Grade : 10 Sub : Social Science Topic : Globalisation and Indian Economy

Buds Public School - Dubai

Grade : 10 Sub : Social Science Topic : Globalisation and Indian Economy

CASE STUDY (Taken from NCERT Text Book)

Ford Motors, an American company, is one of the world’s largest automobile manufacturers with production spread over 26 countries of the world. Ford Motors came to India in 1995 and spent Rs. 1700 crore to set up a large plant near Chennai. This was done in collaboration with Mahindra and Mahindra, a major Indian manufacturer of jeeps and trucks. By the year 2004, Ford Motors was selling 27,000 cars in the Indian markets, while 24,000 cars were exported from India to South Africa, Mexico and Brazil. The company wants to develop Ford India as a component supplying base for its other plants across the globe.

Answer the following questions:

Would you say Ford Motors is a MNC? Why?
Answer:Ford Motors has production facilities spread over 26 countries of the world. Hence, it can be termed an MNC.
What is foreign investment? How much did Ford Motors invest in India?
Answer:TheINVESTMENTwhich comes from abroad is called foreign investment. Ford Motors had invested Rs. 1700 crore.
By setting up their production plants in India, MNCs such as Ford Motors tap the advantage not only of the large markets that countries such as India provide, but also the lower costs of production. Explain the statement.
Answer:The cost of labour is cheaper in India; compared to the developed countries. This means that an MNC can save lot of money on wages and salaries by setting up production plants in India. This helps in lowering the cost of production. India itself is a large market with sizeable population of middle class and upper class and hence provides a big market for many products.

Why do you think the company wants to develop India as a base for manufacturing car components for its global operations? Discuss the following factors:

Cost of labour and other resources in India
Answer:Wages and salaries are much lower in India compared to in developed countries. Moreover, raw materials and power is also cheaper. This is a definite advantage which India offers as a production base.
The presence of several local manufacturers who supply autoparts to Ford Motors
Answer:There are many companies which manufacture various auto-parts; like Sundaram Fasteners. Because of their lower cost of operation, these companies supply various parts at less price than price in the developed countries.
Closeness to a large number of buyers in India and China
Answer:India and China together comprise about 30% of the world population and thus they provide a huge market for various companies. Making a production base in India provides easy access to these two markets.

Answer the following questions:

In what ways will the production of cars by Ford Motors in India lead to interlinking of production?
Answer:The company is making engines and body at its plant. It is procuring other components from various suppliers which operate in India. Even designing of some of the new models has been done in India. So, India is providing a perfect base for all the operations related to production of cars for the Ford Motor. Hence, it can be said that proper interlinking of production is happening in India for this company.
In what ways is a MNC different from other companies?
Answer:An MNC does different operations related to its business at different locations across the globe. Other companies limit their operation to a single country or to a few countries. By doing so, an MNC is able to take advantage of cost benefit and also of easier access to important markets. This may not be possible for other companies.
Nearly all major multinationals are American, Japanese or European, such as Nike, Coca-Cola, Pepsi, Honda, Nokia. Can you guess why?
Answer:Industrialisation began from Europe and then spread to America and later to Japan. By the time India became independent; many companies of these countries had already becomeFINANCIALLYstrong. This is the reason that most of the MNCs are from America, Europe or Japan.

In Text Solution

What can be done by each of the following so that the workers can get a fair share of benefits brought by globalisation?

Government
Answer:Government should enforce rules and regulations to safeguard the interest of workers.
Employers at the exporting factories
Answer:Employers should provide good salary, social security net and other facilities to the workers.
MNCs
Answer:MNCs should refuse to procure from those manufacturers who do not provide proper facilities to their workers.
Workers
Answer:Workers should be aware of their rights. They should form unions so that they can have a bargainingLEVERAGEwith their employers

Answer the following questions:

