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Subject BUSUNESS ECONOMICS
Paper No and Title 11, Global Business Environment
Module No and Title 1, Globalization
Module Tag BSE_P11_M1
BUSINESS PAPER No. : 11,GLOBAL BUSINESS ENVIRONMENT
ECONOMICS MODULE No. : 1,GLOBALIZATION
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TABLE OF CONTENTS
1. Learning outcomes
2. Introduction
3. Concept of Globalization
4. Globalization of Business
5. Factors influencing Globalization
6. Support and Criticism of Globalization
6.1 Support
6.1.1 Proponents of Globalization
6.2 Criticism of Globalization
6.2.1 Opponents of Globalization
7. Summary
BUSINESS PAPER No. : 11,GLOBAL BUSINESS ENVIRONMENT
ECONOMICS MODULE No. : 1,GLOBALIZATION
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1. Learning Outcomes
After studying this module, you shall be able to
Know about the term Globalization
Learn how globalization affects a country and its people
Identify the factors that influence the spread of globalization
Evaluate the positive and negative aspects of globalization
Analyze whether the globalization is good or bad for a particular country.
2. Introduction
The world is getting more and more interconnected. In today’s world, because of this
interdependence, economic, environmental, social and political issues are no longer limited to the
national level. Sometimes it is an opportunity while sometimes it is a new challenge. The
introductions of information technology and communication techniques along with liberalization
of trade and investment in most countries have accelerated globalization process. For instance- a
product A is being manufactured in a country X with parts imported from many other countries
and the product is sold and used across the world.
Globalization is a complex term as used in international business, and has wider meaning.
3. Concept of Globalization
‘Globalization’ means ‘the reduction of the difference between one economy and another’ so
that trade within and between different countries becomes increasingly similar all over the world.
Therefore, Globalization is a process of going to a more interconnected world.
BUSINESS PAPER No. : 11,GLOBAL BUSINESS ENVIRONMENT
ECONOMICS MODULE No. : 1,GLOBALIZATION
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Globalization is bringing the countries and the people of the world together. With the emergence
of internet facility, the transaction costs of transferring ideas and information have fallen
tremendously and have made globalization much more feasible and desirable.
Globalization can be defined as the process of convergence and amalgamation of political,
cultural, financial and economic system across the world. Globalization thus could be:
1. Economic Globalization: It means increasing interdependence amongst national,
regional and local economies and economic integration among the world through cross
border flow of goods, services, capital and technologies. In the globalized economy,
national boundaries and distances have substantially diminished with the removal of
market access obstacles. Let us have a look at the definition of economic Globalization:
Dictionary of Trade Policy Terms, WTO- The increasing integration of national
economic systems through growth in international trade, investment and capital.
2. Financial Globalization: Liberalization has resulted in financial globalization which can
also be defined as free movement of finance across national boundaries without facing
any restrictions. Due to liberalization, there has been a spurt in cross-border capital flows.
3. Cultural Globalization: In simple words, cultural Globalization refers to the
transmission of ideas, meanings and values across world space. Globalization has
accelerated the development of global pop culture.
4. Political Globalization: Political globalization refers to the convergence of political
activities around the world.
4. Globalization of Business
Globalization may affect businesses throughout the world. Though, its effect can be different, it
may be stronger on some businesses, especially large businesses, but weaker on others. In the
initial years of human history, people remained confined to their communities, villages or local
regions. There were hardly any formal barriers, such as tariffs or non- tariffs restrictions, for the
movement of goods. The effect of this bundle of interconnected chains i.e. globalization on
business can be expressed in a following manner:
1. Level of competition: Deregulations has allowed flowing of foreign investment in the
country resulting in more and more foreign businesses entering in local markets, so the
competition level has increased.
2. Awareness among consumers: Due to varieties of available products, consumers have
become very much selective on such essentials as quality, service and price. They can
buy the best product at best price.
BUSINESS PAPER No. : 11,GLOBAL BUSINESS ENVIRONMENT
ECONOMICS MODULE No. : 1,GLOBALIZATION
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3. Benefits of economies of scale: By selling across many continents business can acquire
economies of large scale of production, which in turn reduces cost of production.
4. Flexibility in location decision: The most favorable location of business operation or
production can be decided independently. This allows them to reap the benefits of low
cost labour and other resource charges.
5. Increasing joint ventures and mergers: Different business can be joined together to
produce goods and services so that they can have access to bigger markets and associated
cost advantages.
5. Factors influencing Globalization
There exist numerous factors that affect the spread of Globalization; few of these are as
follows:
1. Technological enhancement: Globalization has resulted in advancement of
technology. Today’s modern communication technology and mass media like radio,
T.V, phones or internet are global standards. With this positive change in technology,
the data can be transferred easily from one place to another.
2. Cheaper and faster transportations: Due to continuous improvement in
transportation, goods can be transferred from one place to other in minimum period
of time which has improved the developing environment of globalization.
3. Control on capital exchange: The movement of capital from one country to another
was also controlled, and these controls were abolished over the same period. This
allowed businesses to move money from one country to another in search for better
business return.
4. Expansion of trade: Due to abolition of barriers to trade, trade became cheaper and
therefore more appealing to business. The international institutions like World Bank
and International Monetary Fund have also contributed in the expansion of trade,
which is a major factor in the promotion of Globalization.
