Vaibhav Gupta 100
Shagun Toora 81
Globalization means the dismantling of trade
barriers between nations and the integration of
the nations economies through financial flow,
trade in goods and services, and corporate
investments between nations.
Globalization is the increasing interdependence,
integration & interaction among people and
corporation in various locations around the
A typical - but restrictive - definition can be taken from the
International Monetary Fund which stresses the growing economic
interdependence of countries worldwide through increasing volume
and variety of cross-border transactions in goods and
services, free international capital flows, and more rapid and
widespread diffusion of technology.
THREAT OR OPPORTUNITY
Globalization can be a force for good. It has the potential to generate wealth
and improve living standards. But it isn't doing that well at the moment.
The benefits from increased trade, investment, and technological innovation are
not fairly distributed.
The experience of the international trade union movement suggests that the
reality for the majority of the world's population is that things are getting
Globalization as we know it is increasing the gap between rich and poor. This is
because the policies that drive the globalization process are largely focused on
the needs of business.
Reasons For Globalization
Firm operate internationally for a number of reasons:
They may be seeking to secure better sources of raw materials & energy.
They may want to obtain access to low cost factors of production such as labour.
They may be attracted to certain countries because of subsidies those countries
They may be seeking new markets for their products.
Domestic markets may no longer be able to absorb production at minimum efficient
They may be motivated by life style factors.Domestic markets become saturated
.As they mature , firms look abroad for new opportunities.
They may be seeking opportunities for economies of scope & for learning
So why go ‘GLOBAL’?
Competition within your national market is becoming too intense so
you decide to push sales in overseas markets.
Your products within your national markets are reaching the end of
the lifecycle so you wish to push it into national markets.
Sales and profit are generally declining in national markets.
You wish to become a global player.
Forces Of Globalisation
The political stability of the nation. Is it a
democracy, communist, or dictatorial regime?
Monetary regulations. Will the seller be paid in a currency that
they value or will payments only be accepted in the host nation
Consumer wealth and expenditure within the country.
National interests and inflation rate.
Are quotas imposed on your product.
Are there import tariffs imposed.
Does the government offer subsidies to national players that make
it difficult for you to compete?
Language. Will language be a barrier to communication for you? Does your
host nation speak your national language? What is the meaning of your
brand name in your host country’s language?
Customs: what customs do you have to be aware of within the country?
This is important. You need to make sure you do not offend while
communicating your message.
Social factors: What are the role of women and family within society?
Religion: How does religion affect behaviour?
Values: what are the values and attitudes of individuals within the
The technological infrastructure of the market.
Do all homes have access to energy (electricity)
Is there an Internet infrastructure. Does this infrastructure
support broadband or dial up?
Will your systems easily integrate with your host country’s?
Market entry methods
After assessing the environment in your selected country, how do you
decide which are the best countries to enter? Following factors to be
considered before entering Speed – How quickly do you wish to enter your selected market?
Costs- What is the cost of entering that market?
Flexibility – How easy is it to enter/leave your chosen market?
Risk Factor – What is the political risk of entering the market? What are
the competitive risk? How competitive is the market?
Payback period – When do you wish to obtain a return from
entering the market? Are there pressures to break even and
return a profit within a certain period?
Long- term objectives- What does the organization wish to achieve
in the long term by operating in the foreign market? Will they
establish a presence in that market and then move onto others?
There are a number ways an organization can start to sell their
products in international markets.
1. Direct export.
The organization produces their product in their home market and
then sells them to customers overseas.
2. Indirect export
The organizations sell their product to a third party who then sells
it on within the foreign market.
Another less risky market entry method is licensing. Here the Licensor
will grant an organization in the foreign market a license to produce the
product, use the brand name etc in return that they will receive a royalty
Franchising is another form of licensing. Here the organization puts
together a package of the ‘successful’ ingredients that made them a
success in their home market and then franchise this package to oversea
investors. The Franchise holder may help out by providing training and
marketing the services or product. McDonalds is a popular example of a
Franchising option for expanding in international markets.
Another of form on market entry in an overseas market which
involves the exchange of ideas is contracting. The manufacturer of
the product will contract out the production of the product to
another organization to produce the product on their behalf.
Clearly contracting out saves the organization exporting to the
The ultimate decision to sell abroad is the decision to establish a
manufacturing plant in the host country. The government of the
host country may give the organization some form of tax advantage
because they wish to attract inward investment to help create
employment for their economy.
To share the risk of market entry into a foreign market, two
organizations may come together to form a company to operate in
the host country. The two companies may share knowledge and
expertise to assist them in the development of company; of course
profits will have to be shared out also
Factors Influencing Globalisation
Cable TV, personal computers, telephony and the Internet have created a
global village, tying the world closer together.
Businesses in the western world can have a call centre in India answering
calls from western customers.
has become cheap and quick.
People, especially in the western civilization, travel all over the world
People from other countries can travel to the west to seek better-paid
Businesses can more easily ship products and raw materials all over the
world - making products and services from all over the globe available to
Governments around the world have relaxed laws restricting trade and foreign investment
Countries in the developing world have opened up their countries to western businesses
Some governments offer grants and tax incentives to persuade foreign companies to
invest in their country.
