Business Environment

Globalisation : 

Globalisation Module-6 8/5/2009 1 manavazhaganr@bsnl.in

Globalisation : 

Globalisation Globalisation is the process of international integration of Products Technology Human Resources Capital Information and Culture 8/5/2009 2 manavazhaganr@bsnl.in

Globalisation : 

Globalisation Benefits and Costs of Globalisation: Competitive & Learning Effects – Through import, FDI , new method , product , technology Technological Gains - Reverse Engineering, FDI , Licencing, Franchaising , Contracts, Joint ventures, Production, distribution, promotion, information, communication, transport, packaging, finance Larger Markets – International marketing channels, Foreign demand , International brand , image, more profit when local market is in recession. Outsourcing & Sub-Contracting Advantages – Global sourcing of funds & reduce cost of capital , outsource technology , marketing channel , sub-contract & focus on core-competence areas Greater Specilaisation - Competitive advantage Price stabilisation – Globalisation reduce international differences in price levels. Theoretically when a export surplus country trades with deficit country the prices will recover in former case and will come down in the later case. The international price reflect only additional risk,transport, and distribution cost. For a particular country international trade provide production surplus and a channel to meet shortages. International Investment inflow – Balance of payment , FDI International Economic Cooperation- Trade agreement, investment treaties, avoidance of double taxation, Intellectual property rights, Standardisation of commercial procedure. 8/5/2009 3 manavazhaganr@bsnl.in

Globalisation : 

Globalisation Risks & Threats: International economic Problems & crisis – Inflation , recession, unemployment, currency depreciation Industrial & employment Restructuring – Low skill , unemployment, income inequality, poverty, social unrest Economic dependence - export raw material, import value added goods Technology dependence – Readymade foreign technology undermines local R&D and promote external technology Shift in national priorities – Globalisation promotes consumption culture , which may contradict with local lifestyle. Countries with limited resources has to shift their priorities. Cash outflow – Dividends of MNCs cause foreign exchange outflow Brain drain – Better employment opportunity for skilled persons in other countries leads to brain drain 8/5/2009 4 manavazhaganr@bsnl.in

Globalisation : 

Globalisation Levels of Globalisation: Globalisation can be perceived from an individual firm to the world as a whole. The levels are : World level Globalisation, Country level Globalisation , Industry level Globalisation and Firm level Globalisation World level Globalisation: Globalisation begins with international economic,social and political relations with other countries. World level globalisation can be measured by the following indicators: The share of world trade in world GDP FDI as proportion of World GDP Total output of MNCs as percentage of world GDP Global transaction as a percentage of world GDP Total turnover in Foreign exchange market Total Balance of payment ( BOP ) of all countries as percentage of world GDP 8/5/2009 5 manavazhaganr@bsnl.in

Globalisation : 

Globalisation Country Level Globalisation: Globalisation of a country depends on the level of integration with other countries. Its cross-border transactions are recorded in Balance of Payment. The transactions include export, import , private remittances, interest& dividend payments , foreign loans, investments , borrowings and transactions with IMF. The main indicators are: Share of foreign trade in National income Foreign investment as a share of National investment Foreign exchange transaction as a percentage of transaction in the economy International investment as a proportion of National investments Immigrants as a proportion of population International tourists Output of local MNCs as percentage of country output Industry level Globalisation: Within a country a few industries may operate globally while others at local level. These industries operate globally because of their competitive advantage over other global players. These industries operating globally have the advantage of international Vertical integration, which results in reduced cost ,reduced tax and hence high margin. Some of the Industry level indicators are: Industry Export & Import as a proportion of Industry output Foreign exchange transaction of Industry as a proportion of Total transaction 8/5/2009 6 manavazhaganr@bsnl.in

Globalisation : 

Globalisation Firm Level Globalisation: Most of the Indicators of Industry level Globalisation are used for Firm level Globalisation Balance of Payment: Balance of payment of a country is the summery of all transactions of its residents with other countries. These transactions are grouped under two accounts – Current account and Capital account For each country separate accounts are maintained. Current account includes : Export, Import, Remittances , Dividends & Interest flows Capital account includes : Foreign loans, Foreign investments, External commercial borrowings, Foreign govt. loans. Balance of payment Deficit: If total receipts from foreign countries is less than the total payments made to other countries it is called Balance of payment deficit, otherwise if payment is less than receipt it is called Balance of payment surplus. India has Deficit BOP with USA,UK India has Surplus BOP with Vietnam Balance of payment deficit will be financed through country's foreign exchange reserve or through borrowings from other countries. 8/5/2009 7 manavazhaganr@bsnl.in

Globalisation : 

Globalisation Multi National Corporations ( MNCs) MNC is a company that maintains operations in many countries but manages them from a home country. Trans National Corporations ( TNCs) TNC is a company which operates in many countries but decentralizes management to the local country. 8/5/2009 8 manavazhaganr@bsnl.in

Slide 9: 

MNC is a company that maintains operations in many countries but manages them from a home country. It reflects the ethnocentric altitude. TNC is a company which operates in many countries but decentralizes management to the local country. It reflects the polycentric attitude. 8/5/2009 9 manavazhaganr@bsnl.in