Globalizationis the Way That Local Ornationalways of Doing Things Become Global, That Is

Chapter 3

GLOBALISATION

Globalizationis the way that local ornationalways of doing things become global, that is, done together around the world. It is abouteconomicsortrade,technology,politics, andculture.

Edward S. Herman:

“Globalisation is both an active process of corporate expansion across borders and a structure of cross border facilities and economic linkages that has been steadily growing and changing.”

COMPONENTS OF GLOBALIZATION:

Globalization of markets

Globalization of Production

Globalization of investment

Globalization of technology

FEATURES OF GLOBALISATION:

1.Liberalisation:

It stands for the freedom of the entrepreneurs to establish any industry or trade or business venture, within their own countries or abroad.

2. Free trade:

It stands for free flow of trade relations among all the nations. It stands for keeping business and trade away from excessive and rigid regulatory and protective rules and regulations.

3.Globalisation of Economic Activity:

Economic activities are be governed both by the domestic markets and also the world market. It stands for the process of integrating the domestic economies with the world economy.

4.Liberalisation of Import-Export System:

It stands for liberalization of the import-export activity involving a free flow of goods and services across borders.

5.Privatisation:

Globalisation stands for keeping the state away from ownership of means of production and distribution and letting the free flow of industrial, trade and economic activity among the people and their corporations.

6.Increased Collaborations:

Encouraging the process of collaborations among the entrepreneurs with a view to secure rapid modernisation, development and technological advancement, is a feature of Globalisation.

7. Economic Reforms:

Encouraging fiscal and financial reforms with a view to give strength to free trade, free enterprise and market forces of the world. Globalisation stands for integration and democratisation of the world’s culture, economy and infrastructure through global investments.

8. Connectivity:

Localities being connected with the world by breaking national boundaries; forging of links between one society and another, and between one country and another through international transmission of knowledge, literature, technology, culture and information.

NATURE OF GLOBALISATION.

1.  Geographical market segmentation: Entire world is considered as huge single markets were geographical barrier is irrelevant.

2.  Large size business operation: Global companies have huge capital, technology and production capacity by this they operate in different countries by large scale operations in the world.

3.  Wider scope: Business can be operated in a large scale without any political barrier.

4.  Inter-country comparative study: Companies operating in different countries have an advantage of analysis of their business operations by asking comparison of one country business profit with other ex.

5.  Achieve high rate of profit: The domestic companies mainly go global because to achieve high rate of profit.

6.  Expanding the production: In many countries market is very limited were the market move to global market and achieve the business objectives.

7.  Availability technology and managerial competence: Globalisation helps in transfer of technology, human resources and capital from surplus to the needed place by this way they achieve the business objectives.

WHY GO GLOBAL?

1. Increase sales and profitability.

2. Enter new markets.

3. Create jobs.

4. Offset slow growth in your home market.

5. Outmaneuver competitors.

6. Enlarge the customer base.

7. Create economies of scale in production.

8. Explore untapped markets with the power of the Internet.

9. Make use of excess capacity off-season.

10. Travel to new countries.

ADVANTAGES OR MERITS OF GLOBALIZATION

1.  Globalizationbroadens our minds. We feel that we belong to one world and we are a part of one nation, namely, humankind.

2.  Closer contact with foreign people makes us quitefamiliar with their manners, habits, and customs. The cultures become richer as they come into contact with each other.

3.  Globalization helps usshake off narrowness. We get the chance of comparing our country with other countries. In this way, we enrich our manners, customs, and habits.

4.  Globalization helps usfight illiteracy and promotes education. It gives us clear knowledge of facts and things.

5.  Globalization helps us shed orcombat the burning social issuessuch as child-labour, dowry, etc.

6.  Globalization has helped the global community tofight against poverty. Large non-profit and charitable organizations have launched massive campaigns to fight hunger and poverty. They have successfully done huge fund-raising in this regard.

7.  The benefits of science and technology have reached every corner of the world. People around the world areconnected through mobile phones and internet technology.

8.  Globalization hasenhanced our knowledgeof the world. A merchant can gather valuable information about different commodities in different countries. Firsthand knowledge of people and things is of great importance in international business.

