Globalizacion Capitulo 3

Chapter Outline
(A) MEANING AND DEFINITION

(B) FEATURES OF GLOBALISA TION
(C) STAGES OF GLOBALISATION
(D) GLOBALISA TION OF MARKETS
(E) GLOBALISATION OF PRODUCTION
(F) GLOBALISA TION OF INVESTMENT
(G) GLOBALISA TION OF TECHNOLOGY
(H) ADVANTAGES OF GLOBALISATION
(I) DISADVANTAGES OF GLOBALISATION
(1) ESSENTIAL CONDITIONS FOR GLOBALISATION
(K) GLOBALISA TION AND INDIA
I (A) MEANING AND DEFINITION I

The medieval proverb says 'Merchant has no nation.' It means that a businessman
can view the entire world as one country for his operations. In fact, businessmen
were doing their operations even before Christ. Even Hindu epics like, Ramayan
Copyright © 2010. Himalaya Publishing House. All rights reserved.
and Mahabharat indicate that business operations existed across countries even in
those days. Therefore, the concept of global business is as old as civilisation. The
concept of global business gradually encompassed into globalisation with the
addition of a few more wings to it.
The entire globe is just like one country for business. Erasing national and
political boundaries for the purpose of business may be termed as globalisation.
Globalisation implies integration of the economy of the country with the rest of
the world economy and opening up of the economy for foreign direct investment
by liberalising the rules and regulations and by creating favourable socio-economic
and political climate for global business.
Having the general idea, we now disctwis the meaning and definition of
globalisation.
International Monetary Fund defines globalisation as, "the growing
economic interdependence of countries worldwide through increasing volume and
80
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Globalisation 81
variety of cross border transactions in goods and services and of international

capital flows and also through the more rapid and widespread diffusion of
technology" .
Charles U.L. Hill defines globalisation as, "the shift towards a more integrated
and interdependent world economy. Globalisation has two main components - the
globalisation of markets and the globalisation of production. "I
Interdependency and integration of individual countries of the world
may be called as globalisation. Thus, globalisation integrates not only economies
but also societies. The globalisation process includes globalisation of markets,
globalisation of production, globalisation of technology and globalisation of
investment.
I (B) FEATURES OF GLOBALISATION I

Globalisation encompasses the following features :
• Operating and planning to expand business throughout the world.
• Erasing the differences between domestic market and foreign
market.
• Buying and selling goods and services fromlto any country in the
world.
• Establishing manufacturing and distribution facilities in any part of the
world based on the feasibility and viability rather than national
consideration.
• Product planning and development are based on market consideration of
the entire world.
• Sourcing of factors of production and inputs like raw materials, machinery,

finance, technology, human resources, managerial skills from the entire
globe.
• Global orientation in strategies, organisational structure, organisational
culture and managerial expertise.
• Setting the mind and attitude to view the entire globe as a single
market. 2
Global companies plan or venture not only on national markets, but also
venture globally and view themselves as a global company. Executives and
employees of such companies are trained and tuned in worldwide operations. For
example, employees in a global company based in India speak of London, New
York, Mumbai, Tokyo, Singapore, Asmara and the like, as Indian businessmen
speak of Delhi, Hyderabad, Ahmedabad, Mumbai, Chennai, Kolkata and the like.

82 Introduction to International Business
They make investments based on the feasibility of worldwide projects, and procure
raw materials, human resources and other inputs from all points of the world
where they available at low cost and high quality. 3
Kenichi Ohamae observes that global companies develop a genuine equi-
distance of perspective. 4 These companies view all the stakeholders from all
countries equally for their operations. The examples include Coca-Cola, Honda,
P & G, Toyota, Xerox, Mazda, Dr. Reddy's Lab, Reliance etc. For example,
Mazda's sports car MX-5 Maita was designed in California, its prototype product
is created in England, assembled in Michigan and Mexico using advanced electronic
components which are invented in New Jersey, fabricated in Japan by sourcing
the finance from Tokyo and New York and marketed world-wide. 5
I (e) STAGES OF GLOBALISATION I

Now, we discuss, how the globalisation process takes place.
GLOBALISATION PROCESS
Globalisation does not take place in a single instance. It takes place gradually
through an evolutionary approach. According to Ohamae, globalisation has five
stages. They are:
(i) Domestic company exports to foreign countries through the dealers or
distributors of the home country.
(ii) In the second stage, ~he domestic company exports to foreign countries
directly on its own.
(iii) In the third stage, the domestic company becomes an international company
by establishing production and marketing operations in various key foreign
countries.
(iv) In the fourth stage, the company replicates a foreign company in the
foreign country by having all the facilities including R&D, full-fledged
human resources etc. (See Box 3.1).
(v) In the fifth stage, the company becomes a true foreign company by serving
the needs of foreign customers just like the host country's company serves.
Thus, globalisation means globalising the marketing, production, investment,
technology and other activities. Now we shall discuss each of these aspects, in
detail.
The stages of globalisation/internationalisation are discussed in Chapter 1 in
detail.

Globalisation 83
A well-known figure in Delhi's diplomatic circles, the German

ambassador to India, Dr. Heinrich Dietrich Dieckmann, believes that
India is emerging as an economic superpower. The decision to open
up the German labour market by providing green cards to Indian IT
professionals opens a new chapter in relations between the two
countries, he said in an interview to G. Ganapathy Subramaniam . Dr.
Dieckmann plans to promote India in Germany after his retirement at
the end of this month .
German investment .in India grew rapidly after 1991 as the economy
was opened up. There was a boom resulting in doubling or even
tripling of investments in certain years. The peak was reached in 1997
when the FDI approvals of German companies reached Rs. 21,558
million. After this, there was a decline in 1998 to Rs. 6,537 million. I
think this is in line with the general trend in view of political uncertainty
here. However, additional investment by German companies who were
already in India - like Siemens - have come in. Moreover,
investments in computer software have increased. There was also a
pick-up in 1999 to Rs. 11,429 million after the decline in 1998. You
should keep in mind that everybody is competing for investment and
it is not going to be easy to attract FDI flows all the time.
Source: The Economic Times, June 23, 2000.
Globalisation is the trend toward a more integrated global economic system.

