Globalisation and its Drivers - Free MCQ Practice Test with solutions,

Drivers of Globalization:

• Economic globalization stands for the economic interconnectedness of countries with the global economy as a whole.
• This interdependence relates both to the exchange of factors of production (labor, capital, technologies, know-how) and the exchange of products (material goods and services, finished and unfinished products, consumer and capital goods).

Therefore, population mobility especially of labor and Financial flows are important drivers of globalization.

Important Point

In my opinion, there are three main drivers for economic globalization and its different characteristics such as trade, international capital markets, currency markets, migration, and more:

The term "international business environment" encompasses a wide range of factors, including political, economic, socio-cultural, technological, and legal considerations. Understanding these factors is crucial for firms operating in more than one nation. This comprehensive view helps businesses navigate the complexities of global markets, adapt their strategies, and comply with diverse regulations.

Globalization indeed primarily benefits multinational corporations (MNCs) because they operate across multiple countries, giving them access to larger markets, cheaper labor, and diverse resources. The reason is also correct: MNCs have vast financial, technological, and managerial resources, which allow them to exploit the opportunities of globalization more effectively than smaller firms. Therefore, the Reason correctly explains the Assertion.

• Assertion (A):

Globalisation has indeed led to a decrease in job security for many workers in developed nations. This is because increased competition from international markets and the movement of jobs to countries with lower labour costs can result in job losses and reduced job security for workers in developed economies.

• Reason (R):

  The offshoring of production and outsourcing of services to lower-cost nations is a major driver of these job losses. Companies often move manufacturing and service-based jobs to countries with lower wages and operational costs, contributing to job displacement in developed countries.

Therefore, the reason (R) directly explains why the assertion (A) is true. The increased global competition and cost-cutting strategies are key factors impacting job security in developed nations. 

Firms expanding into global markets can gain access to diverse sources of revenue and growth. This expansion allows them to tap into new markets beyond their domestic boundaries, potentially leading to increased profitability and business opportunities. The ability to sell goods and services in a larger global market can significantly impact a company's revenue streams and overall growth potential.

Global firms competing internationally are indeed driven to improve their efficiency, quality, and innovation to succeed in the global marketplace, which in turn contributes to higher economic growth.

• The Government of India set out in their Resolution dated 6 April, 1948 the policy which they proposed to pursue in the industrial field 6 industries viz. coal, iron & steel, aircraft manufacturing, ship-building, manufacture of telephone, telegraph & wireless apparatus, and mineral oil were designated as “Key Industries” or “Basic Industries”.. These industries were to be set-up by the Central Government.
• In 1991, the Indian government liberalized the economy, thus changing the competitive landscape. Family businesses, which dominated Indian markets, now faced competition from multinationals that had superior technology, financial, strength, and deeper managerial resources. Thus, Indian businesses had to change their focus and re-orient their outlook outward.
• In July 1991, India began to make revolutionary changes in its economic policy. After pursuing a closed, import-substitution model of trade and development for the previous 40 years, India changed direction and began opening the economy to trade and foreign investment under reforms introduced by Finance Minister Manmohan Singh.

A global firm, within the realm of business, is characterized as a company that conducts operations and trades across various countries worldwide. This type of firm maintains functions in multiple nations, facilitating the exchange of goods, services, and ideas on an international scale. Such entities often establish global production and supply chains to cater to diverse markets, embodying a significant presence in the global economic landscape.

The advancements in technology have enabled multinational firms to expand globally, leading to increased economic interconnectedness and globalization.

Reduction in trade barriers has been a significant driver of economic globalization. Over time, trade barriers like tariffs and quotas have been reduced through trade agreements and organizations like the WTO. This reduction has facilitated lower barriers to international trade and investment, thus promoting economic globalization.