Globalization and its Impact

Meaning of Globalization:
Globalization of business/global business means expansion of business activities to cover the entire world within its fold. World is moving fast towards global economy. In fact, global economy is reality now. All country has to participate in the process of globalization whether they like it or not. There is no choice, as every has to become part of global economy. Globalization is a wider term & treats world as one economy. It leads to integration of economies of different counties in new global economic other.

Definition of globalization:
It may be defined as the process of integrating countrys economy with global economy with a view to capturing global opportunities for long term growth & development. At an enterprise level, it means planning, marketing, finance, & other business activities for remaining in competitive position over a long period

Features of globalization:
Large scale production & marketing: In global business, the production & marketing activities & productions are conducted on a large scale to meet the needs of the local market as well as world market. The surplus production will be exported. As a result, even the social & cultural activities in different countries will change to a considerable extent. 2) Integration of economies of countries: It leads to integration of economies of countries for quality production at lower cost. It is for the creation of world market. Natural resources available in different countries are treated as factors of production at the global level. In the global business, along with marketing, even the production activities will be conducted in different countries. One example of this type can be quoted: Mazdas newest sports car, the MX-5 Miata, was designed in California, financed from Tokyo & New York, its prototype was created in Worthington, England & was assembled in Michigan & Mexico using advanced electronic components invented in New Jersey & fabricated in Japan. Domination of developed countries and MNCs: Global business is dominated by developed countries & multinationals. Developed countries have surplus production which they sell to other countries. Similarly, MNCs undertake production & marketing activities all over the world. Benefits to participating countries: The benefits of global business will be available to all participating countries. However, the benefits are shared in an unequal proportion. This means the benefit are comparatively more to developed countries & less to developing countries. At the same time 1)

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poor countries can take the benefit of globalization by encouraging the inflow of capital & technology & by this they can bring out rapid industrial development. 5) Keen competition among global participant: In global business, there is keen competition among countries & enterprises. This competition is among unequal partners i.e. developed developing countries. In this competition, the rich countries & the MNCs are in favorable position due to their superior quality production & competitive prices of their products. 6) Special role of science & technology: In global business, science & technology play a crucial role. Technology can be used effectively for large scale production, improvement in the quality of production and cost production. International restriction on goods, technology & capital: Global business has to face various restrictions on the inflow & outflow of goods, capital & technology. In addition, governments impose restrictions on the operation of MNCs. In short trade blocks, tariff barriers & foreign exchange restrictions are harmful to the process of globalization. Sensitive nature of business: Global business is sensitive in its nature and operations. Political events changes in the economic policies of countries and technological changes do affect the structure of global business. For effective participation in global business, special attention needs to be given to marketing research activities as per the current trends & requirements in global business.

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Participation of global agencies: For the expansion of global business, support & co-operation of exchange of banks, international financial institutions, multinationals, transport & insurance companies etc. are required as they facilitate large scale production, transportation and marketing of goods. Promotes interdependence at global level:

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Global business leads to international interdependence which brings countries closer for commercial co-operation and ensures world peace. Integration of Europe is one significant step towards globalization. It creates employment opportunities in the participating countries and provides opportunities for large scale exports. It facilitates easy transfer of funds and technology towards less developed countries. In addition, production activities are conducted at the global level. Natural resources from one country are taken to another country for production process. Even the semi-finished products are taken to another country for further processing. This is how integration of factors of production at the global level takes place due to globalization.

11) Revolutionary changes in manufacturing and marketing concepts: In Global business, the very concept of manufacturing and trading is changing in a revolutionary manner. For e.g. one recent agreement of General Motors includes designing of the motor car in Germany followed by manufacturing in Korea and finally marketing in USA. This will be the new pattern of production and marketing under globalization.

12) Progressive and evolutionary concept: Globalization is evolutionary concept. It involves all countries and takes them towards global market. The economies of countries of will be inter-linked and thereafter integrated. Globalization is also an evolutionary concept.

