Globalization

ASSIGNMENT ON BUSINESS ENVIORNMENT

PRESENTED BY, RESHMA T

EXAMINE THE ADVANTAGES AND DISADVANTAGES OF GLOBALIZATION IN THE LIGHT OF SELECTED MANUFACTURING INDUSTRIES IN INDIA

Globalization Globalization is an attitude of mind- it is a mindset which views the entire world as a single market so that the corporate strategy is based on the dynamics of the global business environment. Globalization encompasses the following: • • • • • •

Doing, or planning to expand business globally. Giving up the distinction between the domestic market and foreign market and developing a global outlook of the business. Locating the production and other physical facilities on a consideration of the global business dynamics, irrespective of national considerations. Basing product development and production planning on the global market considerations. Global sourcing of factors of production i.e, raw materials, components, machienery, technology, finance etc.. are obtained from the best source anywhere in the world. Global orientation of organizational structure and management culture.

Globalization (globalisation) 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, sociocultural and political forces.[1] 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. Saskia Sassen writes that "a good part of globalization consists of an enormous variety of microprocesses that begin to denationalize what had been constructed as national - whether policies, capital, political subjectivities, urban spaces, temporal frames, or any other of a variety of dynamics and domains." The United Nations ESCWA has written that globalization "is a widely-used term that can be defined in a number of different ways. When used in an economic context, it refers to the reduction and removal of barriers between national borders in order to facilitate the flow of goods, capital, services and labour...although considerable barriers remain to the flow of labour...Globalization is not a new phenomenon. It began in the late nineteenth century, but its spread slowed during the period from the start of the First World War until the third quarter of the twentieth century. This slowdown can be attributed to the inwardlooking policies pursued by

a number of countries in order to protect their respective industries.. however, the pace of globalization picked up rapidly during the fourth quarter of the twentieth century..." 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." Thomas L. Friedman has examined the impact of the "flattening" of the world, and argues that globalized trade, outsourcing, supply-chaining, and political forces have changed the world permanently, for both better and worse. He also argues that the pace of globalization is quickening and will continue to have a growing impact on business organization and practice. Noam Chomsky argues that the word globalization is also used, in a doctrinal sense, to describe the neoliberal form of economic globalization. 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

Effects of globalization Globalization has various aspects which affect the world in several different ways such as: •

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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. As these worldwide structures grew more quickly than any transnational regulatory regime, the instability of the global financial infrastructure dramatically increased, as evidenced by the financial crises of late 2008. Economic - realization of a global common market, based on the freedom of exchange of goods and capital. The interconnectedness of these markets, however meant that an economic collapse in any one given country could not be contained. Political - some use "globalization" to mean the creation of a world government which regulates the relationships among governments and guarantees the rights arising from social and economic globalization. Politically, the United States has enjoyed a position of power among the world powers; in part because of its strong and wealthy economy. With the influence of globalization and with the help of The United States’ own economy, the People's Republic of China has experienced some tremendous growth within the past decade. If China continues to grow at the rate projected by the trends, then it is very

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likely that in the next twenty years, there will be a major reallocation of power among the world leaders. China will have enough wealth, industry, and technology to rival the United States for the position of leading world power. Informational - increase in information flows between geographically remote locations. Arguably this is a technological change with the advent of fibre optic communications, satellites, and increased availability of telephone and Internet. Language - the most popular language is English. o About 35% of the world's mail, telexes, and cables are in English. o Approximately 40% of the world's radio programs are in English. o About 50% of all Internet traffic uses English. 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. Ecological - the advent of global environmental challenges that might be solved with international cooperation, such as climate change, cross-boundary water and air pollution, over-fishing of the ocean, and the spread of invasive species. Since many factories are built in developing countries with less environmental regulation, globalism and free trade may increase pollution. On the other hand, economic development historically required a "dirty" industrial stage, and it is argued that developing countries should not, via regulation, be prohibited from increasing their standard of living. 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". Some bemoan the resulting consumerism and loss of languages. Also see Transformation of culture. o 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. o Greater international travel and tourism. WHO estimates that up to 500,000 people are on planes at any time.[24] o Greater immigration, including illegal immigration o Spread of local consumer products (e.g. food) to other countries (often adapted to their culture). o 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. o Worldwide sporting events such as FIFA World Cup and the Olympic Games. o Incorporation of multinational corporations in to new media. As the sponsors of the All-Blacks rugby team, Adidas had created a parallel website with a downloadable interactive rugby game for its fans to play and compete.[25]

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Social - development of the system of non-governmental organisations as main agents of global public policy, including humanitarian aid and developmental efforts.[26]

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Technical o

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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 o o

The creation of the international criminal court and international justice movements. Crime importation and raising awareness of global crime-fighting efforts and cooperation.

