Globalization & Its Impact - Introduction to International Business, International Business | International Business - B Com PDF Download

Introduction

• Globalization, which started gaining momentum in the 1970s but picked up speed in the 1990s, was driven by the desire of large Multinational Companies (MNCs) for unrestricted access to global markets. Initially hindered by the protectionist policies of various countries, these companies pressured their powerful governments to remove these "artificial restrictions" and facilitate the free flow of capital and goods.
• The push for globalization was further amplified by the surge in consumer demand for foreign goods, largely fueled by the expanded reach of electronic media through cable networks and the Internet. This increased consumerism in different parts of the world created a strong demand for foreign products, aligning with the interests of MNCs.
• The combination of rising consumer demand and pressure from developed nations, through institutions like the International Monetary Fund (IMF) and the World Bank, prompted many developing societies to adopt new economic policies. This shift towards globalization and new economic policies will be explored further in the unit.
• Before diving into the impact of globalization on developing societies, it is essential to understand the key concepts of "globalization" and "developing societies." Once these concepts are clear, we can discuss the effects of globalization on these societies in detail.

Developing Societies

Development is a continuous process that every society undergoes, although some may need to develop faster to keep up with others. After World War II, many countries gained independence, but their colonial past had left them in a state of crisis with issues like economic instability, illiteracy, social tensions, and a lack of political awareness.

Challenges Faced by Post-Colonial Societies: At the time of independence, post-colonial societies were confronted with numerous challenges, including:

• Economic crisis
• High levels of illiteracy
• Social and cultural conflicts
• Lack of political awareness
• Wide gaps between the elite and the general population

Tasks Ahead: These societies needed to focus on:

• Economic progress with social justice
• Stability and socio-cultural reconstruction
• Ensuring education and awareness for all citizens
• Promoting political participation

Specific Measures: The approaches, policies, and administrative measures needed to address these challenges had to be tailored to the specific context of each society. This is why post-colonial societies are often grouped together as the "Third World" or "Developing" societies.

Ethnocentric Perspective: The categorization of societies also stems from an ethnocentric view held by some Western social scientists. They perceive the West, particularly the United States, as the ideal model of development, believing that other societies are on a path to becoming like the West. This perspective overlooks various other parameters of development and simplistically equates development with industrialization.

Understanding Globalisation

Globalisation, as defined by Robertson, is about compressing the world and intensifying our awareness of it as a whole. This concept involves two main processes:

• Instantaneous Communication: Globalisation has made communication instant, encouraging people to think on a global scale.
• Market Ideology: Globalisation combines market ideology with business practices, blurring international boundaries for trade.

However, globalisation is not just about economics. It also involves ideological and cultural aspects facilitated by communication media, computers, and satellites. These tools have given rise to a new form of globalisation that differs significantly from earlier versions.

Old and New Globalisation

•  According to scholars like Wallerstein and Amin, the process of globalisation started with the expansion of capitalism through imperial conquests and the establishment of white colonies. 
•  This expansion led to Asian, African, and Latin American nations becoming politically and economically dominated by European powers. 
•  These countries were pressured to open their economies to global industrial capital, marking what is known as the "widening phase" of globalisation. 
•  During this phase, economic integration was mainly limited to international trade and colonial exploitation. 
•  However, improvements in communication have changed how globalisation works. 
•  Today, economic powers do not just use force to take advantage of developing countries; they often apply indirect pressure through institutions like the World Bank, IMF, GATT, and WTO. 
•  These institutions encourage countries in need of capital to make changes that benefit Multi-National Companies (MNCs). 
•  Modern globalisation also involves MNCs setting up production centers in developing nations. 
•  There has been a significant rise in the speed at which capital moves across country borders. 
• Foreign Direct Investment (FDI) has grown dramatically, now exceeding world trade and economic output. 
•  Additionally, the rise of computer-aided communication has allowed international capital to move independently of the needs of international trade. 

Factors Behind the Acceptance of New Globalisation

Developing societies that previously aimed for economic self-reliance and import-substituting industrialization have shifted towards new economic policies aligned with the Structural Adjustment Package (SAP) from the World Bank and the International Monetary Fund (IMF).

Key Points about SAP:

• The SAP prioritizes export promotion for developing countries to escape debt crises.
• It diminishes the focus on import substitution, poverty alleviation, and redistribution.

Historical Context:

• Post-colonial developing countries faced limited options due to massive debt crises.
• Colonial rule had hindered industrialization, leading to a substantial import list and a minimal export list.
• This imbalance resulted in a balance of payments crisis, with countries spending more on imports than earning from exports.