Stages of Globalization
A company which is going global establishes several manufacturing facilities in various parts of the world and offers a range of products in diversified industries. It develops the ability to compete with the foreigners in the domestic market. A globalised corporation, by virtue of its status gains research and development, production, marketing and financial advantages, thereby reducing the costs and gaining reputation which is not available to domestic companies and competitors. It looks at the world as a single market, minimizes the importance of national boundaries. It sources and raises capital internationally and cheaply. The global corporation has three important features: 1. It has a number of production facilities all over the world with common ownership. 2. The global corporation draws on a common pool of resources such as money, credit, information, patents, trade names and control systems, and, 3. The multiple units spread over the world respond to a common strategy.

The evolution of global corporation takes place in five distinct stages, as identified by Kenichi Ohamae. These stages are: 1. In the first stage, a domestic company exports to foreign companies through local dealers/ distributers. 2. In stage two, the domestic company on its own exports to foreign countries directly. 3. In stage three, the domestic company becomes a multi-national or a transnational corporation by establishing production and marketing operations in important foreign countries.

4. In the fourth stage, the company becomes an insider in a foreign country by replication of a foreign firm and establishes facilities like research and developments, engineering, HR. in effect; a complete business system is set-up. He managers are expected to put in place the hardware, systems and operational approaches that were successful at home. The domestic headquarters is expected to provide support functions such as HR and finance to all overseas operations. Various local operations are integrated and linked to the centre. 5. In the fifth stage, the global corporation truly becomes global. it serves the needs of the foreign customers in the same manner as it serves its domestic customers. This stage is described by Akio Morita of Sony Corporation as Global localization. In order to become global corporation, a company must de-nationalize its operations and create a system of values shared by global corporate managers. Global corporations serve the interests of customers and not government. They do not exploit local circumstances and see overseas markets as Milch Cows. MNCs makes investments, train people, pay taxes to the local government, build-up infrastructure and provide value for money to customers in countries where they do business.

Merits of globalization:
1. Integration of the country: Globalization leads to integration of countries of the world for business purpose. Trade will be made free movement of goods and services among all countries. The isolation of countries from world trade will be removed and this will be beneficial to all participating countries. 2. Faster economic growth and higher living standards: Globalization provides opportunities to all participating countries to grow and expand production and marketing activities. 3. Thus, globalization provides better life and welfare to people from different countries. 4. Transfer of capital and technology: Globalization facilitates easy transfer of capital from one country to other country due to free convertibility. This will lead to flow of funds to poor and developing countries. Such transfer of technology will lead to modernization of industries of developing countries. The technology transfer will enable such countries. The technology transfer will enable such countries to participate actively in the global business. 5. New economics order: The economic changes which are taking place rapidly at the global level will lead to the breakup of the existing international economic order. The old economy is unfair to less developed countries. The process of globalization will lead to new international economic order which will facilitate global co-operation for economic development of poor countries.

6. Opportunities to expand business promote exports and generate employment opportunities: Globalization leads to expansion of world trade and benefits of such expansion will be available to all participating countries. Business enterprises will have wider exposure and they can sell

their products in suitable markets all over the world. Thus due to globalization, better opportunities of participation in the global business will be available to all countries. Even expansion in the employment opportunities within the country is possible due to global exposure to domestic industries. However, enterprises which have competitive capacity can only take the benefit of global environment for the promotion of their business activities. 7. Optimum utilization of resources: Globalization is useful for utilization of natural and other resources in the best possible manner. It will enable all countries to use available but untapped resources fully with the support and cooperation of other countries. Production and marketing activities will get new speed and dimension as a result of globalization. Global opportunities will also ensure optimum utilization of available resources. 8. Higher status: A global country gets higher status and reputation at international level. Such country gets different benefits of global participation and slowly becomes global power. This has happened in the case of Japan and Taiwan. This is likely to happen in case of India by 2020 provided India participates actively in global business.

Demerits of globalization:
Along with the benefits or advantages there are some adverse effects dangers of globalization particularly on the domestic industries or companies. It is necessary to use globalization for our benefit and that too with limited adverse effects. The adverse effects of globalization are noticed below:

Dangers of free entry of foreign companies in domestic markets:Due to globalization, foreign goods and foreign companies will enter in domestic markets on a large scale. They may capture domestic markets due to their competitive capacity. This will create adverse effects on domestic industries particularly on small-scale sector.

