Concept of globalization

Globalization is the term used to describe the changes in societies and the world
economy that result from dramatically increased international trade and cultural
exchange. It describes the increase of trade and investing due to the falling of barriers
and the interdependence of countries. In specifically economic contexts, the term refers
almost exclusively to the effects of trade, particularly trade liberalization or "free trade".
We were different countries, in fact divided into worlds, and therefore could never
manage to deal with natural holocaust and deadly epidemic, which time and again
challenged us. Globalization has strengthened the nexus (connection) and has helped
us to know each other’s need in a better way. It has helped to demolish those walls that
separated us and curb our natural identity of being fellow human beings. Globalization
has primarily become a fiscal term but its impact is not limited to the economy of the
countries only, the term globalization actually refers to every aspect of life like cultural,
social, psychological and of course, political. Globalization is expressed as primary
economic phenomenon, including the increasing interaction, or integration, of national
economic systems through the growth in international trade, investment and capital
flows. It is the raise in consecutiveness and a procedure where geographical distance
becomes less important in the establishment.

Among the crucial issues today are: global trade, foreign direct investment, multinational
companies, and the WTO. All these have implications for business. Hence the
emergence of an open global environment and the reduction of barriers to the free flow
of goods, services and investment have become important concern for global business
community.

Globalization means different things to different people. The three important

perspectives on globalization are as follows.

To a business executive, globalization refers to a strategy of crossing national

boundaries through globalized production and marketing networks.

To an economist, globalization refers to an economic interdependence between

countries covering increased trade, technology, labor and capital flows.

To a political scientist, globalization refers to an integration of a global community in

terms of ideas, norms and values.

Increased globalization creats both oppurtunities and threats for nations. Oppurtinuties
for nations arise because the international market is open for them. They can export
their goods and services to the international market without much restriction. Threats for
globalization exists for nations because foreign goods, capital and technology enter
their domestic markets. The free entry of foreign goods and services might affect their
domestic industries. Therefore the biggest threat is that of companies.
 Positive Effects of Globalization

It would be rather difficult to discuss the extent of the positives that globalization has had on the world
at large. But still, here are some of the positive effects of globalization and the positive impacts they
have had on so many demographic segments of society.

Increased Competition
One of the most visible positive effects of globalization is the improved quality of products due to global
competition. Customer service and the 'customer is the king' approaches to production have led to
improved quality of products and services. As the domestic companies have to fight out foreign
competition, they are compelled to raise their standards and customer satisfaction levels in order to
survive in the market. Besides, when a global brand enters a new country, it comes in ride on some
goodwill, which it has to live up to. This creates competition in the market and a 'survival of the fittest'
situation.

Employment
With globalization, companies have venture into the developing countries and hence generated
employment for them. But it is one of the positive and negative effects of globalization, depending on
the point of view you wish to see it from. It has given an opportunity to invest in the emerging markets
and tap up the talent which is available there. In developing countries, there is often a lack of capital
which hinder the growth of domestic companies and hence, employment. In such cases, due to global
nature of the businesses, people of developing countries too can obtain gainful employment
opportunities. But the developed countries have lost jobs on account of this movement of jobs to the
developing world and hence it is a pinch felt by people in the First World.

Investment and Capital Flows

One of the most visible positive effects of globalization in India is the flow of foreign capital. A lot of
companies have directly invested in India, by starting production units in India, but what we also need to
see is the amount of FII that flows into the developing countries. Indian companies which have been
performing well, both in India and off the shores, will attract a lot of foreign investment, and thus
pushes up the reserve of foreign exchange available in India. This is also one of the positive effects of
globalization in US and other developed countries as developing countries give them a good investment
proposition.

Foreign Trade
While discussing the positive effects of globalization, how can I leave out the impact of foreign trade on
an economy. Comparative advantage has always been a factor even in the old times. While trade
originated in the times of early kingdoms, it has been institutionalized due to globalization. Previously,
people had to option to unfair means and destruction of kingdoms and countries to get what they
wanted. Today, it is done in a more humane way, with mutual cooperation. People who operate in
uncivilized ways, now have to face the WTO and other world organizations that have been established
with a view to control and regulate the trade activities of the countries.

