ibm module1

8/7/2019 IBM MODULE1

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³Freedom is not worth having if it doesnot include the freedom to makemistakes´

-Mahatma Gandhi



MODULE-1

GLOBALISATION



What is Globalization?

Globalization is a continuing process of economic restructuring which has

lead to an increasing cross-broader flow of trade in goods, services, and

financial assets, along with an increasing international mobility of

technology, information and individuals.

DEFINATION:-

CHARLES. W. L. HILL Defines Globalization as

³ The Shift towards a more integrated and interdependent world

economy. Globalization has two main components- the Globalization of

markets and Globalization of Production´.



FEATURES OF GLOBALIZATION

1. Opening and planning to expand business throughout the world.

2. Erasing the differences between market and foreign market.

3. Buying and Selling goods and services from/to any country in theworld.

4.E

stablishing manufacturing and distribution facilities in any part of theworld based on the feasibility and ability rather than nationalconsideration.

5. Product planning and development are based on market considerationof the entire world.

6. Sourcing of factors of production and inputs like Raw Materials,Machinery, Finance,Technology, Human Resources and

management skills from the entire globe.7. Global orientation in strategies, organization structure, organization

culture and managerial expertise.

8. Setting the mind and attitude to view the entire global as a singlemarket.



Thus, Globalization means globalizing the Marketing,

production, Investment, Technology and Other

Activities.

GLOBALIZATION OF MARKETS*Globalization of markets refers to the process of integrating and

merging of distant world markets into a single market.

*This process involves the identification of some common norms,values, tastes, preferences and conveniences and slowly

enables the cultural shift towards the use of a common product or

service.

EXAMPLES- SONY CAMERA,LEVIES JEANS, PEPSI etc.



Features of it

1.The Size of the company need not be too large to create aglobal market.

2.Companies to formulate different strategies for eachmarket.

KFC separate strategies for each country.3.Most of the foreign markets are markets for non-consumer

goods like industrial products, machinery, equipment,Raw Materials, computer, software, financial productsetc.

4.Global business compete with each other frequently indifferent markets including their home markets.

Example Coca-Cola v/s Pepsi,Similarly Ford v/s Tayota.



Reasons For Globalization of markets

1.Large Size Industrialization.

2.To reduce the risk diversity the portfolio of countries.

3.Companies globalize markets in order toincrease their profits and achieve companygoals.

4. To cater to the demand for their products in

foreign markets.5.An adverse business environment in the

home country.



GLOBALIZATION OF PRODUCTION

The Globalization Of Production referes to the sourcing of goods andservices from locations across the globe to take advantage of nationaldifferences in the cost and quality of factors of production (labour,energy, time capital, raw materials)

Reasons For Globalization of Production

1. Imposition of restriction on imports by foreign countries forces MNCs toestablish manufacturing facilities in other countries.

2. Availability of Inputs at low cost in foreign markets.

3. Availability of skilled labour resources at low cost.

4. Availability of high quality raw materials and components in other countries.

5. Liberal labour laws in the foreign countries.

6. Facility of exporting to other neighbor countries.

7. To reduce the cost of Transportation and easy logistics management.

8. To Design and manufacture products in accordance with the varyingtastes of customers in foreign countries.



GLOBALIZATION OF INVESTMENT

*Globalization of investment refers to investment of capital by aglobal company in any part of the world.

*A global company conducts the assessment of the financial

feasibility of new projects in different countries of the world andinvests capital in that country, where it is relatively moreprofitable. Globalization of investment is also known as FDI.

*FDI occurs when a firm invests directly in new facilities to produceand / or market a product or service in a foreign country.

Coco-cola acquired a number of bottling companies throughoutIndia by investment directly.

The GOI has reduced investment barriers, allowing more than51% of foreign investment in Indian companies.



Reasons For Globalization Of Investments

1. There has been a rapid increase in the volume of global trademany countries provide favorable environment for directinvestment.

2. In addition to increase in volume of FDI. Its composition has also

been changing.Initially it was directed towards the

USA:later on,it was directed towards countries like UK, JAPAN, FRANCE, CHINA

etc.

3. Small and medium scaled companies have been manufacturingand marketing activities, invest in the foreign countries.

4. Procure funds from any source in the globe, wherever the cost of capital is low with feasible terms and conditions

5. A significant amount of FDI is directed to the developing countriesin Asia and Eastern Europe.



Globalization process

Domestic company exports to foreign countries through the

dealers or distributors of the home country

In the second stage ,the domestic company exports to the foreign

country directly on its own

In third stage ,the domestic company becomes an internationalcompany by establishing the production and marketing operation

sin various key foreign countries.