Expansion in the of activities of MNCS: Globalization will encourage MNCs to expand their investment, operation and activities in developing and less developed countries. Easy entry of MNCs in such countries may prove to be harmful politically and economically. Difficulties before domestic companies: Domestic companies will come in difficulties due to globalization. They will have to face competition from the foreign companies which are superior with regard to quality and cost. Domestic may not export on large scale even when foreign markets are made free. This is because of absence of competitive capacity. The business of domestic companies will come in difficulties due to competition from foreign companies. The foreign companies may capture the domestic market due to their competitive capacity. As a result, domestic firms will suffer.

Adverse effects on national economy: Globalization leads to privatization, disinvestment in case of public sector. Free entry of foreign goods/companies and

limited participation of government in industry and commerce. All such changes may prove harmful to the national economy of developing countries.

Brain drain: Globalization creates demand for skilled workforce from developing countries to developed countries. (E.g. Indian software engineers/technically qualified persons are in demand in USA and the European countries). The full benefits of globalization will not be available to the developing countries, if technically qualified manpower migrates on a large scale to rich and developed countries.

Liberal trade policies may prove harmful to poor /developing countries:Globalization puts pressure on developing countries to make their trade policies liberal (as regards tariff and trade barriers).such pressure may come through WTO. Such move will be harmful to the developing countries as their markets will be captured by developed countries but the markets of the developed countries will not be available to developing countries due to high cost and inferior quality production. At present, the USA and European countries get benefits of globalization at cost of poor and developing countries.

Extensive use of capital intensive technology is harmful:Globalization will lead to Extensive use of capital intensive technology. However, computer technology/automation /modern technology will not create large-scale employment opportunities which are urgently required in developing countries. Thus, unemployment problem is likely to become more serious due to rapid progress towards globalization.

Deciding How to Enter the Market

Once a company decides to target a particular country, it has to determine the best mode of entry. Its broad choices are indirect exporting, direct exporting, licensing, mergers and acquisition, joint ventures, strategic alliance and direct investment. Each succeeding strategy involves more commitment, risk, control, and profit potential.

INDIRECT AND DIRECT EXPORT

The normal way to get involved in an international market is through export. Occasional exporting is a passive level of involvement in which the company exports from time to time, either on its own initiative or in response to unsolicited orders from abroad. Active exporting takes place when the company makes a commitment to expand into a particular market. In either, the company produces goods in the home country and might or might not adapt them to the international market. Companies typically start with indirect exporting-that is, they work through independent intermediaries. Domestic-based export merchants buy the manufactures products and then sell them abroad. Domestic-based export agents seek and negotiate foreign purchases and are paid a commission. Included in this group are trading companies. Co-operative Organizations carry on exporting activities on behalf of several producers and are partly under their administrative control. They are often used by primary products such as fruits or nuts. Export management companies agree to manage a companys export activities for a fee. Indirect Export has two advantages: First, it involves less investment: The firm does not have to develop an export department, an overseas sales force, or a set of international contacts.

Second, it involves less risk: because international marketing intermediaries bring know how and services to the relation, the seller will normally make, fewer mistakes. Company eventually may decide to handle their own exports. The investment and risk are somewhat greater, but so is the potential return. A company can carry on direct exporting in several ways: Domestic-based export department or division. Might evolve into a selfcontain export department operating as a profit centre. Overseas sales branch or subsidiary. The sales branch handles sales and distribution and might handle warehousing and promotion as well. It often serves as a display and customer service center. Travelling export sales representatives. Home-based sales representatives are sent abroad to find business. Foreign- based distributers or agents. These distributers and agent might be given exclusive right to represent the company in that country, or only limited rights. Whether companies decide to export indirectly or directly, many companies use exporting as a way to Test the waters before building a plant and manufacturing a product overseas.

