UNIT-II B.

COM
INTERNATIONAL BUSINESS ENVIRONMENT
UNIT I
Meaning – Distinction between domestic Business and International Business– Reasons for
International Business - Complexities of International Business – Modes of entry in to
International Business. Globalisation- Features, Factors Driving Globalisation – Socio-
Economic Implications-Globalization and India.

Meaning of International Business:

International business refers to commercial activities that go beyond the geographical limits of a country.

Therefore, it includes not only the international movement of goods and services but also the capital,
personnel, technology, and intellectual property such as patents, trademarks, technical knowledge, and
copyrights.

It is a business that takes place outside the border, that is, between two countries. This includes the
international movement of goods and services, capital, personnel, technology, and intellectual property
rights such as patents, trademarks, and know-how. It refers to the purchase and sale of goods and services
that exceed the geographical limits of the country.

It comes in three types:

1. Export Trade: It is the sale of goods and services to foreign countries.

2. Import trade: Purchase goods and services from other countries.
3. Entrepot Trade: Import of goods and services for re-export to other countries.

Scope of International Business:

1. International trade: International business includes the import and export of goods.

2. Service export and import: It is also known as invisible commerce. Invisible commerce items
include tourism, transportation, telecommunications, banking, warehousing, distribution, and
advertising.
3. Licenses and franchises: A license is a contractual arrangement that allows one company (licensor)
access to its patents, copyrights, trademarks, or technologies to another foreign company (licensee) at a
rate called royalties. Pepsi and Coca-Cola are produced and sold worldwide under a licensing system.
A franchise is similar to a license, but a term used in connection with the provision of services. For
example, McDonald’s operates fast-food restaurants around the world through its franchise system.

4. Foreign investment: It involves investing funds abroad in exchange for economic profitability.

There are two types of foreign investment.

(A) Foreign Direct Investment (FDI)- Investing in foreign assets such as plants and machinery for the
purpose of producing and marketing goods and services abroad.
(B) Portfolio Investment- Investing in foreign company stocks or obligations to earn income through
dividends or interest.

Features of International Business:

1. It includes two countries: international business is only possible when there are transactions in
different countries.

2. Use of currencies: Each country has its own different currency. This causes currency exchange
problems as foreign currencies are used to carry out transactions.

3. Legal obligations: Each country has its own laws regarding foreign trade, which must be complied
with. Moreover, in the case of international transactions, there is more government intervention.

4. High risk: International companies face great risks due to long distances, the risk of fluctuations
between the two currencies, and the risk of obsolescence.

5. Heavy document: Subject to a series of steps. Many documents need to be completed and sent to the
other party.

6. Time consumption: The time interval from sending and receiving goods to payment is longer than
that of domestic transactions.

7. Lack of personal contact: Lack of direct and personal contact between importers and exporters
International business is the bridge that fills the gaps between different countries by offering
commercial services and reaping benefits in return. It has a significant role to play in maintaining
the balance of power between different nations.

Difference between Domestic and International Business

Domestic Business

Domestic business involves those economic transactions that take place inside the geographical
boundaries of a country. Both the buyer and seller belong to the same country in this form of business.
Domestic business is also known as ‘Internal Business’ or ‘Home Trade’. It is relatively easier to conduct
business research in domestic business when compared to companies from abroad, and the degree of
risk is also much lower. The selling process, currency, type of customers, taxation laws, and other
regulations are more or less uniform, which can significantly benefit any organisation.

International Business

International business involves those economic transactions that take place outside the geographical
boundaries of a country. The buyer and seller do not belong to the same country in this form of business.
Companies involved in international business are known as ‘Multinational’ or ‘Transnational’
companies. It is much more difficult to conduct business research on international business firms when
compared to domestic companies, and the degree of risk is also higher. The selling process, currency,
type of customers, taxation laws and other regulations are different for the buyer and seller, which can
be a hindrance for any organisation to conduct business.

Differences between Domestic and International Business

The main differences between Domestic and International Business are as follows:

Domestic Business International Business

Definition
Domestic business involves those economic International business involves those economic
transactions that take place within the geographical transactions that take place outside the geographical
boundaries of a country. boundaries of a country.

Buyer and Seller

Both the buyer and seller belong to the same The buyer and seller belong to different countries in
country in domestic business. international business.

