GLOBALISATION: CONCEPTS, PROBLEMS

AND CHALLENGES

Yash Bhagat
D.E.I
Contents
 INTRODUCTION
 CHALLENGES

 PROBLEMS

 PROSPECTS

 CONCLUSION
 Discuss globalization trends of Indian
Business organizations and obstacles to
become global for Indian businesses.
 Analyze the factors which are helping India in
Globalization and what is the strategy adopted by
Indian Industry in globalizing itself .
 What are the challenges of Global Business
that one faces when becoming global player?
Give example of Indian company that you
have read about.
INTRODUCTION

The interweaving of markets, technology,

information systems and telecommunications
systems in a way that is shrinking the world from
a size medium to a size small, and enabling each
of us to reach around the world farther, faster,
deeper, and cheaper than ever before, and
enabling the world to reach into each of us
farther, faster, deeper, cheaper than ever before
Globalisation
 Definition:
 An economic phenomenon?
 A social phenomenon?
 A cultural phenomenon?
 Political phenomenon?
 The movement towards the expansion of economic
and social ties between countries through the spread
of corporate institutions and the capitalist philosophy
that leads to the shrinking of the world in economic
terms.
Globalisation

Globalisation
could involve
all these
things!
Integration of Economies
 The increasing reliance of
economies on each other
 The opportunities to be able to
buy and sell in any country in
the world
 The opportunities for labour
and capital to locate anywhere
in the world
 The growth of global markets in
finance
Stock Markets are now accessible from anywhere
in the world!

Copyright: edrod, stock.xchng

Integration of Economies
 Made possible by:
 Technology
 Communication networks

 Internet access

 Growth of economic cooperation – trading blocs

(EU, NAFTA, etc.)
 Collapse of ‘communism’

 Movement to free trade

Trade versus Aid?
 Benefits of Trade:
 Increased choice
 Greater potential for
growth
 Increase international
economies of scale
 Greater employment
opportunities

Trade has led to massive increases in wealth for many

countries.

Copyright: budgetstock, stock.xchng

 Trade versus Aid?
 Disadvantages
of trade:
 Increase in gap between the
rich and the poor
 Dominance of global trade
by the rich, northern
hemisphere countries
 Lack of opportunities for
the poor to be able to have
access to markets
 Exploitation of workers and
growers How far does trade help children like these?
Copyright: clesio, stock.xchng
Corporate Expansion
 Multi-national
or trans-national corporations
(MNCs or TNCs) –
businesses with a
headquarters in one country
but with business operations
in a number of others.

No matter where you go in the world, certain

businesses will always have a presence.
Copyright: mkeky, stock.xchng
 Corporate Expansion

 Characteristics:
 Expanding revenue
 Lowering costs
 Sourcing raw materials
 Controlling key supplies
 Control of processing
 Global economies
of scale

Controlling supplies may be one reason

for global expansion.
Copyright: rsvstks, stock.xchng
Corporate Domination
 Key Issues:
 Damage to the

environment?
 Exploitation of labour?

 Monopoly power

 Economic degradation

 Non-renewable resources

 Damage to cultures

Shell and Nike’s activities have come

under severe criticism
in some quarters.
Copyright: Homsel, stock.xchng
 Other Issues:
 Accountability
of Global businesses?
 Increased gap between rich
and poor fuels potential
terrorist reaction
 Ethical responsibility of
business?
There are plenty of people who believe that globalisation
 Efforts to remove trade
is a negative development, protests at the G8 summits,
pollution, poverty and concern over GM crops are just
barriers
some of the issues.

Copyright: stock.xchng
Obstacles to Globalization: issues
 Government Policy and Procedures:
 Government policy and procedures in India are among the most
complex, confusing and cumbersome in the world. Even after the much
publicised liberalisation, they do not present a very conducive situation.
One prerequisite for success in globalisation is swift and efficient
action. Government policy and the bureaucratic culture in India in this
respect are not that encouraging.
 High Cost:
 High cost of many vital inputs and other factors like raw materials and
intermediates, power, finance infrastructural facilities like port etc.,
tend to reduce the international competitiveness of the Indian business.
Background: GLOBALISATION OF INDIAN
BUSINESS

