GLOBALISATION: CONCEPTS, PROBLEMS AND CHALLENGES

Yash BhagatD.E.I

Contents INTRODUCTION CHALLENGES PROBLEMS PROSPECTS CONCLUSION

Discuss globalization trends of Indian Business organizations and obstacles to become global for Indian businesses.

Analyze the factors which are helping India in Globalization and what is the strategy adopted by Indian Industry in globalizing itself .

What are the challenges of Global Business that one faces when becoming global player? Give example of Indian company that you have read about.

INTRODUCTION

The interweaving of markets, technology,

information systems and telecommunications systems

in a way that is shrinking the world from a size

medium to a size small, and enabling each of us to

reach around the world farther, faster, deeper, and cheaper than ever before, and enabling the world to

reach into each of us farther, faster, deeper,

cheaper than ever before

Globalisation Definition:

An economic phenomenon? A social phenomenon? A cultural phenomenon? Political phenomenon?

The movement towards the expansion of economic and social ties between countries through the spread of corporate institutions and the capitalist philosophy that leads to the shrinking of the world in economic terms.

Globalisation

Globalisation could involve all these things!

Integration of Economies The increasing reliance of

economies on each other The opportunities to be able to

buy and sell in any country in the world

The opportunities for labour and capital to locate anywhere in the world

The growth of global markets in finance

                               

                                                                                                                  

Stock Markets are now accessible from anywhere in the world!

Copyright: edrod, stock.xchng

Integration of Economies Made possible by:

Technology Communication networks Internet access Growth of economic cooperation – trading blocs

(EU, NAFTA, etc.) Collapse of ‘communism’ Movement to free trade

Trade versus Aid? Benefits of Trade:

Increased choice Greater potential for

growth Increase international

economies of scale Greater employment

opportunities

Trade has led to massive increases in wealth for many countries.

Copyright: budgetstock, stock.xchng

Trade versus Aid? Disadvantages

of trade: Increase in gap between the

rich and the poor Dominance of global trade

by the rich, northern hemisphere countries

Lack of opportunities for the poor to be able to have access to markets

Exploitation of workers and growers How far does trade help children like these?

Copyright: clesio, stock.xchng

Corporate Expansion Multi-national

or trans-national corporations (MNCs or TNCs) – businesses with a headquarters in one country but with business operations in a number of others.

No matter where you go in the world, certain businesses will always have a presence.

Copyright: mkeky, stock.xchng

Corporate Expansion Characteristics:

Expanding revenue Lowering costs Sourcing raw materials Controlling key supplies Control of processing Global economies

of scale

                                                                                                                                                  

Controlling supplies may be one reason for global expansion.Copyright: rsvstks, stock.xchng

Corporate Domination Key Issues:

Damage to the environment?

Exploitation of labour? Monopoly power Economic degradation Non-renewable resources Damage to cultures

Shell and Nike’s activities have come under severe criticism in some quarters.Copyright: Homsel, stock.xchng

Other Issues: Accountability

of Global businesses? Increased gap between rich

and poor fuels potential terrorist reaction

Ethical responsibility of business?

Efforts to remove trade barriers

There are plenty of people who believe that globalisation is a negative development, protests at the G8 summits, pollution, poverty and concern over GM crops are just some of the issues.

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Obstacles to Globalization: issues Government Policy and Procedures:

Government policy and procedures in India are among the most complex, confusing and cumbersome in the world. Even after the much publicised liberalisation, they do not present a very conducive situation. One prerequisite for success in globalisation is swift and efficient action. Government policy and the bureaucratic culture in India in this respect are not that encouraging.

High Cost: High cost of many vital inputs and other factors like raw materials and

intermediates, power, finance infrastructural facilities like port etc., tend to reduce the international competitiveness of the Indian business.

Background: GLOBALISATION OF INDIAN BUSINESS

India's economic integration with the rest of the world was very limited because of the restrictive economic policies followed until 1991.

Indian firms confined themselves, by and large, to the home market. Foreign investment by Indian firms was very insignificant.

Globalization has in fact become a buzz-word with Indian firms now, and many are expanding their overseas business by different strategies.

 This Chapter takes a look at the hurdles to and prospects for globalization of Indian business and the different globalization strategies.

Issues Poor Infrastructure .

India is generally inadequate and inefficient and therefore very costly. This is a serious problem affecting the growth as well as competitiveness.