Currency

Domestic businesses deal with the same currency International businesses deal with different
since both the buyer and seller are from the same currencies since the buyer and seller are not from
country. the same country.

Customers

There is greater homogeneity in terms of the nature There is greater heterogeneity in terms of the nature
of customers of domestic businesses. of customers of international businesses.

Geographical Boundaries

Geographical boundaries limit domestic Geographical boundaries do not limit international

businesses. businesses.

Business Research

Business Research is less complex and relatively Business Research is more complex and relatively
cheaper for domestic businesses compared to expensive for international businesses compared to
international organisations. domestic companies.

Capital Investment
 Capital investment is lower for companies that are Capital investment is higher for companies that are
involved in domestic business. involved in international business.

Factors of Production

The domestic business has greater mobility of The international business has lesser mobility of
factors of production compared to international factors of production compared to domestic
business. business.

Restrictions

Domestic business involves lesser restrictions than International business involves greater restrictions
international business. than domestic business.

Quality Standards

The quality standards for domestic business tend to The quality standards for international business tend
be relatively lower than international business. to be relatively higher than domestic business.

REASON FOR INTERNATIONAL BUSINESS

• Uneven Distribution of Natural Resources: Due to unequal distribution of natural resources,
all countries cannot produce goods at a low cost. As a consequence, it has an impact on their
productivity levels. Therefore, the countries with less quantity of a natural resource either purchase
the resource or the actual product itself from the countries with an abundance of these. For
example, crude oil is exported from the USA as it is found in abundance there.
• Availability of Productivity Factors: The numerous production variables, like labor, capital,
and raw materials, that are required to produce and distribute diverse commodities and services
are found in different quantities in different countries. It gives rise to buying and selling of
productivity factors among the countries. For example, due to unemployment in India, foreign
countries can employ labor at chap rates from India.
• Specialization: Some countries specialize in producing goods and services for which they have
advantages such as education, favorable climatic circumstances, and so on. It results in the
 business between different countries for the purchase and sale of specialized products. For
example, the Indian market specializes in handcraft products which increases its exports to other
countries.
• Cost Advantages: Production costs vary according to geographical, political, and
socioeconomic situations in different countries. Some countries are in a better position to
manufacture certain commodities at a lower cost than others. Firms participate in international
trade to purchase products that are cheaper in other countries and to sell things that they can supply
at a lower cost. For example, China sells various goods at a low price to different countries all
over the world because of the cost advantage.
COMPLEXITIES OF INTERNATIONAL BUSINESS

International business is a multifaceted and complex field that presents many challenges and
complexities. Understanding and delving into the complexities of international business provides insight
into the challenges faced by companies operating in global markets.

Complexities of international business are explained below:

❖ Increased Costs
❖ Foreign Regulations and Standards
❖ Delays in Payments
❖ Complex Organisational Structure
❖ Exhaustion of Natural Resources
❖ Cultural Differences
❖ Market Competition in Host Country
❖ National Controls
❖ Lack of Home Country Support
❖ Dependence
❖ Loss to Agricultural Countries

1) Increased Costs
There are increased operating expenses including the establishment of facilities abroad, the hiring of
additional staff, travelling of personnel, specialised transport networks, and information and
communication technology.

2) Foreign Regulations and Standards

The company may need to conform to new standards. This may require changes such as in the production
process, incurring additional costs, inputs and packaging.

3) Delays in Payments

International trade may lead to delays in payments, adversely affecting the firm’s cash flow.

4) Complex Organisational Structure

International business usually requires changes to the firm’s operating structure. Training/re-training of
management is necessary to effectively facilitate the process of restructuring. By investing in a well-
designed organisational structure, businesses can position themselves for success in the complex and
ever-evolving world of International Trading Environment.

5) Exhaustion of Natural Resources

This means exhausting all its natural resources in due course of time. It encourages an under-developed
country to export its all raw materials very early.

6) Cultural Differences

The culture of both the nation and companies should have an international vision. Companies should
adopt a long-term perspective, being prepared to move wherever market opportunities are favorable.
The inward-looking culture makes companies remain local. For example, unlike Korean companies who
look for global markets Samsung, LG, and Indian company Hindustan Motor were inward looking.

7) Market Competition in the Host Country

If the best global companies enter the markets, the competition becomes intense and accordingly
inefficient companies have to close their shops. For example, Daewoo cars in India.