 India's economic integration with the rest of the world was

very limited because of the restrictive economic policies
followed until 1991.
 Indian firms confined themselves, by and large, to the home
market. Foreign investment by Indian firms was very
insignificant.
 Globalization has in fact become a buzz-word with Indian
firms now, and many are expanding their overseas business by
different strategies.
 This Chapter takes a look at the hurdles to and prospects for
globalization of Indian business and the different globalization
strategies.
Issues
 Poor Infrastructure .
 India is generally inadequate and inefficient and therefore very costly. This is a
serious problem affecting the growth as well as competitiveness.
 Obsolescence:
 The technology employed, mode and style of operations etc., are, in general,
obsolete and these seriously, affect the competitiveness.
 Resistance to Change:
 There are several socio-political factors which resist change and this comes in
the way of modernisation, rationalisation and efficiency improvement.
Technological modernisation is resisted due to fear of unemployment. The
extent of excess labour employed by the Indian industry is alarming. Because
of this labour productivity is very low and this in some cases more than offsets
the advantages of cheap labour.
Issues
 Poor Quality Image:
 Due to various reasons, the quality of many Indian products is poor. Even when
the quality is good, the poor quality image India has becomes a handicap.
 Supply Problems:
 Due to various reasons like low production capacity, shortages of raw materials
and infrastructures like power and port facilities, Indian companies in many
instances are not able to accept large orders or to keep up delivery schedules.
 Small Size:
 Because of the small size and the low level of resources, in many cases Indian
firms are not able to compete with the giants of other countries. Even the
largest of the Indian companies are small compared to the multinational giants.
 Lack of Experience:
 The general lack of experience in managing international business is another
important problem.
Issues
 Limited R & D and Marketing Research: .
 R & D in other areas are vital inputs for development of international business.
However, these are poor in Indian business
 Expenditure on R & D in India is less than one per cent of the GNP while it is
two to three percent in most of the developed countries. In 1994-95, India's per
capita R&D expenditure was less than $3 when it was between S100 and $825
for most of the developed nations.
 Growing Competition:
 The competition is growing not only from the firms in the developed" countries
but also from the developing country firms. Indeed, the growing competition
from the developing country firms is a serious challenge to India's international
business.
 Trade Barriers:
 Although the tariff barriers to trade have been progressively reduced thanks lo
the GATT/WTO, the non-tariff barriers have been increasing, particularly in the
developed countries. Further, the trading "blocs like the NAFTA, EC etc., could
also adversely affect India's business
 Corruption :
 It is eating country at all levels right from small babu in government to Top
Political Leaders as seen recently in scams to the magnitude never imagined
before .
Factors favoring globalization
 Human Resources:
 India has one of the largest pool of scientific and technical manpower. The
number of management graduates is also surging. It is widely recognised that
given the right environment, Indian scientists and technical personnel can do
excellently.
 While several countries are facing labour shortage and may face diminishing
labour supply , India presents the opposite picture. Cheap labour has particular
attraction for several industries. Labour problems are on decline
 Wide Base:
 India has a very broad resource and industrial base which can support a variety
of businesses.
 Growing Entrepreneurship:
 Many of the established industries are planning to go international in a big way.
Added to this is the considerable growth of new and dynamic entrepreneurs
who could make a significant contribution to the globalisation of Indian
business.
Positives
 Growing Domestic Market:
 The growing domestic market enables the Indian companies to
consolidate their position and to gain more strength to make foray into
the foreign market or to expand their foreign business.
 Niche Markets:
 There are many marketing opportunities abroad present in the form of
market niches. Such niches are particularly attractive for small
companies. Several Indian companies have become very successful by
niche marking.
 Expanding Markets:
 The growing population and disposable income and the resultant
expanding internal market provides enormous business opportunities.
Positives
 Trans nationalisation of World Economy:
 Tran nationalisation of the world economy, i.e., the integration of the
national economies into a single world economy as evinced by the
growing interdependence and globalisation of markets is an external
factor encouraging globalisation of India business.
 NRIs:
 The large number of non-resident Indians who are resourceful - in
terms of capital, skill, experience, exposure, ideas etc., is an asset
which can contribute to the globalisation of Indian business.
Positives
 Economic Liberalisation:
 The economic liberalisation in India is an encouraging
factor of globalisation. The delicensing of industries,
removal of restrictions on growth, opening up of industries
earlier reserved for the public sector, import liberalisations,
liberalisation of policy towards foreign capital and
technology etc., could encourage globalisation of Indian
business. Further, liberalisation in other countries increases
the foreign business opportunities for Indian business.
 Competition:
 The growing competition, both from within the country and
abroad, provokes many Indian companies to look, to
foreign markets seriously to improve their competitive
position and to increase the business. Sometimes
companies enter foreign market as a counter - competitive
strategy, i.e., m fight the foreign company in its own home
market to weaken its competitive strength
 Benefits of Globalization Problems of Globalization
Economies of countries that engage well with the There are social and economic costs t o
international economy have consistently grown globalization. Trade liberalization rewards
much faster than those countries that try to protect competitive industries and penalizes
themselves. Well managed open economies have uncompetitive ones, and it requires participating
grown at rates that are on average 2 ½ percentage countries to undertake economic restructuring and
points higher than the rate of growth in economies reform. While this will bring benefits in the long
closed to the forces of globalization. term, there are dislocation costs to grapple with in
the immediate term, and the social costs for those
affected are high.
Countries which have had faster economic growth Some countries have been unable to take
have then been able to improve living standards advantage of globalization and their standards of
and reduce poverty. India has cut its poverty rate living are dropping further behind the richest
in half in the past two decades. China has reduced countries. The gap in incomes between the 20% of
the number of rural poor from 250 million in 1978 the richest and the poorest countries has grown
to 34 million in 1999. Cheaper imports also make a from 30 to 1 in 1960 to 82 to 1 in 1995.
wider range of products accessible to more people
and, through competition, can help promote
efficiency and productivity.
Improved wealth through the economic Increased trade and travel havefacilitated
gains of globlisation has led to improved the spread of human, animal and plant
access to health care and clean water which diseases, like HIV/AIDS, SARS and bird
has increased life expectancy. More than 85 flu, across borders. The AIDS crisis has
percent of the world's population can expect reduced life expectancy in some parts of
to live for at least sixty years (that's twice as Africa to less than 33 years and delays in
long as the average life expectancy 100 years addressing the problems, caused by
ago!) economic pressures, have exacerbated the
situation.
Globalisation has also enabled
theintroduction of cigarettes and tobaccoto
developing countries, with major adverse
health and financial costsassociated with
that.
Increased global income and reduced The increasing interdependence of countries
investment barriers have led to an increase in a globalised world makes them more
in foreign direct investment which has vulnerable to economic problems like the
accelerated growth in many countries. In Asian financial crisis of the late 1990's.
1975, total foreign direct investment
amounted to US$23 billion while in 2003 it
totalled US$575 billion.
Improved environmental awareness and The environment has been harmed as
accountability has contributed to positive agricultural, forest, mining and fishing
environmental outcomes by encouraging the industries exploit inadequate environmental
use of more efficient, less-polluting codes and corrupt behaviour in developing
technologies and facilitating economies' countries. Agricultural seed companies are
imports of renewable substitutes for use in destroying the biodiversity of the planet,
place of scarce domestic natural resources. and depriving subsistence farmers of their
livelihood.

