ibm module1
TRANSCRIPT
8/7/2019 IBM MODULE1
http://slidepdf.com/reader/full/ibm-module1 1/32
³Freedom is not worth having if it doesnot include the freedom to makemistakes´
-Mahatma Gandhi
8/7/2019 IBM MODULE1
http://slidepdf.com/reader/full/ibm-module1 2/32
MODULE-1
GLOBALISATION
8/7/2019 IBM MODULE1
http://slidepdf.com/reader/full/ibm-module1 3/32
What is Globalization?
Globalization is a continuing process of economic restructuring which has
lead to an increasing cross-broader flow of trade in goods, services, and
financial assets, along with an increasing international mobility of
technology, information and individuals.
DEFINATION:-
CHARLES. W. L. HILL Defines Globalization as
³ The Shift towards a more integrated and interdependent world
economy. Globalization has two main components- the Globalization of
markets and Globalization of Production´.
8/7/2019 IBM MODULE1
http://slidepdf.com/reader/full/ibm-module1 4/32
FEATURES OF GLOBALIZATION
1. Opening and planning to expand business throughout the world.
2. Erasing the differences between market and foreign market.
3. Buying and Selling goods and services from/to any country in theworld.
4.E
stablishing manufacturing and distribution facilities in any part of theworld based on the feasibility and ability rather than nationalconsideration.
5. Product planning and development are based on market considerationof the entire world.
6. Sourcing of factors of production and inputs like Raw Materials,Machinery, Finance,Technology, Human Resources and
management skills from the entire globe.7. Global orientation in strategies, organization structure, organization
culture and managerial expertise.
8. Setting the mind and attitude to view the entire global as a singlemarket.
8/7/2019 IBM MODULE1
http://slidepdf.com/reader/full/ibm-module1 5/32
Thus, Globalization means globalizing the Marketing,
production, Investment, Technology and Other
Activities.
GLOBALIZATION OF MARKETS*Globalization of markets refers to the process of integrating and
merging of distant world markets into a single market.
*This process involves the identification of some common norms,values, tastes, preferences and conveniences and slowly
enables the cultural shift towards the use of a common product or
service.
EXAMPLES- SONY CAMERA,LEVIES JEANS, PEPSI etc.
8/7/2019 IBM MODULE1
http://slidepdf.com/reader/full/ibm-module1 6/32
Features of it
1.The Size of the company need not be too large to create aglobal market.
2.Companies to formulate different strategies for eachmarket.
KFC separate strategies for each country.3.Most of the foreign markets are markets for non-consumer
goods like industrial products, machinery, equipment,Raw Materials, computer, software, financial productsetc.
4.Global business compete with each other frequently indifferent markets including their home markets.
Example Coca-Cola v/s Pepsi,Similarly Ford v/s Tayota.
8/7/2019 IBM MODULE1
http://slidepdf.com/reader/full/ibm-module1 7/32
Reasons For Globalization of markets
1.Large Size Industrialization.
2.To reduce the risk diversity the portfolio of countries.
3.Companies globalize markets in order toincrease their profits and achieve companygoals.
4. To cater to the demand for their products in
foreign markets.5.An adverse business environment in the
home country.
8/7/2019 IBM MODULE1
http://slidepdf.com/reader/full/ibm-module1 8/32
GLOBALIZATION OF PRODUCTION
The Globalization Of Production referes to the sourcing of goods andservices from locations across the globe to take advantage of nationaldifferences in the cost and quality of factors of production (labour,energy, time capital, raw materials)
Reasons For Globalization of Production
1. Imposition of restriction on imports by foreign countries forces MNCs toestablish manufacturing facilities in other countries.
2. Availability of Inputs at low cost in foreign markets.
3. Availability of skilled labour resources at low cost.
4. Availability of high quality raw materials and components in other countries.
5. Liberal labour laws in the foreign countries.
6. Facility of exporting to other neighbor countries.
7. To reduce the cost of Transportation and easy logistics management.
8. To Design and manufacture products in accordance with the varyingtastes of customers in foreign countries.
8/7/2019 IBM MODULE1
http://slidepdf.com/reader/full/ibm-module1 9/32
GLOBALIZATION OF INVESTMENT
*Globalization of investment refers to investment of capital by aglobal company in any part of the world.
