Globalisation

V SEMESTER International Business
Module 3 :Globalization/ MNCs and International Business

Meaning Definitions and features, Advantages and disadvantages Essential conditions
of Globalization with reference to Production, Markets and Technology, Globalization
and India. GATT and WTO in brief.
Objectives of the Module
 Introduces the Concept of Globalisation
 Explains the Features / Advantages/ Disadvantages of Globalisation and MNC
 To know the various components of Globalisation
 To Learn a Brief overview of GATT and WTO in brief.
Introduction
Globalisation
 Globalization, as a term, is very often used to refer to integration of national

economies into the international economy through trade, foreign direct
investment, capital flows, migration, and spread of technology.
 The process of globalization had its origins in Europe, through the Portuguese,
Spanish, Dutch, French, and English territorial and maritime expansion into
all habitable continents, and included the discovery and colonization of the
New World.
 The term "globalization" was popularized by Theodore Levitt, a professor at
the Harvard Business School.
 Levitt has been erroneously credited with coining the term in 1983, but the
word "globalization" can be traced back to 1944.
 The term has been used by economists since 1981, however its concepts did not
permeate popular consciousness until the latter half of the 1990s.
Globalisation
Globalisation refers to the integration of markets in the global economy, leading to the
increased interconnectedness of national economies. Markets where globalisation is
particularly common include financial markets, such as capital markets, money and
credit markets, and insurance markets, commodity markets, including markets for oil,
coffee, tin, and gold, and product markets, such as markets for motor vehicles and
consumer electronics. The globalisation of sport and entertainment is also a feature of
the late 20th and early 21st centuries.
NOTE: Strictly for Private Circulation of JU-CMS only. This module is compiled by Sunitha.B.K. and Kiran Maney. Do not upload the module
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Essentials of Globalization
 Removal of quotas and tariffs.
 Liberalisation of Government rules and regulations.
 Freedom to business and industry.
 Removal of bureaucratic formalities and procedures.
 Adequate infrastructure.
 Competition on the basis of quality, price, delivery and customer service.
 Autonomy to public sector undertakings.
 Incentives for research and development.
 Administrative and Government support to industry.
 Development of money markets and capital markets.
Why has globalisation increased?
The pace of globalisation has increased for a number of reasons:
1. Developments in ICT, transport and communications have accelerated the pace of

globalisation over the past 40 years. The internet has enabled fast and 24/7 global
communication, and the use of containerisation has enabled vast quantities of
goods and commodities to be shipped across the world at extremely low cost.
2. More recently, the rise of social media means that national boundaries have, in
many ways become irrelevant as producers use new forms of communication
and marketing, including micro-marketing, to target international consumers.
The widespread use of smartphones has also enabled global shoppers to have
easy access to 'virtual' global markets.
3. The rise of new electronic payments systems,, including e-Wallets, pre-pay and
mobile pay, e-Invoices and mobile pay apps, also facilitate increased global
trade.
4. Increasing capital mobility has also acted as a stimulus to globalisation. When
capital can move freely from country to country, it is relatively straightforward
for firms to locate and invest abroad, and repatriate profits.
5. The development of complex financial products, such as derivatives, has enabled
global credit markets to grow rapidly.
6. Increased trade which has become increasingly free, following the collapse of
communism, which has opened up many former communist countries to inward
investment and global trade. Over the last 30 years, trade openness, which is
defined as the ratio of exports and imports to national income, has risen from
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25% to around 40% for industrialised economies, and from 15% to 60% for
emerging economies.
7. The emergence of footloose multinational and transnational companies (MNCs and
TNCs) and the rise in the significance of global brands such as Microsoft, Apple,
Google, Sony, and McDonalds, has been central to the emergence of
globalisation. The drive to reduce tax burdens and avoid regulation has also
meant the establishment of complex international business structures.
The advantages of globalisation

Globalisation brings a number of potential benefits to international producers and
national economies, including:
1. Providing an incentive for countries to specialise and benefit from the
application of the principle of comparative advantage.
2. Access to larger markets means that firms may experience higher demand for
their products, as well as benefit from economies of scale, which leads to a
reduction in average production costs.
3. Globalisation enables worldwide access to sources of cheap raw materials, and
this enables firms to be cost competitive in their own markets and in overseas
markets. Seeking out the cheapest materials from around the world is called
global sourcing. Because of cost reductions and increased revenue, globalisation
can generate increased profits for shareholders.
4. Globalisation has led to increased flows of inward investment between countries,
which has created benefits for recipient countries. These benefits include the
sharing of knowledge and technology between countries.
5. In the long term, increased trade is likely to lead to the creation of more
employment in all countries that are involved.
The disadvantages of globalisation

