DELHI PUBLIC SCHOOL

Secunderabad
NACHARAM / MAHENDRA HILLS/ NADERGUL

Globalization
1) What is an MNC or Multinational company?
• An MNC is a company that owns or controls production in more than one country.
• MNCs set up their offices and factories for production in the regions where they can get
cheap labour and other resources.
2) Explain the way MNCs work with the help of example.
MNCs not only sell the goods globally but also produce the goods and services globally. The
production process is divided in to smaller parts and spread across the globe.
For example a Large MNC company of USA producing industrial equipment, designs the product
in the research Centre in USA and produces the product in China due to cheap manufacturing
cost and then it is shipped to Mexico and Eastern Europe for assembling the product and selling
the product in the market of USA and Europe.
3) Explain the factors responsible for the establishment of an MNC in one country.
• Availability of cheap raw material
• Availability of skilled and unskilled labour at low cost.
• Nearness to the market
• Favorable government policies
• Good infrastructure etc.
4) What are the different ways in which MNCs can make investment in other countries?
Or
How are MNCs controlling and spreading their production across the world? Explain.
(Optional)

There are four different ways the MNCs can make investment in a country.
a) By setting up their factories-By setting up their factories or production unit close to the
market where they can get desired type of skilled and unskilled labour at a low cost.
Example. Pepsi
b) Joint ownership – The most common way is to start a joint venture with a local company.
MNCs make investment in the local company and start the production jointly. For example.
Maruti and Suzuki, Air Asia, Vistara, Mahindra and Renault.
Benefits to the local company:
Company expands due to more investment
Technology improves and production increases.
c) Buying the local companies
Cargill foods an American MNC company has bought the small Indian company Parakh
foods. Parakh foods had built a large marketing network in India and a well reputed brand. It
had four oil refineries whose control now shifted to Cargill.
 d) Placing order with the small producers
Large MNC companies of the developed countries place the order with the small producers
around the word. The items like sports equipment, footwear, garments etc. are produced by
the small companies and then it is supplied to the MNCs and the MNCs sell these items
under their brand name to the costumers. MNCs have tremendous control over the distant
producers related to quality, price, delivery etc.
5) What is foreign investment?
The money that is spent by the foreign companies to buy assets like the land, building, machine
and other equipment is called foreign investment.
6) What are the basic functions of foreign trade?
• To create an opportunity for the producer to reach beyond the domestic markets
• To increase the sell by using the markets of other countries
• To increase the choices of goods in the market.
• Similar goods in two different market may have the same price
7) Explain the effects of foreign trade to the exporter, consumer and the domestic company by
giving example. (Optional)
Chinese manufactures start exporting toys to India to get more profit as the price is higher in
India. So it is beneficial for the Chinese toy maker as they will get profit.
It is beneficial for the buyers in India as they are getting more choice of the toys and at low
price .So the buyers will demand more Chinese toys in the place of Indian toys.
It’s a loss for the Indian toy manufacturer as the demand for their toys will decline in the
market.
8) Distinguish between foreign trade and foreign investment
Foreign Trade Foreign Investment
The process of buying and selling of goods It involves the capital flow from one country
and services between two or more countries to the other.
is called foreign trade.
Goods and services travel from one country There is the transfer of capital and
to the other technology from one country to the other.
It utilizes the market of other countries to It utilizes the resources and manpower of
enhance the sale of a product other countries to produce and sell a
product.
Employment opportunity is created in the Employment opportunity is created in the
country which is exporting country to which is importing the capital.
9) What do you mean by globalization?
Globalization means integrating the economies of the countries under the conditions of free
flow of trade, capital movement and movement of people across the border.
10) Explain the factors that have enabled globalization.
a) Technology
• Rapid improvement in technology has stimulated globalization
• Improvement in transport technology and packaging has made transport of goods
faster and cheaper
• Improvement in information and communication technology has made international
trade accessible. It has increased the number of business and has made the word a
global village.
b) Liberalization
• It means the removal of restrictions on the trade
• Import and export among the countries happening freely and easily due to
liberalization.
c) World trade organization – This is an international organization which is mainly created for
the purpose of free trade among the countries. It has helped in promoting globalization by
setting the rules and regulations for international trade.
d) SEZ ( special economic zones)- The government of different countries have created the
special economic zones with the objective of attracting foreign investment. These are the
areas having world class facilities, which attract the foreign companies to establish there.
Companies established in SEZ also enjoy a number of other benefits like they don’t have to
pay tax for the initial five years and government has also allowed the flexibility in the labour
law.