8) National Controls

The nations create barriers for outside country manufacturers by increasing trade barriers. Trade barriers
will be direct in the form of high customs duties. Indirect barriers will include licensing procedures,
quota systems, inspections, certifications, and tedious paperwork. For example, India and former Russia
were inward-looking economies for the last five decades with large trade barriers until the 1990s.

9) Lack of Home Country Support

Home country support for export investments & tax matters is essential for the success of international
business. If support is insufficient the international business proposal fails. The government or social
restrictions imposed on commerce and industry become hurdles for a company going global. For
example, Hindustan Aeronautics Limited (HAL) has to serve only the Indian Air Force.

10) Dependence

The import of cheap quality products increases the dependence of foreign countries to the extent that
leads that country to no product that is, their production within the country stops altogether.

11) Loss to Agricultural Countries

In international trade, predominantly agricultural countries are losers to the maximum losses. This is
because demand for agricultural products is less elastic; there is hardly any increase in their demand
despite a fall in the price.

12) Political Instability

Political instability is a major challenge to the smooth functioning of international trade. It refers to
uncertain political conditions in some countries which can have far-reaching consequences on
international trade. Various external factors such as changes in trade agreements, government policies
and political turmoil in the foreign market can disrupt business operations and cause financial losses to
industries involved in the process.

MODES OF ENTRY

The long-term advantages of doing international business in a particular country depend upon the
following factors −

• Size of the market demographically

• The purchasing power of the consumers in that market
• Nature of competition

By considering the above-mentioned factors, firms can rank countries in terms of their attractiveness
and profitability. The timing of entry into a nation is a very important factor. If a firm enters the market
ahead of other firms, it may quickly develop a strong customer base for its products.

There are seven major modes of entering an international market. In this chapter, we will take up each
mode and discuss their advantages and disadvantages.

Exporting

An item produced in a domestic market can be sold abroad. Storing and processing is mainly done in
the supplying firm’s home country. Export can increase the sales volume. When a firm receives
canvassed items and exports them, it is called Passive Export.

Alternately, if a strategic decision is taken to establish proper processes for organizing the export
functions and for obtaining foreign sales, it is known as Active Export.

• Advantages − Low investment; Less risks

• Disadvantages − Unknown market; No control over foreign market; Lack of information about
external environment

Licensing

In this mode of entry, the manufacturer of the home country leases the right of intellectual properties,
i.e., technology, copyrights, brand name, etc., to a manufacturer of a foreign country for a predetermined
fee. The manufacturer that leases is known as the licensor and the manufacturer of the country that gets
the license id known as the licensee.

• Advantages − Low investment of licensor; Low financial risk of licensor; Licensor can
investigate the foreign market; Licensee’s investment in R&D is low; Licensee does not bear the
risk of product failure; Any international location can be chosen to enjoy the advantages; No
obligations of ownership, managerial decisions, investment etc.
• Disadvantages − Limited opportunities for both parties involved; Both parties have to manage
product quality and promotion; One party’s dishonesty can affect the other; Chances of
misunderstanding; Chances of trade secrets leakage of the licensor.

Franchising

In this mode, an independent firm called the franchisee does the business using the name of another
company called the franchisor. In franchising, the franchisee has to pay a fee or a fraction of profit to
the franchisor. The franchisor provides the trademarks, operating process, product reputation and
marketing, HR and operational support to the franchisee.

Note − The Entrepreneur magazine’s top ranker in "The 2015 Franchise 500" is Hampton Hotels. It has
2,000 hotels in 16 countries.

• Advantages − Low investment; Low risk; Franchisor understands market culture, customs and
environment of the host country; Franchisor learns more from the experience of the franchisees;
Franchisee gets the R&D and brand name with low cost; Franchisee has no risk of product failure.
• Disadvantages − Franchising can be complicated at times; Difficult to control; Reduced market
opportunities for both franchisee and franchisor; Responsibilities of managing product quality
and product promotion for both; Leakage of trade secrets

Turnkey Project

It is a special mode of carrying out international business. It is a contract under which a firm agrees –
for a remuneration – to fully carry out the design, create, and equip the production facility and shift the
project over to the purchaser when the facility is operational.

Mergers & Acquisitions

In Mergers & Acquisitions, a home company may merge itself with a foreign company to enter an
international business. Alternatively, the home company may buy a foreign company and acquire the
foreign company’s ownership and control. M&A offers quick access to international manufacturing
facilities and marketing networks.

