GLOBALIZATION

GLOBALIZATION

It can be defined as a process of economic integration of the entire world through the removal of barriers to free trade and capital mobility as well as through diffusion of knowledge and information

It would mainly consist of Globalisation of Production Globalisation of Markets

DRIVING FORCES

Market Needs Technology Cost Quality Expectations Communications & Transportation Leverage- Experience Transfer,

Systems Transfers, Resource Utilization, Global Strategy

RESTRAINING FORCES

Market Differences History Management Myopia Organisational Culture National Controls/ Barriers to Entry

UNDERLYING FORCES

Orientations of Management (EPRG) International Monetary Framework World Trading System

Regional Trade Agreement Global Peace Domestic Economic Growth Communications & Transportation

Technology Global/ Transnational Corporations

World Economies

Beginning of 1990s saw growth of US as a major Economy followed by Japan and Germany

It could be attributed to ,willingness of US business to cut their workforce,reorganize their operations, invest heavily in R & D

OECD; organization for economic and Cooperation Development (OECD); A group of 30 wealthy members countries that facilitates a forum for the discussion of economic, social and governance issues across the world.

International Trade regulations International Business has seen the

emergence of trade and investment liberalization

GATT ; General agreement on Tariffs and Trade; was established to negotiate trade concession among member countries. It gave way to WTO

WTO; World Trade Organisation; deals with the rules of trade among member countries. One of the most important function is to act as a dispute settlement mechanism

The TRIAD The 3 major trading and investment blocs in

the international arena: the US, EU and Japan US has the largest economy of the world with

GDP of over 10$ trillion NAFTA ;North American Free trade agreement

between the Canada, the US and Mexico EU; today there are 15 members and large

number are applicants The collective GDP of EU is greater than US or

Japan

Technology Communication technology Technology for production of Goods

and Services Quality standards and technology

inputs

Reasons For Entering International Business Growth Profitability Achieving Economics of Scale Risk Spread Access to Imported Inputs Uniqueness of Product or Service Business Opportunities due to life cycle Spreading R & D Costs

EPRG Framework Ethnocentric orientation Polycentric orientation Regiocentric orientation Geocentric orientation

ETHNOCENTRIC; home country is superior,sees similarities in foreign countries

POLYCENTRIC; Each host country is unique, sees differences in foreign countries

REGIOCENTRIC; sees similarities and differences in world region; is ethnocentric or regiocentric in its view of the rest of the world

GEOCENTRIC; world view, sees similarities and differences in home and host countries

Evolutionary process of Global Business Domestic Business Export Business International Business Multinational Business Global Business / Transnational

Business Glocal Business

Domestic Business Export Business

Extending to similar market International Business

Extends Business, manufacturing and other activities in other countries

Ethnocentric approach It normally has an international division Focus is on home country market Business strategy is extension

Multinational Business Adaptation of Business mix Multidomestic strategy,each subsidy is an

independent entity Polycentric approach

Global Business Will either have a global Business strategy or

a global sourcing strategy but not both Key assets are in home country

Transnational Business Works in integration, linking global resources

with global markets at a profit Geocentric in approach Recognizes similarities and differences and

adopts a world view to add value Key assets are dispersed interdependent and

specialized Experience and knowledge are shared globally

Glocal Business

GLOBALIZATION INDEX

It is a ranking of globalised countries carried out by A T Kearnery

It has following key components Economic Integration;trade,

portfolio,FDI,investment income Personal Integration;telephone, travel,

remittances, personal transfers Technology Integration;Internet users, Internet

hosts, secure Internet services Political Integration;international organisations,

UN peacekeeping, treaties and government transfers

Definitions Of The Term “Liberalization” and “Economic

Liberalization” The term “Liberalization” stands for “the act of making less

strict”.

Liberalization in Economy stands for “The process of making policies less constraining of economic activity." And also “Reduction of tariffs and/or removal of non-tariff barriers.”

