students’ knowledge and skills are enough for the next level, for their life or not. Cheating may help students to get rewards for the short-run but will surely bring them nothing in the long-run. Put those cheating acts aside and take a closer look again at the purpose of higher education, we can see that  there are skills and knowledge that we can learn from nowhere but higher education. Without those basic tools, we will step into life dazzling with new things and great challenges. If by any chance we miss any of those skill and knowledge, it is necessary to come back and learn again, until we get what we need. Unfortunately, many students are not aware of the importance of doing so. According to Lucas’s blog, â€Å"students feel they are getting ahead when they cheat† and â€Å"students who cheat deceive themselves into believing they deserve better grades†. They do not know that they actually â€Å"are falling into a feedback loop in which they fall further and further behind†. Besides, it is necessary to emphasize that the prepared minds that higher education creates are not used only for getting a stable career, but also for dealing with problems in our jobs, family and life. Coming to these micro areas, cheating is no more just a simple act that can be fixed or even ignored. The consequences from plagiarism (one type of cheating) are much more severe, when we can even be imprisoned. I totally agree with Lucas when he says in his blog that â€Å"students who cheat in high school are more likely to be dishonest as adult in the workplace†. We should adjust our behavior appropriately to prevent forming bad habits as well as to achieve the right purpose of higher education. Last but not least, it is the most important question that how we can achieve the purpose of higher education? How can we have prepared minds from higher education? The answer is simple but the action is not: discourage cheating; stand on our own foot and make all the effort that we have. Teacher needs to help students understand the â€Å"importance of academic integrity and learning, not just grades, can make them less likely to cheat†. The three methods that Lucas mentioned are the least that teachers should do: â€Å"carefully reduce opportunities to cheat†; â€Å"establishing class or school honor codes† and â€Å"discuss the importance of academic integrity prior to each assignment†. In conclusion, it is true that everyone has the incentives to find easy ways to get rewards or to deal with unpleasant situations. However, cheating to succeed only brings us delusion of success. It is extremely dangerous when we apply dishonest ways to pass the higher e ducation time. The purpose of higher education is surely compromised by cheating acts and if we are not aware of that, we may gain a lot at the beginning but in the end, we will get nothing.

Case Study Example | Topics and Well Written Essays - 500 words - 8

Case Study Example The proposed change of strategy has the following consequences: the fixed costs will increase to (1,053,000 + 585,000) = $ 1,638,000. Second, the new average contribution margin = (0.25*0.5) + (0.25*0.1) + (0.1 * 0.5) + (0.4 * 0.8) = 0.52. Therefore, the total restaurant sales to achieve the desired net income = (1,053,000 + 585,000 + 117,000) /0.52 = $ 3,375,000. Sales for each product lines are as follows: appetizers = (3,375,000 * 0.25) = $ 843,750; Main entrees = (3,375,000 * 0.25) = $ 843,750; Desserts = (3,375,000 * 0.1) = $ 337,500; and Beverages = (3,375,000 * 0.4) = $ 1,350,000 (DuBrin 208-212). The fixed cost will be $ 1,638,000. However, the new contribution margin = (0.15 * 0.5) + (0.5 * 0.1) + (0.1 * 0.5) + (0.25 *0. 8) = 0.375. The sales level to achieve the desired net income = (1,053,000 + 585,000 + 117,000) /0.375 = $ 4,680,000. Sales for each product lines are as follows: appetizers = (4,680,000 * 0.15) = $ 702,000; Main entrees = (4,680,000 * 0.5) = $ 2,340,000; Desserts = (4,680,000 * 0.1) = $ 468,000; and Beverages = (4,680,000 * 0.25) = $ 1,170,000 (DuBrin 208-212). This strategy increases the level of sales to achieve the desired net income of $ 117,000. A potential risk to this strategy is the failure to meet the sales level ($ 4,680,000). On the other hand, the strategy has an advantage of increasing the restaurants revenues. A company that uses manual labor in the production system experiences the following cost pool: wages to part-time and full-time employee, the contribution to a pension plan, employee recruitment costs, and moral hazard cost. On the other hand, the automated equipment system bears the following cost pools: machine acquisition costs, equipment maintenance costs, salary to IT technician, machine replacement and depreciation costs. Changing from manual labor production system to an automated equipment system changes the cost above named

Chess game Coursework Example | Topics and Well Written Essays - 250 words

Chess game - Coursework Example This is very true. Palm has even managed to convince the readers further by the use of the findings from an experiment that proved positive. In my opinion, the author is right because my performance in classroom has also been improving considerably because I regularly play chess. Christine Palm’s assertion that playing chess game improves the concentration of the students thereby making them score very high marks is very logical and right. For instance, the author asserts â€Å"Similarly, a 5‑year study of 7th and 8th graders by Robert Ferguson of the Bradford, PA School District showed that test scores improved 173% for students regularly engaged in chess classes, compared with only 4.56% for children participating in other forms of "enrichment activities† (Palm, 1990). According to my opinion, this is a clear proof that playing chess improves the academic performance of students. In my opinion, Christine Palm has managed to maintain the logic behind this issue. This is true since I have also experienced lots of improvements in my academics because I have been repeatedly playing chess game. Playing chess has improved my socialization aspects. In addition, I have realized improvements in my academics. For instance, playing Chess has made me improve in subjects like mathematics. Moreover, I have also learnt how to reason logically and critically trough playing Chess. Playing chess has also made me develop good problem solving skills. I have also developed good analytical skills through playing Chess. As such, it seems to me that Chess game improves academic performance in the students as I have experienced

The Rights Of The Accused And Their History Essay

The Rights Of The Accused And Their History - Essay Example According to the 6th Amendment to the Constitution, everyone is entitled to a speedy trial and they have a right to counsel. However, there are circumstances that would seem that the person is not entitled to a trial because the crime they committed was so heinous that they do not deserve one. In these cases, the public has a tendency to want to fall back on the older laws where the individual should receive a judgment right away because they are guilty of the crime. In America, the individual is not guilty until they have been proven guilty by the jury. When thinking about the issues that were presented in this assignment, it would seem that the law of the land (that which most people would think was right) and the official law of the Constitution are in conflict. Some people would expect that in order to have justice, the individual who was found guilty by the public, would not stand trial, and would be taken quickly to a conviction. The challenge with this way of thinking is that just because a person was found to be guilty by the public, does not mean that they are the guilty party. If we were to adhere to this type of law, we would find that we were convicting some innocent people. This is the reason why a trial is important to anyone's life. If they are given a trial and there is enough evidence to convict the individual, it can then be said that the law withheld the judgment. When thinking about whether these laws can stand the test of time, we have to say that they can. They are there to protect not only the person accused, but also to protect the public. Although the crimes today seem to be larger and more outrageous than those in the 18th Century by our standards, they are still in need of an impartial jury. The problem is, that many people who sit on a jury are already biased by the crime that was committed.

Family Support Article Example | Topics and Well Written Essays - 750 words

Family Support - Article Example Family support is a philosophy that promotes the growth and development of families. It aims to enhance the strengths innate in families as well as strengthening identified weaknesses in order for the members to achieve optimal well-being and personal success. Various family support programs have been developed and offered in communities, however, Malcolmson (2002) believes that family support should have a strong commitment to relationship-building based on trust, respect and sharing of power. Dunst (1995) offers the following characteristics of family support programs: Enhancing a Sense of Community: the coming together of people with similar needs and values. Mobilizing Resources and Supports: sourcing and establishing the necessary services in supporting the family’s needs. Shared Responsibility and Collaboration: sharing of skills and ideas in taking care of the family’s needs Protecting Family Integrity: keeping the values and cultural perspective of the family st rong Strengthening Family Functioning: helping family members to strengthen their capabilities to be able support each member to function at his/her best. Adopting Proactive Program Practices: availing of family support services that support and strengthen the family. How does the theoretical framework of family support e.g: premises/paradigms and guiding principles culminate in a promotion model of service delivery to families as described on the reading. The theoretical framework of family support gives the prevailing idea that support services are more preventive than promotional. Initially, being preventive is viewed as a good thing. The cliche â€Å"An ounce of prevention is worth a pound of cure† hails prevention as the ultimate paradigm to keep families safe, healthy and far from the risks of deterioration. However, Dunst, Trivette and Thompson (1990, as cited in Dunst, 1995) and Cowen (1994, as cited in Dunst, 1995) contend that the use of prevention models goes again st the principles of family support. They argue that the prevention of problems does not guarantee that families will effectively function and their competence will be optimized, as opposed to situations when they are given opportunities that support and strengthen families from the onset. Family support is characterized with a proactive paradigm that focuses on further enhancing families’ strength with promotion-oriented practices. Such practices have a mastery and optimization orientation, and the development, enhancement and elaboration of an individual’s skills and strengths are emphasized, most especially the competencies that increase his control over the important aspects of his life (Dunst, 1995). Hence, a promotion model of family support builds strengths instead of rectifying deficits. This way, the individuals benefitting from the promotional family support finds it easier to deal with life’s challenges and difficulties while they set growth-oriented goals and the achievement of personal aspirations. What do you see as the role of the practitioner in this model of service to families? Consistent with Dunst’s (1995) characteristics of family support services, the practitioner has multiple roles in the delivery of such service. Being alert to the needs and strengths of the families in the community, he has a broad picture of the resources and supports available. He is able to match service providers with service consumers and he bridges a sense of responsibility and collaboration between

Marketing Plan for SBA in Developing Sounds for Mobile Games Assignment

Marketing Plan for SBA in Developing Sounds for Mobile Games Applications - Assignment Example The study reveals that in order to boost sales after making the entry into the market, SAB needs to take into relation the price sensitivity of the sporty gamers in addition to fashion realization of present day’s patrons. The evaluation of technical factors showed the hazard of the release of a fresh generation of games plus the opportunities stalking from the utilization of online division channels as well as the growth of massively multiplayer online games. SAB Australia wishes to take into relation mutually lawful factors in provisos of piracy hazard also observance to worldwide acceptance standards. On the base of situational analysis, the plan assumes SWOT analysis which reveals that SAB shall press on its Product Mix part to boost the application to latent clientele. The price plus technical inadequacy in the current market were accepted as one of the key existing weaknesses which may estrange the latent sporty gamers plus invite the price of missing patrons. This build s up a marketing strategy which fits the conclusions of situational analysis plus the SWOT moreover proposes a precise plan of actions intended to convene the actual objectives. The plan of actions recommends the way SAB Australia can extend the correct blend of 7Ps' tools, to call on to target clients and boost client acquiesce. The SBA Music focuses on supplying audio/music solutions for games. This Australian specific corporation understands embryonic music trends plus competently supplying this to the customers. The viewpoint is to appreciate the unreliable and altering requirements of our customers plus to imitate this within the music solutions SAB presents. The goods sorted from themed audio CD's within mobile phone games in particular to complete software plus hardware clarification s that transport planned digital music, publicity, and extra.