There are also several potential disadvantages of globalisation, including the following:
1. The over-standardisation of products through global branding is a common
criticism of globalisation. For example, the majority of the world’s computers use
Microsoft’s Windows operating system. Clearly, standardising of computer
operating systems and platforms creates considerable benefits, but critics argue
that this leads to a lack of product diversity, as well as presenting barriers to
entry to small, local, producers.
2. Large multinational companies can also suffer from diseconomies of scale, such
as difficulties associated with coordinating the activities of subsidiaries based in
several countries.
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3. The increased power and influence of multinationals is also seen by many as a

considerable disadvantage of globalisation. For example, large multinational
companies can switch their investments between territories in search of the most
favourable regulatory regimes. MNCs can operate as local monopsonies of
labour, and push wages lower than the free market equilibrium.
4. Critics of globalisation also highlight the potential loss of jobs in domestic
markets caused by increased, and in some cases, unfair, free trade. This view
certainly accounts for the some of the rise in nationalist movements in many
developed economies, along with the push for increased protectionism.
5. Globalisation can also increase the pace of deindustrialisation, which is the slow
erosion of an economy's manufacturing base.
6. Jobs may be lost because of the structural changes arising from globalisation.
Structural changes may lead to structural unemployment and may also widen
the gap between rich and poor within a country.
7. One of the most significant criticisms of globalisation is the increased risk
associated with the interdependence of economies. As countries are increasingly
dependent on each other, a negative economic shock in one country can quickly
spread to other countries.
8. Globalisation generates winners and losers, and for this reason it is likely to
increase inequality, as richer nations benefit more than poorer ones. The
awareness of rising inequality, along with job losses, has been argued to have
contributed to the rise in anti-globalisation movements.
9. Increased trade associated with globalisation has increased pollution and helped
contribute to CO2 emissions and global warming. Trade growth has also
accelerated the depletion of non-renewable resources, such as oil.
Components of Globalization
 Globalization of Market
 Globalization of Production
 Globalization of Technology
Globalization of Markets
Globalization 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 enables
the cultural shift towards the use of common product or service.
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Features of Globalization of markets

 The size of the company need not to be large to create a global market. Even
small companies can create a global market .
 The distinction of global market are still prevailing even after the
globalization of market. These distinction require the companies to formulate
different strategies for each market.
 Most of the foreign markets are the markets for non consumer goods like
machinery, equipments, raw material, software etc.
 The global business firms compete with each other frequently in different
national markets including their home markets.
Reasons for Globalization of Market
 Large scale industrialization enabled mass production.

 Companies in order to reduce the risk diversify the portfolio of countries.
 To cater to the demand for their product in foreign market.
 Companies globalize markets in order to increase their profits and achieve
company goals.
Reasons for Globalization of Production:
 Imposition of restrictions on imports by the foreign countries forces the MNCs to

establish manufacturing facilities in other countries.
 Availability 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.
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 Liberal labour laws in the foreign countries.

 To reduce 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 consumers in
foreign countries.
The process of globalization of production helps the companies to design the following
strategies:
 Low cost leadership

 Superior quality
 Superior Speed.
GLOBALIZATION WITH REFERENCE TO TECHNOLOGY
Definition
Archibugi and Michie (1995, 1997) identified three separate processes that are
generally subsumed under the catch-all expression “globalization of technology”.
According to them the term has three connotations:
 International exploitation of national technological capabilities;

 International technology alliances; and
 Globalization of innovation across countries
Globalization of Technology Means
 The global exploitation of technologies through patents and licenses.

 The global sourcing of research and development (R&D) through alliances
and joint ventures with foreign companies or universities.
 The global production of R&D through overseas subsidiaries.
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The Three Dimensions of Globalization of Technology
Category Manifestation Indicator
International  Domestic enterprises  International trade in

exploitation of  Exports of high technology high tech products
national products
 Quantum of FDI inflows
technological  Relocation of production
and outflows
capabilities abroad
 Exports of disembodied  Number of licensing
technology through the agreements
medium of licensing
agreements between foreign
and domestic firms
International  Firms expand their non-  Number and form of
technology alliances equity agreements to share scientific and technical
(collaboration across costs and risks of industrial agreements on strategic
borders among both R&D technology partnering
public and business
institutions to
exchange and
develop know-how)
Generation of  MNCs establish their R&D  Degree of R&D financed