Impact of globalization in 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 far-fetched. 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. Trends such as outsourcing and offshoring are a direct offshoot of globalization and have created a work environment in which cultural diversity can be problematic. A U.S. company where punctuality is important and meetings always start on time faces adjustments if it opens an office in South America or France, where being 10 to 15 minutes late to a meeting is considered acceptable: being on time is called 'British Time'.[29] Sweatshops It can be said that globalization is the door that opens up an otherwise resource poor country to the international market. Where a country or nation has little material or physical product harvested or mined from its own soil, an opportunity is seen by large corporations to take advantage of the “export poverty” of such a nation. Where the majority of the earliest occurrences of economic globalization are recorded as being the expansion of businesses and corporate growth, in many poorer nations globalization is actually the result of the foreign businesses investing in the country to take advantage of the lower wage rate: even though investing, by increasing the Capital Stock of the country, increases their wage rate.

One example used by anti-globalization protestors is the use of sweatshops by manufacturers. According to Global Exchange these “Sweat Shops” are widely used by sports shoe manufacturers and mentions one company in particular – Nike. There are factories set up in the poor countries where employees agree to work for low wages. Then if labour laws alter in those countries and stricter rules govern the manufacturing process the factories are closed down and relocated to other nations with more conservative, laissez-faire economic policies. There are several agencies that have been set up worldwide specifically designed to focus on anti-sweatshop campaigns and education of such. In the USA, the National Labor Committee has proposed a number of bills as part of the The Decent Working Conditions and Fair Competition Act, which have thus far failed in Congress. The legislation would legally require companies to respect human and worker rights by prohibiting the import, sale, or export of sweatshop goods. Specifically, these core standards include no child labor, no forced labor, freedom of association, right to organize and bargain collectively, as well as the right to decent working conditions. Tiziana Terranova has stated that globalization has brought a culture of "free labour". In a digital sense, it is where the individuals (contributing capital) exploits and eventually "exhausts the means through which labour can sustain itself". For example, in the area of digital media (animations, hosting chat rooms, designing games), where it is often less glamourous than it may sound. In the gaming industry, a Chinese Gold Market has been established.

Financial clashes of interest The Reagan-Thatcher model, which favored finance over domestic manufacturing, has collapsed. ... The mutually reinforcing rise of financialization and globalization broke the bond between American capitalism and America's interests. ...we should take a cue from Scandinavia's social capitalism, which is less manufacturing-centered than the German model. The Scandinavians have upgraded the skills and wages of their workers in the retail and service sectors -- the sectors that employ the majority of our own workforce. In consequence, fully employed impoverished workers, of which there are millions in the United States, do not exist in Scandinavia.

Effects of Globalization on Indian Industry

Effects of Globalization on Indian Industry started when the government opened the country's markets to foreign investments in the early 1990s. Globalization of the Indian Industry took place in its various sectors such as steel, pharmaceutical, petroleum, chemical, textile, cement, retail, and BPO. Globalization means the dismantling of trade barriers between nations and the integration of the nations economies through financial flow, trade in goods and services, and corporate investments between nations. Globalization has increased across the world in recent years due to the fast progress that has been made in the field of technology especially in communications and transport. The government of India made changes in its economic policy in 1991 by which it allowed direct foreign investments in the country. As a result of this, globalization of the Indian Industry took place on a major scale. The various beneficial effects of globalization in Indian Industry are that it brought in huge amounts of foreign investments into the industry especially in the BPO, pharmaceutical, petroleum, and manufacturing industries. As huge amounts of foreign direct investments were coming to the Indian Industry, they boosted the Indian economy quite significantly. The benefits of the effects of globalization in the Indian Industry are that many foreign companies set up industries in India, especially in the pharmaceutical, BPO, petroleum, manufacturing, and chemical sectors and this helped to provide employment to many people in the country. This helped reduce the level of unemployment and poverty in the country. Also the benefit of the Effects of Globalization on Indian Industry are that the foreign companies brought in highly advanced technology with them and this helped to make the Indian Industry more technologically advanced. The various negative Effects of Globalization on Indian Industry are that it increased competition in the Indian market between the foreign companies and domestic companies. With the foreign goods being better than the Indian goods, the consumer preferred to buy the foreign goods. This reduced the amount of profit of the Indian Industry companies. This happened mainly in the pharmaceutical, manufacturing, chemical, and steel industries. The negative Effects of Globalization on Indian Industry are that with the coming of technology the number of labor required decreased and this resulted in many people being removed from their jobs. This happened mainly in the pharmaceutical, chemical, manufacturing, and cement industries. The effects of globalization on Indian Industry have proved to be positive as well as negative. The government of India must try to make such economic policies with regard to Indian Industry's Globalization that are beneficial and not harmful.