The idea is that there should be no restrictions on trade between countries is known as
free trade or free market capitalism.
Free trade involves a minimum of government intervention to regulate trade such as
taxes on imported goods and services, quotas on imported goods and services, and
Protectionist trade policies involve government intervention in the market by regulating
prices on goods and services and supply restrictions. Such government interventions
generally increase the cost of goods and services to both consumers and producers.
Interventions include subsidies, taxes on goods and services, and other laws regulating
the economic market and investments by for example by domestic and foreign companies
Impacts of Globalisation
Positive Impacts of Globalisation
Improved standard of living:
Investment by MNCs helps countries by providing new jobs and
skills for local people.
More wealth to local economies:
MNCs bring wealth / foreign currency to local economies when
they buy local resources, products and services - providing
resources for education, health and infrastructure
Cultural exchange and contact:
There is far more mixing of people and cultures from all over the world,
enabling more sharing of ideas, experiences, and lifestyles.
People can experience foods and other products not previously available in
In this way globalization may diminish cultural barriers between people, and
make people more open-minded to other cultures and knowledgeable.
Globalisation can help make people aware of events in far-away parts of the
For example, people in Norway were quickly aware of the impact of the 2004
Tsunami tidal wave on countries in South East Asia, and were therefore able
to send help rapidly
It may help make people more aware of global issues such as
and alert them to the need for sustainable development
Negative Impacts of Globalisation
However not all people think that globalisation is such a great idea. Critics
include many different groups such as
environmentalists, anti-poverty campaigners and trade-unionists.
Some of the negative impacts they point to are:
Exploitation of developing countries: Globalisation operates mostly in
the interests of the richest countries which continue to dominate world
trade, and at the expense of developing countries - whose role in the
world market is mostly to provide the North and West with cheap labour
and raw materials.
Unemployment and ousting of local businesses: There are no
guarantees that the wealth from inward investment will benefit the local
community. Often, profits are sent back to the MEDC where the MNC is
based. Multinational companies, with their massive economies of scale,
may drive local companies out of business. If it becomes cheaper to
operate in another country the MNC might close down the factory and
make local people redundant.
Violation of international laws: Lack of strictly enforced international
laws means that MNCs may operate in a way that would not be allowed in
an MEDC - for example polluting the environment, running risks with
safety or imposing poor working conditions and low wages on local
A threat to cultural diversity: Globalisation is viewed by many as
a threat to the world's cultural diversity - drowning out local
economies, traditions and languages and re-casting the whole world
in the mould of the capitalist North and West. An example is that a
Hollywood film is far more likely to be successful worldwide than
one made in India or China, which also have thriving film industries.
Components of Globalisation
Globalization of Market
Globalization of Production
Globalization of Investment
Globalization of Technology
Globalization of Market
Globalization of markets refers to the process of integrating and
merging of the distinct world markets into a single market. This
process involves the identification of some common norm, value,
taste, preference and convenience and slowly enables the cultural
shift towards the use of common product or service.
Features of Globalisation of Markets
The size of the company need not to be large to create a global
market. Even small companies can create a global market .
The distinction of global market are still prevailing even after the
globalization of market. These distinction require the companies to
formulate different strategies for each market.
Most of the foreign markets are the markets for non consumer
goods like machinery, equipments, raw material, software etc.
The global business firms compete with each other frequently in
different national markets including their home markets.
Reasons for Globalisation of Markets
Large scale industrialization enabled mass production.
Company in order to reduce
the risk diversify the portfolio of
To cater to the demand for their product in foreign market.
Companies globalize markets in order to increase their profits and
achieve company goals.
Globalisation of Production
Factors influencing the location of manufacturing facilities vary
from country to country. They may be more favorable in foreign
countries rather than in home country.
Reasons for globalization of production
Imposition of restrictions on imports by the foreign countries
forces the MNC’s to establish manufacturing facilities in other
Availability of high quality raw materials.
Availability of inputs at low cost in foreign countries.
To reduce the cost of transportation and easy logistic management.
Globalization of investment
Globalization of investment refers to investment of capital by a
global company in any part of the world. Global company conducts
the financial feasibility of the new projects in different countries
of the world and invest the capital in that country where it is
relatively more profitable
Globalization of investment is also known as Foreign direct
Reasons of Globalization of investment
There has been a rapid increase in globalization of trade.
Many countries provided more congenial environment for attracting
Limitations of exporting and licensing force the domestic
companies to enter foreign markets through FDI.
Liberalizing the measures of flow of foreign capital across the
borders of various countries.
Global companies in order to have the control over manufacturing
and marketing activities , invest in the foreign country.
Globalization of Technology
Methods of Globalization technology
Companies with the latest technology acquire distinctive competencies
and gain the advantages of producing high quality products at low cost.
Companies may have technological collaboration with the foreign
companies through technology which spreads from country to country.
The foreign companies allow the companies of various other countries
adopt their technology on royalty payment basis or on outright purchase
Company also globalize the technology through the modes of joint
ventures and mergers.