9.  Due to globalization, a political leader cangather much useful knowledgeof the people, forms of government around the world.

10.  Globalization contributes inimproving international relationsand friendliness among different nations.

11.  we can communicate with people all over the world. Thehuman life becomes global.We have a global outlook on life.

THE DISADVANTAGES OR DEMERITS OF GLOBALIZATION

1.  In a way, globalization has contributed towards increasing thegap between the rich and the poor. Rich and wealthy people are able to exercise more control over the national resources through the application of science and technology.

2.  The environment has suffered greatly due of globalization. On one hand, the increase in traffic between countries has polluted the tourist destinations. On the other hand, the poisonous gases released into the air by large industries havecaused environmental pollution.

3.  Globalized business has exploited the natural resources of the earth beyond the tolerable limit. Some places on earth, which was once rich in minerals and forests can no longer claim their richness.

4.  Globalization tends to make the world a more homogeneous place. As a result, many communitiesfailed to preserve their old tradition, custom, and culture. Being attracted by the culture of developed nations, many people in under-developed nations have shed their traditional dress, food, and rituals. This is yet another disadvantage of Globalization.

5.  Local businesses, hand-loom industry, Cottage and small-scale industry suffered a lot due to globalization. The highly specialized and efficient multi-national companies take advantages of large-scale production and put products at throwaway prices. Thelocal industries could not compete with their global counterpart.

6.  The global economy is now inter-connected. The economicdownfall of one major economic nation adversely affects the entire global community.

7.  Globalization has causedspecialization of labour. On one hand, there is an increase in demand for skilled labours. However, it has caused enough disadvantages for the unskilled labour group. There islittle employment opportunity for unskilled laboursin a global environment.

8.  The more technologically advanced countries are able to sell their products to less-developed countries. Hence, theless developed countries become dependent upon the superior nations.

9.  The adverse effect of globalization is not restricted to financial and economical imbalance. Last century has witnessspread of diseases from one country to another country. Diseases spread to local places when a diseased person from a foreign country comes in contact with local inhabitants.

10.  Globalization is responsible for the emergence of large number of multi-national companies. Very often, it is found that theydo not provide good working condition to the workers. Further,forests have been cutfor setting up large industries. The industrial discharges have widely contributed towardsenvironmental degradation.

11.  Globalization canpressure us to act in a certain way.

ROUTES OF GLOBALISATION.

1.  International trade: International tradeis the exchange ofcapital,goods, andservicesacrossinternational bordersor territories. It is the exchange of goods and services among nations of the world.

a.  Export: means the sale abroad of an item produced stored or processed in the supplying firm’s home country.

b.  Import: means the purchase abroad of an item produced stored or processed in the supplying firm’s foreign country.

2.  FDI (Foreign Direct Investment): Foreign direct investment (FDI) is an investment made by a company or individual in one country in business interests in another country, in the form of either establishing business operations or acquiring business assets in the other country, such as ownership or controlling interest in a foreign company.

a.  International company

b.  MNC

c.  Global company

d.  Transnational company

3.  Other Routes:

Licensing: Is an agreement whereby a firm (the licensor) grants a foreign firm (the licensee) the right to use intangible property such as patent, logo, formula, process etc. the licensee pays a royalty or percent of the profits to the licensor.

Franchising: Arrangement where one party (the franchiser) grants another party (the franchisee) the right to use its trademark or trade-name as well as certain business systems and processes, to produce and market a good or service according to certain specifications.

Mergers and Acquisitions: Mergersare the combination of two companies to form a new company, whileAcquisitionsis one company taken over by another in which no new company is formed.

Joint Venture: A Joint Venture is a binding contract between two venture partners to set up a project either in home country or host country or a third country.

Wholly Owned Subsidiaries: A subsidiary company, daughter company or sister company is a company that is completely or partly owned by another corporation that owns more than half of the subsidiary’s stock.

MANIFESTATIONS OF GLOBALISATION

1.  Configuring anywhere in the world: An MNC can locate its different operations in different countries on the basis of raw material availability, consumer markets and low cost labour.

2.  Interlinked and interdependent economies: Globalisation refers to economically interdependent international environment. Each country’s property is interlinked with the rest of the world.