The Native American Trail of Tears Essay Example for Free

The Native American Trail of Tears Essay Removal of the Cherokees and several other native nations during the 1830s allowed expansion of Anglo-American populations south and west through parts of Georgia, Alabama, Mississippi, and neighboring states. At roughly the same time, industrial application of Eli Whitneys cotton gin created a mass market in moderately priced cotton clothing. Within a decade after the Trail of Tears, the Cherokees homeland had been replaced, in large part, by King Cotton and a revival of slavery. Between one-fourth and one-third of the 16,000 Cherokee people who were removed during 1838 died on the march to Indian Territory (now Oklahoma) or shortly thereafter. The Cherokees name for the march, nuna-daa-ut-suny the trail where they cried, provided its English name, the Trail of Tears. President Jackson, having retired from his army career of Indian fighting, avidly supported the Removal Act of 1830, which led to the Cherokees Trail of Tears. Ross was the Cherokees foremost advocate against removal, the man most responsible for taking two major cases to the Supreme Court. Marshall worked the facts of the conflict into legal doctrine that has shaped law regarding Native Americans for more than a century and a half. The removal of the civilized tribes from their homelands is one of the most notable chapters in the history of American land relations. Jacksons repudiation of John Marshalls rulings, which supported the Cherokees rights to their homelands, comprised contempt of the Supreme Court, an impeachable offense under the Constitution. The subject of impeachment was not seriously raised, however. During the conflict over removal, which continued through most of Jacksons presidency, the entire United States debated assertions of states rights vis-à  -vis the federal government and the Cherokees in a prelude to the coming dissolution of the Union during the Civil War less than three decades later. Had Jackson followed Justice Marshalls rulings, the Civil War might have started during the 1830s. The explosion of westward migration after roughly 1800 generated enormous profits in land speculation. Fortunes were made in early America not usually by working the land, but by buying early and holding large parcels for sale after demand increased dramatically because of non-Indian immigration. As a frontier lawyer in Tennessee, Andrew Jackson often took his fees in land rather than money, which was as scarce along the frontier as land was plentiful. As a lawyer, Jackson acquired immense holdings with which he began a mercantile establishment and bought a plantation. . . . He built an expensive frame house at a time when most wealthy Tennesseeans still lived in log cabins, and spent large sums on whiskey, horses, and expensive home furnishings imported from Europe (Rogin 55). Jackson quickly acquired more than a hundred slaves, making him one of frontier Tennessees largest owners of human capital. He traded actively in slaves and occasionally wagered them on horse races in a display of expendable wealth that established power relationships on the frontier. In the realm of intellect, Jackson was not a subtle man. He admired Napoleon Bonaparte to the point of nearly totally ignoring the French emperors tendencies toward tyranny. Perhaps yielding to the aftertaste of the War of 1812, Jackson sincerely believed that a republic would spring from the wreck if Napoleans army would invade England and topple British royalty (Rogin 73). Jackson did not seek the removal of the Cherokees and other civilized tribesthe Choctaws, Chickasaws, Creeks, and Seminolesbecause they did not know how to make productive use of the land. On the contrary, four of the five (the exception being the Seminoles, who had escaped to Florida) were called civilized tribes by the immigrants precisely because they were making exactly the kind of progress the Great White Father desired of them: becoming farmers, educating their children, and constituting governments modeled on that of the United States. Immigrants, many of them Scots and Irish, had married into native families. Some of them owned plantations and slaves. Removal had been proposed for the Cherokees as early as 1802, when Thomas Jefferson was president. During that year, the state of Georgia signed an agreement with the U.S. government (the Cherokees were not consulted) stating its intent to work toward extinguishment of all Cherokee land titles within state borders as early as the land could be peaceably obtained, and on reasonable terms (Moulton 24). By the time President Jacksons Removal Act was passed by Congress, most white Georgians regarded the United States as seriously delinquent in the bargain (Moulton 24). Before he emerged as an advocate of Indian removal, President Jacksons name had scorched the memories of Native American peoples for decades as an Indian fighter. As a general in the U.S. Army, Jackson blazed a trail of fire throughout the South, refusing to even when his superiors ordered him to relent. In a battlefield confrontation with William Weatherfords Creeks at Horseshoe Bend, Alabama, Jackson imprisoned assistants who advised retreat. For those who retreated in battle without authorization, the penalty levied by General Jackson was harsher: Any officer or soldier who flies before the enemy without being compelled to do so by superior force . . . shall suffer death (Tebbel 75). By the time the Removal Act was passed in 1830, the Cherokees had 22,000 cattle, 7,600 horses, 46,000 swine, 2,500 sheep, 762 looms, 2,488 spinning wheels, 172 wagons, 2,943 plows, 10 sawmills, 21 grist mills, 61 blacksmitheries, 18 schools, 8 cotton gins, and 1,300 slaves. All of these things indicated that they led prosperous lives very much like those of the European-American settlers who sought their land. Removal was never popular among the Cherokees. The federal governments representatives disregarded the majority opinion and relied on the minority Treaty Party to negotiate removal treaties, largely ignoring John Rosss National Party. One proposed treaty, signed during February 1835, was voted down by a substantial number of Cherokees. The result (114 yes, 2,225 no) was a fair indication of the proposals popularity. Despite the manifest unpopularity of removal, a minority of Cherokee leaders in the Treaty Party, including Elias Boudinot, John Ridge, and several others, journeyed to Washington, D.C., in 1835 to negotiate removal, an initiative that was not sanctioned by the Cherokee government. On December 29, 1835, Boudinot and nineteen other Cherokees signed the Treaty of New Echota, which ceded Cherokee lands as of May 23, 1836. This treaty, called the Christmas trick by its many opponents, was ratified by the U.S. Senate in 1836 by a one-vote margin (Cole 116). Although Ross continued to protest removal for two more years, the state of Georgia started to coerce the Cherokees into selling their lands for a fraction of their real value. Marauding whites plundered Cherokee homes and possessions and destroyed the Cherokee Phoenixs printing press because the paper opposed removal. Opposition to removal by a large proportion of the Cherokees continued until the Trail of Tears began. On March 10, 1838, with removal impending, the Cherokees assembled a petition opposing removal with more than 15,000 signatures. While some of the signatures may have been invalid (the entire Cherokee population at the time was about 16,000), the petition demonstrated widespread Cherokee opposition to the terms of the Treaty of New Echota. John Ross was deeply disappointed by Jacksons unwillingness to enforce the law as interpreted by Chief Justice Marshall. When Ross faced removal from his own plantation-style home, he may have recalled words he had told a delegation of Senecas in 1834: â€Å"We have been made to drink of the bitter cup of humiliation; treated like dogs; our lives, our liberties, the sport of whitemen; our country and the graves of our Fathers torn from us in cruel succession; until driven from river to river, from forest to forest, and thro [sic] a period of upwards of two hundred years, rolled back nation upon nation, we find ourselves fugitives, vagrants, and strangers in our own country, and look forward to the period when our descendants will perhaps be totally extinguished by wars, driven at the point of the bayonet into the Western Ocean, or reduced to . . . the condition of slaves.† (Moulton 55) By 1838, the Cherokees had exhausted all their appeals. As they were being forced to leave their homes, the Cherokees passed a memorial that expressed the manifest injustice of their forced relocation: â€Å"The title of the Cherokee people to their lands is the most ancient, pure, and absolute known to man; its date is beyond the reach of human record; its validity confirmed by possession and enjoyment antecedent to all pretense of claim by any portion of the human race. The free consent of the Cherokee people is indispensable to a valid transfer of the Cherokee title. The Cherokee people have neither by themselves nor their representatives given such consent. It follows that the original title and ownership of lands still rests with the Cherokee Nation, unimpaired and absolute. The Cherokee people have existed as a distinct national community for a period extending into antiquity beyond the dates and records and memory of man. These attributes have never been relinquished by the Cherokee people, and cannot be dissolved by the expulsion of the Nation from its territory by the power of the United States Government.† (OBrien 57) The U.S. Army forced Cherokee families into prison camps before their arduous trek westward. As a result of unhealthy and crowded conditions in these hastily constructed stockades, some Cherokees died even before the Trail of Tears began. James Mooney, an ethnologist, later described how the Cherokees were forced from their homes: Squads of troops were sent to search out with rifle and bayonet every small cabin hidden away in the coves or by the sides of mountain streams. . . . Families at dinner were startled by the sudden gleam of bayonets in the doorway and rose up to be driven with blows and oaths along the trail that led to the stockade. Men were seized in their fields or going along the road, women were taken from their wheels, and children from their play.† (Van Every 242) A U.S. Army private who witnessed the Cherokee removal wrote: â€Å"I saw the helpless Cherokee arrested and dragged from their homes, and driven by bayonet into the stockades. And in the chill of a drizzling rain on an October morning I saw them loaded like cattle or sheep into wagons and started toward the west. . . . Chief Ross led in prayer, and when the bugle sounded and wagons started rolling many of the children . . . waved their little hands goodbye to their mountain homes.† (Worcester 67) More than 4,000 Cherokees died of exposure, disease, and starvation, about a quarter of the total Cherokee population. Quatie, Rosss wife, was among the victims of this forced emigration. After removal, the miserable conditions continued. Many Cherokees died after they arrived in Indian Territory as epidemics and food shortages plagued the new settlements. An observer in Kentucky described the Cherokees midwinter march to Arkansas: â€Å"Even aged females, apparently nearly ready to drop into the grave, were travelling with heavy burdens attached to their backs, sometimes on frozen ground, and sometimes on muddy streets, with no covering for their feet.† (Collier 124) On the subject of the Cherokees removal, Ralph Waldo Emerson weighed in solidly with John Ross. Emerson wrote to President Martin Van Buren on April 23, 1838, about the impending Trail of Tears: â€Å"A crime is projected that confounds our understandings by its magnitudea crime that really deprives us as well as the Cherokee of a country, for how could we call the conspiracy that should crush these poor Indians our government, or the land that was cursed by their parting and dying imprecations our country, any more? You, sir, will bring down that renowned chair in which you sit into infamy if your seat is set to this instrument of perfidy; and the name of this nation, hitherto the sweet omen of religion and liberty, will stink to the world.† (Moquin 105) In his letter to Van Buren, Emerson seemed concerned less with Indian suffering or a sense of injustice than with a belief that their removal would stain his image of the presidency and the national history of the United States. Portions of the same letter to Van Buren contain assumptions that might have pleased Andrew Jackson, had Emersons letter been addressed to him. Emerson spoke of the Cherokees frame homes, grist mills, farms, government, and written language as painful labors of these red men to redeem their own race from the doom of eternal inferiority . . . to borrow and domesticate in the tribe the arts and customs of the Caucasian race (Black and Weidman 272). Despite the cruelty of the marches they were forced to endure, as well as the death, disease, and deprivation that dogged their every step, the surviving Cherokees, with Ross again in the lead, quickly set about rebuilding their communities. Much as they had in the Southeast, the Cherokees, Creeks, and others built prosperous farms and towns, passed laws, and set about rather self-consciously civilizing themselves once again. John Ross set about recreating a new Cherokee homeland with the same energy that had characterized his battle against removal. Works Cited Black, Nancy B, and Bette S. Weidman. White on Red: Images of the American Indian. Port Washington, NY: Kennikat Press, 1976. Cole, Donald B. The Presidency of Andrew Jackson. Lawrence: University Press of Kansas, 1993. Collier, John. Indians of the Americas. New York: New American Library, 1947. Moquin, Wayne, ed. Great Documents in American Indian History. New York: Praeger, 2003. Moulton, Gary E. John Ross: Cherokee Chief. Athens: University of Georgia Press, 1998. O’Brien, Sharon. American Indian Tribal Governments. Norman: University of Oklahoma Press, 1999. Rogin, Michael Paul. Fathers and Children: Andrew Jackson and the Subjugation of the American Indian. New York: Alfred A. Knopf, 1995. Tebbel, John W. The Compact History of the Indian Wars. New York: Hawthorn Books, 1966. Van Dale Every. Disinherited: The Lost Birthright of the American Indian. New York: William Morrow Co., 1996. Worcester, Donald E., ed. Forked Tongues and Broken Treaties. Caldwell, ID: Caxton Printers, 1995.

