Introduction
The interconnectedness across countries on many dimensions, such as cultural, political, social and economic, is globalisation. When we talk about globalisation and the Indian Economy, we are limiting our study to the economic dimension only. The economic dimension of globalisation is the integration between countries through foreign trade and foreign investments.
Multinationals or MNCs (Multi-National Corporations) as they are called play a major role in the globalization process, connecting distant regions of the world. Integration of production and integration of markets is the key idea behind understanding the process of globalisation and its impact.
Globalisation has been facilitated by three main factors:
➢ Rapid improvement in technology.
➢ Liberalisation of trade and investment policies.
➢ International organisations such as the WTO (World Trade Organisation)
Production across Countries
Until the middle of the twentieth century, production was largely organised within countries. Only raw materials, food stuff and finished products were exported to other countries. India exported raw materials and food stuff and imported finished goods. Trade was the main channel connecting distant countries.
Towards the end of the 20 century large companies called Multi-National Corporations (MNCs) emerged on the scene. A MNC is a company that owns or controls production in more than one nation. MNCs set up offices and factories for production in regions where they can get cheap labour and other resources. The cost of production is reduced considerably due to cheap labour and the MNCs earn great profits.MNCs not only sell their finished products globally, the goods and services are produced globally. Because of this global production, today’s consumer has a wide choice of goods and services at a very reasonable price. The concept of ‘foreign goods’ is totally irrelevant today. The latest models of digital cameras, mobile phones
and televisions made by the leading manufacturers of the world are produced in our country, at our doorstep itself.
Let us see a MNCs in the Service Sector.
Cognizant Technology Solutions is a MNC
which provides end-to-end solutions in Consulting, Application Value Management,
Application Development, Re-engineering, and Platform Consolidation across all major technologies. The company’s Head Quarters is in New Jersey, USA.
The Company has Offices in the following countries.
(i) Canada
(ii) United Kingdom
(iii) Germany
(iv) Switzerland
(v) India
(vi) Malaysia
(vii) Singapore
(viii) Australia
Let us see a MNC in the Industrial Sector.
Nokia was a riverside paper mill in South western Finland about a century ago. Today due to Globalization it has spread its roots across many countries and is the global telecommunications leader.
The advantage of spreading out production
across the borders for multinationals can be
truly immense.
The company’s Head Quarters is in Finland. The Company has Offices in the following countries.
i) Brazil
ii) China
iii) Finland
iv) Germany
v) Great Britain
vi) Hungary
vii) India
viii) Mexico
Interlinking Production across Countries
MNCs look into 4 major criteria before they set up production in any place.
• The factory or company should be close to the markets
• Skilled and unskilled labour should be available at low costs
• Availability of other factors of production should be assured. (eg. Infrastructure)
• Local Government policies should be in their interests.
When the above conditions are to their satisfaction MNCs set up factories and offices for production in different countries. As these MNCs are setting up factories in a foreign country, the investment they make in terms of acquiring land, constructing buildings and buying machinery is called foreign investment.
At times, MNCs set up production jointly with some of the local companies of these countries. Then the local company benefits in 2 ways from this joint venture.
➢ MNCs provide money for additional investments, like buying new machines for faster production.
➢ MNCs introduce the latest technology for production.
MNCs are spreading their production and
interacting with local producers in various countries across the globe.
• MNCs are setting up partnerships with local companies
• MNCs are using the local companies for supply of raw material or accessories
• MNCs are closely competing with the local companies
• MNCs are taking over local companies with their immense money power.
Thus, MNCs are exerting a strong influence
on production at distant locations. As a result, production in these widely dispersed locations is getting interlinked.
The most common strategy for a Multi-National Corporation is to first buy a local company and then to expand production. Depending on the product, MNCs adopt another strategy also. In labour intensive products like garments and footwear, MNCs place huge orders from developing nations, and then sell these under their own brand names to the customers, thus making a huge profit.
Foreign Trade and Integration of Markets
For a long time, foreign trade has been the main channel connecting countries. Even as early as the 8-century extensive trade took place between South Asia, including India, and the East and West. Trading interests attracted various trading companies such as the East India Company to India.
The benefits of foreign trade were tremendous:
• Foreign trade created an opportunity for the producers to reach beyond the domestic markets, i.e., markets of their own countries.
• Producers could compete in markets located in other countries of the world.
• Expanding foreign trade gave consumers a wider choice of goods beyond what is domestically produced.
So, due to foreign trade and the integration
of markets…
• Goods travel from one market to another.
• Choice of goods in the markets rises.
• Prices of similar goods in the two markets (where it is produced and where it is sold) tend to become equal.
• Producers in the two countries compete against each other even though they are separated by
thousands of miles.
Foreign trade results in connecting and integrating markets in different countries.
What is Globalisation?
Globalisation is the rapid integration or interconnection between countries mostly on the economic plane. In other words,Globalisation means integrating our economy with the world economy.
So, Globalisation is the interconnection between countries. Now let us see how countries are interconnected.
• MNCs are spreading their base and setting up factories or companies in other countries where labour is cheap.
• There is huge foreign investments and transfer of latest technology.