• Advantages − Immediate ownership and control over the acquired firm’s assets; Probability of
earning more revenues; The host country may benefit by escaping optimum capacity level or
overcapacity level
• Disadvantages − Complex process and requires experts from both countries; No addition of
capacity to the industry; Government restrictions on acquisition of local companies may disrupt
business; Transfer of problems of the host country’s to the acquired company.

Joint Venture

When two or more firms join together to create a new business entity, it is called a joint venture. The
uniqueness in a joint venture is its shared ownership. Environmental factors like social, technological,
economic and political environments may encourage joint ventures.

• Advantages − Joint ventures provide significant funds for major projects; Sharing of risks
between or among partners; Provides skills, technology, expertise, marketing to both parties.
• Disadvantages − Conflicts may develop; Delay in decision-making of one affects the other party
and it may be costly; The venture may collapse due to the entry of competitors and the changes
in the partner’s strength; Slow decision-making due to the involvement of two or more decision-
makers.
GLOBALIZATION MEANING

Globalization is defined as the extension of trade, commerce and culture of an economy across different
nations. It allows economies to exchange domestic products, services, technologies, ideas and other
resources globally.
It facilitates developed nations to make foreign direct investments (FDIs) for utilizing cheaper
resources of developing countries. The process increases employment opportunities, productivity, living
standards and earnings of emerging economies.
What is globalization?
Globalization is defined as the practice of free trade across the international market. It paves the way to
exchange products, services, resources, ideas and technology from one nation to another.

FEATURES OF GLOBALISATION

This concept has enabled economies of scale for companies in production and distribution. It has also
encouraged outsourcing and technology transfer among companies and countries, thus increasing their
interdependence on each other. The main characteristics of globalisation are listed below:

Free Trade – Globalisation has helped improve trade volumes between nations with minimal
interference. The reason is that governments are not micromanaging every minute aspect of business
transactions. The Gross Domestic Product (GDP) of countries that have accepted globalisation has also
increased significantly, thus bringing in greater prosperity. It has also resulted in better cooperation
between governments that leads to further improvement in trade.

Liberalization – One of the main characteristics of globalisation is the improvement in the business
climate for corporations. It has helped entrepreneurs to set up businesses and transact both within and
outside the country. The rules and regulations for companies are relaxed significantly to allow for more
trade between nations due to globalisation. Flexibility in trade regulations pushes governments to make
further concessions to industries. Both Liberalization and Globalisation are dependent on each other.

Increase in Employment – Every industry is responsible for generating both direct and indirect jobs.
And when production increases, it has a positive effect on employment. Globalisation helps companies
increase their production capacity and set up operations in different parts of the world. It also helps boost
work opportunities in countries where these corporations have set up operations.

Increased connectivity between nations – Globalisation has helped countries improve trade relations
with each other. It has increased interaction between people and businesses. Better connectivity also
boosts a country’s economy and enhances the standard of living for its citizens.
Interdependence – With the advent of globalisation, countries have become more reliant on each other.
Businesses get the opportunity to import cheaper raw materials to produce their commodities. They are
also being allowed to export to countries that have more demand for their finished goods. It has helped
reduce trading barriers and build overall economic prosperity.

Cultural Exchange – Improvement in people to people contacts have encouraged the intermingling of
cultural practices and customs. It has allowed people to exchange ideas, behaviours and values with
other countries. Communities are less isolated as a result of globalisation. For example, several
American eateries have penetrated different parts of the world. Similarly, cuisine from far off countries
is now readily available in the United States.

Urbanization – One of the consequences of globalisation is the increase in urban centres. When many
foreign/local companies set up businesses in a particular area, it becomes a hotbed of economic activity.
The people who work in those companies need infrastructure near their workplace in terms of housing,
transport, shops and other establishments. Globalisation leads to the building of urban centres in and
around industrial areas.

Standard of Living – With increased economic activity and opportunities for employment, people have
more money in their pockets. They also have more options to choose from because of improved job
opportunities. It is one of the main reasons why globalisation allows more and more people to improve
their standard of living.

