STUDY NOTES

M.Com. Semester-I

Subject: Business Environment

Chapter: Unit 6- International and Technological

Environment
(Globalisation)

Prepared by: Dr. Sukumar Pal

Associate Professor in Commerce
Sree Chaitanya Mahavidyalaya
 Globalisation of Business
Introduction

Tamal works in a call centre. He leaves late in the evening for work, becomes Tom when
he enters his office, acquires a new accent and speaks a different language (than he does
when he is at home) to communicate with his clients who are living thousands of miles away.
He works all night, which is actually day time for his overseas customers. Tamal is
rendering a service to somebody who in all probability he is never likely to meet physically.
This is his daily routine. His holidays also do not correspond to the Indian calendar but to
those of his clients who happen to be from the US.
Ramanuj has gone shopping to buy a birthday gift for his nine-year old daughter. He has
promised her a small cycle and decides to search the market for something he finds
affordable as well as of reasonable quality. He finally does buy a cycle, which is actually
manufactured in China but is being marketed in India. It meets his requirements of
quality as well as affordability, and Ramanuj decides to go ahead with his purchase. Last
year, Ramanuj on his daughter’s insistence had bought her a Barbie doll, which was
originally manufactured in the US but was being sold in India.
Sabita is a first generation learner who has done remarkably well throughout her school and
college life by working very hard.
She now has an opportunity to take on a job and begin an independent career, which
the women of her family had never dreamt of earlier. While some of her relatives are
opposed, she finally decides to go ahead because of the new opportunities that have
been made available to her generation.
All three examples illustrate an aspect each of what we call globalisation. In the first
instance Tamal was participating in the globalisation of services. Ramanuj’s birthday
purchases tell us something about the movement of commodities from one part of the world to
another. Sabita is faced with a conflict of values partly originating from a new opportunity
that earlier was not available to the women in her family but today is part of a reality that
has gained wider acceptability.
If we look for examples of the use of the term ‘globalisation’ in real life, we will realise that
it is used in various contexts. Let us look at some examples, different from the ones that we
have looked above:
Some farmers committed suicide because their crops failed. They had bought very
expensive seeds supplied by a multinational company (MNC).
An Indian company bought a major rival company based in Europe, despite protests by
some of the current owners.
Many retail shopkeepers fear that they would lose
their livelihoods if some major international
companies open retail chains in the country.
A film producer in Mumbai was accused of lifting the
story of his film from another film made in
Hollywood.
A militant group issued a statement threatening
college girls who wear western clothes.
These examples show us that globalisation need not always be positive; it can have
negative consequences for the people. Indeed, there are many who believe that
globalisation has more negative consequences than positive. These examples also show us
that globalisation need not be only about the economic issues, nor is the direction of
influence always from the rich to the poor countries
 The forces of globalization have hardly been as intense before as to be explicitly evident as
influencing our daily lives. The advents in Information and Communication Technology (ICT) and the rapid
economic liberalization of trade and investment in most countries have accelerated the process of
globalization. Markets are getting flooded with not only industrial goods but also with items of daily
consumption. Each day, an average person makes use of goods and services of multiple origins—for
instance, the Finnish mobile Nokia and the US toy-maker’s Barbie doll made in China but used across the
world; a software from the US-based Microsoft, developed by an Indian software engineer based in
Singapore, used in Japan; the Thailand-manufactured US sports shoe Nike used by a Saudi consumer. The
increased integration of markets— goods and financial—the mobility of people with transnational travels for
jobs and vacations, and the global reach of satellite channels, the Internet, and the telephone all have
virtually transformed the world into a ‘global village’.
‘Globalization’, one of the most complex terms used in international business, has wide connotations.
Globalization is used to refer to the increasing influence exerted by economic, political, socio-cultural, and
financial processes across the globe. Globalization not only offers numerous challenges to business
enterprises but also opens up new opportunities. In the earlier era of restrictive trade and investment regimes
with much lower degree of interconnectedness among countries, companies solely operating in their home
markets were generally protected and isolated from the vagaries of upheavals in the international business
environment. Therefore, developing a thorough conceptual understanding of international business has
become inevitable not only for the managers who operate in international markets, but also for those who
operate only domestically.
India and China were the world’s two most dominant economies till the early nineteenth century
whereas the US, the UK, and Japan emerged as strong economies only lately. Economic restrictions became
pervasive around the world after World War I, leading to de-facto de-globalization. Besides, the import
substitution strategies followed by most developing countries, which gained independence from colonial rule
in the post-World War II era, considerably restricted international trade and investment. A number of
multilateral organizations set up after World War II under the aegis of the United Nations, such as the World
Bank (WB), the International Monetary Fund (IMF), the General Agreement on Tariffs and Trade (GATT),
and the World Trade Organization (WTO), facilitated international trade and investment. Elucidating the
conceptual framework of globalization, the chapter delineates a holistic approach to define the term,
encompassing financial, cultural, and political aspects, besides the economic. Movers and restraining factors
of globalization have also been examined at length. The arguments both for support and criticism of
globalization have also been critically evaluated. Globalization offers challenges and opportunities for
business enterprises and firms are required to adopt the most effective response strategy, which has been
discussed with the specific perspective of emerging market companies.

