Globalisation

Made By:

Vaibhav Gupta 100

Shagun Toora 81

DEFINATION

Globalization means the dismantling of trade barriers between nations and the integration of the nations economies through financial flow, trade in goods and services, and corporate investments between nations. 

Globalization is the increasing interdependence, integration & interaction among people and corporation in various locations around the world.

A typical - but restrictive - definition can be taken from the International Monetary Fund which stresses the growing economic interdependence of countries worldwide through increasing volume and variety of cross-border transactions in goods and services, free international capital flows, and more rapid and widespread diffusion of technology.

Globalisation could involve all these things!

THREAT OR OPPORTUNITY

Globalization can be a force for good. It has the potential to generate wealth and improve living standards. But it isn't doing that well at the moment.

The benefits from increased trade, investment, and technological innovation are not fairly distributed.

The experience of the international trade union movement suggests that the reality for the majority of the world's population is that things are getting worse.

Globalization as we know it is increasing the gap between rich and poor. This is because the policies that drive the globalization process are largely focused on the needs of business.

Reasons For Globalization

Firm operate internationally for a number of reasons: They may be seeking to secure better sources of raw materials & energy. They may want to obtain access to low cost factors of production such as

labour. They may be attracted to certain countries because of subsidies those

countries provide. They may be seeking new markets for their products. Domestic markets may no longer be able to absorb production at minimum

efficient scale.

They may be motivated by life style factors.Domestic markets become saturated .As they mature , firms look abroad for new opportunities.

They may be seeking opportunities for economies of scope & for learning

So why go ‘GLOBAL’?

Competition within your national market is becoming too intense so you decide to push sales in overseas markets.

Your products within your national markets are reaching the end of the lifecycle so you wish to push it into national markets.

Sales and profit are generally declining in national markets.

You wish to become a global player.

Forces Of Globalisation

Political factors

Consider: The political stability of the nation. Is it a democracy,

communist, or dictatorial regime? Monetary regulations. Will the seller be paid in a currency that

they value or will payments only be accepted in the host nation currency?

Economical Factors

Consider:

Consumer wealth and expenditure within the country.

National interests and inflation rate.

Are quotas imposed on your product.

Are there import tariffs imposed.

Does the government offer subsidies to national players that make it difficult for you to compete?

Social Factors Consider Language. Will language be a barrier to communication for you?

Does your host nation speak your national language? What is the meaning of your brand name in your host country’s language?

Customs: what customs do you have to be aware of within the country? This is important. You need to make sure you do not offend while communicating your message.

Social factors: What are the role of women and family within society?

Religion: How does religion affect behaviour? Values: what are the values and attitudes of individuals within the

market?

Technological Factors

Consider:

The technological infrastructure of the market.

Do all homes have access to energy (electricity)

Is there an Internet infrastructure. Does this infrastructure support broadband or dial up?

Will your systems easily integrate with your host country’s?

Market entry methods

After assessing the environment in your selected country, how do you decide which are the best countries to enter? Following factors to be considered before entering-

Speed – How quickly do you wish to enter your selected market?

Costs- What is the cost of entering that market?

Flexibility – How easy is it to enter/leave your chosen market?

Risk Factor – What is the political risk of entering the market? What are the competitive risk? How competitive is the market?

Payback period – When do you wish to obtain a return from entering the market? Are there pressures to break even and return a profit within a certain period?

Long- term objectives- What does the organization wish to achieve in the long term by operating in the foreign market? Will they establish a presence in that market and then move onto others?

Trading Overseas

There are a number ways an organization can start to sell their products in international markets.

1. Direct export.

The organization produces their product in their home market and then sells them to customers overseas.

2. Indirect export

The organizations sell their product to a third party who then sells it on within the foreign market.

3. Licensing Another less risky market entry method is licensing. Here the

Licensor will grant an organization in the foreign market a license to produce the product, use the brand name etc in return that they will receive a royalty payment.

