UNIT-IIglobalization AND LIBERALIZATION

Globalization• Globalization is a word that has several connotations

today. But broadly speaking, it is a process which began around the late 1970s, by the shift in world economy from an international to a more global one. In the international economy, individuals and firms from different countries traded goods and services across national boundaries, and the trade was closely regulated by nation-states. In the global economy, goods and services are produced and marketed by an oligopolistic web of global corporate networks whose operations, although spanning several national boundaries, are only loosely regulated by nation-states.

•Globalization is also called internationalisation.

•globalization is •A set of fresh beleifs•Working methods•Economic, political and socio-cultural

realities in which the previous assumptions are no longer valid.

For Developing countries

•It means integration with the world economy

•In economic terms Globalization refers to the process of integration of the world into one huge market. Such unification calls for the removal of all trade barriers among countries. Even political and Geographical barriers become irrelevant.

At the company level globalization means two things:•The company commits itself heavily with

several manufacturing locations around the world and offers products in several diversified industries and

•It also means the ability to compete in domestic markets with foreign competitors.

Characteristics of a global company

•It is a conglomerate of multiple units.(located in different parts of the globe)but all linked by common ownership.

•Multiple units draw on acommon pool of resources such as money, credit, information, patents, trade names and control systems.

•The units respond to some common strategy.

•Product presence in different markets of the world.

Characteristics of a global company

•Transactions involving intellectual properties such as copyrights, patents, trade marks and process technology across the globe.

Assessing corporate Globality

Globalization of corporate

mind set

Globalization of capital

Globalization of market presence

Globalization of supply

chain

•Globalization of capital base refers to the extent of which the company is accessing capital markets for financial resources

•Globalization of mind set refers to the ability of the company to understand and integrate diversity across cultures and markets.

•Globalization of supply chain refers to the extent to which the company is accessing the optimal locations for the performance of various activities in its supply chain.

•Globalization of market presence refers to the extent to which company targets customers in all major markets across the globe.

Levels of globalization

•globalization at the World level•globalization at the level of a specific

country•globalization at the level of a specific

industry.•globalization at the level of a specific

company.

Factors influencing Globalization•Dismantling of barriers to international

economic transactions.•Over-capacity and over production.•Technological advances.•Emerging forms of industrial

organization.•Political factors.•The intellectual rationale.

globalization strategy for a company:

•Which product line or lines should be used as the launch vehicle for globalization.

•Which markets should be entered first.•What would be optimal mode of market

entry.•How rapidly should the company expand

globally

Consequences of globalization for India•Led to unequal competition giant MNC’s

and dwarf Indian companies.•The globalization of the Indian economy is

like integrating a mouse into a herd of elephants.

•Opportunities for MNC’s to raid and takeover Indian enterprises, inability to meet the challenges from MNC’s due to weak economic strength vis-à-vis MNC’s.

•Size disadvantages

Consequences of globalization for India•Up to 1991, operated in a protectionist

environment.•The cost of capital for Indian business is much

higher than MNC’s.• Immense financial strength of MNC’s they can

bear losses for more time in any line of business.

•They can buyout any Indian firm they like.• Indian firms cannot reduce labour but MNC’s

can easily adopt modern technology nd reduce labour requirements.

Consequences of globalization for India•High, multiple and indirect taxes at local

level are not applicable to foreign imports- making Indian goods uncompetitive.

• In some areas, state has pursued policies that have clearly discriminated in favour of MNC’s.(power sector)

•Parlebrands(thumpsup, limca) to coca-cola.•HLL( Brookebond, ponds, lakme, kissan,

tomco, dollops).

•Top 50 companies of the country hold 20% stake by may 2004. FIIs now own 20% of top 50 of the country.

Economic Reform Strategies•Open economy•Integrate with world markets•Market determined economic growth•Export oriented strategies•Deli censing, deregulation, de

bureaucratization•Selective and effective state interactions•Market determined prices at large•Contain all kinds of deficits•Deflationary monetary and fiscal policies•Private investment as growth engine

Economic Reform Strategies• Withdrawal from the area of private interest• Minimize gap between public and private sector• Inducement to FDI and MNC’s.• Liberalization of restrictions.• Deregulation of interest rates• Credit policy terms• Reforms in capital market• Minimise public sector budgetary resources• Tax reforms

•

The main characteristics of new Economic Policy 1991 are:•1. De licensing. Only six industries were

kept under Licensing scheme.•2. Entry to Private Sector. The role of

public sector was limited only to four industries; rest all the industries were opened for private sector also.

•3. Disinvestment. Disinvestment was carried out in many public sector enterprises.

• Liberalization of Foreign Policy. The limit of foreign equity was raised to 100% in many activities, i.e., NRI and foreign investors were permitted to invest in Indian companies.

• 5. Liberalization in Technical Area. Automatic permission was given to Indian companies for signing technology agreements with foreign companies.

• 6. Setting up of Foreign Investment Promotion Board (FIPB). This board was set up to promote and bring foreign investment in India.

• 7. Setting up of Small Scale Industries. Various benefits were offered to small scale industries.

Three Major Components or Elements of New Economic Policy:

 1. Liberalisation:Liberalisation refers to end of licence, quota and many more

restrictions and controls which were put on industries before 1991. Indian companies got liberalisation in the following way:

(a) Abolition of licence except in few.(b) No restriction on expansion or contraction of business

activities.(c) Freedom in fixing prices.(d) Liberalisation in import and export.(e) Easy and simplifying the procedure to attract foreign capital

in India.(f) Freedom in movement of goods and services(g) Freedom in fixing the prices of goods and services.

2. Privatization:• Privatization refers to giving greater role to private sector

and reducing the role of public sector. To execute policy of privatization government took the following steps:

• (a) Disinvestment of public sector, i.e., transfer of public sector enterprise to private sector

• (b) Setting up of Board of Industrial and Financial Reconstruction (BIFR). This board was set up to revive sick units in public sector enterprises suffering loss.

• (c) Dilution of Stake of the Government. If in the process of disinvestments private sector acquires more than 51% shares then it results in transfer of ownership and management to the private sector.

3.globalization:It refers to integration of various economies of world. Till 1991 Indian government was following strict policy in regard to import and foreign investment in regard to licensing of imports, tariff, restrictions, etc. but after new policy government adopted policy of globalization by taking following measures:

(i) Import Liberalisation. Government removed many restrictions from import of capital goods.

(ii) Foreign Exchange Regulation Act (FERA) was replaced by Foreign Exchange Management Act (FEMA)

(iii) Rationalisation of Tariff structure

(iv)Abolition of Export duty.(v) Reduction of Import duty.As a result of globalization physical

boundaries and political boundaries remained no barriers for business enterprise. Whole world becomes a global village.

globalization involves greater interaction and interdependence among the various nations of global economy.

Impact of Changes in Economic Policy on the Business or Effects of Liberalization and globalization:1. Increasing Competition2. More Demanding Customers3. Rapidly Changing Technological Environment4. Necessity for Change5. Need for Developing Human Resources6. Market Orientation( from selling to marketing

concept)7. Loss of Budgetary Support to Public Sector8. Export a Matter of Survival

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