globalisation ch-4 economics class 10th

Meaning of MNC’s

An MNC’s is a large company that owns or controls production and marketing  operation in two or more countries

Working of MNC’s: MNC work through the unique method of   outsourcing (It implies obtaining goods and   services from   outside sources MNC do not produce all the goods on their own and at one single place .They operate in a number of country over a   number of products.

For example : An MNC wants to produce industrial  equipments. The company may get designs of its product   from the R&D centres in the United States. Then the   company may give orders for the production of components   to the manufacturing units located in China as per specifics design.    These component are assemble in Mexico and Eastern  Europe and from there the finished product are sold all over the  world.Customer care services are carried out in the call centres of India 

How MNCs derive advantage from their activities in different countries ?

By selecting different locations(marketing office and factories for production) for different purposes, this MNC could reduced its costs substantially  that is cheap labour, raw material and other resources.

For example :

 ford motors an MNC want to tap two main advantage (a) In countries like india,labour (skilled and unskilled labour both) is cheaper

(b) India is a big country having a large market to sell the product

Where do MNCs set up production?

  1.Government policy that can look after their decision (tariff structure)

   2.Production unit should be close or well-connected to the markets

   3.Assured availability of raw materials and other factors of production

   4.Availability of skilled and unskilled labour at low costs;

Ways in which MNCs are spreading and interlinking production

There are mainly three ways by which MNCs are spreading and interlinking production.

1.     Joint ventures: MNCs normally works in collaboration with local companies ,it is because local company get benefits like they receive money, get advanced technologies and modern managerial skills and get access to new external markets .

2.     Purchase of Local Companies: Apart from joint ventures they adopt another route that is they purchase local companies and thus expand their production activities , for example american MNC, Cargil foods has purchased and indian company –parakh foods ,It has taken all refinieries and thus become larges producer of edible oils in india

     Similarly Thums Up of Parle Group was taken over by Coca Cola

3.Emerging small producers for production:

The big MNCs engage small producers for the production of goods .for example ,garments, footwear, sports items, electrical goods, toilet soaps, cosmetics ,toy etc

The goods are produced by the local producer and then MNCs sell them under their band name all over the world

India’s pre-1991 development strategy

In the post-independent India we adopted the system of mixed economy(private and public sector)

The public sector was given high priority and dominating role in the development of basic industries .

Private sector was subject to many controls and restrictions through industrial licensing policy.

Domestic industries were protected through import duties and quantitative restrictions

Policy of import restrictions and import substitution was pursued

A policy of export promotion through incentives and concessions to export was followed

  Hence we became a highly protected economy.

Need for economic reforms :

The consequences of pre-1991 development strategy were recurrent fiscal deficits, heavy external /internal debt burden , low capital formation, technological backwardness, low competitiveness and low productivity levels. The Indian economy was on the brink of collapse. Inflation was out of control ,exports were declining ,foreign exchange reserves had declined to no more than two weeks’ imports and industry had virtually crippled. foreign lenders and NRIs had lost confidence in our economy and capital was flying out of the country . In this situation  we were forced to borrow money from world bank and IMF. In 1991 we adopted the policy of LPG that is liberalization ,globalization and privatization

INTEGRATION OF MARKETS THROUGH FOREIGN TRADE

1.Foreign trade connects different countries with each other. It provide opportunity to the producers of domestic countries to sell their products in the international market. Now they can sell their goods in the international markets similarly Buyer can purchase good from domestic as well as from international markets

2.If there is no restriction in the field of foreign trade ,goods can move freely from one country to the other country . Now there will be greater competition among the seller. It lead to the integration of the markets

For example :

 chinese manufacturer are exporting toys to india . Now indian market are full of chinese toys. They are cheaper than the indian toys consequently they are expanding their market in india and also increasing their earnings

Chinese are also exporting electrical goods and other consumer goods in the indian market.

Globalisation:

It means the integration of domestic economy with the rest of the world through trade, capital and technology flows.

Component and levels of globalisation:

1.Free flow of goods and services among different countries

2.Free flows of capital among nation states i.e no restriction on foreign investment .

3.Free flows of technology

4.Free movement of labour among different countries of the world.

We find increasing trend in the flow of goods and services and technology but the movement of people is not as free as it should have especially developed country

Factor that have led to the Globalisation

1.Advancement in technology :

 We live in the age of technology when distance and time have shrunk and the world has become one global village. Technological progress in transport and communication led to reduction in time , cost  and cover large distance .

For example : containers ,rail transport and air transport

   publisher of Washington want to publish a book of a magazine in order to reduce cost he will send the matters and design to its office in Delhi. 

