U- 3 Globalization:

Meaning – The aim of globalisation is to secure socio- economic integration and development of all the
people of the world through a free flow of goods, services, information, knowledge and people across all
boundaries.

Globalisation is seen as a conscious and active process of expanding business and trade across the borders
of all the states. It stands for expanding cross-border facilities and economic linkages. This is to be done
with a view to secure an integration of economic interests and activities of the people living in all parts of
the world. The objective of making the world a truly inter-related, inter-dependent, developed global
village governs the on-going process of globalisation.

Globalisation is the concept of securing real social economic, political and cultural transformation of the
world into a real global community. It is considered to be the essential means for securing sustainable
development of all the people of the world.

“Globalisation represents the desire to move from national to a global sphere of economic and political
activity”. It seeks to transform the existing international economic system into a unified system of global
economics. In the existing system, national economies are the major players. In the new system, the
globalized economic and political activity will ensure sustainable development for the whole world.

“Globalisation is both an active process of corporate expansion across borders and a structure of cross
border facilities and economic linkages that has been steadily growing and changing.” — Edward
S.Herman

“Globalisation is the process whereby social relations acquire relatively distance-less and borderless
qualities.” —Baylis and Smith

Difference between Globalisation and Internationalism: Till very recently, we have been frequently
using the term internationalism to refer to the process of increasing connections and relations among
nations. It denotes the concept of increasing social economic, cultural and political cooperation among
nations.

Now instead of advocating internationalism, we have started advocating globalisation which refers to a
broader and integrated process of transformation of the world into a global village characterised by free
world trade, freedom of access to world markets and increased social, economic, and cultural linkages and
relations among the people of the world.

Whereas internationalism stands for increasing scope and intensity of cooperation among nations,
globalisation refers to a free and integrated world system. Globalisation is neither a purely economic
process nor is related to communications only. It is a broad process of increasing socio-economic-
industrial-trade-cultural relations among the people living in all parts of the globe.

It refers to the process which is considered essential for transforming the world into an inter- related and
inter-dependent global village. It is aimed at securing the benefits of free trade, open access to markets
and equal participation in securing sustainable development for all the people. It involves the attempts
aimed at the development of rules and procedures for making and enforcing all decisions required for
securing globalisation.

In simple words, the aim of globalisation is to secure socio- economic integration and development of all
the people of the world through a free flow of goods, services, information, knowledge and people across
all boundaries.

Features
Nature of Globalisation: Salient Features of Globalisation:

1. Liberalisation: It stands for the freedom of the entrepreneurs to establish any industry or trade
or business venture, within their own countries or abroad.

2. Free trade: It stands for free flow of trade relations among all the nations. Each state grants MFN
(most favored nation) status to other states and keeps its business and trade away from excessive and
hard regulatory and protective regimes

3. Globalisation of Economic Activity: Economic activities are be governed both by the domestic
market and also the world market. It stands for the process of integrating the domestic economy with
world economies.

4. Liberalisation of Import-Export System: It stands for liberating the import- export activity and
securing a free flow of goods and services across borders.

5. Privatisation: Keeping the state away from ownership of means of production and distribution and
letting the free flow of industrial, trade and economic activity across borders.

6. Increased Collaborations: Encouraging the process of collaborations among the entrepreneurs with
a view to secure rapid modernisation, development and technological advancement.

7. Economic Reforms: Encouraging fiscal and financial reforms with a view to give strength to free
world trade, free enterprise, and market forces.

Globalisation accepts and advocates the value of free world trade, freedom of access to world markets
and a free flow of investments across borders. It stands for integration and democratization of the
world’s culture, economy and infrastructure through global investments.

Stages –

Four stages of globalization

1.Domestic Stage–
Market potential is limited to the home country–Production and marketing facilities located at
home

2. International Stage

Exports increase, and the company usually adopts a multi-domestic approach.–Product design,
marketing, and advertising are adapted to thespecific needs of each country, requiring a high level
ofsensitivity to local values and interests.

3.Multinational Stage

The company has marketing and production facilities located in many countries, with more
than one third of its sales is outside the country of origin.– Product design, marketing and advertising
strategies are standardized around the world.

4. Global (or stateless) Stage

These corporations operate in true global fashion, making sales and acquiring resources in whatever
country offers the bes topportunities and lower cost.

Globalization of Production –

Globalization of production refers to the "sourcing of goods and services from locations around the globe
to take advantage of national differences in the cost and quality of factors of production like land, labor,
and capital"

Why is this happening?

 advances in the technological environment and regional advantages and variances in the
economic environment have allowed for transportation of larger volume goods over longer
distances
o bigger stuff travelling farther
o technology effecting information/communications
 it is possible to "know" where to buy components parts at cheaper prices
 the "modular: aproach to manufacturing - few things "made" in a factory, most stuff is assembled
from component parts that come from a variety of locations, some national, some international

Erosion of "national identity" associated with a branded consumer product.

