GLOBALIZATION

GLOBALIZATION

• It can be defined as a process of economic integration of the entire world through the removal of barriers to free trade and capital mobility as well as through – diffusion of knowledge and information

• It would mainly consist of– Globalisation of Production– Globalisation of Markets

DRIVING FORCES

• Market Needs• Technology• Cost• Quality Expectations• Communications & Transportation• Leverage- Experience Transfer, Systems

Transfers, Resource Utilization, Global Strategy

RESTRAINING FORCES

• Market Differences• History• Management Myopia• Organisational Culture• National Controls/ Barriers to Entry

UNDERLYING FORCES

• Orientations of Management (EPRG)• International Monetary Framework• World Trading System– Regional Trade Agreement

• Global Peace• Domestic Economic Growth• Communications & Transportation Technology• Global/ Transnational Corporations

World Economies

• Beginning of 1990s saw growth of US as a major Economy followed by Japan and Germany

• It could be attributed to ,willingness of US business to cut their workforce,reorganize their operations, invest heavily in R & D

• OECD; organization for economic and Cooperation Development (OECD); A group of 30 wealthy members countries that facilitates a forum for the discussion of economic, social and governance issues across the world.

International Trade regulations

• International Business has seen the emergence of trade and investment liberalization

• GATT ; General agreement on Tariffs and Trade; was established to negotiate trade concession among member countries. It gave way to WTO

• WTO; World Trade Organisation; deals with the rules of trade among member countries. One of the most important function is to act as a dispute settlement mechanism

The TRIAD• The 3 major trading and investment blocs in the

international arena: the US, EU and Japan• US has the largest economy of the world with GDP of

over 10$ trillion• NAFTA ;North American Free trade agreement between

the Canada, the US and Mexico • EU; today there are 15 members and large number are

applicants• The collective GDP of EU is greater than US or Japan

Reasons For Entering International Business

• Growth• Profitability• Achieving Economics of Scale• Risk Spread• Access to Imported Inputs• Uniqueness of Product or Service• Business Opportunities due to life cycle• Spreading R & D Costs

EPRG Framework• Ethnocentric orientation• Polycentric orientation• Regiocentric orientation• Geocentric orientation

• ETHNOCENTRIC; home country is superior, sees similarities in foreign countries

• POLYCENTRIC; Each host country is unique, sees differences in foreign countries

• REGIOCENTRIC; sees similarities and differences in world region; is ethnocentric in its view of the rest of the world

• GEOCENTRIC; world view, sees similarities and differences in home and host countries

Evolutionary process of Global Business

• Domestic Business• Export Business• International Business• Multinational Business• Global Business / Transnational Business• Glocal Business

• Domestic Business• Export Business – Extending to similar market

• International Business– Extends Business, manufacturing and other activities in

other countries– Ethnocentric approach– It normally has an international division– Focus is on home country market– Business strategy is extension

• Multinational Business– Adaptation of Business mix– Multidomestic strategy,each subsidy is an independent

entity– Polycentric approach

• Global Business – Will either have a global Business strategy or a global

sourcing strategy but not both– Key assets are in home country

• Transnational Business– Works in integration, linking global resources with global

markets at a profit– Geocentric in approach– Recognizes similarities and differences and adopts a world

view to add value – Key assets are dispersed interdependent and specialized– Experience and knowledge are shared globally

• Glocal Business

GLOBALIZATION INDEX

• It is a ranking of globalised countries carried out by A T Kearnery

• It has following key components – Economic Integration;trade, portfolio,FDI,investment

income– Personal Integration;telephone, travel, remittances,

personal transfers– Technology Integration;Internet users, Internet hosts,

secure Internet services– Political Integration;international organisations, UN

peacekeeping, treaties and government transfers

Definitions of The Term “Liberalization” and “Economic

Liberalization”• The term “Liberalization” stands for “the act of making less

strict”.

• Liberalization in Economy stands for “The process of making policies less constraining of economic activity." And also “Reduction of tariffs and/or removal of non-tariff barriers.”

