GLOBALIZATION - INTERNATIONAL BUSINESS

Notes 11 Pages

Bengaluru City University

Bachelor of Business Administration

Contributed by

Prajwal Hallale

FACULTY NAME: Mrs NALINI.N
COLLEGENAME: MES INSTITUTE OF MANAGEMENT
SUB:INTERNATIONAL BUSINESS

Unit - III

GLOBALIZATION

Globalization: Meaning - Features – Stages –Production –Investment and Technology,
Globalization – Advantages and Disadvantages – Methods and Essential Conditions for
Globalization.

Definition of Globalisation:
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.
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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
interrelated 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.
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 favoured 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.
COMPONENTS OF GLOBALIZARION
Globalisation is the trend toward a more integrated global economic system.
The components of globalisation are
 Globalisation of markets,
 Globalisation of production,
 Globalisation of investment and
 Globalisation of technology.

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GLOBALISATION OF MARKETS: Globalisation 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 enable the cultural shift towards the use of a common product or service.
A number of consumer products have global acceptance. For example, Coca-
Cola, Pepsi, McDonald’s burgers, Music of Madonna, MTV, Sony Walkmans, Levis
jeans, Indian masala dosa, Indian Hyderabadi biryani, Citicorp credit cards etc.
FEATURES OF GLOBALISATION OF MARKETS
Features of globalisation of markets include:
 The size of the company need not be too large to create a global market. Even small
companies can also create a global market.
 The distinctions of national markets are still prevailing even after the globalisation of
markets. These distinctions require the companies to formulate different strategies for
each market. For example, Coca-cola, Levis jeans and McDonald employ separate
strategies for each country.
 Most of the foreign markets are the markets for non-consumer goods like industrial
products, machinery, equipment, raw materials, computers, software, financial
products etc.
 The global business firms compete with each other frequently in different national
markets including their home markets. For example, Coca-cola is the global rival of
Pepsi. Similarly Ford and Toyota, Boeing and Airbus,
REASONS FOR GLOBALISATION OF MARKETS
Reasons for Globalisation of Markets
• Large-scale industrialisation enabled mass production. Consequently, the companies
• Companies in order to reduce the risk diversify the portfolio of countries.
• Companies globalise markets in order to increase their profits and achieve company
• The adverse business environment in the home country pushed the companies to globalise
their markets.
• To cater to the demand for their products in the foreign markets.
• The failure of the domestic companies in catering the needs of their customers pullet
the foreign countries to market their products.
GLOBALISATION OF PRODUCTION
Factors influencing the location of manufacturing facilities vary from country to country
They may be more favourable in foreign countries rather than in the home country, For
example, cheap labour in developing countries, availability of high quality and cheap raw
material in other countries, etc. enable the companies to produce the products of high quality
and low cost in various foreign countries.
Reasons for Globalisation of Production
Companies globalise the production facilities due to the following reasons:
• Imposition of restrictions on imports by the foreign countries forces the MNCS to establish
the manufacturing facilities in other countries. For example, Toyota of Japan established
plant in USA& UK due to import restrictions
• Availability of high quality raw materials and components in other countries.
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• Availability of inputs at low cost in foreign countries.
• Availability of skilled human resources at low cost.
• Liberal labour laws in the foreign countries.
• To reduce the 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 customers in foreign
countries.
GLOBALISATION OF INVESTMENT
Marry countries, before 1930s, created barriers relating to exports, imports and foreign
investment. The creation of General Agreement on Tariffs and Trade (GATT) reduced the
trade restrictions significantly, Further, the establishment of World Trade Organisation has
contributed for the elimination
Many countries reduced investment barriers, As many as 34 countries made &5 changes to
their laws reducing investment barriers in 1991 alone.
Government of India reduced the barriers on investment allowing more than 51% of foreign
investment in Indian companies.
Globalisation of investment refers to investment of capital by a global company in any part
of the world. Global company conducts the financial feasibility of the new projects in
different countries of the world and invests the capital in that country where it is relatively
more profitable.
Globalisation of investment is also known as Foreign Direct Investment.
Foreign Direct Investment (FDI) occurs when a firm invests directly in new facilities to
produce and/or market a product or service in a foreign country. Coca-Cola acquired a
number of bottling companies throughout India by investing the capital directly. It directly
invests the capital in a number of countries.
Reasons for Globalisation of Investment
The reasons for the increase in the global investment include:
• There has been a rapid increase in the volume of global trade.
• Many countries provided more congenial environment for attracting direct investment
For example, Government of India provided for automatic approval for FDI up to 5
of capital of a company. It extended this up to 100% for the cigarette industry.
• Significant amount of FDI is directed to the developing countries in Asia and Ea
Europe.
• Small and medium size companies have started investing in various countries.
• In addition to increase in the volume of FDI, its composition has also been changing
Initially FDI was directed mostly towards the USA. FDI, recently has been directed to
other countries like the UK, Japan, France, China etc.
• With the recent globalisation process, FDI has been directed even towards the developing
countries
• Limitations of exporting and licensing force the domestic companies to enter foreign
markets through FDI.
• Global companies in order to have the control over manufacturing and marketing activities,
invest in the foreign countries.
• Liberalising the measures of flow of foreign capital across the borders by various countries.
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For example, Indian Government allowed Foreign Institutional Investors (FIls) to invest
in Indian capital markets after registration with the SEBI.
• International firms go for FDI in order to avoid the restrictions imposed by the host
country on exports. For example, Toyota, a Japanese automobile company increased
its investment in the USA, the UK and other countries consequent upon the imposition
of restrictions on exports of automobiles by the host countries.
GLOBALISATION OF TECHNOLOGY
technological change is amazing and phenomenal after 1950s. In fact it is a revolution of tele
communication, information technology and transportation technology
Methods of Globalisation Technology
The methods of globalisation of technology include,
• Companies with latest technology acquire distinctive competencies and gain the advantage
of producing high quality products at low cost. With these advantages, these companies
enter the foreign markets and introduce their latest technology in foreign countries.
• Companies may have technological collaboration with the foreign companies through
which technology spreads from country to country.
• The foreign companies allow the companies of various other countries adopt their
technologies on royalty payment basis or on outright purchase basis.
• Companies also globalise the technology through the modes of joint ventures and mergers
Companies spread latest technology throughout the globe and technology itself makes the
global company possible and fasten the process of globalisation.
ESSENTIAL CONDITIONS FOR GLOBALISATION
Governments of various countries should provide the following conditions for smoothening
the process of globalisation.
• Liberalising the rules and regulation of control
• Removal of Quotas and Tariffs
• Providing freedom to the business and industry
• Providing infrastructure facilities
• Removal of bureaucratic hurdles
• Encouraging research and development
• Encouraging the competitiveness based on quality, price, delivery, customer service ee.
• Providing autonomy to the public sector to compete with private sector companies.
• Providing administrative and governmental support
• Developing money and capital markets.

