NCRD’S

STERLING INSTITUTE OF MANAGEMENT STUDIES

A Project Report on

GLOBALIZATION

Submitted to:
Professor Kirit Ozha
Date: 25.01.2010

Submitted by: (FYMMS - Division ‘B’)

Yogesh Agarwal - (Roll No.61)

Smitha Nair - (Roll No.80)
Sowseelya Pedamallu - (Roll No.84)
Kiran Prachand - (Roll No.85)
Krunal K. Punjani - (Roll No.86)
 Index

Sr. No. Contents Page No.

1. Introduction 1
2. Historical Development 2
3. Why Go Global? 4
4. Globalization in India 6
5. Impact of Globalization on Indian Economy 8
6. Effects of Globalization 10
7. Cultural Changes in India after Globalization 14
8. Benefits of Globalization 15
9. Problems of Globalization 16
10. Conclusion 19
Introduction
The term Globalization means integration of economies and societies through
cross country flows of information, ideas, technologies, goods, services, capital, finance
and people. Cross border integration can have several dimensions – cultural, social,
political and economic. The world is more interdependent now than ever before.
Multinational companies manufacture products across many countries and sell to
consumers across the globe. Money, technology and raw materials have broken the
International barriers. Not only products and finances, but also ideas and cultures have
breached the national boundaries. Laws, economies and social movements have become
international in nature and not only the Globalization of the Economy but also the
Globalization of Politics, Culture and Law is the order of the day. The formation of
General Agreement on Tariffs and Trade (GATT), International Monetary Fund and the
concept of Free Trade has boosted globalization.
Historical Development

Globalization has been a historical process with ebbs and flows. During the Pre-
World War I period of 1870 to 1914, there was rapid integration of the economies in
terms of trade flows, movement of capital and migration of people. The growth of
globalization was mainly led by the technological forces in the fields of transport and
communication. There were fewer barriers to flow of trade and people across the
geographical boundaries. Indeed there were no passports and visa requirements and very
few non-tariff barriers and restrictions on fund flows. The pace of globalization,
however, decelerated between the First and the Second World War. The inter-war period
witnessed the erection of various barriers to restrict free movement of goods and services.
Most economies thought that they could thrive better under high protective walls. After
World War II, all the leading countries resolved not to repeat the mistakes they had
committed previously by opting for isolation. Although after 1945, there was a drive to
increased integration; it took a long time to reach the Pre-World War I level. In terms of
percentage of exports and imports to total output, the US could reach the pre-World War
level of 11 per cent only around 1970. Most of the developing countries which gained
Independence from the colonial rule in the immediate Post-World War II period followed
an import substitution industrialization regime

Globalization, since World War II, is largely the result of planning by economists,
business interests, and politicians who recognized the costs associated with protectionism
and declining international economic integration. Their work led to the Bretton Woods
conference and the founding of several international institutions intended to oversee the
renewed processes of globalization, promoting growth and managing adverse
consequences. 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
Agreement on Tariffs and 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 Organization (WTO), for which GATT is the foundation,
has included:

• Promotion of free trade:

o Reduction or elimination of tariffs; creation of free trade zones with small

or no tariffs

o Reduced transportation costs, especially resulting from development of

containerization for ocean shipping

o Reduction or elimination of capital controls

o Reduction, elimination, or harmonization of subsidies for local businesses

•Restriction of free trade:

o Harmonization of intellectual property laws across the majority of states,

with more restrictions

o Supranational recognition of intellectual property restrictions (e.g. patents

granted by China would be recognized in the United States)
Why Go Global?

Globalization has become the catch phrase throughout the world. Globalization means
integrating the economy with the global economy. The reasons of going global are
definitely hike in profits and earning name and fame.

The attractiveness of going global are cited as follows:

1. Reductions in the cost of communication are facilitating the shift of backroom
operations to the developing world. The multinational corporation, already operating with
a global outlook with regard to the location of its markets and the sources of supply, is
also operating globally in terms of sources of finance and physical location.