Given the diverse origins of component parts, it becomes increasingly challenging to say a complex
consumer product (such as a large TV, computer or car) is predominantly from "X" country.

Influences of, and changes in, the

 economic environment
 competitve environment
 technological environment

have resulted in Supply Chain Management solutions that source parts all over, based on the lowest price
and fastest deliverly time.
Example: One particular model of a consumer branded electronic product may have internally three
different battery pack arrangements, depending on how the supply chain people sourced the parts at the
time a long production run was being carried out - some may come from Korea, some may come from
China or Taiwan.

When large companies establish extremely large production runs, supplier companies sometimes cannot
meet the volume of requirements so supply chain staff source from multiple locations.
The Globalization of Markets / Customers

Globalization of markets refers to the "merging of historically distinct and separate national markets into
one huge global marketplace"

For some products and services "the tastes and preferences of consumers in different nations are
beginning to converge on some global norm" - a consequence of the "globalization of the customer"

Why is this happening?

  advances in the technological environment
o more people travelling
o information through the web
 blending across social - cultural environment

"Most global markets are not for consumer products ... but markets for industrial goods and materials that
serve a universal need the world over".

Advantages of Globalisation: The following are some of the important advantages of

globalisation.

(i) Globalisation helps to boost the long run average growth rate of the economy of the country
through:

(a) Improvement in the allocative efficiency of resources;

(b) Increase in labour productivity; and

(c) Reduction in capital-output ratio.

(ii) Globalisation paves the way for removing inefficiency in production system. Prolonged protective
scenario in the absence of globalisation makes the production system careless about cost effectiveness
which can be attained by following the policy of globalisation. (iii) Globalisation attracts entry of foreign
capital along with foreign updated technology which improves the quality of production.

(iv) Globalisation usually restructure production and trade pattern favouring labour-intensive goods and
labour-intensive techniques as well as expansion of trade in services.

(v) In a globalized scenario, domestic industries of developing country become conscious about price
reduction and quality improvement to their products so as to face foreign competition.

(vi) Globalisation discourages uneconomic import substitution and favour cheaper imports of capital
goods which reduces capital-output ratio in manufacturing industries. Cost effectiveness and price
reduction of manufactured commodities will improve the terms of trade in favour of agriculture.

(vii) Globalisation facilitates consumer goods industries to expand faster to meet growing demand for
these consumer goods which would result faster expansion of employment opportunities over a period of
time. This would result trickle down effect to reduce the proportion of population living below the
poverty line

(viii) Globalisation enhances the efficiency of the banking insurance and financial sectors with the
opening up to those areas to foreign capital, foreign banks and insurance companies
Disadvantages of Globalization:

The following are some of these disadvantages: (i) Globalisation paves the way for redistribution of
economic power at the world level leading to domination by economically powerful nations over the poor
nations.

(ii) Globalisation usually results greater increase in imports than increase in exports leading to growing
trade deficit and balance of payments problem.

(iii) Although globalisation promote the idea that technological change and increase in productivity
would lead to more jobs and higher wages but during the last few years, such technological changes
occurring in some developing countries have resulted more loss of jobs than they have created leading to
fall in employment growth rates.

(iv) Globalisation has alerted the village and small scale industries and sounded death-knell to it as they
cannot withstand the competition arising from well organized MNCs.

(v) Globalisation has been showing down the process to poverty reduction in some developing and
underdeveloped countries of the world and thereby enhances the problem of inequality.

(vi) Globalisation is also posing as a threat to agriculture in developing and underdeveloped countries of
the world. As with the WTO trading provisions, agricultural commodities market of poor and developing
countries will be flooded farm goods from countries at a rate much lower than that indigenous farm
products leading to a death-blow to many farmers.

(vii) Implementation of globalisation principle becoming harder in many industrially developed

democratic countries to ask its people to bear the pains and uncertainties of structural adjustment with the
hope of getting benefits in future.

Methods of Globalization :

Licensing Licensing is agreement with foreign companies to allow use of trade mark, brand and
technology. Licensee should pay royalties to foreign companies. Franchising is the example of licensing.

Strategic alliances Strategic alliances are contractual alliances of the two or more than two companies
for certain period of time to pursue a common goal. Strategic alliance is done for strategic benefits.
ownership is not clear and equity investment is not involved in strategic alliances.

Exporting Exporting is another method of globalization. It is selling product overseas. Decreasing cost in
transportation and communication enhancing the export. Agents, brokers banks, and insurance companies
help in exporting.

