As a result of the global financial crisis, it has become of necessity to consolidate the clearing houses to make it safer and to reduce systematic risks. This creates a platform from which independent clearing houses either merge, or link with each other to deal with major international exchanges. It also become easier to clear the various asset classes, among the exchange traded derivatives, inter-bank interest rate swaps among others (Hull, 67). An example of such a firm is the London Clearing House- Clearnet group limited.
Derivative exchanges as derivative contracts
Derivative exchanges are derivative contracts that are standardized and their transaction is conducted in a regular futures exchange, and they can be futures, call, and put and will normally have the date they expire (Kolb and Overdahl, 62). This essay will discuss the necessity and the advantages that come with consolidating as compared to a single (CCP). IT WILL ALSO DISCUSS the economies of scale benefits that come with consolidation and the technical issues that arise.
Various ways how derivatives are traded
There are various ways that derivatives are traded; there are Over the Counter OTC derivatives contrary to Exchange Traded derivatives (ETDs) or CCP (Central Counter Party) where trading is regulated by Commodity Futures Trading Commission (CFTCs), and is done in a regulated exchange. Derivative exchanges were traditionally only done by Central Counter party (CCP) but recently there is OTC trading for them. The concerns over the credibility of CCPs were raised which pushed many OTC market participants to embrace the OTC Clearing; currently derivative exchanges are offering both the OTC and ETDs.
Role of market participants
Consolidation is preferred by the market participants and it does not necessarily have to be done by merging or through acquisitions, a few CCPs can be linked together. It can be done independently as long as the two clearing houses come into an agreeable contract. The market participants will prefer the presence of several across the borders clearing firms that operate together and with each other. They must have a position transfer and should create cross-margin agreements, by tackling the legal, political and technical hurdles that come with cross-border trading. Cross-margining is done in order to make optimal use of capital and for collateral purposes. It can be can either on the same type or different products. It can be combining of trading in derivatives and other underlying assets such as future bonds, future swaps, or equity option. Cross-margin trading can also be across different markets, e.g. Chicago Mercantile Exchange (CME) and LCH. Different markets trading is meant to enhance inter global trading in derivatives and securities
Consolidation and clearing of derivatives
Consolidation and clearing through a single center is a method being preferred by financial and non-financial firms, as more products become available and the difference in the prices of OTCs and ETDs is narrowed down (Pickup). The marketers have discovered the advantages that go with clearing through a one centre. The single center will net down and cover deals from various products. An example is the London Clearing House (LCH) –clearnet and Depository Trust Clearing Company National Securities Clearing Corporation. (DTCC-NSCC).
The benefits of consolidation are found and fully utilized on condition that the systems are fully integrated and are interoperability with the benefits of full cross margining. Consolidation across the borders has been hindered by different border regulations, lack of trust by the participants and national interests. A Central Counter Party (CCP) may not gather as much benefits in a risk management point of view (European Central Bank). A CCP must have enough capital and strong risk management standards so as to meet and provide a guaranteed in case of default. The marketers may not want to deal with an undercapitalized CCP.
Maximization of economies of scale
Economies of scale can be maximized by creating a single global CCP for OTC. Increase of the number of transactions subsequently reduces the cost of each transaction this is as a result of reduced administration and technology infrastructure expenses. There are no clear rules. Firms that merge have the advantage of gaining a market more easily than their single counterparts. An acquisition and a merge are more beneficial than creating a new branch or company. A big company is more efficient, as there is only a single operational process that is required.
The main advantage of CCPs is that it reduces systematic risk, by enforcing and maintaining quality risk management standards. The single global CCP will also reduce counter party risk. To the trader’s point of view, the number of legal contracts is reduced, by reducing the number of counterparties the trader has to deal with.
There are technicalities that however that arise with consolidation. There are the legal and political issues that come with cross-border integration. These are brought about by different rules and regularities in different countries. These are disadvantages of having a single CCP in that in case it fails, this would have a big impact in the market and it would even paralyze the trading before a solution is found. In this case multi-CCP would be preferred. For a single CCP that trades in the foreign exchange the impact of its failure would affect the currency exchange trade and this may have eve more financial effects. A single CCP would also have challenges in jurisdiction coordination. At a trader’s point of view, they believe that competition is a healthy ingredient in the market, competition is optimal. If consolidation leads to one single trader there is a danger of a monopoly situation arising. A monopoly may lead to increased transaction cost which is a disadvantage to the trader.
Benefits of consolidations
The benefits of consolidation cannot be underestimated, as has been witnessed by the success of (LCH) –clearnet. However to counter the disadvantages mentioned above there should be strong risk management strategies. To reduce counter party risk through netting of multilaterals, there should be interlinking and cross–margining through a statutory and contractual point of view. Thus for consolidation to be at its best several issue need to be addressed, a need for quality risk management standards; improved infrastructure; cooperation from public policy decision makers and at the global level; and defining efficiency market structures. There should be frequent supervision and regulation conducted by an independent body. This can be enhanced by the Committee on Payments and Settlements Systems (CPSS) and the International Organization of Securities Commissions (IOSCO) revising the international standards to accommodate this new trend.
Works cited
European Central Bank. Eurosystems Policy Line with Regard to Consolidation in Central Counterparty Clearing. European Central Bank. 2009. Web.
