Business Environment

PRAHLADRAI DALMIA LIONS COLLEGE OF COMMERCE AND ECONOMICS

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not have been Possible without the guidance, aid & encouragement of Many people. We would like to express our sincere Gratitude to them. We would like to thank our project Guide Prof. MEHA TODI without whose encouragement & Guidance the completion of this project would have been Impossible. Last but not the least we would like to thank our family Members & friends who helped us in this project.

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What do u mean by Globalization ? • Globalization in its literal sense is the process of transformation of local or regional phenomena into global ones. It can be described as a process by which the people of the world are unified into a single society and function together. This process is a combination of economic, technological, socio-cultural and political forces. Globalization is often used to refer to economic globalization, that is, integration of national economies into the international economy through trade, foreign direct investment, capital flows, migration, and the spread of technology.

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Definition • Tom G. Palmer of the Cato Institute defines globalization as "the diminution or elimination of state-enforced restrictions on exchanges across borders and the increasingly integrated and complex global system of production and exchange that has emerged as a result." • Herman E. Daly argues that sometimes the terms internationalization and globalization are used interchangeably but there is a slight formal difference. The term "internationalization" refers to the importance of international trade, relations, treaties etc. International means between or among nations. >>

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HISTORY  The term "globalization" has been used by economists since the 1980s although it was used in social sciences in the 1960s  Its concepts did not become popular until the latter half of the 1980s and 1990s.  Globalization is viewed as a centuries long process, tracking the expansion of human population and the growth of civilization, that has accelerated dramatically in the past 50 years.

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 The Islamic Golden Age is also an example, when Muslim traders and explorers established an early global economy across the Old World resulting in a globalization of crops, trade, knowledge and technology; and later during the Mongol Empire, when there was greater integration along the Silk Road.  Portugal's exploration and trade with most of the coast of Africa, Eastern South America, and Southern and Eastern Asia, was the first major trade based form of globalization.  In the 17th century, globalization became a business phenomenon when the British East India Company (founded in 1600), which is often described as the first multinational corporation, was established, as well as the Dutch East India Company (founded in 1602) and the Portuguese East India Company (founded in 1628). >>

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 Because of the high risks involved with international trade, the British East India Company became the first company in the world to share risk and enable joint ownership of companies through the issuance of shares of stock  Globalization was achieved by the British Empire(the largest empire in history)  The 19th century is sometimes called "The First Era of Globalization."  The "First Era of Globalization" began to break down at the beginning of the 20th century with the first World War. >>

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Evolution • Globalization, since World War II, is largely the result of planning by politicians to breakdown borders hampering trade to increase prosperity and interdependence thereby decreasing the chance of future war. Their work led to the Bretton Woods Conference, an agreement by the world's leading politicians to lay down the framework for international commerce and finance, and the founding of several international institutions intended to oversee the processes of globalization. • These institutions include the International Bank for Reconstruction and Development (the World Bank), and the International Monetary Fund. Globalization has been facilitated by advances in technology which have reduced the costs of trade, and trade negotiation rounds, originally under the auspices of the General Agreements on Tariffs & Trade (GATT), which led to a series of agreements to remove restrictions on free trade. • Since World War II, barriers to international trade have been considerably lowered through international agreements - GATT. Particular initiatives carried out as a result of GATT and the World Trade Organisation (WTO), for which GATT is the foundation, have included:

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• Promotion of free trade: – Reduction or elimination of tariffs; creation of free trade zones with small or no tariffs – Reduced transportation costs, especially resulting from development of containerizing for ocean shipping. – Reduction or elimination of capital controls – Reduction, elimination, or harmonization of subsidies for local businesses – Creation of subsidies for global corporations – Harmonization of intellectual property laws across the majority of states, with more restrictions. – Supranational recognition of intellectual property restrictions (e.g. patents granted by China would be recognized in the United States)

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• Global conflicts, such as the 9/11 terrorists attacks on the United States of America, is interrelated with globalization because it was primary source of the "war on terror", which had started the steady increase of the prices of oil and gas, due to the fact that most OPEC member countries were in the Arabian Peninsula.