How To Develop Pricing Strategy For A Product Marketing Essay

How To Develop Pricing Strategy For A Product Marketing Essay This Paper tries to link between the first two components of a marketing mix: product strategy and pricing strategy. In order to help decision makers to define the optimum pricing strategy for product mix. Marketers broadly define a product as a bundle of physical, service, and symbolic attributes designed to satisfy consumer wants. Therefore, product strategy involves considerably more than producing a physical good or service. It is a total product concept that includes decisions about package design, brand name, trademarks, warranties, guarantees, product image, and new-product development. The second element of the marketing mix is pricing strategy. Price is the exchange value of a good or service. An item is worth only what someone else is willing to pay for it. In a primitive society, the exchange value may be determined by trading a good for some other commodity. Pricing strategy deals with the multitude of factors that influence the setting of a price. Table of Contents Introduction This paper will review each of the variables that affect the optimum pricing strategies of a product, the researcher will start with defining The product and exploring how product classification can affect the product mix decision in the firm, then researcher will study the product life cycle and how it can affect the pricing and marketing strategies during the different stages of the cycle. Secondly the researcher will tackle the pricing as one of the marketing strategies and what can affect the pricing strategy either internally from inside the firm or externally from outside the firm, finally researcher will define the linkage between pricing strategy, marketing strategy and the product mix. Problem Statement How to define the optimum pricing strategy for product mix as part of the firm marketing strategy Research Questions What is a product and how product classification can affect the Product mix decision for a firm? What is the linkage between the product life cycle and marketing strategy? What are the different pricing objectives? What factors are affecting the pricing strategy for a product? What is the linkage between pricing strategy, product and marketing strategy? Marketing Strategies Marketing Planning begins with formulating an offering to meet target customers needs or wants, where the customer will judge this offering by mainly two elements; product features and quality, and price. (Kotler Keller, 2009) Before a new product launch, marketers create marketing programs to maximize the chance of success. This is often a challenging managerial decision because, to set the appropriate pricing levels, managers must have reliable estimates as to how sales would respond to different levels of a marketing-mix variable. (JACKIE LUAN SUDHIR, 2010). The long term performance of mature product will be affected by the integrated marketing strategy including pricing (BERK ATAMAN, VAN HEERDE, MELA, 2010). Product Product is no more a tangible offering, but it can be more than that, Product can be anything that is offered to a market to satisfy a want or a need, including physical goods, services, experiences, events, persons, places, properties, organizations, information, and ideas. (Kotler Keller, 2009) There are many aspects of product development to consider. A product or service has features: function, appearance, packing, and guarantees of performance that help people solve problems. When designing a product, marketers should address the issue of product classes. (Smith Strand, 2008) Product Classification Products are classified on the basis of; durability, tangibility and use (consumer or industrial), where each product type has its appropriate marketing strategy. (Kotler Keller, 2009) Durability and Tangibility: The products can be sub-classified into three categories according to the durability and tangibility; where goods can be either nondurable goods, durable goods or a service. Nondurable Goods will be tangible, normally consumed in one or a few uses and they are purchased frequently, such as soap. Durable Goods are tangible goods that survive many uses, such as refrigerators. Services are intangible, inseparable and perishable products. Consumer Goods Classification: According to the consumers shopping habits; products can be sub-classified into convenience, shopping, specialty, and unsought products. Consumer purchase Convenience Goods frequently and with minimum efforts such as soaps and soft drinks. When the consumer characteristically compare on bases of suitability, quality and price, this is a Shopping Goods such as furniture. Specialty Goods are goods with unique characteristics for which a sufficient numbers of consumers are willing to make a special purchasing effort such as sportive cars. There are another category of goods that consumer doesnt normally think of buying such as life insurance which is classified as Unsought Goods. Industrial Goods Classification: According to the goods relative cost and how they enter the production process; Industrial goods can be sub classified into Material and Parts, Capital Items, and Supplies and Business Services. Material and Parts are goods that enter the manufacturers product completely such as raw materials. Capital Items are long lasting goods that facilitate developing or managing the finished products, such as buildings and heavy equipment. Supplies and Business Services are short-term goods and services that facilitate developing or managing the finished goods, such as maintenance and repair. Product Mix The Product Mix is the totality of product lines offered by a company. Product mix decisions involve varying their width, depth and consistency. Mix width refers to the number of different product lines the company carries. Mix consistency includes assessing the relationship between product lines in terms of common end uses, prices, distribution outlets and markets served. (Clemente, 2002) Before a new product launch, marketers have to create marketing programs to maximize the chance of success. In other words, they must forecast the market responsiveness to various marketing-mix variables. Although there is substantial literature on new product sales forecasting, there has been scant research related to forecasting marketing-mix responsiveness before a new product launch. (JACKIE LUAN SUDHIR, 2010) Determining the product-mix is one of the most important decisions relating to planning. Such decision implies utilizing limited resources to maximize the net value of the output from the production facilities. The quantity produced from each product in a certain time period results in utilizing certain resources for that time, consuming certain amount of raw materials, using certain labor skills and various production centers, and so on. The objective of the product-mix decision in the overall production plan is to find the product mix and the production program that maximizes the total contribution to profit/throughput subject to constraints imposed by resource limitations, market demand, and sales forecast. (Al-Aomar, 2000) The product designer should take into account both marketing and engineering considerations concurrently in a product line design. (LUO, 2011) Linkage between Product Classification and Product Mix In offering a product line, companies should offer basic platform of products and modules that can be added to meet different customers requirements, this approach enables companies to offer variety of products and to lower their production cost, therefore; each product line manager has to know the sales and profits of each item in his product line in order to determine which product mix strategy to implement, and to know which items to build, maintain, harvest, or divest. (Kotler Keller, 2009) Product classification has implication on how companies will formulate their product mixtures and what marketing strategies will be applied per each product mix, knowing at what class is the product along with well orientation of the product mix will be positively beneficial for both to the producer as well as to the consumers. The followings are some relations between product classification and product mix. (ADEOTI, 2010) Durability and Tangibility Classification and Product Mix: For durable and non-durable goods, there is a reflection on the life expectancy of the product. These classifications have strategic implications to the producer. Durable products are purchased infrequently and require personal selling. Perishable products need speedy distribution and luxury goods can be priced highly. Consumer Goods Classification and Product Mix: Convenience goods could be staples like food items bought on regular basis often by habit. It could also be impulsive items which are purchased, not because of planning but because of strongly felt need. It could also be emergency products which are needed to solve an immediate crisis. Brand Name would be very important for staple products while impulse products require a captivating packaging signal that will attract the consumers. For emergency products the consumers are less sensitive to price, therefore it is a circumstantial product. The understanding, of the buying behavior of the consumers for each of these sub-categories of convenience goods and the product characteristics will inform the producer on the appropriate marketing strategy options to be taken for higher returns. Shopping goods are bought rather infrequently and are used up very slowly. For homogenous shopping goods the prices should be relatively in the same range with other products in the same homogenous shopping goods category. For heterogeneous shopping goods consumers should consider the tangible features of these products and the associated services on offer before making a buying decision. Consumers are not usually sensitive to prices of heterogeneous shopping goods provided the product has some demonstrable advantage over its competitors. Promotional activity for this category of shopping goods should focus on pointing out unique attributes of the product rather than low prices. Specialty goods are products that have no acceptable substitutes in the mind of the consumer, where the uniqueness and superiority of the Specialty product stems from unrivalled quality superiority or design exclusivity. Specialty brands are what should be created. Producer should be encouraged by this superiority complex of the buyers and should not demean the quality. Consumers of such products are insensitive to price. Hence the mark up could be high for the targeted market, for unsought products, the consumer has no felt need for it. Many new products fall into this category, until their usefulness is known the consumer is not disposed to buying them. Personal selling and wide advertisement is required for unsought goods. There may be a need to even launch the product officially in the market place. Industrial Goods Classification and Product Mix: Installations goods are long-lasting products that are not bought very often. The number of potential buyers at any given time is usually small. These consist of buildings and fixed equipment. The producer must design it to specification and to supply post sale services. Accessory equipment; these comprise of portable factory equipment and tools. This equipment does not become part of the finished product; they simply help in the production process. Quality features, price and services are major considerations in vendor selection. Raw materials; these are goods that have been produced only enough to make handling convenient and safe. They enter the manufacturing process basically in their natural state. They originate either from agriculture or from industries such as mining and lumbering. Examples are cotton, man cue, crude oil and most farm produce. Fabricating materials; these undergo some degree of initial processing before they enter the product manufacturing process. This may be a relatively basic step such as changing iron ore into pig iron or wheat into flour. In other cases an ingredient may be completely prefabricated, such as an automobile tire or an electric motor for home appliance. The more complicated a product is, the more likely it is to contain both raw and fabricating materials. Facilitating goods; these are operating supplies that are used up in the operation of the firm but do not become part of the product. They are usually budgeted as expenses and have short life. The purpose of such goods is to keep the foundation goods functioning properly and to help in the handling and supply of the entering goods. Examples are lubricating oil; saw blades, cider forms and labels. The Product Life Cycle Product life-cycle (PLC) like human beings, products also have an arc. From birth to death, human beings pass through various stages e.g. birth, growth, maturity, decline and death. A similar life-cycle is seen in the case of products. The product life cycle goes through multiple phases, involves many professional disciplines, and requires many skills, tools and processes. Product life cycle (PLC) has to do with the life of a product in the market with respect to business/commercial costs and sales measures. (Niemann, Tichkiewitch, Westkà ¤mper, 2008) Product value and life are usually expected to follow the product life cycle (PLC), wherein products are expected to move from an investment toward a profitable mature peak that ends when the product is phased out. However; Christiansen et al assume that the value of a product is relational and that relationships between products and consumers are created, broken, and recreated. Value creation is a never-ending process, in that the product should be considered to be a process by which value constructions are constantly negotiated in actor networks. (Christiansen, Varnes, Gasparin, Storm-Nielsen, Vinther, 2010) Christiansen et al (2010) have concluded some actors that make the product timeless: Flexibility and adaptability that make it possible for the product to travel to new places and participate in new qualification processes and attach to new actors and be part of new networks. The ability to connect to different networks simultaneously as part of a network that stresses the high-end market attaching to the need for having a distinctive product to some, being a classical piece of sculpture-furniture to others and being related to contemporary artistic expressions to yet others. A strong core that provides the product with a unique and significant identity or expression, allowing for temporal interpretations or additions and modifications. Framing devices that help to position the product in settings that continue to present the product as relevant and useful in changing networks in a context in which others are constantly trying to get customers to attach to other networks. Serendipity-as fortune and misfortune cannot be accurately predicted or calculated when the out- come is a product of multiple connections over long time spans among potentially numerous human and non-human actors. Linkage between Product Life Cycle and marketing Strategies The product life cycle concept provides important insights for the marketing planner in anticipating developments throughout the various stages of a products life. Knowledge that profits assume a predictable pattern through the stages and that promotional emphasis must shift from product information in the early stages to heavy promotion