 LICENSING.
Licensing is a simple way to became involved in international marketing. The licensor issues a license to a foreign company to use a manufacturing process, trademarks, patent, trade secret, or other item of value for or royalty. The licensor gains entry at little risk; the licensee gains production expertise or a wellknown product or a brand name. Licensing has potential disadvantages. The licensor has less control over the licensee than it does over its own production and sales facilities. Furthermore, if the licensee is very successful, the firm has given up profits; and if and when the contract ends, the company might find that it has created a competitor. To avoid this, the licensor usually supplies some proprietary ingredients or components needed in the product (as Coca Cola does). But the best strategy is for the licensor to lead in innovation so that the licensee will continue to depend on the licensor. There are several variations in the licensing agreement. Companies, such as Hyatt and Marriott, sell management contract to owners of foreign hotels to manage these businesses for a fee. The management firm may even be given the option to purchase some share in a managed company within a stated period. In contract manufacturing, the firm hires local manufacturers to produce the product. When Sears opened department stores in Mexico and Spain, it found local manufacturers to produce many of its products. Contract manufacturing gives the company less control over the manufacturing process and the loss of potential profits over manufacturing. However, it offers a chance to start faster, with less risk and with the opportunity to form a partnership or buy out the local manufacturer later. Finally, a company can enter a foreign market through franchising, which is a more complete form of licensing. The franchiser offers a complete brand concept and operating system.

In return, the franchisee invests in and pays certain fees to the franchiser. McDonalds, KFC, and Avis have entered scores of countries by franchising their retail concepts and making sure their marketing is culturally relevant. KFC CORPORATION KFC is the worlds largest fast- food chicken chain, owning or franchising 12,800 outlets in about 90 countries60 percent of them outside the United States. KFC had a number of obstacles to overcome when it entered the Japanese market. The Japanese saw fast food as artificial, made by mechanical means, and unhealthy. To build trust in the KFC brand, advertising showed scenes depicting colonel Sanders beginnings in Kentucky that conveyed southern hospitality, old American tradition, and authentic home cooking. The campaign was hugely successful, and in less than eight years KFC expanded its presence from 400 locations to more than 1,000. KFC is Chinas largest, oldest, and most popular quick-service restaurant chain, also with over 1,000 locations. KFC is the most popular international brand throughout China; rank higher than all others, according to a consumer survey conducted by A. C. Nielsen. China operations offers such fare as an Old Beijing Twister - a wrap modeled after the way Peking duck is served, but with fried chicken inside.

 MERGERS AND ACQUISITIONS:

Mergers and Acquisition is an important entry strategy in international business. Mergers and Acquisition can be used to acquire new technology, reduce the level of competition and provides quick access to markets and distribution network. Many Indian firms have resorted to the acquisition route to gain a foothold in the foreign market. For instance, Indian companies had spent $ 711.4 million in acquisition abroad in 2000 in industries such as InfoTech, drugs and pharmaceuticals, paints, tele-communication, petroleum and broadcasting. Some of the major acquisitions include investments by Zee Telefilms, Leading Edge System BPL Software and Tata Tea. Dataline Transcription, Teamasia semiconductors, Goa Carbons Wockhordt and Acro lab are a few other firms to name from a long list. A very important foreign acquisition has been the $ 271 billion leveraged buyout of Tetley by Tata Tea. With the acquisition of Tetley, Tata Tea, having been the largest integrated tea producer in the world, also got possession of the second largest global tea marketer.

STRATEGIC ALLIANCE:
Strategic alliance is an agreement between companies that is of strategic importance to one or both companys competitive viability. Strategy refers to the means to fulfill companys objectives, in everyday business; the term strategic alliance is generally used to describe a wide variety of collaborations, irrespective of strategic importance. In a strategic alliance, a firm could establish relationships with organization that have the potential to add values. On the basis of structure, strategic alliances can be classified into equity based and non-equity based. Non-equity based alliances such as licensing agreements, marketing agreements, technology transfer agreements etc. are found to be more dynamic constructive and strategic.

 JOINT VENTURES.
Foreign investors may join with local investors to create a joint venture company in which they share ownership and control. For instance: Coca- cola and nestle joined forces to develop the international market for ready-to-drink tea and coffee, which currently they sell in significant amount in Japan. Procter & Gamble formed a joint venture with its Italian archrival Fater to cover babies bottoms in the United Kingdom and Italy. Whirlpool took a 53 percent stake in the Dutch electronics group Philips white goods business to leapfrog into the European market. In India, there are several joint ventures in various industries. Tata AIG, Birla Sun Life, ICICI Prudential, HDFC Standard and Bajaj Allianz are some of the examples to joint venture in the insurance sector. Maruti Suzuki was another successful joint venture in the automobile sector. Now, Suzuki has become the major shareholder after acquiring the shares held by the Government of India.