Globalisation of Business: A Historical Perspective

Globalization is not a new phenomenon. In the initial years of human history, people remained
confined to their communities, villages, or local regions. There were hardly any formal barriers, such as
tariffs or non-tariff restrictions, for the movement of goods or visa requirements for people. The concept of
globalization can be traced back to the phenomenon of a nation-state. In the beginning of the Christian era,
India was the most populated country with 75 million people constituting 32.5 per cent of the world
population followed by China (25.8%) with 59.6 million, Italy (3%) with 7 million, France (2.2%) with 5
million, Spain (1.9%) with 4.5 million, Germany (1.3%) and Japan (1.3%) each with 3 million people,
whereas the UK (0.34%) and the US (0.29%) inhabited merely 0.8 million and 0.7 million people,
respectively, out of the total world population of 230 million. Moreover, during this period, India was the
world’s largest economy with 32.9 per cent share of the world’s GDP, followed by China (26.1%), the
former USSR (1.5%), and Japan (1.2%). It was only after AD 1500 that some western economies, such as
Italy, France, and Germany emerged with 4.7 per cent, 4.4 per cent, and 3.3 per cent share, respectively, in
the world GDP whereas the UK and the US merely contributed 1.1 per cent and 0.3 per cent, respectively, of
the world GDP India and China continued to remain the two most dominant economies till the early
nineteenth century.
Venice played a key role from AD 1000 to AD 1500 in opening up trade within Europe and in the
Mediterranean. It opened trade in Chinese products via caravan routes in the region around the Black Sea
and in Indian and other Asian products via Syria and Alexandria. Trade was important in bringing high value
spices and silks to Europe and also helped transfer technology from Asia, Egypt, and Byzantium. Portugal
played the key role in opening up European trade, in navigation and settlement in the Atlantic islands, and in
developing trade routes around Africa, into the Indian Ocean, and to China and Japan. Portugal became the
major shipper of spices to Europe for the whole of the sixteenth century, usurping this role from Venice.
Right up to the eighteenth century, the ‘Indian methods of production and of industrial and commercial
organization could stand in comparison with those in vogue in any other part of the world’ as written by
Vera Anstey. India was a highly developed manufacturing country and exported her manufactured products
to Europe and other nations. Her banking system was efficient and well organized throughout the country,
and the bills of exchange (hundis) issued by the great business or financial houses were honoured
everywhere in India, as well as in Iran, Kabul, Herat, Tashkent, and other places in Central Asia. Merchant
capital had emerged and there was an elaborate network of agents, jobbers, brokers, and middlemen. The
ship-building industry was flourishing and one of the flagships of an English admiral during the Napoleon
wars was built in India by an Indian firm. India was, in fact, as advanced industrially, commercially, and
financially as any country prior to the industrial revolution. No such development could have taken place
unless the country had enjoyed long periods of stable and peaceful government and the highways been safe
for traffic and trade. Foreign adventurers originally came to India because of the excellence of her
manufacturers, who had a big market in Europe. The British East India Company was started with the
objective of carrying manufactured goods, textiles, etc., as well as spices and the like from the East to
Europe, where there was a great demand for these
articles. Such trading was highly profitable, yielding enormous dividends. So efficient and highly organized
were the Indian methods of production, and such were the skills of India’s artisans and craftsmen, that India
could compete successfully even with the higher techniques of production that were being established in
England. Even when the big machine age began in England, Indian goods continued to pour in and had to be
stopped by very heavy duties and, in some cases, by outright prohibitions. By the middle of the eighteenth
century, the main exports into Europe were textiles and raw silk from India and tea from China. The
purchases of European products into India were financed mainly by the exports of bullion and raw cotton
from Bengal, whereas the purchases into China were financed by the exports of opium. Until the eighteenth
century, the British generally maintained peaceable relations with the Indian Mughal Empire, whose
authority and military power were too great to be challenged by the British. It was only after the
development of new industrial techniques that a new class of industrial capitalists emerged in Britain and
under their influence, the British government began to take greater interest in the affairs of the East India
Company. The British government now adopted the strategy to close the British market for Indian goods and
get the Indian market opened for British manufacturers. To begin with, Indian goods were excluded by
legislation in Britain. Since the East India Company had the monopoly in the Indian export business, the
exclusion influenced other foreign markets as well. During the pre-World War I period from 1870 to 1914,
there took place a rapid integration of economies in terms of trade flows, movement of capital, and migration
of people. The pre-World War I period witnessed the growth of globalization, mainly led by technological
forces in the field of transport and communication. However, between the first and second world wars, the
pace of globalization decelerated. Various barriers were erected to restrict free movement of goods and
services during the inter-war period. Under high protective walls, most economies perceived higher growths.
It was resolved by all leading countries after World War II that the earlier mistakes committed by them to
isolate themselves should not be repeated. Although, after 1945, there was a drive to increased integration, it
took a long time to reach pre-World War I levels. In terms of percentage of imports and exports to total
output, the US could reach the pre-World War level of 11 per cent only around 1970. Most developing
countries that gained independence from colonial rule in the immediate post-World War II period followed
imports substitution strategies to promote local industrialization. The East European countries shielded
themselves from the process of global economic integration. Multilateral organizations, especially the World
Bank, the IMF, and the GATT, set up in the post-war era contributed considerably to the economic
integration of countries. Setting up of the WTO in 1995 provided an effective institutional mechanism for
multilateral trade negotiations, integration of trade policies under the WTO framework, and even the
settlement of trade disputes among the member countries. During the recent decades, most developing
countries made a strategic shift from their restrictive trade and investment policies to economic liberalization.
The transformation of the Indian economy from one following the import substitution strategy with a highly
complex system of licences and multiple procedures to an economy open to globalization is summarized in
Table-1.. The breakthroughs in information, communication, and transportation technologies and the
growing economic liberalization have accelerated the process of global economic integration. The major
concerns about present-day globalization are significantly higher than ever before because of the nature and
speed of transformation. What is striking about the current globalization is not only its rapid pace but also
the enormous impact of new information and communication technologies on market integration, efficiency,
and industrial organization.