Hull, John. Options, Futures and Other Derivative Securities. Options, Futures and Other Derivative Securities. 2008. Print.
Kolb, Robert and Overdahl, James. Financial Derivatives: Pricing and Risk. New York: Willy. 2009. Print
Pickup, Paul. Consolidation of Cash and Derivative Markets Technology. World Federation of Exchanges. 2008. Web.
Research and Development is very important for a business company in today’s business world if you want that company to succeed in the market. But the time when a company was exclusively or at least in most part included within one country, are over. Today’s corporations but even smaller companies are multinational and do not operate through a board which members are exclusively from one particular country and view most the interests of that country (Taylor, 2006, p. 14). The modern day’s company does retain its revenues from its dispersion among different countries or by operating in a world wide scale.
Thus it would be improper and inadequate not to include all the different countries, all the branches and subcontractors from other countries in order to have a broader picture and have an international impact on the market. Of course we must differentiate between two different types of product development here. The first one is when the company desires to launch a product in a particular national market and the second is when the company wants to launch a product on an international scale, thus implicating more than one country. In the first case one would think that it is not appropriate to include other subcontractors from other countries for the development of the strategy of this product. But even in this case the research and development team should not forget that even within a specific country there exist groups with different national, ethnical or cultural background. You cannot launch the product and try to address them all by sending a message which is uniform only with the mainstream cultural or ethnical group.
This way there is the risk that the message will not be perceived positively from other cultural or ethnical minority groups (Gomez-Mejia et al. 2008, p. 48). This is why it is important to include in the product development for this local market even subcontractors or members of other ethnic, national or cultural background in order to make sure your message reaches the maximum audience possible.
In the second case it becomes ‘obligatory’ to develop a product with the involvement of different subcontractors from other nationalities. You cannot send a unified, same cultural message to different nationalities and pretend to have the same level of positive feedback and appealing of them all (Gomez-Mejia et al. 2008, p. 66). This way you are increasing the possibilities for a negative response by part of the consumers. At least, you are not trying to create a positive brand image recognition which, if not immediately, will have a negative effect on your revenues in the not to distant future. This is why by implementing various cultural, or ethnical, or national, backgrounds you create the possibitility for your message to be positively perceived by as much people as it is possible.
If we are dealing on an international level then it becomes obligatory for a multinational corporation to take feedback and thoughts from all of its different subcontractors or branches for a product to be launched in different national markets. A product designed for only according to fit the values of one particular national market may not be as successful in the international market due to differences in valeus and norms of the societies. Thus, by lsitening to different voices during the development process, you increase the possibility of positive recognition of your product in different national markets.
References
Taylor, W. (2006). Introduction to Management. Ninth Edition. Prentice Hall: New Jersey.
Gomez-Mejia, Luis R.; David B. Balkin and Robert L. Cardy (2008). Management: People, Performance, Change. 3rd edition. New York: McGraw-Hill.
The impacts of the global COVID-19 pandemic, social inequalities, and racism on New Zealand identify the change in needs of young people from refugee and migrant environments. Mixit is a community development project committed to supporting youth affected by the ongoing situation. This report addresses the research funders, Mixit’s external stakeholders within the sector, and the government interested in the current landscape of Mixit’s programs. It provides some insight into the current climate in the youth context and suggests future steps for the Mixit project to better serve young people.
The research findings are based on the information gathered through in-person interviews, focus groups, Mixit huis, workshops, webinars, digital conferences, and Young People forums. Current societal changes lead to young people’s disruption resulting in a rapid rise of social and economic deprivation and isolation. Moreover, the needs are found outside of Auckland, and support should be provided at the national level. The pandemic aggravates the existing inequalities, and young people are likely to face additional pressure in 2021. At the same time, the current challenges can become an opportunity for Mixit to evolve and expand other organizations’ involvement and for youth to cooperate and contribute to post-disaster recovery. The core program is confirmed relevant to serving young people’s needs; however, there is a need for developing networking activities to contribute to the outreach program.
Six C’s Framework was designed highlighting the six areas for the organization to focus on:
Cohort;
Communications;
Connection and Collaboration;
Culture of Confidence;
Consistency;
Contribution
Introduction
Background
Mixit is a community development project based in Auckland, New Zealand, that supports young people from former refugee and migrant backgrounds. It aims to bring together youth with different experiences and engage them in creative activities. According to Mahony et al. (2017), “the economic, social and cultural rights (ESCR)” in NZ largely depend on volunteers and NGOs due to an insufficient legal framework (p. 5). Mixit was established in 2006 following the initial research into refugee youth’s needs and ways to help them with successful integration into new communities (“About,” n.d.). Founded in 2012, The Mixit Charitable trust assists young people at the community level and guides the project’s vision.
The new environment where humankind finds itself due to the COVID-19 pandemic, social issues, and racial injustices is significantly affecting young people at psychological, social, economic, and educational levels. The needs of former refugee and migrant youth are changing, which requires assessing the value, impact, and reach of Mixit programs. Currently, refugee quota intake has been on hold due to the COVID-19 response after an increase from 1,000 to 1,500 in July 2020 (Bellamy, 2020). According to Webb et al. (2020), disasters disproportionately affect young people’s developmental stages putting their well-being at risk. A constantly altering environment requires Mixit to adapt and ensure that the needs of young people from refugee and migrant backgrounds are met sustainably.
