Globalization

“The best definition of globalization”

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Princess Diana's death

• 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 kinds of things cross international borders?

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.

• Companies having global outlook stop thinking of themselves as national marketers who venture abroad and start thinking of themselves as global marketers.

KFC Kuwait

7-11 Beijing

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 VillageWe 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

a banner the protestors carried in front of the IMF building in Washington April 2000 read: "worldwide coalition against globalization".

Is Globalization Good or Bad?

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?

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

Advantages

Disadvantages Increased environmental damage increased poverty, inequality. erosion of traditional culture Threat to domestic industryCorporations 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 globalizationUnemployment and underemployment of low skilled workers

Indian Economy – Step towards Globalization

Before 1991

Deep crisis in 1991

Inflation at 17%

High fiscal deficit

Lost confidence of NRIs and foreign investors

After 1991

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