Table-1 : India’s Journey from the Licence Raj (Era) to Globalisation

Phase-I  The focus was on government-led investments in manufacturing.

 Several large public sector units in steel, chemicals, and power were set up.
(1947-65)  Many of these companies exist even today and are among the largest companies
in their sectors.

Phase-II  Government involvement in industry increased.

 Strong licensing laws were introduced with a sustained focus on import
(1965-80) substitution.
 Public sector units and formation of several small-scale private sector
manufacturing entities grew.

Phase-III  The government partially opened its economy to external trade and de-licensed
some key sectors for private participation, leading to strong growth in a few
(1980-90) sectors.
 A key event was the formation of Maruti Suzuki as government’s 50:50 joint
venture with Japan’s Suzuki motors.

Phase-IV  The industry was further liberalized.

 The scope of licensing was significantly reduced.
(Since early 1990s)  Custom duties were slashed.
 FDI in various sectors was opened up.
Phase V  Companies began to reap the rewards of the various phases of development
learning.
(2000 onwards)  Many Indian business enterprises became quite competitive and looked at taking
on global players.

Advent for New Economic Policy

After a global political and economic upheaval, Dr. Man Mohan Singh launched a radical strategy called the
LPG (Liberalization, Redistribution and Globalization Program), also known as the New Economic Policy
1991. Liberalization and Globalization:
1. Devaluation: Indian currency was devalued by 18-19 per cent in order to overcome the balance of
 payments.
2. Disinvestment: some urban utilities have moved to change the flow of LPG to theprivate sector.
3. Allowing FDI: FDI has been approved in many fields, including insurance (26%),defense (26%), etc.
4. NRI: NRIs have also offered global investment facilities.
New Economic Policy (NEP-1991) has implemented improvements in international, regional and fiscal
reforms, investment, delivery and institutional reforms. The main facets of NEP-1991 are: internal and
external liberalization; (ii) privatization; (iii) redirecting new public sector funds to areas where the private
sector is reluctant to enter; (iv) global convergence and (v) market-friendlylegislation.

Concept of Liberalization
Globalization and privatization have become the buzzwords in the current economic scenario. The
concepts of liberalization, globalization and privatization are actually closely related to one another. This
LPG phenomenon was first initiated in the Indian Economy in 1990 when the Indian Economy experienced
a severe crisis. There was decline in the country’s export earnings, national income and industrial output.
The government had to seek aid from IMF to resolve it’s debt problem. That is when the government
decided to introduce the New Industrial Policy (NIP) in 1991 to start liberalizing the Indian economy.
Liberalization means elimination of state control over economic activities. It implies greater
autonomy to the business enterprises in decision-making and removal of government interference. It was
believed that the market forces of demand and supply would automatically operate to bring about greater
efficiency and the economy would recover. This was to be done internally by introducing reforms in the real
and financial sectors of the economy and externally by relaxing state control on foreign investments and
trade. With the NIP’ 1991 the Indian Government aimed at integrating the country’s economy with the world
economy, improving the efficiency and productivity of the public sector. For attaining this objective,
existing government regulations and restrictions on industry were removed. The major aspects of
liberalization in India were ;
1. Abolition of licensing
NIP’1991 abolished licensing for most industries except 6 industries of strategic significance. They
include alcohol, cigarettes, industrial explosives, defense products ,drugs and pharmaceuticals, hazardous
chemicals and certain others reserved for the public sector. This would encourage setting up of new
industries and shift focus to productive activities.
2. Liberalization of Foreign Investment
While earlier prior approval was required by foreign companies, now automatic approvals were given
for Foreign Direct Investment (FDI) to flow into the country. A list of high priority and investment-intensive
industries were delicensed and could invite up to 100% FDI including sectors such as hotel and tourism,
infrastructure, software development .etc. Use of foreign brand name or trade mark was permitted for sale of
goods.
3. Relaxation of Locational Restrictions
There was no requirement anymore for obtaining approval from the Central Government for setting
up industries anywhere in the country except those specified under compulsory licensing or in cities with
population exceeding1 million. Polluting industries were required to be located 25 kms away from the city
peripheries if the city population was greater than 1 million.
4. Liberalization of Foreign Technology imports
In projects where imported capital goods are required, automatic license would be given for foreign
technology imports up to 2 million US dollars. No permissions would be required for hiring foreign
technicians and foreign testing of indigenously developed technologies.
5. Phased Manufacturing Programmes
Under PMP any enterprise had to progressively substitute imported inputs, components with
domestically produced inputs under local content policy. However NIP’1991 abolished PMP for all
industrial enterprises. Foreign Investment Promotion Board (FIPB) was set up to speed up approval for
foreign investment proposals.
6. Public Sector Reforms
Greater autonomy was given to the PSUs (Public Sector Units) through the MOUs ( Memorandum of
Understanding) restricting interference of the government officials and allowing their managements greater
freedom in decision-making.
7. MRTP Act
The Industrial Policy 1991 restructured the Monopolies and Restrictive Trade Practises Act.
Regulations relating to concentration of economic power, pre-entry restrictions for setting up new
enterprises, expansion of existing businesses, mergers and acquisitions .etc. have been abolished.