Advantages of Globalization • • • • • • • • • • • •

Increased free trade between nations Increased liquidity of capital allowing investors in developed nations to invest in developing nations The business market in the world has no boundaries, they can market their products in any part of the world. This has improved the chances of laying hands on global markets & technologies, which would definitely increase our Quality of Living Standards. 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

Disadvantages of Globalization • • • • •

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Increased flow of skilled and non-skilled jobs from developed to developing nations as corporations seek out the cheapest labor People preferred foreign food which affected the profit of Indian Industries. Foreign salaries attracted a lot of human capital which affected our productivity. Lead to a great dissatisfaction among the under developed/developing countries. Increased the chances of inferiority complex among these nations. 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

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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

Globalization and Manufacturing Manufacturers are globalizing rapidly against a background of exceptionally fast growth in world trade. While the market opportunities are enormous, they are likely to face intense competition both in their home markets and in the foreign markets into which they need to expand. This study from the EIU reveals, however, that the nature of these challenges may not what conventional wisdom assumes – it is not all about low-cost manufacturing. While low-cost labor has a role to play, many manufacturers are going global to access a range of opportunities and resources available in different international markets. The findings in this report are based on the EIU’s global survey of 232 senior executives in the manufacturing sector, together with a number of in-depth interviews conducted with some of the leading figures in the industry. The EIU’s main conclusions include the following: • Globalization is about market access, not just low costs: The rapid growth of manufacturing in Asia is leading to declines in the relative dominance of North American and Western European companies, but manufacturing in developed markets is not doomed. Although a lot of new money is going into facilities in emerging economies, this is at least partly a strategy of having production close to new customers rather than simply a flight from high labor costs. Indeed, the survey shows home bases remain attractive locations for investment in production, with local facilities set to account for 54 percent of new North American funding and 59 percent of funding in Western Europe (66 percent if you include factories in the new EU states). Nearness to developed markets, infrastructure and a high skill base can still yield results as long as they are harnessed effectively to deliver innovative production solutions. • Emerging markets are not the whole story: Many manufacturers are looking to move away from dependence on home sales. Emerging markets are an important part of this, with 30 percent of companies worldwide expecting growing wealth there to contribute to their strategy.* China’s share of respondents’ sales is expected to grow very substantially, as is that of new EU states. It is important not to write off mature markets, however. North American manufacturers still expect growth in Western Europe and vice versa. Manufacturers are diversifying their markets worldwide, not just to fastgrowing emerging markets. • Asian manufacturers are closing the gap: The challenge from Asian competitors is likely to continue to intensify. For now, many Asian companies, with the exception of those based in Japan, are still playing catch-up in many areas, but they appear to be pushing hard to close the gaps. Even in areas where they have been relatively weak, such as corporate governance, Asian