• Economic liberalization is a very broad term that usually refers to fewer government regulations and restrictions in the economy in exchange for greater participation of private entities

• In developing countries, economic liberalization refers more to liberalization or further "opening up" of their respective economies to foreign capital and investments.

• The fastest growing developing economies today; Brazil, Russia, India, and China have achieved rapid economic growth in the past several years or decades after they have "liberalized" their economies to foreign capital.

BRICS ??

Pre-Liberalization Era of Indian Economy

• The low annual growth rate of the economy of India before 1980, which stagnated around 3.5% from 1950s to 1980s, while per capital income averaged 1.3%.

• Only four or five licenses would be given for steel, power and communications. License owners built up huge powerful empires.

• A huge public sector emerged. State-owned enterprises made large losses.

• License Raj established the "irresponsible, self-perpetuating bureaucracy that still exists throughout much of the country”.

• Infrastructure investment was poor because of the public sector monopoly.

• The economic crisis was primarily due to the large and growing fiscal imbalances over the 1980s.

• During mid eighties, India started having balance of payments problems. Precipitated by the Gulf War, India’s oil import bill swelled, exports slumped, credit dried up and investors took their money out.

• The foreign exchange reserves had dried up to the point that India could barely finance three weeks worth of imports.

Source: http://www.rbi.org.in/scripts/PublicationsView.aspx?id=8540#2

• Indian economy had experienced major policy changes in early 1990s.

• The new economic reform, popularly known as, Liberalization, Privatization and Globalization (LPG model) aimed at making the Indian economy as fast growing economy and globally competitive.

• The series of reforms undertaken were in respect to industrial sector, trade as well as financial sector aimed at making the economy more efficient.

Liberalization in Indian Economy

• With the onset of reforms to liberalize the Indian economy in July of 1991, a new chapter has dawned for India and her billion plus population.

• This period of economic transition has had a tremendous impact on the overall economic development of almost all major sectors of the economy, and its effects over the last decade can hardly be overlooked.

• Besides, it also marks the advent of the real integration of the Indian economy into the global economy.

• This era of reforms has also ushered in a remarkable change in the Indian mindset, as it deviates from the traditional values held since Independence in 1947.

• Such as self reliance and socialistic policies of economic development, which mainly due to the inward looking restrictive form of governance.

• Resulted in the isolation, overall backwardness and inefficiency of the economy, amongst a host of other problems.

• Though, India has always had the potential to be on the fast track to prosperity.

• Now that India is in the process of restructuring her economy, to maintain the position as one of the most emerging economies of the world.

• The need to speed up her economic development is even more imperative.

• And having witnessed the positive role that Foreign Direct Investment (FDI) has played in the rapid economic growth of most of the Southeast Asian countries and most notably China.

• India has embarked on an ambitious plan to emulate the successes of her neighbors to the east and is trying to sell herself as a safe and profitable destination for FDI.

Definitions Of The Term “Privatization” and “Economic Privatization”

• The term “Privatization” refers to “The transfer of ownership of property or businesses from a government to a privately owned entity.”

• The transition from a publicly traded and owned

company to a company which is privately owned and no longer trades publicly on a stock exchange.

• The process of converting or "selling off" government-owned assets, properties, or production activities to private ownership.

• After several decades of increasing government control over productive activities, privatization came into vogue in the 1980s, along with business deregulation and an overall movement toward greater use of markets.”

• Privatization is frequently associated with industrial or service-oriented enterprises, such as mining, manufacturing or power generation, but it can also apply to any asset, such as land, roads, or even rights to water.

• In recent years, government services such as health, sanitation, and education have been particularly targeted for privatization

• Privatization helps establish a "free market", as well as fostering capitalist competition, which will give the public greater choice at a competitive price.