Concept of Privatization
Privatization is closely associated with the phenomena of globalization and liberalization.
Privatization is the transfer of control of ownership of economic resources from the public sector to the
private sector. It means a decline in the role of the public sector as there is a shift in the property rights from
the state to private ownership. The public sector had been experiencing various problems, since planning,
such as low efficiency and profitability, mounting losses, excessive political interference, lack of autonomy,
labour problems and delays in completion of projects. Hence to remedy this situation with Introduction of
NIP’1991 privatization was also initiated into the Indian economy. Another term for privatization is
Disinvestment. The objectives of disinvestment were to raise resources through sale of PSUs to be directed
towards social welfare expenditures, raising efficiency of PSUs through increased competition, increasing
consumer satisfaction with better quality goods and services, upgrading technology and most importantly
removing political interference.
The main aspects of privatization in India are as follows;
1. Autonomy to Public sector
Greater autonomy was granted to nine PSUs referred to as ‘navaratnas’ ( ONGC, HPCL, BPCL,
VSNL, BHEL) to take their own decisions.
2. Dereservation of Public Sector
The number of industries reserved for the public sector were reduced in a phased manner from 17 to 8
and then to only 3 including Railways, Atomic energy, Specified minerals. This has opened more areas of
investment for the private sector and increased competition for the public sector forcing greater accountability
and efficiency.
3. Disinvestment Policies
Till 1999-2000 disinvestment was done basically through sale of minority shares but since then the
government has undertaken strategic sale of it’s equity to the private sector handing over complete management
control such as in the case of VSNL , BALCO .etc.

Concept of Globalisation
Globalization refers to the free cross-border movement of goods, services, capital, information, and
people. It is the process of creating networks of connections among actors at multicontinental distances,
mediated through a variety of flows including people, information and ideas, capital, and goods. The
breakthroughs in the means of transport and communication technology in the last few decades have also
made international communication, transport, and travel much cheaper, faster, and more frequent.
Globalization is the closer integration of the countries and peoples of the world, brought about by the
enormous reduction in the costs of transportation and communications and the breaking down of artificial
barriers to the flow of goods and services, capital, knowledge, and (to a lesser extent) people across the
borders. With the arrival of the Internet, the transaction costs of transferring ideas and information have
declined enormously. ‘Global village’ is the term used to describe the collapse of space and time barriers in
human communication, especially by using the World Wide Web, enabling people to interact on a global
scale. Moreover, a number of interesting terms to signify the various aspects of globalization, such as
Westernization, Americanization, Walmartization, McDonaldization, Disneyfication, Coca-Colanization,
etc., have also emerged. Globalization tends to erode national boundaries and integrate national economies,
cultures, technologies, and governance, leading to complex relations of mutual interdependence.
Globalization refers to the intensification of cross-national economic, political, cultural, social, and
technological interactions that leads to the establishment of transnational structures and the integration of
economic, political, and social processes on a global scale.
Further, globalization is widely understood to imply economic globalization by way of free
movement of factor inputs (both labour and capital) as well as output between countries. It is not only the
economic integration of countries but also various other aspects such as financial, cultural, and political
integration across the world, as depicted in Fig.-1 Therefore, globalization may be defined as the process of
integration and convergence of economic, financial, cultural, and political systems across the world.

Fig.- 1 Globalization: A holistic approach

Economic Financial
Globalisation Globalisation

Globalisation

Cultural Political
Globalization Globalization

Economic Globalisation
The term ‘globalization’ is widely used in business circles and economics to describe the increasing
internationalization of markets for goods and services, the financial system, corporations and industries,
technology, and competition. In the globalized economy, distances and national boundaries have
substantially diminished with the removal of obstacles to market access. Besides, there have been reductions
in transaction costs and compression of time and distance in international transactions. The changes induced
by the dynamics of trade, capital flows, and transfer of technology have made markets and production in
different countries increasingly interdependent. The growing intensity of international competition has
increased the need for cross-border strategic interactions, necessitating business enterprises to organize
themselves into transnational networks. Globalization is characterized by the growing interdependence of
various facets. For instance, foreign direct investment (FDI) is accompanied by transfer of technology and
know-how, along with the movement of capital (equity, international loans, repatriation of profits, interest,
royalties, etc.) generating exports of goods and services from the investor countries.
Globalization is defined as ‘the increasing economic integration and interdependence of national economies
across the world through a rapid increase in cross-border movement of goods, service, technology, and
capital’.

Financial Globalisation
The liberalization of capital movements and deregulations, especially of financial services, led to a
spurt in cross-border capital flows. The globalization of financial markets has triggered a rapid growth in
investment portfolio and a large movement of short-term capital borrowers and investors interacting through
an increasingly unified market. The growing integration of financial markets has greatly influenced the
conduct of business and even the performance of the industrial sector. This has significantly enhanced the
vulnerability of stocks that were hitherto considered impervious. A liquidity crunch in the US makes stock
markets across the world go berserk. Globalization of financial markets makes them inherently volatile with
few options to control left with the national governments.

Cultural Globalisation
The convergence of cultures across the world may be termed as cultural globalization. India’s rich
cultural heritage has a glorious history of globalization, which is evident even today by its profound impact
on people and their lives. Globalisation has led to the development of global pop culture. Coca-Cola is sold
in more countries than the United Nations has as members. ‘Coke’ is claimed to be the second-most
universally understood word after OK. McDonald’s has more than 30,000 local restaurants serving 52
million people everyday in more than 100 countries. Levi’s jeans are sold in more than 110 countries.
Ronald McDonald is second only to Santa Claus in name recognition for most school children.

Dimensions of Economic Globalisation

The rapid growth in integration and interdependence of economies can be explained by the
interconnectedness of the various dimensions of economic globalization, as depicted in Fig. 2, such as the
globalization of production, markets, competition, technology, and corporations and industries.

