“Freedom is not worth having if it does

not include the freedom to make

mistakes”
-Mahatma Gandhi
 MODULE-1
GLOBALISATION
What is Globalization?

Globalization is a continuing process of economic restructuring which has

lead to an increasing cross-broader flow of trade in goods, services, and
financial assets, along with an increasing international mobility of
technology, information and individuals.

DEFINATION:-
CHARLES. W. L. HILL Defines Globalization as
“ The Shift towards a more integrated and interdependent world
economy. Globalization has two main components- the Globalization of
markets and Globalization of Production”.
FEATURES OF GLOBALIZATION

1. Opening and planning to expand business throughout the world.

2. Erasing the differences between market and foreign market.
3. Buying and Selling goods and services from/to any country in the
world.
4. Establishing manufacturing and distribution facilities in any part of the
world based on the feasibility and ability rather than national
consideration.
5. Product planning and development are based on market consideration
of the entire world.
6. Sourcing of factors of production and inputs like Raw Materials,
Machinery, Finance,Technology, Human Resources and
management skills from the entire globe.
7. Global orientation in strategies, organization structure, organization
culture and managerial expertise.
8. Setting the mind and attitude to view the entire global as a single
market.
Thus, Globalization means globalizing the Marketing,
production, Investment, Technology and Other
Activities.

GLOBALIZATION OF MARKETS
*Globalization of markets refers to the process of integrating and
merging of distant world markets into a single market.
*This process involves the identification of some common norms,
values, tastes, preferences and conveniences and slowly
enables the cultural shift towards the use of a common product
or service.
EXAMPLES- SONY CAMERA,LEVIES JEANS, PEPSI etc.
Features of it

1.The Size of the company need not be too large to create

a global market.
2.Companies to formulate different strategies for each
market.
KFC separate strategies for each country.
3.Most of the foreign markets are markets for non-consumer
goods like industrial products, machinery, equipment,
Raw Materials, computer, software, financial products
etc.
4.Global business compete with each other frequently in
different markets including their home markets.
Example Coca-Cola v/s Pepsi,Similarly Ford v/s Tayota.
Reasons For Globalization of markets

1.Large Size Industrialization.

2.To reduce the risk diversity the portfolio of
countries.
3.Companies globalize markets in order to
increase their profits and achieve company
goals.
4. To cater to the demand for their products in
foreign markets.
5.An adverse business environment in the
home country.
GLOBALIZATION OF PRODUCTION

The Globalization Of Production referes to the sourcing of goods and

services from locations across the globe to take advantage of national
differences in the cost and quality of factors of production (labour,
energy, time capital, raw materials)
Reasons For Globalization of Production
1. Imposition of restriction on imports by foreign countries forces MNCs to
establish manufacturing facilities in other countries.
2. Availability of Inputs at low cost in foreign markets.
3. Availability of skilled labour resources at low cost.
4. Availability of high quality raw materials and components in other
countries.
5. Liberal labour laws in the foreign countries.
6. Facility of exporting to other neighbor countries.
7. To reduce the cost of Transportation and easy logistics management.
8. To Design and manufacture products in accordance with the varying
tastes of customers in foreign countries.
GLOBALIZATION OF INVESTMENT
*Globalization of investment refers to investment of capital by a
global company in any part of the world.

*A global company conducts the assessment of the financial

feasibility of new projects in different countries of the world and
invests capital in that country, where it is relatively more
profitable. Globalization of investment is also known as FDI.

*FDI occurs when a firm invests directly in new facilities to produce

and / or market a product or service in a foreign country.
Coco-cola acquired a number of bottling companies throughout
India by investment directly.

The GOI has reduced investment barriers, allowing more than

51% of foreign investment in Indian companies.
Reasons For Globalization Of Investments

1. There has been a rapid increase in the volume of global trade

many countries provide favorable environment for direct
investment.

2. In addition to increase in volume of FDI. Its composition has also

been changing. Initially it was directed towards the USA: later on,
it was directed towards countries like UK, JAPAN, FRANCE, CHINA
etc.

3. Small and medium scaled companies have been manufacturing

and marketing activities, invest in the foreign countries.