• World exports rose from 8.5% of gross world product in 1970 to 16.1% of gross world product in 2001.

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Advantages  Increased free trade between nations .  Increased liquidity of capital allowing investors in developed nations to invest in developing nations  Corporations have greater flexibility to operate across borders  Global mass media ties the world together  Increased flow of communications allows vital information to be shared between individuals and corporations around the world  Greater ease and speed of transportation for goods and people  Reduction of cultural barriers increases the global village effect  Spread of democratic ideals to developed nations  Greater interdependence of nation-states  Reduction of likelihood of war between developed nations  Increases in environmental protection in developed nations >>

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Disadvantages  Increased flow of skilled and non-skilled jobs from developed to developing nations as corporations seek out the cheapest labor  Increased likelihood of economic disruptions in one nation effecting all nations.  Corporate influence of nation-states far exceeds that of civil society organizations and average individuals  Threat that control of world media by a handful of corporations will limit cultural expression  Greater chance of reactions for globalization being violent in an attempt to preserve cultural heritage  Greater risk of diseases being transported unintentionally between nations  Spread of a materialistic lifestyle and attitude that sees consumption as the path to prosperity  International bodies like the World Trade Organization infringe on national and individual sovereignty  Increase in the chances of civil war within developing countries and open war between developing countries as they vie for resources  Decreases in environmental integrity as polluting corporations take advantage of weak regulatory rules in developing countries >>

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Effects of globalization • Industrial - emergence of worldwide production markets and broader access to a range of foreign products for consumers and companies. Particularly movement of material and goods between and within national boundaries. • Financial - emergence of worldwide financial markets and better access to external financing for borrowers. Simultaneous though not necessarily purely globalist is the emergence of under or un-regulated foreign exchange and speculative markets. • Economic - realization of a global common market, based on the freedom of exchange of goods and capital. • Informational - increase in information flows between geographically remote locations. Arguably this is a technological change with the advent of fiber optic communications, satellites, and increased availability of telephone and Internet. •

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Language - the most popular language is English.  About 75% of the world's mail, telexes, and cables are in English.  Approximately 60% of the world's radio programs are in English.  About 90% of all Internet traffic uses English. 0

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Competition - Survival in the new global business market calls for improved productivity and increased competition. Due to the market becoming worldwide, companies in various industries have to upgrade their products and use technology skillfully in order to face increased competition. Cultural - growth of cross-cultural contacts; advent of new categories of consciousness and identities which embodies cultural diffusion, the desire to increase one's standard of living and enjoy foreign products and ideas, adopt new technology and practices, and participate in a "world culture". Technical – Development of a global telecommunications infrastructure and greater transborder data flow, using such technologies as the Internet, communication satellites, submarine fiber optic cable, and wireless telephones – Increase in the number of standards applied globally; e.g. copyright laws, patents and world trade agreements. Legal/Ethical – The creation of the international criminal court and international justice movements. – Crime importation and raising awareness of global crime-fighting efforts and cooperation.

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Social (International cultural exchange) - increased circulation by people of all nations with fewer restrictions. – Spreading of multiculturalism, and better individual access to cultural diversity (e.g. through the export of Hollywood and Bollywood movies). Some consider such "imported" culture a danger, since it may supplant the local culture, causing reduction in diversity or even assimilation. Others consider multiculturalism to promote peace and understanding between peoples. – Greater international travel and tourism – Greater immigration, including illegal immigration – Spread of local consumer products (e.g. food) to other countries (often adapted to their culture). – Worldwide fads and pop culture such as Pokémon, Sudoku, Numa Numa, Origami, Idol series, YouTube, Orkut, Facebook, and MySpace. Accessible to those who have Internet or Television, leaving out a substantial segment of the Earth's population. – Worldwide sporting events such as FIFA World Cup and the Olympic Games. Incorporation of multinational corporations in to new media. As the sponsors of the AllBlacks rugby team, Adidas had created a parallel website with a downloadable interactive rugby game for its fans to play and compete.