Figure 3.1 shows the components of globalisation. The components of globalisation
are: giobalisation of markets, globalisation of production, globalisation of
investment and globalisation of technology. First, we discuss the globalisation of
markets.
Components of Globalisation
I
Globalisation of Globalisation of Globalisation of Globalisation of
Markets Production Investment Technology
Fig. 3.1: Components of Globalisation
I (D) GLOBALISATION OF MARKETS I

Globalisation of markets refers to the process of integrating and merging of the
distinct world markets into a single market. This process involves the identification
of some common norm, value, taste, preference and convenience and slowly
enable the cultural shift towards the use of a common product or service.

A number of consumer products have global acceptance. For example, Coca-

Cola, Pepsi, McDonald's burgers, Music of Madonna, MTV, Sony Walkmans, Levis
jeans, Indian masala dosa, Indian Hyderabadi biryani, Citicorp credit cards etc.
FEATURES OF GLOBALISATION OF MARKETS
Features of globalisation of markets include:

• The size of the company need not be too large to create a global market.
Even small companies can also create a global market. For example,
Harry Ramsden - a small British company with an annual sales of US $
16 million is trying to sell its product of fish 'n' chips in Japan based on
the Japanese culture. (See Box 3.2).
Deep-fried fish and chips is perennially popular food in England. Harry

Ramsden's, whose first fish and chip shop was located in Guiseley,
Yorkshire, has long been considered one of the premium fish and
chip "shops" in England, and it is one of the few to open up at multiple
locations. In 1994 the company had eight branches in Britain, with
four more scheduled for opening, and one in Dublin. Its busiest United
Kingdom location, the resort town of Blackpool, generates anriual sales
of £1.5 million ($2.3 million). Harry Ramsden's managers, however,
are not satisfied with this success; they want to turn Harry Ramsden'S
into a global enterprise.
To this end, in 1992 the company opened its first international operation
in Hong Kong. According to finance director Richard Taylor. "We
marketed the product as Britain's fast food, and its proved extremely
successful." Indeed, within two years the Hong Kong venture was
already generating annual sales equivalent to the company's Blackpool
operations. Moreover, while half of the initial clientele in Hong Kong
were British expatriates, now more than 80 per cent are ethnic Chinese.
Harry Ramsden's seems to be well on the way to changing the tastes
and preferences of Hong Kong Chinese.
Emboldened by this success, Harry Ramsden's has plans to open
additional branches in Singapore and Melbourne, Australia, but its
biggest target market is Japan. To get a feel for the market, in the
spring of 1994 Harry Ramsden's set up a temporary store in Tokyo's
Yoyagi Park. The shop, which served more than 500 portions of fish
and chips .covered in salt and vinegar, was an experiment to see
whether the Japanese would take to the product. Despite the traditional
aversion of Japanese consumers to greasy food, apparently they did.
According to Katie Garritt, who cooked the fish and chips over the 12
days the shop was open: "Sometimes one member of the family would
try it, and then all the others would buy portions." Now Harry
Ramsden's is looking for a Japanese partner to establish a joint venture
in Japan, and it hopes to open its first stores in 1995.
Source : Quoted in Charles W. L. Hill , op. cit ... p. 7.

Globalisation 85
• The distinctions of national markets are still prevailing even after the
globalisation of markets. These distinctions require the companies to
formulate different strategies for each market. For example, Coca-cola,
Levis jeans and McDonald employ separate strategies for each country.
• Most of the foreign markets are the markets for non-consumer goods
like industrial products, machinery, equipment, raw materials, computers,
software, financial products etc.
• The global business firms compete with each other frequently in different
national markets including their home markets. For example, Coca-cola
is the global rival of Pepsi. Similarly Ford and Toyota, Boeing and
Airbus, Caterpillar and Komatsu. Though these companies compete with
each other they create a global market.
REASONS FOR GLOBALISATION OF MARKETS
Reasons for Globalisation of markets include:

• Large scale industrialisation enabled mass production. Consequently, the
companies found that the size of the domestic market is very small to
suffice the production output and thus opted for foreign markets.
• Companies in order to reduce the risk diversify the portfolio of countries.
• Companies globalise markets in order to increase their profits and achieve
company goals.
• The adverse business environment in the home country pushed the
companies to globalise their markets.
• To cater to the demand for their products in the foreign markets.
• The failure of the domestic companies in catering the needs of their
customers pulled the foreign countries to market their products.

The national markets are slowly getting vanished due to the globalisation of
markets. Now, we shall discuss the second aspect of globalisation, i.e., the
globalisation of production.
I (E) GLOBALISATION OF PRODUCTION I

Factors influencing the location of manufacturing facilities vary from country
to country. They may be more favourable in foreign countries rather than in the
home country. For example, cheap labour in developing countries, availability
of high quality and cheap raw material in other countries etc., enable the
companies to produce the products of high quality and low cost in various foreign
countries.

REASONS FOR GLOBALISATION OF PRODUCTION
Companies globalise the production facilities due to the following reasons:

• Imposition of restrictions on imports by the foreign countries forces the
MNCs to establish the manufacturing facilities in other countries. For
example, Toyota of Japan established its plants in the USA and the UK
due to the import restrictions.
• A vailability of high quality raw materials and components in other
countries.
• Availability of inputs at low cost in foreign countries.
• Availability of skilled human resources at low cost.
• Liberal labour laws in the foreign countries.
• To reduce the cost of transportation and easy logistics management.
• Facility of exporting to other neighbouring foreign countries.
• To design and produce the products as per the varying tastes of customers
in foreign countries.
Therefore, the companies tend to produce in different locations of the world
in order to enhance the quality, reduce the cost of production, cost of transportation
and delivery time to the various markets.
Thus, the globalisation of production is locating the manufacturing facilities
in a number of locations around the globe to take the advantages of national
differences in cost, quality and availability of inputs and of reaching various
markets at the .shortest possible span of time
The process of globalisation of production helps the companies to design the
following strategies:
• Low cost leadership
• Superior quality and