A joint venture may be necessary or desirable for economic or political reasons. The foreign firm might lack the financial, physical, or managerial resources to undertake the venture alone; or the foreign government might require joint ownership as a condition for entry .Even corporate giants need joint venture to crack the toughest markets. When it wanted to enter chinas ice cream market, Unilever joined forces with Sumstar, a state-owned Chinese investment company. The ventures general manager says Sumstars help with the formidable Chinese bureaucracy was crucial in getting a high tech ice cream plant up and running in just 12 months. Joint ownership has certain drawbacks. The partners might disagree over investment, marketing, or policies. One partner might want to reinvest earnings for growth, and the other partner might want to declare more dividends. Joint ownership can also prevent a multinational company from carrying out specific manufacturing and marketing policies on a worldwide basis.

 Direct Investment
The ultimate form of foreign involvement is direct ownership of foreignbased assembly or manufacturing facilities. The foreign company can buy part or full interest in a local company or build its own facilities. General Motors has invested billions of dollars in auto manufacturers around the world, such as Shangai GM, fiat Auto Holdings, Isuzu, Daewoo, Suzuki, Saab, Fuji Heavy Industries, Jinbei GM Automotive Co., and Avto VAZ. If the market appears large enough, foreign production facilities offer distinct advantages. First, the firm secures cost economies in the form of cheaper labor or raw materials, foreign-government investment incentives, and freight savings. Second, the firm strengthens its image in the host country because it creates job. Third, the firm develops a deeper relationship with government, customers, local suppliers, and distributors enabling it to adapt its products better to the local environment. Fourth, the firm retains full control over its investment and, therefore, can develop manufacturing and marketing policies that serves its long-term objectives. Fifth, the firm assures itself access to the market in case the host country starts insisting that locally purchased goods have domestic contents. The main disadvantage of direct investments is that the firm exposes a large investment to risk such as blocked or devalued currencies, worsening markets or expropriation. The firm will find it expensive to reduce or close down its operations, because the host country might require substantial severance pay to the employees.

Challenges of Globalization to Indian Economy:

1. Modernization of industry: Global business is highly competitive with stress on quality improvement; use of high technology is desirable. Modernization needs huge financial investment and well prepared package of modernization programmes. Competitiveness modernization is a must. 2. Promotion of Exports: India will have substantial benefits of globalization by promoting exports of goods and services, agricultural commodities, services, technologies and so on. However there are various constraints in export promotion. They relate to cost and quality of goods, trading blocs and trade restriction. Economic reforms introduced in recent years are or the promotion of exported. One of the objectives of the policy is to establish the framework for globalization of Indias foreign trade. 3. Training of Personnel: Professionalism is required for the management of global business. India needs a team of global marketing and for this training in different areas of management is essential. 4. Reorganization of Industrial Structure: In the globalised environment, Indian industries have face competition from the multinational and large companies from the developed countries. Our enterprises will have to grow in size and status. 5. Entry to multinationals: under globalization, it is necessary to permit the entry of the multinationals in Indian business. This will facilitate quick transfer of modern technology. It is also possible to use MNCs for promoting exports in global markets. 6. Encouragement to foreign sectors: direct foreign investment is useful for modernizing industries and the inflow of latest technology which is

necessary for maintaining international quality standards and also for promoting exports. 7. Confidence building: The current liberal policies are not enough to improve Indias credit rating in the international market. Indias global rating will improve only if the structural reform starts getting implemented smoothly and macroeconomic stability is maintained. 8. Continuous Dialogue with Business Sector: Along with the steps taken by the government integrating Indian economy with the global economy, continuous dialogue with business is necessary.

Impact of globalization

Positive impacts
Globalization has various aspects which affect the world in several different ways such as:

Industrial - emergence of worldwide production markets and broader

access to a range of foreign products for consumers and companies. Particularly movement of material and goods between and within national boundaries. Financial - emergence of worldwide financial markets and better access to external financing for borrowers. Simultaneous though not necessarily purely globalist is the emergence of under or un-regulated foreign exchange and speculative markets. Economic - realization of a global common market, based on the freedom of exchange of goods and capital. Political - some use "globalization" to mean the creation of a world government, or cartels of governments (e.g. WTO, World Bank, and IMF) which regulate the relationships among governments and guarantees the rights arising from social and economic globalization. Politically, the United States has enjoyed a position of power among the world powers; in part because of its strong and wealthy economy. If China continues to grow at the rate projected by the trends, then it is very likely that in the next twenty years, it will have enough wealth, industry, and technology to rival the United States for the position of leading world power. Informational - increase in information flows between geographically remote locations. Arguably this is a technological change with the advent of fibre optic communications, satellites, and increased availability of telephony and Internet.