Reason for Indian Privatization

1. Crippling Budget deficit

2. Spectacular growth by economies of Korea, Taiwan, Malaysia in private sector

3. Collapse of USSR& communist government in eastern Europe

4. Changes in China

5. Emergence of professional management

6. IMF & World Bank extended arm to capitalism

7.Gulf crisis

8.Lack of demand in economy

9.Integration of world trade

10. Developed local capital market and Financing Institution

Recent Reasons

•To STENGTHEN Competition

•To improve public finance

•To fund Infrastructure Growth

•Accountability of share holders

•To reduce unnecessary interference

The main reason for increased efficiency gain as a result of privatization can be attributed to

(i)Less political interference in decision making

(ii)Staff remuneration is more closely linked to productivity and profitability

(iii)Firm are exposed to open market discipline as opposed to government support

(iv)Firm’s cost reducing effort are higher under competitive private ownership

Key obstacle to privatization(i)Lack of strong and high level political commitment to the

privatization program

(ii) Unclear and weak institutional frame work-decentralized or centralized. (ministry and provincial level)

iii) Lack of proper preparation of enterprise for privatization or divestment eg. Accounting and auditing , treatment of losses, social and environmental safety net

(iv) Insufficient transparency and flexibility in term of the method of privatization, balancing, ownership, and control (corporate governance)

(v) Vested interest of manager, employees and customer

(vi) Lack of appropriate legal frame work (eg. Property right, foreign ownershipbankruptcy law )

(vii) Underdeveloped capital markets

WAYS OF PRIVATIZATION

• DISINVESTMENT The action of an organization or government selling or liquidating an asset or subsidiary. Also known as "divestiture".

•  A company or government organization will divest an asset or subsidiary as a strategic move for the company, planning to put the proceeds from the divestiture to better use that garners a higher return on investment.

• Disposition or sale of an asset by a company. A company will often divest an asset which is not performing well, which is not vital to the company's core business, or which is worth more to a potential buyer or as a separate entity than as part of the company.

• CONTRACTING : policy established in 1984 to encourage competition for government contracts.

• The idea behind the policy is that the increased competition will result in improved savings to the government through more competitive pricing.

• FRANCHISING: Franchising is a method of doing business in which someone who has a successful business model shares it with other people in exchange for an annual fee and a percentage of the gross profits.

• PREMITING PRIVATE SECTOR ENTER INTO PSU RESERVED AREA like Arms and Ammunition, Railway Transport, Atomic Energy

• LIQUIDATION: When a business or firm is terminated or bankrupt, its assets are sold and the proceeds pay creditors. Any leftovers are distributed to shareholders.

• LEASING: A lease is a contractual arrangement calling for the lessee (user) to pay the lessor (owner) for use of an asset.

Role of AGRICULTURE in Economic Development

Why Agriculture Is Important

Before the Green Revolution, agriculture was widely seen as a stagnant, low-productivity, and residual sector

Agriculture came to be seen as a growth sector that could:

1. Generate more food and raw materials at lower prices;

2. Free up foreign exchange for the importation of strategic industrial and capital goods;

3. with rising rural incomes, provide a growing domestic market for nascent national industries;

4. reduce poverty by increasing labor productivity and employment in rural areas,

Role in Economic Development:

1. Contribution to National Income

2. Major source of Livelihood

3. Provider of Employment

4. Industrial development

5. International Trade

6. Capital Formation and Investment

7. Food and Fodder

Simon Kuznets identifies four factors contributing to the overall economic development.

1.Product contribution i.e., making available food and raw materials.

2. Market contribution i.e., providing the market for producer goods and consumer goods produced in the non-agricultural sector.

3.Factor contribution; making available labour and capital to the non-agricultural sector

4. Foreign Exchange contribution.

Relationship between Agricultural and non-agricultural sector

During the process of development, inter-dependence Between agriculture and industry has become stronger

Production Linkages

Arise from the interdependence of agriculture and industry for productive inputs.

Linkages have got further strengthened with agriculture’s dependence on industry reflecting the modernization of agricultural sector.

Demand linkages

There are strong demand linkages between the two sectors.

