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Globalization
“The best definition of globalization”
Princess Diana's death
An English princess with an Egyptian boyfriend
crashes in a French tunnel, driving a German car with a
Dutch engine, driven by a Belgian who was drunk on
Scottish whisky, followed closely by Italian Paparazzi, on
Japanese motorcycles; treated by an American doctor, using
Brazilian medicines.
This is sent to you by an American, using Bill Gates's
technology, and you're probably reading this on your
computer, that uses Taiwanese chips, and a Korean monitor,
assembled by Bangladeshi workers in a Singapore plant,
transported by Indian lorry-drivers, hijacked by
Indonesians, unloaded by Sicilian longshoremen, and
trucked to you by Mexican illegals..... (from the web)
What kinds of things cross international borders?
• Trade – goods and services.
– You can buy a TV from China, car from Japan, clothes from Indonesia or Italy.
– You can hire someone from India to write software or answer your telephone
• Capital – money, investment
– You can put your savings into a bank in Zurich.
– You can buy stock in SONY, a Japanese company
• People – immigrants, refugees, tourists
– Immigrants come to Canada from Asia, Africa, S. America, Europe
– You can easily travel to Europe, Asia, S. America
• Communication
– You can easily call or email people around the world
• Culture (art, music, cuisine)
– You can hear music from Brazil, South Africa, India
– Nearby restaurants: Chinese, Thai, Ethiopian, Indian
What is
Globalization?
• Globalization is integration of
different societies and economies
across the world.
• It may be defined as mindset
which views entire world as a
single market so that corporate
strategy is based on the dynamics
of global business environment.
7-11 Beijing
• Companies having global outlook
stop thinking of themselves as
national marketers who venture
abroad and start thinking of
themselves as global marketers.
KFC Kuwait
Globalisation - Definition
 IMF defines Globalisation as “ the growing economic
interdependence of countries worldwide through
increasing volume and variety of cross border
transactions in goods and services and of international
capital flows , and also through the more rapid and
widespread diffusion of technology.”
Globalization of World Economy
Globalization is the process of development of the
world into a single integrated economic unit.
 Transnational Economy is a borderless world
economy characterized by free flow of trade and factors
of production across national borders
 International Economy is characterized by existence
of different national economies and economic relations
between them being regulated by national governments.
Drivers of Globalization
 International trade (lower trade barriers and more
competition)
 Financial flows (FDI, technology transfers /licensing)
 Communications (traditional media and the internet)
 Technological advances in transportation , electronics
and related fields.
 Population mobility specially of labour
Globalization of business
 Doing, planning , expanding business globally
 Giving up the distinction between the domestic market
and foreign market and developing a global outlook of
the business
 Locating the production and other physical facilities on a
consideration of the global business dynamics ,
irrespective of national considerations
 Based on product development and production planning
on global market considerations.
 Raw materials are obtained from best source anywhere
in the world
 Global orientation of organizational structure and
management culture
Features of current
Globalization
 New Markets
Growing global markets in services – banking, Insurance
and transport
New Financial markets – globally linked, working round the
clock with action at a distance in real time.
Mergers and acquisitions
Global consumer markets with global brands
Features of current
Globalization
 New Actors
MNCs integrating their production and marketing ,
dominating food production
WTO – organization with authority to enforce national
government’s compliance with rules
Booming international network of NGOs
Regional blocks gaining importance – EU , ASEAN, NAFTA
etc
More policy coordination groups – G – 7, G20, OECD
Features of current
Globalization
 New Rules and Norms
Market economic policies spreading around the world, with
greater privatization and liberalization than in earlier
decades
Widespread adoption of democracy as a choice of political
regime
Growing awareness of human rights and conventions
among the people around the world
Conventions and agreements on global environment- ozone
, disposal of hazardous waste etc
Multilateral agreements in trade and taking on new agendas
as environmental and social conditions
Features of current
Globalization
 New (Faster and cheaper) Tools of communication
Internet and electronic communication linking many people
simultaneously
Cellular phones
Fax machines
Faster and cheaper transport by air, rail, road
Stages of Globalization - Kenichi
Ohmae
Stage one – Export-Orientated Company

A company which expands from its home production base to export markets using
dealers, distributors or agents.
Stage two – Overseas Branches

The company starts to set up its own sales, marketing and, perhaps, after-sales
services in foreign markets.
Stage three – Relocating Production