• Superior speed.
For example, Jet airlines - Boeing 777 has 132,500 major components. These
components are produced in 545 different locations of the globe. A small optical
company in USA, i. e., Swan Optical, manufactures its eyewear in low cost factories
in Hongkong, China, Japan, France and Italy.
In addition to the globalisation of markets and production, a number of
factors enable the process of globalisation at a fast rate.
I (F) GLOBALISATION OF INVESTMENT I

Many countries, before 1930s, created barriers relating to exports, imports and
foreign investment. The creation of General Agreement on Tariffs and Trade

Globalisation 87
(GATT) reduced the trade restrictions significantly. Further, the establishment of

World Trade Organisation has contributed for the elimination of investment barriers
phenomenally.
Many countries reduced investment barriers. As many as 34 countries made
85 changes to their laws reducing investment barriers in 1991 alone.
Government of India reduced the barriers on investment allowing more than
51 per cent of foreign investment in Indian companies.
Globalisation of investment refers to investment of capital by a global company
in any part of the world. Global company conducts the financial feasibility of the
new projects in different countries of the world and invests the capital in that
country where it is relatively more profitable. Globalisation of investment is also
known as Foreign Direct Investment. 6
Foreign Direct Investment (FDI) occurs when a firm invests directly in new
facilities to produce and/or market a product or service in a foreign country.
Coca-Cola acquired a number of bottling companies throughout India by iI~vesting
the capital directly. It directly invests the capital in a number of countries.
REASONS FOR GLOBALISATION OF INVESTMENT
The reasons for the increase in the global investment include:

• There has been a rapid increase in the volume of global trade.
• Many countries provided more congenial environment for attracting direct
investment. For example, Government of India provided for automatic
approval for FDI up to 51 % of capital of a company. It extended this up
to 100 % for the cigarette industry.
• Significant amount of FDI is directed to the developing countries in Asia
and Eastern Europe.

• Small and medium size companies have started investing in various
countries.
• In addition to increase in the volume of FDI, its composition has also
been changing. Initially FDI was directed mostly towards the USA. FDI,
recently has been directed towards other countries like the UK, Japan,
France, China etc.
• With the recent globalisation process, FDI has been directed even towards
the developing countries.
• Limitations of exporting and licensing force the domestic companies to
enter foreign markets through FDI.
• Global companies in order to have the control over manufacturing and
marketing activities, invest in the foreign countries.
• Liberalising the measures of flow of foreign capital across the bordeFs
by various countries. For example, fndian Government allowed Foreign

Institutional Investors (FIls) to invest in Indian capital markets after

registration with the SEBI.
• International firms go for FDI in order to avoid the restrictions imposed
by the host country on exports. For example, Toyota, a Japanese
automobile company increased its investment in the USA, the UK and
other countries consequent upon the imposition of restrictions on exports
of automobiles by the host countries.
Sourcing Funds Globally : The other factor which contributes for the increase
in global investment is the sourcing of funds globally. In other words, procuring
investment internationally. Most of the MNCs procure funds from any source in
the globe, wherever the cost of capital is low with feasible terms and conditions.
The liberalisations announced by the Indian Government allowed the Indian
companies to procure capital from other countries by issuing equity, debentures,
bonds, euro issues, global deposit receipts (GDRs) etc. For example, Reliance,
Dr. Reddy's Laboratory, Satyam Computers etc., procured investment from the
USA and European countries.
Sources: Important sources of capital from the globe include:
• International Bank for Reconstruction and Development, IBRD provides
capital to public and private sector companies of member countries.
• International Finance Corporation (IFC) provides loans at very low rate
of interest and at liberalised terms and conditions even to the private
sector companies. Hence, it is also known as 'soft loan window. '
• International Development Association provides loans at liberalised
conditions to the private sector companies of their developing countries.
• Asian Development Bank, African Development Banks etc., also provide
loans to the private sector companies of their respective member countries.
• Mutual Funds of various countries also invest in companies based in

foreign countries.
• Investors have also started investing in shares of foreign companies.
Modes of Globalisation of Investment : Modes of globalisation of investment
include:
• Acquisition of foreign companies.
• Joint Ventures
• Long term loans
• Issuing Equity Shares, Debentures, Bonds.
• Global Deposit Receipts etc.
The measures of economic Iiberalisation and globalisation of economies
announced by a number of countries contributed for the increased growth rate of
globalisation of investment.

Globalisation 89
Now, we shall discuss the another component of globalisation. i. e.,

globalisation of technology.
I (G) GLOBALISATION OF TECHNOLOGY I

Technological change is amazing and phenomenal after 1950s. In fact, it is like a
revolution in case of telecommunication, information technology and transportation
technology.
METHODS OF GLOBALISATION TECHNOLOGY
The methods of globalisation of technology include:

• Companies with latest technology acquire distinctive competencies and
gain the advantages of producing high quality products at low cost. With
these advantages, these companies enter the foreign markets and introduce
their latest technology in foreign countries also.
• Companies may have technological collaboration with the foreign
companies through which technology spreads from country to country.
• The foreign companies allow the companies of various other countries
adopt their technologies on royalty payment basis or on outright purchase
basis.
• Companies also globalise the technology through the modes of joint
ventures and mergers.
Companies spread latest technology throughout the globe and technology
itself makes the global company possible and fasten the process of globalisation.
HOW TECHNOLOGY FASTENS THE PROCESS OF GLOBALISATION?

Technology makes a company to acquire distinctive competencies over other

foreign companies and paves the way for entering foreign markets.
In addition, the latest developments in information technology have enabled
the global company to develop into a virtual global company.
• Microprocessors and Telecommunications: The development of
microprocessors paved the way for the growth of high-power, superior-
speed low cost computing and handling vast amount of information. These
have been revolutionary changes in global telecommunications consequent
upon the developments in microprocessors. According to Moore's Law,
the power of microprocessor technology doubles output and its cost of
production reduces by half every 18 months. The development in
microprocessors and telecommunications improved the speed and
efficiency of co-ordinating the operations of global business firms.

