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Table of Contents
Executive Summary----------------------------------------------------------------------------- 3
Introduction--------------------------------------------------------------------------------------- 4
Advantages of globalisation--------------------------------------------------------------------- 5
Disadvantages of globalilsation----------------------------------------------------------------- 6
Globalisation trends------------------------------------------------------------------------------ 8
Role of tariffs, subsidies and trade policies---------------------------------------------------- 9
Proposed framework for viability of globalisation in manufacturing------------------------ 10
Globalisation of manufacturing in India-------------------------------------------------------- 12
Conclusions---------------------------------------------------------------------------------------- 14
Bibliography--------------------------------------------------------------------------------------- 15

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Executive Summary
Globalization is one of the most important factors leading to economic development
influencing almost all fields of business. Specifically, globalization of manufacturing has
proved to be a positive stint for firms since long time. Now, the rapid change in business
dynamics has attracted a lot of attention towards changing parameters driving these decisions
of project viability. This has forced companies to challenge their past notions and coming up
with varied practices focusing on global expansion and being cost effective and successful at
the same time.
This thesis report starts with understanding what globalisation is and its importance in the
manufacturing sector by discussing various advantages and disadvantages to the worlds
economy. It also covers the manufacturing globalisation trends worldwide along with various
policies, traffis and subsidies in its support. As research findings, a holistic framework
comprising of various factors across economical, environmental, technological and political
backgrounds have been proposed and its application has been shown with respect to
globalisation trends in India.

[Executive Summary: 162 words]

[Report: 2454 words]

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Introduction
Globalization is an integration of different national economies through exchange of ideas, flow
of trade, balance of finance and migration of people. It involves economies being inter related
and providing opportunities for different countries to grow their markets efficiently and
increase their wealth throughout the world. In this competitive scenario, to be amongst the best,
globalization is the need but then expanding operations in other countries, facing cultural and
political challenges, adding new customers, increasing supplier integration are some of the notso-easy tasks that concerns organisations presently.
If we look at the global merchandise trade data by WTO, we observe that manufactured goods
contribute to 66% of the total exports worldwide followed by fuels, mining and agricultural
products with contributions of 20% and 10% respectively. This proves the rate at which
globalisation trends in manufacturing are growing. It also reported the highest YoY growth rate
of 4% amongst all.

Source: https://www.wto.org/english/res_e/statis_e/world_region_export_14_e.pdf

Although all these statistics show that the trends are positive but again at the organisational
level, the strategical reforms are important too for all globalisational practices being practiced
by manufacturing companies in response to the growing need of international markets. The
complexity is further increased by need of having an effective global sales support system in
place. Also, these companies are facing the issues of having a lean supply chain by choosing
the best sourcing site to reduce supply chain costs and localizing it to increase efficiency,
effectiveness and reducing lead time.

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Advantages of globalisation of manufacturing

Providing Employment Opportunities

For the last two decades, the improved trends in globalisation have shown better results
with respect to increased wages, improved working conditions and more opportunities
across various sectors especially manufacturing.

Economic developments
Net effects of globalisation on economic developments are positive. Various variables
such as capital flows, trade, FDIs, GDP per capita and more have been analysed to
measure the impact of globalisation. The settlement of manufacturing hubs in India is an
example of how promptly the economy changes to bring in positive results since 1991.

Improvement in quality and variety of products

With exchange of information and technology across nations, there is a change in the way
the industry operates and thus, everyone tries to move towards excellence amidst intense
competition and opportunities. Ex: Globalised auto sector has brought in lean practices
throughout the whole supply chain in India.

Opportunity for cost effectiveness

As discussed above, the best practices finally help in bring in low cost and high quality
products to consumers and improving cost effectiveness of the manufacturing operations

Manufacturers can diversify their portfolio

Most of the manufacturers that manage a global share try to enhance their returns by
product diversification and seek out the best investment opportunity from a wide range of
countries, sectors etc.

Restructuring trade and production practices/ Economies of Scale

With the production in different parts of the world, globalisation supports economies of
scale by lowering average costs and restructuring trade practices for improved efficiency.