Innovation across units abroad from abroad.
more than one
 Patenting activities of
country
MNCs attributable to
research in foreign
locations
International Technology Alliances
 Industrial firms increasingly have sought global research partnerships as a

means of strengthening their core competencies and expanding into
technology fields considered critical for maintaining market share.
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 Technological complementarily and reduction of the innovation period are

primary catalysts for entering into a core technology alliance; market entry
and production-related factors are more relevant in technologically less
advanced or mature markets.
 Though difficult to define in very precise terms, there is widespread
consensus that: strategic alliances are not primarily direct investments but not
arm’s-length relationships either and; the notion of alliances assumes the
existence of distinctive or relatively independent agents. Their growth of
alliances was very fast during the 1980s but involved predominantly
companies from the US, Western Europe and Japan.
These new forms of agreements are not replacing but actually complementing and
expanding traditional foreign direct investment (FDI).
Globalization of Innovation is on the Increase:
 Share of foreign affiliates in domestic manufacturing R&D

 Share of domestic industrial R&D financed from foreign sources
 Cross-border ownership of innovations
Cross-border Ownership of Innovations
Cross-border ownership of patents reflects the inventive activity of foreign affiliates
of MNCs. On average, 8% of inventions made were owned by a foreign resident in
the mid-1990s, against 6% in the mid- 1980s. For almost all countries, both
ownership of invention abroad and foreign control of domestic inventions have
increased.
Ownership of inventions made abroad is high in small open countries such as the
Netherlands and Switzerland. These two countries and the United States are the
largest owners of patents covering foreign inventions
MARKETS FOR TECHNOLOGY
 Implicit in the "globalization” argument is another one, namely that markets

for technologies exist and that with globalization the barriers to entry into this
market are being lowered, leading to increased competition among the so-
called technology suppliers.
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 This state of affairs of increased competition is said to be beneficial to

developing countries as they are supposed to be able not only to benefit from
increased access to, say, state-of-the-art technology but also to obtain it in
terms of better terms and conditions
Technology Transactions
 "technology transactions can take different forms, from pure licensing of well
defined intellectual property, to complicated collaborative agreements which
may well include the further development of the technology, or its realization
from scratch". Though transactions in technology can also occur through
mergers and acquisitions and through the mobility of people.
 It is seen that non-market forms of technology transfer are on the increase.
This means that increasingly technologies are being transferred through the
intra-firm route.
 To illustrate, parent companies are selling technologies more to their affiliates
and conversely less to unaffiliated firms. Recent data clearly substantiates this
point
 Both Korea and India have traditionally used the medium of purchasing
technology through the market by means of licensing agreements. Of late the
number of cases of licensing agreements that are approved has come down in
both of these countries while the relative share of technical collaboration
agreements involving equity participation by the collaborator (no-market
forms) is clearly on the increase in both countries.
 United States is the world's largest net seller of technologies to the rest of the
world (as indicated by its consistent positive technology
Globalization and India:

IMPACTS OF GLOBALISATION IN INDIA
Economic Impact:
What are the factors aiding globalisation?
1) Technology: has reduced the speed of communication manifolds. The phenomenon
of social media in the recent world has made distance insignificant.
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The integration of technology in India has transformed jobs which required specialized
skills and lacked decision-making skills to extensively-defined jobs with higher
accountability that require new skills, such as numerical, analytical, communication and
interactive skills. As a result of this, more job opportunities are created for people.
2) LPG Reforms: The 1991 reforms in India have led to greater economic liberalisation
which has in turn increased India’s interaction with the rest of the world.
3) Faster Transportation: Improved transport, making global travel easier. For example,
there has been a rapid growth in air-travel, enabling greater movement of people and
goods across the globe.
4) Rise of WTO: The formation of WTO in 1994 led to reduction in tariffs and non-tariff
barriers across the world. It also led to the increase in the free trade agreements among
various countries.
5) Improved mobility of capital: In the past few decades there has been a general
reduction in capital barriers, making it easier for capital to flow between different
economies. This has increased the ability for firms to receive finance. It has also
increased the global interconnectedness of global financial markets.
6) Rise of MNCs: Multinational corporations operating in different geographies have
led to a diffusion of best practices. MNCs source resources from around the globe and
sell their products in global markets leading to greater local interaction.
These factors have helped in economic liberalization and globalization and have
facilitated the world in becoming a “global village”. Increasing interaction between
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people of different countries has led to internationalization of food habits, dress habits,
lifestyle and views.
IMPACTS OF GLOBALISATION IN INDIA
Economic Impact:
1. Greater Number of Jobs: The advent of foreign companies and growth in economy has
led to job creation. However, these jobs are concentrated more in the services sector and
this has led to rapid growth of service sector creating problems for individuals with low
level of education. The last decade came to be known for its jobless growth as job
creation was not proportionate to the level of economic growth.
2. More choice to consumers: Globalisation has led to a boom in consumer products
market. We have a range of choice in selecting goods unlike the times where there were
just a couple of manufacturers.
3. Higher Disposable Incomes: People in cities working in high paying jobs have greater
income to spend on lifestyle goods. There has been an increase in the demand of
products like meat, egg, pulses, organic food as a result. It has also led to protein
inflation.
Protein food inflation contributes a large part to the food inflation in India. It is evident
from the rising prices of pulses and animal proteins in the form of eggs, milk and meat.
With an improvement in standard of living and rising income level, the food habits of
people change. People tend toward taking more protein intensive foods. This shift in
dietary pattern, along with rising population results in an overwhelming demand for
protein rich food, which the supply side could not meet. Thus resulting in a demand
supply mismatch thereby, causing inflation.

