2. What is Globalisation?
Globalised World - What does it mean?
Does it mean the fast movement of people which results in greater
interaction?
Does it mean that because of IT revolution people can be in touch with each
other in any part of the world?
Does it mean trade and economy of each country is open in Non-Intrusive
way so that all varieties are available to consumer of his choice?
Does it mean that mankind has achieved emancipation to a level of where
we can say it means a social, economic and political globalisation?
3. Globalisation is a process where an increased proportion of
economic, social and cultural activity is carried out across national
borders. The process of globalisation has significant economic,
business and social implications.
International Monetary Fund said, âThe process through which an
increasingly free flow of ideas, people, goods, services and capital
leads to the integration of economies and societiesâ
OCED
âThe geographic dispersion of industrial and service activities, for
example research and development, sourcing of inputs, production
and distribution, and the cross-border networking of companies, for
example through joint ventures and the sharing of assetsâ
4. Globalisation is perhaps best thought of as a process that results in some
significant changes for markets and businesses to address: for example
âą An expansion of trade in goods and services between countries
âą An increase in transfers of financial capital across national boundaries
including foreign direct investment (FDI) by multi-national companies and
the investments by sovereign wealth funds
âą The internationalisation of products and services and the development
of global brands
âą Shifts in production and consumption â e.g. the expansion of
outsourcing and offshoring of production and support services
âą Increased levels of labour migration
5. India opened up the economy in the early nineties following a major crisis that led
by a foreign exchange crunch that dragged the economy close to defaulting on
loans. The response was a slew of Domestic and external sector policy measures
partly prompted by the immediate needs and partly by the demand of the
multilateral organisations.
Major measures initiated as a part of the liberalisation and globalisation strategy in
the early nineties included scrapping of the industrial licensing regime, reduction in
the number of areas reserved for the public sector, amendment of the monopolies
and the restrictive trade practices act, start of the privatisation programme, reduction
in tariff rates and change over to market determined exchange rates.
Impact in India:-
The Indian tariff rates reduced sharply over the decade from a weighted average of
72.5% in 1991-92 to 24.6 in 1996-97.Though tariff rates went up slowly in the late
nineties it touched 35.1% in 2001-02. India is committed to reduced tariff rates.
Peak tariff rates are to be reduced to be reduced to the minimum with a peak rate of
20%, in another 2 years most non-tariff barriers have been dismantled by march
2002, including almost all quantitative restrictions.
6. Globalization offers businesses access to large new
markets and new labor forces.
A positive relationship between a business and society helps the
business grow and makes it more profitable. Globalization occurs
when a business, which has a headquarters in one country, sells
products or opens stores in another country, expanding its market and
investing in foreign economies. Globalization has changed with the
invention of the Internet, and now businesses are becoming more
sensitive to the benefits of relationships between them and societies
7. Benefits of Business Globalisation:-
Accessibility of Necessities:-
Business globalization opens new markets around the world, allowing a
business to sell products to many different countries. Amongst these products
are valuable, necessary resources, such as medicines and food. The opening of
these markets allows multiple societies to benefit from each medical advance.
Spread Business Practices :-
Globalization creates an environment of global awareness, where companies
can be held responsible for unethical business practices in foreign countries.
The result is a heightened awareness about the necessity to provide consistent
business practices in different countries. As businesses expand investments to
other countries, they create job opportunities and new markets in these
countries. Similarly, they also spread their business practices.
8. Objection to Outsourcing :-
The rising concern over outsourcing, and the potential domestic jobs lost,
creates a hostile relationship between domestic society and businesses, which
outsource some of their labor force. The impression is that foreign labor forces
are luring domestic businesses to open chains elsewhere at a time when
domestic unemployment is high. Whether this claim is true, the impact of this
is an increasingly hostile relationship and feelings of resentment.
