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Globalisation-Economic Transition In India - levels , stages,
Business Environment and Law-Business And Its Environment
Globalisation-Economic Transition In India - levels , stages,
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India’s economic integration with the rest of the world was very limited because of the restrictive economic policies followed until 1991. Indian firms confined themselves, by and large, to the home market.
Globalisation
India’s economic integration with the rest of the world was very limited because of the restrictive economic policies followed until 1991. Indian firms confined themselves, by and large, to the home market.
Foreign investment by indian firms was very insignificant. With the new economic policy ushered in 1991, there has been a considerable change. Globalization has, in fact, become a buzzword with indian firms now and many are expanding their overseas business by different strategies.
Globalization may be defined as “ the growing economic inter-dependence of countries worldwide through increasing volume and variety of cross border transactions in goods and services and of international capital flows, and also through the more rapid and widespread diffusion of technology”.
Globalization may be considered at two levels .Viz,
India’s economic integration with the rest of the world was very limited because of the restrictive economic policies followed until 1991. Indian firms confined themselves, by and large, to the home market.
Foreign investment by indian firms was very insignificant. With the new economic policy ushered in 1991, there has been a considerable change. Globalization has, in fact, become a buzzword with indian firms now and many are expanding their overseas business by different strategies.
Definition Of Globalization:
Globalization may be defined as “ the growing economic inter-dependence of countries worldwide through increasing volume and variety of cross border transactions in goods and services and of international capital flows, and also through the more rapid and widespread diffusion of technology”.
Levels Of Globalization:
Globalization may be considered at two levels .Viz,
- Macro level (i.E., Globalization of the world economy) and
- Micro level (i.E., Globalization of the business and the firm).
Globalization of the world economy is achieved, quite obviously, by globalising the national economies. Globalization of the economies and globalization of business are very much inter-dependent.
There are five different stages in the development of a firm into global corporations.
The first stage is the arm’s length service activity of essentially domestic company, which moves into new markets overseas by linking up with local dealers and distributors.
In this stage , the company takes over these activities on its own.
In the next stage, the domestic based company begins to carry out its own manufacturing, marketing and sales in the key foreign markets.
In the fourth stage, the company moves to a full insider position in these markets, supported by a complete business system including R & D and engineering.
This stage calls on the managers to replicate in a new environment the hardware, systems and operational approaches that have worked so well at home.
In the fifth stage, the company moves toward a genuinely global mode of operation.
The various strategies of transiting a firm into global corporation are as follows:
Exporting, the most traditional mode of entering the foreign market is quite a common one even now.
Under international licensing, a firm in one country (the licensor) permits a firm in another country (the licensee) to use its intellectual property (such as patents, trademarks, copyrights, technology, technical know-how, marketing skill or some other specific skill).
Franchising is “a form of licensing in which a parent company (the franchiser) grants another independent entity (the franchisee) the right to do business in a prescribed manner.
A company doing international marketing, contracts with firms in foreign countries to manufacture or assemble the products while retaining the responsibilities of marketing the product.
In a management contract the supplier brings together a package of skills that will provide an integrated service to the client without incurring the risk and benefit of ownership. The arrangement is especially attractive if the contracting firm is given an option to purchase some shares in the managed company within a stated period.
A turnkey operation is an agreement by the seller to supply a buyer with a facility fully equipped and ready to be operated by the buyer’s personnel, who will be trained by the seller.
Turnkey contracts are common in international business in the supply, erection and commissioning of plants, as in the case of oil refineries, steel mills, cement and fertilizer plants etc.
Companies with long term and substantial interest in the foreign market normally establish fully owned manufacturing facilities there. This method demands sufficient financial and managerial resources on the part of the company.
A manufacturer, who wants many advantages that are associated with overseas manufacturing facilities and yet does not want to go far, may find it desirable to establish overseas assembly facilities in selected markets. The establishment of an assembly operation represents a cross between exporting and overseas manufacturing.
Any form of association, which implies collaboration for more than a transitory period is a joint venture. Types of joint overseas operations are:
Sharing of ownership and management in an enterprise
Licensing / franchising agreements
Contract manufacturing
Management contracts
When there are no commercial transactions between two nations because of political reasons or when direct transactions between two nations are difficult due to political reasons or the like, a firm in one of these nations which wants to enter the other market will have to operate from a third country base. For example, taiwanese entrepreneurs found it easy to enter people’s republic of china through bases in hong kong.
Mergers and acquisitions (M & A) have been a very important market entry strategy as well as expansion strategy. A number of indian companies have also used this entry strategy.
This strategy seeks to enhance the long-term competitive advantage of the firm by forming alliance with its competitors, existing or potential in critical areas, instead of competing with each other. Strategic alliance is also sometimes used as a market entry strategy. For example, a firm may enter a foreign market by forming an alliance with a firm in the foreign market.
