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Globalization. “The best definition of globalization” An English princess with an Egyptian boyfriend crashes in a French tunnel, driving a German car.

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Presentation on theme: "Globalization. “The best definition of globalization” An English princess with an Egyptian boyfriend crashes in a French tunnel, driving a German car."— Presentation transcript:

1 Globalization

2 “The best definition of globalization” 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) Princess Diana's death

3 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 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?

4 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

5 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.”

6 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.

7 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

8 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

9 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

10 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

11 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

12 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

13 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.

14 Conditions for Globalization

15 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

16  Exporting is the process of selling of goods and services produced in one country to other countries. Exporting  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.

17 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

18  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

19  Globalization’s impact has, generally, been viewed pessimistically

20 For large parts of Africa, about 200 million people live, on less than $1 a day. Is Globalization the cause or the cure?

21 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

22 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

23 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

24 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 8 th position to 4 th position in 2001  Service sector now contributes to maximum part of GDP with contribution of more than 57% with ranking 18 th 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


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