The company relocates production to key markets
Stage four – Insiderisation

The company creates complete ‘clone models’ of the parent in overseas markets,
enabling a complete local response to local consumers by being able both to
analyse consumers and tailor local products to their needs.
Stage five – The Global Company

Ohmae says that at this stage some common core functions ‘consolidate back to
the centre’ to provide the business with ‘common shard values’ – the global aspect
– whilst maintaining the ability to provide a specific local service. Operation
remains ‘dedicated to local management’, but there is global control of areas such
as R&D, brand development and so on.
Conditions for Globalization
Foreign Market Entry Strategies
1. Exporting
2. Licensing/ franchising
3. Contract Manufacturing
4. Management contract
5. Assembly operations
6. Fully owned manufacturing facilities
7. Joint venturing
8. Countertrade
9. Mergers and acquisitions
10.Strategic alliance
11.Third country location

Exporting is the process of selling of goods and services produced in one
country to other countries.

Licensing essentially permits a company in the target country to use the
property of the licensor. Such property usually is intangible, such as
trademarks, patents, and production techniques. The licensee pays a fee
in exchange for the rights to use the intangible property and possibly for
technical assistance.

Franchising While licensing arrangements are common for
manufacturing industries, franchising is common for service industries.
The company sells the franchise and limited use of its name for a lump
sum and share of profits. Franchisees usually have to abide by strict
rules. The advantages are the same as form licensing, i.e. low cost and
risk

Joint Venture with companies in the host country are a long favoured
mode of entry into new markets. The advantages are that the company
can benefit from the partner's local knowledge of business and political
systems, culture and language. The costs and risks are shared. And it
may be the only politically feasible mode of entry (Bradley, 1977). This is
an especially common reason now why companies entering the Chinese
market usually use the joint venture mode.
The Global Village
We live in a world in which all regions
are in contact with one another through
the mass media, instantaneous
communication, intercontinental travel,
and highly integrated economic and
political networks.
And it is changing cultures
Mobile phone tower Tanzania
Is Globalization Good or Bad?
a banner the protestors carried in
front of the IMF building in
Washington April 2000 read:
"worldwide coalition against
globalization".
McDonald’s has
become a symbol
of globalization
Globalization’s impact has, generally, been viewed pessimistically
For large parts of
Africa, about 200
million people
live, on less than
$1 a day.
Is Globalization
the cause or the
cure?
Advantages
 Free flow of technology helps developing countries to implement new
technology
 It offers producers a larger market since domestic firms in case of surplus
can export
 Improved standard of living – reduction in poverty and increase in prosperity
 Rapid industrialization and greater specialization help firms to gain
competitive advantage.
 Increases production and consumption
Increases employment and income
Cultural exchange and demand for variety of products
Disadvantages
 Increased environmental damage
 increased poverty, inequality.
 erosion of traditional culture
 Threat to domestic industry
Corporations are motivated by profit
and have little concern for people
 economic globalization developments
feed into ethnic, religious, and factional
tensions that lead to wars and help
breed terrorism
 Terrorists now globally interconnected
and empowered with knowledge, create
a whole new category of warfare based,
in part, on the disruption of the
interconnections which are both created
by and necessary for globalization
Unemployment and underemployment
of low skilled workers
Indian Economy – Step towards
Globalization
After 1991
Before 1991

Deep crisis in 1991

Inflation at 17%

High fiscal deficit

Lost confidence of NRIs and
foreign investors

Devaluation

Disinvestment

Dismantling of industrial licensing
regime

Allow FdI

Non resident indian scheme

Thrwoing open industries reserved
for public sector to private
participation

Abolition of MRTP act

Removal on quantitative restriction
on imports

Reduction of peak customs tariff

Wide ranging financial sector
reforms
Impact of Globalization on Indian
Economy
 Favorable impact on overall growth rate of economy . This is a major
improvement given that India’s growth rate in 70s was only 3% which
was less that Brazil and Indonesia(their GDP being almost twice)
 Annual growth rate almost doubled in 80s to 5.9 % and improved India’s
global position
 India’s position in global economy improved from 8th position to 4th
position in 2001
 Service sector now contributes to maximum part of GDP with
contribution of more than 57% with ranking 18th among leading exporter
of services.
 Boosting agricultural growth through diversification and development of
agro processing
 World class infrastructure
 Westernization of local culture
 Destruction of organic agriculture and depletion of natural resources
 Empowering population through universal education and healthcare