*A global company conducts the assessment of the financial
feasibility of new projects in different countries of the world andinvests capital in that country, where it is relatively moreprofitable. Globalization of investment is also known as FDI.
*FDI occurs when a firm invests directly in new facilities to produceand / or market a product or service in a foreign country.
Coco-cola acquired a number of bottling companies throughoutIndia by investment directly.
The GOI has reduced investment barriers, allowing more than51% of foreign investment in Indian companies.
8/7/2019 IBM MODULE1
http://slidepdf.com/reader/full/ibm-module1 10/32
Reasons For Globalization Of Investments
1. There has been a rapid increase in the volume of global trademany countries provide favorable environment for directinvestment.
2. In addition to increase in volume of FDI. Its composition has also
been changing.Initially it was directed towards the
USA:later on,it was directed towards countries like UK, JAPAN, FRANCE, CHINA
etc.
3. Small and medium scaled companies have been manufacturingand marketing activities, invest in the foreign countries.
4. Procure funds from any source in the globe, wherever the cost of capital is low with feasible terms and conditions
5. A significant amount of FDI is directed to the developing countriesin Asia and Eastern Europe.
8/7/2019 IBM MODULE1
http://slidepdf.com/reader/full/ibm-module1 11/32
Globalization process
Domestic company exports to foreign countries through the
dealers or distributors of the home country
In the second stage ,the domestic company exports to the foreign
country directly on its own
In third stage ,the domestic company becomes an internationalcompany by establishing the production and marketing operation
sin various key foreign countries.
In the fourth stage ,the company replicates a foreign company by
having all the facilities including R&D full fledged human
resources etc . In the fifth stage the company becomes a true foreign company
by serving the needs of foreign customers just like the host
company serves. Thus the globalization means the marketing,
production, investment, technology & other activities.
8/7/2019 IBM MODULE1
http://slidepdf.com/reader/full/ibm-module1 12/32
Advantages of Globalization
Free flow of capital and increase in the total capital employed.
Free flow of technology.
Increase in industrialization .
Spread of production facilities throughout the globe. Balanced development of world economies.
Increase in production and consumption.
Commodities at lower prices with high quality.
Cultural exchange and demand for a variety of products.
Increases in Jobs and Income.
Higher standards of living.
Balanced Human Development.
Increase in Welfare and Prosperity.
8/7/2019 IBM MODULE1
http://slidepdf.com/reader/full/ibm-module1 13/32
Disadvantages of Globalization
Globalization kills domestic business.
Exploits Human Resource.
Leads to unemployment and underemployment.
Decline in demand for domestic products.
Decline in income.
Widening gap between rich and poor.
Transfer of Natural Resources.
National sovereignty at stake.
Leads to commercial and political colonialism
8/7/2019 IBM MODULE1
http://slidepdf.com/reader/full/ibm-module1 14/32
Methods Modesof globalization
Exporting directly
Exporting indirectly
Licensing and franchising
Contract manufacturing
Establishing full marketing facilities
Establishing manufacturing facility
Joint venture Strategic alliance
Merger
8/7/2019 IBM MODULE1
http://slidepdf.com/reader/full/ibm-module1 15/32
What Is Economic Environment?
Meaning of Economic Environment
Those Economic factors which have their affect on the
working of the business is known as economic
environment. It includes system, policies and nature of an economy, trade cycles, economic resources, level
of income, distribution of income and wealth etc.
Economic environment is very dynamic and complex
in nature. It does not remain the same. It keeps on
changing from time to time with the changes in an
economy like change in Govt. policies, political
situations
8/7/2019 IBM MODULE1
http://slidepdf.com/reader/full/ibm-module1 16/32
Elements of Economic Environment
1. Economic Conditions
2. Economic System
3.E
conomic Policies4. International EconomicEnvironment
5. Economic Legislations
8/7/2019 IBM MODULE1
http://slidepdf.com/reader/full/ibm-module1 17/32
Economic ConditionsEconomic Policies of a business unit are largely
affected by the economic conditions of an economy.Any improvement in the economic conditions such as
standard of living, purchasing power of public,
demand and supply, distribution of income etc. largely
affects the size of the market.