4. Procure funds from any source in the globe, wherever the cost of
capital is low with feasible terms and conditions

5. A significant amount of FDI is directed to the developing countries

in Asia and Eastern Europe.
Globalization process

 Domestic company exports to foreign countries through the

dealers or distributors of the home country
 In the second stage ,the domestic company exports to the
foreign country directly on its own
 In third stage ,the domestic company becomes an international
company by establishing the production and marketing operation
sin various key foreign countries.
 In the fourth stage ,the company replicates a foreign company by
having all the facilities including R&D full fledged human
resources etc .
 In the fifth stage the company becomes a true foreign company
by serving the needs of foreign customers just like the host
company serves. Thus the globalization means the marketing,
production, investment, technology & other activities.
Advantages of Globalization

 Free flow of capital and increase in the total capital employed.

 Free flow of technology.
 Increase in industrialization .
 Spread of production facilities throughout the globe.
 Balanced development of world economies.
 Increase in production and consumption.
 Commodities at lower prices with high quality.
 Cultural exchange and demand for a variety of products.
 Increases in Jobs and Income.
 Higher standards of living.
 Balanced Human Development.
 Increase in Welfare and Prosperity.
Disadvantages of Globalization

 Globalization kills domestic business.

 Exploits Human Resource.
 Leads to unemployment and underemployment.
 Decline in demand for domestic products.
 Decline in income.
 Widening gap between rich and poor.
 Transfer of Natural Resources.
 National sovereignty at stake.
 Leads to commercial and political colonialism
Methods Modesof globalization

 Exporting directly
 Exporting indirectly
 Licensing and franchising
 Contract manufacturing
 Establishing full marketing facilities
 Establishing manufacturing facility
 Joint venture
 Strategic alliance
 Merger
What Is Economic Environment?

Meaning of Economic Environment

Those Economic factors which have their affect on the
working of the business is known as economic
environment. It includes system, policies and nature of
an economy, trade cycles, economic resources, level
of income, distribution of income and wealth etc.
Economic environment is very dynamic and complex
in nature. It does not remain the same. It keeps on
changing from time to time with the changes in an
economy like change in Govt. policies, political
situations
Elements of Economic Environment

1. Economic Conditions
2. Economic System
3. Economic Policies
4. International Economic
Environment
5. Economic Legislations
Economic Conditions
Economic Policies of a business unit are largely
affected by the economic conditions of an economy.
Any improvement in the economic conditions such as
standard of living, purchasing power of public,
demand and supply, distribution of income etc. largely
affects the size of the market.
Business cycle is another economic condition that is
very important for a business unit. Business Cycle has
5 different stages viz.
(i) Prosperity,
(ii) Boom,
(iii) Decline,
(iv) Depression,
(v) Recovery.
Following are mainly included in
Economic Conditions of a country

I. Stages of Business Cycle

II. National Income, Per Capita Income and Distribution
of Income
III. Rate of Capital Formation
IV. Demand and Supply Trends
V. Inflation Rate in the Economy
VI. Industrial Growth Rate, Exports Growth Rate
VII. Interest Rate prevailing in the Economy
VIII.Trends in Industrial Sickness
IX. Efficiency of Public and Private Sectors
X. Growth of Primary and Secondary Capital Markets
XI. Size of Market
Economic Systems

An Economic System of a nation or a country may be

defined as a framework of rules, goals and incentives
that controls economic relations among people in a
society. It also helps in providing framework for
answering the basic economic questions. Different
countries of a world have different economic systems
and the prevailing economic system in a country affect
the business units to a large extent.
Economic conditions of a nation can be of any one of the
following type

1. Capitalism:- The economic system in which business units

or factors of production are privately owned and governed is
called Capitalism. The profit earning is the sole aim of the
business units. Government of that country does not interfere
in the economic activities of the country. It is also known as
free market economy. All the decisions relating to the
economic activities are privately taken. Examples of
Capitalistic Economy:- England, Japan, America etc.
 It provides customer his choices of product or service
(Economic democracy)
 Private ownership
 Philosophy of individualism believing in private ownership of
productive and distribution facilities.
 USA, JAPAN, UK, Are the examples of capitalistic country.
 India, France Italy and Malaysia have started shifting their
economic system towards this economic system.
Weaknesses are
 It results in inequalities of income
 Recurrence of trade cycles due to free play of market forces
 Exploitation of the poor
 People indulge in wasteful expenditure
2. Socialism:- Under socialism economic system, all the
economic activities of the country are controlled and
regulated by the Government in the interest of the
public. The first country to adopt this concept was Soviet
Russia.
3. Mixed Economy:- The economic system in which both
public and private sectors co-exist is known as Mixed
Economy. Some factors of production are privately owned
and some are owned by Government. There exists
freedom of choice of occupation and consumption. Both
private and public sectors play key roles in the
development of the country.
4. Communistic Economic System:

 Here private property and property rights to income

are abolished.
 The state owns all the factors of production and
distribution.
 Communism is also called as “Marxism”. Lenin set up
a communist state Russia later spread to China,
Czechoslovakia, Rumania, Yugoslavia, Poland,
Sweden.
 Major limitations of this system.