Production Cost – In a globalized world, companies are free to establish their operations in areas where
the cost of production is low. The cheap availability of land, labour and raw materials has become very
important. So it makes sense for companies to go where these resources are present in abundant
quantities and at discounted rates. It helps them gain over their rivals by lowering costs and improving
profit margins.

Outsourcing – One of the characteristics of globalisation is that it allows companies to bring in third
parties from outside the country to manage specific processes. They take this step to reduce internal
costs, improve the quality of services or both. Outsourcing is a boon for several human resource-rich
countries that are looking to generate employment. Countries like India and the Philippines have
benefitted immensely as a result of this practice.
FACTORS DRIVING GLOBALISATION

Globalisation can be described as the removal of barriers to trade across national borders to enable
increased integration, interdependence and interconnectivity of production processes and capital
markets, and flow of financial resources, goods and services among different nations thus expanding
international trade and economic growth in complex ways.

Globalisation is driven by the following factors:

The digital revolution. The internet has made it easy to access goods and services produced from
anywhere in the world. It is now easy to purchase goods such as mobile phones and books online. A
good example is Amazon which has an online store for books and other products. Potential customers
can search for titles, check for prices, make orders and pay online. The purchased books (and other
products) are then shipped to the customers worldwide. This implies that customers are able to compare
prices online and determine which transactions will make them incur the lowest costs. Therefore,
technology has made it easy to carry out borderless transactions due to e-commerce and electronic
banking: the digital revolution enables initiation and completion of transactions globally.

With social media, every seller can ‘advertise’ his/her goods and services, for example, showing photos
and videos on Facebook at negligible cost. This implies that social media has compressed the world into
a global village since within seconds, people can initiate and complete transactions online. When the
potential buyer seeks the product on social media, he/she can place an order for the product immediately.
Certain payments can be made through the sellers’ website or direct to his/her phone using mobile
money. Such global and online funds transfers have seen growth of intermediaries such as Western
Union and WorldRemit.

International economic integration. Several trade blocs have made national borders porous as barriers
to trade are reduced/removed among member countries. Examples of such trade blocs include: NAFTA
for the US, Mexico and Canada; and EAC for East African countries. Such trade blocs increase
competition among firms in member countries as flow of goods and services is facilitated across national
borders. Whereas there is no complete deregulation of markets among member states, there is a move
towards that direction even if protectionism tendencies are still experienced in some blocs such as that
of East Africa. For example, some countries still encourage the population to buy homemade products
instead of encouraging them to buy regional products from members of the trade bloc. Such
protectionism still works counter to the aims of economic integration.

Socio-cultural convergence. Due to access to information through online newspapers and social media,
people are losing ‘cultural identity’. For example, what used to look ‘unAfrican’ is now looking normal
such as wearing mini-skirts. This is due to exposure to cultures in which wearing mini-skirts is not seen
as a taboo. As a result, producers of mini-skirts have a global clientele due to convergence of cultural
values, traditions and beliefs. What used to be a national/regional product is now a global product. Firms
can now sell their products worldwide without customising them to meet the tastes of particular countries.

Global education providers. With the popularity of online learning increasing, there are institutions
which offer education courses to a global audience. We have seen universities and colleges offering a
blend of on-campus, distance, and purely online programmes. The global education providers enable
students to access globally accepted academic qualifications while residing in their home countries. As
a result, the students enter the job market with diverse skills and exposure to diverse cultures. This
enables them to work for companies dispersed globally especially using online platforms to write articles
and tutor learners. Therefore, there is increasing number of people who can offer services across borders
using online platforms after attaining ‘global education’ thus constituting ‘global human capital’.

Cross-border political influence. Governments have formulated polices that facilitate cross-border
trade and influence. For example, there is growing influence of China especially in Africa where China
is offering long-term loans to countries. Zambia is a key example where China virtually took over
operations at the international airport. This shows that developed countries are positioning themselves
to influence political and economic developments in developing countries. This was also clear when
supporters of Brexit were popularising it that a ‘global Britain’ is far much better than remaining an EU
member. This shows that there is competition among developed countries to influence what takes place
in developing countries. This makes countries bundled up by developed countries, for example, some
countries are seen as allies of China and Russia while others are seen as allies of the US/Israel and
Britain. Such bundling makes national borders porous as the countries trade as members of the loose
grouping.
Financial liberalisation. There is increasing interconnection of countries due to deregulation of
financial markets. It is now easy to exchange money to ‘global currencies’ such as the US dollar and
British Pound. This has made it easy to purchase goods and services globally. For example, it is easy to
pay tuition fees while in Africa for an online academic course in UK through online payments. This is
possible because of the ease of exchanging money from one’s currency to US dollars or British pounds.
This has led to financial globalisation which is facilitated by companies like PayPal which operate
innovative online payments system thus transferring money globally.