2. With reduced transport costs, location is becoming less important and political and
economic stability, a well-trained labour force, and strong institutional underpinnings are
emerging as the key drivers of prosperity.

3. These developments are also leading an increasing number of governments around the
globe to be more assertive in pursuing competitiveness-enhancing policies.

4. At the World Economic Forum, we understand national competitiveness as the set of

factors, policies and institutions that determine the level of productivity of a country.
Raising productivity meaning making better use of available factors and resources is the
driving force behind the rates of return on investment which, in turn determines the
aggregate growth rates of an economy.

Incredible India
“Where the world has not been broken up into fragments by narrow domestic
walls....

Where tireless striving stretches its arms towards perfection;

Where the clear stream of reason has not lost its way into the dreary desert sand of
dead habit….

Where the mind is led forward by thee into ever-widening thought and
action……….

Into that heaven of freedom,

Father let my country awake”

This is the prayer coined by Rabindranath Tagore and this is where India is tuning her
actions. India is stretching her arms of business to every nook and corner of other nations
and so is she letting Indians have the taste of the products produced outside the nation.
The growth of the business marked the establishment of Single - man business to
Partnerships, Private Companies, Public Companies and so on. Then India took over to
Business Process outsourcing, Knowledge outsourcing and globally distributed work.

Gone are the days when lecturers start introducing the term ‘Business’ with barter system.
Now we are in a stage where we don’t need money to finish a transaction since there are
debit or/and credit cards for the same. India is not afraid of repetition of the History – The
East India Company invading the Nation and capturing its resources. Valid trade
agreements are in force to safeguard the Nation from all sorts of dangers.
Globalization in India
‘Be Indian Buy Indian’ is not glittered statement these days. In early 1990’s the Indian
economy had witnessed dramatic policy changes. The idea behind the new economic
model known as Liberalization, Privatization and Globalization in India (LPG), was
to make the Indian economy one of the fastest growing economies in the world. An array
of reforms was initiated with regard to industrial, trade and social sector to make the
economy more competitive. The economic changes initiated have had a dramatic effect
on the overall growth of the economy. It also heralded the integration of the Indian
economy into the global economy.

The Indian economy was in major crisis in 1991 when foreign currency reserves went
down to $1 billion and inflation was as high as 17%. Fiscal deficit was also high and
NRI's were not interested in investing in India. Then the following measures were taken
to liberalize and globalize the economy.

Steps Taken to Globalize Indian Economy

1. Devaluation:

The first step towards globalization was taken with the announcement of the
devaluation of Indian currency by 18-19 percent against major currencies in the
international foreign exchange market. In fact, this measure was taken in order to
resolve the BOP crisis.

2. Disinvestment:

In order to make the process of globalization smooth, privatization and liberalization

policies were moving along as well. Under the privatization scheme, most of the public
sector undertakings have been sold to private sector.

3. Allowing Foreign Direct Investment (FDI):

FDI was allowed in a wide range of sectors such as Insurance (upto 26%),
development of integrated townships (upto 100%), defence industry (upto 26%), tea
 plantation (upto 100%) subject to divestment of 26% within five years to FDI);
enhancement of FDI limits in private sector banking, allowing FDI up to 100% under
the automatic route for most manufacturing activities in SEZs; opening up B2B e-
commerce; Internet Service Providers (ISPs) without Gateways; electronic mail and
voice mail to 100% foreign investment subject to 26% divestment condition; etc.

4. NRI Scheme:
The facilities which were available to foreign investors were also given to NRI's. In
addition,
Government extended some concessions especially for NRIs and overseas corporate
bodies having more than 60% stake by NRIs.

5. Throwing Open Industries Reserved For The Public Sector to Private

Participation. Now there are only three industries reserved for the public sector.

6. Abolition of the (MRTP) Act, which necessitated prior approval for capacity
expansion.

7. The reduction of the peak customs tariff from over 300 per cent prior to the 30 per
cent rate

8. Financial sector reforms:

Wide-ranging financial sector reforms were done in the banking, capital markets, and
insurance sectors, including the deregulation of interest rates, strong regulation and
supervisory systems, and the introduction of foreign/private sector competition.

