3. FACTORS HELPED TO GROW
GLOBALIZATION
MNCs:
MNCs stand for Multinational Corporation.
Before MNCs, production, distribution and consumption were
done within the boundaries of the countries. Everything needed
for those activities were fulfilled in the countries only.
MNCs started setting the factories in different countries and
controlled the production in more than one nation.
Companies do this to earn more profit by reducing cost of
production. They can do this by getting cheap labours and raw
materials.
As MNCs produce their product globally, it is organized in
complex ways. Production is divided in small parts and
distributed all over the globe.
By this complete procedure, MNCs are able to reduce their
production cost by 50 to 60%.
4. FACTORS HELPED TO GROW
GLOBALIZATION
Example of MNC –
A large MNC, producing industrial
equipment, designs its products in research
centers in the United States, and then has
the components manufactured in China.
These are then shipped to Mexico and
Eastern Europe where the products are
assembled and the finished products are
sold all over the world. Meanwhile, the
company’s customer care is carried out
through call centers located in India.
5. HOW MNC WORKS?
MNCs go to different countries in invest money and technology there. But before
investing they look after that raw materials, skilled and unskilled labourers,
markets are available and government policies are favorable to them. This
investment is called foreign investment.
MNCs work in three different ways:
Collaborate with local companies: MNCs invest in local companies by providing money
and new technologies to them and hold particular percentage of share in it i.e. Hero-
Honda.
They buy local companies: This is the most common method practiced by MNCs. This
method benefits them more as they get ready structure, labours and the most important
they get ready customers. Ex. Cargill Foods purchased Parakh Foods that used to
produce ‘Gemini’ cooking oil.
Giving Contracts: As second method was turning unprofitable, MNCs start following this
method. They give orders to small producers; label them with their own brand name and
sell all over the globe. Ex. If you see at the of the package, you find two addresses one is
marked by and second is manufactured by.
These are some methods used by MNCs to influence production and markets all
over the globe.
6. FACTORS HELPED TO
GROW GLOBALIZATION
Foreign Trade:
This is the second most important factor that helps to
connect the market of different countries since long back.
This has helped the manufactures to go beyond their
domestic market and sell their products in other countries.
As sellers are selling in different countries, even buyers
have choices to buy the goods on exactly same rates.
They get more options.
As trade open, goods travel from one country to another
and connect the markets. Thus foreign trade has helped
to spread globalization.
7. FACTORS HELPED TO GROW
GLOBALIZATION
Technology :
Rapid improvement in technology has been
one of the major factors that has stimulated
globalization in recent years.
Technology has helped in the following ways
○ Speed of production
○ Transportation facilities
○ IT
○ Sources of energy
8. FACTORS HELPED TO GROW
GLOBALIZATION
Liberalization:
Removing barriers or restrictions set by the
government is what is known as liberalization.
It means more foreign companies are allowed to
come within the nation and set up their plants of
production and services.
Businesses are allowed to take their own
decision how much to export and import.
Government keeps less restriction on them.
It means more foreign trade, more MNCs are
coming and Globalization increases.
9. LIBERALIZATION
Why restrictions after independence?
○ India was newly independent and priority was
to develop own economy first.
○ If would have chosen the liberalization, we
must have been in the slavery again
○ Our products were not up to the mark to
compete on international market.
10. LIBERALIZATION
Why liberalization in 1991?
○ Government thought that then our products
reached to that level to compete on
international level.
○ Our products also required bigger platform to
grow.
○ New technology was to come to our nation
11. LIBERALIZATION
Tax is known to trade barrier.
○ Tax is the most important weapon used by
government to protect local products.
○ On initial stage of economy, countries levy
huge taxes on outsider commodities.
○ It increases the cost of imported products and
reduces the number of customers. Thus
restricts the trading.
12. FACTORS HELPED TO GROW
GLOBALIZATION
WTO stands for World Trade Organization. It is the
organization which regulates and monitors entire foreign
trade. It has 160 members and sees that all rules are
being followed by its members.
This organization recommends that trade between
countries should be free, there shouldn’t be any barriers.
It says that barriers to foreign trade and investment are
harmful so all countries should liberalize their policies.
But it is being seen that developed countries put barriers
in their countries and demand developing countries to
liberalize their policies.
13. IMPACTS OF GLOBALIZATION IN
INDIA
Consumers: Due to the competition among producers, consumers are
benefited a lot. They get more choices with lower rates and with best
quality.
Basic Services: MNCs have done large investment in consumer
products that led to the growth of urban centers and growth in the other
industries too.
Employment: As many companies and factories have set up in India,
employment has been generated on large level. That helped to
increase the income of the people and their life style.
Indian Companies turned into MNCs: Globalization helped Indian
companies in investment and new technologies. It provided them
bigger platform to sell their products all over the globe.
IT: IT has helped Indian companies to provide service all over the
world. Due to this, in India services are produced cheaply and exported
worldwide.
14. HOW INDIAN GOVERNMENT
ATTRACTS FOREIGN INVESTMENT?
Setting up the SEZs – Special Economic
Zones
Exempting MNCs from paying taxes for
five years on initial stage
Exempting from labour laws to be
practiced in MNCs
15. DISADVANTAGES OF
GLOBALIZATION
No job security to workers
Small manufacturers are pressurized to sell
their products on cheap rate.
Sometimes consumers are cheated with
low quality products on the name of brand.
Globalization has led to huge competition
on international level among big
manufacturers also.
16. FAIR GLOBALIZATION
Looking to the disadvantages of globalization, demand of fair globalization
has grown up in last some years from the poor countries. It means the fruits
of globalization should be equally distributed among rich and poor countries.
Government can play major role in assuring the fair benefits of globalization
by practicing following ways:
Its policies must protect the interests, not only of the rich and the
powerful, but all the people in the country.
Labour laws are properly implemented and the workers get their rights.
It can support small producers to improve their performance till the time
they become strong enough to compete. If necessary, the government
can use trade and investment barriers.
It can negotiate at the WTO for ‘fairer rules’. It can also align with other
developing countries with similar interests to fight against the domination
of developed countries in the WTO.
Even people can play their role by organizing rallies and demonstration
against the policies of WTO.
17. Tips to study Economics
Focus more on understanding than
mugging up.
Don’t forget to read ‘Sources for
Information’.
Keep solving the questions from ‘Let’s
Work These Out’.