Role of Authoritarian Governments:

• Many post-colonial societies are governed by authoritarian elites who lack a strong mass base.
• These elites depend on Western support for their political survival, shaping economic policies to align with Western interests.
• Ruling elites in developing countries have borrowed heavily for imports, often for elite consumption, while the common masses bear the financial burden.

Impact of Global Events:

• In the 1980s, a decline in global demand for agricultural exports from developing countries worsened their credit ratings.
• International banks became risk-averse, leading to increased global interest rates and reduced assistance to developing countries.

Debt Crisis and IMF/World Bank Intervention:

• The combination of these factors led to a severe debt crisis in many developing countries.
• The World Bank and IMF offered assistance but required these countries to adopt SAP and open their borders to unrestricted global trade and commerce.

New Economic Policies:

• Designed in accordance with globalization, these policies involve:
• Removing restrictive rules, regulations, and tariffs on trade, investments, and collaborations.
• Reducing the public sector in favor of private sector expansion.

Impact of Globalisation on Developing Societies

In this section, we will explore the contemporary phase of globalisation, which has been driven by the processes of liberalisation and privatisation in various countries around the world.

Historical Context

• After the Second World War, many countries in Asia, Africa, and Latin America gained independence. During the colonial period, industrialisation had been restricted, making it challenging for these nations to compete with developed countries in the global market. To safeguard their indigenous entrepreneurs from the dominance of large multinational corporations (MNCs) from the West, many developing countries adopted protectionist policies. Countries like India implemented specific regulations to protect small-scale entrepreneurs from both foreign and large domestic businesses.

Shift Towards Liberalisation
In the early 1970s, several Western countries began to shift towards liberalisation, reducing state interference and allowing market forces to operate more freely. This involved:

• Modifying or annulling regulations that granted the state authority over market forces.
• Disinvesting state shares in various industries to promote private ownership.
• Abolishing barriers to international trade, such as tariffs and protectionist policies, to allow market forces to operate globally.

Globalisation and Universalism

• Globalisation is founded on the principle of universalism, contrasting with protectionism. It promotes free markets, competition, and the idea of survival of the fittest. Advances in technology, particularly in computers, communication, and space, have made the world more interconnected. People can now learn about products from anywhere through television and the Internet, leading to a rise in consumerism.

Varied Impact on Developing Societies

• The impact of globalisation varies across different developing societies, depending on their unique potentialities, problems, and socio-economic and political contexts. For some societies, the effects may be more positive, while for others, they could be negative. The ability of these societies to adapt to globalisation while safeguarding their interests will determine the outcome.

Globalisation as a Reality

• Globalisation is an inevitable reality that cannot be ignored. The focus has shifted from debating its desirability to discussing how developing societies can maximise its benefits and minimise its drawbacks. Although many developing societies have struggled to adjust structurally and have faced challenges due to globalisation, it is important to recognise that globalisation also has positive aspects.

Areas of Impact: Economy, Society, Culture, and Education

• We will examine the impact of globalisation in three key areas: economy, society, and culture and education. In each of these areas, we will first explore the positive aspects before discussing the negative ones.

Positive Aspects of Globalisation

Economy

• Globalisation has brought several positive changes to the economy, society, and culture, as well as education in various countries. Let's explore these aspects one by one.

Economy

• Before Globalisation: In many developing countries, economic policies were not effective, especially for the poorer sections of society. The gap between the rich and the poor was constantly widening.
• Lack of Competition: Without competition, large business houses were selling average products at high prices. Consumers were not getting access to better products from other countries at lower prices.
• Indian TV Industry Example: Before the market opened up, Indian TV manufacturers were selling outdated models at high prices. With the arrival of international brands offering modern features, Indian manufacturers had to improve their products and prices.
• Quality and Price Improvement: Global competition has led to better quality products and lower prices in various sectors.
• Taxation of Imported Goods: Globalisation has brought imported goods into the tax net. Previously, smuggled goods were untaxed. Now, legal imports are taxed, reducing smuggling.
• Export Opportunities: With fewer restrictions on international trade, producers of quality products can access markets worldwide.