of competing brands in the later ones should improve product planning decisions. Since marketing programs will be modified at each stage in the life cycle, an understanding of the characteristics of all four product life cycle stages is critical in formulating successful strategies. (Skidmore, 2005) Skidmore (2005) has divided the product life cycle into mainly four stages; Introduction Stage In the early stages of the product life cycle, the firm attempts to promote demand for its new market offering. Because neither consumers nor distributors may be aware of the product, marketers must use promotional programs to inform the market of the items availability and explain its features, uses, and benefits. New-product development and introductory promotional campaigns are expensive and commonly lead to losses in the first stage of the product life cycle. Yet these expenditures are necessary if the firm is to profit later. Growth Sales climb quickly during the products growth stage as new customers join the early users who are now repurchasing the item. Person-to-person referrals and continued advertising by the firm induce others to make trial purchases. The company also begins to earn profits on the new product. But this encourages competitors to enter the field with similar offerings. Price competition appears in the growth stage, and total industry profits peak in the later part of this stage. To gain a larger share of a growing market, firms may develop different versions of a product to target specific segments. Maturity Industry sales at first increase in the maturity stage, but eventually reach a saturation level at which further expansion is difficult. Competition also intensifies, increasing the availability of the product. Firms concentrate on capturing competitors customers, often dropping prices to further their appeal. Sales volume fades late in the maturity stage, and some of the weaker competitors leave the market. Firms spend heavily on promoting mature products to protect their market share and to distinguish their products from those of competitors. Decline Sales continue to fall in the decline stage of the product life cycle. Profits also decline and may become losses as further price cutting occurs in the reduced market for the item. The decline stage is usually caused by a product innovation or a shift in consumer preferences. The decline stage of an old product can also be the growth stage for a new product. Pricing The meaning of the price is broader than the traditional definition The price of a product or service is the number of monetary units a customer has to pay to receive one unit of that product or service. (Blois, Gijsbrechts, Campo, Oxford Textbook of Marketing, 2000) Blois et al (2000) have believed more in Hurt and Speh definition of the pricing where they believe that the cost of an industrial good includes much more than the sellers price, where they have concluded that implications of pricing is crucial to managers facing the pricing decision, therefore decision-makers have to consider the multidimensional view on prices. Additionally they have to recognize that complex pricing schemes may be needed, including a system of prices for different types of customers, product packages, and time periods. This observation is the essence of strategic pricing. Pricing strategy STRATEGY is the means by which an organization seeks to achieve its objectives (Adrian., 2000) Adrian (2000) explained how Strategic decisions about pricing cannot be made in isolation from other strategic marketing decisions, so, for example, a strategy that seeks a premium price position must be matched by product development strategy that creates a superior product and a promotional strategy that establishes in buyers minds the value that the product offers. Adrian (2000) then explained the relation between pricing strategy and the concept of positioning, where a strategy that combined high price with low quality may be regarded by customers as poor value and they are likely to desert such companies where they have a choice of suppliers. For most companies, such a strategy is not sustainable. A high quality/low price strategic position may appear very attractive to buyers, but it too may not be sustainable. Back to Blois et al (2000) where they highlighted how the price is also a component of the marketing mix and therefore impacts on overall sales via its contribution to the consumers perception of the products image. Pricing Objectives Marketing attempts to accomplish certain objectives through its pricing decisions. Research has shown that pricing objectives vary from firm to firm. Some companies try to maximize their profits by pricing their offerings very high. Others use low prices to attract new business. (Palmer, 2000) As per Palmer (2000); the three basic categories of pricing objectives are: Profitability Objectives Profit maximization is the basis of much of economic theory. However, it is often difficult to apply in practice, and many firms have turned to a simpler profitability objective-the target return goal. For example, a firm might specify the goal of a 9 percent return on sales or a 20 percent return on investment. Most target return pricing goals state the desired profitability in terms of a return on either sales or investment. Volume Objectives Another example of pricing strategy is sales maximization, under which management sets an acceptable minimum level of profitability and then tries to maximize sales. Sales expansion is viewed as being more important than short run profits to the firms long-term competitive position. A second volume objective is market share; the percentage of a market controlled by a certain company, product, or service. One firm may seek to achieve a 25 percent market share in a certain industry. Another may want to maintain or expand its market share for particular products or product lines. Social Objectives Objectives not related to profitability or sales volume; can be either of social and/or ethical considerations, status quo objectives, and image goals are often used in pricing decisions. Social and ethical considerations play an important role in some pricing situations. For example, the price of some goods and services is based on the intended consumers ability to pay. For example, some union dues are related to the income of the members. Internal factors affecting pricing Company objectives and strategies An essential ingredient of effective prices is their consistency with company objectives and overall marketing strategy. The realization of company objectives necessitates the development of an overall marketing strategy. To be effective and efficient, the companys pricing decisions must fit into this strategy, and be in line with decisions on other marketing-mix elements. Also, prices should not be set as an afterthought. Reflections on appropriate prices should occur at the time the product, communication, and distribution are conceived, because the different instruments of the mix have a synergetic influence on the market. There is ample evidence that the impact of pricing strategies and structures depends on the companies communication and distribution approach and on the products characteristics. (Blois, Gijsbrechts, Campo, Oxford Textbook of Marketing, 2000) Costs Costs have traditionally played a major role in pricing decisions. They constitute a basic ingredient for setting a price floor or lower boundary on acceptable prices. Cost Classification Costs can be classified along different dimensions. (Blois, Gijsbrechts, Campo, Oxford Textbook of Marketing, 2000) First Dimension First dimension concerns the degree to which costs can be directly attributed to specific products; where costs can be either direct traceable, indirect traceable or general costs. Direct traceable costs can be immediately associated with individual products, such as the cost of raw materials. Indirect traceable costs are not directly linked to, but can with some effort be traced back to, individual products, such as the cost of filling shelves is illustrative of this type. General costs, finally, cannot be linked to specific products, such as administrative overhead costs. Assessing direct traceable costs, and attributing indirect traceable costs, are important for pricing. Second Dimension Equally crucial is the distinction between variable and fixed costs. Which of these components should enter the pricing decision depends on the companys objective. For profit-maximizing companies, fixed cost may not affect optimal prices. Yet, for not-for-profit companies maximizing sales or participation subject to a deficit constraint, fixed cost may have a major effect on feasible outcomes. The companys time horizon also has a fundamental impact on the costs to be considered. Whether costs are fixed or variable depends on the time frame adopted by the company. Third Dimension Cost dynamics; where Short-term costs may differ from long-term cost levels as a result of changes in the scale of company operations. Economies of scale arise if the cost per unit decreases with the output level in a given period. This could be the result of the facility to share corporate resources across products, the use of more efficient (large-scale) production facilities, long production runs, access to volume discounts in purchases, or shipment in full carload or truckload lots. Experience effects are a second major source of declining production costs. Linkage between cost and pricing strategy As argued above, costs are related to price floors: they typically set a lower bound on prices. The contribution margin for a product equals its price minus its unit variable cost: if negative, selling the product at that price leads to a loss; if positive, at least part of the fixed cost can be recovered. While this principle seems utterly simple, the foregoing discussion illustrates that the determination and quantification of all relevant costs may be far from evident. The notion of costs as a price floor is blurred by product inter-dependencies, cost dynamics, cost allocation over channel members and company subsidiaries, and the pursuit of multiple company objectives. Yet, knowledge of basic cost components remains a crucial input to the pricing decision, and companies should strive for a complete picture of various cost issues. (Blois, Gijsbrechts, Campo, Oxford Textbook of Marketing, 2000) External factors affecting pricing AS well as there are internal factors that affect the firm, there are also many external factors that affect the firm that must be taken into account when prices are set. It is useful to consider these in four groups; first the characteristics of the customers themselves and then three aspects of the environment within which the firm operates. (Blois, Gijsbrechts, Campo, Oxford Textbook of Marketing, 2000) Customer characteristics Price-volume relationship (price sensitivity) The customers price sensitivity is usually measured by the price elasticity; the price elasticity is the relative change in demand (sales) resulting from a relative change in the unit price of the product. The price elasticity is affected by four factors; firstly, measured price sensitivities depend on how demand is quantified: market-share changes in response to price are typically larger than sales changes. Secondly, the nature of the price change affects elasticity outcomes. Market reactions to a regular price change may be different from response to temporary promotional price cuts. Thirdly, the level of price elasticity depends on distribution and communication, but especially on product characteristics. Products or services with a unique brand value are said to be less sensitive to price changes. Finally, price elasticity changes over the product life cycle (PLC). The traditional view is that price sensitivity increases as the product evolves over the life cycle, price sensitiv ity first declines as the product moves from the introduction to the growth and maturity stage, and then increases in the decline phase of the PLC. Individual consumers The traditional microeconomic picture of a consumer who correctly registers all prices and price changes, and acts rationally upon them so as to maximize his utility, has been falsified for quite some time. Consumers are heterogeneous in their levels of price search, knowledge, and recall accuracy. Consumers also differ in the location of their acceptable price range: they have different upper and lower price limits, different reference price levels, and different latitudes of acceptance around the reference price. A wide range of factors may explain these differences. Economic factors, such as perceived price differences, budget restrictions, and income levels, are a first source of heterogeneity. Search and transaction costs stemming from time constraints, mobility restrictions, age, household composition, and location, also affect consumer price processing and evaluation. Thirdly, human-capital characteristics such as time-management skills and basic knowledge may come into play. Fourthly, the level of price processing depends on the expected psychosocial returns from price information collection and product adoption, which are often related to culture and peer group. Finally, consumer traits like variety-seeking versus loyalty cause consumers to react differently to prices. As will be argued in subsequent sections, recognition of consumer heterogeneity is crucial for effective pricing: managers should exploit these differences in the development of pricing strategies and tactics. Industrial customers Industrial decision is believed to be more rational and based on more complete information. Price would, for example, be less often used as a quality signal in industrial settings. Other factors such as the importance in the total cost of the end product and the importance in the functioning of the end product are deemed more important determinants of the price sensitivity of industrial buyers than of individual consumers. Competitive environment In determining prices, the competitive environment should explicitly be accounted for. The level of demand associated with a given company price strongly depends on prevailing competitive prices. Moreover, in a dynamic setting, not only must current prices of competitors be taken into account, but so should competitive reactions. Competitive retaliation may attenuate pricing effects. It could even provoke price wars where prices of all market players are systematically reduced, possibly to unprofitable levels. Careful analysis of competition is, therefore, a prerequisite for effective pricing. Channel environment Most companies operate within a marketing channel: they obtain products, components, and/or materials from suppliers; and many pass their products onto intermediaries before they reach the end-users. The characteristics of the channel, and the (associated) reactions of channel members, strongly affect the nature of the pricing problem as well as the effectiveness of alternative pricing strategies, structures, and instruments. Legal environment In setting prices, managers must be aware of legal constraints that restrict their decision freedom such as: Consumer pricing regulations Governments can influence final consumer prices indirectly by means of VAT rates. They can also control prices directly by imposing price ceilings or price floors for specific product categories. Besides imposing restrictions on absolute price levels, governments can limit the freedom of co