Purpose
Mixit is committed to remaining relevant and supporting the young people affected by the ongoing situation. Hence, the Mixit Research project identifies where refugee and migrant youth requirements are met, indicates the gaps, and outlines how organizations are responding. The program delivery needs to be reviewed and recalibrated in accordance with the altered environment and goals. This report addresses the research funders, Mixit’s external stakeholders within the sector, and the government interested in the current landscape of Mixit’s programs. This report aims to present the findings of the scoping research on the changing needs of refugee and migrant youth in NZ, as well as identify which gaps are filled and which leave much to be desired.
Methodology
A qualitative method was applied to create this report; in particular, interviews with internal and external stakeholders, as well as potential strategic partners, were conducted to collect data relevant to the Mixit Research. The key findings of Mixit huis, workshops, webinars, digital conferences, and Young People forums were synthesized, analyzed, and presented in a comprehensive report.
Data Collection & Points for Consideration
In-person interviews, webinars, forums, and focus groups were used to gather information from individuals involved in resolving issues that youth from refugee backgrounds faces. The contributions of different events are presented in Figure 1. Semi-structured and unstructured interviews and discussions with stakeholders allowed for gathering a snapshot of the current landscape and gaining insights regarding the subject and future outcomes.
Figure 1. Contributions to the Mixit Research Project.
Note. The wide-ranging activities and events provided numerous insights into young people’s needs and associated challenges for Mixit.
Findings
Current Landscape
In 2019 Mixit had commenced developing National Outreach programs and established workshops, consultations, and new partnerships in Hamilton and Christchurch, with plans to expand into other regions where refugee resettlement was identified. As part of this strategic development, it also introduced a new staff position of Outreach Coordinator. However, the global lockdown imposed additional risks on the youth and halted all the planned activities. Mixit recognizes the importance of stability and, thus, has adapted its program delivery in response to the COVID-19 pandemic. In 2020, Mixit continued to run activities online during Alert Level 4 concurrent with the Research, Review, Reset initiative. Furthermore, the national perspective became a part of our research phase, integrating the plans and activities for different regions. The Mixit Research project’s status is depicted in Figure 2.
Figure 2. Current Status Framework.
Note. The framework highlights the Mixit Research project stages, offering an overview of the objectives and the recent progress.
The overview of the current landscape for Mixit can be presented as follows:
it is unclear when the refugee quota will get reinstated;
MIXIT’s reputation is strong;
MIXIT’s programs and approach to using creativity as a vehicle remain relevant and in demand;
lack of alignment is observed between government, community organizations, platforms, and pathways, for young people and their voice;
young people’s needs haven’t changed but are highlighted even more due to the COVID-19 pandemic;
extended consultations and lack of action are observed.
Needs of Young People
Current societal changes lead to young people’s disruption resulting in a rapid rise of social and economic deprivation and isolation. Their health and well-being are at significant risk, identifying the need for analysis of changing needs of youth from refugee and migrant backgrounds. Some old patterns and approaches to sector support are becoming irrelevant. Furthermore, structural changes are observed, and the communities are changing: large multi-ethnic African communities (often of Christian faith) have been replaced with diverse multi-ethnic Middle Eastern communities (often of Islamic faith). Hence, the needs and issues that Mixit faces are now very different.
As stated by the interview respondents, Mixit’s ability to create strong bonds and build continuing relationships makes it attractive to the target audience. Youth Forum in Auckland showed that young people appreciate Mixit for its positivity, enthusiasm, supportiveness, and new people they meet. As indicated in “Case study: Mixit Project” (n.d.), young adults feel connected, and their creativity not restrained by judgment becomes “a vehicle to empower“ (para. 8). Despite the struggles of 2020, Mixit researched and remained active on social media, maintaining positive engagement.
Through conversations, interviews, and discussions, several vital needs for youth from former refugee and migrant backgrounds were highlighted:
young people are frustrated about being asked for their opinions and not seeing the outcomes of interviewing;
reciprocity is crucial: young adults need to be valued and recognized for their contribution;
the youth requires more creative activities apart from performing and opportunities for growth;
the needs are found outside of Auckland, and support should be provided at the national level;
the youth needs to be enabled to participate in decision-making and take on responsibilities to initiate and lead their projects;
the gap in leadership skills development should be filled in;
young people are willing to add value to other community organizations and their programs.
In terms of the COVID-19 situation, the following themes and trends can be outlined:
the global pandemic exacerbated all the existing inequalities;
significant transitions are required from the face-to-face to online learning;
lack of devices, stable WiFi connection, quiet private space for studying or socializing increase the stress level and anxiety;
online communication leaves out non-verbal social cues that many young people rely on;
for isolated families, providing the information is challenging;
for students doing the National Certificate of Educational Achievement (NCEA) COVID-19 outbreak disrupted their trajectory;
Opportunities and Challenges
The current situation implies both new opportunities and challenges for Mixit and young people. The main challenges and key opportunities to counter them are presented in Table 1.
Table 1. Key Challenges and Opportunities for Mixit.
Challenges
Opportunities
There is often a disconnect between advocacy, policymakers, and organizations that can prevent Mixit from negotiating and reaching out to the right people.
The needs are found outside of Auckland, and support should be provided at the national level. Wellington is particularly dysfunctional in this regard as it lacks strong relationships between (and at times within) organizations.