Politics, Society, and Culture

• Debate on Socio-Cultural Systems: There is an ongoing debate among scholars about whether societies should adopt the socio-cultural traits of 'ideal types' or preserve their own unique characteristics.
• Ideal Types: Some scholars believe that all societies should strive to acquire the traits of the 'ideal' system while shedding pre-modern traits.
• Preservation of Unique Traits: Others argue that every society has its own virtues and should have the right to preserve its socio-cultural and political characteristics.
• Need for Basic Principles:. third group acknowledges the need for basic principles like equality, liberty, and justice in any socio-cultural system. While they critique the ethnocentric nature of 'ideal types,' they agree on the importance of discarding oppressive and barbaric traditions.
• Positive Impact of Globalisation: Globalisation has positively impacted societies by increasing media reach and awareness of human rights violations and ethnic cleansings. It has facilitated pressure from the global community for redressals and has contributed to the liberalisation of oppressive systems in countries like South Africa and Namibia.

Education

• Role of Education: Education equips individuals with knowledge and prepares them to adapt to or shape their environment. However, the quality and relevance of education vary across countries.
• Globalisation's Impact on Education: Globalisation will help update obsolete education systems by providing access to the latest knowledge and developments. Universities and institutions from developed countries will offer their expertise to less developed countries through partnerships and franchises.

Negative Aspects of Globalisation

Economies

• Colonial Exploitation: Economies of developing societies were severely harmed by colonial exploitation. After gaining independence, these societies aimed to develop their economies by combining local expertise with imported technologies. Some even focused on developing indigenous technology to compete with the developed world.
• Need for Protection: 40-45 years post-independence was insufficient for these societies to catch up with developed economic powers. Protectionist measures were necessary to shield indigenous entrepreneurs from intense competition with multinational companies (MNCs) from the developed world.
• MNC Dominance: Globalisation, by breaking down barriers, exposed weak indigenous entrepreneurs to powerful MNCs. MNCs, with vast resources from global operations, could easily marginalise local manufacturers. Examples include Akai and Aiwa driving Indian TV companies out of business, and Coke and Pepsi ousting Indian soft drink companies.
• Unequal Access: While globalisation theoretically offers equal access to raw materials, labor, and markets, in practice, big MNCs benefit the most due to their capital, technology, and support from powerful states. These companies source cheap raw materials and labor from developing societies, sell products and services back to these societies, and make substantial profits.
• Wealth Drain: With relaxed restrictions on profit repatriation, some developing societies may experience a 'drain of wealth' similar to the colonial period.

Privatisation and Public Sector Undertakings (PSUs)

• Rationale for PSUs: In many developing societies, including India, public sector enterprises were established for specific purposes such as maintaining secrecy in defense-related productions, creating infrastructural facilities, and providing services to the masses without a profit motive.
• Misconception about PSUs: Over time, some PSUs ventured into non-core sectors and became burdensome for the state. This led to a perception that the public sector is inefficient and should be eliminated. However, this view has been amplified by proponents of globalisation who argue that public sector and globalisation are incompatible.
• Disinvestment Trends: Disinvestment of government shares in PSUs has been driven by the logic of globalisation rather than the viability of these enterprises. Most disinvestments in India have occurred in profit-making PSUs, indicating that the original reasons for establishing PSUs remain relevant.
• Need for Public Services: The majority of people in developing societies cannot afford to pay for basic amenities and services if privatisation occurs. The disparity in fees between government and private hospitals/schools highlights the potential harm of total privatisation for the poor.

Society and Culture

•  Every society has its own unique ethical codes, values, and traditions. 
•  While accepting new ideas can be beneficial, globalization often pressures people in developing countries to adopt foreign consumerist values. 
•  This influence mainly comes from electronic media, such as Cable TV and the Internet. 
• Multinational corporations (MNCs) actively promote consumerism and Western values, leading to significant cultural adjustment issues. 
•  In many developing countries, people find it hard to afford even basic necessities. 
•  Despite their struggles, they are constantly exposed to advertisements that showcase luxuries that are out of reach. 
•  This situation can create feelings of frustration, a focus on material goods, and unrealistic expectations. 
•  Studies indicate that many young people in these societies dream of becoming rich to purchase Western products like Coke, Pepsi, branded clothes, and cosmetics. 
•  These products are heavily marketed through electronic media, increasing their appeal. 
•  The shift in values towards a desire for material possessions can lead to a rise in crime rates and social unrest. 