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In India, the Green Revolution and other technological advancements have primarily
focused on enhancing cereals productivity and pulses and oilseeds have traditionally
been neglected.
 Shrinking Agricultural Sector: Agriculture now contributes only about 15% to GDP.
The international norms imposed by WTO and other multilateral organizations have
reduced government support to agriculture. Greater integration of global commodities
markets leads to constant fluctuation in prices.
 This has increased the vulnerability of Indian farmers. Farmers are also increasingly
dependent on seeds and fertilizers sold by the MNCs.
 Globalization does not have any positive impact on agriculture. On the contrary, it has
few detrimental effects as government is always willing to import food grains, sugar
etc. Whenever there is a price increase of these commodities.
 Government never thinks to pay more to farmers so that they produce more food grains
but resorts to imports. On the other hand, subsidies are declining so cost of production
is increasing. Even farms producing fertilizers have to suffer due to imports. There are
also threats like introduction of GM crops, herbicide resistant crops etc.
 Increasing Health-Care costs: Greater interconnections of the world has also led to the
increasing susceptibility to diseases. Whether it is the bird-flu virus or Ebola, the
diseases have taken a global turn, spreading far and wide. This results in greater
investment in healthcare system to fight such diseases.
 Child Labour: Despite prohibition of child labor by the Indian constitution, over 60 to a
115 million children in India work. While most rural child workers are agricultural
laborers, urban children work in manufacturing, processing, servicing and repairs.
Globalization most directly exploits an estimated 300,000 Indian children who work in
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India’s hand-knotted carpet industry, which exports over $300 million worth of goods a
year.
Socio-Cultural Impact on Indian Society
 Access to education: On one hand globalisation has aided in the explosion of
information on the web that has helped in greater awareness among people. It has also
led to greater need for specialisation and promotion of higher education in the country.
 On the flip side the advent of private education, coaching classes and paid study
material has created a gap between the haves and have-nots. It has become increasingly
difficult for an individual to obtain higher education.
 Growth of cities: It has been estimated that by 2050 more than 50% of India’s
population will live in cities. The boom of services sector and city centric job creation
has led to increasing rural to urban migration.
 Indian cuisine: is one of the most popular cuisines across the globe. Historically, Indian
spices and herbs were one of the most sought after trade commodities. Pizzas, burgers,
Chinese foods and other Western foods have become quite popular.
 Nuclear Families: The increasing migration coupled with financial independence has
led to the breaking of joint families into nuclear ones. The western influence of
individualism has led to an aspirational generation of youth. Concepts of national
identity, family, job and tradition are changing rapidly and significantly.
 Old Age Vulnerability: The rise of nuclear families has reduced the social security that
the joint family provided. This has led to greater economic, health and emotional
vulnerability of old age individuals.
 Pervasive Media: There is greater access to news, music, movies, videos from around
the world. Foreign media houses have increased their presence in India. India is part of
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the global launch of Hollywood movies which is very well received here. It has a
psychological, social and cultural influence on our society.
 McDonaldization: A term denoting the increasing rationalization of the routine tasks of
everyday life. It becomes manifested when a culture adopts the characteristics of a fast-
food restaurant. McDonaldization is a reconceptualization of rationalization, or moving
from traditional to rational modes of thought, and scientific management.
 Walmartization: A term referring to profound transformations in regional and global
economies through the sheer size, influence, and power of the big-box department store
WalMart. It can be seen with the rise of big businesses which have nearly killed the
small traditional businesses in our society.
Psychological Impact on Indian Society
 Development of Bicultural Identity: The first is the development of a bicultural