Improvement in the practices of domestic industries/ Increased competition

With increased cost effectiveness and opportunities for new product developments, quality
improvements, there is certainly positive change in the way the domestic industries
respond to the global manufacturers in order to sustain successfully

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Improved efficiency of the banking and financial sectors/ Increased Investments

As the globalisation increases, the nations economy is boosted with increased capital
flows and greater trade in financial services through increased economic integration
platforms and specialised operations requiring efficient banking operations.

Reduction in cultural and other barriers between nations

With the help of globalization, every nation is getting into an identical culture that is
understood and respected by other nations. The intermixing of cultures has definitely been
brought up by globalisation. The rich economies have become more conscious of emerging
in the new globalised world culture.

Movement of labour
Globalisation supports increased labour migration which is beneficial to workers as well
as the hosting country too. It is increasing the demand for cheap and skilled labour and
thus, the global manufacturers eye developing nations for the same which also reduces
geographical inequality

Technological advancements
With the exchange of cross national and cross cultural knowledge, one can really advance
in almost every sector with new technological breakthroughs and innovations serving the
society well.

Disadvantages of globalisation of manufacturing

Rich richer, poor poorer

Globalisation certainly has created a gap between countries where it has shown its presence
on the context that it has made rich richer and the non-rich poorer.

Trade barriers
Although all the free trade barriers have been removed with it but there are few countries
which have gone for additional taxes like VAT on imports.Ex: Europe has a VAT as high
as 21.6% whilst USA doesnt have any.

Transfer of jobs/ job cuts

In many countries, mostly developed, workers face pay-cut demands from their
employers on the ground of export of jobs. Also, the biggest problems associated with
manufacturers are the job shifts to lower cost countries.

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Tax avoidance/ Financial blackouts

With many acts like GAAR, large manufacturers have that tax exploitation capability to
avoid paying taxes which affects the economic conditions of the parent country leading to
financial blackouts

Political influence
The more big the manufacturers are, better is their influence over the political setup in the
developing countries and there are problems of lobbying and tax evasions leading to
degradation of the economy and environment at large

Environmental degradation
With the establishment of the more and more manufacturing setups, the environmental loss
has increased due to increased usage of resources, pollution, dumping and other hazardous
wastes. It has a great potential to decrease the environmental integrity drastically.

Harsh working environments/ Exploitation of child labour

Exploitation of labour is one of the major backdrops of small manufacturing companies
and it has risen with globalisation. The social welfare segment is really under pressure
because of the human trafficking and child labour associated with it.

Manufacturers bargaining power

As manufacturers increase their operations in other country, the bargaining power w.r.t.
the economic environment and customer increases which can further lead to a
monopolistic setup too.

Risk with the interdependency factor of economies

As most of the economies are interlinked, so if there is some movement in the economic
structure of one country, it may disrupt the stabilisation in other interdependent countries
as well.

Globalisation Trends
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This section provides some statistics on the growth of globalisation trends worldwide and the
contribution of manufacturing sector to it. To get an overview, we consider three basic factors:
FDI, International trade and employment opportunities
The need for globalisation in manufacturing and wholesale and retail trade is the key focus these
times and comparing both of these, manufacturing out sways wholesale and retail trade.

Source:http://ec.europa.eu/eurostat/statisticsexplained/index.php/Economic_globalisation_indicators_in_manufacturing,_whol
esale_and_retail_trade#Economic_globalisation_is_important_in_manufacturing_and_in_wholesale_and_retail_trade

Adding to the discussion, there is a direct relationship between the proportion of employment
and turnover of the manufacturing establishments. The figures below for EU show the same and
it can be easily observed that higher demands and shares of employment in foreign setups also
have higher turnovers too. For most of the countries, these foreign setups are manufacturing ones

Source:http://ec.europa.eu/eurostat/statisticsexplained/index.php/File:Share_of_foreign_controlled_employment_in_total_i
n_Manufacturing_and_Wholesale_and_retail_trade.png