The main goal is to satellite Mixit workshops and groups around other towns and cities – for both young people and young adults as part of leadership initiatives.
Mixit can expand outside experiences and support other organizations, agencies, and programs to liaise with young people, such as:
the Department of Conservation (DOC);
Spirit of Adventure Trust;
Outward Bound;
Refugees as Survivors New Zealand (RASNZ);
Shama Ethnic Women’s Trust;
New Zealand Resuscitation Council (NZRC);
Red Cross;
Refugee Orientation Centre (ROC);
Ara Taiohi;
Empower.
Mixit can help address the professional development needs of a national network of youth workers (i.e., Red Cross, Wellington crew, Christchurch, Auckland, and other organizations).
Mixit can add value and support partner organizations’ initiatives (i.e., ROC Boys Programme in Hamilton, The Prince’s Trust Achieve program).
Palmerston North is the next area to visit and build partnerships.
Mixit can host National opportunities for a network of Youth Leaders and Workers.
Mixit can create end products from the core programs, such as recorded music or spoken word poetry, that can be passed on to others as a reference.
Mixit can develop a contribute package that uses Mixit 101 creativity and games for organizations and initiatives that are unsure ‘HOW’ to facilitate foundation team building and skill acquisition successfully. For instance, stepping outside the comfort zone, developing adaptability, intuition, expression, confidence with presentations, framing stories, and the range of foundation steps needed to support emerging leadership and facilitation.
Mixit can start establishing comprehensive measurement and evaluation partnerships in line with our strategic plan (i.e., measure and evaluate our social impact).
Meeting the broader needs of Alumni and keeping in touch with them can be challenging.
Mixit can involve and train Alumni and other young facilitators to be ambassadors for the National Outreach Program.
Mixit should consider the changing needs and interests (family responsibilities, different toles in life, needs for paid opportunities, and real jobs).
Mixit can involve more staff or increase hours to expand the program. Different Alumni strengths and skills that are not necessarily creative can be put into practice: e.g., administration, computing, lighting arrangements, and so on.
The range of activities should be expanded.
Not everyone is ready to dive into extraverted teamwork and performance. Hence, different needs must be acknowledged and met.
Saying ‘Yes’ to invitations and opportunities can present hurdles for young people, especially those who are not high achievers and are not used to taking up opportunities.
Different needs and interests that can help the youth feel connected and comfortable should be considered.
At Mixit Forums, the following preferred activities were named by participants:
Mixit can introduce a sports day to attract the youth interested in sports and outdoor activities.
A new partnership can potentially be established with Ignite Sports (Wellington-based).
Mixit should ensure that opportunities are visible and accessible to all young people.
Parents don’t always recognize the learning outcomes and engagement that come with involvement with extra-curricular opportunities.
Mixit can offer family sessions to highlight and discuss the impact it has on young people.
Many require assistance with mental health issues. A need for mentorships/role model opportunities is identified.
Many participants expressed the need to support their families.
The need for mental, physical support, spiritual, and emotional support requires Mixit’s intervention and projects’ adjustment.
Mixit can offer weekly online communications with space for mentorship and counseling.
Mixit should encourage listening since sometimes merely feeling heard and acknowledged can improve young people’s mental state.
Mixit must provide young people with information on where they can get help.
Mixit should allow the youth to discuss issues and suggest how they can help contribute to a solution.
Financial needs and language barriers can prevent youth from succeeding in life.
Mixit can assist the youth in finding jobs and developing CV writing skills.
Mixit can improve the engagement of stakeholders and sponsors to improve transportation opportunities for people from different areas.
Mixit can offer language learning assistance to improve communication.
There is no homogenous ‘refugee’ voice and no single voice and perspective of young people.
Mixit should always be asking who is missing from the conversation.
Mixit can focus on engaging and utilizing all team members for its projects.
Mixit can focus on ESOL classes rather than the whole school.
Note. The Mixit Youth Forums in Auckland, Christchurch, Hamilton, and Wellington provide insight into the pressing issues that youth from refugee and migrant backgrounds face.
Six C’s Framework
As a result of a one-day forum with internal stakeholders (board members, staff, and volunteers) and clients (youth), the six areas for the organization to focus on in the future were recommended. Any gaps identified between ‘desired reality’ and ‘current state’ for each area will be explored further to determine what will be required to move forward (milestones and actions).
Cohort
This area of focus involves the Mixit team: Mixers (past and present) and staff. The research identified the need to:
locate, connect with, mentor and empower, train and employ, retain a connection with Mixers, Youth Leaders, Young People, Young Adults, Alumni, Facilitators, and Staff;
stay in touch and offer engaging opportunities (Mixit can consider R&D for new ideas and trial them in Auckland before taking them further);
provide additional mentoring and develop some events beyond Saturday Programme;
establish YL-led initiatives like Zoom weeknights;
empower the Cohort by letting them help set the future, come up with new ideas, try them out, and involve them in project teams to support the future strategic plans and initiatives;
grow the Cohort nationally in a deliberate way.
Communications
The majority of the forum participants highlighted the question to improve communications: ‘How Can We Be Famous?’ Some ideas include the need to:
engage people and keep them connected;
introduce Mixit storytelling: share all the good, the fun, the joy, the opportunities by using the voices of Mixers;
let the Cohort help generate content;
shout about the benefits and possibilities that Mixit offers;
find more channels to communicate with refugees, migrants, their parents, and communities;
follow-through, keep in touch after consultation, connection;
share success stories with funders and government agencies;
Develop a Communications Plan and Strategy that keeps stakeholders informed and connected.