Language - the most popular language is English

About 75% of the world's mail, telexes, and cables are in English. o Approximately 60% of the world's radio programs are in English. o About 90% of all Internet traffic is using English. Competition - Survival in the new global business market calls for improved productivity and increased competition. Due to the market became worldwide not specific area, there are many industries around the world. Industries have to upgrade their products and use technology skillfully for facing the competition and increasing their competitive. Cultural - growth of cross-cultural contacts; advent of new categories of consciousness and identities which embodies cultural diffusion, the desire to increase one's standard of living and enjoy foreign products and ideas, adopt new technology and practices, and participate in a "world culture". Ecological - the advent of global environmental challenges that might be solved with international cooperation, such as climate change, crossboundary water and air pollution, over-fishing of the ocean, and the spread of invasive species. Since many factories are built in developing countries with less environmental regulation, globalism and free trade may increase pollution. On the other hand, economic development historically required a "dirty" industrial stage, and it is argued that developing countries should not, via regulation, be prohibited from increasing their standard of living. Social(International cultural exchange) - increased circulation by people of all nations with fewer restrictions. o Spreading of multiculturalism, and better individual access to cultural diversity (e.g. through the export of Hollywood and Bollywood movies). Some consider such "imported" culture a danger, since it may supplant the local culture, causing reduction in diversity or even assimilation. Others consider multiculturalism to promote peace and understanding between peoples. o Greater international travel and tourism o Greater immigration, including illegal immigration o Spread of local consumer products (e.g. food) to other countries o Worldwide fads and pop culture such as Pokmon, Sudoku, Origami, Idol series, YouTube, Orkut, Facebook, and MySpace accessible to those who have Internet or Television. o Worldwide sporting events such as FIFA World Cup and the Olympic Games.
o

Technical
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Development of a global telecommunications infrastructure and greater transborder data flow, using such technologies as the Internet, communication satellites, submarine fiber optic cable, and wireless telephones Increase in the number of standards applied globally; e.g. copyright laws, patents and world trade agreements.

Legal/Ethical
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The creation of the international criminal court and international justice movements. Crime importation and raising awareness of global crime-fighting efforts and cooperation.

Whilst it is all too easy to look at the positive aspects of Globalization and the great benefits that are apparent everywhere, there are also several negative occurrences that can only be the result of or major motivating factors that inspire some corporations to globalize. Globalization the growing integration of economies and societies around the world has been one of the most hotly-debated topics in international economics over the past few years. Rapid growth and poverty reduction in China, India, and other countries that were poor 20 years ago, has been a positive aspect of globalization. But globalization has also generated significant international opposition over concerns that it has increased inequality and environmental degradation

Globalization and Privatization

One of the most dangerous aspects of unqualified and unrestricted globalization is the privatization of key publicly held companies to MNCs at prices lower than what it would take to set up a new company in that field. Prior to 1947, India's assets and resources were looted to the hilt by the British rulers, and Britain was not the sole beneficiary. The benefits of unfair trade and colonial loot went as much to Britain's allies such as the US, Australia and Canada, and even to rival imperial powers such as Germany and Japan. Although the Indian situation today is not comparable to the situation in 1756 or 1858, the desire of the MNCs to gobble up strategic Indian assets is real and should not be dismissed lightly. It is no accident that economic policy "experts" in these nations are the most aggressive champions of privatization and globalization. Selling off strategically vital companies could not only introduce monopoly pricing pressures on Indian consumers, it could also seriously jeopardize India's national sovereignty. As it is, much of India's defence needs are procured from abroad. By privatizing oil and gas companies and other vital infrastructure related companies - India's vital interests will be even more controlled by foreign interests that could impinge on the ability of India to take the best decisions vis-a-vis protecting it's sovereign rights and interests. Apparently an important lesson from India's history has been lost on the present ruling coalition. Before the First World War, Gandhi too had believed that appeasing the British would bring India gains. He campaigned heavily in favor of the British war effort, but after the war, the British rather than make any new concessions towards independence tightened its colonial control. Gandhi's