Globalisation of Production
The increased mobility of the factors of production, especially the movement of capital, has changed
countries’ traditional specialization roles significantly. Consequently, many firms in developing countries
seek to strengthen their competitive advantage by specializing in differentiated products with an increasingly
large technological content. Such specialization has given rise to intra-industry trade between developing
countries. Abandoned activities are often acquired by other firms in the same industry to strengthen their
positions. As a result, many firms, in all industries and different countries, establish co-operative agreements
or adopt strategies of mergers and acquisitions and network organizations, which has contributed to a surge
in FDI during recent decades. Moreover, the privatization of public enterprises across the world has also
accelerated cross-border investments. The globalization of production has led to multinational origin of
product components, services, and capital as a result of transnational collaborations among business
enterprises. Firms evaluate various locations world-wide for manufacturing activities so as to take advantage
of local resources and optimize manufacturing competitiveness. Companies from the US, the EU, and Japan
manufacture at overseas locations more than three times of their exports produced in the home country.
Intrafirm export-import transactions constitute about one-third of their international trade.
 Fig.- 2 : Dimensions of Economic Globalization

Globalisation Globalisation
of of
Production Markets

Globalisation Globalisation
of Globalisation
Corporation of
and Industry Competition

Globalisation
of
Technology

Globalisation of Markets

Marketing gurus in the last two decades have extensively argued over customized marketing
strategies in the globalization of markets. Theodore Levitt, in his path breaking paper ‘Globalization of
Markets’, views the recent emergence of global markets on a previously unimagined scale of magnitude.
Technology as the most powerful force has driven the world towards converging commonality.
Technological strides in telecommunication, transport, and travel have created new consumer segments in
the isolated places of the world. Kenichi Ohmae also advocates the concept of a borderless world and the
need for universal products for global markets. Standardized products are increasingly finding markets
across the globe. Such globalization of markets has on one hand increased the opportunity for marketing
internationally while on the other has increased the competitive intensity of global brands in the market. The
simultaneous competition in markets between the numerous new competitors across the world is intensifying.
This offers tremendous challenge to the existing business competitiveness of firms, compelling them to
globalize and make rapid structural changes.

Globalisation of Competition
This refers to the intensification of competition among business enterprises on a global scale. Such
globalization of competition has resulted in the emergence of new strategic transnational alliances among
companies across the world. Increasingly, more firms need to compete with new players from around the
globe in their own markets as well as foreign ones. To cope with global competition, firms need to
simultaneously harness their skills and generate synergy by a broad range of specialized skills, such as
technological, financial, industrial, commercial, cultural, and administrative skills, located in different
countries or even different continents.

Globalisation of Technology
The rapid pace of innovations with international networks and convergence of standards across
countries has contributed to the globalization of technology. This rapid dissemination of technology
internationally and the simultaneous shortening of the cycles of production has led to the globalization of
technology. Countries with advanced technologies are best placed to innovate further. Moreover, unlike in
the past when inventions and innovations were considered breakthroughs, today they are a regular
occurrence. This implies that the transformation process is continuous and thus has important consequences
both for the overall organization of firms and for policy making. Global firms rely on technological
innovations to enhance their capabilities. Thus, technology is both driven by and is a driver of
Globalisation. Moreover, it has led to the emergence of new ‘technologically driven character’ of the global
economy.

Globalisation of Corporation and Industries

The worldwide economic liberalization led to the rapid growth in FDIs and the relocation of
business enterprises heavily driven by the various forms of international strategic alliances and mergers and
acquisitions across the world. As a result, there has been widespread rise in the fragmentation of production
processes, whereby different stages of production for a given product are carried out in different countries.

Factors Influencing Globalisation

The driving forces of globalization are considerably stronger than the restraining factors,
globalization of business assumes much higher significance.

Movers of Globalisation

Economic Liberalisation
Economic liberalization, both in terms of regulations and tariff structure, has greatly contributed to
the globalization of trade and investment. The emergence of the multilateral trade regime under the WTO
has facilitated the reduction of tariffs and non-tariff trade barriers. In the coming years, the tariffs are
expected to decline considerably further.

Technological Breakthrough
The breakthroughs in science and technology have transformed the world virtually into a global village,
especially manufacturing, transportation, and information and communication technologies, as discussed
here.
(i) Manufacturing technology
Technological advancements transformed manufacturing processes and made mass production possible,
which led to the industrial revolution. The production efficiency resulted in cost-effective production of
uniform goods on a large scale. In order to achieve the scale economies to sustain large-scale production,
markets beyond national boundaries need to be explored.
(ii) Transportation technology
The advents in all means of transports by roads, railways, air, and sea have considerably increased the
speed and brought down the costs incurred. Air travel has become not only speedier but cheaper. This has
boosted the movement of people and goods across countries.
(iii) Information and communication technology
The advent of information and communication technology and the fast developments in the means of
transport have considerably undermined the significance of distance in country selection for expanding
business. There has been a considerable reduction in international telecommunication costs due to improved
technology and increased competition. This has given rise to new business models, such as the off-shore
delivery of services to global locations and electronic business transactions.