Counter trade refers to a variety of unconventional international trade practices which link exchange of goods- directly or indirectly – in an attempt to dispense with currency transactions. Counter trade is a form of international trade in which certain export and import transactions are directly linked with each other and in which import of goods are paid for by export of goods, instead of money payments.
Reasons For Globalisation
- The rapid shrinking of time and distance across the globe thank to faster communication, speedier transportation, growing financial flows and rapid technological changes.
- The domestic markets are no longer adequate rich. It is necessary to search for international markets and to set up overseas production facilities.
- Companies may choose for going international market to find political stability, which is relatively good in other countries.
- To get technological and managerial know-how.
- Companies often set up overseas plans to reduce high transportation costs.
- Some companies set up plans overseas so as to be close to their raw materials supply and to the markets for their finished products.
- Other developments also contribute to the increasing international of business.
- The us, canada and mexico have signed the north american free trade agreement (NAFTA), which will remove all barriers to trade among these countries.
- The creation of the world trade organization (WTO) is stimulating increased cross-border trade.
Stages Of Globalisation
There are five different stages in the development of a firm into global corporations.
First Stage
The first stage is the arm’s length service activity of essentially domestic company, which moves into new markets overseas by linking up with local dealers and distributors.
Second Stage
In this stage , the company takes over these activities on its own.
Third Stage
In the next stage, the domestic based company begins to carry out its own manufacturing, marketing and sales in the key foreign markets.
Fourth Stage
In the fourth stage, the company moves to a full insider position in these markets, supported by a complete business system including R & D and engineering.
This stage calls on the managers to replicate in a new environment the hardware, systems and operational approaches that have worked so well at home.
Fifth Stage
In the fifth stage, the company moves toward a genuinely global mode of operation.
Globalisation Strategies
The various strategies of transiting a firm into global corporation are as follows:
Exporting
Exporting, the most traditional mode of entering the foreign market is quite a common one even now.
Licensing And Franchising
Under international licensing, a firm in one country (the licensor) permits a firm in another country (the licensee) to use its intellectual property (such as patents, trademarks, copyrights, technology, technical know-how, marketing skill or some other specific skill).
Franchising is “a form of licensing in which a parent company (the franchiser) grants another independent entity (the franchisee) the right to do business in a prescribed manner.
Contract Manufacturing
A company doing international marketing, contracts with firms in foreign countries to manufacture or assemble the products while retaining the responsibilities of marketing the product.
Management Contracting
In a management contract the supplier brings together a package of skills that will provide an integrated service to the client without incurring the risk and benefit of ownership. The arrangement is especially attractive if the contracting firm is given an option to purchase some shares in the managed company within a stated period.
Turnkey Contracts
A turnkey operation is an agreement by the seller to supply a buyer with a facility fully equipped and ready to be operated by the buyer’s personnel, who will be trained by the seller.
Turnkey contracts are common in international business in the supply, erection and commissioning of plants, as in the case of oil refineries, steel mills, cement and fertilizer plants etc.
Wholly Owned Manufacturing Facilities
Companies with long term and substantial interest in the foreign market normally establish fully owned manufacturing facilities there. This method demands sufficient financial and managerial resources on the part of the company.
Assembly Operations
A manufacturer, who wants many advantages that are associated with overseas manufacturing facilities and yet does not want to go far, may find it desirable to establish overseas assembly facilities in selected markets. The establishment of an assembly operation represents a cross between exporting and overseas manufacturing.
Joint Ventures
Any form of association, which implies collaboration for more than a transitory period is a joint venture. Types of joint overseas operations are:
Sharing of ownership and management in an enterprise
Licensing / franchising agreements
Contract manufacturing
Management contracts
Third Country Location
When there are no commercial transactions between two nations because of political reasons or when direct transactions between two nations are difficult due to political reasons or the like, a firm in one of these nations which wants to enter the other market will have to operate from a third country base. For example, taiwanese entrepreneurs found it easy to enter people’s republic of china through bases in hong kong.
Mergers And Acquisitions
Mergers and acquisitions (M & A) have been a very important market entry strategy as well as expansion strategy. A number of indian companies have also used this entry strategy.
Strategic Alliance
This strategy seeks to enhance the long-term competitive advantage of the firm by forming alliance with its competitors, existing or potential in critical areas, instead of competing with each other. Strategic alliance is also sometimes used as a market entry strategy. For example, a firm may enter a foreign market by forming an alliance with a firm in the foreign market.
Counter Trade
Counter trade refers to a variety of unconventional international trade practices which link exchange of goods- directly or indirectly – in an attempt to dispense with currency transactions. Counter trade is a form of international trade in which certain export and import transactions are directly linked with each other and in which import of goods are paid for by export of goods, instead of money payments.
Tags : Business Environment and Law-Business And Its Environment
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