What was the main channel connecting the countries in the past? How is it different now?
Answer:Trade was the main channel which connected the countries in the past. Things have not changed much in the present as well. Trade still is the major channel to connect the countries. However, tourism and study also contribute towards making the world a more interconnected place now.
Distinguish between foreign trade and foreign investment.
Answer:Trade with different countries is called foreign trade and it includes import and export. ForeignINVESTMENTis the inflow of capital from another country to our own country. Foreign investment is just limited to the inward flow of capital, while foreign trade is about flow of goods.
In recent years China has been importing steel from India. Explain how the import of steel by China will affect.
Steel companies in China.
Answer:Chinese companies may find it difficult to compete with the import.
Steel companies in India.
Answer:Steel companies in India will see a growth in business.
Industries buying steel for production of other industrial goods in China.
Answer:For such companies, more option will translate into better choice.
How will the import of steel from India into the Chinese markets lead to integration of markets for steel in the two countries? Explain.
Answer:The Chinese companies will make various products and those products would be selling in India as well. Thus, India can be a net exporter of the raw material and an importer of the finished goods. Because of low cost manufacturing by the Chinese companies, Indians can get various products at cheaper prices.
What is the role of MNCs in the globalisation process?
Answer:MNCs play an important role in the process of globalization. They bring not only their products to a country but also the new business policies and cultures. They also help in increasing competitiveness among the Indian companies. At present, most of us are able to use the latest models of cars and this could be possible because of globalization. Because of hordes of MNCs in our country, most of the urban Indians have become broad-minded in their outlook.
What are the various ways in which countries can be linked?
Answer:Countries can be linked through trade, tourism and through educational institutions. Now-a-days, internet and telecommunication are also helping in interlinking different countries of the world.
Globalisation, by connecting countries, shall result in
Lesser competition among producers.
Greater competition among producers.
No change in competition among producers

Answer:Greater competition among producers

What do you understand by liberalisation of foreign trade?
Answer:Liberalisation of foreign trade involves reducing or removing various trade barriers. Government provides policies and facilities which attract foreign companies to come to India for business activities. Such steps help in increasing the foreign trade.
Tax on imports is one type of trade barrier. The government could also place a limit on the number of goods that can be imported. This is known as quotas. Can you explain, using the example of Chinese toys, how quotas can be used as trade barriers? Do you think this should be used? Discuss.
Answer:A fixed quantity for import is called quota. This can be done in case of Chinese toys. This will have both negative and positive impacts. Once the trade restrictions shall be there, the Indian toy manufacturers will be in a position to sell their products. This will help the Indian toy manufacturers and employees. But as the experience of better quality at lesser price; in case of Chinese toys; shows, this step would be detrimental for consumer’s interest
Fill in the blanks.
Answer:WTO was started at the initiative ofdevelopedcountries. The aim of the WTO is toliberalise international trade. WTO establishes rules regardinginternational tradefor all countries, and sees thatthese rules are obeyed. In practice, trade between countries is notfair. Developing countries like India haveremoved trade barriers, whereas developed countries, in many cases, have continued to provide protection to their producers.
What do you think can be done so that trade between countries is more fair?
Answer:All countries should remove trade barriers to make for a fair international trade. Developed countries should desist from forcing the developing countries in agreements which they themselves may not obey.
In the above example, we saw that the US government gives massive sums of money to farmers for production. At times, governments also give support to promote production of certain types of goods, such as those which are environmentally friendly. Discuss whether these are fair or not.
Answer:Supporting its own farmers at the cost of fair international trade cannot be termed as a fair practice. Supporting the production of environmentally friendly products is beneficial for the whole world and every country should follow such practices.
How has competition benefited people in India?
Answer:Competition has benefited the Indians in a positive way. To understand this, let us take the example of the availability of two-wheelers. Before liberalization, there were very brands of two-wheelers; like Bajaj, Rajdoot, Bullet and Yezdi. If someone wanted to buy a Bajaj scooter, the waiting period used to be for a couple of years. Once the markets opened up, many companies came in India. Right now, one can buy a two-wheeler of his choice at his own convenience. Two-wheelers can be seen even in remote villages of India. All of this could be possible because of competition.
Should more Indian companies emerge as MNCs? How would it benefit the people in the country?
Answer:It is desirable that more Indian companies emerge as MNCs. This will help those companies in expanding their market and thus expanding theirFINANCIALmuscle. This will make India a stronger economy. A stronger economy is always beneficial for its people. The Indian MNCs too can directly benefit people through various CSR (Corporate Social Responsibility) Programmes.
Why do governments try to attract more foreign investment?
Answer:More foreignINVESTMENTin a sector helps in increasing the economic activities. This helps in employment generation. That is why governments try to attract more foreign investment.
In Chapter 1, we saw what may be development for one may be destructive for others. The setting of SEZs has been opposed by some people in India. Find out who are these people and why are they opposing it.
Answer:When an SEZ is being made in a particular location, a vast tract of land needs to be acquired. Land acquisition means a large population is forced to relocate from many villages. Displacement is always painful for people. Moreover, people who are evacuated do not get proper compensation for their land and rehabilitation is never adequate and timely. These are the reasons; many people oppose various developmental activities.
In what ways has competition affected workers, Indian exporters and foreign MNCs in the garment industry?
Answer:Most of the workers have been badly affected by competition. Many people are forced to work in temporary jobs and at lower wages. Their earning is a meager fraction of what the intermediariesEARNin the process.