In the fourth stage ,the company replicates a foreign company by

having all the facilities including R&D full fledged human

resources etc . In the fifth stage the company becomes a true foreign company

by serving the needs of foreign customers just like the host

company serves. Thus the globalization means the marketing,

production, investment, technology & other activities.



Advantages of Globalization

Free flow of capital and increase in the total capital employed.

Free flow of technology.

Increase in industrialization .

Spread of production facilities throughout the globe. Balanced development of world economies.

Increase in production and consumption.

Commodities at lower prices with high quality.

Cultural exchange and demand for a variety of products.

Increases in Jobs and Income.

Higher standards of living.

Balanced Human Development.

Increase in Welfare and Prosperity.



Disadvantages of Globalization

Globalization kills domestic business.

Exploits Human Resource.

Leads to unemployment and underemployment.

Decline in demand for domestic products.

Decline in income.

Widening gap between rich and poor.

Transfer of Natural Resources.

National sovereignty at stake.

Leads to commercial and political colonialism



Methods Modesof globalization

Exporting directly

Exporting indirectly

Licensing and franchising

Contract manufacturing

Establishing full marketing facilities

Establishing manufacturing facility

Joint venture Strategic alliance

Merger



What Is Economic Environment?

Meaning of Economic Environment

Those Economic factors which have their affect on the

working of the business is known as economic

environment. It includes system, policies and nature of an economy, trade cycles, economic resources, level

of income, distribution of income and wealth etc.

Economic environment is very dynamic and complex

in nature. It does not remain the same. It keeps on

changing from time to time with the changes in an

economy like change in Govt. policies, political

situations



Elements of Economic Environment

1. Economic Conditions

2. Economic System

3.E

conomic Policies4. International EconomicEnvironment

5. Economic Legislations



Economic ConditionsEconomic Policies of a business unit are largely

affected by the economic conditions of an economy.Any improvement in the economic conditions such as

standard of living, purchasing power of public,

demand and supply, distribution of income etc. largely

affects the size of the market.

Business cycle is another economic condition that isvery important for a business unit. Business Cycle has

5 different stages viz.

(i) Prosperity,

(ii) Boom,(iii) Decline,

(iv) Depression,

(v) Recovery.



Following are mainly included inEconomic Conditions of a country

I. Stages of Business Cycle

II. National Income, Per Capita Income and Distribution

of Income

III. Rate of CapitalF

ormationIV. Demand and Supply Trends

V. Inflation Rate in the Economy

VI. Industrial Growth Rate, Exports Growth Rate

VII. Interest Rate prevailing in the Economy

VIII.Trends in Industrial SicknessIX. Efficiency of Public and Private Sectors

X. Growth of Primary and Secondary Capital Markets

XI. Size of Market



Economic Systems

An Economic System of a nation or a country may be

defined as a framework of rules, goals and incentives

that controls economic relations among people in a

society. It also helps in providing framework for answering the basic economic questions. Different

countries of a world have different economic systems

and the prevailing economic system in a country affect

the business units to a large extent.



Economic conditions of a nation can be of any one of thefollowing type

1. Capitalism:- The economic system in which business units

or factors of production are privately owned and governed is

called Capitalism. The profit earning is the sole aim of the

business units. Government of that country does not interfere

in the economic activities of the country. It is also known as

free market economy. All the decisions relating to the

economic activities are privately taken. Examples of

CapitalisticE

conomy:-E

ngland, Japan,A

merica etc.



It provides customer his choices of product or service

(Economic democracy)

Private ownership

Philosophy of individualism believing in private ownership of

productive and distribution facilities.

USA, JAPAN, UK, Are the examples of capitalistic country.

India, France Italy and Malaysia have started shifting their

economic system towards this economic system.

Weaknesses are

It results in inequalities of income

Recurrence of trade cycles due to free play of market forces

Exploitation of the poor

People indulge in wasteful expenditure



2. Socialism:- Under socialism economic system, all the

economic activities of the country are controlled and

regulated by the Government in the interest of the public.

The first country to adopt this concept was SovietRussia.

3. Mixed Economy:- The economic system in which both

public and private sectors co-exist is known as Mixed

Economy. Some factors of production are privately owned

and some are owned by Government. There existsfreedom of choice of occupation and consumption. Both

private and public sectors play key roles in the

development of the country.



