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Globalization

Globalization has become a catchword in the new millennium. Globalization is the process of
placing and regarding a countrys economy as a part of global economy. It implies increasing openness of economy. Liberalization is a first step towards globalization of country. WHAT IS GLOBALISATION? Though globalization has become a buzzword I modern economics, it is yet to be defined in a precise sense. People indistinctly refer to globalization as a process of internationalization, multinational or transnational business, globalization of market economy, high degree of openness and so on. Globalization is a wider concept involving several issues and aspects of a global corporation. Essentially, globalization is a philosophy of business coined by the multinational corporations (MNCs) to their host countries in exerting their economic influence. The philosophy of global business implies several characteristic features of globalization, such as: Global business outlook. One economic entity, one people and one market on this globe. Global approach to market, a free/unrestricted/competitive market. Common use and application of advanced technologies. Global quality standards in the production of goods and services. Global perspective. Global-orientation of management. Global acceptability of products. Global macroeconomic policies. Global economic co-operation. Worldwide advertisement and sales of products.

NATURE OF GLOBALISATION Globalization means several things for several people. For some, it is a new paradigm- a set of new methods, and economic, political and socio-cultural realities in which the pervious assumptions are no longer valid. For developing countries, it means integration with the world economy. In simple economic terms, globalization refers to the process of integration of the world into one huge market. Such unification calls for removal of all trade barriers among the countries. Even political and geographical barriers become irrelevant. At the company level, globalization means two things: 1. A company commits itself heavily with several manufacturing locations around the world and offers products in several diversified industries, and 2. It also means ability to compete in domestic markets with foreign competitors. In popular sense, globalization, refers mainly to multi plant operations. A company, which has gone global, is called a multi-national (MNC) or a transnational (TNC). MNC is, therefore, one that, by operating in more than one country gains R&D, production, marketing, and financial advantages in its cost and reputation that are not available to purely domestic competitors. The global company views the world as one market, minimizes the importance of national boundaries, sources raises capital and markets wherever it can do the best. To be specific, a global company has three characteristics: 1. It is a conglomerate of multiple units (located in different parts of the globe) but all linked by common ownership. 2. Multiple units draw a common pool of resources such as money, credit, information, patent, trade names, and control systems. 3. The units respond to some strategy. Nestle International is an example of an enterprise that has become multinational. It sells its products in most countries and manufactures in many. Besides, its managers and shareholders are from many countries. The other MNCs whose names can be mentioned here are IBM, GE, McDonalds, Ford, Shell, Philips, Sony, and many more.

WHY DO COMPANIES GO GLOBAL? The primary motive for going global is that there is money in the overseas markets. Other U.S. giants such as McDonalds have made massive penetration into foreign markets. In 1994, McDonalds experienced six percent increase in domestic sales, but its foreign sales accounted for half of its overall volume. The other reasons for seeking international markets are: 1. The rapid shrinking of time and distance across the globe, thanks to faster communication, speedier transportation, growing financial flow, and rapid technological changes. 2. It is being realized that the domestic markets are no longer adequate and rich. Japanese flooded the U.S. market with automobiles and electronics because the home market was not large enough to absorb whatever is produced. Some European countries have gone global for similar reasons. Ciba-Giegy, for example, could not survive only in Switzerland where population is just six million. It was forced to go in search of international markets and has consequently set up overseas production facilities. 3. Raymond Vernon has propounded a theory explaining why companies go international. BENEFITS OF GLOBALISATION: For successful globalization countries need to chalk out strategies and policies to open up the doors for the inflow of foreign direct investment (FDI). The FDI by the MNCs brings with it flow of foreign capital, inflow of technology real capital goods, managerial and technical skills and know-how. Globalization can easily promote exports of the country by exploiting its export potentials in a right way. Globalization can be the engine of growth by facilitating export-led growth strategy of a developing country. ASEAN countries such as Indonesia, Malaysia and Thailand have demonstrated their success of export-led growth strategy supported by the FDI under globalization approach. Globalization can provide sophisticated job opportunities to the qualified and also check brain drain in a country.

Globalization would provide varieties of products to consumer at a cheaper rate when they are domestically produced rather than imported. This would help in improving the economic welfare of the consumer class. Under globalization, the rising inflow of capital would bring foreign exchange into the country. Consequently, the exchange reserves and balances of payments position of the country can improve. This also helps in stabilizing the external value of the countrys currency. Under global finance, companies can meet their financial requirements easily. Global banking sector could facilitate e-banking and e-business. This would integrate countries economy globally and its prosperity would be enhanced. DEMERITS OF GLOBALISATION: 1. Globalization is never accepted as unmixed blenings. Cities have pessimistic views about its illconsequences. 2. When a country is opened up and its market economy and financial sectors are well liberalized, its domestic economy may suffer owing to foreign economic invasion. 3. A developing economy when lacks sufficient maturity, globalization may have adverse effect on its growth. 4. Globalization may kill domestic industries when they fail to improve and compete foreign wellmanaged, well-established firms. 5. Globalization may result into economic imperialism. 6. Unguarded openness may become a playground for speculators. Currency speculation and speculators attacks, as happened in case of Indonesia, Malaysia Thailand, Philippines etc recently may led to economic crisis. It may lead to unemployment, poverty and growing economic inequalities. OPPORTUNITIES OF GLOBALISATION: Despite its some shortcomings, benefits of globalization are likely to outweigh their drawbacks. Globalization essentially provides greater opportunities for the faster growth and economic development of the country and improve economic welfare. It provides wider and large-scale economic

activities and employment opportunities. In a planned economy such as India, an indicative planning of desirable globalization process can be great use. Indias perspective planning for foreign investments and entry of MNCs should be positive towards modernization of India. Besides, Research and Development (R&D) as well as technological up gradobious should be an integral part of Indias liberalized planning towards market economy. In short, globalization implies undettered business activities and interaction among the firms and people with a global approach. It needs change in the outlook. It requires relaxing of control and regulations. It is heartening to note that an awareness of the government in India is on this line. Relief to foreign investors, new industrial policy, new trade policy, new fiscal policy, banking reforms, FERA and MRTP relaxation, acceptance of WTO agreements etc all suggest a positive out look of Indian policy-makers towards globalization. Indian government has assumed the role of promoter, care taker and regulator of market economy in the country in a desirable manner. Journey has begun. Destination is yet far. PROBLEMS OF GLOBALISATION: The current waves of liberalization and globalization have their pros and cons. World economy started developing very fast during 1980s till mid 1990s. European countries, ASEAN nations, Mexico, China, etc have experienced a record growth rate of nearly 8-10 per cent per annum. There has been quantum jump in Foreign Direct Investments (FDI) in most developing countries. There has also a remarkable flow inflow of foreign capital-short term as well as long term. Portfolio investment, i.e, investment in secondary share markets had increased due to a large investment of funds in the capital markets had increased due to a large investment of funds in the capital markets undertaken by the private foreign financial sector in developing countries. Due to expansionary monetary policy, credit was liberally and cheaply available .This has resulted into hot money problem when the country is overhead by undue expansion of money supply. Mexico had seen its worst days of economic crises in 1982 onwards. The country had to devaluate its currency and beg finance from IMF. India experienced economic crises in 1991,but due to timely financial assistance of the IMF and economic reforms implemented by the Government of India, the country could overcome the problems and now managed to have a steady growth rate of over 5 per cent per annum.

In 1997, ASEAN countries have suddenly fallen into the trap of currency crises followed by financial and economic turmoil.