4. Franchising Franchising is another form of licensing. Here the organization puts

together a package of the ‘successful’ ingredients that made them a success in their home market and then franchise this package to oversea investors. The Franchise holder may help out by providing training and marketing the services or product. McDonalds is a popular example of a Franchising option for expanding in international markets.

5.Contracting Another of form on market entry in an overseas market which

involves the exchange of ideas is contracting. The manufacturer of the product will contract out the production of the product to another organization to produce the product on their behalf. Clearly contracting out saves the organization exporting to the foreign market.

6.Manufacturing abroad The ultimate decision to sell abroad is the decision to establish

a manufacturing plant in the host country. The government of the host country may give the organization some form of tax advantage because they wish to attract inward investment to help create employment for their economy.

7.Joint Venture

To share the risk of market entry into a foreign market, two organizations may come together to form a company to operate in the host country. The two companies may share knowledge and expertise to assist them in the development of company; of course profits will have to be shared out also

Factors Influencing Globalisation

Communications: Cable TV, personal computers, telephony and the Internet have

created a global village, tying the world closer together. Businesses in the western world can have a call centre in India

answering calls from western customers. Transport

has become cheap and quick. People, especially in the western civilization, travel all over the

worldPeople from other countries can travel to the west to seek better-

paid jobs. Businesses can more easily ship products and raw materials all over

the world - making products and services from all over the globe available to customers.

Trade liberalisation: Governments around the world have relaxed laws restricting trade and foreign

investment Countries in the developing world have opened up their countries to western

businesses and investment Some governments offer grants and tax incentives to persuade foreign companies

to invest in their country. The idea is that there should be no restrictions on trade between countries is

known as free trade or free market capitalism. Free trade involves a minimum of government intervention to regulate trade such

as taxes on imported goods and services, quotas on imported goods and services, and subsidies

Protectionist trade policies involve government intervention in the market by regulating prices on goods and services and supply restrictions. Such government interventions generally increase the cost of goods and services to both consumers and producers. Interventions include subsidies, taxes on goods and services, and other laws regulating the economic market and investments by for example by domestic and foreign companies

Impacts of Globalisation

Impacts of globalisation

Positive Negative

Positive Impacts of Globalisation

Improved standard of living: Investment by MNCs helps countries by providing new jobs

and skills for local people.

More wealth to local economies: MNCs bring wealth / foreign currency to local economies

when they buy local resources, products and services - providing resources for education, health and infrastructure

Cultural exchange and contact: There is far more mixing of people and cultures from all over the world,

enabling more sharing of ideas, experiences, and lifestyles. People can experience foods and other products not previously

available in their countries. In this way globalization may diminish cultural barriers between

people, and make people more open-minded to other cultures and knowledgeable.

Greater awareness: Globalisation can help make people aware of events in far-away parts

of the world. For example, people in Norway were quickly aware of the impact of the

2004 Tsunami tidal wave on countries in South East Asia, and were therefore able to send help rapidly

Global cooperation/aid: It may help make people more aware of global issues such

as Global warmingPovertyHuman traffickingTerrorism, etc. and alert them to the need for sustainable

development

Negative Impacts of Globalisation

However not all people think that globalisation is such a great idea. Critics include many different groups such as

environmentalists, anti-poverty campaigners and trade-unionists.

Some of the negative impacts they point to are: Exploitation of developing countries: Globalisation operates

mostly in the interests of the richest countries which continue to dominate world trade, and at the expense of developing countries - whose role in the world market is mostly to provide the North and West with cheap labour and raw materials.

Unemployment and ousting of local businesses: There are no guarantees that the wealth from inward investment will benefit the local community. Often, profits are sent back to the MEDC where the MNC is based. Multinational companies, with their massive economies of scale, may drive local companies out of business. If it becomes cheaper to operate in another country the MNC might close down the factory and make local people redundant.

Violation of international laws: Lack of strictly enforced international laws means that MNCs may operate in a way that would not be allowed in an MEDC - for example polluting the environment, running risks with safety or imposing poor working conditions and low wages on local workers.