4. Communistic Economic System:

Here private property and property rights to income

are abolished.

The state owns all the factors of production and

distribution. Communism is also called as ³Marxism´. Lenin set up

a communist state Russia later spread to China,

Czechoslovakia, Rumania, Yugoslavia, Poland,

Sweden.



Major limitations of this system.

It reduces individual freedom of choice due to

restriction on items to be produced.

It fails to get total commitment of people to work and

countries welfare. It failed to achieve significant economic growth.

It could not achieve equality.

Less scope for FDI

It imposes too many restrictions on MNCs

Communism collapsed in the former USSR. It has

also collapsed in many of the African countries.

CUBA is an example of the last remaining

predominantly communistic country.



Countries Classifieds Based On Income

A. LOW INCOME COUNTRIES (GNP PERCAPITALESS THAN US $ 400)

Characteristics:

Agri orientation

High birth rates

Low literacy rate

Heavy reliance on foreign aid

Political instability and unrest.

Concentrated in Africa, south of Sahara

Excessive unemployment and under employment.

Underutilization of natural resources.

Excessive dependence on imports



B. LOWER MIDDLE INCOMECOUNTRIES. (GNP Per capita of

between US $ 400 to 2000)Less developed countries Early stages of industrialization

Expansion of consumer Mkts

Availability of cheap and motivated humanrecourses

Pose threat to the rest of the world in labintensive production due to cheap labour.

Domestic



C. UPPER-MIDDLE INCOME COUNTRIES(GNP per capita US $ between 2000 to 12000)

Industrializing countries

Characteristics:

Less dependency on agriculture.

Occupational mobility of the people fromagriculture to industry.

People migrate from rural to urban areas.

Increase in literacy, formal education and

increased wage rates. Low wage costs compared to advanced countries.

High exports and repaid economic dev



D. High Income countries.(GNP Per capita morethan $ 12000)

Advanced/ industrialized countries-Characteristics:

Oil rich countries are excluded from this category.

Countries reached the income level of more than US $12000 through the process of industrial growth areincluded in this category.

Service sector contributes more than 50% to the GNP

Development of information sector.

Development of intellectual technology over machine

technology. Emphasis on the future plans.

These countries face the problems like pollutionexcessive urbanization, economic depression.

Product innovations are more prevalent.



Economic Policies

Government frames economic policies. Economic

Policies affects the different business units in different

ways. It may or may not have favorable effect on a

business unit. The Government may grant subsidiesto one business or decrease the rates of excise or

custom duty or the government may increase the

rates of custom duty and excise duty, tax rates for

another business. All the business enterprises frame

their policies keeping in view the prevailing economicpolicies.



Important economic policies of a country are as follows:

1. Monetary Policy:- The policy formulated by the central

bank of a country to control the supply and the cost of

money (rate of interest), in order to attain some specified

objectives is known as Monetary Policy.

2. Fiscal Policy:- It may be termed as budgetary policy. It is

related with the income and expenditure of a country.

Fiscal Policy works as an instrument in economic and

social growth of a country. It is framed by the governmentof a country and it deals with taxation, government

expenditure, borrowings, deficit financing and management

of public debts in an economy.



3. Foreign Trade Policy:- It also affects the different business

units differently. E.g. if restrictive import policy has been

adopted by the government then it will prevent the domestic

business units from foreign competition and if the liberal import

policy has been adopted by the government then it will affect

the domestic products in other way.

4.F

oreign Investment Policy:- The policy related to theinvestment by the foreigners in a country is known as Foreign

Investment Policy. If the government has adopted liberal

investment policy then it will lead to more inflow of foreign

capital in the country which ultimately results in more

industrialization and growth in the country.5. Industrial Policy:- Industrial policy of a country promotes and

regulates the industrialization in the country. It is framed by

government. The government from time to time issues

principals and guidelines under the industrial policy of the

country.



Global/International Economic Environment:-

The role of international economic environment is

increasing day by day. If any business enterprise is

involved in foreign trade, then it is influenced by not only

its own country economic environment but also the

economic environment of the country from/to which it is

importing or exporting goods. There are various rules andguidelines for these trades which are issued by many

organizations like World Bank, WTO, United Nations etc.

Economic Legislations:-Besides the above policies, Governments of different

countries frame various legislations which regulates and

control the business.

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