The term ‘globalization’ was evolved in the 1980s, but it is an older concept and is understood differently by different people all over the world. These varied conceptions gave an unclear view of `globalization’. Different scholars, policymakers, and activists regarded it as a stimulus for worldwide economic growth. While the same people simultaneously also assumed it as a crucial threat to the world economic system.
Globalization is an international integration that involves the exchange of products, services, ideas, business practices, and cultures. It has emerged as one of the most dominant factors responsible for shaping the future patterns of the world market. In other words, globalization is a process that integrates regional economies and their culture, by developing a network of world trade, transportation, immigration, and communication.
According to International Monetary Fund (IMF), “Globalisation is the growing economic interdependence 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”.
According to Charles Hill, “Globalisation is the shift towards a more integrated and interdependent world economy. Globalization has two main components – the globalization of markets and the globalization of production”.
Globalization has also played a significant role in the development of the Indian economy. Since 1991, globalization has contributed considerably to the economic growth of India by eliminating restrictions on MNCs to enter India, permitting Indian firms to trade outside national borders, liberalizing imports, encouraging international investment, etc. All these initiatives have been implemented under the policy reforms of 1991 in India.
Factors Causing Globalisation of Business
Increase and Expansion of Technology:
Conducting business on an international level usually involves greater distances than does conduct domestic business, and greater distances increase operating costs and take control of a company’s foreign operation more difficult. But improved communications and transportation speed up interactions and improve a manager’s ability to control foreign operation. Recall in our opening case that satellite television permits sports organizers to reach worldwide consumers immediately and at very little additional cost. Improved transportation allows players and teams to compete all over the world.
Liberalisation of Cross-Border Trade and Resource Movements:
To protect its own industries, every country restricts the movement across its borders of goods and services and the resources, such as workers and capital, to produce both. Such restrictions make international business more expensive to undertake. Because the regulations may change at any time, international business is also riskier. However, over time most governments have lowered some restrictions on trade for the following reasons:
- Their citizens have expressed the desire for easier access to a greater variety of goods and services at lower prices.
- The reason that their domestic producers will become more efficient as a result of foreign competition.
- They hope to induce other countries to lower their barriers in turn.
Fewer restrictions enable companies and individuals to take better advantage of international opportunities. However, with more competition, people have to work harder.
Development of Services that Support International Business:
Companies and governments have developed services that ease the conduct of international business. For example, banks have developed efficient means for companies to receive payment in their home-country currencies. Although companies do barter internationally, it can be cumbersome, time-consuming, risky, and expensive. Today most producers can be paid relatively easily for goods and services sold abroad because of bank credit agreements, clearing arrangements that convert one country’s currency into another’s, and insurance that covers risks like damage en route and non-payment by the buyer.
Growing Consumer Pressures:
Because of innovations in transportation and communications, consumers know about products and services available in other countries. Further, global discretionary income has risen to the point that there is now widespread demand for products and services that would have been considered luxuries in the past. Thus, consumers want more, new, better, and differentiated products. However, this greater affluence has not been evenly spread, either among or within countries, thus companies have recently responded more to those markets, such as China, where incomes and consumption are growing most rapidly. This greater demand has also spurred companies to spend heavily on research and development and to search worldwide — via the internet, industry journals, trade fairs, and trips to foreign countries — for innovations and differentiated products that they can sell to ever-more-demanding consumers.
Increased Global Competition:
Consumers have had more discretionary income, which means that dissimilar products and services compete for the same consumer expenditure. This expansion of I competition, forces most companies to seek any means to gain competitive advantages, including a global search for quality improvement or cost reduction advantages.
Changing Political Situations:
A major reason for growth in international business has been the end of the breach (break) between most communist and non-communist countries. Even within the communist bloc, countries strove to be as self-sufficient as possible, with the transformation of political and economic policies in the former Soviet Union, most of Eastern Europe, China, and Vietnam, trade now flourishes between those countries and the rest of the world. A further political factor relates to governments abilities to respond to pressures to enhance world trade. As incomes have grown, so has tax revenue. Much of the revenue has gone to programs and projects that enhance the potential of international business. Further, governments now provide an array of services that help their companies sell more abroad, such as information about foreign markets, contacts with potential buyers abroad, and insurance against non-payment in the home country currency.
Expanded Cross-National Cooperation:
The government increasingly realise that their own countries’ interest can be enhanced by cooperating with other countries through treaties, agreements, and consultation. They do so primarily for the following reasons: i) To gain reciprocal advantages, ii) To attack problems jointly that one country acting alone cannot solve, and iii) To deal with areas of concern that lie outside the territory of all countries.