Multilateral Institutes
 A number of multilateral institutions under the UN framework, set up during the post-World War II
era, have facilitated exchanges among countries and became prominent forces in present-day globalization.
Multilateral organizations such as the GATT and WTO contributed to the process of globalization and the
opening up of markets by consistently reducing tariffs and increasing market access through various rounds
of multilateral trade negotiations. The evolving multilateral framework under the WTO regime, such as
Trade-Related Investment Measures (TRIMS), Trade-Related Aspects of Intellectual Property Rights
(TRIPS), General Agreement on Trade in Services (GATS), dispute settlement mechanism, anti-dumping
measures, etc., has facilitated international trade and investment. Besides, the International Monetary Fund
has contributed to ensuring the smooth functioning of the international monetary system.

International Economic Integration

Consequent to World War II, a number of countries across the world collaborated to form economic
groupings so as to promote trade and investment among the members. The Treaty of Rome in 1957 led to the
creation of the European Economic Community (EEC) that graduated to the European Union (EU) so as to
form a stronger Economic Union. The US, Canada, and Mexico collaborated to form the North American
Free Trade Agreement (NAFTA) in 1994. The reduction of trade barriers among the member countries under
the various economic integrations around the world has not only contributed to the accelerated growth in
trade and investment but also affected the international trade patterns considerably.

Move Towards Free Marketing Systems

The demise of centrally planned economies in Eastern Europe, the former USSR, and China has also
contributed to the process of globalization as these countries gradually integrated themselves with the world
economy. The Commonwealth of Independent States (CIS) countries—all former Soviet Republics—and
China have opened up and are moving towards market-driven economic systems at a fast pace. However, the
exceptions to free market systems are the autocratic countries, such as North Korea and Cuba.

Rising Research and Development Costs

The rapid growth in market competition and the ever-increasing insatiable consumer demand for
newer and increasingly sophisticated goods and services compel businesses to invest huge amounts on
research and development (R&D). In order to recover the costs of massive investments in R&D and achieve
economic viability, it becomes necessary to globalize the business operations. For instance, software
companies such as Microsoft, Novel, and Oracle, commercial aircraft manufacturers like Boeing and Airbus,
pharmaceutical giants such as Pfizer, Glaxo SmithKline, Johnson & Johnson, Merck, and Novartis, etc., can
hardly be commercially viable unless global scale of operations are adopted.

Advents in Logistic Management

Besides these, the greater availability of speedier and increasingly cost-effective means of transport,
breakthroughs in logistics management such as multimodal transport technology, and third-party logistics
management contributed to the faster and efficient movement of goods internationally.

The Forces behind Globalization

Globalization is a difficult concept to measure. Currently, about 25 percent of world production is

sold outside of its country of origin, restrictions on imports continue to decline, the foreign ownership of
assets as a percent of world production continues to increase, and world trade continues to grow more
rapidly than world production. That said, on a value basis, only a few countries (mainly very small nations)
either sell more than half of their production abroad or source more than half of their consumption from
foreign countries. Further, the principal source of capital in almost all nations is still domestic. Following are
seven interrelated factors that have contributed to the spiralling growth in globalization.

A. Increase in and Expansion of Technology

Vast improvements in transportation and communications technology— including the development
of the Internet—have significantly increased the effectiveness and efficiency of international business
operations.

B. Liberalization of Cross-Border Trade and Resource Movements

Over time most governments have lowered restrictions on trade and foreign investment in response
to the expressed desires of their citizens and producers. In addition, the General Agreement on Tariffs and
Trade, the development of economic blocs such as the European Union, and other such facilitating
mechanisms have provided increased access to many foreign markets.

C. Development of Services That Support International Business

Services provided by government, banks, transportation companies, and other businesses greatly
facilitate the conduct and reduce the risks of doing business internationally.

D. Growing Consumer Pressures

Because of innovations in transportation and communications technology, consumers are well-
informed about and often able to access foreign products. Thus competitors the world over have been forced
to respond to consumers’ demand for increasingly higher quality, more cost-competitive offerings.

E. Increased Global Competition

The pressures of increased foreign competition often persuade firms to expand internationally in
order to gain access to foreign opportunities and to improve their overall operational flexibility and
competitiveness.

F. Changing Political Situations

The transformation of the political and economic policies of the former Soviet Union and the
People’s Republic of China has led to vast increases in trade between those countries and the rest of the
world. In addition, the improvements in national infrastructure and the provision of trade-related services by
governments the world over have further led to substantial increases in foreign trade and investment levels.

G. Expanded Cross-National Co-operation

Governments have increasingly entered into cross-national treaties and agreements in order to gain
reciprocal advantages for their own firms, to attack problems jointly that one country cannot solve alone, and
to deal with areas of concern that lie outside the territory of all countries. Often, such cooperation occurs
within the framework of international organizations such as the United Nations, the International Monetary
Fund, the World Trade Organization, and the International Bank for Reconstruction and Development
(World Bank).

Factors Restraining Globalisation

(i) Regulatory Controls

The restrictions imposed by national governments by way of regulatory measures in their trade,
industrial, monetary, and fiscal policies restrain companies from global expansion. Restrictions on portfolio
and foreign direct investment considerably influence monetary and capital flows across borders. The high
incidence of import duties makes imported goods uncompetitive and deters them from entering domestic
markets.

(ii) Emerging Trade Barriers

The integration of national economies under the WTO framework has restrained countries from
increasing tariffs and imposing explicit non-tariff trade barriers. However, countries are consistently
evolving innovative marketing barriers that are WTO compatible. Such barriers include quality and technical
specifications, environmental issues, regulations related to human exploitation, such as child labour, etc.
Innovative technical jargons and justifications are often evolved by developed countries to impose such
restrictions over goods from developing countries, who find it very hard to defend against such measures.

(iii) Cultural Factors

Cultural factors can restrain the benefits of globalization. For instance, France’s collective nationalism
favours home-grown agriculture and the US fear of terrorism has made foreign management of its ports
difficult and restrained the entry of the Dubai Port World.