exercise in "partnership" ended up as a futile exercise in self-delusion and the freedom movement lost precious and valuable years in the bargain. Those who have been taken in by promises of "partnership" during Clinton's much hyped visit to Indian might note that in spite of all the tall claims, FDI in the months following Clinton's visit actually fell, the trade deficit widened to a new record, and the rupee has shrunk in value. While no one is arguing for India to remain aloof from the process of technological upgradation and modernization - it is unlikely that political and economic appeasement in the guise of globalization will do the trick for India. Unless India adopts a stance of hard bargaining and selectivity in the manner it globalizes, globalization will take place on the terms of the world's most powerful nations - and is unlikely to bring widespread benefits for the Indian people. It is therefore high time that the mantra of unrestrained globalization be questioned and challenged. The tall claims made by its advocates need to be carefully scrutinized without the prevailing neo-liberal bias. The many failures, economic distortions and pitfalls of globalization need to be clearly exposed. Above all, India's economic policies need to be restructured to give an impetus to the local development of key technologies that play a crucial role in the modern economy and satisfy the most pressing needs of the vast majority of the Indian people.

Skewed development: By-product of indiscriminate liberalization and globalization?

Critics of indiscriminate liberalization had warned that one of the biggest dangers of a totally liberalized economy would be the anarchic development of select geographical areas and the neglect of industrially unpopular areas. more and more Industrial Entrepreneurs Memorandum (IEM)have gone to industrially developed states. Studies have also shown that prosperous states like Maharashtra, Gujarat, and Tamil Nadu and the National Capital region around Delhi have attracted most of the new investment proposals - especially those from the multinationals. In contrast, West Bengal, Orissa, Bihar and Assam all from the east had failed to take the benefits of deregulation. Bihar, Orissa and Assam each had less than one per cent share of the total IEMs filed during the period. Their shares in actual investment were even lower. Another aspect of non-selective globalization is that a few select sectors namely consumer goods, automobiles, and software have attracted almost 90% of all foreign investment. There has been very little investment in the production of advanced electronics, computer or telecom hardware, aircrafts, advanced industrial materials, capital goods and modern tools and equipment, or robotics. These are the areas where India is completely dependent on imports and is likely to fall further behind. Rather than steer production in areas of cutting-edge technology, state governments have been falling over each other in giving MNCs more concessions to produce more of what India is already producing!

'Efficiency' in whose interest - The MNC or the Indian consumer?

Another oft-repeated argument in favor of globalization is that multinational companies are more "efficient". Of course efficiency is never clearly defined. For instance, let us assume that efficiency equals profitability. Suppose a multinational invests 1000 crores and makes 200 crores in profit. On the other hand, assume that a domestic company invests 1000 crores and makes 100 crores in profit. It would thus seem that the MNC was more "efficient" - twice as much as the Indian company. But if half or more of the MNC's profits were repatriated to their foreign parent or to foreign shareholders, the relative benefit to India would be nil! And if the 100 crore in extra profit accrued only due to special tax breaks and other special favors granted to the multinational, the increase in 'efficiency' would be entirely fictitious. Take another example. Let us suppose that the MNC is actually very "efficient" and is able to drive its more "inefficient" Indian competitors out of business. With its Indian competitors out of business, it could then raise prices over and beyond what the "inefficient" Indian companies charged their consumers. Here is another example of where "efficiency" from the point of view of the business does not translate into benefits for the Indian consumer. There is also an assertion that globalization allows India to allocate scarce capital more efficiently because the Indian government could concentrate on areas that need special attention. But few seem to note that in this decade of globalization, the government has been steadily reducing its ability to fund vital social needs or infra structural needs. Numerous tax breaks have been given to MNCs to set up manufacturing in India. States have competed with each other in offering concessions to MNCs. Maharashtra has huge concessions to Skoda for its automobile plant near Aurangabad, Tamil Nadu offered special incentives to GM to set up its plant near Chennai. Karnataka and Andhra Pradesh have been competing to attract IT businesses in their state. As already noted in previous articles on liberalization and FDI, globalization has done little to solve India's pressing infra structural needs. This is particularly evident in the oil exploration and production sector. As a percentage of GDP,

investment in oil exploration has fallen dramatically. In spite of deregulation and the award of licenses to multinationals for oil-drilling, domestic production of crude has been falling in both absolute and percentage terms. As a result, in the last few years, India's oil-import bill jumped 95%.