Business cycle is another economic condition that isvery important for a business unit. Business Cycle has
5 different stages viz.
(i) Prosperity,
(ii) Boom,(iii) Decline,
(iv) Depression,
(v) Recovery.
8/7/2019 IBM MODULE1
http://slidepdf.com/reader/full/ibm-module1 18/32
Following are mainly included inEconomic Conditions of a country
I. Stages of Business Cycle
II. National Income, Per Capita Income and Distribution
of Income
III. Rate of CapitalF
ormationIV. Demand and Supply Trends
V. Inflation Rate in the Economy
VI. Industrial Growth Rate, Exports Growth Rate
VII. Interest Rate prevailing in the Economy
VIII.Trends in Industrial SicknessIX. Efficiency of Public and Private Sectors
X. Growth of Primary and Secondary Capital Markets
XI. Size of Market
8/7/2019 IBM MODULE1
http://slidepdf.com/reader/full/ibm-module1 19/32
Economic Systems
An Economic System of a nation or a country may be
defined as a framework of rules, goals and incentives
that controls economic relations among people in a
society. It also helps in providing framework for answering the basic economic questions. Different
countries of a world have different economic systems
and the prevailing economic system in a country affect
the business units to a large extent.
8/7/2019 IBM MODULE1
http://slidepdf.com/reader/full/ibm-module1 20/32
Economic conditions of a nation can be of any one of thefollowing type
1. Capitalism:- The economic system in which business units
or factors of production are privately owned and governed is
called Capitalism. The profit earning is the sole aim of the
business units. Government of that country does not interfere
in the economic activities of the country. It is also known as
free market economy. All the decisions relating to the
economic activities are privately taken. Examples of
CapitalisticE
conomy:-E
ngland, Japan,A
merica etc.
8/7/2019 IBM MODULE1
http://slidepdf.com/reader/full/ibm-module1 21/32
It provides customer his choices of product or service
(Economic democracy)
Private ownership
Philosophy of individualism believing in private ownership of
productive and distribution facilities.
USA, JAPAN, UK, Are the examples of capitalistic country.
India, France Italy and Malaysia have started shifting their
economic system towards this economic system.
Weaknesses are
It results in inequalities of income
Recurrence of trade cycles due to free play of market forces
Exploitation of the poor
People indulge in wasteful expenditure
8/7/2019 IBM MODULE1
http://slidepdf.com/reader/full/ibm-module1 22/32
2. Socialism:- Under socialism economic system, all the
economic activities of the country are controlled and
regulated by the Government in the interest of the public.
The first country to adopt this concept was SovietRussia.
3. Mixed Economy:- The economic system in which both
public and private sectors co-exist is known as Mixed
Economy. Some factors of production are privately owned
and some are owned by Government. There existsfreedom of choice of occupation and consumption. Both
private and public sectors play key roles in the
development of the country.
8/7/2019 IBM MODULE1
http://slidepdf.com/reader/full/ibm-module1 23/32
4. Communistic Economic System:
Here private property and property rights to income
are abolished.
The state owns all the factors of production and
distribution. Communism is also called as ³Marxism´. Lenin set up
a communist state Russia later spread to China,
Czechoslovakia, Rumania, Yugoslavia, Poland,
Sweden.
8/7/2019 IBM MODULE1
http://slidepdf.com/reader/full/ibm-module1 24/32
Major limitations of this system.
It reduces individual freedom of choice due to
restriction on items to be produced.
It fails to get total commitment of people to work and
countries welfare. It failed to achieve significant economic growth.
It could not achieve equality.
Less scope for FDI
It imposes too many restrictions on MNCs
Communism collapsed in the former USSR. It has
also collapsed in many of the African countries.
CUBA is an example of the last remaining
predominantly communistic country.
8/7/2019 IBM MODULE1
http://slidepdf.com/reader/full/ibm-module1 25/32
Countries Classifieds Based On Income
A. LOW INCOME COUNTRIES (GNP PERCAPITALESS THAN US $ 400)
Characteristics:
Agri orientation
High birth rates
Low literacy rate
Heavy reliance on foreign aid
Political instability and unrest.