Concepts of Project Finance

Concepts of Project Finance Introduction Project Finance. Origins of project finance Project financing is generally sought for infrastructure related projects. Its linkages to the economy are mutiple and complex, because it affects production and consumption directly, creates negative and positive externalities, and involves large flow of expenditure. Prior to World War I, private entrepreneurs built major infrastructure projects all over the world. During the 19th century ambitious projects such as the suez canal and the Trans-Siberian Railway were constructed, financed and owned by private companies. However the private sector entrepreneur disappeared after world War I and as colonial powers lost control, new governments financed infrastructure projects through public sector borrowing. The state and the public utility organizations became the main clients in the commissioning of public works, which were then paid for out of general taxation. After World War II, most infrastructure projects in industrialized countries were built under the supervision of the state and were funded from the respective budgetary resources of sovereign borrowings. This traditional approach of government in identifying needs, setting policy and procuring infrastructure was by and large followed by developing countries, with the public finance being supported by bond instruments or direct sovereign loans by such organizations as the world Bank, the Asian Development Bank and the International Monetary Fund. Development In the early 1980s The convergence of a number of factors by the early 1980s led to the search for alternative ways to develop and finance infrastructure projects around the world. These factors include: Continued population and economic growth meant that the need for additional infrastructure- roads, power plants, and water-treatment plants-continued to grow. The debt crisis meant that many countries had less borrowing capacity and fewer budgetary resources to finance badly needed projects; compelling them to look to the private sector for investors for projects which in the past would have been constructed and operated in the public sector Major international contracting firms, which in the mid-1970s had been kept busy, particularly in the oil rich Middle East, were, by the early 1980s, facing a significant downturn in business and looking for creative ways to promote additional projects. Competition for global markets among major equipment suppliers and operators led them to become promoters of projects to enable them to sell their products or services. Outright privatization was not acceptable in some countries or appropriate in some sectors for political or strategic reasons and governments were reluctant to relinquish total control of what maybe regarded as state assets. During the 1980s, as a number of governments, as well as international lending institutions, became increasingly interested in promoting the development for the private sector, and the discipline imposed by its profit motive, to enhance the efficiency and productivity of what had previously been considered public sector services. It is now increasingly recognized that private sector can play a dynamic role in accelerating growth and development. Many countries are encouraging direct private sector involvement and making strong efforts to attract new money through new project financing techniques. Such encouragement is not borne solely out of the need for additional financing, but it has been recognized that the private sector involvement can bring with it the ability to implement projects in a shorter time, the expectation of more efficient operation, better management and higher technical capability and, in some cases, the introduction of an element of competition into monopolistic structures. However, the private sector, driven by commercial objectives, would not want to take up any project whose returns are not consumerate with the risks. Infrastructure projects typically have a long gestation period and returns are uncertain. What then are the incentives of private capital providers to participate in infrastructure projects, which are fraught with huge risks? Project finance provides satisfactory answers to these questions. Project finance is typically defined as limited or non-recourse financing of a new project through separate incorporation of vehicle or Project Company. Project financing involves non-recourse financing of the development and construction of a particular project in which the lender looks principally to the revenues expected to be generated by the project for the repayment of its loan and to the assets of the project as collateral for its loan rather than to the general credit of the project sponsor. In other words the lenders finance the project looking at the creditworthiness of the project, not the creditworthiness of the borrowing party. Project Financing discipline includes understanding the rationale for project financing, how to prepare the financial plan, assess the risk, design the financing mix, and raise the funds. A knowledge base is required regarding the design of contractual arrangements to support project financing; issues fior the host government legislative provisions, public/private infrastructure partnerships, public/private financing structures; credit requirements of lenders, and how to determine the projects borrowing capacity; how to prepare cash flow projections and use them to measure expected rates of return; tax and accounting considerations; and analytical techniques to validate the projects feasibility. Traditional finance is corporate finance, where the primary source of repayment for investor and creditors is the sponsoring company, backed by its entire balance sheet, not the project alone. Although creditors will usually still seek to assure themselves of economic viability of the project being financed so that it is not a drain on the corporate sponsors existing pool of assets, an important influence on their credit decision is the overall strength of the sponsors balance sheet, as well as their business reputation. If the project fails, lenders do not necessarily suffer, as long as the company owning the project remains financially viable. Corporate finance is often used for shorter, less capital-intensive projects that do not warrant outside financing. The company borrows funds to construct a new facility and guarantees to repay the lenders from its available operating income and its base of assets. However private companies avoid this option, as it strains their balance sheets and capacity, and limits their potential participation in future projects. Project financing is different from traditional forms of finance because the financier principally looks to the assets and revenue of the project in order to secure and service the loan. In project finance a team or consortium of private firms establishes a new project company to build, own and operate a separate infrastructure project. The new project company to build own and operate a separate infrastructure project. The new project company is capitalized with equity contributions from each of the sponsors. In contrast to an ordinary borrowing situation, in a project financing the financier usually has little or no recourse to the non-project assets of the borrower or the sponsors of the project. The project is not reflected in the sponsors balance sheets. Extent of recourse Recourse refers to the right to claim a refund from another party, which has handled a bill at an earlier stage. The extent of recourse refers to the range of reliance on sponsors and other project participants for enhancement to protect against certain projects risks. In project financing there is limited or no recourse. Non-recourse project finance is an arrangement under which investors and credit financing the project do not have any direct recourse to the sponsors. In other words, the lender is not permitted to request repayment from the parent company if borrower fails to meet its payment obligation. Although creditors security will include the assets being financed, lenders rely on the operating cash flow generated from those assets for repayment. When the project has assured cash flows in the form of a reliable off taker and well-allocated construction and operating risks, the lenders are comfortable with non-recourse financing. Lenders prefer limited recourse when the project has significantly higher risks. Limited recourse project finance permits creditors and investors some recourse to the sponsors. This frequently takes the form of a precompletion guarantee during a projects construction period, or other assurance of some form of support for the project. In most developing market projects and in other projects with significant construction risk, project finance is generally of the limited recourse type. Merits and Demerits of Project Financing: Project financing is continuously used as a financing method in capital-intensive industries for projects requiring large investments of funds, such as the construction of power plants, pipelines, transportation systems, mining facilities, industrial facilities and heavy manufacturing plants. The sponsors of such projects frequently are not sufficiently creditworthy ot obtain tr5aditional financing or unwilling to take the risk and assume the debt obligation associated with traditional financing. Project financing permits the risk associated with such projects to be allocated among number of parties at levels acceptable to each party. The advantages of project financing are as follows: 1. Non-recourse: The typical project financing involves a loan to enable the sponsor to construct a project where the loan is completely â€Å"Non-recourse† to the s[sponsor i.e. the sponsor has no obligation to make payments on the project loan if revenues generated by the project are insufficient to cover the principle and interest payable on the loan. This safeguards the assets of sponsors. The risks of new projects remain separate from the existing business. 2. Maximizes leverage: In project financing. The sponsors typically seek to finance the cost of development and construction of project on highly leverage basis. Frequently such costs are financed using 80 to 100 percent debt. High leverage in an non recourse financing permits a sponsor to put less in funds at risk, permits a sponsor to finance a project without diluting its equity investment in the project and in certain circumstances, also may permit reduction in cost of capital by substituting lower cost, tax deductible interest for higher cost, taxable return on equity. 3. Off balance sheet treatment: Depending upon the structure of project financing the project sponsors may not be required to report any of the project debt on its balance sheet because such debt is non recourse or of limited recourse to the sponsor. Off balance sheet treatment can have the added practical benefit of helping the sponsor comply with convenient and restrictions related to the board. Borrowings funds contain in other indentures and credit agreements to which the sponsor is a party. 4. Maximizes tax benefits: Project finance is generally structured to maximize tax benefit and to assure that all available tax benefit are used by the sponsors or transferred to the extent possible to another party through a partnership, lease or vehicle. 5. Diversifies risk: By allocating the risk and financing need of the projects among a group of interested parties or sponsors, project financing makes it possible to undertake project that would be too large or would pose too great a risk for one party ion its own. Demerits: 1. Complexity of risk allocation: Project financing is complex transaction involving many participants with diverse interest. If a project is to be successful risk must be allocated among the participants in an economically efficient way. However, there is necessary tension between the participants. For e.g between the lender and the sponsor regarding the degree of recourse, between the sponsor and contractor regarding the nature of guarantees., etc which may slow down the realization of the project. 2. Increase transaction cost: It involves higher transaction costs compared to other types of transactions, because it requires an expensive and time-consuming due diligence conducted by the lenders lawyer, the independent engineers etc., since the documentation is usually complex and lengthy. 3. Higher interest rates and fees: The interest rates and fees charged in project financing are higher than on direct loan made to the project sponsor since the lender takes on more risk. 4. Lender supervision: In accordance with a higher risk taken in project financing the lender imposes a greater supervion on the mangement and operation of the project to make sure that the project success is not impaired. The degree of lender supervision will usually result into higher costs which will typically have to be borne by the sponsor. Whether expanding manufacturing facilities, implementing new processing capabilities, or leveraging existing assets in new markets, innovative financing is often at the core of long-term projects to transform a companys operations. Akin to the underlying corporate transformation, the challenge with innovative financial structures such as project finance is that the investment is made upfront while the anticipated benefits of the initiative are realized years later. There has been a rise in number of companies that need innovative financing to satisfy their capital needs, in a significant number of instances they have viable goals but find that traditional lenders are unable to understand their initiatives. And so the need emerged for project finance. Project financing is a specialized form of financing that may offer some cost advantages when very large amounts of capital are involved It can be tricky to structure, and is usually limited to projects where a good cash flow is anticipated. Project finance can be defined as: financing of an industrial (or infrastructure) project with myriad capital needs, usually based on non-recourse or limited recourse structures, where project debt and equity (and potentially leases) used to finance the project are paid back from the cash flow generated by the project, with the projects assets, rights and interests held as collateral. In other words, its an incredibly flexible and comprehensive financing solution that demands a long-term lending approach not typical in todays market place. Whether expanding manufacturing facilities, implementing new processing capabilities, or leveraging existing assets in new markets, innovative financing is often at the core of long-term projects to transform a companys operations. Akin to the underlying corporate transformation, the challenge with innovative financial structures such as project finance is that the investment is made upfront while the anticipated benefits of the initiative are realized years later. Infrastructure is the backbone of any economy and the key to achieving rapid sustainable rate of economic development and competitive advantage. Realizing its importance governments commit substantial