Internet Globalization:-
Businesses began globalizing more than a century ago, but the recent invention
of the Internet changed the environment of this globalization. Today,
businesses have a heightened impetus to utilize good business practices
elsewhere in the world, as businesses are held responsible to the increase in
communication between societies. As an example, if the Indian department
chain chose to pay employees a shockingly low wage, the business runs the
risk of Internet exposure due to the increased opportunities of employees from
each chain talking to each other and the availability of the Internet to make this
claim public.
9. The relationship between government and business is complex, with both
positive and negative aspects in terms of what can be called the "public good."
To make things even more complex, notions of the public good change
depending on a person's ideology.
10. An accurate and complete understanding of Business and
Government relationship necessitates an examination of the
three main theories of political economy:-
The Free Market
The first theory of political economy revolves closely around the idea of
"laissez faire" capitalism. Translated effectively as "let it be," this system
proposes that there be little or no formal relationship between business and
government.
Socialism
In response to inequalities inherent in a system of open competition, socialism
proposes action to ensure economic equality for the entire population..
According to socialism, the public good is seen in terms of economic equality
and of checking the exploitative power of business. Therefore, the only remedy
would be for the government, on behalf of the people, to take control of
business and direct what goods would be produced at what prices.
11. The Third Approach
Business fully controlled by government would inherently lead to inefficiency and a
lowering of the standard of living, and a purely free market system would tend to
undermine itself in the long run, and lead to an unstable social situation due to
inequalities and contradictions. It was the role of the government to push the private
sector into socially desired outcomes, but to leave it alone in terms of how those
outcomes should be accomplished.
Keynes and the Depression
Many of Keynes's ideas featured prominently in the policies of the Roosevelt
administration during the Depression of the 1930s. Government infrastructure projects
and the "New Deal," for example, were seen as measures the government could take in
order to stabilize the economy and promote new growth when systemic issues could not
be resolved by the free market alone.
The Current Relationship
Currently, most developed countries use a variation of Keynes's policies, allowing a
large degree of private business while maintaining strict regulation of certain aspects of
the economy through the government. Today's relationship between government and
business is thus neither lassez faire nor socialist, but rather a combination of both,
essentially what is called a "mixed economy."
12. Is Business and Government relation beneficial?
Government entities purchase goods and services from the private sector, but they also
form partnerships with businesses. The government provides financial stability to the
project while the business provides its expertise, technology and other assets such as land
or manufacturing capacity.
Financial Capacity
The enormous taxing authority of the federal government, as well as the states, allows
these entities to allocate funds in the many millions and even billions of dollars to projects
and partnerships. Putting together financing packages this large is difficult for the private
sector to do alone.
Funding Projects for the Public Good
Without government involvement in the form of directly financing a project or providing
loan guarantees or other assistance, certain projects that have a positive impact on society
would not get done -- or at the very least, they would get done more slowly.
13. Prestige
For a business, participating in a high-profile partnership with the
government can add prestige and visibility, making it easier to
obtain private-sector clients in the future. Being able to include the
federal, state or local government on a client list is a valuable
marketing tool.
Low Financial Risk
Depending on one customer for the majority of a company's
revenue is considered risky by most business owners. If the
customer runs into financial difficulty, payments due to the
company could be at risk. When partnering with the government,
this risk is lessened because governments have ongoing revenues
from taxes collected and also have borrowing capacity to meet their
obligations.
14. Some Drawbacks:-
Slow Pace of Bureaucracy
The approval process from the business's standpoint can be extremely slow, involving
multiple meetings and presentations over a protracted period of time. Government
entities have formal bidding processes that require the submission of detailed proposals
that are reviewed by multiple departments. For private companies used to acting quickly,
building a relationship with a government entity can seem like an extremely slow
process.
Government Chooses Who Wins
Critics of business and government partnerships say that they sometimes circumvent the
free enterprise system and allow the government to choose which companies are the
winners in the funding process, rather than the company having to be vetted by the
professional investment community.
Political Shifts Can Negate Partnerships
The leadership in the federal, state and local government can change with each election.
The new leaders might not be inclined to proceed with government and business
partnerships established by their predecessors. In some cases, the terms of previous deals
might be renegotiated because of budgetary concerns within the government entity.