5. Expansion of competition &markets: Competition plays an important role in an
economy. Due to favorable business atmosphere, new markets have opened up in
various countries, giving more and bigger markets to the companies. They have also
gained due to higher growth rates and the emergence of a large number of middle
class populations who has money to spend in the market in many developing
countries like India.
BUSINESS PAPER No. : 11,GLOBAL BUSINESS ENVIRONMENT
ECONOMICS MODULE No. : 1,GLOBALIZATION
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6. Support & Criticism of globalization
People have varieties of opinions about the process of Globalization. Some find it beneficial for
the development of a particular country whereas, there also exists many people who completely
oppose it.
6.1 Arguments in Support of Globalization :-
In general, Globalization is considered as a positive force especially in the field of corporate
businesses, particularly in the area of finance.
For example- per capita GDP growth showed an upward trend from 1.4 % a year in 1960 and 2.9
% a year in the 1970s to 3.5 % in the 1980s and 5.0 % in 1990s.
1. Import- export – After liberalization, import- export becomes more convenient and hence
it affects the Indian economy favorably.
2. Industrialization:- The number of industries have increased after the liberalization. The
impact of increasing industries can be observed in rapidly increasing growth rate since
1991.
3. Increase in foreign investment:- After liberalization the multinational companies have
expanded their investment in India. These companies have shown their interest in different
sectors of the economy. Likewise many Indian companies have become multinational
companies.
4. Expansion of service sector:- The most important effect of globalization in India is the
expansion of service sector . Globalization has increased the share of service sector in
GDP.
5. Multinational Companies:- Multinational companies play a vital role to bring different
countries closer. Factories for production in different countries are set up by these
companies. Goods of international level are produced by these countries.
6. Economic liberalism and free trade :-. Globalization is viewed as the beneficial spread
of capitalism and liberty. Higher degree of political and economic freedom in the form
of free trade in the developed world is an end in itself which has produced higher levels of
overall material wealth. Demographic changes in the developing world after international
integration and active economic liberalization resulted in rising general welfare and also
reduced the level of inequality.
BUSINESS PAPER No. : 11,GLOBAL BUSINESS ENVIRONMENT
ECONOMICS MODULE No. : 1,GLOBALIZATION
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6.1.1- Proponents of Globalization:
Economist Paul Krugman is a firm supporter of free trade and globalization
who disagrees with many opponents of globalization. He argues that many of
them lack a basic understanding of comparative advantage and its importance in
today's world.
British economic journalist Martin Wolf says that incomes of poor developing
countries, with more than half the world’s population, grew significantly faster
than those of the world’s richest countries that remained relatively stable in their
growth, leading to incidence of poverty and reduced international inequality.
6.2 Criticism of Globalization:-
This is not true that India has only benefited by globalization. The reality is that the
globalization has created several problems as well. The issues associated with globalization
are as follows:
[Link] on small producer:-Globalization adversely affects the small scale industries in
India. The small industries find it difficult to compete with the multinational companies. The
condition of these industries is very poor because of globalization. This is notable that after
agriculture most of the people are engaged in small scale industries in India.
2. Effect on employment level:- The jobs of labour are not secure due to globalization. The
factory owners provide temporary employment in order to minimize costs. The labour has to
work for long hours in the factories. Globalization also permitted corporations to shift
manufacturing and service jobs from high cost locations, thereby creating economic
opportunities with the most competitive wages and worker benefits (a shift to outsourcing).
BUSINESS PAPER No. : 11,GLOBAL BUSINESS ENVIRONMENT
ECONOMICS MODULE No. : 1,GLOBALIZATION
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3. Uneven distribution of benefits: - The globalization has not been beneficial to all. The
poor and weaker sections of the society are far away from the benefits of globalization. While
it is universally accepted that free trade encourages globalization among countries, some
countries tend to protect their domestic producers. The primary exports of poor countries are
usually agricultural productions. Large countries subsidize their farmers (e.g., the EU’s
Common Agricultural Policy) for foreign crops.
4. Influence of developed countries:- The globalization is implemented by the directives of
World Trade Organization. The developed countries affect such types of organization more
than developing countries and got benefitted more than developing countries.
5. Regional disparities: Globalization causes increase in regional disparities. Developing
countries have not received benefits as much as Developed countries have. Similarly within
the country the developed regions are benefited more than backward region.
6. Impact on diversity of culture: - Few critics of globalization argue that it affects the
cultural diversity adversely. Introduction of a culture by a dominating country through
globalization can become a threat to the local culture diversity. Some claim that globalization
might actually lead to Americanization or Westernization of culture, wherein the
overpowering cultural concept of politically and economically powerful Western countries
spread and cause harm to local cultures.
7. Gender inequality in labour force: -Though Globalization has increased women’s reach
to employment but the goal of lowering gender inequalities remains distant and hard to attain
without capital regulation and a re-orientation and expansion of the state’s role to fund public
goods and to provide a social safety net.
6.2.1 Opponents of Globalization
BUSINESS PAPER No. : 11,GLOBAL BUSINESS ENVIRONMENT
ECONOMICS MODULE No. : 1,GLOBALIZATION
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Joseph Stiglitz says that countries that have pioneered globalization with their own efforts
have succeeded in benefitting from globalization, while countries which were
economically backed by international institutions like IMF have gained very little from
globalization.
BUSINESS PAPER No. : 11,GLOBAL BUSINESS ENVIRONMENT
ECONOMICS MODULE No. : 1,GLOBALIZATION