Below is the share of foreign controlled employment in total in Manufacturing and Wholesale and retail
trade
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Source:http://ec.europa.eu/eurostat/statisticsexplained/index.php/File:Share_of_foreign_controlled_employment_in_total_i
n_Manufacturing_and_Wholesale_and_retail_trade.png

Role of Tariffs, Subsidies and Trade Policies

Since we agree with the fact that globalisation of manufacturing industry is growing at a good
rate worldwide but the real reason for it viability is the scope of protectionism, which is the
maximum implementation of tariffs and subsidies a government focuses upon.
A developing country specifically, where most of the external manufacturer is hunting upon to
capture the market chooses these rights to:
1. Save jobs in domestic industries
2. Increase their bargaining powers
3. Not to compete with other countries in terms of production of resources for a long time
Now, believing that protectionism is leading to saving of jobs on one side but considering the
worst case scenario, it serves on a negative note. For ex: Suppose Indian auto manufacturers
produce indigenous products and after some time, the domestic industries collapse and is not
able to cope with the cheap imports from, lets say, China. Now, because of the policies it is
alienated from the outside world and thus it would pressurize the local producers and in such
times, the globalised countries with a balanced share of policies on both side of the
manufacturers and the parent country, where they want to operate wins.
The growth of competing trade blocs resulted through the proliferation of trade agreements;
manufacturers are trying to gain secure access to foreign markets, and in return, are achieving
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good level of economic competitiveness and economic securities. Some of the major trade
agreements and supporting globalisation and trade are:
1.
2.
3.
4.
5.
6.
7.
8.
9.

NAFTA
Central American Common Market,
The Asia-Pacific Economic Cooperation Forum,
The Arab League, the Andean Pact,
The Economic Community of West Africa,
The Association of Southeast Asian Nations,
The East Asia Economic Caucu
The U.S.-Canada Free Trade Agreement
FTAA

Proposed framework for globalisation of

manufacturing
Based on the theories and literature reviews done along with few industry interactions, a
holistic framework checking the viability of the expansion plan in case of manufacturing
industries has been prepared.
It widely covers decisions based on four parameters:
1.
2.
3.
4.

Economic Environment Analysis

Political and Legal Environment Analysis
Technological Environment Analysis
Global Environment Analysis

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Political and
Legal
Environment
Analysis

Economic
Environment
Analysis

Technological
Environmental
Analysis

Should We Go
for
Globalization of
Manufacturing?

Global
Environmental
Analysis

Below is the suggested framework for viability propositions:

Economic
Environmental
Analysis

Political and Legal

Environmental
Analysis

Technological
Environmental
Analysis

Global
Environmental
Analysis

GDP
Inflation
Interest Rates
Trade Deficits and
Surplus
BOP
Financial Environment
Economic
Infrastructure

Legal Systems
Monopolies
Taxes
Competition
Personal and Labor
Welfare Development
Legal Platforms and
Structure

R&D
Application of
Knowledge
Innovations Attitude
and Its Impact
Focus of Private and
Govt. Supported R&D
Expenditure
New Communications
Technologies

Political Events
Global Markets
Newly Industrialised
Industries
Big Emerging Markets
Trade Barriers and
International
Institutions

Framework showing various factors to be considered while going for globalization of manufacturing

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These four factors along with their sub factors cover the overall strategy formation framework
and would help the manufacturing organisations to move towards their global expansion plans
to achieve excellence

Globalisation of manufacturing in India

With the availability of low cost labour, huge domestic market, economic growth and variety
of resources, India has a been a priority for a lot of organisations to set their manufacturing
bases here. Indian manufacturing sector currently contributes accounts to closely 15% of GDP
which is almost half of the worlds manufacturing hub, China. Also, Indias share in world
manufacturing is only 1.8%. This huge mismatch in terms of GDPs contributions make it
imperative for India to focus on manufacturing and bring it close to 25% over next decade and
thats why Indian government presently and in the past too has focused on changing its policy
frameworks to attract more and more FDIs to make it a fast emerging globalised economy.

