International Business Concepts: Globalization

Globalization
Globalization in its literal sense is the process of transformation of local and regional phenomena into global ones. It can be described as a process by which the people of the world are unified into a single society and function together.
This process is a combination of economical, technological, sociocultural and political forces.
GLOBALISATION PERSPECTIVE

Transformation from national and regional markets into ‘global’ market without national boundaries
‘Free Flow’ envisaged among WTO member countries includes goods, services, technology, Foreign Direct Investment, human-capital and Intellectual property
However, regional trade blocks like EU, ASEAN, NAFTA, GCC and MERCOSUR polarize world trade and commerce, limiting market access for India based companies, since India is not a member of any of these trade blocks

World Trade Organization (WTO) promotes free trade among countries. Based in Genva, Switzerland. Currently 152+ countries are members of WTO.
Trade Blocks: In trade blocks free trade happens among the member countries. Common external tariffs are imposed on non member countries. In trade blocks countries promote trade among themselves. India is not a part of major trade blocks so limiting market access to these countries. But the markets can be accessed through FDIs.
GLOBALISATION IMPACT
Globalization is cutting across all product and service sectors worldwide forcing industries and corporations to re-structure and re-think their strategies in the face of shortening product and technology life cycles, increasing scale of operations required for global competitiveness while simultaneously requiring flexible manufacturing systems for quicker deliveries and customization.
Due to Globalization technological lifecycles are changing. Product life cycles are getting shortened.So simultaneous launch in different countries are required. Here markets are large and scale economies are also at a global level.
Effects of Globalization
Globalization has various aspects which affect the world in several different ways.
Industrial: Emergence of worldwide production market and movement of materials and goods between and within national boundaries
Financial: Emergence of worldwide financial markets and better access to external financing for borrowers
Economical: Freedom of exchange of goods and capital.
Political: Better relationship among governments and guarantees rights arising from social and economical globalization.
Competition: Survival of the fittest calls for improved productivity and competition
Technical: Development of a global telecommunications infrastructure and greater trans border data flow using technologies.
IMPACT OF TECHNOLOGY ON A GLOBAL SCALE

Efficient scale for production of color TVs rose from 50,000 sets/ year in 1960 to 500,000 sets in early 1980s.
Meanwhile global scale economies in R&D & marketing (due to giant retail chains) were also increasing, raising breakeven volumes up further.
Breakeven volume now 2.5 to 3 million sets/ annum for global competitiveness I.e. increase of over 40 times volumes in 1960

Importance of Education & HRD in Globalization

Globalization needs to have not just a human face but also a “conscience” which recognizes the responsibility and accountability to all fellow human beings.

Focus therefore is necessary on education to sustain the benefits of globalization and promote balanced growth for all at the national level
At the corporate level focus on HRD is essential, in particular development of professionals for a global mindset, current generation skills & proficiency in technology and skills for achieving global levels of productivity in all operations, is essential
It is now possible to deliver education electronically through distance learning, as has been shown in India by recent initiatives of certain universities in the U.S
This opportunity for “continuing education” through “distance learning” could help professionals in India & their organizations to gear up for the globalization challenge

Drivers of Globalization & the Emerging Trends
KEY DRIVERS

Increasing availability of capital ‘seeking optimal long term returns’ across national boundaries & integration of capital markets worldwide
WTO mandated liberalization and phased reduction in trade & investment barriers among WTO member countries
Advances in information & communications technology (ICT) enabling reliable & speedy information flow worldwide
Technological advances revolutionizing manufacturing & service sectors thereby necessitating global ‘efficiency’ & productivity gains through global scale

EMERGING TRENDS

Increasing dominance of global brands
Increasingly effective global supply chains of transnationals & other corporations
Greater focus on R&D & technology for development of globally adaptable world class products & flexibility for adapting to shorter life cycles
Greater use of flexible manufacturing systems for J.I.T deliveries & customisation

GLOBALISATION – Opportunities & Threats

The WTO mandated global free trade from 1 January, 2005 is a significant opportunity for companies based in India to become “global manufacturing hubs”/ software development parks/ Business Process Outsourcing” centers catering to global giants and customers worldwide.
While the annual global trade in merchandise and services is currently U.S $ 7.5 Trillion, the global opportunity for annual business open to global competition in products, services and assets, is estimated at over US $ 21 Trillion.
SURVIVAL OF THE FITTEST - Only globally competitive units/ companies will survive even in their domestic economies.

Emerging Opportunities from Outsourcing Merchandise, Goods, Components for Indian Companies
Outsourcing annual opportunity in Europe alone is estimated at
over US $ 250 Billion and in Asia US $ 300 Billion
A) Computer Software & Solutions

A recent McKinsey & Co./ NASSCOM report has estimated India’s potential for exports of I.T services & software at US $ 31 Billion by 2008
B) Technology Services

India with its brainpower of engineers, technologists and other professionals is eminently poised to offer specialised technology services in high technology specialised areas like ‘Contract Research’

C) IT Enabled Services

The recent McKinsey & Company/ NASSCOM survey on worldwide potential of IT Enabled Services at US $ 142 Billion by 2008
D) Hospitality Sector Services
Several service areas like reservations & Accounting Services could be outsourced to Indian Companies.
E) Medical Services
Hospitals are poised for opportunities in the areas of administration, nursing, pharmacy, physiotherapy, respiratory therapy & bio-medical engineering services