There is an impact of income and industrialization on the demand for food and agricultural raw materials.

Savings and Consumption linkages

There is an impact of rural income on industrialconsumption goods, i.e., clothing, footwear, sugar, edible oils, TV sets, washing machines, refrigerators, motor bikes, etc.

“Rural bazaar out buys urban market”.

Features of Indian Agriculture

Dependency on Monsoons

Multiplicity of Crops

Diversity in different Spheres

Semi-commercialized farming

Predominance of small farmers

Low level of productivity

Factors responsible for the backwardness of agriculture.

Factors can be classified as under:

1. Demographic factors

2. General factors

3. Technological factors

1. Demographic factors

Important Demographic factor responsible for low yield in agriculture is the increasing pressure of population on land.

Increasing population has fallen back on land for its livelihood,

Created problems like fragmentation and subdivision of holdings;

The supply of improved practices and services has always fallen short of requirements.

General Factors

Excess or surplus labour in Agriculture

Discouraging climate

Inadequate non-farm services

Size of holdings

Defective land tenure structure

Indebtedness of the farmers

Technical Factors

Inadequate Research

Inadequate irrigation facilities

Poor inputs and techniques

Agriculture Policy of India

Agricultural policy followed during the last five decades can be broadly distinguished In 3 phases.

The period from 1950/51 to mid 1960s which is also called pre green revolution period witnessed:

1. Tremendous agrarian reforms,

2. Institutional changes and

3. Development of major irrigation projects.

The intermediary landlordism was abolished, tenant operations were given security of farming and ownership of land.

Land ceiling acts were imposed by all the states to Eliminate large sized holdings

Cooperative credit institutions were strengthened to minimise exploitation of Cultivators by private money lenders and traders

Expansion of area was the main source of growth in the pre green revolution period.

The scope for area expansion diminished considerably in the green revolution period

Increase in productivity became the main source of Growth in crop output

There was significant acceleration in yield growthin green revolution period.

The country faced severe food shortage and crisis in early 1960s which forced the policy makers to realise that;

Continuous reliance on food imports and aid imposesHeavy costs in terms of political pressure and economic instability

There was a desperate search for a quick breakthrough in agricultural production.

One choice before the country was to go for spread of new seeds of high yielding varieties (HYV) of wheat and rice

This marked second phase of agriculture policy in the country.

The green revolution technology involved use of modern farm inputs, its spread led to fast growth in agro input industry.

Agrarian reforms during this period took back seat while;

Research,

Input supply,

Credit,

Marketing,

Price support and

Spread of Technology

were the prime concern of policy makers

Two very important institutions were created in this period, namely:

Food Corporation of India

To maintain buffer stock to guard against adverse impact ofyear to year fluctuations in output on price stability.

Agricultural Prices Commission,

To ensure remunerative prices to producers, maintain reasonable prices for consumers.

These two institutions have mainly benefited rice and wheat crops which are the major cereals and staple food for the country.

The next phase in Indian agriculture began in early 1980s.

While there was clear change in economic policy towards de-licensing and deregulation in Industry sector, agriculture policy lacked direction and was marked by confusion.

There has been a considerable increase in subsidies and support to agriculture sector during this period

Investments by farmers kept on moving on a rising trend

The rural economy started witnessing process of diversification which resulted into fast growth in non food grain output like milk, fishery, poultry, vegetables, fruits etc which accelerated growth in agricultural GDP during the 1980s.

Though green revolution has been widely diffused in irrigated areas throughout the country,

The dryland areas did not see benefit of technologicalbreakthrough.

National Agricultural Policy in July 2000.

Formulated to meet challenges facing Indian agriculture

Grouped in four categories relating to

(1) Growth

(2) Sustainability

(3) Efficiency and

(4) Equity.

There are also other important concerns like;

Food security,

Livelihood,

Employment,

Improvement in standard of living of agricultural population.

The National Policy on Agriculture seeks to actualize the vast untapped growth potential of Indian agriculture