• The Internet and World Wide Web: The internet and world wide web
will be the backbone of future global business. The activities of the global
companies across the globe are co-ordinated, monitored and controlled
with the help of internet. The various facilities of the internet and world
wide web like e-mail, voice mail, data, real-time video communications
such as video conferencing enable the global business companies to operate
efficiently. For example, the executives of a new automobile company in
India can visit the home page of the Japanese and US automobile
companies by using www search engine and download information on
product designs, specifications, models, price, service to the customers,
market information etc. This new Indian automobile company can make
use of the information in designing its cars and pricing them. 7
• On-line Globalisation: The companies with manufacturing
facilities throughout the globe can send information regarding
changes in raw material, customer preferences, changes in product designs
etc., through the internet all over the globe. Even the customer enquiries
and complaints can be received and redressed through internet.
• The online transaction and interaction facility enabled the domestic
companies to transact with the foreign companies and also export
and import of goods.
• Business Process Re-engineering Enterprise Resource Planning and
Supply Chain Management enable the companies to buy raw materials
from one country, undertake the manufacturing operations and
assembly operations in number of other countries and finally sell the
product in different countries. These operations are carried out in
various countries on cost-benefit analysis basis without physically
visiting these countries.
• The Business to Business (B2B) transactions of e-commerce enabled

the companies to become global companies without physically entering
any foreign country. B2B transactions are more effective for service
industry like tourism, hospitals, banks, insurance companies etc.
• In addition, the Business to Consumer (B2C) transaction enable the
consumer of one country to buy the products from the foreign
companies. For example, the Indian consumer can buy the electronic
goods from Japan or an Indian student can buy books from the USA
without visiting the USA. (www.amazon.com)
• Similarly, the customers from one country can also avail the services
of foreign companies. For example, a patient in Mumbai got the
treatment for his heart problem from a US hospital. Students are
acquiring education and foreign degrees through online education
without visiting the foreign university. (www.netvarsity.com)

Globalisation 91
Thus, the information technology enabled the globalisatiOII process

at a faster rate with more efficiency at low cost.
• Transportation Technology: The significant development in
transportation technology reduced the distance among the
countries drastically. The important developments in the transport
technology include: commercial jet aircraft, super fighters, containers
etc. These developments made the transhipment from one mode to another
easy and reduced the travel time from one country to another drastically.
There are two divergent views onglobalisation - both positive and negative
(see Fig. 3.2). Now we discuss the positive view of globalisation or the advantages
of globalisation. ..
Advantages and Disadvantages of Globalisation
Advantages Disadvantages
• Free flow of capital and increase • Globalisation kills domestic business
in the total capital employed • Exploits Human Resources
• Free flow of technology • Leads to unemployment and
• Increase in industrialisation underemployment
• Spread of production facilities • Decline in demand for domestic
throughout the globe products
• Balanced development of world • Decline in income
economies • Widening gap between rich and poor
• Increase in production and • Transfer of Natural Resources
consumption
• National sovereignty at stake
• Commodities at lower prices with • Leads to commercial and political
high quality
colonialism.
• Cultural exchange and demand
for a variety of products
• Increases in Jobs and Income
• Higher standards of living
• Balanced Human Development
• Increase in Welfare and Prosperity.
Fig. 3.2 " Advantages and Disadvantages of Globalisati-on
I . (H) ADVANTAGES OF GLOBALISATION I

Leading business firms, " academicians, politicians and economists argue that
globalisation helps for the overall and balanced "development of the world
economies. The advantages of globalisation include:

,
• Free Flow of Capital: Globalisation helps free flow of capital from one
country to the other. It helps the investors to get a fair interest rate or
di~ idend and the global companies to acquire finance at lower cost of
capital. Further, globalisation increases capital flows from surplus
countries to the needy countries, which in turn increase the global
investment.
• Free Flow of Technology: As stated earlier, globalisation aelpst"or flow
of technology from advanced countries to the developing countries.
It helps the developing countries to implement new technology.
(See Box 6.3).
• Increase in Industrialisation: Free flow of capital alongwith the
technology enable the developing countries to boost-up industrialisation
in their countries. This ultimately increases global industrialisation.
NEW DELHI: Commissioner Erkki Liikanen, member 'for Information

Society and Enterprise of the European Union, has said that EU and
India are currently in discussions on a "joint vision statement on IT".
Commissioner Liikanen, speaking at a seminar on 'India: Pace of
reforms and restructuring', recently in Brussels said India has an
inherent edge in the IT market, with the Indian IT sector characterised
by sound expertise, innovative drive, flexibility and competitive pricing.
In the current "buyer's market" for information technology a window
of opportunity has also opened for EU ir,tdustry to learn its lessons
and catch up with IT investment, said Liikanen.
However, outsourcing of IT needs by EU enterprises of IT 3ervices
still may have a long way to go before reaching sustaina!:;llity levels,
Commissioner Liikanen observed. On the other hand thd potential for

EU companies to digitalise India is enormous," said Liikanen.
Lighting up India's optical fibre networks, putting in place a
telecommunications infrastructure that tackles the digital divide within
and enhances the flow of information it can handle to feed its IT
business are some of the areas in which the EU companies can
contribute immensely.
Source : The Times of India, 3rd July, 2001.
• Spread up of Production Facilities Throughout the Globe: As stated

earlier, globalisation of production, leads to ~pread up of manufacturing
facilities in all the global countries depending upon the locational and
various favourable production factors.
• Balanced Development of World Economies: With the flow of capital,
technology , and locating manufacturing facilities in developing countries,

93
the developing countries industrialise their economies. This in turn leads

to the balanced development of all the countries .
• Increase in Production and Consumption: Increased industrialisation
in the globe leads increase in production and thus results in balanced
industrial development alongwith increase in income which enhances the
levels of consumption.
• Lower Prices with High Quality: Indian consumers have already been
getting the products of high quality at lower prices. Increased
industrialisation, spread up of technology, increased production and
consumption level enable the companies to produce and sell the products
of high quality at lower prices.
• Cultural Exchange and Demand for a Variety of Products:
Globalisation reduces the physical distance among the countries and enable
people of different countries to acquire the culture of other countries.
The cultural exchange, in turn, makes the people to demand for a variety
of products which are being consumed in other countries. For example,
demand for 'American pizza' in India and demand for 'Masala dosa' and
'Hyderabadi biryani' and Indian styled garments in the USA and Europe.
• Increase in Employment and Income: Globalisation results in shift of
manufacturing facilities to the low wage developing countries. As such, it
reduces job opportunities in advanced countries and alternatively creates
job opportunities in developing countries. For example, Harwood Industries
(US cloth manufacturer) shifted its operations from the US (paying wages
$9 per hour) to Honduras (wage rate was 48 cents per hour).
However, advanced countries can specialise in producing high technology
products resulting in enhancement of employment opportunities. For
example, Microsoft Cell Phones in the USA.