How technology fastens the process of
Microprocessors and telecommunication
The Internet and world wide web
Drivers of Globalisation
The drivers of globalisation can be classified into
Per capita income converging among industrialised nations
Convergence of lifestyles and tastes
Organisations beginning to behave as global consumers
Increasing travel create global consumers
Growth of global and regional channels
Establishment of world brands
Push to develop global advertising
Continuing push for economies of scale
Accelerating technological innovation
Advances in transportation
Emergence of newly industrialized countries with productive
capability and low labor costs
Increasing cost of product development relative to market life
Reduction of tariff barriers
Reduction of non-tariff barriers
Creation of blocs
Decline in role of governments as producers and consumers
Privatization in previously state-dominated economies
Shift to open market economies from closed communist systems in
Increasing participation of China and India in the global economy
Continuing increases in the level of world trade
Increased ownership of corporations by foreign acquirers
Rise of new competitors intent upon becoming global competitors
Growth of global networks making countries interdependent in
More companies becoming globally centered rather than nationally
Increased formation of global strategic alliances
Challenges of Globalisation
Globalization poses four major challenges that will have to be addressed by governments, civil
society, and other policy actors.
One is to ensure that the benefits of globalization extend to all countries. That will certainly not
The second is to deal with the fear that globalization leads to instability, which is particularly
marked in the developing world.
The third challenge is to address the very real fear in the industrial world that increased global
competition will lead inexorably to a race to the bottom in wages, labor rights, employment
practices, and the environment.
And finally, globalization and all of the complicated problems related to it must not be used as
excuses to avoid searching for new ways to cooperate in the overall interest of countries and
Advantages of Globalisation
Resources of different countries are used for producing goods and services they
are able to do most efficiently.
Consumers to get much wider variety of products to choose from.
Consumers get the product they want at more competitive prices.
Companies are able to procure input goods and services required at most
Companies get access to much wider markets
It promotes understanding and goodwill among different countries.
Businesses and investors get much wider opportunities for investment.
Adverse impact of fluctuations in agricultural productions in one area can be
reduced by pooling of production of different areas.
Reduces international poverty
Contributes to the spread of technology
Adds to the profitability of companies and corporations.
Globalisation helps in bringing whole world as one village. Every consumer
have free and frequent reach to the products of foreign countries.
Optimum use of natural resources possible.
Helpful in cost reduction by eliminating cross border duties and fees
Helpful in employment generation and income generation
Disadvantages of Globalisation
Developed countries can stifle development of undeveloped and under-developed
Economic depression in one country can trigger adverse reaction across the globe.
It can increase spread of communicable diseases.
Companies face much greater competition. This can put smaller companies, at a
disadvantage as they do not have resources to compete at global scale.
Globalisation is direct attack on local tiny and small industry.
Global companies with hi-fi infrastructure almost ruins the local traditional small
and medium industries
Increases cut throat competition.
Globalisation increases monopoly by countries equiped with know-how and power.
It increases the gap between the poor and rich.-income inequalities-poverty trap Cultural convergence-more people are moving towards the western fashion
Environmental harrm-resourses are used up-scarcity-creates externalitiespollution-waste products.
Demand more of skilled workers and causing redundancy of skilled workers.
Increased flow of skilled and non-skilled jobs from developed to developing nations
as corporations seek out the cheapest labor
Increased likelihood of economic disruptions in one nation effecting all nations
Corporate influence of nation-states far exceeds that of civil society organizations
and average individuals
Threat that control of world media by a handful of corporations will limit cultural
Greater chance of reactions for globalization being violent in an attempt to
preserve cultural heritage
Greater risk of diseases being transported unintentionally between nations
Spread of a materialistic lifestyle and attitude that sees consumption as the path
International bodies like the World Trade Organization infringe on national and
Increase in the chances of civil war within developing countries and open war
between developing countries as they vie for resources
Types of International organisations
In a multinational corporation or an international company Products
and technologies are developed for the home market, extended to
other countries with similar market characteristics, then diffused
elsewhere, and the developmental sequence is decided on the basis
of managing the product lifecycle as efficiently and flexibility as
The TRANSNATIONAL company evolved in the 1980s in response
to environmental forces and simultaneous demands for global
efficiency, national responsiveness, and worldwide learning. The
transnational model combines features of multinational, global, and
international models. A product is designed to be globally
competitive, and is differentiated and adapted by local subsidiaries
to meet local market demands.
The GLOBAL company, centralizes key functions – including
marketing and finance. Headquarters produces the new technology
and disseminates it to subsidiaries. Cost advantages are achieved
through economies of scale and global-scale operations. The need
for efficiency and economies of scale means that products are
developed that exploit needs felt across the range of countries.
Specific local needs tend to be ignored.
MNC vs TNC
Transnational corporations are a type of multinational corporations.
MNC have an international identity as belonging to a particular
home country where they are headquartered. On the other hand,
transnational corporations are more or less borderless in this
regard as they do not consider a particular country as their base.
Multinationals have branches in other countries, whereas
transnational have subsidiaries.
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