- If we look at the Indian market before 1990 then we can compare it with the present market and it can be said that our markets have been transformed in few decades.
- Earlier, we had limited brands and limited variety of products in the market but now the market is flooded with variety of brands.
- For example, earlier we had just Ambassador and Fiat cars on the Indian roads but now we have so many brands from all over the world. The same happened in the field of T.V., mobile phones, garments, etc.
Production across countries
- MNC – Multinational Corporation is a company owning and controlling production in more than one nation.
- The following are the factors controlling MNCs production:
i) Closeness to the market.
ii) Skilled and unskilled labour available at low cost.
iii) Government policies etc.
- It is basically done to keep the cost of production low and maximize their profits.
- Example of spreading of production by an MNC – An MNC from USA producing the industrial equipment is designing its product in the research centres of the US, its components are manufactured in China, the assembling and the export work is done from Mexico and Eastern Europe and its call centres are there in India.
Interlinking Production Across Countries
- Investment – money spent to buy the inputs like land, buildings, machines etc. called investment.
- Foreign investment – investment done by MNCs is termed as foreign investment.
- There are three different ways through which MNCs set up or control production. These are:
i) Buying up the local companies
ii) Joining hand with local companies
iii) By placing orders
- Buying up the local companies:
i) This is the most common route for MNC investment and expanding production.
ii) MNCs can do so because they have huge wealth.
iii) For example: Cargill Foods, and American MNC has bought Indian company named Parakh Food. Now, the control of the large marketing network and the four oil refineries has shifted to the Cargill Food. Cargill Food has now become the largest producer of edible oil in India.
- Joining hands with local companies:
i) Sometimes, the MNCs join hands with the local companies and do the production.
ii) In this process, the local companies get twin benefits:
a) They get foreign investment and
b) MNCs provide newer technology to them for the production.
- For example: In 1995 Ford Motors, an American company joined hand with the Indian campany called Mahindra and Mahindra (manufacturer of jeeps and trucks).
- By placing orders:
i) Sometimes MNCs just place orders with small producers around the world for the production of garments, footwear and sports items. After that, the products are supplied to the MNCs and sold under the brand name of the MNCs.
- Foreign trade and integration of markets:
- In case of production done by MNCs:
i) Goods and services are produced at global level.
ii) Goods and services are sold at global level.
iii) Investments, technology and people are moving between countries.
iv) Production process is complex but organiszed.
v) It gives opportunity to the local producers to reach beyond the domestic market.
vi) Buyers get different choices, price and quality.
vii) MNCs by the foreign trade connects/integrates the markets in the world. Example : Chinese toys in India.
What is Globalisation?
It can be defined as the process of rapid interconnection or integration between the markets.
Factors that have Enabled Globalisation
Basically there ae two important factors which enabled globalisation. These are:
a) Technological development
b) Liberalisation policy
a) Technological Development : Development in technology is one of the most important factor that has enabled the process of globalisation. It can be studied under two different headings:
i) Developments in transport technology : The world has done tremendous improvements in the field of transportation technology. Now we have different fastest means of transport with the help of which we can reach to different parts of the world in less time and can control trade and integrate the markets easily.
ii) Developments in ICT (Information and Communication Technology) : It includes telephones, mobile phones, computers, internet, fax, e-mails etc. A remarkable development can be seen in the field of ICT throught the world. Now the world is just a click away. With the help of ICT we can share and obtain information instantly across the globe at negligible cost.
b) Lieralisation : Removing trade barriers set by the government is called liberalisation. If the country uses the policy of liberalisation then it means that it allows other countries to interact, which will lead to globalization.
Liberalisation of Foreign Trade and Foreign Investment Policy
- Restrictions set by the government to incrase or decrease (regulate) the foreign trade is called trade barrier. For example:
i) Tax – It is monetary terms. When the government put tax as a trade barrier then it means the exporting country has to pay some money on the goods and services which is to be exported.
ii) Quota : When the government place a limit on the number of goods to be imported then it is called quota. In this case, the government decides how much of goods should come into the country.
- Indian government put trade barriers after the independence on foreign trade and foreign investments to protect the domestic producers from the foreign competition. At that time in 1950s and 1960s Indian industries were just coming up, so were not in a position to compete with the foreign producers.
- Around 1991, Indian government decided to remove trade bariers and wanted the domestic producers to face the global competition so that they can improve their quality.
Effect of trade barrier:
- Chinese exporters have to pay tax.
- This will increase the price of the tos and it will be costlier in the Indian market.
- Imports from China will decline.
- Indian toy markets will flourish in the market.
World Trade Organisation
- The aim of WTO is to liberalise international trade.
- It makes rules regarding international trade and checks that these rules are followed.
- WTO says that there sould be no trade barriers i.e. members of WTO should liberalise their trade policies and trade between countries should be free.
- But, in practice, it can be seen that developing countries follow these rules whereas the developed countries have not liberalised their trade policies.
Impact of Globalisation in India
The impact of globalization has not been uniform in the Indian economy as different people are affected in a different way. The impact of globalisation can be noticed on these people:
a) Producers : Big producers who join hands with the MNCs are getting the profit but the small producers face loss and in many cases they have to shut down their business.
b) Workers : MNCs helped in reducing the unemployment in India but as MNCs get flexibility in labour laws so they hire the workers on temporary basis.
c) Buyers : MNCs produce mostly for the rich buyers so the rich buyers get choices in the market more than the poor buyers.
Steps to Attract the Foreign Investment in India
In India, the governments are taking two important steps to attract the foreign investment. These are as follows:
a) SEZ (Special Economic Zone) : Government are creating SEZs where they provide world class facilities for electricity, roads, water, and transport, recreational and educational facilities. MNCs will not have to pay taxes for the initial period of five years if they set up their production units in the SEZs.
b) Flexibility in Labour Laws : Government has given the permission to the MNCs to hire the workers flexibly, i.e., hiring the workers on temporary basis and also ignoring the labour laws. This will help the MNCs in reducing their labour cost and the total cost of production.
- Government policies should protect both rich and poor.
- Labour laws should be implmented properly and the workers get equal rights.
- Government should support the small producers so that they can improve their performance and compete.
- Government should use trade barriers if required.
- Government should negotiate at the WTO for fairer rules.
- All the developing countries should group together to fight against the developed countries at WTO.
- Governments can campaign and protest regarding the unfair rules.