• Higher Standards of Living: Further, globalisation reduces prices and
thereby enhances consumption and living standards of people in all the
countries of the world.
• Balanced Human Development: Increase in industrialisation on balanced
lines in the globe, improves the skills of the people of developing
countries. Further, the increased economic development of the country
enables the government to provide welfare facilities like hospitals,
educational institutes etc., which, in turn,' contributes towards the balanced
human development across the globe.
• Increase in Welfare and Prosperity: The balanced industrial, social
and economic development of the world . nations consequent upon the
globalisation alongwith the welfare measures provided by the governments
"lead to increase in the welfare,of the people and prosperity of the world
countries.

94 Introduction to International BWilinei.l
Though the globalisation process produces a variety of oen,em:s/

(See Box 3.4) developing countries including~dia have' bitter experiences.
bitter experiences are due to the disadvantages of globalisation.
" ,
~ ,
BOX 3.4 <, '"':,, ,
" • ;'... ~«
Is globalisation widening the divide between haves and have-nots?

What is fair and sustainable model of globalisation? What needs to be
done to make globalisation a more inclusive process (so that the
process is viewed as fair to all)? How can international community
forge greater policy coherence so that both economic and social goals
can be attained universally? These are some of the questions that the
World Commission on the Social Dimension of Globalisation has posed
before a world audience to find a consensual answer so that mired
perceptions of globalisation could be changed and the process itself
could be given a more humane face.
The independent commission established by International Labour
Organisation has set itself out to bring together people from different
sections of the society and move the debate on globalisation from
confrontation to dialogue and thereby set the stage for action.
As part of its programme to set in motion the global dialogue process,
the commission held a national dialogue in New Delhi on Wednesday
where sharp differences arose about globalisation with concern being
expressed that the process was benefiting only a select few countries
and resulting in more unemployment and poverty in others.
Source : Deccan Chronicle, December 13, 2002.
(I) DISADVANTAGES OF GLOBALISATIO~~

The other side of the argument indicates that globalisation leaJs to commercial
colonialism which in tum leads to political colonialism as Indians had experienced
with the Britishers. We now discuss these arguments or disadvantages of
globalisation.
• Globalisadon Kills Domestic Business: The MNCs from advanced
cO':lntries utilise the opportunities created by globalisation, establish
manufacturing and marketing facilities in developing countries. The
domestic business of the developing countries fails to compete
with the MNCs 'on the technology and quality front. This leads to closing
down of the domestic companies, which is already evident in India.
(See Box 3.5). Dumping from China, USA, Malaysia, Taiwan, South
Korea etc. killed some of the small industries and created problems to
large scale in~ustries.

9S
The globalisation of Indian economy along with liberalisation and

privatisation led to the establishment of a number of large and medium
industries as licensing was not necessary. This resulted in increase in
production of a number of goods more than the demand.
Consequently, a number of small scale industries which were hither
to protection by the government became sick units. The earlier sick
units became mortal. A number of textile units in Ahmedabad, number
of electronic units in Delhi, number of consumer goods industries in
Mumbai, AP Lightings Ltd. in Anantapur, steel melting units in
Hindupur, paper mills in Coastal Andhra, leather units in Chennai were
closed.
However, a number of industrialists felt that it would be very difficult
for Indian industry to compete multinational companies and the foreign
business. As such they strongly feel that, globalisation kills the
domestic business and industry, particularly in developing countries
like ours. As such the developing countries opposed the globalisation
process carried out by the W.T.O. in its Seattle meeting.
Source: Adaptedfrom: Public Opinion, August 2000, pp. 30-31.
• Exploits Human Resources: The process of globalisation helps

the MNCs to move to the developing countries which lack adequate laws
and regulations to protect human resources and the environment. The
unscrupulous foreign industries abuse the labour and natural resources.
In fact, the cost of production in developing world increases at par with
advanced countries, if the foreign industries follow the regulations
regarding human resources and environment. Hence, the firms cannot
get the cost advantage by locating in developing countries.
• Violation of Labour and Environmental Laws : The foreign companies

which are located in developing countries invariably violate the labour
and environmental laws in order to have the cost advantage. These
companies employ child labour, pollute environment, ignore workplace
safety and health issues. However, it is viewed that, the globalisation
enables the developing countries to become rich and enforce the labour
and environmental regulations. In addition, MNCs pollute the
environment. (See Box 3.6>.
• Leads to Unemployment and Underemployment: MNCs produce the
products in their home countries or in some other foreign countries and
market them in developing countries. Therefore, the domestic industry's
operations are to be reduced. This in turn leads to reduction in employment
opportun~ties particularly in less developed countries. In fact, Indian
economy has already started experiencing the problem of unemployment
and underemployment consequent upon globalisation.

96 ·
Big multinational companies today are based in one country and

operate across continents But do they apply the same standards in
every country they work in? Environmental acHvist group Greenpeace,
which has brought its campaign- ship Rainbow Warrior to India this
week, doesn't think so.
"Multinationals work across the globe but they are not globally
accountable" said Ananthapadmanabhan, executive director,
Greenpeace India at a press conference on Friday "Corporates must
follow the same environment and health standards wherever they
operate. The health of people in the third world is not less precious
than those in first world".
In a bid to intensify their campaign for greater corporate accountability,
the Rainbow Warrior will undertake a month-long tour in India. It will
kick off with a trip to Alang to identify and expose companies sending
contaminated ships to India's ship-breaking yards.
The ship-breaking trade involves obsolete ships from developed
countries being sent to countries like India, Bangladesh and China to
be scrapped. Many of the ships contain toxic substances and metals
like asbestos which harm the workers in the yards, and pollute the
surroundi'1g environment. "Despite a supreme court directives to clean
up the ship-breaking industry nothing has been done in Alang", said
campaigner Ramapati Kumar. "In fact, in the last six months, there
have been four major explosions in the yard, killing 25 people. This
does not include the small gas explosions that occur everyday".
Greenpeace will also be looking at other major multinationalcorporates
like Dow Chemicals, which it claims has not taken responsibility 'for
the victims of the Bhopal disaster. Hindustan Lever, which has been
accused of negligence in allowing mercury to leak from its
thermometer factory in Kodaikanal and Monsanto, on the issue of
genetically engineering cotton.
Source : The Times of India, November 8, 2003.
• Decline in Demand . for Domestic Products: Selling of high quality