Spread of Technical Know-How

it is generally assumed that all the innovations happen in the Western world, due to globalization, the
know-how also comes into developing countries due to globalization. Without globalization, the
knowledge of new inventions, medicines would remain coop up in the countries that came up with them
and no one else would benefit. But due to improved political ties, there is a flow of information both
ways. And this point - the spread of know-how, can also be expanded to include economic and political
knowledge, which too has spread far and wide. The most obvious example of the spread of knowledge is
that the Western world today are waking up to the benefits of Ayurveda and Yoga, while the Western
antibiotics and flooding the Indian markets improving the quality of life (and the longevity too) of people
in India.

Spread of Culture
The positive effects of globalization on culture are many! Not all good practices were born in one
civilization. The world that we live in today is a result of several cultures coming together. People of one
culture, if receptive, tend to see the fault in their culture and pick up the culture which is more correct
or in tune with the times. Societies have become larger as they have welcomed people of other
civilizations and backgrounds and created a whole new culture of their own. Cooking styles, languages
and customs have spread all due to globalization. The same can be said about movies, musical styles and
other art forms. They too have moved from one country to another, leaving an impression on a culture
which has adopted them.

Spread of Education
One of the most powerful positive effects of globalization on women and men both is the spread of
education. Today, you can move in the search of the best educational facilities in the world, without any
hindrance. A person living in US can even go to another continent for a new experience and some
courses which one may not find in the home country. If one is interested, one can even get a
specialization in subjects indigenous to a country and spread that knowledge to the home country. A
good example of that is how the American managers went to Japan to learn the best practices in the
field of mass production and incorporated that knowledge in their own production units.

Legal and Ethical Effects

Gone are the days where the limited jurisdiction became a hindrance in the prosecution of criminals.
These days due to international courts of justice, these criminals can no longer seek asylum in a foreign
country, but will be brought forward and there will be justice. Due to globalization, there is also an
understanding between the security agencies and the police of two or more different countries who will
come together to curb global terrorism. Hence, it is now possible to catch the perpetrators of crime
irrespective of which country they choose to hide in. This is undoubtedly one of the greatest positive
effects of globalization on society.

Globalization - Characteristics
Globalization has become identified with a number of trends, most of which may have developed
since World War II. These include greater international movement of commodities, money,
information, and people; and the development of technology, organizations, legal systems, and
infrastructures to allow this movement. The actual existence of some of these trends is debated.

 Economically
o Increase in international trade at a faster rate than the growth in the world
economy
o Increase in international flow of capital including foreign direct investment
 o Erosion of national sovereignty and national borders through international
agreements leading to organizations like the WTO and OPEC
o Development of global financial systems
o Increase in the share of the world economy controlled by multinational
corporations
o Increased role of international organizations such as WTO, WIPO, IMF that deal
with international transactions
o Increase of economic practices like outsourcing, by multinational corporations
 Culturally
o Greater international cultural exchange,
o Spreading of multiculturalism and better individual access to cultural diversity,
for example through the export of Hollywood and Bollywood movies. However,
the imported culture can easily supplant the local culture, causing reduction in
diversity through hybridization or even assimilation. The most prominent form of
this is Westernization, but Sinicization of cultures also takes place.
o Greater international travel and tourism
o Greater immigration, including illegal immigration
o Spread of local foods such as pizza and Indian food to other countries (often
adapted to local taste)

The Multinational Corporation

If a company wants to venture into the international marketplace, it can use several different
methods. In each case, the levels of risk and control move together. The four most common
approaches include the following:

 Exporting. The selling of an organization's products to a foreign broker or agent is

known as exporting. The organization has virtually no control over how products are
marketed after the foreign broker or agent purchases them. Because the investment is
relatively small, exporting is a low-risk method of entering foreign markets. The only real
danger here is what the foreign agent might do with the products to hurt the
organization's or product's image.
 Licensure agreement. This approach allows a foreign firm to either manufacture or sell
products, or the right to place a brand name or symbols on products. Disney World, for
example, has licensure agreements with many foreign firms. This approach provides
more control than an export sale, as a firm can require that certain specifications be met,
yet it is still not the manufacturer in the foreign market.