3.  Lowering of trade and tariff barriers: The trade tariffs and custom barriers are getting lowered resulting in cheaper and abundant supply of goods.

4.  Effect on related industries and ancillaries: Globalisation may also render many companies to go sick. Large scale restructuring may result in closure of a part or whole of their operations.

5.  Infrastructural resources and inputs at international prices: If companies have to compare globally, infrastructural inputs must be ensured at competitive prices.

6.  Increasing trends towards privatization: The role of the government is reduced to the provider of infrastructure for private businesses to prosper.

7.  Entrepreneur and his unit have a central economic role: In the emerging world order the focus is gradually shifted from the bureaucrat to the businessman, he is able to innovate bring in new products and contribute to the nations wealth.

8.  Mobility of skilled resources: Skilled labour are highly mobilized.

9.  Market side efficiency: Integration of global markets implies customers can make a genuine choice of products and services on the basis of maximum value for money.

10. Formation of Regional blocks: Globalisation leads to the formation of trade blocks. Countries like corporations have to form strategic alliances to keep off economic and technological threats.

STAGES OF GLOBALISATION

STAGE: 1 Domestic

1.  Market potential is limited to the home country.

2.  Production and marketing facilities located at home.

3.  Surplus may or may not be exported.

4.  No overt efforts to develop foreign markets.

STAGE: 2 International

1.  Decides which market to enter.

2.  Use market entry market strategies.

3.  Off-shoring/Global outsourcing.

4.  Exporting.

5.  Licensing

6.  Franchising

7.  Joint Ventures/ acquisitions.

8.  Direct Investments.

STAGE: 3 Multinational

1.  Domestic countries start business in foreign countries.

2.  The company moves to a full insider position in the market including R & D and engineering.

3.  This stage calls on the managers to replicate in a new environment.

4.  It forces them to extend the reach of domestic headquarters.

STAGE: 4 Global

1.  Company moves towards a genuinely global mode of operation.

2.  A company denationalize their operation and create a system of values.

3.  They invest, they train, they pay taxes and they develop good infrastructural values to customers.

4.  Global corporations are nationality-less because consumers have become less nationalistic.

5.  IBM Japan has provided three times more tax revenue to the Japanese government.

STAGES TO ENTER GLOBAL MARKET

STAGE: 1 Educate you on the customs and business etiquette of the international market.

STAGE: 2 Gather historical data on the country’s currency value fluctuations and import/export timelines.

STAGE: 3 Become an expert on the country’s laws governing business.

STAGE: 4 Conduct focus groups to test the waters in the prospective international market.

STAGE: 5 Find out what the competition has done in the same territory.

GLOBALISATION OF PRODUCTION

The globalisation of production means that the world has become the global village and now the producers can get the benefit from the different culture and cheap labours all around the world.

REASONS FOR GLOBALISATION OF PRODUCTION

1.  Imposition of restrictions on imports.

2.  Availability of high quality raw materials.

3.  Availability of inputs at low cost in foreign countries.

4.  To reduce the cost of transportation and easy logistic management.

ADVANTAGES OF GLOBAL PRODUCTION

1.  Advantages of Free Trade

2.  Advantage of Free Movement of Labours.

3.  Increased Economies of Scale.

4.  Greater Competition

5.  Increased production capacity through increased investment.

GLOBAL INVESTMENT

The global investment process is similar to the domestic but with the added layers of complexity of language, custom, information, currency, accounting, disclosure, trade, liquidity, settlement, tax, repatriation, political and legal issues.

THE IMPLEMENT AND IMPORE GLOBAL INVESTMENT PROCESSES IN THE FOLLOWING AREAS:

1.  Global quantitative equity research.

2.  Region, country, sector, industry, company, benchmark to portfolio analysis.

3.  Marketing and support for international client.

4.  Global risk analysis.

5.  Frontier markets

6.  International trading systems.

7.  Multi-currency portfolio management and overlay systems.

8.  International clearance and settlement processes.

9.  Global accounting and custody applications.

10. International tax efficient structured equity.

STAGE IN GLOBAL INVESTMENT PROCESS

STAGE: 1 Equity research: the global research phase should yield buy, sell and allocation recommendations, starting with an objective and strategy.