portions of their resources for development of the infrastructure sector. As more projects emerge getting them financed will continue to require a balance between equity and debt. With infrastructure stocks and bonds being traded in the markets around the world, the traditionalist face change. A country on the crest of change is India. Unlike many developing countries India has developed judicial framework of trust laws, company laws and contract laws necessary for project finance to flourish. Types of Project Finance Build Operate Transfer (BOT) Build Own Operate Transfer (BOOT) Build Own Operate (BOO) Build Operate Transfer Build operate transfer is a project financing and operating approach that has found an application in recent years primarily in the area of infrastructure privatization in the developing countries. It enables direct private sector investment in large scale infrastructure projects. In BOT the private contractor constructs and operates the facility for a specified period. The public agency pays the contractor a fee, which may be a fixed sum, linked to output or, more likely, a combination of the two. The fee will cover the operators fixed and variable costs, including recovery of the capital invested by the contractor. In this case, ownership of the facility rests with the public agency. The theory of BOT is as follows:- BUILD A private company (or consortium) agrees with a government to invest in a public infrastructure project. The company then secures their own financing to construct the project. Operate The private developer then operates, maintains, and manages the facility for a agreed concession period and recoups their investment through charges or tolls. Transfer- After the concessionary period the company transfers ownership and operation of the facility to the government or relevant state authority. In a BOT arrangement, the private sector designs and builds the infrastructure, finances its construction and operates and maintains it over a period, often as long as 20 or 30 years. This period is referred to as the â€Å"concession† period. In short, under a BOT structure, a government typically grants a concession to a project company under which the project company has the right to build and operate a facility. The project company borrows from the lending institutions in order to finance the construction of the facility. The loans are repaid from â€Å"tariffs† paid by the government under the off take agreement during the life of the concession. At the end of the concession period the facility is usually transferred back to the government. Advantages The Government gets the benefit of the private sector to mobilize finance and to use the best management skills in the construction, operation and maintenance of the project. The private participation also ensures efficiency and quality by using the best equipment. BOT provides a mechanism and incentives for enterprises to improve efficiency through performance-based contracts and output-oriented targets The projects are conducted in a fully competitive bidding situation and are thus completed at the lowest possible cost. The risks of the project are shared by the private sector Disadvantages There is a profit element in the equity portion of the financing, which is higher than the debt cost. This is the price paid for passing of the risk to the private sector It may take a long time and considerable up front expenses to prepare and close a BOT financing deal as it involves multiple entities and requires a relatively complicated legal and institutional framework. There the BOT may not be suitable for small projects It may take time to develop the necessary institutional capacity to ensure that the full benefits of BOT are realized, such as development and enforcement of transparent and fair bidding and evaluation procedures and the resolution of potential disputes during implementation. Build Own Operate Transfer (BOOT) A BOOT funding model involves a single organization, or consortium (BOOT provider) who designs, builds, funds, owns and operates the scheme for a defined period of time and then transfers this ownership across to a agreed party. BOOT projects are a way for governments to bundle together the design and construction, finance, operations and maintenance and potentially marketing and customer interface aspects of a project and let these as a package to a single private sector service provider. The asset is transferred back to the government after the concession period at little or no cost. The Components of BOOT. B for Build The concession grants the promoter the right to design, construct, and finance the project. A construction contract will be required between the promoter and a contractor. The contract is often among the most difficult to negotiate in a BOOT project because of the conflict that increasingly arises between the promoter, the contractor responsible for building the facility and those financing its construction. Banks and other providers of funds want to be sure that the commercial terms of the construction contract are reasonable and that the construction risk is placed as far as possible on the contractors. The contractor undertakes responsibility for constructing the asset and is expected to build the project on time, within budget and according to a clear specification and to warrant that the asset will perform its design function. Typically this is done by way of a lump-sum turnkey contract. O for Own The concession from the state provides concessionaire to own, or at least possess, the assets that are to be built and to operate them for a period of time: the life of the concession. The concession agreement between the state and the concessionaire will define the extent to which ownership, and its associated attributes of possession and control, of the assets lies with the concessionaire. O for Operate An operator assumes the responsibility for maintaining the facilitys assets and the operating them on the basis that maximizes the profit or minimizes the cost on behalf of the concessionaire and, like the contractor undertaking construction and be a shareholder in the project company. The operator is s often an independent through the promoter company. T for Transfer This relates to a change in ownership of the assets that occurs at the end of the concession period, when the concession assets revert to the government grantor. The transfer may be at book value or no value and may occur earlier in the event of failure of concessionaire. Stages of Boot Project Build Design Manage project implementation Carry out procurement Finance Construct Own Hold in interest under concession Operates Mange and operate facility Carry out maintenance Deliver products/services Receive payment for product/ service Transfer Hand over project in operating condition at the end of concession period Advantages The majority of construction and long term risk can be transferred onto the BOOT provider. The BOOT operator can claim depreciation on the facility constructed and depreciation being a tax-deductible expense shareholder returns are maximized. Using an output based purchasing model, the tender process will encourage maximum innovations allowing the most efficient designs to be explored for the scheme. This process may also be built into more traditional tendering processes. Accountability for the asset design, construction and service delivery is very high given that if the performance targets are not met, the operator stands to lose a portion of capital expenditure, capital profit, operating expenditure and operating profit. Boot operators are experienced with management and operation of infrastructure assets and bring these skills to scheme. Corporate structuring issues and costs are minimal within a BOOT model, as project funding, ownership and operation are the responsibility of the BOOT operator. These costs will however be built into the BOOT project pricing. Disadvantages Boot is likely to result in higher cost of the product/ service for the end user. This is a result of the BOOT provider incurring the risks associated with 100 percnet financing of the scheme and the acceptance of the ongoing maintenance liabilities. Users may have a negative reaction to private sector involvement in the scheme, particularly if the private sector is an overseas owned company Management and monitoring of the service level agreement with the BOOT operators can be time consuming and resource hungry. Procedures need to be in place to allow users to assess service performance and penalize the BOOT operator where necessary. A rigorous selection process is required when selecting a boot partner. Users need to be confident that the BOOT operator is financially secure and sufficiently committed to the market prior to considering their bid. Build Own Operate In BOO, the concessionaire constructs the facility and then operates it on behalf of the public agency. The initial operating period {over which the capital cost will be recovered} is defined. Legal title to the facility remains in the private sector, and there is no obligation for the public sector to purchase the facility or take title. The private sector partner owns the project outright and retains the operating revenue risk and all of the surplus operating revenue in perpetuity. As an alternative to transfer, a further operating contract {at a lower cost} may be negotiated. Design Build Finance Operate (DBFO): Under this approach, the responsibilities fro designing, building, financing and operating are bundled together and transferred to private sector partners. They are also often supplemented by public sector grants in the from of money or contributions in kind, such as right of way. In certain cases, private partners may be required to make equity investments as well. DBFO shifts a great deal of the responsibility for developing and operating to private sector partners, the public agency sponsoring a project would retain full ownership over the project. Others: Build Transfer Operate (BTO) The BTO model is similar to BOT model except that the transfer to the public owner takes place at the time that construction is completed, rather than at the end of the franchise period. The concessionary builds and transfers a facility to the owner but exclusively operates the facility on behalf of the owner by means of management contract. Buy Build Operate (BBO) A BBO is a form of asset sale that includes a rehabilitation or expansion of an existing facility. The government sells the asset to the private sector entity, which then makes the improvements necessary to operate the facility in a profitable manner. Lease Own Operate (LOO) This approach is similar to a BOO project but an existing asset is leased from the government for a specified time. the asset may require refurbishment or expansion. Build Lease Transfer (BLT) The concessionaire builds a facility, lease out the operating portion of the contract, and on completion of the contract, returns the facility to the owner. Build Own Lease Transfer (BOLT) BOLT is a financing scheme in which the asset is owned by the asset provider and is then leased to the public agency, during which the owner receives lease rentals. On completion of the contract the asset is transferred to the public agency. Build Lease Operate Transfer (BLOT) The private sector designs finance and construct a new facility on public land under a long term lease and operate the facility during the term of the lease. the private owner transfers the new facility to the public sector at the end of the lease term. Design Build (DB) A DB is when the private partner provides both design and construction of a project to the public agency. This type of partnership can reduce time, save money, provide stronger guarantees and allocate additional project risk to the private sector. It also reduces conflict by having a single entity responsible to the public owner for the design and construction. The public sector partner owns the assets and has the responsibility for the operation and maintenance. Design Bid Build (DBB) Design bid build is the traditional project delivery approach, which segregates design and construction responsibilities by awarding them to an independent private engineer and a separate private contractor. By doing so, design bid build separates the delivery process in to the three liner phases: Design, Bid and Construction. The public sector retains responsibility for financing, operating and maintaining infrastructure procured using the traditional design bid build approach. Design Build Maintain (DBM) A DBM is similar to a DB except the maintenance of the facility for the some period of time becomes the responsibility of the private sector partner. The benefits are similar to the DB with maintenance risk being allocated to the private sector partner and the guarantee expanded to include maintenance. The public sector partner owns and operates the assets. Design Build Operate (DBO) A single contract is awarded for the design, construction and operation of a capital improvement. Title to the facility remains with the public sector unless the project is a designbuildoperatetransfer or designbuildownoperate project. The DBO method of contracting is contrary to the separated and sequential approach ordinarily used in the United States by both the public and private sectors. This method involves one contract for design with an architect or engineer, followed by a different contract with a builder for project construction, followed by the owners taking over the project and operating it. A simple design build approach credits a single point of responsibility for design and construction and can speed project completion by facilitating the overlap of the design and construction phases of the project. On a public project, the operations phase is normally handled by the public sector under a separate operations and maintenance agreement. Combining all three phases in to a DBO approach maintains the continuity of private sector involvement and can facilitate private sector financing of public projects supported by user fees generated during the operations phase. Lease Develop Operate (LDO) or Build Develop Operate (BDO) Under these partnerships arrangements, the private party leases or buys an existing facility from a public agency invests its own capital to renovate modernize, and expand the facility, and then operates it under a contract with the public agency. A number of different types of municipal transit facilities have been leased and developed under LDO and BDO arrangements. Theoretical Perspective Project Finance Strategic Business Unit A one-stop-shop of financial services for new projects as well as expansion, diversification and modernization of existing projects in infrastructure and non -infrastructure sectors Since its inception in 1995 the Project Finance SBU has built-up a strong reputation for its in-depth understanding of the infrastructure sector as well as non-infrastructure sector in India and they have the ability to provide tailor made financial solutions to meet the growing diversified requirement for different levels of the project. The recent transactions undertaken by