Increasing interdependence and global The major economic powers have a major
institutions like WTO and World Bank, that influence in the institutions of globalisation,
manage the settlement of government-to- like the WTO, and this can work against the
government disputes, have enabled interests of the developing world. The level of
international political and economic tensions agricultural protection by rich countries has
to be resolved on a "rules based" approach, also been estimated to be around five times
rather than which country has the greatest what they provide in aid to poor countries
economic or political power. Importantly it
hasbolstered peace as countries are unlikely to
enter conflict with trading partners and
poverty reduction helps reduce the breeding
ground for terrorism.
The voluntary adoption by global companies Globalised competition can force a 'race
of workplace standards for their to the bottom' in wage rates and labour
internationalised production facilities in standards. It can also foster a 'brain
developing countries has made an important drain' of skilled workers, where highly
contribution to respect for international educated and qualified professionals, such
labour standards. Wages paid by as doctors, engineers and IT specialists,
multinationals in middle- and low-income migrate to developed countries to benefit
countries are on average 1.8 to 2.0 times the from the higher wages and greater career
average wages in those countries. and lifestyle prospects. This creates severe
skilled labour shortages in developing
countries.

International migration has led to greater Indigenous and national culture and
recognition of diversity and respect for languages can be eroded by the modern
cultural identities which is improving globalised culture.
democracy and access to human rights.
Improved technology has dramatically reduced costs Trade liberalisation and technological
and prices changing the way the world communicates, improvements change the economy of a
learns, does business and treats illnesses. Between country, destroying traditional agricultural
1990 and 1999, adult illiteracy rates in developing communities and allowing cheap imports of
countries fell from 35 per cent to 29 per cent. manufactured goods. This can lead to
unemployment if not carefully managed, as work
in the traditional sectors of the economy becomes
scarce and people may not have the appropriate
skills for the jobs which may be created.

Modern communications and the global spread of Modern communications have spread an awareness
information have contributed to the toppling of of the differences between countries,
undemocratic regimes and a growth in liberal and increased the demand for migration to richer
democracies around the world. countries. Richer countries have tightened the
barriers against migrant workers, xenophobic fears
have increased and people smugglers have exploited
vulnerable people.
CONCLUSION
 The impact of globalization on Indian economy is a
critical fusion of rewards and costs
 certain economic indicators like GDP growth, Foreign
direct investment,, Forex reserves etc had a positive face
but indicators like Unemployment, Poverty, education,
Health, social issues were not so up to the mark.
 In such situation of projections and expectations, the
role of Indian policy makers is certainly very crucial.
 They have to adopt such policies and execute such
programmes, which can optimize the positive effect and
minimize the evil effects of this most talked about
phenomenon called Globalization
THANK YOU!