Globalization trends & challenges

What is globalization??

Globalization refers to the shift towards a more integrated and interdependent world economy

What is globalization???

Integrating the economy with rest of the world..

Removal of restrictions on foreign trade, investment, innovations in communication and transport system..

Why do firms go global?

They get access to more markets and customers

They can create better ‘brand’ by way of expansion so that the acceptance at home market also increases

There could be a saturation point in the domestic market

Primary factors driving globalization

Increased international tradeThe growth of multinational corporationsThe internationalization of financeThe application of new technologies in all

these operations, especially computer and other information technology

Macro factors driving globalization

The decline in trade barriers to the free flow of goods, services and capital

The technological change, particularly the dramatic developments that have occurred in recent years in communications, information processing and transportation technologies.

Globalization- phases & indicators

3 stages of globalization:1870-19141945-19801980 onwards

1870-1914- 1st wave of globalization

Drivers: Falling transportation costs Lowering of tariff barriersImpact: Exports as a share of world income almost

doubled Total labor flows nearly 10% of the world

population Growth rate in per capita income of the world

increased from 0.5% to 1.3%

1914-1945: Retreat to nationalism

Protectionism Anti-immigrant sentiment

1945-1980: Second wave of globalization

Drivers: Lack of growth with protective policies in

nationalism Reduction in transportation cost Reduction of trade barriers & tariffs

Impact: Overall trade doubled Economies of scale for many MNC’s Greater inequality between developed &

developing countries

1980 onwards..

Drivers:A large group of developing countries

actively involved in global businessInternational migration and capital

movements, which were negligible during second wave of globalization, have become substantial

1980 onwards..

Impact:Movement towards free tradeCreation of a global labor forceEconomic interdependence among

countriesSignificant increase in cross border

transactionsCapital flows to developing countries

increased over 10 times

1980 onwards..

Impact…. Indian software industry serves the needs of

Europe and American markets China leverages in cost-effective

manufacturing to lead consumer goods Globalization of financial markets Interest rates, stock markets, currency values

are all interconnected Significant & sustained growth in the world

GDP

Procedures of globalization

According to WB & IMFReduction of budgetary subsidiesRemoval of subsidies for agricultural

inputsPursuance of liberal economic policiesPromotion of foreign investmentPrivatization of banking sector

Procedures of globalization

According to WTO:Pursuance of free tradeRemoval of restrictions on MNC’s

Globalization indicators

Foreign direct investmentForeign portfolio investmentTrade global governance by international

organizations like WTO-Deepening economic integrations

-Reduction of import duty rates

-Increasing cooperation between countries for foreign investment

Globalization indicators

Business Restructuring-flexibility and closeness to market Flexible, just in time production system Moving production closer to the consumer and

securing access to the local market Diversification of operations

Balance of payment at a country level

Trends of globalization in Indian economy..

Indicator 1990-91 1995-96 2001-02

1. Foreign trade size

46.4 76.0 104.2

2. Current account size

61.6 105.9 161.3

3. Capital account size

33.0 39.3 90.3

4. Total BOP size

48.2 69.2 147.4

Challenges of Globalization

Unbalanced distribution of benefits between countries & within countries

Financial volatilityMore human insecurityDrain of basic raw materials through low

value added exportsThreat to domestic firmsExternal technological dependence