Joint venture Joint venture is another important and popular method of globalization. It is partnership
with foreign companies. It involves equity, transfer of technology, management known how, production
and marketing.
Foreign direct investment It is another popular method of globalization. It is long term capital
investment. It can be done through merger and acquisition. It is fully owned facility.

Essential Conditions for Globalization :

1. Business Freedom

There should not be unnecessary government restrictions which come in the way globalization
like import restriction, restrictions on sourcing finance or other factors from abroad, foreign investments
etc.

2. Facilities

The extent to which an enterprise can develop globally from home country base depends on the
facilities available like the infrastructural facilities.

3. Government Support

Unnecessary government interference is a hindrance to globalization, government support can

encourage globalization.

4. Resources

Resources is one of the important factors which often decide, the ability of a firm to globalize.
Resourceful companies may find it easier to thrust ahead in the global market.

5. Competitiveness

The competitive advantage of the company is a very important determinant of success in global
business. A firm may derive competitive advantage from any one or more of the factors such as low costs
and price, product quality, product differentiation, technological superiority, after-sales services,
marketing strength etc.

6. Orientation

A global orientation on the part of the business firms and suitable globalization strategies are
essential for globalization.

MNC’s and International Business:

Meaning of Multinational Companies (MNCs): A multinational company is one which is

incorporated in one country (called the home country); but whose operations extend beyond the
home country and which carries on business in other countries (called the host countries) in
addition to the home country.
It must be emphasized that the headquarters of a multinational company are located in the home country.

Neil H. Jacoby defines a multinational company as follows: “A multinational

corporation owns and manages business in two or more countries.”

The most important differences Between domestic and international business are classified as
under:

1. Domestic Business is defined as the business whose economic transaction is conducted within the
geographical limits of the country. International Business refers to a business which is not
restricted to a single country, i.e. a business which is engaged in the economic transaction with
several countries in the world
2. . 2. The area of operation of the domestic business is limited, which is the home country. On the
other hand, the area of operation of an international business is vast, i.e. it serves many countries
at the same time.
3. 3. The quality standards of products and services provided by a domestic business is relatively
low. Conversely, the quality standards of international business are very high which are set
according to global standards.
4. 4. Domestic business deals in the currency of the country in which it operates. On the contrary,
the international business deals in the multiple currencies.
5. Domestic Business requires comparatively less capital investment as compared to international

business
.

6. Domestic Business has few restrictions, as it is subject to rules, law taxation of a single country. As
against this, international business is subject to rules, law taxation, tariff and quotas of many countries
and therefore, it has to face many restrictions which are barriers in the international business.

7. The nature of customers of a domestic business is more or less same. Unlike, international business
wherein the nature of customers of every country it serves is different.

8. Business Research can be conducted easily, in domestic business. As against this, in the case of
international research, it is difficult to conduct business research as it is expensive and research
reliability varies from country to country.

9. In domestic business, factors of production are mobile whereas, in international business, the
mobility of factors of production is restricted.

MNCs vs TNCs

1) Multinational (MNC) and Transnational (TNC) companies are types of international

corporations. Both maintain management headquarters in one country, known as the home
country, and operate in several other countries, known as host countries.

2) Most TNC’s and MNC’s are massive in terms of budget and are highly influential to
globalization. They are also considered as main drivers of the local economy, government
policies, environmental and political lobbying
 3) An MNC have investment in other countries, but do not have coordinated product offerings in each
country. It is more focused on adapting their products and service to each individual local market. A
TNC, on the other hand, have invested in foreign operations, have a central corporate facility but give
decision-making, R&D and marketing powers to each individual foreign market.

Difference between a global, transnational, international and multinational company

The following terms and think they refer to any company doing business in another country.

• Multinational

• International

• Transnational

• Global

Andrew Hines over at BNET has brief and clear definitions of each of these terms, Get your international
business terms right.

Each term is distinct and has a specific meaning which defines the scope and degree of interaction with
their operations outside of their “home” country.

• International companies are importers and exporters, they have no investment outside of their home
country.

• Multinational companies have investment in other countries, but do not have coordinated product offerings
in each country. More focused on adapting their products and service to each individual local market.

• Global companies have invested and are present in many countries. They market their products through the
use of the same coordinated image/brand in all markets. Generally one corporate office that is responsible for
global strategy. Emphasis on volume, cost management and efficiency.

• Transnational companies are much more complex organizations. They have invested in foreign operations,
have a central corporate facility but give decision-making, R&D and marketing powers to each individual
foreign market.

Organizational Transformations –

Organizational transformation: Organizational transformation is about organizational change

which the change goes to the depths of what an individual feels and will affect what people feel about
the organization, what they do in the organization and maybe what they hold dear to life.
Organizational transformation is more than just changing the way business is done. It is about
changing the organizational culture in one or more ways.