Education

• The biggest negative effect of globalization on education is the fast shift towards the commercialization of schools and universities. There is too much focus on courses that are aimed at making money.
• Important subjects like social sciences and humanities, which are vital for the healthy growth of people and communities, are being overlooked and considered unimportant.
• Education should help students prepare for life by teaching them not just skills that can help them get jobs, but also by expanding their minds and improving their critical thinking abilities.
• The purpose of education goes beyond just helping students make a living; it is also about developing well-rounded individuals who are aware of their surroundings, care about others, and have a balanced perspective.
• However, due to the demands of the job market and the influence of Western educational systems, many schools in developing countries are becoming too focused on technical skills.
• This narrow focus often ignores the wider social, cultural, and moral education that is essential for keeping society stable and whole.

Imperatives of the Developing Countries

Debt Trap

• Many developing countries today rely heavily on foreign capital flows, particularly portfolio investments. Unfortunately, several of these nations are facing severe external debt issues. For example, the external debt of low-income developing countries has risen to nearly US $70 billion, while middle-income countries have accumulated around US $700 billion in external debt. To manage these overwhelming debts, countries like India have sought support from the International Monetary Fund (IMF) to balance their external payments. However, IMF assistance is conditioned on implementing "conditionality clauses," which typically include structural adjustment policies, trade liberalization, and capital market deregulation. As a result, many developing countries, including India, have adopted economic policies aimed at integrating into the global economy.
• The collapse of the Soviet Union added another layer of complexity. Countries with substantial trade links to the Soviet Union, including India, had to request structural adjustment loans from the IMF and World Bank, thus becoming subject to the same IMF conditionality clauses. These nations were further integrated into the global economy due to the IMF's influence.

The Impact of the Uruguay Round

• Since the establishment of the General Agreement on Tariffs and Trade (GATT) in 1947, countries have regularly negotiated issues related to trade and tariffs. GATT provided a platform for both developed and developing countries to address their trade-related problems. Developing countries were often skeptical about the benefits of the GATT system and insisted on special treatment to address their unique challenges in international trade. In response, the United Nations Conference on Trade and Development (UNCTAD) facilitated the Generalized System of Preferences (GSP), where developed countries offered preferential tariffs on certain exports from developing countries. However, the GSP was limited, as many critical products from developing countries were excluded from the preferential tariff list.
• In subsequent years, the GATT made room for unilateral tariff concessions by developed countries to benefit developing nations. However, trade issues were not the only challenge. The flow of foreign direct investment (FDI) from developed countries raised concerns among developing countries. They argued that foreign investments undermined their sovereignty over natural resources and did not result in the expected technology transfer. Moreover, practices like transfer pricing drained resources from these countries. In response, UNCTAD attempted to create a code of conduct for multinational corporations, but it was opposed by developed countries, sidelining the issue.
• Amidst growing pressure from developing nations for a New International Economic Order (NIEO), the United States led an effort to shift the agenda of developing countries and reshape international economic relations.

U.S. Influence and the Expanding Agenda:
As part of its efforts, the United States sought to include services, investments, and intellectual property rights under the scope of GATT negotiations. This move faced strong opposition from developing countries for several reasons:

• Services: Developing countries argued that services should not be part of GATT negotiations because GATT was originally focused on merchandise trade and related tariffs and quotas. Since services are diverse and complex, they felt they should not be included.
• Intellectual Property Rights: Developing countries maintained that intellectual property rights (IPR) should fall under the jurisdiction of specialized organizations like the World Intellectual Property Organization (WIPO) rather than GATT. They also believed that they needed to develop their own national IPR laws before engaging in international discussions.
• Investment: Developing countries argued that investment issues should be addressed at the national level before being brought to GATT discussions.

Despite these objections, developing countries struggled to block the negotiations. Two factors contributed to their failure: the lack of cooperation among developing countries to create a unified strategy, and the pressure from the United States, especially due to their external debt obligations.

The Final Outcome

• Despite strong resistance from developing countries, the Uruguay Round negotiations resulted in significant changes in international economic relations. Issues such as services, intellectual property rights, and investment were brought under GATT negotiations. Legal and technical issues about whether these topics could be included were resolved. It was decided that services would be discussed separately, while intellectual property rights and investment would be addressed under GATT’s framework. Additionally, agricultural subsidies were also included in the negotiations.
• Thus, the Uruguay Round marked a turning point in international economic relations, largely driven by globalization forces led by developed countries. By the time the Uruguay Round concluded, the collapse of the Soviet Union further diminished hopes of an alternative trajectory for international economic relations from the perspective of developing countries. The compliance of Russia and Eastern European countries to join the IMF and World Bank, along with their efforts to integrate into the global trade system, further reduced any potential for a world economic system that would prioritize the interests of developing countries.