A threat to cultural diversity: Globalisation is viewed by many as a threat to the world's cultural diversity - drowning out local economies, traditions and languages and re-casting the whole world in the mould of the capitalist North and West. An example is that a Hollywood film is far more likely to be successful worldwide than one made in India or China, which also have thriving film industries.

Components of Globalisation

Globalization of Market

Globalization of Production

Globalization of Investment

Globalization of Technology

Globalization of Market

Globalization 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 enables the cultural shift towards the use of common product or service.

Features of Globalisation of Markets

The size of the company need not to be large to create a global market. Even small companies can create a global market .

The distinction of global market are still prevailing even after the globalization of market. These distinction require the companies to formulate different strategies for each market.

Most of the foreign markets are the markets for non consumer goods like machinery, equipments, raw material, software etc.

The global business firms compete with each other frequently in different national markets including their home markets.

Reasons for Globalisation of Markets

Large scale industrialization enabled mass production.

Company in order to reduce the risk diversify the portfolio of countries.

To cater to the demand for their product in foreign market.

Companies globalize markets in order to increase their profits and achieve company goals.

Globalisation of Production

Factors influencing the location of manufacturing facilities vary from country to country. They may be more favorable in foreign countries rather than in home country.

Reasons for globalization of production

Imposition of restrictions on imports by the foreign countries forces the MNC’s to establish manufacturing facilities in other countries.

Availability of high quality raw materials.

Availability of inputs at low cost in foreign countries.

To reduce the cost of transportation and easy logistic management.

Globalization of investment

Globalization 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 invest the capital in that country where it is relatively more profitable

Globalization of investment is also known as Foreign direct investment.

Reasons of Globalization of investment

There has been a rapid increase in globalization of trade.

Many countries provided more congenial environment for attracting direct investment.

Limitations of exporting and licensing force the domestic companies to enter foreign markets through FDI.

Liberalizing the measures of flow of foreign capital across the borders of various countries.

Global companies in order to have the control over manufacturing and marketing activities , invest in the foreign country.

Globalization of Technology

Methods of Globalization technology

Companies with the latest technology acquire distinctive competencies and gain the advantages of producing high quality products at low cost.

Companies may have technological collaboration with the foreign companies through technology which spreads from country to country.

The foreign companies allow the companies of various other countries adopt their technology on royalty payment basis or on outright purchase basis.

Company also globalize the technology through the modes of joint ventures and mergers.

How technology fastens the process of globalization?

Microprocessors and telecommunication

The Internet and world wide web

On-line globalization

Transportation technology

Drivers of Globalisation

The drivers of globalisation can be classified into

Market drivers

Cost drivers

Government drivers

Competitive drivers

Other drivers

Market Drivers

Per capita income converging among industrialised nations

Convergence of lifestyles and tastes

Organisations beginning to behave as global consumers

Increasing travel create global consumers

Growth of global and regional channels

Establishment of world brands

Push to develop global advertising

 Cost Drivers

Continuing push for economies of scale

Accelerating technological innovation

Advances in transportation

Emergence of newly industrialized countries with productive capability and low labor costs

Increasing cost of product development relative to market life

 Government Drivers

Reduction of tariff barriers

Reduction of non-tariff barriers

Creation of blocs

Decline in role of governments as producers and consumers

Privatization in previously state-dominated economies

Shift to open market economies from closed communist systems in eastern Europe

Increasing participation of China and India in the global economy

 Competitive Drivers

Continuing increases in the level of world trade

Increased ownership of corporations by foreign acquirers

Rise of new competitors intent upon becoming global competitors

Growth of global networks making countries interdependent in particular industries

More companies becoming globally centered rather than nationally centered

Increased formation of global strategic alliances

Challenges of Globalisation

Globalization poses four major challenges that will have to be addressed by governments, civil society, and other policy actors.

One is to ensure that the benefits of globalization extend to all countries. That will certainly not happen automatically.

