Entrepreneurship development and Industrial Consultancy

Module 1. Entrepreneurial environment

Lesson 4
GLOBALIZATION AND THE EMERGING BUSINESS / ENTREPRENEURIAL ENVIRONMENT

4.1 Introduction

The international monetary fund defines globalization as “the growing economic interdependence of countries world wide through increasing volume and a variety of cross border transactions in goods and services and of international capital flows and also through the more rapid and wide spread diffusion of technology”.

4.2 Features of Globalization

 

1. Expansion possibilities of business throughout the world.
2. Differences between domestic and foreign markets are erased.
3. Buying and selling product and service from / to any nation of the world.
4. Establishment of production and distribution facilities based upon feasibility and economic considerations at optimum location anywhere in the world instead of considering national considerations.
5. Product planning and development are dependent on market conditions of the whole world.
6. Optimizing raw material sourcing from entire world.
7. Global orientations in strategies, organizational structure, culture and managerial expertise.
8. Viewing entire globe as a single market.

4.2.1 Factors influencing globalization

Many factors are responsible for favoring globalization. Notableamong which notable ones are:

1. Dismantling of barriers to international economic transactions.
2. Over capacity and over production.
3. Technological developments.
4. Emerging forms of industrial organizations.
5. Political factors
6. The intellectual revolution

4.3 Globalization Strategy for Enterprise

To establish global presence with minimum risk and maximum returns, the entrepreneur must address following questions:

a) Which product line or product lines should be used for launching into global Markets?
b) Which markets should be chosen for entry?
c) Which optimal mode should be used for market entry?
d) How rapidly should the enterprise expand globally?

As globalization has many risks associated with it, it is advisable to select only most profitable product/ product lines instead of introducing the entire product range.The choice of the market is decided by market potential. The extent of entry barriers and intensity of competition decides the market entry strategy. Lower entry barriers and less intensity of competition in a market are conducive to a firms entry in the market. The mode of market entry is dependent upon two factors.

(a) Enterprise’s policy of export versus local production.
(b) Extent of ownership control over locally performed activities.

Local production is more favorable when the local market is larger than the minimum efficient scale of production so that local production translates itself into scale economies while holding down tariff and transportation costs. With regard to extent of ownership control, the possibilities vary from zero percent ownership mode like licensing or franchising to partial ownership mode like joint venture or affiliates.More global presence by the enterprise does not provide competitive advantage. Transforming global presence into global competitive advantage necessitate the enterprise to exploit the value creation opportunities generated by global presence and to meet related challenges. Global competitive advantage can be realized by the enterprise by adopting to local market differences, exploiting economies of global scale, tapping the optimal locations etc.

4.4 Indian Government Measures Towards Globalization

1. Scrapping the restrictive laws such as foreign exchange and regulation act (FERA) 1973. The foreign exchange management act (FEMA) has been passed by removing the classes which restricted the entry of multinational companies (MNCs)

2. Allowing Indian companies to collaborate with foreign companies in the form of foreign joint ventures (FJVs) and there by many Indian companies have started their FJVs.

3. Reduction of import tariff to 15 percent on the advice of world bank.

4. Replacing import license with tariffs.

5. Reducing and removing some import duties.

6. Removing export subsidies.

7. Replacing license of export with duties.

8. Imposing low, flat tax on the export income.

9. Changing the policy related to export oriented units and export processing zones.

10. Liberalizing the inflow of foreign direct investments.

11. Providing incentives to MNCs & NRIs for investing in India.

12. Encouraging foreign institutional investors (FIIs) to invest in India.

13. Allowing Indian mutual funds to invest in foreign equity.

14. Allowing rupee to determine its own exchange rate in the international market without an official intervention.

15. Full Convertibility of rupee in the current account.

4.4.1 Areas of Concern in Indian Economy with respect to globalization

1. The technology gaps of several years. The difficulty in securing technology transfers from the developed countries.

2. Lack of Infrastructure

3. Difficult to implement true privatization policies in the light of political interventions.

4. Indian products and services are rated inferior in terms of price, quality, delivery schedules, etc.

5. High cost economy

6. The market access in the developed countries is very difficult as they are protected by tariff and non tariff barriers.

7. Unstable political economy of India. The coalition governments are not suitable for rapid progress.

8. Limited share in world export.

4.5 Globalization and India

For India, a good balance of payment position and the earning of foreign exchange are major reasons for globalization. Indian consumer’s preference has changed due to impact’s of mass communication tools. Thus Indian Industries have also globalized their operations so as to satisfy consumer’s preferences. Due to liberalization policies initiated by India since 1991, many multinational companies have started their operations in India. The Indian industries and new enterprises face stiff competition from multinational companies. This has resulted in improvement in their performance and ultimately benefiting the consumers. Globalization helps domestic companies to acquire and update their technology, be cost effective and ward of future competitive threat.