Economic liberalization is a very broad term that usually refers to fewer government regulations and restrictions in the economy in exchange for greater participation of private entities

In developing countries, economic liberalization refers more to liberalization or further "opening up" of their respective economies to foreign capital and investments.

The fastest growing developing economies today; Brazil, Russia, India, and China have achieved rapid economic growth in the past several years or decades after they have "liberalized" their economies to foreign capital.

BRICS ??

Pre-Liberalization Era of Indian Economy

The low annual growth rate of the economy of India before 1980, which stagnated around 3.5% from 1950s to 1980s, while per capital income averaged 1.3%.

Only four or five licenses would be given for steel, power and communications. License owners built up huge powerful empires.

A huge public sector emerged. State-owned enterprises made large losses.

License Raj established the "irresponsible, self-perpetuating bureaucracy that still exists throughout much of the country”.

Infrastructure investment was poor because of the public sector monopoly.

Indian economy had experienced major policy changes in early 1990s.

The new economic reform, popularly known as, Liberalization, Privatization and Globalization (LPG model) aimed at making the Indian economy as fast growing economy and globally competitive.

The series of reforms undertaken were in respect to industrial sector, trade as well as financial sector aimed at making the economy more efficient.

Liberalization in Indian Economy

With the onset of reforms to liberalize the Indian economy in July of 1991, a new chapter has dawned for India and her billion plus population.

This period of economic transition has had a tremendous impact on the overall economic development of almost all major sectors of the economy, and its effects over the last decade can hardly be overlooked.

Besides, it also marks the advent of the real integration of the Indian economy into the global economy.

This era of reforms has also ushered in a remarkable change in the Indian mindset, as it deviates from the traditional values held since Independence in 1947.

Such as self reliance and socialistic policies of economic development, which mainly due to the inward looking restrictive form of governance.

Resulted in the isolation, overall backwardness and inefficiency of the economy, amongst a host of other problems.

Though, India has always had the potential to be on the fast track to prosperity.

Now that India is in the process of restructuring her economy, with aspirations of elevating herself from her present desolate position in the world.

The need to speed up her economic development is even more imperative.

And having witnessed the positive role that Foreign Direct Investment (FDI) has played in the rapid economic growth of most of the Southeast Asian countries and most notably China.

India has embarked on an ambitious plan to emulate the successes of her neighbors to the east and is trying to sell herself as a safe and profitable destination for FDI.

Definitions Of The Term “Privatization” and “Economic Privatization”

The term “Privatization” refers to “The transfer of ownership of property or businesses from a government to a privately owned entity.”

The transition from a publicly traded and owned

company to a company which is privately owned and no longer trades publicly on a stock exchange.

The process of converting or "selling off" government-owned assets, properties, or production activities to private ownership.

After several decades of increasing government control over productive activities, privatization came into vogue in the 1980s, along with business deregulation and an overall movement toward greater use of markets.”

Privatization is frequently associated with industrial or service-oriented enterprises, such as mining, manufacturing or power generation, but it can also apply to any asset, such as land, roads, or even rights to water.

In recent years, government services such as health, sanitation, and education have been particularly targeted for privatization

Privatization helps establish a "free market", as well as fostering capitalist competition, which will give the public greater choice at a competitive price.

Reason for Indian Privatization

1. Crippling Budget deficit

2. Spectacular growth by economies of Korea, Taiwan, Malaysia in private sector

3. Collapse of USSR& communist government in eastern Europe

4. Changes in China

5. Emergence of professional management

6. IMF & World Bank extended arm to capitalism

7.Gulf crisis

8.Lack of demand in economy

9.Integration of world trade

10. Developed local capital market and Financing Institution

Recent Reasons

•To STENGTHEN Competition

•To improve public finance

•To fund Infrastructure Growth

•Accountability of share holders

•To reduce unnecessary interference

The main reason for increased efficiency gain as a result of privatization can be attributed to