GLOBALISATION - Challenges for Indian Companies

Intense international competition in a “borderless” free market. Dominance of global brands/ global technology leaders and Transnationals with deep pockets
Need marketing/ customer support network & supply chain in major trade blocks like EU, NAFTA, ASEAN & MERCOSUR. Prohibitive entry cost for EU/ NAFTA (accounting for 70% of world trade)& uncertainties of MERCOSUR countries.
Attract & retain talented and competent professionals with global mindset. Innovation, R&D and “core competence” requires best minds and committed and competent “hands"

Prerequisites for Sustainable Competitive Advantage

In-depth knowledge and insight/ understanding of the relevant global markets including customers, competition and technology trends
Contemporary product/ service design/ features for the global/ niche market segments chosen through market led R&D and consistently world class products/ service quality
‘Scale’ through ‘selective’ manufacturing backed by global supply chain
Distribution and customer support/ service covering effectively all relevant countries/ market segments
Information Technology (IT) capability for reliable and speedy information flow for tracking shipments/ service flows/ documentation and financial transactions worldwide

STRATEGIC ALLIANCE with Global Leaders

Achieving & sustaining global competitiveness may need co-operation with a global leader with complementary skills and technology strength or marketing reach worldwide. Some Indian companies offer the global partner a low cost manufacturing base and a large Indian market. It would also enable the Indian companies have access to management practices of the global leader & some of its strategic information & knowledge base
The combination of the global partner’s technology/ marketing strength & the Indian company’s low cost manufacturing capability would enable the ‘alliance’ to enter & sustain new markets worldwide.

Building Global Competitiveness - Safeguards in International Business

Prudent choice of customers, suppliers, shipping agents & business associates
Use of credit rating services for client evaluation
Risk cover for countries with political/ economic uncertainty
Total compliance with & documentation for all statutory requirements
Forex Risk cover for exports & imports
‘Watchdog’ like monitoring of each export/ import./ international business transaction till financial & statutory closure

Major Challenges for Indian based Companies
A) GLOBAL UNCERTAINTIES & RISKS
1. A cost effective & comprehensive risk cover for :

country risk in terms of political & economic risk
currency risks
the client risk
distribution/ logistics risk for emerging markets

2. Impact of perils like theft, pilferage, accidents/ mishaps for cargo gets magnified in case of developing countries due to longer supply chain/ uncompetitive logistics and inadequate distribution and other infrastructure
B) LOGISTICS & INFRASTRUCTURE
India’s infrastructure in terms of roads, ports, airports, storage facilities at ports and airports including for inflammable cargo as also cold storages in transit and at shipment points is inadequate compared to India’s leading competitors like U.S, European countries, Singapore, Hong Kong, Japan, Taiwan & S. Korea. This results in higher freight costs and longer delivery.
C) R&D AND TECHNOLOGY NOT IN TUNE WITH GLOBAL TRENDS
Innovation and technology are key business drivers for long term success.

India’s Economic & Industrial Perspective in the Fifties & the Sixties

India is a ‘planned’ economy envisaging co-existence of public sector, private sector & co-operative sector
The focus immediately after our independence was on self-reliance through import substitution. Substantial investments were made by the Government in the public sector for basic industries like steel & fertilisers This focus on industrialisation was necessary then as India in 1947 was only an exporter of raw materials like iron ore & agro-commodities like cotton
The protected industrial environment of the fifties & sixties by way of industrial licensing and quantitative restrictions and tariffs on imports nurtured an inward looking private sector with fragmented capacities
There was no necessity or incentive for exports in view of sufficient demand in the protected Indian market, which virtually shut out all but “essential” imports

India’s Economic & Industrial Perspective in the Seventies & the Eighties

Industrial development & technology up gradation in India made significant strides including through transfer of technology from abroad by way of technical collaborations and joint ventures.
However, the capacities in the private sector continued to be fragmented due to the MRTP Act, which inhibited Indian corporate sector from planning global scale operations even in sectors with comparative advantage for India
For the first time exports began to be recognised by the Government as important in view of the foreign exchange requirement for India’s essential imports like petroleum products, fertilisers, edible oil and “high tech” engineering products & services
Export house scheme introduced in early seventies followed by trading house scheme in1978 for the first time encouraged merchant exporters recognising their ability in effectively reaching foreign shores for promoting India’s exports India’s Liberalisation during early Nineties & the WTO Mandate.
With the introduction of economic reforms in India in 1991, Indian economy has opened up to the world economy, thereby changing significantly industrial and competition scenario in India
Competition within India increased significantly due to inflow of foreign investments & technology and creation of additional capacities with current generation technology from abroad during the late nineties
The Indian industry & commerce recognised at the turn of the millenium that WTO mandated free trade by 1/1/2005 means “survival of the fittest” & gearing up for global competition a necessity

BUSINESS ENVIRONMENT IN INDIA TODAY

Ongoing Economic Reforms
Services Sector opening up
India proactively seeking Regional and Bilateral trade agreements
Continuing encouragement for international trade and investments
Higher disposable income leading to rising consumer expectations
Industry buoyant

SOURCES OF INDIA’S COMPARATIVE ADVANTAGE

Strategic location
Long coastline
Climate
Rich in natural resources
Large tracts of agricultural and forest lands
Large and diverse livestock population
Strong Human Resources base
· Large and rising middle class
· Large pool of qualified and competent English speaking professionals
· Inexpensive Human Resources
Cultural diversity and heritage
Scenic beauty