challenges due to globalization

SHARON M, INSTITUTE OF MANAGEMENT IN KERALA

CHALLENGES DUE TO GLOBALIZATION Sharon M

1st Sem MBA (Gen)IMK


WHAT IS GLOBALIZATION? >Interaction and integration among the people, companies and governments of different nations, a process driven by international trade and investment, aided by leap in science and technology.

>Globalization transforms the world into a “global village”, with free flow of information, services, people and goods among world nations.

>Earlier forms of globalization existed as the vibrant trade routes connecting China,India,Afghanistan,Middle East etc (Silk Route).

>Today’s globalization is supported by intra & inter national policies and agreement, along with advancements in science and technology.>Modern day globalization began with the industrial revolution (early 20th century), which brought a degree of commonality in products and technologies.>Commonality in products and technologies allowed easier exchange of goods and services.


GLOBALIZATION IN INDIA The Crisis of Early 1990s Ever since independence, India had followed the socialist model of development, with severe restrictions on foreign investments, setting up of industries etc.

As a result, India’s imports were very high, exports were mostly agricultural items, and current account deficit was climbing.

Towards the end of 1980s, the income from tourism has stagnated, those from remittances from NRIs has declined sharply. The interest burden rose from $2,218 Million (‘88-’89) to $4,120 Million (‘90-’91).Current Account Deficit has rose to 2.93% of GDP in ‘88-’89.

The Gulf War of August 1990 resulted in the more than double increase of Crude oil prices (one-sixth of India’s import bill), further added to India’s misery, bringing down foreign reserves to $2.24 Billion, enough to cover less than a month’s import.

Outflow of deposits held by NRIs also added to the crisis. Balance of payment crisis led to the fall of United Front Government within one year of formation.


GLOBALIZATION IN INDIA (CONTD.) India had to pledge 47 tonnes of gold to the Bank of England and

20 tonnes of gold to the Union Bank of Switzerland as a part of recovery pact with IMF to bring in $600 Million.

IMF necessitated India to make economic reorganizations, and the then PM of the country P.V Narasimha Rao and his finance minister Dr. Manmohan Singh brought forward a series of measures that can be called as the beginning of ‘Liberalization-Privatization-Globalization’ in India.

The key reforms included:>Foreign Technology Agreements

>Foreign Direct Investments

>Launch of National Stock Exchange in ‘94

>Abolition of License Raj

>Beginning of privatisation


FEATURES OF GLOBALIZATION

1.Free access to markets in the world>Free trade agreements>Foreign Direct Investments

2.Global Standardization of Products>Interchangeability>Versatility

3.Improved Access>Access to raw materials>Finance>Technology

4.Free mobility of personnel>Multi-cultural environment>Mergers and acquisitions


Fiat Punto-an Italian Car in India


Mahindra Goa-an Indian car in Italy


TATA Indigo Marina-another Indian car in Italy


CHALLENGES OF GLOBALIZATION 1. Shifting Risk Profile 2.Regulatory Obstacles 3. Cultural Differences 4.Job Insecurity and Lack of Skills 5.Shortage of Resources


1.SHIFTING RISK PROFILE As the market has expanded from local to international, the risk profile has also expanded.

Risk level has increased, ranging from fluctuation in interest and exchange rates to supply chain piracy

Organizations needs to consider and accommodate global events and scenarios while conducting risk assessments.

Eg: Fake Chinese copies of Indian drugs in Africa, effects of global terrorism and regional tensions


2.REGULATORY OBSTACLES Regional laws and policies by national governments will have a widespread effect

Leads to uncertainty in rapid growth markets Companies have to adopt a global platform for making project portfolio,have to gain greater visibility to overcome regional barriers

Companies should have contingency plans, specific to regions and nations

Eg: Recent proposal to ban diesel vehicles in Delhi, US move to rise visa fees


3.CULTURAL DIFFERENCES Workforces & customers will be separated by thousands of miles, international time zones, cultural and religious differences.

The central organization must be able to refine portfolio management and create an infrastructure that maintains the diversity of international teams while also empowering local delivery

Eg: McDonald’s avoiding beef & porl and launching vegetarian burgers in India


4. JOB INSECURITY & LACK OF SKILL Globalization allowed companies to assign jobs to population away from their physical location, resulting in local population loosing their jobs.

Eg: American analysts loosing jobs to cheaper Indian counter parts

In manufacturing sector, quite opposite can happen. Foreign companies setting up a new plant will give more opportunity to local population.However, the quest to offer positions to local (cheaper) employees often result in lower skilled employees


5.SHORTAGE OF RESOURCES Globalization has led to increased use of global resources, leading to imbalances

Financially and technologically backward nations often lag behind, and are the victims of exploitations

Small scale industries are over shadowed by corporate giants Gaps in infrastructure and technologies will have a greater effect


THANK YOU

challenges due to globalization

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