Transforming the organization refers to any significant change made to an organization such as,
restructuring an organization or reengineering an organization and/or there is a significant change
in the way business is done. The question is, of course, what is significant relative to a given
organization.
Merits and Demerits of MNC‟s in India

Advantages and Limitations of MNCs(Merits & Demerits) Advantages of MNCs from the Viewpoint
of Host Country: We propose to examine the advantages and limitations of MNCs from the viewpoint of
the host country. In fact, advantages of MNCs make for the case in favour of MNCs; while limitations of
MNCs become the case against MNCs.

(i) Employment Generation: MNCs create large scale employment opportunities in host countries. This
is a big advantage of MNCs for countries; where there is a lot of unemployment.

(ii) Automatic Inflow of Foreign Capital: MNCs bring in much needed capital for the rapid
development of developing countries. In fact, with the entry of MNCs, inflow of foreign capital is
automatic. As a result of the entry of MNCs, India e.g. has attracted foreign investment with several
million dollars.

(iii) Proper Use of Idle Resources: Because of their advanced technical knowledge, MNCs are in a
position to properly utilise idle physical and human resources of the host country. This results in an
increase in the National Income of the host country.

(iv) Improvement in Balance of Payment Position: MNCs help the host countries to increase their
exports. As such, they help the host country to improve upon its Balance of Payment position.

(vi) Technical Development: MNCs carry the advantages of technical development 10 host countries. In
fact, MNCs are a vehicle for transference of technical development from one country to another. Because
of MNCs poor host countries also begin to develop technically.

(vii) Managerial Development: MNCs employ latest management techniques. People employed by
MNCs do a lot of research in management. In a way, they help to professionalize management along
latest lines of management theory and practice. This leads to managerial development in host countries.
(viii) End of Local Monopolies: The entry of MNCs leads to competition in the host countries. Local
monopolies of host countries either start improving their products or reduce their prices. Thus MNCs put
an end to exploitative practices of local monopolists. As a matter of fact, MNCs compel domestic
companies to improve their efficiency and quality.

In India, many Indian companies acquired ISO-9000 quality certificates, due to fear of competition posed
by MNCs.

(ix) Improvement in Standard of Living: By providing super quality products and services, MNCs help
to improve the standard of living of people of host countries.

(x) Promotion of international brotherhood and culture: MNCs integrate economies of various
nations with the world economy. Through their international dealings, MNCs promote international
brotherhood and culture; and pave way for world peace and prosperity.
Limitations of MNCs from the Viewpoint of Host Country:

(i) Danger for Domestic Industries: MNCs, because of their vast economic power, pose a danger to
domestic industries; which are still in the process of development. Domestic industries cannot face
challenges posed by MNCs. Many domestic industries have to wind up, as a result of threat from MNCs.
Thus MNCs give a setback to the economic growth of host countries.

(ii) Repatriation of Profits: (Repatriation of profits means sending

profits to their country).

MNCs earn huge profits. Repatriation of profits by MNCs adversely affects the foreign exchange reserves
of the host country; which means that a large amount of foreign exchange goes out of the host country.

(iii) No Benefit to Poor People: MNCs produce only those things, which are used by the rich. Therefore,
poor people of host countries do not get, generally, any benefit, out of MNCs.

(iv) Danger to Independence: Initially MNCs help the Government of the host country, in a number of
ways; and then gradually start interfering in the political affairs of the host country. There is, then, an
implicit danger to the independence of the host country, in the long-run.

(v) Disregard of the National Interests of the Host Country: MNCs invest in most profitable sectors;
and disregard the national goals and priorities of the host country. They do not care for the development
of backward regions; and never care to solve chronic problems of the host country like unemployment
and poverty.

(vi) Misuse of Mighty Status: MNCs are powerful economic entities. They can afford to bear losses for
a long while, in the hope of earning huge profits-once they have ended local competition and achieved
monopoly. This may be the dirties strategy of MNCs to wipe off local competitors from the host country.

(vii) Careless Exploitation of Natural Resources: MNCs tend to use the natural resources of the host
country carelessly. They cause rapid depletion of some of the non-renewable natural resources of the host
country. In this way, MNCs cause a permanent damage to the economic development of the host country.

(viii) Selfish Promotion of Alien Culture:

MNCs tend to promote alien culture in host country to sell their products. They make people forget about
their own cultural heritage. In India, e.g. MNCs have created a taste for synthetic food, soft drinks etc.
This promotion of foreign culture by MNCs is injurious to the health of people also.

(ix) Exploitation of People, in a Systematic Manner: MNCs join hands with big business houses of
host country and emerge as powerful monopolies. This leads to concentration of economic power only in
a few hands. Gradually these monopolies make it their birth right to exploit poor people and enrich
themselves at the cost of the poor working class.