foreign products at low prices by MNCs reduces the demand for the
domestic products. Indian businessmen an~ farmers have already
experienced this problem.
• Decline in In~ome: Unemployment and decllne in demand for domestic
products of both industrial and agricultural goods (including services)
leads to reduction in income of the people. 8
• Widening Gap between Rich and Poor: Globalisation not only results
in decline in income but widens the gap between rich and poor. This is
because, competent people, people with innovative skills, efficiency etc.

Globalisation 97
get abnormal income, while other average people have to strive for even
a minimum wage. This results in widening the gap between haves and
the have-nots . For example, Indian software professionals earn a salary
of around Rs . l ,00,000 a month in the USA, some of the graduates fail to
earn even Rs.2,000 a month in India. Widening of gap between rich and
poor is a feature of capitalism.
• Transfer of Natural Resources: MNCs establish their manufacturing
facilities in developing countries, exploit their natural resources
and sell the products in other countries. Through these means,
the natural resources of developing countries are transferred to other
countries.
• Leads to Commercial and Political Colonialism: The critics of
globalisation fear that the globalisation ultimateiy results in commercial
colonialism by the super powers like the USA and EU. They also argue
that commercial colonialism ultimately results in political colonialism
like what happened in India and many developing countries with England,
France etc. It is also argued that the rotation of the cycle of globalisation
ends up as the adage of 'history repeats by itself; indicates .
• National Sovereignty at Stake: The critics of globalisation view that
globalisation results in shift of economic power from the independent
countries to the supernational organisations like the World Trade
Organisation, European Union, United Nations etc. The sovereignty
of the democratically elected governments is undermined as the policies
are formulated and implemented mostly by the bureaucrats.
(See Box 3.7).
Though the critics of globalisation fear of the negative consequences of
globalisation, the supporters argue that, it is only a short run phenomenon. In the
long run, the process of globalisation results in the overall development of all the
world nations. Hence, even the Arab countries are planning to globalise their
economies . At this point of time, it is viewed that globalisation is inevitable for
the development of world nations.
The views of Peter F. Drucker and Mitchell also indicate the same.
"Globalisation for better or worse, has changed the way the world does business.
Though still in its early stages, it is all but unstoppable. The challenge that
individuals and business face is learning how to live with it, manage it, and take
the advantage of the benefits it offers". 9
Therefore "All institutions have to make global competitiveness a strategic
goal. No institution, whether a business, a university or a hospital can hope to
, survive, let alone succeed, unless it matches up to the standards set by the leaders
in the field at any place in the world" .10

•
Views of Jagadish Bhagawati of C~lambia University regarding

globalisation and WTO.
Globalisation and Workers
As part of globalisation; there is a move to put in workers' rights and
all kinds of restrictions into the World Trade Organisation. Workers'
standards, wages, absence of child labour and unions are considered
preconditions for being allowed to export. Many of them are opposed
to all this. Child activists like Kailash Satyarthi believe that these
restrictions would be necessary to end exploitation.
What are the challenges today?
Today we are left with labour problems. I do believe in workers' rights,
but you have to be sensible. Workers too have obligations. If I am not
working yet I am being protected, that is not good for progress. We
have to go in for divestment, privatisation. That has hardly begun. It
should not get mixed up with labour problems.
Have our Economic Reforms come too late for us to be competitive
enough?
Even without reforms, when your system is inefficient, you can do
international trade. If all the labour costs are very high due to
inefficiency, and strikes are not properly handled, it just means that
the system is producing less. But that doesn't mean you can't import
and export. That's what we call comparative advantage. You can adjust
the excha~ge rate. So if your cost level rises, the rupee falls, you
allow it to fall. You are offsetting the trouble. But to be effective, you
must have a coordinated set of policies.
What Hurdles do we still face?
In 1991, Manmohan Singh began the cleaning operations, but we are

still at the middle of reforms. Often, we are even sniping at reforms.
The President of India said we need to build bridges with the poor.
One must learn to challenge what he said. Ever since Nehru we are
saying the same thing. But from where does one get wealth to build
the bridges? Policies are necessary to create prosperity. My friend
Mahbubul Haq talks of having social expenditure. Yet he collaborated
with Zia and never talked of human development. He was busy building
tanks. The four former Indian Prime Ministers talked of correcting
reforms. There is no magic bullet here.
How far would the WTO mechanism help stabilise our economy?
The biggest advantage of GATT mechanism was, it created ari
institutional binding not to raise tariffs beyond a certain level. The
recent East Asian crisis was the worst since th,e 1930s depression.
Yet, because of the binding institution, the WTO, the same policies
are being taken further on.

Globalisation 99
Should bilateral or Regional Agreements be preferred to multilateral

ones?
There is a lot of regionalism in the argument. India is a huge country.
It would find it very difficult to get into a regional agreement. The
ASEAN is for the countries that are its members. If Japan goes with
Korea, we would be left out. We should have the interest in reviving
and strengthening the multilateral route. One should realise that in
foreign trade agreements, politics plays a major role. We must playa
proactive role in the WTO.
Source: Times of India, 9th January, 2001.
METHODS OF GLOBALISATION
Companies globalise their operations through the following means.

• Exporting directly
• Exporting indirectly
• Licensing/Franchising
• Contract Manufacturing
• Establishing Full Marketing Facilities
• Establishing Manufacturing Facilities
• Joint Ventures
• Mergers
• Strategic Alliance.
These methods are discuss in detail in Chapter 2 on "Modes of Entering
International Markets".
I (J) I
ESSENTIAL CONDITIONS FOR GLOBALISATION

Governments of various countries should provide the following conditions for
smoothening the process of globalisation.
• Liberalising the rules and regulation of control
• Removal of Quotas and Tariffs
• Providing freedom to the business and industry
• Providing infrastructure facilities
• Removal of bureaucratic hurdles
• Encouraging research and development
• Encouraging the competitiveness based on quality, price, delivery,
customer service etc.