MNCs and 'transparency' and 'ethical practices'

Arguments favoring globalization have often centered on how multinationals practice 'transparency' in their business dealings and are more 'ethical' than their Indian counterparts. Although rarely substantiated with anything other than anecdotal testimonies, such praise for the MNCs is common in the Indian media. Yet, there are numerous instances where multinationals have not only displayed a lack of ethics and 'transparency' but have actually broken the law. Multinational giants flouting tax laws knowing very well that they could not be arrested or criminally prosecuted against under the Indian legal system and could get away by paying the tax dues when caught. Violations were neither rare nor exceptional, since all the companies surveyed or scrutinized by the IncomeTax authorities in the recent past had shown a tendency to violate the law of the land. Had the violations taken place in some other country, not only would criminal proceedings have been launched but the people responsible for it would have been put behind bars. In the recent past, cases of TDS evasion by some Japanese and South Korean firms operating in India have come to the notice of the authorities, highlighting a ``certain intention'' on the part of these companies to dupe the Government. Sony was identified as the biggest evader, and charged with evading over 450 crores. SEDCO Forex International Drilling Co, Hyundai Motors, Johnson & Johnson, Siemens, LG, etc. were others implicated in cheating on import duties. Several MNCs had not paid enough central excise duties - including stock market darlings like Hindustan Unilever, Procter and Gamble Nestle, Gillette, Pepsi were also named as violators. Nokia had also been cited for serious income tax violations. American Airlines, British Airways, Motorola and Reuters were also in the list of companies to have evaded income tax.

Globalization and Technology Transfers

Take the argument that globalization brings in new technology. On a selective basis, globalization indeed brings in new technology and opposition to globalization is not tantamount to becoming technologically isolated from the rest of the world. But today, almost no advocate of globalization is calling for selectivity. For instance, Coca-Cola and Pepsi were welcomed into the country even though they offered little in terms of new technology. Cosmetic manufacturers and manufacturers of designer label clothes have also brought in little new technology of any consequence. The same can be said of advertising companies and manufacturers of consumer nondurable goods like soap, detergent, toothpaste, cereals etc. And although there has been significant investment in the manufacture of automobiles and consumer goods, the capital equipment and the assembly lines for their production is imported. Little of the design and development work takes place in India. And in many instances, all that happens is the local assembly of knocked-down kits. So far, globalization in India has not been tantamount to an all-around technological upgradation of Indian design and manufacturing. Some offer a counter-argument for unrestricted globalization arguing that only if India liberalizes unconditionally will India be able to attract high technology and capital investment in the areas it really wants. In other words, if we let the Cokes and Pepsis of the world to come in, the INTELs, the AMDs, and the CISCOs will follow. But the experience of the last decade belies such claims. While it is true that INTEL, AMD and CISCO have all invested in India, the sum total of their investments has been minuscule in relation to their other investments abroad. And rather than bring in new technology to India, they are actually sucking out technology from India. All their investment has been on divisions that either develop software on demand, or provide research assistance to their US

counterparts. None of them has set up any manufacturing plants in India or signed any technology transfer agreements with any Indian company. All the technology that is developed is owned and marketed by the parent company, and other than the slightly higher than average salaries that accrue to a small minority of Indians working in the sector, few benefits accrue to India as a nation. What is worse is that these companies are provided all manner of perks and privileges to exploit India's intellectual capital. They are given tax breaks and tax write-offs. They are given preferential treatment in the allocation of scarce resources like land, and round-the-clock electricity supply. Advocates of globalization have often made the claim that globalization rather than destroy Indian industry would instead accelerate the growth of new industry and cause India's economy to grow faster. But a detailed analysis of Foreign Direct Investment (FDI) in the last few years indicates that a sizeable portion of this investment has not gone into the creation of new productive capacities. Much of the investment has simply gone into takeovers of existing Indian enterprises or towards speculative investments in the Indian stock market. Moreover, other than India's "hot" IT companies and select MNCs - the vast majority of Indian stocks have not benefited from such highly volatile FDI flows.