Obsolescence: The technology employed, mode and style of operations etc., are, in general,

obsolete and these seriously, affect the competitiveness. Resistance to Change:

There are several socio-political factors which resist change and this comes in the way of modernisation, rationalisation and efficiency improvement. Technological modernisation is resisted due to fear of unemployment. The extent of excess labour employed by the Indian industry is alarming. Because of this labour productivity is very low and this in some cases more than offsets the advantages of cheap labour.

Issues Poor Quality Image:

Due to various reasons, the quality of many Indian products is poor. Even when the quality is good, the poor quality image India has becomes a handicap.

Supply Problems: Due to various reasons like low production capacity, shortages of raw materials

and infrastructures like power and port facilities, Indian companies in many instances are not able to accept large orders or to keep up delivery schedules.

Small Size: Because of the small size and the low level of resources, in many cases Indian

firms are not able to compete with the giants of other countries. Even the largest of the Indian companies are small compared to the multinational giants.

Lack of Experience: The general lack of experience in managing international business is another

important problem.

Issues Limited R & D and Marketing Research: .

R & D in other areas are vital inputs for development of international business. However, these are poor in Indian business

Expenditure on R & D in India is less than one per cent of the GNP while it is two to three percent in most of the developed countries. In 1994-95, India's per capita R&D expenditure was less than $3 when it was between S100 and $825 for most of the developed nations.

Growing Competition: The competition is growing not only from the firms in the developed" countries

but also from the developing country firms. Indeed, the growing competition from the developing country firms is a serious challenge to India's international business.

Trade Barriers: Although the tariff barriers to trade have been progressively reduced thanks lo

the GATT/WTO, the non-tariff barriers have been increasing, particularly in the developed countries. Further, the trading "blocs like the NAFTA, EC etc., could also adversely affect India's business

Corruption : It is eating country at all levels right from small babu in government to Top

Political Leaders as seen recently in scams to the magnitude never imagined before .

Factors favoring globalization Human Resources:

India has one of the largest pool of scientific and technical manpower. The number of management graduates is also surging. It is widely recognised that given the right environment, Indian scientists and technical personnel can do excellently.

While several countries are facing labour shortage and may face diminishing labour supply , India presents the opposite picture. Cheap labour has particular attraction for several industries. Labour problems are on decline

Wide Base: India has a very broad resource and industrial base which can support a variety

of businesses. Growing Entrepreneurship:

Many of the established industries are planning to go international in a big way. Added to this is the considerable growth of new and dynamic entrepreneurs who could make a significant contribution to the globalisation of Indian business.

Positives Growing Domestic Market:

The growing domestic market enables the Indian companies to consolidate their position and to gain more strength to make foray into the foreign market or to expand their foreign business.

Niche Markets: There are many marketing opportunities abroad present in the form of

market niches. Such niches are particularly attractive for small companies. Several Indian companies have become very successful by niche marking.

Expanding Markets: The growing population and disposable income and the resultant

expanding internal market provides enormous business opportunities.

Positives Trans nationalisation of World Economy:

Tran nationalisation of the world economy, i.e., the integration of the national economies into a single world economy as evinced by the growing interdependence and globalisation of markets is an external factor encouraging globalisation of India business.

NRIs: The large number of non-resident Indians who are resourceful - in

terms of capital, skill, experience, exposure, ideas etc., is an asset which can contribute to the globalisation of Indian business.

Positives Economic Liberalisation:

The economic liberalisation in India is an encouraging factor of globalisation. The delicensing of industries, removal of restrictions on growth, opening up of industries earlier reserved for the public sector, import liberalisations, liberalisation of policy towards foreign capital and technology etc., could encourage globalisation of Indian business. Further, liberalisation in other countries increases the foreign business opportunities for Indian business.

Competition: The growing competition, both from within the country and

abroad, provokes many Indian companies to look, to foreign markets seriously to improve their competitive position and to increase the business. Sometimes companies enter foreign market as a counter - competitive strategy, i.e., m fight the foreign company in its own home market to weaken its competitive strength

Benefits of Globalization Problems of GlobalizationEconomies of countries that engage well with the international economy have consistently grown much faster than those countries that try to protect themselves. Well managed open economies have grown at rates that are on average 2 ½ percentage points higher than the rate of growth in economies closed to the forces of globalization.

There are social and economic costs t o globalization. Trade liberalization rewards competitive industries and penalizes uncompetitive ones, and it requires participating countries to undertake economic restructuring and reform. While this will bring benefits in the long term, there are dislocation costs to grapple with in the immediate term, and the social costs for those affected are high.

