- Globalization can be defined, simply as the expansion of the economic activities across political boundaries of the nation states.
- It refers to a process of increas in economic integration and growing economic interdependence between countries in the world economy.
- It is associated with both increased cross-border movement of goods and services as well as with an organization of economic activities which straddles national boundaries.
- This process is driven by the lure of profit and the threat of competition in the market.
- A basis feature of globalization is the increasing degree of openness which has three facet, namely: International trade, international investment and international finance.
- A global or transnational economy is the one which transcends the national boundaries unhindered by artifical restrictions.
- Globalizations is a process of development of the world into a single integrated economic unit.
- Transnational economy is diifferent from international economy.
- International economy is characterized by the existence of different national economies, the economic relations between them being regulated by the national governments.
Characteristics of Globalization
According to Peter F. Drucker, the transnational economy is characterized by the following attributes:
- These are shaped mainly by money flows rather than by trade in goods and services.
- In these economies management has emerged as the decisive factor of production and the traditional factors of production, land and labour have increasingly become secondary.
- In the transnational economy the goal is market maximization and not profit maximazation.
- The de facto power shifts from the national state to the region (EU, NAFTA, etc.)
The Current phase of globaliation is characterized by explosive growth in international finance which has the following four features:
- an enormous increase in trading in foreing exchange markets;
- substantial growth of bank lending;
- phenomenal growth of the market for financial assets;
- very significant growth in the international merket for government bonds.
Essential Conditions for Globalization
- There are, however, some essential conditions to be satisfied on the part of the domestic, economy as well as the firm for successful globalization of the business.
- They are:
- There should not be unnecessary government restriction which come in the way of globalization, like import restriction, restriction on sourcing finance or other factors from abroad, foreign investment, etc.
- That is why the economic liberalization is regarded as a first step towards facilitating globalization.
- The extent to which an enterprise can develop globally from home country base depends on the facilities, like infrastructural facilities, etc.
- The support of the government can encourage globalization.
- The availability of resources often decides the ability of the firm to globalize.
- Resourceful companies may find it easier to thrust ahead in the global market.
- The competitive advantage of the company is a very important determinant of success in global business.
- A firm may derive competitive advantage from any one or more of the factors such as low costs and price, products quality, product differentiation, technological superiority, etc.
Obstacles to Globalization
- The Indian business suffers from a number of disadvantages in respect of globalization of business.
The important Problems are the floowing:
- Firstly, the government policy and procedures in India are among the most complex, confusing and cumbersome in the world.
- Even after the much publicized liberalization, they do not present a very conducive situation.
- The burning examples are Cogentrix in Bangalore and Enron in Maharashtra..
- Secondly, the high operational cost, especially because of low efficiency tends to depress the competitive advantage at the global level.\Thirdly, poor infrastructure and application of obsolete technology.
- Fourthly, effective marketing, research and development are the indispensable element for the success in a global market.
- These are not very well developed in India because of the captive nature of the market.
- In India’s per capita R&D expenditure is less than $4 when it was between $ 100 and $ 825 for most of the developed countries.
- Althogh India has several handicaps, there are also a number of favourable factors for globalization of Indian business.
- Firstly, availability of cheap labour, India has one of the largest pool of scientific and technical manpower.
- But, the developed countries want to neutralize this benefit by laying down international labour standard.
- This was one of the main cause behind the failure of Seattle Meeting of WTO.
- Secondly, India has a wide and sustainable resource and industrial base which is capable of supporting a variety of bussinesses.
- Thirdly, the quick and resilient policy of economic liberalization in India is an encourgaging factor of globalization.
- The delicensing of industries, removal or restrictions on growth, dereservation, liberalization of policy towards foreign capital and technology, etc. could encourage globalization of Indian business.
- Globalization is an attitude of a mind set which views the entire world as a singel market so that the corporate strategy is based on the dynamics of global business environment.
- But, this attitude must not be reoriented to concoct imperialist designs.
- The range of requirements of different nations is such that they cannot be effectively filled-up without undergoing the process of globalization.