Factors causing globalization

Globalization of the economy means reduction of import duties, removal of Non-Tariff Barriers on trade such as Exchange control, import licensing etc., allowing FDI and FPI, allowing companies to raise capital abroad and grow beyond national boundaries and encourage exports. Both Foreign Trade and Foreign investment volume have grown rapidly over the last few years. 

The IMF defines globalizations as “the growing economic interdependence of countries worldwide through increasing volume and variety of cross border transactions in goods and services and of international capital flows, and also through the more rapid and widespread diffusion of technology.”

Trade Liberalization and Globalization: 

 First, When Tariffs are lowered and QRs are removed, relative prices change and resources are reallocated to production activities that may raise output. However, increased import of manufactured products will have adverse impact on domestic production. 

 Second, larger long run benefits due to the free flow of technology and new production structures.  Exports and Imports - most dynamic factors in the process of economic growth after 1995.

VIEWS ON GLOBALIZATION: 

 Those stress the Virtues of Import Substitution and limited openness ie, View against Free Trade and Globalization 

 Those emphasize the importance of Free Trade. Arguments a) Achieve International Competitiveness b) Reduce the price level c) More choice for consumers Globalization in different ways: Concept of Multinationals MNCs now account for over 33% of world output, and 66% of world trade Capitalist Approach Privatization + Deregulation + Globalization = Turbo-capitalism = Prosperity Homogeneity Price, Product, Quality, Interest Rates Etc. Spread and connectedness of production, communication and technologies Branding Brands like Coca Cola, Nike, Sony, LG, Intel, Microsoft etc Globalization: Lowered the cost of Transportation Reduced the cost of Communication Revolution in Information and Communication Technologies Change in political systems Collapse of Soviet Union Fall of Berlin Wall China’s Economic Reforms.

 The first stage is the arm’s length service activity of essentially domestic company which moves into new markets overseas by linking up with local dealers and distributors. 

 In stage two, the company takes over these activities on its own. 

 In the next stage, the domestic based company begins to carry out its own manufacturing, marketing and sales in the key foreign markets.

  In stage four, the company moves to a full insider position in these markets, supported by a complete business system including R & D and engineering.

  In the fifth stage, the company moves toward a genuinely global mode of operation.

Essential Conditions for Globalization 

• Business Freedom

• Facilities

• Government Support

• Resources

• Competitiveness

• Orientation

Problems in Globalization: 

 Global competition and imports keep a lid on prices, so inflation is less likely to derail economic growth. 

 An open economy spurs innovation with fresh ideas from abroad.  Export jobs often pay more than other jobs. 

 Unfettered capital flows give the US access to foreign investment and keep interest rates low. 

  Millions of Americans have lost jobs due to imports or production shifts abroad. Most find new jobs that pay less 

 Millions of others fear losing their jobs, especially at those companies operating under competitive pressure. 

 Workers face pay cut demands from employers, which often threaten to export jobs. 

 Service and white collar jobs are increasingly vulnerable to operations moving offshore 

 U S employees can lose their comparative advantage when companies build advanced factories in low-wage countries, making them as productive as those at home. 

Globalization of Indian Business:

 India’s economic integration with the rest of the world was very limited because of the restrictive economic policies followed until 1991. Indian firms confined themselves, by and large, to the home market. Foreign investment by Indian firms was very insignificant. 

 With the new economic policy ushered in 1991, there has, however, been a change. Globalization has in fact become a buzz-word with Indian firms now, and many are expanding their overseas business by different strategies. 

Factors Favoring Globalization: 

 Human Resources 

 Wide Base• Growing Entrepreneurship

  Growing Domestic Market,Niche Markets 

 Expanding Markets 

 Trans-nationalization of World Economy