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Business •

Globalization has had extensive impact on the world of business. In a business environment marked by globalization, the world seems to shrink, and other businesses halfway around the world can exert as great an impact on a business as one right down the street. Internet access and e-commerce have brought small-scale coops in Third World nations into the same arena as thriving businesses in the industrialized world, and visions of low-income workers handweaving rugs on primitive looms that compete with rug dealers in major cities are not totally farfetched.

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Globalization has affected workforce demographics, as well. Today's workforces are characterized by greater diversity in terms of age, gender, ethnic and racial background, and a variety of other demographic factors. In fact, management of diversity has become one of the primary issues of 21st-century business.

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Culture • One powerful source has blown down cultural boundaries around the entire world. What is this influential tool? It is the Internet and its endless margin of discovery. With the Internet people can easily access someone half way across the world. They could converse with someone living a completely different lifestyle yet still have something in common, the Internet. • The Internet in essence makes the world a smaller place. • McDonalds was once an American favorite with its cheery mascot, Ronald, red and yellow theme, and greasy fast food. Now it is a global enterprise with 31,000 locations worldwide with locations in Kuwait, Egypt, and Malta. This restaurant is just one example of food going big on the global scale. • Meditation has been a sacred practice for centuries in Indian culture. It calms the body and helps one connect to their inner being while shying away from their conditioned self. Before globalization Americans did not meditate or crunch their bodies into knots on a yoga mat. After globalization this is a common practice, it is even considered a chic way to keep your body in shape. • Another common practice brought about by globalization would be Chinese symbol tattoos. >>

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Multinational Corporation

• Enterprise operating in several countries but managed from one (home) country. Generally, any firm or group that derives a quarter of its revenue from operations outside of its home country is considered a MNC, and may fall into one of the four categories: (1) multinational, decentralized firm with strong home country presence, (2) Global, centralized firm that acquires cost advantage through centralized production wherever cheaper resources are available, (3) international, firm that builds on the parent firm's tecnology or R&D, or (4) transnational, firm that combines the previous three approaches. According to UN data, some 35,000 firms have direct investment in foreign countries, and the largest 100 of them control about 40 percent of world trade. >>

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Three Stages of Evolution 1. Export stage initial inquiries ⇒ firms rely on export agents expansion of export sales further expansion ⇒ foreign sales branch or assembly operations (to save transport cost) 2. Foreign Production Stage There is a limit to foreign sales (tariffs, NTBs). Wages and land rents might be lower in the foreign countries. DFI versus Licensing Once the firm chooses foreign production as a method of delivering goods to foreign markets, it must decide whether to establish a foreign production subsidiary or license the technology to a foreign firm.

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Licensing Licensing is usually first experience (because it is easy) e.g.: Kentucky Fried Chicken in the U.K. it does not require any capital expenditure it is not risky payment = a fixed % of sales Problem: the mother firm cannot exercise any managerial control over the licensee (it is independent) The licensee may transfer industrial secrets to another independent firm, thereby creating a rival. Direct Investment It requires the decision of top management because it is a critical step. it is risky (lack of information) (US firms tend to establish subsidiaries in Canada first. Singer Manufacturing Company established its foreign plants in Scotland and Australia in the 1850s) plants are established in several countries licensing is switched from independent producers to its subsidiaries. export continues >>

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3. Multinational Stage The company becomes a multinational enterprise when it begins to plan, organize and coordinate production, marketing, R&D, financing, and staffing. For each of these operations, the firm must find the best location.

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Changing Attitude of MNC’S toward India • • •

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Multinational corporations were previously criticized on the ground that they recklessly use natural resources, interfere in economic and political systems and harm national interests. But in recent years we have observed changing in the attitude of MNC’S toward India ; In the past they used to bring Managerial personnel's from their country of origin, but now they employ local people. And thus more and more Indians are getting employed in these corporations. In the past they use to bring the same product that they are using. But now in order to attract more and more customers they modify their products and services according to the need of customers in India. In short MNCs have added Indianness in their product. For ex:- The new launch of McDonald “Chatpatta McAlloo Tikki” These corporations are ready to accept our terms and conditions to enter in India market which is very large and widespread. Previously they tend to develop monopolies but now they are ready to face healthy competition and provide better services to survive in market. And thus customers are benefited with good quality product and also at reasonable price. In past times they have supplied outdated technology, but now due to Globalization we enjoy advanced technology at par with others. 0