identity or perhaps a hybrid identity, which means that part of one’s identity is rooted
in the local culture while another part stems from an awareness of one’s relation to the
global world.
 The development of global identities is no longer just a part of immigrants and ethnic
minorities. People today especially the young develop an identity that gives them a
sense of belonging to a worldwide culture, which includes an awareness of events,
practices, styles and information that are a part of the global culture. Media such as
television and especially the Internet, which allows for instant communication with any
place in the world, play an important part in developing a global identity.
A good example of bicultural identity is among the educated youth in India who
despite being integrated into the global fast paced technological world, may continue to
have deep rooted traditional Indian values with respect to their personal lives and
choices such as preference for an arranged marriage, caring for parents in their old age.
1. Growth of Self-Selected Culture: means people choose to form groups with like-
minded persons who wish to have an identity that is untainted by the global culture
and its values. The values of the global culture, which are based on individualism, free
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market economics, and democracy and include freedom, of choice, individual rights,
openness to change, and tolerance of differences are part of western values. For most
people worldwide, what the global culture has to offer is appealing. One of the most
vehement criticisms of globalization is that it threatens to create one homogeneous
worldwide culture in which all children grow up wanting to be like the latest pop music
star, eat Big Macs, vacation at Disney World, and wear blue jeans, and Nikes.
2. Emerging Adulthood: The timing of transitions to adult roles such as work, marriage
and parenthood are occurring at later stages in most parts of the world as the need for
preparing for jobs in an economy that is highly technological and information based is
slowly extending from the late teens to the mid-twenties. Additionally, as the
traditional hierarchies of authority weaken and break down under the pressure of
globalization, the youth are forced to develop control over their own lives including
marriage and parenthood. The spread of emerging adulthood is related to issues of
identity.
3. Consumerism: Consumerism has permeated and changed the fabric of contemporary
Indian society. Western fashions are coming to India: the traditional Indian dress is
increasingly being displaced by western dresses especially in urban areas. Media-
movies and serials- set a stage for patterns of behavior, dress codes and jargon. There is
a changing need to consume more and more of everything.
Globalisation is an age old phenomenon which has been taking place for centuries now.
We can experience it so profoundly these days because of its increased pace. The
penetration of technology and new economic structures are leading to an increased
interaction between people. As with other things there have been both positive and
negative impacts on India due to it.
Conclusion: We cannot say that the impact of globalization has been totally positive or
totally negative. It has been both. Each impact mentioned above can be seen as both
positive as well as negative.
Role of internet in the media globalization

The internet has done a revolution to the impact of globalization in the media. The
contribution of internet in the role of media has changed over the past few years and
has increased distinctively. In the society the digital media is intensely transforming the
consumer behavior and traditional media business models. On one hand it is creating
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new opportunities but its troublesome pressure is being accelerated by the global
recession. Today with the ease of internet access a large number of people are
consuming more media in entirely different ways and a lot of the time not paying for it.
Internet is one of the easiest ways to associate oneself with the media in today’s fast
paced world. Moreover with the ease of accessibility of the internet even the younger
generation has started adopting this to keep themselves aware of what’s happening
around them. Media also uses internet in their favor to publicize and distribute what
they want to highlight. . Asia contributing to 56%of the population of the world has
42% of the world’s internet users.
Be it at school or work or home everybody has an access to the internet these days.
People especially students are heavily active on social networks like facebook and
LinkedIn. In fact these social networks sometimes bring integrity and helps people stay
connected. It acts as a platform to the society for better connectivity and hence being
aware or updating themselves regarding what is happening around them.
In political field internet serves as a medium to connect the media and the viewers. A
lot of people are unable to go through the newspapers everyday because of either very
busy schedule or ignorance or because of travelling. However most people in today’s
generation are connected with internet. Therefore people read about the elections about
the various political issues through the internet. Even the media updates all its news at
every instant on the internet and get a lot of responses from all its viewers which helps
them get feedbacks to make amendments.
The role of internet has a lot to contribute to the economical aspect or impact of the
media. With the share market and the online trading and banking facilities people have
started shifting from the conventional ways of doing things to this modern easier and
hustle-free method. The term globalization in economics is about the different aspects of
cross-border transactions, free international capital flows, portfolio investments, diverse
and rapid blending of technology. The theory of globalization states that it enhances
prosperity in terms of the economic development of the country and leads to proficient
allocation of resources, which in return leads to more employment higher standards of
living, more outputs and lower prices. The internet facility provided by the media
channels help the users (viewers) to be able to update themselves from wherever they
are. The news provided through the internet is mostly updated at every instance and is
more precise and easier to find than other sources of the media. There are options of
commenting on the news updates and the best part is that one can indulge themselves
in a discussion and hence connect the social and economic aspects of the issues. Of the
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total of 4600 news and information sites the top 7 sites ,they collect about 80% of the
online traffic.
The role of internet in the cultural and traditional aspect is quite prominent.
Globalization has an immense effect on the cultures of the different countries. It has
always had a very deep impact on the cultural identity. The free flow of information,
speedy progress in the field of technology, transportation and communication has
converted this world into a “global village”. The reductions in costs and better facilities
and variety of choices have changed the tastes of individual and societies leading to a
stronger integration. The use of internet through the media provides an inter mix and
exchange of ideas and thoughts between countries. The media provide the news about
not just within the country but also around the globe. Along with the general news
about one’s nation, media also highlights the cultural and traditional aspects of the
country. With the help of globalization and internet being a source of it there is an
exchange of these cultural and traditional aspects leading to an amalgamation of
culture. The extent of this amalgamation differs from country to country or place to
place depending on the amount of exposure people have to the internet or the media.
Falkland islands has the highest internet penetration rate of 100% as its population is
equivalent to the number of internet users in the country which means that all the
citizens of this country use internet.[Internet world stats] This cultural diffusion opens
up the mindset of the people and lets them know the world in a much matured way.
General Agreement on Tariffs and Trade (GATT)

