Unit III: Global Environment

Business Environment
BBA LLB
Global Environment
Globalization: Definition, Meaning & Indicators of Globalization

Foreign Investment Flows: Concepts of FDI, FPI & Role of Foreign Investments

Introduction of GATT, Origin & Objectives of WTO, Impact of WTO on Indian

Economy.

MNCs: Meaning of MNC & TNC, Benefits and Problems from MNCs

EXIM Policy (Latest)

Need for Trade
Globalization Definition
The IMF defines globalizations as “the growing
economic interdependence of countries worldwide
through increasing volume and 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.”
Globalization-Meaning
Globalization
Globalization of Economy
Globalisation Indicators

Global Busines
s
FDI FPI Trade Gover Restruc
nance turing
Globalization Drivers

International trade (lower trade barriers and more competition)

Financial flows (foreign direct investment, technology

transfers/licensing, portfolio investment, and debt
))

Communications (traditional media and the Internet) )

Technological advances in transportation, electronics,

bioengineering and related fields

Population mobility, especially of labor

Foreign Investments

FDI FPI
●
Short Term
●
Long Term
gains
●
Factors ●
Factors
FIIs investing in India
Hedge Funds
Foreign Mutual Funds
Sovereign Wealth Funds
Pension Funds
Trusts
Asset management Companies
Endowments, University Funds, etc.
Foreign Investment- Significance

Socio- ●
Helps economic growth
economic ●
Helps increase a country’s
exports and reduce import.
developm ●
Increases jobs and wages.
ent of a ●
Consumer get cheaper goods.
●
Lot of indirect gains.
nation.
Foreign Investment- Significance India

Socio- ●
Sustain high investment Level
economic ●
Bridge Technology Gap
●
Exploit Natural Resources.
developm ●
Undertake Risk.
ent of a ●
Develop Basic Infrastructure.
●
Bridge Foreign Exchange Gap.
nation.
Limitations and Dangers of Foreign Capital
 The following criticisms are levelled against foreign
capital:
1. Mostly FI is in high profit areas and not in priority
areas.
2. Unfavourable effect on balance of payment.
3. Sometimes interfere with national politics.
4. Danger of creation of monopolies or oligopolistic
structures.
Merits of MNCs
 MNCs, it is claimed, help the host countries in the following
ways :
1. MNCs help increase the investment level
2. The transnational corporations have become vehicles for the
transfer technology
3. The MNCs enable the host countries to increase their exports
and decrease their import requirements.
4. They work to equalise the cost of factors of production around
the world.
5. MNCs provide an efficient means of integrating national
economies.
6. They make a commendable contribution to inventions and
innovations.
7. MNCs help increase competition and break domestic
monopolies.
Demerits of MNCs
1. The MNC’s technology is designed for world-wide profit
maximisation, not the development needs of poor countries
2. MNCs may destroy competition and acquire monopoly
powers.
3. The tremendous power of the global corporations poses the
risk that they may threaten the sovereignty of the nations in
which they do business.
4. MNCs retard growth of employment in the home country.
5. The transfer pricing enables MNCs to avoid taxes by
manipulating prices on intra-company transactions.
6. The MNCs have been criticized for their business strategies
and practices in the host countries.
Trade Barriers/Protectionism
Tariff
Non Tariff
Global Trade
Introduction of GATT,

Origin & Objectives of WTO,

Impact of WTO on Indian Economy.

GATT Introduction
The General Agreement on Tariffs and Trade (GATT),
the predecessor of WTO, was born in 1948 as result of
the international desire to liberalise trade.
The GATT was transformed into a World Trade
Organisation (WTO) with effect from January, 1995.
India is one of the founder members of the IMF,
World Bank, GATT and the WTO.
GATT Objectives

1. Raising standard of living.

2. Ensuring full employment and a large and steadily
growing volume of real income and effective
demand.
3. Developing full use of the resources of the world.
4. Expansion of production and international trade.
GATT Principles
Non-discrimination

Prohibition of Quantitative Restrictions

Consultation
GATT and WTO
Following the UR Agreement, GATT was
converted from a provisional agreement into a
formal international organisation called World
Trade Organisation (WTO) with effect from
January 1, 1995.
WTO principles and agreements are a very
important component of the global business
environment significantly impacting domestic as
well as global business.
WTO -Objectives
Set and enforce rules for international trade,
Provide a forum for negotiating and monitoring further
trade liberalization,
Resolve trade disputes,
Increase the transparency of decision-making processes,
Cooperate with other major international economic
institutions involved in global economic management,
and
Help developing countries benefit fully from the global
trading system.
The WTO
Impact
Thank You