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
3What kinds of things cross international borders? 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 telephoneCapital – money, investmentYou can put your savings into a bank in Zurich.You can buy stock in SONY, a Japanese companyPeople – immigrants, refugees, touristsImmigrants come to Canada from Asia, Africa, S. America, EuropeYou can easily travel to Europe, Asia, S. AmericaCommunicationYou can easily call or people around the worldCulture (art, music, cuisine)You can hear music from Brazil, South Africa, IndiaNearby restaurants: Chinese, Thai, Ethiopian, Indian
4What 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.7-11 BeijingKFC Kuwait
5Globalisation - 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.”
6Globalization 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 bordersInternational Economy is characterized by existence of different national economies and economic relations between them being regulated by national governments.
7Drivers 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
8Globalization of business Doing, planning , expanding business globallyGiving up the distinction between the domestic market and foreign market and developing a global outlook of the businessLocating the production and other physical facilities on a consideration of the global business dynamics , irrespective of national considerationsBased on product development and production planning on global market considerations.Raw materials are obtained from best source anywhere in the worldGlobal orientation of organizational structure and management culture
9Features of current Globalization New MarketsGrowing global markets in services – banking, Insurance and transportNew Financial markets – globally linked, working round the clock with action at a distance in real time.Mergers and acquisitionsGlobal consumer markets with global brands
10Features of current Globalization New ActorsMNCs integrating their production and marketing , dominating food productionWTO – organization with authority to enforce national government’s compliance with rulesBooming international network of NGOsRegional blocks gaining importance – EU , ASEAN, NAFTA etcMore policy coordination groups – G – 7, G20, OECD
11Features of current Globalization New Rules and NormsMarket economic policies spreading around the world, with greater privatization and liberalization than in earlier decadesWidespread adoption of democracy as a choice of political regimeGrowing awareness of human rights and conventions among the people around the worldConventions and agreements on global environment- ozone , disposal of hazardous waste etcMultilateral agreements in trade and taking on new agendas as environmental and social conditions
12Features of current Globalization New (Faster and cheaper) Tools of communicationInternet and electronic communication linking many people simultaneouslyCellular phonesFax machinesFaster and cheaper transport by air, rail, road
13Stages of Globalization - Kenichi Ohmae Stage one – Export-Orientated CompanyA company which expands from its home production base to export markets using dealers, distributors or agents.Stage two – Overseas BranchesThe company starts to set up its own sales, marketing and, perhaps, after-sales services in foreign markets.Stage three – Relocating ProductionThe company relocates production to key marketsStage four – InsiderisationThe 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 CompanyOhmae 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.
15Foreign Market Entry Strategies ExportingLicensing/ franchisingContract ManufacturingManagement contractAssembly operationsFully owned manufacturing facilitiesJoint venturingCountertradeMergers and acquisitionsStrategic allianceThird country location
16Exporting 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 riskJoint 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.
17The 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 culturesMobile phone tower Tanzania
18Is Globalization Good or Bad? McDonald’s has become a symbol of globalizationa banner the protestors carried in front of the IMF building in Washington April 2000 read: "worldwide coalition against globalization".
19Globalization’s impact has, generally, been viewed pessimistically
20For large parts of Africa, about 200 million people live, on less than $1 a day. Is Globalization the cause or the cure?
21AdvantagesFree flow of technology helps developing countries to implement new technologyIt offers producers a larger market since domestic firms in case of surplus can exportImproved standard of living – reduction in poverty and increase in prosperityRapid industrialization and greater specialization help firms to gain competitive advantage.Increases production and consumptionIncreases employment and incomeCultural exchange and demand for variety of products
22Disadvantages Increased environmental damage increased poverty, inequality.erosion of traditional cultureThreat to domestic industryCorporations are motivated by profit and have little concern for peopleeconomic globalization developments feed into ethnic, religious, and factional tensions that lead to wars and help breed terrorismTerrorists 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
23Indian Economy – Step towards Globalization Before 1991Deep crisis in 1991Inflation at 17%High fiscal deficitLost confidence of NRIs and foreign investorsAfter 1991DevaluationDisinvestmentDismantling of industrial licensing regimeAllow FdINon resident indian schemeThrwoing open industries reserved for public sector to private participationAbolition of MRTP actRemoval on quantitative restriction on importsReduction of peak customs tariffWide ranging financial sector reforms
24Impact 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 positionIndia’s position in global economy improved from 8th position to 4th position in 2001Service 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 processingWorld class infrastructureWesternization of local cultureDestruction of organic agriculture and depletion of natural resourcesEmpowering population through universal education and healthcare