PF- Concepts of Project Finance Concepts of Project Finance Introduction Project Finance. Origins of project finance Project financing is generally sought for infrastructure related projects. Its linkages to the economy are mutiple and complex, because it affects production and consumption directly, creates negative and positive externalities, and involves large flow of expenditure. Prior to World War I, private entrepreneurs built major infrastructure projects all over the world. During the 19th century ambitious projects such as the suez canal and the Trans-Siberian Railway were constructed, financed and owned by private companies. However the private sector entrepreneur disappeared after world War I and as colonial powers lost control, new governments financed infrastructure projects through public sector borrowing. The state and the public utility organizations became the main clients in the commissioning of public works, which were then paid for out of general taxation. After World War II, most infrastructure projects in industrialized countries were built under the supervision of the state and were funded from the respective budgetary resources of sovereign borrowings. This traditional approach of government in identifying needs, setting policy and procuring infrastructure was by and large followed by developing countries, with the public finance being supported by bond instruments or direct sovereign loans by such organizations as the world Bank, the Asian Development Bank and the International Monetary Fund. Development In the early 1980s The convergence of a number of factors by the early 1980s led to the search for alternative ways to develop and finance infrastructure projects around the world. These factors include: Continued population and economic growth meant that the need for additional infrastructure- roads, power plants, and water-treatment plants-continued to grow. The debt crisis meant that many countries had less borrowing capacity and fewer budgetary resources to finance badly needed projects; compelling them to look to the private sector for investors for projects which in the past would have been constructed and operated in the public sector Major international contracting firms, which in the mid-1970s had been kept busy, particularly in the oil rich Middle East, were, by the early 1980s, facing a significant downturn in business and looking for creative ways to promote additional projects. Competition for global markets among major equipment suppliers and operators led them to become promoters of projects to enable them to sell their products or services. Outright privatization was not acceptable in some countries or appropriate in some sectors for political or strategic reasons and governments were reluctant to relinquish total control of what maybe regarded as state assets. During the 1980s, as a number of governments, as well as international lending institutions, became increasingly interested in promoting the development for the private sector, and the discipline imposed by its profit motive, to enhance the efficiency and productivity of what had previously been considered public sector services. It is now increasingly recognized that private sector can play a dynamic role in accelerating growth and development. Many countries are encouraging direct private sector involvement and making strong efforts to attract new money through new project financing techniques. Such encouragement is not borne solely out of the need for additional financing, but it has been recognized that the private sector involvement can bring with it the ability to implement projects in a shorter time, the expectation of more efficient operation, better management and higher technical capability and, in some cases, the introduction of an element of competition into monopolistic structures. However, the private sector, driven by commercial objectives, would not want to take up any project whose returns are not consumerate with the risks. Infrastructure projects typically have a long gestation period and returns are uncertain. What then are the incentives of private capital providers to participate in infrastructure projects, which are fraught with huge risks? Project finance provides satisfactory answers to these questions. Project finance is typically defined as limited or non-recourse financing of a new project through separate incorporation of vehicle or Project Company. Project financing involves non-recourse financing of the development and construction of a particular project in which the lender looks principally to the revenues expected to be generated by the project for the repayment of its loan and to the assets of the project as collateral for its loan rather than to the general credit of the project sponsor. In other words the lenders finance the project looking at the creditworthiness of the project, not the creditworthiness of the borrowing party. Project Financing discipline includes understanding the rationale for project financing, how to prepare the financial plan, assess the risk, design the financing mix, and raise the funds. A knowledge base is required regarding the design of contractual arrangements to support project financing; issues fior the host government legislative provisions, public/private infrastructure partnerships, public/private financing structures; credit requirements of lenders, and how to determine the projects borrowing capacity; how to prepare cash flow projections and use them to measure expected rates of return; tax and accounting considerations; and analytical techniques to validate the projects feasibility. Traditional finance is corporate finance, where the primary source of repayment for investor and creditors is the sponsoring company, backed by its entire balance sheet, not the project alone. Although creditors will usually still seek to assure themselves of economic viability of the project being financed so that it is not a drain on the corporate sponsors existing pool of assets, an important influence on their credit decision is the overall strength of the sponsors balance sheet, as well as their business reputation. If the project fails, lenders do not necessarily suffer, as long as the company owning the project remains financially viable. Corporate finance is often used for shorter, less capital-intensive projects that do not warrant outside financing. The company borrows funds to construct a new facility and guarantees to repay the lenders from its available operating income and its base of assets. However private companies avoid this option, as it strains their balance sheets and capacity, and limits their potential participation in future projects. Project financing is different from traditional forms of finance because the financier principally looks to the assets and revenue of the project in order to secure and service the loan. In project finance a team or consortium of private firms establishes a new project company to build, own and operate a separate infrastructure project. The new project company to build own and operate a separate infrastructure project. The new project company is capitalized with equity contributions from each of the sponsors. In contrast to an ordinary borrowing situation, in a project financing the financier usually has little or no recourse to the non-project assets of the borrower or the sponsors of the project. The project is not reflected in the sponsors balance sheets. Extent of recourse Recourse refers to the right to claim a refund from another party, which has handled a bill at an earlier stage. The extent of recourse refers to the range of reliance on sponsors and other project participants for enhancement to protect against certain projects risks. In project financing there is limited or no recourse. Non-recourse project finance is an arrangement under which investors and credit financing the project do not have any direct recourse to the sponsors. In other words, the lender is not permitted to request repayment from the parent company if borrower fails to meet its payment obligation. Although creditors security will include the assets being financed, lenders rely on the operating cash flow generated from those assets for repayment. When the project has assured cash flows in the form of a reliable off taker and well-allocated construction and operating risks, the lenders are comfortable with non-recourse financing. Lenders prefer limited recourse when the project has significantly higher risks. Limited recourse project finance permits creditors and investors some recourse to the sponsors. This frequently takes the form of a precompletion guarantee during a projects construction period, or other assurance of some form of support for the project. In most developing market projects and in other projects with significant construction risk, project finance is generally of the limited recourse type. Merits and Demerits of Project Financing: Project financing is continuously used as a financing method in capital-intensive industries for projects requiring large investments of funds, such as the construction of power plants, pipelines, transportation systems, mining facilities, industrial facilities and heavy manufacturing plants. The sponsors of such projects frequently are not sufficiently creditworthy ot obtain tr5aditional financing or unwilling to take the risk and assume the debt obligation associated with traditional financing. Project financing permits the risk associated with such projects to be allocated among number of parties at levels acceptable to each party. The advantages of project financing are as follows: 1. Non-recourse: The typical project financing involves a loan to enable the sponsor to construct a project where the loan is completely â€Å"Non-recourse† to the s[sponsor i.e. the sponsor has no obligation to make payments on the project loan if revenues generated by the project are insufficient to cover the principle and interest payable on the loan. This safeguards the assets of sponsors. The risks of new projects remain separate from the existing business. 2. Maximizes leverage: In project financing. The sponsors typically seek to finance the cost of development and construction of project on highly leverage basis. Frequently such costs are financed using 80 to 100 percent debt. High leverage in an non recourse financing permits a sponsor to put less in funds at risk, permits a sponsor to finance a project without diluting its equity investment in the project and in certain circumstances, also may permit reduction in cost of capital by substituting lower cost, tax deductible interest for higher cost, taxable return on equity. 3. Off balance sheet treatment: Depending upon the structure of project financing the project sponsors may not be required to report any of the project debt on its balance sheet because such debt is non recourse or of limited recourse to the sponsor. Off balance sheet treatment can have the added practical benefit of helping the sponsor comply with convenient and restrictions related to the board. Borrowings funds contain in other indentures and credit agreements to which the sponsor is a party. 4. Maximizes tax benefits: Project finance is generally structured to maximize tax benefit and to assure that all available tax benefit are used by the sponsors or transferred to the extent possible to another party through a partnership, lease or vehicle. 5. Diversifies risk: By allocating the risk and financing need of the projects among a group of interested parties or sponsors, project financing makes it possible to undertake project that would be too large or would pose too great a risk for one party ion its own. Demerits: 1. Complexity of risk allocation: Project financing is complex transaction involving many participants with diverse interest. If a project is to be successful risk must be allocated among the participants in an economically efficient way. However, there is necessary tension between the participants. For e.g between the lender and the sponsor regarding the degree of recourse, between the sponsor and contractor regarding the nature of guarantees., etc which may slow down the realization of the project. 2. Increase transaction cost: It involves higher transaction costs compared to other types of transactions, because it requires an expensive and time-consuming due diligence conducted by the lenders lawyer, the independent engineers etc., since the documentation is usually complex and lengthy. 3. Higher interest rates and fees: The interest rates and fees charged in project financing are higher than on direct loan made to the project sponsor since the lender takes on more risk. 4. Lender supervision: In accordance with a higher risk taken in project financing the lender imposes a greater supervion on the mangement and operation of the project to make sure that the project success is not impaired. The degree of lender supervision will usually result into higher costs which will typically have to be borne by the sponsor. Whether expanding manufacturing facilities, implementing new processing capabilities, or leveraging existing assets in new markets, innovative financing is often at the core of long-term projects to transform a companys operations. Akin to the underlying corporate transformation, the challenge with innovative financial structures such as project finance is that the investment is made upfront while the anticipated benefits of the initiative are realized years later. There has been a rise in number of companies that need innovative financing to satisfy their capital needs, in a significant number of instances they have viable goals but find that traditional lenders are unable to understand their initiatives. And so the need emerged for project finance. Project financing is a specialized form of financing that may offer some cost advantages when very large amounts of capital are involved It can be tricky to structure, and is usually limited to projects where a good cash flow is anticipated. Project finance can be defined as: financing of an industrial (or infrastructure) project with myriad capital needs, usually based on non-recourse or limited recourse structures, where project debt and equity (and potentially leases) used to finance the project are paid back from the cash flow generated by the project, with the projects assets, rights and interests held as collateral. In other words, its an incredibly flexible and comprehensive financing solution that demands a long-term lending approach not typical in todays market place. Whether expanding manufacturing facilities, implementing new processing capabilities, or leveraging existing assets in new markets, innovative financing is often at the core of long-term projects to transform a companys operations. Akin to the underlying corporate transformation, the challenge with innovative financial structures such as project finance is that the investment is made upfront while the anticipated benefits of the initiative are realized years later. Infrastructure is the backbone of any economy and the key to achieving rapid sustainable rate of economic development and competitive advantage. Realizing its importance governments commit substantial