(iv) Nationalism
The feeling of nationalism often aroused by local trade and industry, trade unions, political parties, and
other nationalistic interest groups exerts considerable pressure against globalization. The increased
availability of quality goods at comparatively lower prices generally benefits the mass consumers in the
importing country but hurts the interests of the domestic industry. On one hand, consumers in general are
hardly organized to exert any influence on policy making, while on the other, trade and industry have
considerable clout through their associations and unions to use pressure tactics on national governments
against economic liberalization.

(v) War and Civil Disturbances

The inability to maintain conducive business environment with sufficient freedom of operations
restricts foreign companies from investing. Companies often prefer to expand their business operations in
countries that offer peace and security. Countries engaged in prolonged war and civil disturbances are
generally avoided for international trade and investment.

(vi) Management Myopia

A number of well-established business enterprises operating indigenously exhibit little interest in
expanding their business overseas. Besides, several other factors such as resource availability, risks, and the
attitude of top management play a significant role in the internationalization of business activities.

Criticisms of Globalization
Antiglobalization forces have protested both peacefully and violently as they press for legislation and
other means to stop or slow the globalization process. Issues of threats to national sovereignty, increasing
income inequality, and environmental harm are addressed in the Point—Counterpoint sections found
throughout the text.

A. Threats to National Sovereignty

Many citizens fear that a country’s participation in multilateral agreements will diminish its
sovereignty and freedom from external control and curtail its ability to act in its own best interests. In
particular, people in small countries worry that dependence on larger countries for sales and/or supplies, as
well as the presence of large international firms, will make them vulnerable to the demands of parties against
which they are essentially powerless. In addition, people the world over are concerned that globalization will
bring the homogenization of products and traditional ways of life—including language and social structure.
B. Economic Growth
Clearly, economic growth can result in both positive and negative consequences, including damage
to society and the environment. While globalization can, in fact, support the sustenance of natural resources
and the maintenance of an environmentally sound planet, unless the positive consequences of globalization
keep pace with the negative costs of economic growth, the sustainability of economic improvement on a
worldwide basis will, at best, be problematic.

C. Growing Income Inequality

Offshoring, the process of shifting domestic production to a foreign country for the purpose of
serving the home market at a reduced cost, speeds up the process of altering the relative economic
discrepancies between the two countries involved. Thus, even if the overall global gains from globalization
are positive, there remains a continuing challenge to bring about the positive gains in ways that minimize
costs to the losers.

Globalisation in Indian Economy

In the last twenty years, globalisation of the Indian economy has come a long way.
What has been its effect on the lives of people? Let us look at some of the evidence.
Globalisation and greater competition among producers - both local and foreign
producers - has been of advantage to consumers, particularly the well-off sections in the
urban areas. There is greater choice before these consumers who now enjoy improved
quality and lower prices for several products. As a result, these people today, enjoy much
higher standards of living than was possible earlier.
Among producers and workers, the impact of globalisation has not been uniform.
Firstly, MNCs have increased their investments in India over the past 20 years, which
means investing in India has been beneficial for them. MNCs have been interested in
industries such as cell phones, automobiles, electronics, soft drinks, fast food or services
such as banking in urban areas. These products have a large number of well-off buyers. In
these industries and services, new jobs have been created. Also, local companies supplying
raw materials, etc. to these industries have prospered.
Secondly, several of the top Indian companies have been able to benefit from the
increased competition. They have invested in newer technology and production methods and
raised their production standards. Some have gained from successful collaborations with
foreign companies.
Moreover, globalisation has enabled some large Indian companies to emerge as
multinationals themselves! Tata Motors (auto- mobiles), Infosys (IT), Ranbaxy
(medicines), Asian Paints (paints), Sundaram Fasteners (nuts and bolts) are some Indian
companies which are spreading their operations worldwide.
Globalisation has also created new opportunities for companies providing services,
particularly those involving IT. The Indian company producing a magazine for the London
based company and call centres are some examples. Besides, a host of services such as data
entry, account- ing, administrative tasks, engineering are now being done cheaply in
countries such as India and are exported to the developed countries.

Impact on Agriculture Sector

In rural Indian communities, agriculture is a major factor that revolves from around socio- economic
rights and poverty, and if the paradigm changes, it may affect the existing social equity system. India started
to liberalize trade in 1991. India approached the IMF as a creditor faced with the global economic crisis and
approved the so-called 'systems reform' loan, a debtor with a few significant policy changes. Reforms focus
gradually on the elimination of regulatory (liberalization), the privatization of agencies in the public sector
(privatization) and customer opportunities and trade barriers (globalization). Sanitary globalization:
• Enhanced performance of the job;
• Remove violence
• Secure preparedness,
• Technology and infrastructure enhancing
• Improve domestic growth significantly
Impact on Industrial Sector
Once the government opened up foreign investment markets, the effect of globalization on Indian
demand started in the early 1990s. Indian development has globalized many industries, including steel,
medicine, power, milk, clothing, cement, food and BPO.
Globalization means widening trade disparities between nations, merging national exchange rates,
goods and services trade and regional business investment. In recent years globalisation, due to rapid
technological developments, particularly in communications and transportation, has increased worldwide. In
1991, the Indian Government revised its economic policy to allow domestic foreign direct investment.
Several foreign enterprises , especially in the pharmaceutical, BPO, oil, textile and chemical industries, have
established industries in India that have contributed to the development of jobs for many Indians through
globalization in the Indian economy. This has led to rising unemployment and poverty. Foreign companies
use state-of-the-art technologies to help the Indian industry to grow technology and profit from the effect of
globalization on Indianbusiness.
As technology has evolved, the negative impact of globalization on Indian manufacturing had also
declined and many citizens have been driven away from their jobs. In the chemical and cement industries in
particular.
Impact on Financial Sector
Reforms in the financial sector are essential to the liberalization agenda of India. Recent
liberalization measures had also opened the door to foreign companies for our domestic enterprises. Life was
innovative. The traditional approach resulted in financial intermediaries facing potential collateral threats. As
a result, some developments in global financial markets have affected the domestic economy. Controversies
have volatilized and suspicious many financial institutions and authorities in the financial services business.
This sector is currently facing growing challenges. In this changed context, India has a very positive and
competitive role to play in the coming years by offering a variety of creative solutions for both the diverse
needs of millions of potential global investors. Changes in the financial market are vital to the economic
liberalization agenda of India. Finance is shifting financial globalization. There are considerable changes in the
effects of political dynamics, creative thinking and global capital market.