Connection and Collaboration
This area of focus aims at connecting the dots and implementing an outreach strategy that requires Mixit to:
establish a Stakeholder Database to enable effective and regular communications;
ensure contact and communication, and collaborate with the Do’s
including other refugee and migrant agencies, government, councils, funders, schools, ESOL, sports, and organizations;
work together with collaborative partners to secure resources, funds and remove obstacles and barriers to participation;
help to foster cross-sector communications.
Culture of Confidence
The application of the Mixit values at all times is critical to keep developing and enhancing the core program. There is a need to:
ensure Mixit is a welcoming place: the newcomer is the most important person in the room;
build confidence through arts and possibly extend to offer sport and other events;
help the Cohort to grow and develop their confidence through activities, inclusion, empowerment, employment, mentoring, involvement in projects, storytelling, leadership opportunities;
encourage more talking/communications/connection at Saturday sessions – “more than one word.”
Consistency
This focus area involves applying and adhering to the Mixit model for the core Auckland program and further outreach. It requires the following:
a consistent application of values at all times, in all settings;
the need to stretch it across Auckland and take it to a national level;
the implementation of the core Mixit model;
the need to find a way to protect Mixit IP;
audit framework.
Contribution
This aspect refers to measuring Mixit’s contribution to a better Aotearoa, such as:
measuring social and emotional impact, as well as economic impact (where possible);
stronger communities;
longitudinal studies.
Future Steps
Mixit recognizes the importance of prioritizing future actions, understanding dependencies and infrastructure requirements, and developing sub-projects and project teams to move some of these initiatives forward. Given the challenges, opportunities, and the need of young people identified by the Mixit Research, the project should focus on:
mapping out a proposed blueprint with a set of initiatives and projects:
operational initiatives;
with more strategic oversight and governance (e.g., Mixit model distribution and ensuring an agreed level of consistency, the retention of IP, and so on);
presenting the proposed blueprint to the Board;
assigning resources, activating teams;
To achieve its altered objectives, Mixit developed an outline of future steps (as presented in Figure 3).
Figure 3. Future Steps for Mixit.
Note. Synthesizing the HUI outcomes is the first step toward refining the plan and enhancing Mixit in accordance with the youth’s needs.
Conclusions
To summarize, significant gaps and inconsistent support between the top tiers of advocacy and policy and those working on the ground at the coalface with young people in the communities were identified. At the times of the global pandemic, the importance of mentoring and creating connections for young people and adults becomes even more relevant. Mixit strives to create a more inclusive society through implementing Outreach Programmes aimed at strong collaborations and improved communication nationwide.
In analyzing the interview and target groups data, two themes emerged which can be considered the crucial Mixit Research findings:
the core program is confirmed to be relevant and valuable to serve the young people’s needs well;
the need for developing networking activities to contribute to the outreach program is established.
Recommendations
Future Mission Statement
Mixit will invest and evolve to serve young people and enable social cohesion across Aotearoa.
High-Level Strategic Goals
implement Outreach Programmes to improve opportunities for young people nationwide;
establish strong collaborations with other organizations and agencies (i.e., DOC, Spirit of Adventure Trust, Outward Bound, RASNZ, Shama, NZRC, Red Cross, ROC, Ara Taiohi, Empower, and others);
continue monitoring the changing needs of young people.
The paper seeks to discuss extensively the treatment of research and development costs. A review of the U.S. GAAP and IFRS shows that there is a slight difference in how this cost should be treated in the financial statements. According to the U.S. GAAP (SFAS No. 2), the costs for research and development (R&D) should generally be expensed (Jarnagin, 2008). This guideline is based on the fact that the future streams of benefits that are associated with R&D expenditure are uncertain. This makes it difficult to treat the amount spent on research and development as expenses. However, under IFRS (IAS 38. 54 and 57), all research costs are expensed. On development costs, the standard recommends that development costs should be capitalized only after the technical and profit-making viability of the asset for sale or use has been ascertained (Nikolai, Bazley & Jones, 2009). This implies that a company must intend and complete the intangible asset. The company should be able to estimate the cost of the asset. Also, the company intends to use or sell the asset. Also, it is important to show that the asset will create future monetary benefits. Further, the research phase and development phase should be distinctively separated. Otherwise, all the R&D costs will be expensed. Therefore, IAS 38 gives room for capitalizing R&D costs. Capitalization of the development costs should be done only if all the criteria are met. If any of these criteria are not met, then all R&D costs should be expensed (Stice & Stice, 2013).
Comparison of the standards
A review of the two standards shows that they both concur on the treatment of research expenses. However, there is a divergence on the treatment of development costs except for the development of software. The basic rule of expensing all development costs is not completely all-encompassing. There are some exceptions to this rule. For instance, if some assets or materials have been acquired and have another use in the future, then they should be capitalized. Such exceptions limit the ability to entirely follow the guidelines provided under U.S. GAAP (Oswald, 2008).