The General Agreement on Tariffs and Tradewas the first worldwide multilateral free
trade agreement. It was in effect from June 30, 1948 until January 1, 1995. It ended when
it was replaced by the more robust World Trade Organization.
Purpose
The purpose of GATT was to eliminate harmful trade protectionism. That had sent
global trade down 65 percent during the Great Depression. By removing tariffs, GATT
boosted international trade. It restored economic health to the world after the
devastation of World War II.
Member Countries
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The original 23 GATT members were Australia, Belgium, Brazil, Burma (now
Myanmar), Canada, Ceylon, Chile, China, Cuba, Czechoslovakia (now Czech Republic
and Slovakia), France, India, Lebanon, Luxembourg, Netherlands, New Zealand,
Norway, Pakistan, Southern Rhodesia (now Zimbabwe), Syria, South Africa, the United
Kingdom and the United States. The membership increased to 100 countries by 1993.
Three Provisions
GATT had three main provisions. The most important requirement was that each
member must confer most favoured nation status to every other member. That means
all members must be treated equally when it comes to tariffs. It excluded the special
tariffs among members of the British Commonwealth and customs unions. It permitted
tariffs if their removal would cause serious injury to domestic producers.
Second, GATT prohibited restriction on the number of imports and exports. The
exceptions were:
 When a government had a surplus of agricultural products.

 If a country needed to protect its balance of payments because its foreign
exchange reserves were low.
 Developing countries that needed to protect fledgling industries.
In addition, countries could restrict trade for reasons of national security. These
included protecting patents, copyrights and public morals.
Pros
 For 47 years, GATT reduced tariffs. This boosted world trade 8 percent a year
during the 1950s and 1960s. That was faster than world economic growth. Trade
grew from $332 billion in 1970 to $3.7 trillion in 1993.
 It was seen as such a success that many more countries wanted to join. By 1995,
there 128 members, generating at least 80 percent of world trade.
 By increasing trade, GATT promoted world peace. in the 100 years before GATT,
the number of wars was ten times greater than the 50 years after GATT. Before
World War II, the chance of a lasting trade alliance was only slightly better than
50/50.
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 By showing how free trade works, GATT inspired other trade agreements. It set
the stage for the European Union. Despite the EU's problems, it has prevented
wars between its members.
 GATT also improved communication by providing incentives for smaller
countries to learn English, the language of the world's largest consumer market.
This adoption of a common language reduced misunderstanding. It also gave
less developed countries a competitive advantage. English gave them insight into
the developed country's culture, marketing and product needs.
Cons
 Low tariffs destroy some domestic industries, contributing to high

unemployment in those sectors. Governments subsidized many industries to
make them more competitive on a global scale. U.S. and EU agriculture were
major examples. In the early 1970s, the textile and clothing industries were
exempted from GATT. When the Nixon Administration took the U.S. dollar off
the gold standard in 1973, it lowered the value of the dollar compared to other
currencies. That further lowered the international price of U.S. exports.
 By the 1980s, the nature of world trade had changed. GATT did not address the
trade of services. That allowed them to grow beyond any one country's ability to
manage them.
 Like other free trade agreements, GATT reduced the rights of a nation to rule its
own people. The agreement required them to change domestic laws to gain the
trade benefits. For example, India had allowed companies to create generic
versions of drugs without paying a license fee. This helped more people afford
medicine. GATT required India to remove this law. That raised the price of drugs
out of reach for many Indians.
WTO FACT FILE