portions of their resources for development of the infrastructure sector. As more projects emerge getting them financed will continue to require a balance between equity and debt. With infrastructure stocks and bonds being traded in the markets around the world, the traditionalist face change. A country on the crest of change is India. Unlike many developing countries India has developed judicial framework of trust laws, company laws and contract laws necessary for project finance to flourish. Types of Project Finance Build Operate Transfer (BOT) Build Own Operate Transfer (BOOT) Build Own Operate (BOO) Build Operate Transfer Build operate transfer is a project financing and operating approach that has found an application in recent years primarily in the area of infrastructure privatization in the developing countries. It enables direct private sector investment in large scale infrastructure projects. In BOT the private contractor constructs and operates the facility for a specified period. The public agency pays the contractor a fee, which may be a fixed sum, linked to output or, more likely, a combination of the two. The fee will cover the operators fixed and variable costs, including recovery of the capital invested by the contractor. In this case, ownership of the facility rests with the public agency. The theory of BOT is as follows:- BUILD A private company (or consortium) agrees with a government to invest in a public infrastructure project. The company then secures their own financing to construct the project. Operate The private developer then operates, maintains, and manages the facility for a agreed concession period and recoups their investment through charges or tolls. Transfer- After the concessionary period the company transfers ownership and operation of the facility to the government or relevant state authority. In a BOT arrangement, the private sector designs and builds the infrastructure, finances its construction and operates and maintains it over a period, often as long as 20 or 30 years. This period is referred to as the â€Å"concession† period. In short, under a BOT structure, a government typically grants a concession to a project company under which the project company has the right to build and operate a facility. The project company borrows from the lending institutions in order to finance the construction of the facility. The loans are repaid from â€Å"tariffs† paid by the government under the off take agreement during the life of the concession. At the end of the concession period the facility is usually transferred back to the government. Advantages The Government gets the benefit of the private sector to mobilize finance and to use the best management skills in the construction, operation and maintenance of the project. The private participation also ensures efficiency and quality by using the best equipment. BOT provides a mechanism and incentives for enterprises to improve efficiency through performance-based contracts and output-oriented targets The projects are conducted in a fully competitive bidding situation and are thus completed at the lowest possible cost. The risks of the project are shared by the private sector Disadvantages There is a profit element in the equity portion of the financing, which is higher than the debt cost. This is the price paid for passing of the risk to the private sector It may take a long time and considerable up front expenses to prepare and close a BOT financing deal as it involves multiple entities and requires a relatively complicated legal and institutional framework. There the BOT may not be suitable for small projects It may take time to develop the necessary institutional capacity to ensure that the full benefits of BOT are realized, such as development and enforcement of transparent and fair bidding and evaluation procedures and the resolution of potential disputes during implementation. Build Own Operate Transfer (BOOT) A BOOT funding model involves a single organization, or consortium (BOOT provider) who designs, builds, funds, owns and operates the scheme for a defined period of time and then transfers this ownership across to a agreed party. BOOT projects are a way for governments to bundle together the design and construction, finance, operations and maintenance and potentially marketing and customer interface aspects of a project and let these as a package to a single private sector service provider. The asset is transferred back to the government after the concession period at little or no cost. The Components of BOOT. B for Build The concession grants the promoter the right to design, construct, and finance the project. A construction contract will be required between the promoter and a contractor. The contract is often among the most difficult to negotiate in a BOOT project because of the conflict that increasingly arises between the promoter, the contractor responsible for building the facility and those financing its construction. Banks and other providers of funds want to be sure that the commercial terms of the construction contract are reasonable and that the construction risk is placed as far as possible on the contractors. The contractor undertakes responsibility for constructing the asset and is expected to build the project on time, within budget and according to a clear specification and to warrant that the asset will perform its design function. Typically this is done by way of a lump-sum turnkey contract. O for Own The concession from the state provides concessionaire to own, or at least possess, the assets that are to be built and to operate them for a period of time: the life of the concession. The concession agreement between the state and the concessionaire will define the extent to which ownership, and its associated attributes of possession and control, of the assets lies with the concessionaire. O for Operate An operator assumes the responsibility for maintaining the facilitys assets and the operating them on the basis that maximizes the profit or minimizes the cost on behalf of the concessionaire and, like the contractor undertaking construction and be a shareholder in the project company. The operator is s often an independent through the promoter company. T for Transfer This relates to a change in ownership of the assets that occurs at the end of the concession period, when the concession assets revert to the government grantor. The transfer may be at book value or no value and may occur earlier in the event of failure of concessionaire. Stages of Boot Project Build Design Manage project implementation Carry out procurement Finance Construct Own Hold in interest under concession Operates Mange and operate facility Carry out maintenance Deliver products/services Receive payment for product/ service Transfer Hand over project in operating condition at the end of concession period Advantages The majority of construction and long term risk can be transferred onto the BOOT provider. The BOOT operator can claim depreciation on the facility constructed and depreciation being a tax-deductible expense shareholder returns are maximized. Using an output based purchasing model, the tender process will encourage maximum innovations allowing the most efficient designs to be explored for the scheme. This process may also be built into more traditional tendering processes. Accountability for the asset design, construction and service delivery is very high given that if the performance targets are not met, the operator stands to lose a portion of capital expenditure, capital profit, operating expenditure and operating profit. Boot operators are experienced with management and operation of infrastructure assets and bring these skills to scheme. Corporate structuring issues and costs are minimal within a BOOT model, as project funding, ownership and operation are the responsibility of the BOOT operator. These costs will however be built into the BOOT project pricing. Disadvantages Boot is likely to result in higher cost of the product/ service for the end user. This is a result of the BOOT provider incurring the risks associated with 100 percnet financing of the scheme and the acceptance of the ongoing maintenance liabilities. Users may have a negative reaction to private sector involvement in the scheme, particularly if the private sector is an overseas owned company Management and monitoring of the service level agreement with the BOOT operators can be time consuming and resource hungry. Procedures need to be in place to allow users to assess service performance and penalize the BOOT operator where necessary. A rigorous selection process is required when selecting a boot partner. Users need to be confident that the BOOT operator is financially secure and sufficiently committed to the market prior to considering their bid. Build Own Operate In BOO, the concessionaire constructs the facility and then operates it on behalf of the public agency. The initial operating period {over which the capital cost will be recovered} is defined. Legal title to the facility remains in the private sector, and there is no obligation for the public sector to purchase the facility or take title. The private sector partner owns the project outright and retains the operating revenue risk and all of the surplus operating revenue in perpetuity. As an alternative to transfer, a further operating contract {at a lower cost} may be negotiated. Design Build Finance Operate (DBFO): Under this approach, the responsibilities fro designing, building, financing and operating are bundled together and transferred to private sector partners. They are also often supplemented by public sector grants in the from of money or contributions in kind, such as right of way. In certain cases, private partners may be required to make equity investments as well. DBFO shifts a great deal of the responsibility for developing and operating to private sector partners, the public agency sponsoring a project would retain full ownership over the project. Others: Build Transfer Operate (BTO) The BTO model is similar to BOT model except that the transfer to the public owner takes place at the time that construction is completed, rather than at the end of the franchise period. The concessionary builds and transfers a facility to the owner but exclusively operates the facility on behalf of the owner by means of management contract. Buy Build Operate (BBO) A BBO is a form of asset sale that includes a rehabilitation or expansion of an existing facility. The government sells the asset to the private sector entity, which then makes the improvements necessary to operate the facility in a profitable manner. Lease Own Operate (LOO) This approach is similar to a BOO project but an existing asset is leased from the government for a specified time. the asset may require refurbishment or expansion. Build Lease Transfer (BLT) The concessionaire builds a facility, lease out the operating portion of the contract, and on completion of the contract, returns the facility to the owner. Build Own Lease Transfer (BOLT) BOLT is a financing scheme in which the asset is owned by the asset provider and is then leased to the public agency, during which the owner receives lease rentals. On completion of the contract the asset is transferred to the public agency. Build Lease Operate Transfer (BLOT) The private sector designs finance and construct a new facility on public land under a long term lease and operate the facility during the term of the lease. the private owner transfers the new facility to the public sector at the end of the lease term. Design Build (DB) A DB is when the private partner provides both design and construction of a project to the public agency. This type of partnership can reduce time, save money, provide stronger guarantees and allocate additional project risk to the private sector. It also reduces conflict by having a single entity responsible to the public owner for the design and construction. The public sector partner owns the assets and has the responsibility for the operation and maintenance. Design Bid Build (DBB) Design bid build is the traditional project delivery approach, which segregates design and construction responsibilities by awarding them to an independent private engineer and a separate private contractor. By doing so, design bid build separates the delivery process in to the three liner phases: Design, Bid and Construction. The public sector retains responsibility for financing, operating and maintaining infrastructure procured using the traditional design bid build approach. Design Build Maintain (DBM) A DBM is similar to a DB except the maintenance of the facility for the some period of time becomes the responsibility of the private sector partner. The benefits are similar to the DB with maintenance risk being allocated to the private sector partner and the guarantee expanded to include maintenance. The public sector partner owns and operates the assets. Design Build Operate (DBO) A single contract is awarded for the design, construction and operation of a capital improvement. Title to the facility remains with the public sector unless the project is a designbuildoperatetransfer or designbuildownoperate project. The DBO method of contracting is contrary to the separated and sequential approach ordinarily used in the United States by both the public and private sectors. This method involves one contract for design with an architect or engineer, followed by a different contract with a builder for project construction, followed by the owners taking over the project and operating it. A simple design build approach credits a single point of responsibility for design and construction and can speed project completion by facilitating the overlap of the design and construction phases of the project. On a public project, the operations phase is normally handled by the public sector under a separate operations and maintenance agreement. Combining all three phases in to a DBO approach maintains the continuity of private sector involvement and can facilitate private sector financing of public projects supported by user fees generated during the operations phase. Lease Develop Operate (LDO) or Build Develop Operate (BDO) Under these partnerships arrangements, the private party leases or buys an existing facility from a public agency invests its own capital to renovate modernize, and expand the facility, and then operates it under a contract with the public agency. A number of different types of municipal transit facilities have been leased and developed under LDO and BDO arrangements. Theoretical Perspective Project Finance Strategic Business Unit A one-stop-shop of financial services for new projects as well as expansion, diversification and modernization of existing projects in infrastructure and non -infrastructure sectors Since its inception in 1995 the Project Finance SBU has built-up a strong reputation for its in-depth understanding of the infrastructure sector as well as non-infrastructure sector in India and they have the ability to provide tailor made financial solutions to meet the growing diversified requirement for different levels of the project. The recent transactions undertaken by PF-