The second is to deal with the fear that globalization leads to instability, which is particularly marked in the developing world.

The third challenge is to address the very real fear in the industrial world that increased global competition will lead inexorably to a race to the bottom in wages, labor rights, employment practices, and the environment.

And finally, globalization and all of the complicated problems related to it must not be used as excuses to avoid searching for new ways to cooperate in the overall interest of countries and people.

Advantages of Globalisation

Resources of different countries are used for producing goods and services they are able to do most efficiently.

Consumers to get much wider variety of products to choose from.

Consumers get the product they want at more competitive prices.

Companies are able to procure input goods and services required at most competitive prices.

Companies get access to much wider markets

It promotes understanding and goodwill among different countries.

Businesses and investors get much wider opportunities for investment.

Adverse impact of fluctuations in agricultural productions in one area can be reduced by pooling of production of different areas.

Reduces international poverty

Contributes to the spread of technology

Adds to the profitability of companies and corporations.

Globalisation helps in bringing whole world as one village. Every consumer have free and frequent reach to the products of foreign countries. 

Optimum use of natural resources possible.

Helpful in cost reduction by eliminating cross border duties and fees

Helpful in employment generation and income generation

Disadvantages of Globalisation

Developed countries can stifle development of undeveloped and under-developed countries.

Economic depression in one country can trigger adverse reaction across the globe.

It can increase spread of communicable diseases.

Companies face much greater competition. This can put smaller companies, at a disadvantage as they do not have resources to compete at global scale.

Globalisation is direct attack on local tiny and small industry.

Global companies with hi-fi infrastructure almost ruins the local traditional small and medium industries

Increases cut throat competition.

Globalisation increases monopoly by countries equiped with know-how and power.

It increases the gap between the poor and rich.-income inequalities-poverty trap-

Cultural convergence-more people are moving towards the western fashion

Environmental harrm-resourses are used up-scarcity-creates externalities-pollution-waste products.

Demand more of skilled workers and causing redundancy of skilled workers. Increased flow of skilled and non-skilled jobs from developed to developing nations as corporations seek out the cheapest labor

Increased likelihood of economic disruptions in one nation effecting all nations

Corporate influence of nation-states far exceeds that of civil society organizations and average individuals

Threat that control of world media by a handful of corporations will limit cultural expression

Greater chance of reactions for globalization being violent in an attempt to preserve cultural heritage

Greater risk of diseases being transported unintentionally between nations

Spread of a materialistic lifestyle and attitude that sees consumption as the path to prosperity

International bodies like the World Trade Organization infringe on national and individual sovereignty

Increase in the chances of civil war within developing countries and open war between developing countries as they vie for resources

Types of International organisations

Multinational corporation

Transnational corporation

Global company

Multinational corporation

In a multinational corporation or an international company Products and technologies are developed for the home market, extended to other countries with similar market characteristics, then diffused elsewhere, and the developmental sequence is decided on the basis of managing the product lifecycle as efficiently and flexibility as possible

Transnational Corporation

The TRANSNATIONAL company evolved in the 1980s in response to environmental forces and simultaneous demands for global efficiency, national responsiveness, and worldwide learning. The transnational model combines features of multinational, global, and international models. A product is designed to be globally competitive, and is differentiated and adapted by local subsidiaries to meet local market demands.

Global Company

The  GLOBAL company, centralizes key functions – including marketing and finance. Headquarters produces the new technology and disseminates it to subsidiaries. Cost advantages are achieved through economies of scale and global-scale operations. The need for efficiency and economies of scale means that products are developed that exploit needs felt across the range of countries. Specific local needs tend to be ignored.

MNC vs TNC

Transnational corporations are a type of multinational corporations.

MNC have an international identity as belonging to a particular home country where they are headquartered. On the other hand, transnational corporations are more or less borderless in this regard as they do not consider a particular country as their base.

Multinationals have branches in other countries, whereas transnational have subsidiaries.