Analysis of the case
In the case of Thomas Company, there is a clear distinction between the research and the development phase. As seen in the discussion above, the two sets of accounting standards agree that all expenditure that is incurred during the research phase should be expensed. All expenses that are incurred during this phase will be expensed. From the case study, the costs that will be expensed are design and engineering studies, prototype and manufacturing costs, administrative costs that relate to R&D, and the cost of the equipment that amounts to $200,000. The balance of $300,000 should be capitalized because it meets the criteria for capitalization that are listed under IFRS. This will make it consistent with the matching principles. The value will appear under assets on the statement of financial position. Besides, depreciation expenses for this amount will be expensed. It will appear as research and development expense for the year (Wahlen, Jones & Pagach, 2012). There are some expenses in the case study that do not relate to research and development. These are market research costs and salaries of administrative expenses. These costs will be expensed directly in the income statement because they are period costs (Lev & Sougiannis, 1996). In summary, the discussion above shows that there should be selective use of U.S. GAAP when accounting for research and development costs. Besides, there is a need to harmonize these two standards to create uniformity in reporting the financial performance of a company.
References
Jarnagin, B. (2008). U.S. master GAAP guide. Washington, D.C: CCH Publishers.
Lev, B., & Sougiannis, T. (1996). The capitalization, amortization, and value-relevance of R&D. Journal of Accounting and Economics, 21(1), pp. 107-138.
Oswald, D. (2008). The determinants and value relevance of the choice of accounting for research and development expenditures in the United Kingdom. Journal of Business Finance & Accounting, 35(1-2), pp. 1-24.
Stice, E., & Stice, J. (2013). Intermediate accounting. Boston, MA: Cengage learning.
Wahlen, J., Jones, J., & Pagach, D. (2012). Intermediate accounting: reporting and analysis. Boston, MA: Cengage learning.
This paper analyses the influence of research and development in determining the requirement of labour and the affect it has on the over all labour industry. It is known that in the short term increased investments and emphasis on R&D will result in the rise of plant and machinery usage while there will be decline in the demand for labour. This difference can be ascertained if there is a distinction made between the affect of the R&D efforts and the flow of investments.
There is significant difference between the affect of short term changes in the R&D on labour markets and demand on the one hand and the behaviour experienced in the sequential path on the other. An increase in the investments made in R&D will always be accompanied by an increased demand for labour per unit of investment. The widely held view in regard to the displacement of labour due to increased investments in R&D is not true and actually the demand for labour does increase under the circumstances. There is also a positive relationship between the rates of investment in R&D and its utilization.
This paper focuses on the query whether Research and Development has any impact on the labour industry. The simple and logical rationale that is inferred from the given activities implies that they are pursued with the intention of fostering innovative practices, which in turn benefit the industry and result in productivity and growth, which further leads to an increased demand for labour. Companies that engage in constant Research and Development have been found to experience a positive influence on the growth of employment. It is also known that the composition of skilled labour depends heavily on the location of R&D facilities of the company in question.
Where the R&D facilities are off shored, there is a shift in demand in favour of skilled labour in both manufacturing and services sectors. The R&D efforts of companies have been found to increase when they offshore such facilities, especially in the services sector.
Not much difference is found if R&D is relocated internationally in the manufacturing sector. R&D efforts are considered to be advanced operations and sometimes entail heavy costs when outsourced in other countries. With the increasing speed of technological changes happening through out the world, the resulting competition has considerably reduced the product life cycle and companies have started to reorganize their strategies for investment in R&D, thus having a direct impact on the practices of human resources management (Bernd Ebersberger, 2004).
An examination of the R&D patterns of different companies have revealed that off shoring has an important bearing on the functions of the company but does not largely influence the demand for skilled labour, especially amongst companies that have a high intensity of R&D. Most companies that outsource their functions generally concentrate their R&D facilities in the domestic market. This is also applicable to the service sectors in terms of services and material off shoring.
Companies with low intensity of R&D activities will tend to witness a contrasting pattern in terms of lesser demand for skilled labour, primarily because of the services that have been out sourced globally. Such companies are normally less inclined to invest heavily in R&D activities and are thus not much sophisticated and will off shore their productive activities for simpler developmental tasks, thus implying that they will not seek highly skilled workers. Most of the sophisticated R&D activities are undertaken by firms within their country of origin.
There are a number of channels by which a company’s R&D efforts can influence the decisions in regard to human resources management. Normally, labour skills and level of technology being used at any given time complement each other in the company’s production activities. Companies have to enhance the skills of their workers in keeping with the technological advancements and face traditional problems in the reluctance of the labour force to adopt the new practices.
Many a time firms have to attract additional workers with higher skill levels in order to meet the skill set required for the functions emanating from improved technologies. Existing workers also benefit from the newly acquired skills resulting from the R&D activities which in turn make the firm to evolve appropriate HR strategies so as to retain skilled and knowledgeable workers. The product strategy of the company directly impacts the choices made in regard to R&D as also the strategy for HR (Lazear, 1998).
After World War II the world has witnessed considerable increase in R&D activities as companies compete internationally to grab a larger share of the market for their products and services. There has been significant increase in the global trading in goods and services and especially since the 1980s, FDI (Foreign Direct Investment) has been growing very fast as compared to the quantum of global trade. Although most of the major multinational companies have moved their production and delivery functions to other countries, they have chosen to retain their R&D activities within the home country.