Impact of Globalization on Indian Economy

Globalization in India had a favorable impact on the overall growth rate of the economy.
Some features of the overall performance of the Indian economy after liberalization in
1991 are:

• The rate of growth of GDP has been 7–8%, while it was 3–4% in the previous decades,
when policies were protectionist. Various sectors of the economy registered strong
growth, as shown in Table 1.

• There has been considerable increase in the total foreign exchange reserves. At present,
India has the sixth largest foreign exchange reserves in the world.

• India has become a major exporter of automotive components, engineering products

textiles and software.

• The long-term rate of inflation has been around 4%.

• Food production has increased considerably, which can be attributed partly to increased
trade.

• The growth of the various sectors has also opened up new employment opportunities
which have put a positive impact on the overall poverty situation of the country.

Apart from this, mushrooming industries like cell phones, automobiles, electronics,
soft drinks, fast food or services, via MNCs have created new avenues. It has given an
opportunity to the raw material suppliers to prosper too. On the other hand, the top Indian
companies have been able to benefit from the increased competition by investing in new
 technology and production methods and raised their production standards. Globalization
has enabled some large Indian companies to emerge as multinationals themselves. Some
of the Indian companies which are spreading their operations world-wide are Tata-Motors
(automobiles), Infosys (IT), Ranbaxy (Medicines), Asian Paints (Paints). It has created
new opportunities for companies providing services, particularly those involving IT.

But for a large number of small producers and workers, Globalization has posed
major challenges. Globalization and the pressure have also posed a threat to the worker’s
jobs, as they are not secure any more. Workers are low and workers are forced to work
overtime to make both ends meet. The workers are sometimes denied their fair share of
benefits which is brought about by Globalization.

Effects of Globalization

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

• Political - Some use "globalization" to mean the creation of a world government,

or cartels of governments (e.g. WTO, World Bank, and IMF) which regulate 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 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 fiber optic
communications, satellites, and increased availability of telephony and Internet.

• Language - The most popular language is English.

o About 75% of the world's mail, telexes, and cables are in English.
 o Approximately 60% of the world's radio programs are in English.

o About 90% of all Internet traffic is using English.

• Competition - Survival in the new global business market calls for improved
productivity and increased competition. Due to the market became worldwide not
specific area, there are many industries around the world. Industries have to
upgrade their products and use technology skillfully for facing the competition and
increasing their competitiveness.

• 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.

• 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.

• Social (International cultural exchange) - increased circulation by people of all

nations with fewer restrictions.

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

o Greater immigration, including illegal immigration

o Spread of local consumer products (e.g. food) to other countries (often

adapted to their culture).

o World-wide 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 World-wide 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.

• Technical

o 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
 o Increase in the number of standards applied globally; e.g. copyright laws,
patents and world trade agreements.

• Legal/Ethical

o The creation of the international criminal court and international justice

movements.

o Crime importation and raising awareness of global crime-fighting efforts

and cooperation.

Cultural Changes in India after Globalization

1. Access to television grew from 10% of the urban population to 75% of the urban
population.

2. Cable television and foreign movies became widely available for the first time and
have acted as a catalyst in bulldozing the cultural boundaries.
 3. Indian youths leaving education in mid-way and joining MNC’s.

4. Extension of internet facilities even to rural areas.

5. In place of old cinema halls, multiplex theatres are coming up.

6. Old restaurants are now replaced by Mc. Donald’s. Fast food and Chinese dishes
have replaced juice corners and Parathas.

7. More availability of cheap and filthy material (CD's or DVD's of Hollywood movies,
porn movies, sex toys, foreign channels like MTV) in the name of liberalization.