• Providing autonomy to the public sector to compete with private sector

companies.
• Providing administrative and governmental support
• Developing money and capital markets.
Now, we shall discuss globalisation efforts taken by the Indian government.
I (K) GLOBALISATION AND INDIA

I
Most of the global economies have chosen to turn their economic systems towards
the market economy and global economy. These countries include Eastern European
countries, Vietnam, Peru, Mexico, Brazil, India, Eritrea, Ethiopia, Morocco,
Chile, Spain, Cuba etc. India had observed these developments in the global
economies and responded favourably to these changes in 1991.
The context of huge fiscal deficits, crisis in the Balance of Payments situation,
falling foreign exchange reserves and conditions imposed by IMF led to the
announcement of the New Economic Policy by the Government of India in July
1991.
NEW ECONOMIC POLICY, 1991
The new economic policy resulted in radical change in the structure and
direction of Indian economy. The direction tends towards the market economy
and globalisation of the country.
Objectives of New Economic Policy

The objectives of liberalisation and globalisation of Indian economy are:
• to obtain higher economic growth rate

• to reduce the annual rate of inflation
• to relieve the critical balance of payments and rebuild foreign exchange
reserves.
Government of India took drastic policy decisions in order to achieve these
objectives.
New Economic Policy and Globalisation

The seeds of globalisation were sown in 1980 by granting concessions for
inflow of foreign capital, allowing MNCs to enter crucial sectors, liberalising the
provisions of FERA, acceleration of import liberalisation process, and the
downward adjustment of exchange rate of Rupee.
However, the real thrust of globalisation process has been provided in the
New Economic Policy in July 1991, at the behest of the IMF and IBRD (popularly
known as the World Bank).

Globalisation 101
IMF and IBRD initiated the process of globalisation in India with the following
three components:
• Cutting down the fiscal deficits and the growth rate of money supply to
achieve economic stabilisation.
• Liberalising the domestic economy by releasing the restrictions on
production, investment, prices and by increasing the role of market
economy, guiding and deciding resource allocation.
• Relaxing the restrictions on external sector. These .measures include:
international flow of goods, services, technology and capital.
MEASURES TOWARDS GLOBALISATION BY GOVERNMENT OF INDIA
Government of India has taken the following measures in order to globalise

the , Indian economy.
• Removing constraints and obstacles to the entry of MNCs into India by
diluting and finally scrapping of restrictive laws like Foreign Exchange
and Regulation Act, 1973 (FERA) . FERA is scrapped and in its place
Foreign Exchange Management Act (FEMA), is passed by deleting the
clauses which restricted the entry of MNCs.
• Permitting Indian companies to collaborate with foreign companies in
the form of joint ventures.
• Establishment of joint ventures by Indian companies in various foreign
countries.
• World Bank advocated import liberalisations . Consequently, the
Government of India reduced the import tariffs to 15 per cent.
• Replacing lieenses of imports with tariffs.
• Elimination of various import duties and reduction of other import duties

drastically.
• Lifting the quantitative restrictions on 715 goods with effect from pt
April 2001, in order to enhance the efficiency, quantity, product design,
delivery and thus reduce the prices.
• Removal of export subsidies.
• Replacing licensing of exports with duties.
• Levy low, flat tax on export income.
• Reformulate Export Processing Zones (EPZs) and export oriented unity
policy.
• Liberalise the inflow of Foreign Direct Investment.
• Offering incentives to MNCs and NRIs to invest in India.
• Allow the Foreign Institutional Investors to invest in Indian Capital
Market.

• List of items for automatic approval of foreign equity is expanded.

• Indian Mutual Funds are allowed to invest in foreign companies.
• Indian companies are allowed to procure capital from foreign countries
through 'Euro Issues' and 'Global Deposit Receipts.'
• Free the way of investment in foreign joint ventures.
• Devaluing the rupee by lifting exchange controls in a phased manner.
• Allowing the rupee to determine its own exchange rate in the international
market without official intervention.
• Full convertibility of the Rupee on current account.
• Acting cautiously regarding convertibility of Rupee on capital account in
view of the Asian crisis.
• Decanalise oil and agricultural trade.
• Counter anti-dumping measures.
• Resolve market access issues in services.
• Seek membership in trade blocks.
Evaluation of India's Globalisation Process

Table 3.1 shows the growth of Indian exports during 1990-91 to 1999-2000.
The measures taken by the Government of India to globalise for economy resulted
in increase of total exports from Rs.32,553 crores in 1990-91 to Rs.l,62,925
crores (or 500 per cent) in 1999-2000. The export of major traditional items
increased from Rs.5,278 crores in 1990-91 to Rs.23,995 crores (or 450%) in
1999-2000. The exports of major non-traditional items increased from Rs.19,889
crores in 1990-91 to Rs. 1,04,655 crores (or 526%) in 1999-2000. Thus, the
globalisation measures produced positive results.
1990-91 1999-2000
1. Major Traditional Items 5,278 23,995

2. Major Non-traditional Items 19,889 1,04,655
3. Minerals, Fuels and Lubricants 948 467
4. Others 6,438 33,808
Total 32,553 1,62,925
Source: M.l. Mahajan, "A Guide on Export Policy", Snow White Publication (P) Ltd.,
Mumbai, 2001, p.l.