However this pattern too has started to change as more and more multinational companies rely on setting up R&D subsidiaries abroad in alliance with companies in developing economies that have become technologically advanced in recent years.
Such companies have also begun to have links with universities abroad in getting assistance for their R&D efforts. If such a pattern continues consistently, there will be a shift in the present association between the availability of scientists and the demand for research activities within the home country. It is evident from research and several business studies that the pattern in this regard is gradually shifting towards outsourcing by multinational companies of skilled engineers and scientists from developing countries that are rapidly gaining ground in R&D. This will add to the pattern of such companies outsourcing low wage labour from these countries.
Larger numbers of companies have begun to outsource R&D services in efforts to reduce costs and to take benefit of the high technology and expertise available in developing countries such as China and India. The possible advantages of outsourcing R&D services are undeniable in that firms can save substantially in terms of lower labour costs and can gainfully enter the fast growing global markets by placing such services in these countries. Nevertheless such practices do have their limitations such as language and culture obstacles, safeguarding of intellectual capital, regulatory and safety matters and the high attrition rate amongst employees in other countries.
Despite the given obstacles multinational companies continue to shift their R&D facilities overseas which have caused an intense debate to flare up in regard to such outsourcing at the cost of unemployment in home countries of multinationals. The argument given in this regard relates to the fact that the multinational companies after having succeeded in their home countries with the active contribution of the local labour force have no justification in shifting their services to foreign countries by rendering them jobless.
According to Fredrik Andersson et al, (2005) there is considerable difference in the effect that technological advancements have on labor practices. In companies which have a high level of R&D, HR practices will aim at hiring highly educated and skilled workers that have numerous means of entry and will give incentives on performance to workers with high productivity. It has also been found that companies with high investments in R&D will implement HR systems for lesser educated workers also and give them incentives for good performance. The workers in these companies will demonstrate higher productivity and a much lower accretion rate.
Companies with lesser investments in R&D will give priority to higher educated and skilled workers and will reward those who give higher productivity. Companies now have the tendency to treat less skilled workers also with dignity in offering them opportunities for career growth so that eventually they demonstrate higher levels productivity.
The relationship of R&D with worker practices can be examined from the perspective of wages and the impact of technology on the organization of the work. However not much is yet known about how the company’s R&D efforts influence its compensation practices. One explicit result of R&D on workers pertains to the augmentation of worker skills and knowledge in using new processes and technology (Krueger, 1993).
Technology can greatly influence the results of the company and the workers by way of the nature of work and the way it is executed. According to Hunter and Lafkas (1998) the influence of R&D on work is dependent on the systems of HR in which it was structured. Routine tasks have been significantly impacted by digital technology by way of automation and enabling workers to execute innovative tasks in both service and manufacturing firms.
The productivity of the worker is also influenced by the HR practices being used in a given firm and for a given level of technology. Usually the assets of a company at any given time are characterized by a high amount of technology specificity which makes it highly improbable to change at short notice. Hence markets that have a small product life entail larger efforts in R&D in comparison to markets that have a larger product life.
The introduction of a new technology consequent to R&D efforts influences the way a company deals with its workers. To implement the new techniques entails the requirement of experience in regard to the previous technologies as also the knowledge about the new methods to be introduced. Formal education in this regard is very time consuming especially for engineers as compared to normal workers. Therefore companies that have a small product life market will have higher spending on R&D and will require skilled staffs that are well acquainted with the new techniques as also those who are experienced with the previous technology.
Thus experience and new skill complement each other. Companies with low investments in R&D will be dependent on experienced workers since they will contribute in reducing cost, enhancing quality and standards and developing the quality of the products. The introduction of new technologies arising out of R&D efforts will entail that companies take appropriate decisions in regard to the creation of an optimum skill base amongst the work force, especially those working in technical functions. The company will have to decide in providing appropriate training and skill enhancement pertaining to the new techniques and in recruiting new workers to meet its production goals. It will also have to decide which workers to retain and which to fire in keeping with the technological requirements.
There is however limited evidence in regard to the association amongst innovation arising due to R&D activities and the labour market. Theoretically, there is ground to understand that an inflexible labour market will result if there are low levels of R&D efforts and initiatives in a given company. This is so because most firms are apprehensive that investments on R&D will create new products and procedures which will need adjustment in the composition of the work force. Hiring workers with the specific skills in carrying out the specific tasks related to new technologies becomes very difficult for firms, because such measures would also entail the firing of workers who may not be henceforth useful to the company. In avoiding such complications companies prefer not to invest in R&D on a very large scale.
References
Bernd Ebersberger, Labor Demand Effect of Public R&D Funding, 2004, Jul Kaisija-Utgivare.
Campbell R. Mcconnell, Stanley L. Brue, Macroeconomics: Principles, Problems, And Policies, 2008, Irwin/mcgraw-hill.
Fredrik Andersson, Clair Brown, Benjamin Campbell, Hyowook Chiang, The Effect of HRM Practices and R&D Investment on Worker Productivity, 2005. Web.
Hunter Larry and Lafkas, Opening the Box Information Technology, Work Practices, and Wages, 2003, Industrial and Labor Relations Review 56 no. 2.
Krueger Alan, How Computers Have Changed the Wage Structure, Evidence from Microdata 1984-1989, (1993) Quarterly Journal of Economics 108.
Lazear Edward. Personnel Economics for Managers, 1998, John Wiley & Sons.