11. Explain how the information and communication technology stimulated the globalization
process.

• Transportation technology has made much faster the delivery of the goods across long
distance and at a lower cost.
• Containers are used for the transportation of goods which has reduced the port
handling cost and increased the speed with which the goods could be exported to the
market.
• Telecommunication facilities are used to contact one another around the world, to
access information instantly and communicate from remote areas.
• Telecommunication has made trading easy among the people of different countries.
Without physical movement people could do trading with the people of other countries.
With the help of internet one can share the information related anything.It also allows
sending email and talking across the whole country.
• Example. A news magazine published for London readers is to be designed and printed
in Delhi. The text of the magazine is sent to Delhi office with the help of internet. The
designer in Delhi office gets the guidance from London office related to the design with
the help of phone.The designing is done on a computer and after printing the magazines
are sent by air to London.

12. What do you mean by trade barrier? Why did Indian government impose the trade
barriers after independence?

Trade barrier is the restriction imposed by the government on the foreign trade. Government
can impose the trade barriers like import tax and import quotas to regulate the import of a
country.

Reasons for putting trade barriers after independence

• To protect the local producers and goods from foreign completion.

• During that time the industries were in the need of protection so that they can grow and
develop.
 • India only allowed the import of certain essential items like machinery, fertilizer,
petroleum etc.

13. What do you mean by liberalization? Why did the Indian government liberalize the economy in
1991?

Removal of the restrictions on the foreign trade and foreign investment is called liberalization.

India adopted liberalization in 1991 so that the goods could be exported and imported easily, foreign
companies could set up their factories and make investment in India.

Reasons to remove the trade barriers

• Indian producers will face the competition with the producers around the world.
• This completion will improve the performance of the companies and the quality of the products.
• This decision was accepted by the international organizations.

14. Explain the objectives behind the establishment of WTO.

• To liberalize the international trade

• To establish the rules and regulations related to international trade
• To see that the rules are obeyed by the member countries
• Free flow of trade between the member countries.

15. What do you mean by fair globalization? (Optional)

• It will create the opportunities for all and will ensure that the benefits of globalization will be
shared in a better way.

17. Globalization has been advantageous to consumers and producers in a number of ways. Support
the statement with examples. (Optional)

Or

Globalization and greater competition among the producers has been of advantage to the consumer
and producers. How?

Or

What are the advantages of globalization?

Advantageous for the consumers

• Better choice before the consumers and better quality.

• Low price of several products
• Increase in the standard of living of the consumers

Advantageous for the producers

• The producers now have access to the international market.

 • It will enable the free movement of capital which will create employment opportunity in the
country where the MNCs are making investment and it will also be responsible for the
prosperity of the local companies as they will supply the raw material to the MNCs.
• Top companies will be benefited due to globalization as they will make investment in new
technology and raise the standard of production to compete with MNCs.
• It may enable the large Indian companies to emerge as multinational companies like Tata
motors, Ranbaxy, Infosys etc.
• It will enable the access to foreign technology.

Advantages for the Economy

• Increase in the national income

• Creation of employment opportunity and increase in the standard of living of the people.

18. Describe the major problems created by globalization for a large number of small producers and
workers in India.

Or

What are the negative effects of globalization? (Optional)

• For a large number of small producers and workers globalization posed a major challenge.
Batteries, capacitors, plastics, toys, tyres etc are the examples of small manufacturers.
• They have been hit hard due to completion with MNC companies and product produced by
them. Several of the units have shut down rendering many workers jobless.
• Workers jobs are no longer secure due to the flexible labour law
• Many companies cut down the benefits given to the workers, reduced their salaries and treated
as temporary workers.
• They are made to do over time without any extra payment.

19. What are special economic zones? Why is government setting up SEZs?

• SEZs are the industrial areas having high class facilities like electricity, road, transport, storage,
education facility etc.
• Companies who set up production unit in SEZ do not have to pay the tax for the initial five years.
• Government has allowed the flexibility of the labour law.
• They are set up by the government with the objective of attracting foreign investment.

20. What are the two important instruments of globalization?

• Foreign trade and foreign investment

21. How did the flexibility of labour laws help the companies?

• Companies able to cut down the cost of production to maximize the profit. As cost of raw
material cannot be reduced they tried to reduce the labour cost.
• Where earlier factory used to employ the workers on permanent basis, now they employ
the workers on temporary basis so that they do not have to pay the workers for the whole
year and they do not have pay any service benefits.
 • Workers are put in long working hours and they are made to work night shifts on regular
basis during the peak season. Workers are denied their share of benefits brought about by
globalization.

22. Explain the role of MNCs in the globalization process.

• MNCs control production in more than one country.

• They not only bring their products to a country but also the new business policies and
culture.
• Their working leads to the exchange of investment and products which will lead to the
interconnection between diverse countries.
• Countries get linked when movement of goods, people, investment , technology and
services between different countries take place.

Note. The questions having the remark as optional, will not be asked in the exam. But the understanding
of these concepts is necessary to understand the concepts which are there in the syllabus for testing.