Concentrated in Africa, south of Sahara
Excessive unemployment and under employment.
Underutilization of natural resources.
Excessive dependence on imports
8/7/2019 IBM MODULE1
http://slidepdf.com/reader/full/ibm-module1 26/32
B. LOWER MIDDLE INCOMECOUNTRIES. (GNP Per capita of
between US $ 400 to 2000)Less developed countries Early stages of industrialization
Expansion of consumer Mkts
Availability of cheap and motivated humanrecourses
Pose threat to the rest of the world in labintensive production due to cheap labour.
Domestic
8/7/2019 IBM MODULE1
http://slidepdf.com/reader/full/ibm-module1 27/32
C. UPPER-MIDDLE INCOME COUNTRIES(GNP per capita US $ between 2000 to 12000)
Industrializing countries
Characteristics:
Less dependency on agriculture.
Occupational mobility of the people fromagriculture to industry.
People migrate from rural to urban areas.
Increase in literacy, formal education and
increased wage rates. Low wage costs compared to advanced countries.
High exports and repaid economic dev
8/7/2019 IBM MODULE1
http://slidepdf.com/reader/full/ibm-module1 28/32
D. High Income countries.(GNP Per capita morethan $ 12000)
Advanced/ industrialized countries-Characteristics:
Oil rich countries are excluded from this category.
Countries reached the income level of more than US $12000 through the process of industrial growth areincluded in this category.
Service sector contributes more than 50% to the GNP
Development of information sector.
Development of intellectual technology over machine
technology. Emphasis on the future plans.
These countries face the problems like pollutionexcessive urbanization, economic depression.
Product innovations are more prevalent.
8/7/2019 IBM MODULE1
http://slidepdf.com/reader/full/ibm-module1 29/32
Economic Policies
Government frames economic policies. Economic
Policies affects the different business units in different
ways. It may or may not have favorable effect on a
business unit. The Government may grant subsidiesto one business or decrease the rates of excise or
custom duty or the government may increase the
rates of custom duty and excise duty, tax rates for
another business. All the business enterprises frame
their policies keeping in view the prevailing economicpolicies.
8/7/2019 IBM MODULE1
http://slidepdf.com/reader/full/ibm-module1 30/32
Important economic policies of a country are as follows:
1. Monetary Policy:- The policy formulated by the central
bank of a country to control the supply and the cost of
money (rate of interest), in order to attain some specified
objectives is known as Monetary Policy.
2. Fiscal Policy:- It may be termed as budgetary policy. It is
related with the income and expenditure of a country.
Fiscal Policy works as an instrument in economic and
social growth of a country. It is framed by the governmentof a country and it deals with taxation, government
expenditure, borrowings, deficit financing and management
of public debts in an economy.
8/7/2019 IBM MODULE1
http://slidepdf.com/reader/full/ibm-module1 31/32
3. Foreign Trade Policy:- It also affects the different business
units differently. E.g. if restrictive import policy has been
adopted by the government then it will prevent the domestic
business units from foreign competition and if the liberal import
policy has been adopted by the government then it will affect
the domestic products in other way.
4.F
oreign Investment Policy:- The policy related to theinvestment by the foreigners in a country is known as Foreign
Investment Policy. If the government has adopted liberal
investment policy then it will lead to more inflow of foreign
capital in the country which ultimately results in more
industrialization and growth in the country.5. Industrial Policy:- Industrial policy of a country promotes and
regulates the industrialization in the country. It is framed by
government. The government from time to time issues
principals and guidelines under the industrial policy of the
country.
8/7/2019 IBM MODULE1
http://slidepdf.com/reader/full/ibm-module1 32/32
Global/International Economic Environment:-
The role of international economic environment is
increasing day by day. If any business enterprise is
involved in foreign trade, then it is influenced by not only
its own country economic environment but also the
economic environment of the country from/to which it is
importing or exporting goods. There are various rules andguidelines for these trades which are issued by many
organizations like World Bank, WTO, United Nations etc.
Economic Legislations:-Besides the above policies, Governments of different
countries frame various legislations which regulates and
control the business.