Countries which have had faster economic growth have then been able to improve living standards and reduce poverty. India has cut its poverty rate in half in the past two decades. China has reduced the number of rural poor from 250 million in 1978 to 34 million in 1999. Cheaper imports also make a wider range of products accessible to more people and, through competition, can help promote efficiency and productivity.

Some countries have been unable to take advantage of globalization and their standards of living are dropping further behind the richest countries. The gap in incomes between the 20% of the richest and the poorest countries has grown from 30 to 1 in 1960 to 82 to 1 in 1995.

Improved wealth through the economic gains of globlisation has led to improved access to health care and clean water which has increased life expectancy. More than 85 percent of the world's population can expect to live for at least sixty years (that's twice as long as the average life expectancy 100 years ago!)

Increased trade and travel havefacilitated the spread of human, animal and plant diseases, like HIV/AIDS, SARS and bird flu, across borders. The AIDS crisis has reduced life expectancy in some parts of Africa to less than 33 years and delays in addressing the problems, caused by economic pressures, have exacerbated the situation.Globalisation has also enabled theintroduction of cigarettes and tobaccoto developing countries, with major adverse health and financial costsassociated with that.

Increased global income and reduced investment barriers have led to an increase in foreign direct investment which has accelerated growth in many countries. In 1975, total foreign direct investment amounted to US$23 billion while in 2003 it totalled US$575 billion.

The increasing interdependence of countries in a globalised world makes them more vulnerable to economic problems like the Asian financial crisis of the late 1990's. 

Improved environmental awareness and accountability has contributed to positive environmental outcomes by encouraging the use of more efficient, less-polluting technologies and facilitating economies' imports of renewable substitutes for use in place of scarce domestic natural resources.

The environment has been harmed as agricultural, forest, mining and fishing industries exploit inadequate environmental codes and corrupt behaviour in developing countries. Agricultural seed companies are destroying the biodiversity of the planet, and depriving subsistence farmers of their livelihood.

Increasing interdependence and global institutions like WTO and World Bank, that manage the settlement of government-to-government disputes, have enabled international political and economic tensions to be resolved on a "rules based" approach, rather than which country has the greatest economic or political power. Importantly it hasbolstered peace as countries are unlikely to enter conflict with trading partners and poverty reduction helps reduce the breeding ground for terrorism.

The major economic powers have a major influence in the institutions of globalisation, like the WTO, and this can work against the interests of the developing world. The level of agricultural protection by rich countries has also been estimated to be around five times what they provide in aid to poor countries

The voluntary adoption by global companies of workplace standards for their internationalised production facilities in developing countries has made an important contribution to respect for international labour standards. Wages paid by multinationals in middle- and low-income countries are on average 1.8 to 2.0 times the average wages in those countries.

Globalised competition can force a 'race to the bottom' in wage rates and labour standards. It can also foster a 'brain drain' of skilled workers, where highly educated and qualified professionals, such as doctors, engineers and IT specialists, migrate to developed countries to benefit from the higher wages and greater career and lifestyle prospects. This creates severe skilled labour shortages in developing countries. 

International migration has led to greater recognition of diversity and respect for cultural identities which is improving democracy and access to human rights.

Indigenous and national culture and languages can be eroded by the modern globalised culture.

Improved technology has dramatically reduced costs and prices changing the way the world communicates, learns, does business and treats illnesses. Between 1990 and 1999, adult illiteracy rates in developing countries fell from 35 per cent to 29 per cent.

Trade liberalisation and technological improvements change the economy of a country, destroying traditional agricultural communities and allowing cheap imports of manufactured goods. This can lead to unemployment if not carefully managed, as work in the traditional sectors of the economy becomes scarce and people may not have the appropriate skills for the jobs which may be created.

Modern communications and the global spread of information have contributed to the toppling of undemocratic regimes and a growth in liberal democracies around the world. 

Modern communications have spread an awareness of the differences between countries, and increased the demand for migration to richer countries. Richer countries have tightened the barriers against migrant workers, xenophobic fears have increased and people smugglers have exploited vulnerable people.

CONCLUSION The impact of globalization on Indian economy is a

critical fusion of rewards and costs certain economic indicators like GDP growth, Foreign

direct investment,, Forex reserves etc had a positive face but indicators like Unemployment, Poverty, education, Health, social issues were not so up to the mark.

In such situation of projections and expectations, the role of Indian policy makers is certainly very crucial.

They have to adopt such policies and execute such programmes, which can optimize the positive effect and minimize the evil effects of this most talked about phenomenon called Globalization

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