 Multinational approach. With this approach, a firm is willing to make substantial

commitment to a foreign market. Normally, products or services are modified to meet the
foreign market demands, and in many cases, substantial fixed investments are made in
plants and equipment. The most common ways to become a multinational firm are to
form joint ventures or global strategic partnerships, or to establish wholly-owned
subsidiaries.
 o Joint ventures occur when a company forms a partnership with a foreign firm to
develop new products or to give each other access to local markets. Normally, the
roles and responsibilities of each organization are clearly spelled out in the joint-
venture agreement. This approach increases both control and risk.

o Global strategic partnerships are much larger than a simple joint venture. Two
firms join together and make a long-term commitment, in the form of time and
investments, to develop products or services that will dominate world markets.
This approach does not modify products for a particular market but develops a
single product market strategy that can be utilized in all markets in hopes of
dominating the worldwide market for that product.

o Wholly-owned subsidiaries occur when a firm purchases either controlling

interest or all of a foreign firm. Often, the subsidiary firm is given considerable
freedom in terms of how to operate in the foreign market, and heavy use of
foreign managers and employees is very common. The owning firm does have the
most control, but it also has substantial investment risk.

o Vertically integrated wholly-owned subsidiaries exist where a firm owns not

only the foreign manufacturer but the foreign distributors and retailers as well.
Again, the main emphasis is on dominating a worldwide product or service area
with a single product market strategy. True global products are very difficult to
develop, and it is even more difficult to dominate all global markets.

Of these approaches, multinational corporations, defined as organizations operating facilities

in one or more countries, are major forces in the movement toward the globalization of
businesses. Common characteristics of successful multinational corporations include the
following:

 Creation of foreign affiliates

 Global visions and strategies

 Engagement in manufacturing or in a restricted number of industries

 Location in developed countries

 Adoption of high-skills staffing strategies, cheap labor strategies, or a mixture of both.

multinational corporation, business enterprise with manufacturing, sales, or service subsidiaries in

one or more foreign countries, also known as a transnational or international corporation. These
corporations originated early in the 20th cent. and flourished after World War II. Typically, a
multinational corporation develops new products in its native country and manufactures them abroad,
often in Third World nations, thus gaining trade advantages and economies of labor and materials.
Almost all the largest multinational firms are American, Japanese, or West European. Such During the
last two decades of the 20th cent. many smaller corporations also became multinational, some of them
in developing nations.
Mny companies performing their business in two or more than two countries are called multinational
companies. They conduct business throughout the world with the help of branches, agents or
subsidiaries. All business policies, strategies and decision are made by head office of the company.
Management controlling is done according to the system of the parent company.

Multinational companies focus on mass production and distribution of product and services. They
transfer technology of Mother Company and sometimes adopt latest technology also. They come to the
market through strong distribution system.

According to united nation development of economical social affairs, “MNC can be

defined in the broad sense to cover all enterprises which control assets, factories,
mines, sales and the other in two or more countries.”

In conclusion multinational companies are corporations which perform business

activities at the global market under their ownership, management and control.

List of famous multinational companies

Microsoft
General electric
IBM
Exxon
Wal mart store
Intel
Cisco system
Coca cola
MCI worldcome
Amirican online
Johnson $ Johnson
Procter and Gamble
Glaxo
Philip morris

Types of multinational company

If a company wants to venture into the international marketplace, it can use several different
methods. In each case, the levels of risk and control move together. The four most common
approaches include the following:
 Exporting. The selling of an organization's products to a foreign broker or agent is
known as exporting. The organization has virtually no control over how products are
marketed after the foreign broker or agent purchases them. Because the investment is
relatively small, exporting is a low-risk method of entering foreign markets. The only real
danger here is what the foreign agent might do with the products to hurt the
organization's or product's image.
 Licensure agreement. This approach allows a foreign firm to either manufacture or sell
products, or the right to place a brand name or symbols on products. Disney World, for
example, has licensure agreements with many foreign firms. This approach provides
more control than an export sale, as a firm can require that certain specifications be met,
yet it is still not the manufacturer in the foreign market.