Source: Planning Commission (Now, NITI Aayog)

Also, looking at the employment opportunities, manufacturing sector accounts for only ~12%
of jobs and thus, proves the need for a globalised revolution in the manufacturing trade.

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Source: Planning Commission (Now, NITI Aayog)

India's trade balance needs to be improved, and this necessitates a larger volume of exports of
manufactured goods In order to increase exports as well as satisfy its internal market with
domestically produced manufactured goods that compete with imports, India ought to
manufacture a much larger volume of products at competitive costs and quality.
Adding to some of the more parameters justifying the need for globalisation of manufacturing
in Indias context is its trade balance. India must manufacture a larger volume of products at
competitive costs and quality to compete with outside world. As shown in the stats below, there
is a 2.1 % growth in the exports and manufacturing constitutes 55% of the total export structure

Source:http://unctadstat.unctad.org/CountryProfile/GeneralProfile/en-GB/356/GeneralProfile356.pdf

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Also, an increased inflow of FDI presents positive sentiments about being a globalised
economy. Following chart shows the 0.5 % growth of FDI outflow in 2014.

Source:http://unctadstat.unctad.org/CountryProfile/GeneralProfile/en-GB/356/GeneralProfile356.pdf

Current governments Make in India campaign is one of the boosters for all the growing
trends shown above. Make in India mission is one such long term initiative which will help
to transform India into a global manufacturing hub.

Conclusions
As discussed in this thesis report, globalisation of manufacturing is a viable strategy provided
the constraints of certain factors. A holistic framework supporting the viability proves the same.
Worlds economy is evolving rapidly and in such times, changing ones strategy to expand
globally is a fundamental requirement. Various trade agreements and associations are
liberalising their policies to improve the trade practices across countries. Talking about Indias
policy structures to bring up the manufacturing contribution to 25% by 2025, they are widely
supporting manufacturing globalisation practices with its new campaign Make in India. Its
offering opportunities to a lot of organisations domestically and internationally.
It is essential for the manufacturing firms to develop strategies for the whole value chain,
investments, planning resources, cost of capitals and organisational structures to achieve
excellence by minimizing future risks.

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Bibliography
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http://unctadstat.unctad.org/CountryProfile/GeneralProfile/en-GB/356/GeneralProfile356.pdf
2. Development and Globalization: Facts and Figures 2012, UNCTAD
http://unctad.org/en/PublicationsLibrary/webgdsdsi2012d2_en.pdf
3. Eurostat Statistics Explained
http://ec.europa.eu/eurostat/statisticsexplained/index.php/Economic_globalisation_indicators_in_manufacturing,_wholesale_and_
retail_trade#Economic_globalisation_is_important_in_manufacturing_and_in_wholesale_and
_retail_trade
4. WEF_New_Industrial_Policy_Manufacturing_report_2015
http://www3.weforum.org/docs/E15/WEF_New_Industrial_Policy_Manufacturing_report_20
15_1401.pdf
5. https://www.globalenvision.org/library/15/1211
6. World_region_export Report, WTO
https://www.wto.org/english/res_e/statis_e/world_region_export_14_e.pdf
7. P. R. Krugman, "Increasing Returns and Economic Geography," Journal of Political
Economy, 99 (1991), pp. 483-99; and M. Fujita, P. R. Krugman, and A. J. Venables, The
Spatial Economy: Cities, Regions, and International Trade, Cambridge, MA: MIT Press,
1999.
8. http://www.oliverwyman.com/content/dam/oliverwyman/global/en/2014/jul/20140708_Globalization%20in%20Manufacturing%20Industri
es_Volume1_Global%20Purchasing_EN_screen.pdf
9. The Manufacturing Plan, Planning Commission , Govt. of India
http://planningcommission.gov.in/aboutus/committee/strgrp12/str_manu0304.pdf
10. Jaikumar, R.(1986) : Post Industrial Manufacturing, HBR, Nov-Dec, pp. 69-76
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http://www.nber.org/reporter/spring01/hanson.html
12. Powering India Road to 2019 Mckinsey & Company
13. Make in India - http://www.makeinindia.com/
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