prof. parul gupta

8/14/2019 Prof. Parul Gupta

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Globaliation, Privatization andLiberalizationProf. Parul Gupta1

LPG


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Globalization


The international Monetary Fund defines it as the

growing economic interdependence of countries

worldwide through the increasing volume and

variety of cross-border transactions in goods andservices and of international capital flows, and also

through the more rapid and widespread diffusion of

technology


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Meaning and dimensions:

Globaliation, Privatization andLiberalizationProf. Parul Gupta

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L Expanding the business globally2. No distinction between domestic and

foreign market3* Locating physical facilities like

production etc on consideration of globalbusiness dynamics instead of domestic.Global market consideration for product

development and product planning

Global sourcing of factors of productionGlobal orientation of organizationalstructure and management culture


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Stages of globalization:-

Globaliation, Privatization andLiberalizationProf. Parul Gupta

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First stage:-

Linking up of essential service activities of domesticcompanywith local dealers and distributors of foreign market

Second stage:-Company takes over these activities on its own

Third Stage:-Starting of manufacturing, marketing and sales in the

key foreign market

Fourth stage:-

Replication of hardware system and operations in anew environment

Fifth stage :-This stage is known as " global localization stage"

which comprises of ability to serve local customers in

markets around the globe in an efficient manner


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Essential conditions for Globalization:-

Business freedom

Facilities

Govt. supportResources

Competitiveness

Orientation


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ec sGlobalization


Movement Toward Free Trade and TradeBlocs

Types of Trade BlocsFree Trade Area: member countries eliminate

trade barriers among themselves, but retain right

to impose barriers on non-members.Customs Union: member countries remove

barriers among themselves and have commonbarriers on non-member countries

Common market: A customs Union that allows

free movement of factors of productionEconomic Union: A common market whereeconomic policies are also harmonized


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Evolution & Growth of GlobalCompanies

Globaliation, Privatization and

LiberalizationProf. Parul Gupta7

Principally companies from Europe,United States, Japan and South Korea

Global Companies and their globalnetwork of subsidiaries are connectingcountries and companies world-wide.


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Globaliation,

Privatization and

Liberalization

Prof. Parul Gupta 8


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Challenges FacedBy Businesses in

GlobalEnvironment


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Environmental Challenges



Political Ideologies

Economic Systems

Technological Sophistication

Legal Challenges

Cultural Distance


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Foreign market entrystrategies;-



A. Exporting- ,is appropriate in following conditions

1. Volume-of business is small

2. Cost of production in domestic market is low

3. Presence ofproduction barriers overseas4. Political risk

5. Company has no permanent interest in foreign market

6. Foreign investment not favored by foreign govt

7. Other better alternatives are not available


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B. Licensing and Franchising -

Licensing:-Under this strategy a firm in onecountry( licensor ) permits a firm in othercountry (The licensee) to use its intellectual

propertyFranchising:- Is a form of licensing in which

a company (franchisor) grants otherindependent entity (the franchiser) right todo business in a prescribed manner


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C. Contract Manufacturing:-Under this a firm contracts with a foreign company to

manufacture or assemble the product while

retaining the right to market product with itD. Management Contracting: -Here a firm provides management know how to

another firm and may or may not have a equitystake in the firm being managed

E. Turnkey contracts :-Is an arrangement by the seller to supply a buyer witha facility fully equipped and ready to be operated bybuyer's personnel who will be trained by seller

F. Assembly Operations :-When assembly operations are labor intensive andlabor is cheap in foreign country, firm can get itsproducts assembled overseas and bring it backhome or sell globally


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G. Joint VentureAny form of association which implies

collaborations for more than one transitory

periods is a joint venture. There can be manydiverse types of joint venturesa. Sharing of ownership and managementb. Licensing & Franchisingc. Contract manufacturing

d Management contracting.

H. Third country locationWhen direct transactions between two firms of

different countries is not possible due to political

or other reasons firms sometimes take help ofsome third party base

I. Mergers and Acquisitions


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J. Strategic Alliancesa* Technology development allianceb. Marketing sales and services

alliancesc. Multiple Activity alliances

G, Counter tradeIs a form of international trade in which

certain export and import transactions aredirect linked with each other and in whichimport of goods are paid by export ofgoods instead of money payment

Forms of counter trade

A BarterB.Buy BackC. CompensationD. Counter purchase


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Pros and cons ofGlobalization



Merits Inflation is controlledExport jobs may pay moreInnovations and fresh ideas

DemeritsUnemploymentOften Pay cut demands from

employersCountry can lose its competitive

advantage


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What is Privatization?