Location: Geneva, Switzerland
Established: 1 January 1995
Created by: Uruguay Round negotiations (1986-94)
Membership: 164 members representing 98 per cent of world trade
Budget: 197 million Swiss francs for 2018
Page 19
Secretariat staff: 625

Head: Roberto Azevêdo (Director-General)
Functions
 Administering WTO trade agreements

 Forum for trade negotiations
 Handling trade disputes
 Monitoring national trade policies
 Technical assistance and training for developing countries
 Cooperation with other international organizations
Goods
It all began with trade in goods. From 1947 to 1994, GATT was the forum for
negotiating lower customs duty rates and other trade barriers; the text of the General
Agreement spelt out important rules, particularly non-discrimination.
Since 1995, the updated GATT has become the WTO’s umbrella agreement for trade in
goods. It has annexes dealing with specific sectors such as agriculture and textiles, and
with specific issues such as state trading, product standards, subsidies and actions
taken against dumping.
Services
Page 20
Banks, insurance firms, telecommunications companies, tour operators, hotel chains

and transport companies looking to do business abroad can now enjoy the same
principles of freer and fairer trade that originally only applied to trade in goods.
These principles appear in the new General Agreement on Trade in Services (GATS).
WTO members have also made individual commitments under GATS stating which of
their services sectors they are willing to open to foreign competition, and how open
those markets are.
Intellectual property
The WTO’s intellectual property agreement amounts to rules for trade and investment
in ideas and creativity. The rules state how copyrights, patents, trademarks,
geographical names used to identify products, industrial designs, integrated circuit
layout-designs and undisclosed information such as trade secrets — “intellectual
property” — should be protected when trade is involved.
Dispute settlement
The WTO’s procedure for resolving trade quarrels under the Dispute Settlement
Understanding is vital for enforcing the rules and therefore for ensuring that trade
flows smoothly. Countries bring disputes to the WTO if they think their rights under
the agreements are being infringed. Judgements by specially-appointed independent
experts are based on interpretations of the agreements and individual countries’
commitments.
The system encourages countries to settle their differences through consultation. Failing
that, they can follow a carefully mapped out, stage-by-stage procedure that includes the
possibility of a ruling by a panel of experts, and the chance to appeal the ruling on legal
grounds. Confidence in the system is borne out by the number of cases brought to the
WTO — around 300 cases in eight years compared to the 300 disputes dealt with during
the entire life of GATT (1947–94).
Policy review
The Trade Policy Review Mechanism’s purpose is to improve transparency, to create a
greater understanding of the policies that countries are adopting, and to assess their
impact. Many members also see the reviews as constructive feedback on their policies.
All WTO members must undergo periodic scrutiny, each review containing reports by
the country concerned and the WTO Secretariat.
Page 21
Comparison Chart
BASIS FOR GATT WTO
COMPARISON
Meaning GATT can be described as a set of rules, WTO is an international
multilateral trade agreement, that came organization, that came into
into force, to encourage international existence to oversee and
trade and remove cross-country trade liberalize trade between
barriers. countries.
Institution It does not have any institutional It has permanent institution
existence, but have a small secretariat. along with a secretariat.
Participant Contracting parties Members
nations
Commitments Provisional Full and Permanent
Application The rules of GATT are only for trade in The rules of WTO includes
goods. services and aspects of
intellectual property along with
the goods.
Agreement Its agreement are originally multilateral, Its agreements are purely
but plurilateral agreement are added to it multilateral.
later.
Domestic Allowed to continue Not allowed to continue
Legislation
Dispute Slow and ineffective Fast and effective
Settlement
System
Reference Questions -2 Marks
1. What is Globalization?
2. Define Globalization.
3. Mention any 2 advantages and disadvantages of Globalization.
4. Mention the components of Globalization.
5. What is Globalization of Markets?
6. What is Globalization of Production?
7. What is Globalization of Technology?
8. Mention the dimensions of Globalization of Technology.
9. Who popularized the word Globalization through an article in Harvard Business
Review?
10. Who is the current Director-General of WTO?
Section B- 4 Marks
1. Briefly explain the advantages of Globalization.

2. Briefly explain the disadvantages of Globalization.
Page 22
3. Briefly explain the concept of Globalization of Markets.