8. Scientific and technological innovations have made life quite comfortable, fast and
enjoyable.

9. More inflow of money has aggravated deep rooted problem of corruption.

10. More scandals and scams compared to pre-globalization era.

11. In India, land-line or basic phone was a prestige symbol few years back but now you
find people riding bicycle with a mobile in hand , talking or listening

12. There has been an increase in the violence, particularly against women.

Benefits of Globalization

1. There is an International market for companies and for consumers there is a

wider range of products to choose from.

2. Increase in flow of investments from developed countries which can be used for

economic reconstruction.
 3. Greater and faster flow of information between countries and greater cultural

interaction has helped to overcome cultural barriers.

4. Technological development has resulted in reverse brain drain in developing

countries.

5. Globalization has created the concept of outsourcing. Work such as software

development, customer support, marketing, accounting and insurance is outsourced to

developing countries like India. So the company that outsourced the work enjoys the
benefit of lower costs because the wages in developing countries is far lower than that
of developed countries.

6. The workers in the developing countries get employment.

7. Developing countries get access to the latest technology.

8. Increased competition forces companies to lower prices. This benefits the end

consumers.

9. Increased media coverage draws the attention of the world to human right

violations. This leads to improvement in human rights.

Problems of Globalization

Some times integration of economies and societies can prove expensive, which can be
understood through following points.

• Adverse effects on Environment

Our current trade system is oppressive, unfair and is destroying our environment.
Several agreements brokered by the WTO were notable for their exceptional bias
towards big business and wealthy countries - specifically, the Agreement on
Agriculture (AOA) and the Trade Related Intellectual Property Rights (TRIPs)
Agreement. Many times polluting corporations also take advantage of weak regulatory
rules in developing countries.

• Difficulties for Small Players

Currently there is the tendency for more power to be concentrated globally in the
hands of fewer businesses. In such a competitive environment it is very difficult for
small business to compete with large corporations because large corporations are able
to reduce costs and thus prices.

• Speculations

The current trade system has promoted deregulation of the investment sector of the
financial market. This has stimulated increasing movement of large amounts of short-
term capital, which has resulted in increasing economic instability and insecurity in
developing countries. Speculators have been able to withdraw their investments at
short notice and undermine economies, particularly in countries which have a
relatively immature financial market. This has precipitated economic crises in some
South East Asian countries and increased the number of people in poverty.
For example, in Malaysia in 1997, capital flowing out of the country resulted in the
Malaysian stock market losing 40% of its value in six months. Furthermore
deregulation has resulted in fluctuating commodity prices in global markets, which
has added to increasing economic insecurity.

• Different Wage Standards

There are different wage standards for developing and developed countries; as a result
a technology worker may get more value for his work in a developed country than a
similar worker in a developing country.

• Patenting

Indigenous peoples in developing countries have accumulated knowledge in areas

such as plant breeding for hundreds or thousands of years. Under the rules of free
trade agreements transnational companies can expropriate this knowledge and claim
traditional plant varieties or plant uses as their own.

• Slowdown of An Economy Affect Other Countries too

This was recently experienced, when the sub-prime mortgage market crisis in US
affected financial markets and institutions all over the globe. Worries about the sub-
prime crisis hit global Stock markets and the Real estate market very badly. It led to
rise in Unemployment and Poverty level.

Slowdown in the US economy affected India because:

• Indian companies have major outsourcing deals from the US

• India's exports to the US have also grown substantially over the years.
 • Indian companies with big tickets deals in the US are seeing their profit margins
shrinking.

• Spread of Diseases

Restriction less international travel and influx of foreign visitors generate greater
chances of spread of diseases carried accidentally between countries. e.g. ’Swine Flu’
in the recent past.

Conclusion

India is a large country with a complex social and economic fabric, and cannot take a step
backward by abandoning the benefits achieved by participating in globalization. The
lesson of recent experience is that a country must carefully choose a combination of
policies that best enables it to take the opportunity - while avoiding the pitfalls. Policies
that nurture private enterprise, protect private property and allow competition in markets
have become salient features of the contemporary world economy. It is through such
measures that the Indian economy has grown very rapidly, and is poised to become one of
the largest economies in the world in the next decade.

…………………