 Multinational approach. With this approach, a firm is willing to make substantial

commitment to a foreign market. Normally, products or services are modified to meet the
foreign market demands, and in many cases, substantial fixed investments are made in
plants and equipment. The most common ways to become a multinational firm are to
form joint ventures or global strategic partnerships, or to establish wholly-owned
subsidiaries.

o Joint ventures occur when a company forms a partnership with a foreign firm to
develop new products or to give each other access to local markets. Normally, the
roles and responsibilities of each organization are clearly spelled out in the joint-
venture agreement. This approach increases both control and risk.

o Global strategic partnerships are much larger than a simple joint venture. Two
firms join together and make a long-term commitment, in the form of time and
investments, to develop products or services that will dominate world markets.
This approach does not modify products for a particular market but develops a
single product market strategy that can be utilized in all markets in hopes of
dominating the worldwide market for that product.

o Wholly-owned subsidiaries occur when a firm purchases either controlling

interest or all of a foreign firm. Often, the subsidiary firm is given considerable
freedom in terms of how to operate in the foreign market, and heavy use of
foreign managers and employees is very common. The owning firm does have the
most control, but it also has substantial investment risk.

o Vertically integrated wholly-owned subsidiaries exist where a firm owns not

only the foreign manufacturer but the foreign distributors and retailers as well.
Again, the main emphasis is on dominating a worldwide product or service area
with a single product market strategy. True global products are very difficult to
develop, and it is even more difficult to dominate all global markets.
Advantage of MC’s
There are some benefits of MNC’s are an invaluable dynamic today. There are the
instruments for wider distribution of capital technology and employment. The important
arguments in favour of MNCs are as follows.

MNC’s promote the investment climate in the host country. This ultimately leads to
increase in income and employment.

Technology transfer is a major constraint for developing countries. MNCs have been
working as the main vehicles for the technology transfer in these countries.

The impact of the presence of MNC’s is also felt managerial development in the host
countries. Professional management and use of appropriate management techniques
are associated with MNCs. The local industries can thus learn this management
practice from MCNs.

The host countries can increase their exports through the activities of MNCs. At the
same time as the MNCs produce goods within countries, the important requirements,
are also reduced. This helps the host countries in improving their balance of payments
position.

One of the crucial resources enjoyed by MNCs is knowledge. MNCs , by using their
efficient research and development system can make significant contribution to
invention and innovations.

MNCs also have positive impact on domestic enterprise. To support their own
operation, the MNCs may encourage and assist domestic suppliers. Many smaller
business activities may flourish around the MNCs.

Disadvantages of MNC’s

Displacement of local industries is the major disadvantage of multinational company.

Local industries can not compete with multinational company because the later produce
goods and services at a larger scale by using modern technology. Medium and small
scale cottage scale industries of the host country are either displaced or they surrender
to the multinational companies. MNC have a negative impact on local industries and the
economic environment of the host country.

MNCs are criticized for remitting profits from developing countries to the home country.
Country already short of capital must, thus, suffer a further flow back to the developed
world.

The developed world also criticizes the MNCs for exporting capital and jobs to the third
world, slowing growth and reducing the number of jobs in the home country.
MNCs because of their size and competitive strength may destroy competitive
environment in the country. They regain monopoly powers.

Multinational companies are financially strong. As a result, they make influence policy
makers of developing countries in introducing rules and regulations in their favor. They
hardly care for the welfare and development of the host countries.

MNCs aim to attract best group instead of general people. They focus their activities in
providing luxury product to higher income group. It creates social imbalance. They also
spoil social culture, tradition, habits integrity etc.