Intense competition. With intense competition among firms, firms are looking for new markets across
borders. In some sectors such as news media, there is competition from any corner of the world.
Information is readily accessible from both local and foreign news firms thus forcing firms to keep
innovating in order to remain competitive and/or survive. Due to intense competition, firms are now
searching for foreign markets. The search for foreign markets has been facilitated by increase in foreign
direct investment (FDI). FDI involves transactions in which a foreign investor avails capital to a firm
for use in its operations. Such transactions have increased capital mobility and facilitated global
economic integration as firms enter international strategic alliances.

Increased international business and trade. Some firms are involved in importing and exporting
goods and services across national borders. Other firms are using joint ventures, licensing and
franchising as alternatives to importing and exporting while making their products reach a global
clientele. This has enabled firms to meet customer needs across borders without necessarily customising
products as products now have a global appeal due to convergence of cultures (already discussed)
leading to uniform markets. For example, Coca-Cola products have become global brands sold in every
country. Such cross-border trade has been facilitated by reduction in transaction costs as more efficient
and effective means of payments and communication are enabled by technology.

Need for economies of scale. As competition intensifies, firms are looking for ways of obtaining and
enjoying cost savings. This can be achieved through economies of scales when firms produce the same
product for a huge market. This necessitates firms to have huge investments in promoting products
globally. A key example is PepsiCo which sells its drinks globally.
GLOBALIZATION AND ITS IMPACT ON INDIAN ECONOMY: DEVELOPMENTS AND
CHALLENGES

Globalization (or globalization) describes a process by which regional economies, societies, and cultures
have become integrated through a global network of communication, transportation, and trade. The term
is sometimes used to refer specifically to economic globalization: the integration of national economies
into the international economy through trade, foreign direct investment, capital flows, migration, and
the spread of technology. Globalization as a spatial integration in the sphere of social relations when he
said “Globalization can be defined as the intensification of worldwide social relations which link distant
locations in such a way that local happenings are shaped by events occurring many miles away and vice
– versa.” Globalization generally means integrating economy of our nation with the world economy.
The economic changes initiated have had a dramatic effect on the overall growth of the economy. It also
heralded the integration of the Indian economy into the global economy. The Indian economy was in
major crisis in 1991 when foreign currency reserves went down to $1 billion. Globalization had its
impact on various sectors including Agricultural, Industrial, Financial, Health sector and many others.
It was only after the LPG policy i.e. Liberalization, Privatization and Globalization launched by the then
Finance Minister Man Mohan Singh that India saw its development in various sectors.

Advent of New Economic Policy -After suffering a huge financial and economic crisis Dr. Man Mohan
Singh brought a new policy which is known as Liberalization, Privatization and Globalization Policy
(LPG Policy) also known as New Economic Policy,1991 as it was a measure to come out of the crisis
that was going on at that time. The following measures were taken to liberalize and globalize the
economy:

1. Devaluation: To solve the balance of payment problem Indian currency were devaluated by 18 to
19%.

2. Disinvestment: To make the LPG model smooth many of the public sectors were sold to the private
sector.

3. Allowing Foreign Direct Investment (FDI): FDI was allowed in a wide range of sectors such as
Insurance (26%), defense industries (26%) etc.
4. NRI Scheme: The facilities which were available to foreign investors were also given to NRI's.

The New Economic Policy (NEP-1991) introduced changes in the areas of trade policies, monetary &
financial policies, fiscal & budgetary policies, and pricing & institutional reforms. The salient features
of NEP-1991 are (i) liberalization (internal and external), (ii) extending privatization, (iii) redirecting
scarce Public Sector Resources to Areas where the private sector is unlikely to enter, (iv) globalization
of economy, and (v) market friendly state.

Consequences of Globalization:The implications of globalisation for a national economy are many.