(i)Less political interference in decision making

(i)Staff remuneration is more closely linked to productivity and profitability

(ii)Firm are exposed to open market discipline as opposed to government support

(iii)Firm’s cost reducing effort are higher under competitive private ownership

Key obstacle to privatization(i)Lack of strong and high level political commitment to the

privatization program

(ii) Unclear and weak institutional frame work-decentralized or centralized. (ministry and provincial level)

iii) Lack of proper preparation of enterprise for privatization or divestment eg. Accounting and auditing , treatment of losses, social and environmental safety net

(iv) Insufficient transparency and flexibility in term of the method of privatization, balancing, ownership, and control (corporate governance)

(v) Vested interest of manager, employees and customer

(vi) Lack of appropriate legal frame work (eg. Property right, foreign ownershipbankruptcy law )

(vii) Underdeveloped capital markets

WAYS OF PRIVATIZATION DISINVESTMENT

CONTRACTING

FRANCHISING

PREMITING PRIVATE SECTOR ENTER INTO PSU RESERVED AREA

LIQUIDATION

LEASING

Foreign Exchange Management Act

Historical Background: The Foreign Exchange Regulation Act of 1973

(FERA) Enacted in 1973, in the backdrop of acute shortage of Foreign Exchange in the country,

FERA had a controversial 27 year stint during which many bosses of the Indian Corporate world found themselves at the mercy of the Enforcement Directorate (E.D.).

FERA was repealed on 1st June, 2000. It was replaced by the Foreign Exchange Management Act (FEMA), which was passed in 1999.

FEMA is an Act to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India.

It extends to the whole of India and alsoapplies to all branches, offices andagencies outside India, owned orcontrolled by a person resident in India.

Objectives :•Facilitate external trade and payments.•Promote the orderly development and

maintenance of Foreign exchange market Dealings in Foreign Exchange :

•Section 3 of FEMA imposes restrictions ondealings in foreign exchange and foreignsecurity and payments to and receiptsfrom any person outside India.

•Accordingly except as provided in terms ofthe act, or with the general or specialpermission of the Reserve Bank , noperson shall :

Deal in any foreign exchange or foreignsecurity with any person other than anauthorized person .

Make any payment to or for the credit of any person resident outside India in anymanner.

Receive otherwise through an authorizedperson , any payment by order or onbehalf of a person resident outside Indiain any manner.

Enter in to any Financial Transaction in India as a consideration for or inassociation with acquisition or creation or transfer of a right to acquire , any asset outside India by any person.

Holding of Foreign Exchange:•Save as otherwise provided in this act ,

no person resident in India shall acquire ,hold , own , possess or transfer anyforeign exchange , foreign security or anyimmediate property situated outside India.

Current Account Transactions:•FEMA permits dealings in Foreign

exchange through authorized persons forcurrent account transactions. However thecentral govt. can impose reasonablerestrictions in public interest.

Capital account Transactions: Any person shall sell or draw foreign exchange to or from an authorized person for a capital account Transaction permitted by the RBI in consultation with the central govt.

A person resident in India may hold , own, transfer or invest in foreign currency , foreign security or any immovable property situated outside India if such currency , security or property was acquired , held or owned by such person when he was resident outside India or inherited from aperson who was resident outside India.

The RBI is empowered by this act toprohibit , restrict, or regulate establishment in India of a branch, office or other place of business by a person resident outside India for carrying on any such activity relating to such branch, office or other place of business.

Export of Goods and services:

Every exporter of goods shall furnish toRBI or to such other authority adeclaration as specified containing trueand correct material, particulars , including the amount representing the full export value.

Contravention and Penalties:

•Any kind of contravention under this act is liable to a penalty up to thrice the amount involved where it is quantifiable or up to 2 lakhs where it is not quantifiable.

•Further penalty may extend up to five thousand rupees for every day after thefirst day.

•In FERA there was provision for imprisonment and no limit on fine.

In FEMA a person will be liable to civil imprisonment only if he does not pay thefine within 90 days from the date of notice.