companies are now investing heavily to establish trust with their developed market customers. As one executive interviewed for this report notes,“The speed of development in Asia is almost unbelievable.” • Expansion raises the bar on risk management: It appears that manufacturers have tended to take an instinctive approach to risk management, often relying on the experience of the CEO or CFO to lead the response to emerging threats. Few manufacturers have a dedicated head of risk at board level, with less than 3 percent of respondents in the survey saying they have a chief risk officer (CRO). This is in stark contrast with the 60 percent of financial services companies that have already appointed a CRO, according to another recent survey by the Economist Intelligence Unit.1 As companies move into new markets where their experience is limited, the need for a more focused approach to risk management will become acute. A strategy for enterprise risk management, supported by integrated risk management tools, is likely to be one of the hallmarks of a well-run manufacturing business. • Manufacturers must innovate to survive: Faced with intense price pressures, manufacturers in high-cost locations may be able to insulate themselves from price pressures. Some companies do not seem to be doing enough in this area. Just 26 percent of the survey respondents intend to improve their innovation capacity to boost profitability. Of most concern to EIU are manufacturers in Western Europe: with the exception of Sweden, Denmark and Germany, Western European countries are investing too little in R&D to ensure that they will be able to compete on the basis of innovation and technology. As China and other countries in the AsiaPacific region grow wealthier and more active in manufacturing, their relative importance as markets and production centers is likely to increase, sometimes spectacularly so given low starting points. It does not mean, however, that manufacturing in North America and Western Europe is destined to die out. Manufacturers that can learn to continuously innovate across their operations may find that there are opportunities to be had in developed, as well as developing, markets.

Globalization of Indian Manufacturing Sector

The initiation and development of globalization of the Indian manufacturing sector took place simultaneously in the 1990s. The widespread acceptance and development of globalization of the Indian manufacturing sector effected astronomical growth of this industry. The introduction and the subsequent development of globalization of the Indian manufacturing sector respectively helped India to shed its age old tag of being 'an agriculture based country'. The main growth driver of the Indian manufacturing sector are Information Technology and hardware, telecommunication hardware, automobile, pharmaceutical, biotechnology, infrastructure, electronic, electrical, textiles, etc. The effect of globalization of Indian manufacturing industry is reflected in the GDP's share of Indian manufacturing sector which has grown considerably over the years. The share of Indian manufacturing industry towards India GDP has grown from 25.38% in 1991 to 27% in 2004. Further, the contribution of the Indian manufacturing sector to the Indian export sector has increased from 52% in 1970 to 59% in 1980 and 71% in 1990 and 77% in 2000-01. Furthermore, the Indian manufacturing exports accounted for a little over 5% (in 1990) of the value of output of the Indian manufacturing sector but today it is close to 10%. India exports manufactured products worth about US$ 50 billion and a recent study on Indian manufacturing industry has forecast an annual growth of 17% by the end of the year 2015. In other words at this rate of increase the quantum of India's manufacturing exports will cross the US$ 300 billion mark by the end of the financial year 2015. Most of this business would be in the domain of auto components, pharmaceutical, apparel, specialty chemicals, and electrical and electronic equipment sectors. The Indian sectors which grew tremendously as a result of globalization of the Indian manufacturing sector are as follows • • • • • • • • • • • • • • •

Capital goods Engineering goods Chemicals Petroleum Chemicals & fertilizers Packaging Consumer non-durables Electronics IT Hardware & peripherals Gems & jewelry Leather & leather products Mining Steel & non-ferrous metals Textiles & apparels Water equipment

Major Manufacturing Companies of India Over the past few years, a manufacturing revolution has been underway in the Indian economy, driven by the increasing presence of multinational companies, increased operations by domestic companies and an expanding domestic market. The manufacturing sector has been averaging 9% growth over the past few years, and a record 12.3% last year. As a result, India is quickly emerging as a global manufacturing powerhouse. India has all the necessary skills in product, process and capital engineering, thanks to its long manufacturing history and higher education system. India’s cheap, skilled labor is attracting a number of companies, spanning diverse industries, making India an attractive global manufacturing location. India’s vast domestic market and availability of low-cost labor with advanced technical skills has been instrumental in attracting the ever expanding number of multinational companies who are setting up their manufacturing base in the country. The rapid growth of the Indian economy is likely to make India the fifth largest consumer market in the world by 2025 and consumer spending is estimated to more than quadruple by then. The middle class is expected to grow ten-fold by then and household income also is growing rapidly. The Government has taken steps to accelerate growth in the manufacturing sector and improve the competitiveness of Indian industry in general and manufacturing in particular Reflecting this optimism in the country's potential, India has emerged as the topmost promising destination for long-term Japanese overseas business for the first time in a survey by Japan Bank for International Co-operation. Some Indian firms use service contracts with overseas firms to fund their operations. • • • • • • • • • • • • •

Aditya Birla Group Amul Bharat Heavy Plate and Vessels Bhushan Steel Birla Yamaha Bombay Dyeing Deloitte Electrosteel Castings Limited Emani Group Evergreen International Limited Godrej Group Guest Keen Williams Haldia Petrochemicals

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