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Advantages  The foray of multinationals into a country requires labour thereby ensuring new job opportunities.( MNCs provide job oppurtunityAbout 2000 Indians leave India annually to take up middle and senior management jobs in foreign country’s )  They will bring in advanced technology and management style.  The pressure of competition forces companies to undertake product innovation as a result of which new and better products flock the market.  Better logistics management and financial strength enjoyed by multinationals sets new standards in the prevailing markets.  Expands and creates new markets.  Improves the income to the exchequer by way of direct and indirect taxes.  Provides economic support for developing nations.  Development of country’s economy.  Raise in standard of living.  MNCs invest their funds in poor countries and operate as per local laws. >>

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Disadvantages  Share of profit remitted to the parent company reduces the amount of money created.  A strict money-making oriented approach of multinationals may prove to be non beneficial.  High and regulated transfer prices may increase the costs of operations.  The enormous financial strength and influence enjoyed by multinationals may be selfishly utilized through political pressure.  Multinationals may abuse resources such as labour and natural resources to gain competitive advantage in international markets.  Employees in developed nations are always under the threat of low job securities or loss of jobs.

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Beacon Kone Beacon Neyrpic Beacon Rotork Controls Beacon Tileman Beacon Weir Birla Yamaha Birla 3M DCM Toyota Essar Brown Root Essar Forasol Fuller KCP EIMCO KCP Escorts JCB Great Atwood Greaves Dronsfield Greaves Foseco Greaves Midwest Engg Crompton Greaves David Brown Greaves Drayton Greaves Hero Honda Hindustan Textronix Inst.

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J.K. Helene Curtis J.K. Satoh Agricultural Khatau Junker Kinetic Honda Kirloskar Rateau Kirloskar Warner Swassey Kirloskar Cummins Kothari General Foods L & T Gould Lohia Starlinger Mafatlal Zinser Engg Mahindra British Telecom Mahindra Owen Mahindra Ugine Steel Modi Champion Modi Olivetti Modi Telematics Modi Xerox Murugappa Morganite Ceramic Nagarjuna Signode Nava Bharat Parker Drilling Nicco Hambro Financial

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Furmanite Nicco Nicco Helifusion Shriram Honda Power Equipt SRF Nippondenso Tata Bradbury Wilkinson Tata Honeywell Tata Klockner Indl Plants Tata Korf Engg Services Tata Timken Tata Robins Fraser

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Tata Unisys Tata Yodogawa Sundaram Abex Sundaram Clayton TVS Suzuki TVS Whirlpool Lucas TVS Harita Grammar United Van Der Horst

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Illustrative List of Companies in which Foreign Shareholders were Allowed to Appoint Managerial Personnel/Exercise Veto Powers by the Government of India

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Abbott Laboratories India Astra-IDL Ltd Automotive Axles Ltd Axles India Ltd Bihar Sponge Iron Ltd Birla Yamaha Ltd Boehringer-Knoll Ltd Burroughs Wellcome & Co. (I) Cadbury India Limited Carrier Aircon Ltd Cemindia Co. Ltd Colgate Palmolive (I) Ltd Corn Products Co. (I) DCM Toyota Digital Equipment (I) Ltd E Merck (I) Ltd ESAB India Ltd Eskayef Ltd Fulford (I) Ltd Fuller KCP Ltd Gabriel India Ltd

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German Remedies Ltd Glaxo India Ltd Godfrey Phillips India Ltd Gramophone Co. of India Ltd Hinditron Tektronix Instruments Hindustan Ciba-Geigy Ltd Hindustan Powerplus Ltd Hoechst India Ltd Incon (I) Ltd IND-Suzuki Motorcycles Ltd Indian Duplicator Co Ltd India Nippon Electrical India Photographic Co Ltd Indian Sewing Machine Co Ltd Indian Shaving Products Ltd Indian Xerographic Systems Indo-Asahi Glass Co Ltd Indo matsushita Appliances Indrol Lubricants & Specialities Ltd Infar India Ltd International Computers Indian Mfrs Ltd