2.Liberalisation of foreign trade and foreign investment

Initially  policy of protection to domestic industry was adopted

Import duty were imposed(known as tax barrier) and a quota can be fixed for the import of goods

In 1991 liberalised trade policy was initiated. Removing barriers or restriction from foreign trade is called liberlisation of foreign trade

Now the firms are allowed to take decisions freely regarding the import and export of goods .it will create free environment for trade and improve efficiency and sharpens india’s competitiveness in the world market

World Trade Organisation:

The WTO was established on 1^st january 1995 after the conclusion fo Uruguay Round in place of GATT (General Agreement on Tariffs and Trade) India was a founder member of WTO. The head office of WTO was located in Geneva.

Functions :

Acting as a forum for multilateral trade negotiations;

Implementing the multilateral trade agreements

Seeking to resolve trade disputes

Cooperating with other international institutions of economic policy-making

Main thrust was to promote international trade amongst the member themselves

Impact of WTO on Indian economy:

INTRODUCTION:

IMF ,world bank and WTO are the three main institution which work for the implementation of globalisation

These are being used by the developed countries and MNC’s to implement the policies serving their economic interests.

WTO makes rules for international trade, investment, intellectual property rights and several other economic issues.

It asks the developed countries to open their markets for the goods, services and capital of other countries on the ground that it will help their development . But total openness may lead to the slowing down of development and increase poverty

The working process in the WTO is such that the developing countries are not able to safeguard their interests

Following are the main impacts of WTO on the Indian economy:

1.     Globalisation has a serious repercussion for our agricultural sector .On the other hand, WTO is forcing developing countries like India to remove trade barriers and reduce subsidies given to the farmers on the other hand developed countries have retained trade barriers and subsidies . For example in U.S.A agriculture employ only 0.5% of total workers and it contributes 1%to countries GDP where as developing countries are reducing it.

2.     Agreement  on intellectual property rights(Patients copyrights ,trademarks etc)is likely to work against india .It is feared that the price of many essential drugs may go up sharply which will have an adverse affect on our agriculture and food security

3.     The WTO agreement is going to adversely affect our strategy of self reliant growth, based on the technology and other resources available locally.

4. It would be difficult for our services sector (banking insurance tele-communication,

    shipping etc) to face competition from foreign firms supplying services

5. The impact of globalisation on different sections of the society has not been uniform in  

      india .

    (a) The globalisation has been of advantage to consumer particularly to urban rich

        sections. For them variety of goods are available in  the market due to integrations of 

         markets. they can now have large choice of consumer goods .this will increase their    

        standard of  living but on  the other hand the poor sections unable to purchase these

        goods

    (b)After globalisation MNCs have increased investment in India . They invested the

        money particularly in the areas of automobiles ,electronics, cell phones, soft drink ,fast

        food and banking services.

       These area serve the rich sections the industries and companies engaged in such activity

    have also prospered and have created jobs . Even the companies supplying raw materials

    to these industries have also developed to a certain extent

 (c) What may be development for one section may be destructive for the other sections For  

       example SEZ special economic zones are beneficial for to the developers of that area , big

       industrialists and foreign MNC’s participating in SEZ , on the other hand it is harmful for

       the farmer whose lands have been acquired and to the small producers.

(d)Big Indian industries and companies may get benefits from the process of globalisation .

     They , may collaborate with foreign companies and reap some benefits . Some of the Indian

    companies have themselves emerged as MNC’s for example Tata Motors, Infosys, TCS,

      Ranbaxy, Asian paints etc

(e)Globalisation has specifically provided advantages to the IT and IT-related services

     companies

6.Adverse affect:

    On small scale industry: As far as small-scale industries are concerned ,it is facing severe

        hardship Especially , the small-scale units producing toys, fans, cigarette lighters,

       batteries ,capacitor , tyres, dairy products ,energy saving lamps etc

   On employment : The situation of employment was adversely affected It has change the

          working condition for example large garment companies of Europe and America place   

          their orders with the Indian garment manufacturers and these MNCs sell these  garment

          under their brand name. MNCs can order from anywhere where they get low prices as a   

          result to retained supply orders  Indian manufacturer cut wages, they do not give

          permanent employment ,work for long hours and even in night shifts and no security jobs

         have developed in much greater degree.

7. Political impact of globalisation:

Globalisation is posing challenge to the autonomy  and sovereignty of the country . Now policies of India  are being formulated under the pressure of IMF , world bank and WTO. This is creating conditions of economic slavery in India.

What should be done to move towards more fair and humane globalisation?

The government can play an important role in achieving this goal , the government see that the labour laws are properly implemented and workers rights should be protected . It should also protect the interest of farmers and small producers

A developing country should not allow fully free and unrestricted entry and operations of foreign firms in their economy,govt should decide the conditions of their operation and entry

The developing countries would need to work closely together to avoid the damage and also to get the best out of the process of globalisation, India should provide the leadership to the developing countries of the world and put pressure on WTO and demand for the re-examinations of its policies .