The Research and Development (R&D) functions of organizations play a significant role in the formulation and implementation of business strategy. The R&D personnel are responsible for the development of new products and the enhancement of the company’s old products in line with the successful implementation of the organization’s strategy.
The R&D function is responsible for the transfer of complex technology, adjustment of processes to suit local markets, modification of processes in line with local raw materials, and adjustment of company products to specific tastes and requirements. Organizational strategies targeting product development, diversification and infiltration of new markets demand that company products be improved, and new products created to fit the expected changes. This paper looks at the three major R&D approaches for implementing strategies.
Major R&D Approaches for Implementing Organizational Strategy
Most successful organizations employ R&D strategies that link the available external opportunities to the company’s strength and objectives. What this means is that a properly formulated R&D policy must connect the available market potential to internal organizational capabilities. A company can use any of the following R&D approaches for the implementation of strategies.
The first approach the organization can adopt is to be the first company that promotes new technological products. Though this approach seems attractive and exciting, it is fairly dangerous since the company is likely to delve into untested products. It is also significantly more costly.
This approach has a high rate of failure since companies are testing new products and processes. Nevertheless, this approach can offer the company a temporary monopoly of certain products that the organization can exploit to maintain competitive advantage. If a company fails, other companies can seize the initiative and learn from the mistakes made by the initiating company.
The second approach requires that the organization becomes an innovative imitator of certain successful products and processes from other companies. This approach offers the benefit of a reduction in costs often associated with start-up and program initiation. The company can also benefit from reduced risk of failure since the products have already been successfully adopted.
The company allows pioneer organizations to develop new products and establish the marketability of the product. The company then follows suit and develops a similar but improved product. The success of this strategy relies extensively on the abilities of the R&D personnel and the marketing department of the organization.
The final R&D approach is for the company to adopt the production of a low-cost product that is similar to the one already in the market. The company can achieve lower-cost production by embarking on mass production of recently produced products.
The success of this approach relies on the fact that once a product has been accepted by consumers, the issue of pricing becomes central in determining sales of the product. Unlike the previous strategic R&D approaches, this approach requires less expenditure in R&D, but significant plant and equipment investment for mass production.
The success of any of these approaches requires effective communication between R&D departments and other functions of the organization that are instrumental in executing various forms of generic organizational strategies. Conflict between any of the concerned functions (such as marketing, information technology, R&D, and finance) can be controlled by clearly outlining policies and company objectives.
Conclusion
Research and development function of an organization is important in ensuring organizational growth and in obtaining and maintaining a competitive advantage. Strategic R&D should be aligned with organizational objectives. The three approaches can be used by the organization in implementing a strategic business plan that is well-informed.
The Research and Development (R&D) functions of organizations play a significant role in the formulation and implementation of business strategy. The R&D personnel are responsible for the development of new products and the enhancement of the company’s old products in line with the successful implementation of the organization’s strategy.
The R&D function is responsible for the transfer of complex technology, adjustment of processes to suit local markets, modification of processes in line with local raw materials, and adjustment of company products to specific tastes and requirements. Organizational strategies targeting product development, diversification and infiltration of new markets demand that company products be improved, and new products created to fit the expected changes. This paper looks at the three major R&D approaches for implementing strategies.
Major R&D Approaches for Implementing Organizational Strategy
Most successful organizations employ R&D strategies that link the available external opportunities to the company’s strength and objectives. What this means is that a properly formulated R&D policy must connect the available market potential to internal organizational capabilities. A company can use any of the following R&D approaches for the implementation of strategies.
The first approach the organization can adopt is to be the first company that promotes new technological products. Though this approach seems attractive and exciting, it is fairly dangerous since the company is likely to delve into untested products. It is also significantly more costly.
This approach has a high rate of failure since companies are testing new products and processes. Nevertheless, this approach can offer the company a temporary monopoly of certain products that the organization can exploit to maintain competitive advantage. If a company fails, other companies can seize the initiative and learn from the mistakes made by the initiating company.
The second approach requires that the organization becomes an innovative imitator of certain successful products and processes from other companies. This approach offers the benefit of a reduction in costs often associated with start-up and program initiation. The company can also benefit from reduced risk of failure since the products have already been successfully adopted.
The company allows pioneer organizations to develop new products and establish the marketability of the product. The company then follows suit and develops a similar but improved product. The success of this strategy relies extensively on the abilities of the R&D personnel and the marketing department of the organization.
The final R&D approach is for the company to adopt the production of a low-cost product that is similar to the one already in the market. The company can achieve lower-cost production by embarking on mass production of recently produced products.
The success of this approach relies on the fact that once a product has been accepted by consumers, the issue of pricing becomes central in determining sales of the product. Unlike the previous strategic R&D approaches, this approach requires less expenditure in R&D, but significant plant and equipment investment for mass production.
The success of any of these approaches requires effective communication between R&D departments and other functions of the organization that are instrumental in executing various forms of generic organizational strategies. Conflict between any of the concerned functions (such as marketing, information technology, R&D, and finance) can be controlled by clearly outlining policies and company objectives.
Conclusion
Research and development function of an organization is important in ensuring organizational growth and in obtaining and maintaining a competitive advantage. Strategic R&D should be aligned with organizational objectives. The three approaches can be used by the organization in implementing a strategic business plan that is well-informed.