• Movement of people between countries increases due to globalisation.
The credit for globalisation rests entirely with MNCs. The investment made by these companies has raised the economic status of many developing countries.
Foreign trade between countries has also risen rapidly. The activities of most MNCs involve trade in goods and also services.
Factors that enabled Globalisation
Factor 1 - Technology
Rapid improvement in technology has been one major factor that has stimulated the globalisation process.
(a) Transportation Technology
The dramatic improvement in transportation technology has played a vital role in faster delivery of goods across long distances at lower costs and in the movement of people from one country to another in a short time. As the basis of globalisation is foreign trade and foreign investment (MNCs) movement of goods and people are vital for globalisation.
(b) Information and Communication Technology
Information and communication technology (or IT in short) has played a major role in spreading out production of services across countries. Many MNCs are service based companies therefore the transfer of information is very vital to them. Computers, internet facilities, telegraph, telephones mobile phones, and fax are used
to contact one another around the world, to
access information instantly, and to communicate from remote areas. This has been facilitated by satellite communication devices. Internet also allows us to send instant electronic mail (e-mail) and talk (voicemail) across the world at negligible costs.
Factor 2 - Liberalisation of foreign trade and investment policy
Liberalisation of foreign trade and investment policy is removing barriers or restrictions set by the government.
(a) Removing Trade Barriers
When the government on imports imposes tax, it is called a trade barrier. Governments use trade barriers to increase or decrease (regulate) foreign trade and to decide what kinds of goods and how much of each, should come into the country. The Indian government, after Independence, had put barriers to foreign trade and foreign investment. This was considered necessary to protect the producers within the country from foreign competition.
During the end of the 20th century, India removed trade barriers and Indian producers were allowed to compete with producers around the globe.
(b) Liberalisation of investment policies Barriers on foreign investment were also removed to a large extent enabling many MNCs to set up their factories in India.
Thus, the rapid improvement in technology and the liberalization of foreign policies paved the way for globalisation in India.
World Trade Organisation
Location: Geneva, Switzerland
Established: 1 January 1995
Created by: Uruguay Round negotiations (1986-94)
Membership: 164 countries on July 2016
Budget: 220 million US$
Secretariat staff: 625
Head: Ngozi Okonjo-Iweala (Director-General)
World Trade Organisation (WTO) is an international body, which aims at liberalising international trade. It was started at the initiative of the developed countries.
➢ WTO establishes rules regarding international trade.
➢ It sees that the member countries obey these rules and 164 countries of the world are currently members of the WTO (2016).
o Administering WTO trade agreements.
o Forum for trade negotiations.
o Handling trade disputes.
o Monitoring national trade policies.
o Technical assistance and training for developing countries.
o Cooperation with other international organizations.
Positive Impact of Globalisation in India
The impact of globalisation in India has been tremendous.
• Greater competition among producers resulting from Globalisation is a great advantage to consumers as there is greater choice before them.
• Due to globalisation many MNCs have increased their investments in India. This means thousands of people are getting highly paid jobs and, enjoy much higher standards of living than was possible earlier.
• Local companies supplying raw materials, to these industries have prospered.
• Top Indian Companies have benefit from increased competition. They have invested in newer technology and production methods and raised their production standards.
• Some Indian companies have gained from successful collaborations with foreign companies.
• Large Indian companies have emerged as multinationals like Tata Motors.
• Globalisation has also created new opportunities for Indian companies providing services, particularly in the IT field. This has generated thousands of jobs.
Negative Impact of Globalisation in India
There is also a negative side to globalisation
in India. For a large number of small producers and workers globalisation has posed major challenges.
Let us look into reasons for this negative
impact:
1. Rising Competition
Liberalisation of Foreign Trade policies allowed the import of electronic goods at a very cheap cost. Local producers of electronic goods were not able to meet with this challenge. MNCs flooded the market with quality products at a cheap price. Local producers are not able to compete with this and are put to hardship, as their goods do not have a market.
2. Uncertain Employment
In order to compete in the world market exporters, try and cut labour costs. Workers are denied their fair share of benefits as manufacturers are always on the lookout for cheaper labour.
The Struggle for a Fair Globalisation
As seen, globalisation has two sides - the positive and the negative. If a balance has to be brought about, we should strive towardsfair globalisation.
On one hand we have people with education, skill and wealth who have benefited from globalisation, on the other hand, there are the uneducated, less skilled people who have not benefited from it.
The government can play a major role in ensuring that the fruits of globalisation reach everyone, the educated and the uneducated, equally. Its policies must protect the interests, not only of the rich and the powerful, but all the people in the country.
The Indian Government should ensure that…
• Labour laws are properly implemented, and the workers get their rights.
• The government should support small producers to improve their performance till the time they
become strong enough to compete.
• If necessary, the government should use trade and investment barriers the protect small producers.
• The government should negotiate at the WTO for ‘fairer rules.
• It can also align with other developing countries with similar interests to fight against the domination of developed countries inthe WTO.
Massive campaigns and representation by people’s organisations have influenced important decisions relating to trade and investments at the WTO. This has demonstrated that people also can play an important role in the struggle for fair
globalisation.
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