Globalizations are the outcome of the policies of liberalisation and privatisation. Globalisation is generally understood to mean integration of the economy of the country with the world economy, it is a complex phenomenon. It is an outcome of the set of various policies that are aimed at transforming the world towards greater interdependence and integration. It involves creation of networks and activities transcending economic, social and geographical boundaries.
Globalisation involves an increased level of interaction and interdependence among the various nations of the global economy. Physical geographical gap or political boundaries no longer remain barriers for a business enterprise to serve a customer in a distant geographical market.
In simple words, The term globalization can be defined as the opening one's economy toward the world economy. It means to integrate the domestic economy with world economy. The govt. of India under the prime minister ship of P. V Narasimha introduced liberalisation, privatisation and globalization during 1991 .Due to globalization the multinational corporations have been very popular. These corporations transact their business activities more than one countries. The features of globalization are given below.
a) Foreign direct investment upto 51% of foreign equity is allowed.
b) In respect of foreign technology agreement, automatic permission is provided to high priority industries upto 1 crore.
c) Free flow of goods and services in any country.
d) Free flow of capital and technology.
e) Rupee has been made fully convertible.
Globalisation and India
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 fastest growing economy and globally competitive. The series of reforms undertaken with respect to industrial sector, trade as well as financial sector aimed at making the economy more efficient.
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. This, despite the fact that India has always had the potential to be on the fast track to prosperity.
Steps taken to liberalize and globalize Indian Economy were:
a) Devaluation: To solve the balance of payment problem Indian currency were devaluated by 18 to 19%.
b) Disinvestment: To make the LPG model smooth many of the public sectors were sold to the private sector.
c) Allowing Foreign Direct Investment (FDI): FDI was allowed in a wide range of sectors such as Insurance (26%), defense industries (26%) etc.
d) NRI Scheme: The facilities which were available to foreign investors were also given to NRI's.
Merits and Demerits of Globalization
The Merits of Globalization are as follows:
a) There is an International market for companies and for consumers there is a wider range of products to choose from.
b) Increase in flow of investments from developed countries to developing countries, which can be used for economic reconstruction.
c) Greater and faster flow of information between countries and greater cultural interaction has helped to overcome cultural barriers.
d) Technological development has resulted in reverse brain drain in developing countries.
The Demerits of Globalization are as follows:
a) The outsourcing of jobs to developing countries has resulted in loss of jobs in developed countries.
b) There is a greater threat of spread of communicable diseases.
c) There is an underlying threat of multinational corporations with immense power ruling the globe.
d) For smaller developing nations at the receiving end, it could indirectly lead to a subtle form of colonization.
India gained highly from the LPG model as its GDP increased to 9.7% in 2007-2008. In respect of market capitalization, India ranks fourth in the world. But even after globalization, condition of agriculture has not improved. The share of agriculture in the GDP is only 17%. The number of landless families has increased and farmers are still committing suicide. But seeing the positive effects of globalization, it can be said that very soon India will overcome these hurdles too and march strongly on its path of development.
ESSENTIAL CONDITION FOR GLOBALIZATION
There are some essential conditions for satisfied on the part of domestic economy as well as the firm for successful globalization of the business.
a) Business Freedom: There should not be unnecessary Government restriction which come on way of globalization, like import restriction & finance or other factor from abroad, foreign investment etc. that why the economic liberalization is regarded as a first step towards facilitating globalization.
b) Facilities: The extents to which an enterprise can develop globally from home country base depend on the facilities available like the infrastructure facilities.
c) Government Support: Unnecessary government interference is a hindrance to globalization, government may encourage to globalization. It support by policy and procedure reform, development of common facilities like infrastructural facilities, R&D support, finance, market.
d) Resources: Resources is the one of the most important factor which decides the ability of the firm to globalize resourceful companies may find easier to thrust in the global market. Resources include finance, R&D facilities, technology, human resources etc. some small scale companies may get successes in international market due to other advantages.
e) Competitiveness: The competitive advantage of the company is very important determinants of success in global business. A firm may derive competitive advantages from any one or more of the factor such as low cost and price, product quality, technological superiority, marketing strength etc.
OBSTACLES TO GLOBALIZATION
The Indian business suffers from many disadvantages in respect of globalization of business. The important problems are following:
a) Government Policy & Procedures: Government policy procedure in India is among the most complex, confusing and cumbersome in the world. Even after the much publicized liberalization, they do not present a very conducive situation. Government policy and the bureaucratic culture in India in this respect are not that encouraging.
b) High Cost: High cost of many vital input and factors like raw material and intermediates, power, finance, infrastructure facilities like port etc. tent reduce the international competitiveness of the Indian business.
c) Poor Infrastructure: Infrastructure in India is very inadequate and insufficient and they for very costly this is the serious problem affecting the growth and competitiveness.
d) Resistance to Change: There are several socio-political factors which resist change and this comes in the way of modernization, rationalization and efficiency improvement. Technological resist due to fear of unemployment. The extend labors employed by Indian industry is alarming because of labors of production is low and this may come in offsets the advantages of cheap labors.
e) Poor quality image: Due to various reasons, the quality of many Indian products is poor. Even when the quality is good, the poor quality image, India has become a handicap.
f) Supply problem: Due the various reason like low production, infrastructure like power, port facilities.
g) Small Size: Because of the small size and the low level of resources, in many cases Indian firms are not able to compete with the giants of other counties. Even the largest Indian companies are small compared to the multinational giants.
h) Limited R&D and marketing Research: Marketing research and R&D in other areas are vital inputs for development of international business. However, these are poor in Indian business. Expenditure on R&D in Indian is less than one percentage of the GNC while it is two to three percent in most of the developed counties. In 1994-95, Indian’s per capital R&D expenditure was less than $3 when it was between $100 and $825 for most of the developed nation.
i) Growing competition: The competition is growing not only from the firm in the developed countries but also from the developing country firms. Indeed, the growing competition from the developing country firms is a serious challenge to Indian’s International business.
j) Trade Barriers: Although the tariff barriers to trade have been progressively reduced thanks to the GATT/WTO, the non-tariff barriers have been increasing, particularly in the developed counties.