GlobaiisatiQD 103
POINTS TO BE REMEMBERED
• Thinking globally, establishing manufacturing facilities, market the
product, procure finance, human resource, raw materials throughout the
world is globalisation.
• Companies globalise their economies stage-by-stage.
• Companies globalise their marketing, production, finance and technology
functions.
• The advantages of globalisation include : global prosperity, lower prices
for goods and services, increase in income, enhancement of job
opportunities and increased production and consumption.
• The disadvantages of globalisation include : globalisation kills domestic
business, leads to unemployment and underemployment, decline in demand
for domestic products, decline in incomes, widening gap between rich
and poor, affects national sovereignty, leads to commercial and political
colonialism.
• Methods of globalisation include : exporting, licensing, contract
manufacturing, establishing full marketing and manufacturing facilities,
joint venture, mergers, strategic alliance etc.
• Essential conditions for globalisation include : liberalisation, removal of
quotas, tariffs, bureaucratic hurdles etc., encouraging competitiveness,
providing administrative and governmental support.
• India liberalised its economy and has taken the steps to hasten the
globalisation process. They are: exchange rate adjustment and rupee
convertibility, import liberalisations, opening up to foreign capital etc.
KEY WORDS
• Globalisation • Cross border transactions
• World economy • Domesti<;: company
• Foreign company • International company
• Globalisation of Markets • Globalisation of Production
• Globalisation of Finance • Globalisation of Technology
• Exporting • Licensing
• Joint Venture • Mergers
• Strategic alliance • Exchange Rate Adjustment
• Import Liberalisation • Foreign Capital.

QUESTIONS FOR DISCUSSION

1. What is globalisation? Explain the features of globalisation.
2. What are the different stages of globalisation?
3. Explain the globalisation of markets. What are the features of globalisation
of markets?
4. What is the globalisation of production facilities?
5. How do the companies globalise sourcing of finance?
6. Is globalisation desirable? What are the advantages and disadvantages of
globalisation?
7. What are the essential conditions for globalisation?
8. Analyse the steps taken by Indian government to globalise the economy.
REFERENCES
l. Charles W.L. Hill, "International Business: Competing in the Global Market
Place", Mc Graw Hill, Boston, 1999, p.5.
2. Francis Cherumilam, "Global Economy and Business Environment",
Himalaya Publishing House, Mumbai, 2001, p.20l.
3. Philip Kotler, "Marketing Management", Prentice HaU, New Delhi, 1994,
p.429.
4. Iuy Kenichi Ohame, "The Business World", Fontava, London, 1991.
5. Francis Cherumilam, op.cit., p.202.
6. Warren J. Keegan, op.cit., p.43.

7. Ibid, p.45.
8. Ibid, p.46.
9. Charles Mitchel, "International Business Control", World Trade Press,
California, 2000, p.37.
10. Peter F. Drucker, "Management: Challenge for the 21st Century", Harper
Business,.New York, 1999, p.6l.
.e.e.e.

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Chapter Outline

(A) MEANING AND DEFINITION

I (A) MEANING AND DEFINITION I

Rao, P. S. (2010). Introduction to international business. Retrieved from http://ebookcentral.proquest.com

variety of cross border transactions in goods and services and of international

I (B) FEATURES OF GLOBALISATION I

• Sourcing of factors of production and inputs like raw materials, machinery,

Rao, P. S. (2010). Introduction to international business. Retrieved from http://ebookcentral.proquest.com

I (e) STAGES OF GLOBALISATION I

Rao, P. S. (2010). Introduction to international business. Retrieved from http://ebookcentral.proquest.com

A well-known figure in Delhi's diplomatic circles, the German

Source: The Economic Times, June 23, 2000.

Globalisation is the trend toward a more integrated global economic system.

Fig. 3.1: Components of Globalisation

I (D) GLOBALISATION OF MARKETS I

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A number of consumer products have global acceptance. For example, Coca-

FEATURES OF GLOBALISATION OF MARKETS

Features of globalisation of markets include:

Deep-fried fish and chips is perennially popular food in England. Harry

Source : Quoted in Charles W. L. Hill , op. cit ... p. 7.

Rao, P. S. (2010). Introduction to international business. Retrieved from http://ebookcentral.proquest.com

REASONS FOR GLOBALISATION OF MARKETS

Reasons for Globalisation of markets include:

customers pulled the foreign countries to market their products.

I (E) GLOBALISATION OF PRODUCTION I

Rao, P. S. (2010). Introduction to international business. Retrieved from http://ebookcentral.proquest.com

REASONS FOR GLOBALISATION OF PRODUCTION

Companies globalise the production facilities due to the following reasons:

• Superior quality and

I (F) GLOBALISATION OF INVESTMENT I

Rao, P. S. (2010). Introduction to international business. Retrieved from http://ebookcentral.proquest.com

(GATT) reduced the trade restrictions significantly. Further, the establishment of

REASONS FOR GLOBALISATION OF INVESTMENT

The reasons for the increase in the global investment include:

and Eastern Europe.

Rao, P. S. (2010). Introduction to international business. Retrieved from http://ebookcentral.proquest.com

Institutional Investors (FIls) to invest in Indian capital markets after

• Mutual Funds of various countries also invest in companies based in

Rao, P. S. (2010). Introduction to international business. Retrieved from http://ebookcentral.proquest.com

Now, we shall discuss the another component of globalisation. i. e.,

I (G) GLOBALISATION OF TECHNOLOGY I

METHODS OF GLOBALISATION TECHNOLOGY

The methods of globalisation of technology include:

HOW TECHNOLOGY FASTENS THE PROCESS OF GLOBALISATION?

Technology makes a company to acquire distinctive competencies over other

Rao, P. S. (2010). Introduction to international business. Retrieved from http://ebookcentral.proquest.com

• The Business to Business (B2B) transactions of e-commerce enabled

Rao, P. S. (2010). Introduction to international business. Retrieved from http://ebookcentral.proquest.com

Thus, the information technology enabled the globalisatiOII process

Advantages and Disadvantages of Globalisation

Fig. 3.2 " Advantages and Disadvantages of Globalisati-on

I . (H) ADVANTAGES OF GLOBALISATION I

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NEW DELHI: Commissioner Erkki Liikanen, member 'for Information

Commissioner Liikanen observed. On the other hand thd potential for

Source : The Times of India, 3rd July, 2001.

• Spread up of Production Facilities Throughout the Globe: As stated

Rao, P. S. (2010). Introduction to international business. Retrieved from http://ebookcentral.proquest.com

the developing countries industrialise their economies. This in turn leads

example, Microsoft Cell Phones in the USA.

Rao, P. S. (2010). Introduction to international business. Retrieved from http://ebookcentral.proquest.com

Though the globalisation process produces a variety of oen,em:s/