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Invel Transmission Ltd Kalyani Brakes Ltd Kanthal Bimetals India Ltd Kirloskar Warner Swassey Kothari General Food Corpn Lipton India Ltd May & Baker India Ltd Miles India Ltd Modi Champion Ltd Modi Olivetti Modi Xerox Limited Monotype India Ltd Moran Tea Co India Ltd Nagarjuna Signode Ltd National Peroxide Ltd Nicco Batteries Ltd Nicholas Laboratories India PCS Data General India Ltd Padmatex Engineering Ltd Peico Electronics & Electricals Ltd Perfect Circle Victor Ltd Pfizer Ltd

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Pond's (I) Ltd Revathi-CP Equipment Ltd SRF Nippondenso Ltd Sesa Goa Ltd Steelage Industries Ltd Stormac India Ltd Sulzer India Ltd TVS Whirlpool Tata Burroughs Ltd Tasta Honeywell Ltd Telemechanique & Controls (I) Thomas Cook India Tri-Sure India Ltd Uni-Abex Products Ltd Uptron Colour Picture Tubes Utility Engineers (I) Ltd Vespa Car Co. Ltd WG Forge & Allied Industries Wendt (I) Ltd

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Illustrative List of MNCs in Indian Economy Operating in Consumer Goods Industries

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Name of the MNC

Consumer Goods Produced/Marketed

Bata India

Shoes, Socks, Readymade Garments, Leather

Bags.

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Berger Paints India Ltd

Paints

Brooke Bond India Ltd

Tea, Coffee, Masalas, Leather

Colgate Palmolive India

Tooth Paste, Tooth Powder, Tooth and Shaving Brushes,Shaving Cream,Soaps, Cold Creams

Crompton Greaves

Domestic Electric Fans, Electric Lamps

Goodlass Nerolac Paints

Paints

Hero Honda

Motor Cycles

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Hindustan Lever

Soaps, Tooth Paste, Margarine,Shampoos, Detergents,Cleaning Powder, Carpets, Readymade Garments, Marine Products, Leather Goods, Carpets

ITC Ltd

Cigarettes, Hotels, Vegetable Oils, Carpets, Marine Products

Johnson & Johnson

Ear Buds, Baby soaps, Baby Talcum Powders, Baby Lotions, Sanitary Napkins

Kelvinator India

Domestic Refrigerators

Nestle India

Coffee, Tea, Baby Foods, Dairy Products, Noodles, Ketchup

Pepsi Foods

Potato Chips, Soft Drinks

Pond's India

Toilet Soaps, Talcum Powder, Cold Cream, LeatherGoods, Marine Products

Procter & Gamble

Balm, Chicklets, Digestive Tablets

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Some of Indian MNC’s >>

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Baba Kalyani Bharat Forge The value of his shareholding in the company today is much higher than the total market value of the whole company in 1999 >>

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Sunil Mittal

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Bharti Tele-Ventures One equals three: Bharti’s market cap is almost one and a half timesthe combined market cap of the three other listed telecom companies >>

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N. Prasad Matrix Laboratories With 245 per cent yearly growth in market cap over the past five years, this new entrant has been the fastest riser

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TPG Nambiar BPL Today, its market value is far less than even the profits made by some of its peers >>

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Rajan Nanda Escorts Within a generation and a half of its founding, the Nandas’ flagship has fallen off the top 100 list >>

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Aurobindo Pharma

Mahindra and Mahindra

AV Birla group

Maruti

Bharat Earth Mover Limited (BEML) NIIT Bharat Heavy Electricals Limited (BHEL)

Reliance

Indian Hotels

Satyam computers

Dr Reddy’s lab

Sundram Fasteners

Tata Motors

Tata consultancy services (TCS)

Tata Steels

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“Time is a great teacher, but unfortunately it kills all its pupils….” - Louis Hector Berlioz

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REFFERENCES www.wikipedia.com www.google.com Technology exports (vol. 8) By Ashwani Gupta Indian Economic Outlook >> 0 >> 1 >> 2 >> 3

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