Indian exporters are forced to improve the quality of their products to withstand competition. Those who have failed to do so, had to shut down theirSHOPS. Many smaller manufacturers have become bankrupt in the process.

MNCs are usually in profit. They buy cheap and sell dear. A cloth which may cost Rs. 100 for the procurement can sell at more than Rs. 5000 in USA market. Thus, MNCs usually make windfall gains in the process.

One of the present debates in India is whether companies should have flexible policies for employment. Based on what you have read in the chapter, summarise the point of view of the employers and workers.
Answer:Many companies advocate the implementation of hire and fire policies so that they can work without thinking about the pressure from workers’ union. It sounds idealistic, but the real world is not ideal. A worker does not work just for himself but also for his family members. When a worker loses his job, his family and his society also gets affected. Hence, worker’s interest should always be the top priority when formulating employment policies.

Select the correct otion

The past two decades of globalisation has seen rapid movements in
Goods, services and people between countries.
Goods, services and investments between countries.
Goods, investments and people between countries.

Answer:Goods,INVESTMENTSand people between countries

The most common route for investments by MNCs in countries around the world is to
Set up new factories.
Buy existing local companies.
Form partnerships with local companies.

Answer:Form partnership with local companies

Globalisation has led to improvement in living conditions
of all the people
of people in the developed countries
of workers in the developing countries
none of the above

Answer:none of the above

Answer the following questions

What do you understand by globalisation? Explain in your own words.
Answer:Integration of the world market in various ways is called globalization. Take example of Microsoft. Microsoft is having its headquarters in USA. This company is getting part of its software developed in India and several other countries. And Microsoft’s software is being used across the world. Another example can be Ford motors based in USA. Ford is having manufacturing plants in Chennai and cars manufactured in Chennai go for sale in other countries. Moreover, company may be getting gear boxes produced in some other country, seat belts from a different country, lights, rear view mirrors in some other nation by some other company. Almost all the components get supplied by various vendors to the Ford motor, which assembles them to make the car.
What was the reason for putting barriers to foreign trade and foreign investment by the Indian government? Why did it wish to remove these barriers?
Answer:When India became independent, it was a poor country and private capital was negligible. At that time, it was necessary to protect the local industry so that they could grow to a certain size. This was the reason various trade barriers were in place in India. Once the situation improved and India became a ready market, the government decided to open up the market for foreign players.
How would flexibility in labour laws help companies?
Answer:Flexibility in labour laws can help companies in keeping the size of the workforce under control. A company can hire and fire as per the seasonal variation in demand for the workforce. During lean season, it won’t be forced to carry a bloated workforce and thus can cut costs. This will definitely help in improving profitability.
What are the various ways in which MNCs set up, or control, production in other countries?
Answer:MNCs set up or control production in other countries in various ways. Some of them are discussed below:
Many MNC make a joint venture with a domestic company to start its operations. This helps the MNC because the domestic company has the knowhow of the local business conditions. Moreover, the domestic company already has an established framework of business.
Once the business grows upto a certain size, the MNC can break the tie up and operate as an independent company. This helps it in having a greater control on the business.
Some MNCs start as independent entity right from the first day.
While some of the MNCs produce entirely for the local market, many others produce for the exports markets.
Why do developed countries want developing countries to liberalise their trade and investment? What do you think should the developing countries demand in return?
Answer:The companies in the developed countries often pressurize their governments to create business-friendly environment in other countries. Due to this, developed countries want developing countries to open up their markets. The developing countries should demand the same favour in return.
“The impact of globalisation has not been uniform.” Explain this statement.
Answer:While globalization has definitely changed the way business is being done in India and people go about their daily life, a large section of population is still to taste the fruit of development. The rich have become richer, but the poor have become poorer. Due to increased competition, many smaller entrepreneurs are unable to survive. Many workers have lost their job due to increased competition. On the other hand, consumers have better choice for almost every product. It can be said that the impact of globalization has not been uniform.
How has liberalisation of trade and investment policies helped the globalization process?