4. Briefly explain the concept of Globalization of Production.
5. Briefly explain the concept of Globalization of Technology.
6. Write a short note on Globalization.
7. Write a short note on GATT.
8. Write a short note on WTO .
9. Differentiate between GATT and WTO.
10. Brief explain the essentials of Globalization.
11. What are the factors aiding globalization?
12. Briefly discuss the economic impact of globalization in India.
13. Briefly discuss the socio-cultural impact of globalization in Indian Society.
14. Write a short note on the following
 Mcdonaldisation
 Walmartisation
15. Why has globalization increased in the past few years?
16. Briefly explain the 3 dimensions of globalization of technology.
17. Briefly discuss the psychological impact of globalization in Indian Society.
18. Briefly explain the functions of WTO.
19. Briefly explain the impact of globalization on Cinema.
20. Briefly explain the impact of globalization on Social media.
References for the Chapter:

 International Business- Subba Rao
 International Business – N. Badi
 International Business Environment: Francis Cherumilam
 International Trade- M.L Jhingan
 www.indiamba.com
 http://www.preservearticles.com/2011100314528/what-are-the-characteristics-of-
globalization.html
 hbr.org/1983/05/the-globalization-of-markets/ar/
 http://business.mapsofindia.com/globalization/market.html.
 https://www.gktoday.in/academy/article/impacts-of-globalization-on-indian-economy/
 https://www.wto.org/english/thewto_e/whatis_e/inbrief_e/inbr03_e.htm
 https://keydifferences.com/difference-between-gatt-and-wto.html
 https://www.ukessays.com/essays/media/effects-of-globalization-on-media-media-essay.php
Note: Modules are the guidelines for learning the syllabus. For further detail reference, refer
the recommended reference books.
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V SEMESTER International Business

Module 3 :Globalization/ MNCs and International Business

 Globalization, as a term, is very often used to refer to integration of national

Why has globalisation increased?

The pace of globalisation has increased for a number of reasons:

1. Developments in ICT, transport and communications have accelerated the pace of

The advantages of globalisation

The disadvantages of globalisation

3. The increased power and influence of multinationals is also seen by many as a

Globalization of markets refers to the process of integrating and merging of the

Features of Globalization of markets

 Large scale industrialization enabled mass production.

Reasons for Globalization of Production:

 Imposition of restrictions on imports by the foreign countries forces the MNCs to

 Liberal labour laws in the foreign countries.

 Low cost leadership

GLOBALIZATION WITH REFERENCE TO TECHNOLOGY

 International exploitation of national technological capabilities;

Globalization of Technology Means

 The global exploitation of technologies through patents and licenses.

The Three Dimensions of Globalization of Technology

Category Manifestation Indicator

International  Domestic enterprises  International trade in

Generation of  MNCs establish their R&D  Degree of R&D financed

International Technology Alliances

 Industrial firms increasingly have sought global research partnerships as a

 Technological complementarily and reduction of the innovation period are

 Share of foreign affiliates in domestic manufacturing R&D

MARKETS FOR TECHNOLOGY

 Implicit in the "globalization” argument is another one, namely that markets

 This state of affairs of increased competition is said to be beneficial to

Globalization and India:

1) Technology: has reduced the speed of communication manifolds. The phenomenon

of social media in the recent world has made distance insignificant.

skills and lacked decision-making skills to extensively-defined jobs with higher

goods across the globe.

increased the global interconnectedness of global financial markets.

6) Rise of MNCs: Multinational corporations operating in different geographies have

sell their products in global markets leading to greater local interaction.

facilitated the world in becoming a “global village”. Increasing interaction between

lifestyle and views.

IMPACTS OF GLOBALISATION IN INDIA

creation was not proportionate to the level of economic growth.

2. More choice to consumers: Globalisation has led to a boom in consumer products

just a couple of manufacturers.

supply mismatch thereby, causing inflation.

reduced government support to agriculture. Greater integration of global commodities

markets leads to constant fluctuation in prices.

dependent on seeds and fertilizers sold by the MNCs.

etc. Whenever there is a price increase of these commodities.

also threats like introduction of GM crops, herbicide resistant crops etc.

increasing susceptibility to diseases. Whether it is the bird-flu virus or Ebola, the

investment in healthcare system to fight such diseases.

laborers, urban children work in manufacturing, processing, servicing and repairs.

Socio-Cultural Impact on Indian Society

 Access to education: On one hand globalisation has aided in the explosion of

difficult for an individual to obtain higher education.

has led to increasing rural to urban migration.

individualism has led to an aspirational generation of youth. Concepts of national

vulnerability of old age individuals.

psychological, social and cultural influence on our society.

 McDonaldization: A term denoting the increasing rationalization of the routine tasks of

food restaurant. McDonaldization is a reconceptualization of rationalization, or moving

from traditional to rational modes of thought, and scientific management.