Impact on Imports
The Indian government, after Independence, had put barriers to foreign trade and
foreign investment. This was considered necessary to protect the producers within the country
from foreign competition. Industries were just coming up in the 1950s and 1960s, and
competition from imports at that stage would not have allowed these industries to come up.
Thus, India allowed imports of only essential items such as machinery, fertilisers,
petroleum etc. Note that all developed countries, during the early stages of development,
have given protection to domestic producers through a variety of means.
Starting around 1991, some far- reaching changes in policy were made in India. The
government decided that the time had come for Indian producers to compete with producers
around the globe. It felt that competition would improve the performance of
producers within the country since they would have to improve their quality. This decision
was supported by powerful international organisations.
Thus, barriers on foreign trade and foreign investment were removed to a large extent. This
meant that goods could be imported and exported easily and also foreign companies could
set up factories and offices here. Removing barriers or restrictions set by the government is
what is known as liberalisation. Recently, major producers have been the largest contributor to overall
food products of production, adding approximately a fifth to total food products. These common products
include cereal (mainly basmati rice and non-basmati), oil seeds, coffee or tea, 5-10 % of total country
exports.
Steps to Attract Foreign Investment

In recent years, the central and state governments in India are taking special steps to
attract foreign companies to invest in India. Industrial zones, called Special Economic
Zones (SEZs), are being set up. SEZs are to have world class facilities: electricity, water,
roads, transport, storage, recreational and educational facilities. Companies who set up
production units in the SEZs do not have to pay taxes for an initial period of five years.
Government has also allowed flexibility in the labour laws to attract foreign
investment. The companies in the organised sector have to obey certain rules that aim to
protect the workers’ rights. In the recent years, the government has allowed companies to ignore
many of these. Instead of hiring workers on a regular basis, companies hire workers
‘flexibly’ for short periods when there is intense pressure of work. This is done to reduce the
cost of labour for the company. However, still not satisfied, foreign companies are demanding
more flexibility in labour laws.
Competition and Uncertain Employment
Globalisation and the pressure of competition have substantially changed the lives of workers. Faced
with growing competition, most employers these days prefer to employ workers ‘flexibly’. This means that
workers’ jobs are no longer secure.
Large MNCs in the garment industry in Europe and America order their products from Indian
exporters. These large MNCs with worldwide network look for the cheapest goods in order to maximise
their profits. To get these large orders, Indian garment exporters try hard to cut their own costs. As cost of
raw materials cannot be reduced, exporters try to cut labour costs. Where earlier a factory used to employ
workers on a permanent basis, now they employ workers only on a temporary basis so that they do not have
to pay workers for the whole year. Workers also have to put in very long working hours and work night
shifts on a regular basis during the peak season. Wages are low and workers are forced to work overtime to
make both ends meet.
While this competition among the garment exporters has allowed the MNCs to make large profits,
workers are denied their fair share of benefits brought about by globalisation. The conditions of work and
the hardships of the workers described above have become common to many industrial units and services in
India. Most workers, today, are employed in the unorganised sector. Moreover, increasingly conditions of
work in the organised sector have come to resemble the unorganised sector. Workers in the organised sector
no longer get the protection and benefits that they enjoyed earlier.

The above evidence indicates that not everyone has benefited from globalisation. People with
education, skill and wealth have made the best use of the new opportunities. On the other hand, there are
many people who have not shared the benefits. Since globalisation is now a reality, the question is how to
make globalisation more ‘fair’? Fair globalisation would create opportunities for all, and also ensure that the
benefits of globalisation are shared better.

Conclusion
The government, however, is reluctant to give up its role of owning and controlling economic
activities. At the same time its inability to spend for providing minimum health and education services. It is
eager to spend on higher education without spending enough on primary and secondary education. It has
failed in providing a corruption free administration, an essential precondition for increasing competitiveness.
Success of the economic reforms depends upon the commitment of all concerned – people, political parties,
bureaucracy, and government – to the socio economic progress of the country.
 Economic liberalization has increased the responsibility and role of the private sector. At the same
time, it has reduced the control of the government on economy affairs. It is expected that the reforms would
liberalize the Indian economy enough to create a conducive environment for rapid economic development.

The process of reforms according to many economists and social scientists is not fast enough to
achieve the goals. Jeffrey Sachs, director of Harvard University’s centre for international development and a
noted economist, pointed out that the reform process in India had a long way to go. He feels that without a
focus on the “twin pillars” of social and economic strategies, the future would be bleak for India, especially
in the context of competition all around.