Introduction to Globalisation
In the last few decades our world has changed drastically. Changes in technology has made transportation and communication much more efficient, thereby allowing us to connect with anyone anywhere.
Until the middle of the twentieth century, production was largely organised within countries.
Colonies such as India exported raw materials and food stuff and imported finished goods. Trade was the main channel connecting distant countries.
What are Multinational Corporations (MNCs)?
A MNC is a company that owns or controls production in more than one nation.
Why do MNCs decentralise their production?
MNCs set up offices and factories for production in regions where they can get cheap labour and other resources. This is done so that the cost of production is low and the MNCs can earn greater profits.
Production is organised in increasingly complex ways. The MNCs not only sell the finished products globally, but also produce goods and services globally.
Production process is divided into small parts and spread out across the globe.
Companies set up units across countries depending upon the strength of particular nations.
Example, China provides the advantage of being a cheap labour market for production while India has the advantage of an educated and skilled english speaking youth.
In general, MNCs set up production where it is close to the markets; where there is skilled and unskilled labour available at low costs; and where the availability of other factors of production is assured.
MNCs might look for government policies that look after their interests.
Large MNCs in developed countries place orders for production with small producers. The products are supplied to the MNCs, which then sell these under their own brand names to the customers.
The money that is spent to buy assets such as land, building, machines and other equipment is called investment. Many of the top MNCs have wealth exceeding the entire budgets of the developing country governments.
Investment made by MNCs is called foreign investment.
MNCs can spread their production in following ways: By setting up partnerships with local companies, by using the local companies for supplies, by closely competing with the local companies or buying them up, MNCs are exerting a strong influence on production at these distant locations.
As a result, production in these widely dispersed locations is getting interlinked.
What is a Joint Venture?
Sometimes, MNCs set up production jointly with some of the local companies of these countries.
Benefits to local company:
MNCs can provide money for additional investments, like buying new machines for faster production.
MNCs might bring with them the latest technology for production.
Benefits to foreign company:
Most common route for MNC investments is to buy up local companies and then to expand production.
Example : Flipkart being acquired by Walmart.
Foreign trade has been the main channel connecting countries. Trade routes connected India and South Asia to markets both in the East and West such as the Silk Route.
Trading interests attracted various trading companies such as the East India Company to India.
Foreign trade creates an opportunity for the producers to reach beyond the domestic markets
For the buyers, import of goods produced in another country is one way of expanding the choice of goods beyond what is domestically produced.
The opening of trade allows goods to travel from one market to another.
Choice of goods in the markets rises. Prices of similar goods in the two markets tend to become equal.
Foreign trade thus results in connecting the markets or integration of markets in different countries.
A large part of the foreign trade is also controlled by MNCs. Activities of most MNCs involve substantial trade in goods and also services.
The result of greater foreign investment and greater foreign trade has been greater integration of production and markets across countries.
Globalisation is this process of rapid integration or interconnection between countries
More and more goods and services, investments and technology are moving between countries.
There is movement of people between countries in search of better income, better jobs or better education.
Factors that Enabled Globalisation
The past fifty years have seen several improvements in transportation technology. This has made much faster delivery of goods across long distances possible at lower costs.
Developments in information and communication technology has allowed people to contact one another around the world, to access information instantly, and to communicate from remote areas.
This has been facilitated by satellite communication devices.
2. Liberalisation of foreign trade and foreign investment policy
Governments can use trade barriers to increase or decrease (regulate) foreign trade and to decide what kinds of goods and how much of each, should come into the country.
The Indian government, after Independence, had put barriers to foreign trade and foreign investment.
This was considered necessary to protect the producers within the country from foreign competition.
Competition from imports at that stage would not have allowed these industries to come up.
India allowed imports of only essential items such as machinery, fertilisers, petroleum etc.
In 1991, post the economic crisis barriers on foreign trade and foreign investment were removed to a large extent. This meant that goods could be imported and exported easily and also foreign
companies could set up factories and offices here.
Removing barriers or restrictions set by the government is what is known as liberalisation.
The government imposes much less restrictions than before and is therefore said to be more liberal.
What is a SEZ?
In recent years, the central and state governments in India are taking special steps to attract foreign companies to invest in India. Industrial zones, called Special Economic Zones (SEZs), are being set up.
SEZs are to have world class facilities: electricity, water, roads, transport, storage, recreational and educational facilities. Companies who set up production units in the SEZs do not have to pay taxes for an initial period of five years.
What is WTO?
The World Trade Organisation (WTO) is an organisation whose aim is to liberalise international trade.
Started at the initiative of the developed countries, WTO establishes rules regarding international trade, and sees that these rules are obeyed.
The WTO officially commenced on 1 January 1995 under the Marrakesh Agreement, signed by 123 nations on 15 April 1994, replacing the General Agreement on Tariffs and Trade (GATT), which commenced in 1948. It is the largest international economic organisation in the world.
As of 2021, nearly 165 Countries of the world are currently members of the WTO.
WTO rules have forced the developing countries to remove trade barriers. While, it is seen that the developed countries have unfairly retained trade barriers.
Impact of Globalisation on India - Positive Aspects
Advantage to consumers, particularly the well-off sections in the urban areas.
There is greater choice before these consumers who now enjoy improved quality and lower prices for several products.
Higher standards of living than was possible earlier.
Increased investments in India over the past 20 years
New jobs have been created.
Local companies supplying raw materials, etc. to these industries have prospered.
Top Indian companies have been able to benefit from the increased competition. They have invested in newer technology and production methods and raised their production standards.
Successful collaborations with foreign companies.
Impact of Globalisation on India - Negative Aspects
For a large number of small producers and workers globalisation has posed major challenges.
Small manufacturers have been hit hard due to competition.
Competition and Uncertain Employment : Many low skill workers have lost jobs. Most employers these days prefer to employ workers ‘flexibly’. This means that workers’ jobs are no longer secure.
As the cost of raw materials cannot be reduced, exporters try to cut labour costs.
Wages are low and workers are forced to work overtime to make both ends meet.
What is Fair Globalisation?
Fair globalisation is an equitable distribution of benefits of globalisation so that it would create opportunities for all, and also ensure that the benefits of globalisation are shared better. However, not everyone has benefited from globalisation. People with education, skill and wealth have made the best use of the new opportunities.
How can the governments ensure fair globalisation?
Government policies must protect the interests, not only of the rich and the powerful, but all the people in the country.
The government can ensure that labour laws are properly implemented and the workers get their rights.
It can support small producers to improve their performance till the time they become strong enough to compete.
The government can use trade and investment barriers.
The government can negotiate at the WTO for ‘fairer rules’.
The government can align with other developing countries with similar interests to fight against the domination of developed countries in the WTO