GLOBALISATION AND INDIA
Most of the global economies have chosen to turn their economic systems towards the market
economy and global economy. These countries include Eastern European countries, Vietnam,
Peru, Mexico, Brazil, India, Eritrea, Ethiopia, Morocco, Chile, Spain, Cuba etc. India had
observedthese developments in the global economies and responded favourably to these
changes in 1991,
The context of huge fiscal deficits, crisis in the Balance of Payments situation, falling foreign
exchange reserves and conditions imposed by IMF led to the announcement of the New
EconomicPolicy by the Government of India in July 1991.
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New Economic Policy, 1991
The new economic policy resulted in radical change in the structure and direction of Indian
economy. The đirection tends towards the market economy and globalisation of the country.
Objectives of New Economic Policy
The objectives of liberalisation and globalisation of Indian economy are:
• to obtain higher economic growth rate
• to reduce the annual rate of inflation
• to relieve the critical balance of payments and rebuild foreign exchange reserves.
Government of India took drastic policy decisions in order to achieve these objectives.
Relaxing the restrictions on external sector. These measures include: international flow
of goods, services, technology and capital,ensures Towards Globalisation by Government of
India.
Government of India has taken the following measures in order to globalise the Indian
economy.
• Removing constraints and obstacles to the entry of MNCS into India by diluting and
finally scrapping of restrictive laws like Foreign Exchange and Regulation Act, 1973
(FERA). FERA is scrapped and in its place Foreign Exchange Management Act (FEMA),
is passed by deleting the clauses which restricted the entry of MNCS.
• Permitting Indian companies to collaborate with foreign companies in the form of joint
ventures.
• Establishment of joint ventures by Indian companies in various foreign countries.
• World Bank advocated import liberalisations. Consequently, the Government of India
reduced the import tariffs to 15%.
• Replacing licenses of imports with tariffs.
• Elimination of various import duties and reduction of other import duties drastically.
Lifting the quantitative restrictions on 715 goods with effect from 1st April 2001, in
order to enhance the efficiency, quantity, product design, delivery and thus reduce the
design, delivery and thus reduce the prices.
• Removal of export subsidies.
• Replacing licensing of exports with duties.
• Levy low, flat tax on export income.
• Reformulate Export Processing Zones (EPZS) and export oriented unity policy.
• Liberalise the inflow of Foreign Direct Investment.
• Allow the Foreign Institutional Investors to invest in Indian Capital Market.
• List of items for automatic approval of foreign equity is expanded.
• Indian Mutual Funds are allowed to invest in foreign companies.
. Offering incentives to MNCS and NRIS to invest in India.
• Indian companies are allowed to procure capital from foreign countries through "Global
Deposit Receipts.'
• Free the way of investment in foreign joint ventures.
• Devaluing the rupee by lifting exchange controls in a phased manner.
• Allowing the rupee to determine its own exchange rate in the international market without
official intervention
• Full convertibility of the Rupee on current account.
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• Acting cautiously regarding convertibility of Rupee on capital account in view of the Asian
crisis.
• Decanalise oil and agricultural trade.
• Counter anti-dumping measures.
• Resolve market access issues in services.
• Seek membership in trade blocks.