The act of reducing the role ofgovernment or increasing the role ofthe private sector in an activity or theownership of assets.Contracting with a private companyAwarding a contract to a private firm for

management servicesVouchers to purchase some or all services from a

private vendorDeregulating entry into an area in which most

services have traditionally been delivered bypublic institutions,


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HISTORY :



The history of privatisation is very shortjust 10 to 15 years old to be precise.Though real disinvestment started only inthe later 1980s. The word privatisation first

made its appearance way back in the late60s.


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NATURE AND OBJECTIVE:



Transfer of ownership to private.Improve the performance of PSUs

To improve the results.

To improve the quality of service.To make things more competitive.

To make the enterprise more efficient.

To encourage innovation.To bring in Foreign exchange

Generate revenues


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PRIVATISATION ROUTES:



Sale to outsider.Management employee buyout.

Equal-access voucher privatisation.

Spontaneous privatisation.


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CONDITIONS FOR SUCCESS:



Commitment by the political leadership.Multiplicity of private suppliers.

Freedom of entry to provide goods and

services.Long term contracts and franchises limit

competition and consumer choice.

Consumers should be able to lionk the

benefits.Privately supplied services should be less

susceptible to fraud.


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OBSTACLES:



Govt sells those enterprises which privatesector is not ready to buy.

Obstacles created by employees who mayloose their jobs.

Underemployed capital market sometimesmake it difficult for govt to float shares andfor individual buyers to finance largepurchases.


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PRIVATISATION IN INDIA




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RANGA RAJAN COMMITTEE:



Units to be disinvested to be identified.Need for the govt to retain the majority

holdings in areas like defence andatomic energy. In others disinvestment

can be to any level.Disinvestment shall be in stages andsales to be done in such a way so as toget max possible price from the bidders.Workers interests to be protected.Disinvestment must be transparent.An autonomous body needs to be set up

to monitor the process of disinvestment.


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BENEFITS:



Reduces fiscal burden on the state.It helps govt to mop up funds.It helps the state to trim the size of

administrative machinery.

It helps govt to concentrate more onessential state functions.Accelerating pace of economic

development.Better management of the enterprises.Encouraging entrepreneurship.Increases shareholders.


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ARGUMENT AGAINSTPRIVATISATION




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PITFALLS:



Lack of proper strategy.Ambiguity of objectives.Hidden objectives of politicians.Wrong timings.

Lack of political consensusLack of political will.Poor financial stratigies.Wrong environment.Prevailance of monopoly elements.Problems of cultural change.


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Privatisation succeeds and fails for severalreasons of relevance to the Indian situation

are four factors:1.Commitment.

2.Competition.

3.Transparancy.

4.Mitigation.

These four factors indirectly make privatisationyield the necessary results. Of these four

factors India scores highly on competition andtransparancy. But it scores poorly on the othertwo.


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Most CommonlyPrivatized Services



Transportationover 30%

Food Servicedoubled in last 10 years to 28%

Maintenance Serviceover 18%Clerical/Information Services

Paraprofessionalseducation mgmt. companies


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India


LiberalizationProf. Parul Gupta30Slide | 30

Indian taxregime

Income tax

Foreign Trade Policy

Customs Duty

Service tax

R&D cess

Cenvat (Excise) Duty

Sales tax/ ValueAdded Tax (VAT)

Indirecttaxes


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LIBERALIZATION


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Free trade is a market model in which the

trade of goods and services between orwithin countries flows unhindered bygovernment-imposed restrictions.

These restrictions may increase costs to

goods and services, producers, businesses,and customers, and may include taxes andtariffs, as well as other non-tariff barriers,such as regulatory legislation and quotas.

Trade liberalization entails reductions tothese trade barriers in an effort forrelatively unimpeded transactions.


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FREE TRADE



Trade of goods without taxes (including tariffs) or other tradebarriers (e.g., quotas on imports or subsidies for producers) Trade in services without taxes or other trade barriers The absence of trade-distorting policies (such as taxes, subsidies,

regulations or laws) that give some firms, households or factors ofproduction an advantage over others

Free access to markets

Free access to market information Inability of firms to distort markets through government-imposed

monopoly or oligopoly power The free movement of labor between and within countries The free movement of capital between and within countries


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LiberalizationProf Parul Gupta34

Free trade can be contrasted withprotectionism, which is the economic

policy of restricting trade betweennations. Trade may be restricted by hightariffs on imported or exported goods,restrictive quotas, a variety ofrestrictive government regulations

designed to discourage imports, andanti-dumping laws designed to protectdomestic industries from foreign take-over or competition

prof. parul gupta

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