Globalisation has intensified interdependence and competition between economies in the world market.
This is reflected in Interdependence in regard to trading in goods and services and in movement of
capital. As a result domestic economic developments are not determined entirely by domestic policies
and market conditions. Rather, they are influenced by both domestic and international policies and
economic conditions. It is thus clear that a globalising economy, while formulating and evaluating its
domestic policy cannot afford to ignore the possible actions and reactions of policies and developments
in the rest of the world. This constrained the policy option available to the government which implies
loss of policy autonomy to some extent, in decision-making at the national level.

Now for Further analysis we take up Impact of Globalization on various sector of Indian Economy.

Impact of Globalization on Agricultural Sector:Agricultural Sector is the mainstay of the rural Indian
economy around which socio-economic privileges and deprivations revolve and any change in its
structure is likely to have a corresponding impact on the existing pattern of Social equity. The
liberalization of India’s economy was adopted by India in 1991. Facing a severe economic crisis, India
approached the IMF for a loan, and the IMF granted what is called a ‘structural adjustment’ loan, which
is a loan with certain conditions attached which relate to a structural change in the economy. Essentially,
the reforms sought to gradually phase out government control of the market (liberalization), privatize
public sector organizations (privatization), and reduce export subsidies and import barriers to enable
free trade (globalization).

Impact of Globalization on Industrial Sector:Effects of Globalization on Indian Industry started when

the government opened the country's markets to foreign investments in the early 1990s. Globalization
of the Indian Industry took place in its various sectors such as steel, pharmaceutical, petroleum, chemical,
textile, cement, retail, and BPO.

Globalization means the dismantling of trade barriers between nations and the integration of the nations
economies through financial flow, trade in goods and services, and corporate investments between
nations. Globalization has increased across the world in recent years due to the fast progress that has
been made in the field of technology especially in communications and transport. The government of
India made changes in its economic policy in 1991 by which it allowed direct foreign investments in the
country. The benefits of the effects of globalization in the Indian Industry are that many foreign
companies set up industries in India, especially in the pharmaceutical, BPO, petroleum, manufacturing,
and chemical sectors and this helped to provide employment to many people in the country. This helped
reduce the level of unemployment and poverty in the country. Also the benefit of the Effects of
Globalization on Indian Industry are that the foreign companies brought in highly advanced technology
with them and this helped to make the Indian Industry more technologically advanced.

The negative Effects of Globalization on Indian Industry are that with the coming of technology the
number of labor required decreased and this resulted in many people being removed from their jobs.
This happened mainly in the pharmaceutical, chemical, manufacturing, and cement industries.

Impact on Financial Sector:Reforms of the financial sector constitute the most important component
of India’s programme towards economic liberalization. The recent economic liberalization measures
have opened the door to foreign competitors to enter into our domestic market. Innovation has become
a must for survival. Financial intermediaries have come out of their traditional approach and they are
ready to assume more credit risks. As a consequence, many innovations have taken place in the global
financial sectors which have its own impact on the domestic sector also. The emergences of various
financial institutions and regulatory bodies have transformed the financial services sector from being a
conservative industry to a very dynamic one. In this process this sector is facing a number of challenges.
In this changed context, the financial services industry in India has to play a very positive and dynamic
role in the years to come by offering many innovative products to suit the varied requirements of the
millions of prospective investors spread throughout the country. Reforms of the financial sector
constitute the most important component of India’s programme towards economic liberalization.

Growth in financial services (comprising banking, insurance, real estate and business services), after
dipping to 5.6% in 2003-04 bounced back to 8.7% in 2004-05 and 10.9% in 2005-06. The momentum
has been maintained with a growth of 11.1% in 2006-07. Because of Globalization, the financial services
industry is in a period of transition. Market shifts, competition, and technological developments are
ushering in unprecedented changes in the global financial services industry.

Impact on Export and Import:India's Export and Import in the year 2001-02 was to the extent of
32,572 and 38,362 million respectively. Many Indian companies have started becoming respectable
players in the International scene. Agriculture exports account for about 13 to 18% of total annual of
annual export of the country. In 2000-01 Agricultural products valued at more than US $ 6million were
exported from the country 23% of which was contributed by the marine products alone. Marine products
in recent years have emerged as the single largest contributor to the total agricultural export from the
country accounting for over one fifth of the total agricultural exports. Cereals (mostly basmati rice and
non-basmati rice), oil seeds, tea and coffee are the other prominent products each of which accounts fro
nearly 5 to 10% of the countries total agricultural exports.