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 the specific needs of
each country, requiring a high level of sensitivity 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 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 best opportunities and lower
cost.
Advantages of Globalisation:
The following are some of the important advantages of globalisation for a developing country
like India:
(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
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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 Globalisation:
Globalization has its disadvantages also. 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.
Essential Conditions for Globalisation
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. Government support in the
form of capital, permission, subsidies, tax benefits, etc.,
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.
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Different forms of Globalization:
Economic globalization
Economic globalization is the integration with the world economy through removal of trade
barriers, privatization and liberalization. Worldwide transactions of product, service and
finance is the special trait of economic globalization. Development of transportation and
communication enhancing the economic globalization, and world trade organization,
multinational companies and international monetary fund are playing vital role in boost up of
the economic globalization.
Cultural globalization
Cultural globalization is worldwide assimilation of cultural value and norms through
communication, tourism and television network. Cooperation, peace, coexistence, cultural
exchange are its important aspects.

Political globalization
Political globalization is integration of world community in ideas, norms and values. It
provides the forum for idea exchange on, human rights, child labor etc. Environmental
globalization Environmental globalization is the world effort on protection of global ecology.
It is specially concerns on global warming, depletion of ozone layer, growing pollution,
flood, landslide, acid ran and loss of biodiversity.
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.

(Extra information)
Investment Globalization within the World-system
Investment globalization is defined, in principle, as the proportion of all invested capital in
the world that is owned by non-nationals (Chase-Dunn, 2000). The growth of investment
within the world economy is simply one facet of the modern world-system, part of the
triumvirate of trade, economic, and investment globalization, which combine to contribute
toward transnational economic integration. Thus, investment globalization is part of the
growing trend toward globalization in all sectors. This trend is due to the constant striving on
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the part of capitalists to accumulate more capital. As the economy goes through periods of
stagnation and/or decline (as it inevitably must), the incentive for exploitation becomes ever
stronger.
With every new period of economic decline, capitalists find new ways of intensifying
exploitation in order to retrieve their lost profits, leading to an overall increase in the amount
of exploitation. According to Immanuel Wallerstein, this increase has manifested itself in two
forms; "broadening," and of economic decline, capitalists find new ways of intensifying
exploitation in order to retrieve their lost profits, leading to an overall increase in the amount
of exploitation. According to Immanuel Wallerstein, this increase has manifested itself in two
forms; "broadening," and "deepening."
Broadening
Broadening refers to the encroachment of capitalist exploitative practices into new parts of
the world. The world-system as it first existed started out occupying only a portion of the
world’s geography. By use of broadening, it gradually expanded to encompass the entire
globe by the end of the nineteenth century. Broadening took place by means of incorporation,
a three-step process. Firstly, a sector of a peripheral economy emerged which produced goods
that were in demand elsewhere in the world-system. Secondly, workers in this peripheral
sector lost control over their labor power, which passed into the hands of those who
accumulated the surplus generated by the workers’ labor. Thirdly, this surplus ended up in the
possession of capitalists in core states. Political mechanisms such as colonization were used
to further incorporation.
Deepening
The second form of exploitation, deepening, refers to the increased application of capitalist
economic relationships to more facets of life within societies already in the world-system.
Five methods of this application can be identified (Hopkins, Wallerstein, et al., 1982:104-
106). The first, commodification, is the process of making more goods available to be bought,
sold, and owned as property. According to Wallerstein, the two most important forms of
commodification have been the commodification of land and labor because both increase the
economic factors of production available for capitalist exploitation. The second method of
deepening, mechanization, is the practice of using machinery to maximize worker output,
increasing the value of technological innovation. The third form of deepening,
contractualization, refers to the increasingly legalistic nature of economic and social
relations. The fourth form of deepening, interdependence, involves the growth of a highly
specialized division of labor, which must exchange goods, leading to less and less self-
sufficiency. The fifth form of deepening consists of the polarization of levels of wealth and
political organization between core and periphery states; as the world-system expands, more
and more core workers become full proletarians (whose wages are sufficient to reproduce
their labor), and, conversely, more peripheral workers become super-exploited semi-
proletarians. Wallerstein argues that this transition within the periphery has in fact resulted in
lower living standards than existed previously.
Economic Cycles
These exploitative processes of broadening and deepening have not developed at a constant
rate; instead they have followed the pattern of economic cycles. Most world-systems theorists
believe that the world economy has gone (and is still going) through times of growth
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