 It reduces individual freedom of choice due to

restriction on items to be produced.
 It fails to get total commitment of people to work and
countries welfare.
 It failed to achieve significant economic growth.
 It could not achieve equality.
 Less scope for FDI
 It imposes too many restrictions on MNCs
Communism collapsed in the former USSR. It has also
collapsed in many of the African countries. CUBA is an
example of the last remaining predominantly
communistic country.
 Countries Classifieds Based On Income

A. LOW INCOME COUNTRIES (GNP PERCAPITA LESS

THAN US $ 400)
Characteristics:
 Agri orientation
 High birth rates
 Low literacy rate
 Heavy reliance on foreign aid
 Political instability and unrest.
 Concentrated in Africa, south of Sahara
 Excessive unemployment and under employment.
 Underutilization of natural resources.
 Excessive dependence on imports
B. LOWER MIDDLE INCOME
COUNTRIES. (GNP Per capita of
between US $ 400 to 2000)
Less developed countries
 Early stages of industrialization
 Expansion of consumer Mkts
 Availability of cheap and motivated human
recourses
 Pose threat to the rest of the world in lab
intensive production due to cheap labour.
 Domestic
C. UPPER-MIDDLE INCOME COUNTRIES
(GNP per capita US $ between 2000 to 12000)

Industrializing countries
Characteristics:
 Less dependency on agriculture.
 Occupational mobility of the people from
agriculture to industry.
 People migrate from rural to urban areas.
 Increase in literacy, formal education and
increased wage rates.
 Low wage costs compared to advanced countries.
 High exports and repaid economic dev
D. High Income countries.(GNP Per capita more
than $ 12000)

Advanced/ industrialized countries-Characteristics:

 Oil rich countries are excluded from this category.
 Countries reached the income level of more than US $
12000 through the process of industrial growth are
included in this category.
 Service sector contributes more than 50% to the GNP
 Development of information sector.
 Development of intellectual technology over machine
technology.
 Emphasis on the future plans.
 These countries face the problems like pollution
excessive urbanization, economic depression.
 Product innovations are more prevalent.
Economic Policies

Government frames economic policies. Economic

Policies affects the different business units in different
ways. It may or may not have favorable effect on a
business unit. The Government may grant subsidies
to one business or decrease the rates of excise or
custom duty or the government may increase the
rates of custom duty and excise duty, tax rates for
another business. All the business enterprises frame
their policies keeping in view the prevailing economic
policies.
Important economic policies of a country are as follows:

1. Monetary Policy:- The policy formulated by the central

bank of a country to control the supply and the cost of money
(rate of interest), in order to attain some specified objectives
is known as Monetary Policy.

2. Fiscal Policy:- It may be termed as budgetary policy. It is

related with the income and expenditure of a country. Fiscal
Policy works as an instrument in economic and social growth
of a country. It is framed by the government of a country and
it deals with taxation, government expenditure, borrowings,
deficit financing and management of public debts in an
economy.
3. Foreign Trade Policy:- It also affects the different business
units differently. E.g. if restrictive import policy has been
adopted by the government then it will prevent the domestic

business units from foreign competition and if the liberal import

policy has been adopted by the government then it will affect the
domestic products in other way.
4. Foreign Investment Policy:- The policy related to the
investment by the foreigners in a country is known as Foreign
Investment Policy. If the government has adopted liberal
investment policy then it will lead to more inflow of foreign
capital in the country which ultimately results in more
industrialization and growth in the country.
5. Industrial Policy:- Industrial policy of a country promotes and
regulates the industrialization in the country. It is framed by
government. The government from time to time issues principals
and guidelines under the industrial policy of the country.
Global/International Economic Environment:-
The role of international economic environment is
increasing day by day. If any business enterprise is

involved in foreign trade, then it is influenced by not only

its own country economic environment but also the
economic environment of the country from/to which it is
importing or exporting goods. There are various rules and
guidelines for these trades which are issued by many
organizations like World Bank, WTO, United Nations etc.

Economic Legislations:-
Besides the above policies, Governments of different
countries frame various legislations which regulates and
control the business.