Globalisation PDF

CHAPTER Globalisation 9 A AN a b...

CHAPTER Globalisation 9 A AN a b G AN AL c d TE a & b) going to school, c) school entrance, d) in classroom, e) teacher at board If you have access to internet watch the entire advertisement in following link: T, http://www.youtube.com/watch?v=VHYtShXI510 What you see above is an ER advertisement for a magazine published from London. It is trying e to get more subscribers in India. To who Indian readers, the adverti- SC sement seems to be suggesting that countries like China are turning to India and learning Indian languages. This could be needed to communicate with Indian traders and manufacturers or to train Chinese workers who want to go to India to find work etc. Thus, you can see several dimensions of globalisation in this advt. a magazine published in English from Britain looking for buyers in India, Chinese trying to learn Indian languages, Chinese hoping to sell their products in India or sending their workers to India or doing business with Indian partners. Globalisation is a major change that has increased tremendously across the globe in the late 20th century. This has political, cultural as well as economic 118 Social Studies Globalisation  dimensions.You have read about some of these aspects in the context of service sector in Class VIII and IX such as emergence of new job opportunities like call centres. You will also recognise that there is a large number of consumer products available in the market. We identify three types of flows Choose any one single item like Mobile within international economic exchanges. phones or vehicles; identify the number of Brands available for this item in the The first is the flow of trade in goods as market. Are they owned and well as services. The second is the flow manufactured in India or abroad? of labour the migration of people in search A Discuss with your parents or other of employment. The third is the flow of AN adults and find out how many such brands capital for short-term or long-term were available 30 years ago. investments over long distances. Besides, there are political and cultural dimensions of globalisation. For instance, in the year 2010-11 several nations in Western Asia G and Northern Africa like Tunisia, Egypt were influenced by each other’s revolutions and uprooting of dictators. This was called ‘Arab Spring’ in the media. In these AN countries, media played a crucial role. Television Channels that were owned and run by people from other countries supported such mobilisation which resulted in regulating the powers of local leaders. While events like civil war or natural disasters AL like Tsunami are discussed within the national boundaries, they also receive support and sympathy from around the world. Globalisation is not merely about the market, infact, ideas and technology are also being shared and expanded. TE In this chapter our focus is mostly on the economic aspects of globalisation as they have unfolded in the past thirty to forty years. Production across Countries T, Until the middle of the twentieth century, production was largely organised within countries. Raw materials, food grains and finished products only crossed the boundaries of these countries. Colonies such as India exported raw materials ER and food grains and imported finished goods. Trade was the main channel that connected distant countries. This was before the large multinational companies (MNCs) emerged on the scene. An MNC is a company that owns or controls SC production in more than one nation. MNCs set up offices and factories for production in regions where they can get cheap labour and other resources. This is done so that the cost of production is low and the MNCs can earn greater profits. Consider the following example. A large MNC, producing industrial equipment, designs its products in research centres 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 centres located in India. (Identify these countries on a world map.) Free distribution by T.S. Government 2021-22 119  In this example, the MNC is not only selling its finished products globally, but more important, the goods and services are also being produced globally. As a result, production is organised in increasingly complex ways. The production process is divided into small parts and spread out across the globe. In the above example, China provides the advantage of being a cheap manufacturing location. Mexico and Eastern Europe are useful for their closeness to the markets in the US and Europe. India has educated English speaking youth who can provide customer care services. And all this probably can mean 50-60 per cent cost-savings for the MNC! The A advantage of spreading out production across the borders to the multinationals can be truly immense. AN Interlinking Production Across Countries In general, the criteria for selecting a site for operations of MNCs are: proximity to the markets; availability of skilled and unskilled labour at low costs; assured G availability of other factors of production, government policies that protect their AN interests. The money that MNCs spend to buy assets such as land, building, machines and other equipment is called foreign investment. Any investment is made with the hope that these assets will earn profits. At times, MNCs set up production jointly with the local companies in these AL countries. The local company benefits by the additional investments and the latest technology that the MNCs bring. TE But the most common route for MNC investments is to buy these local companies and then to expand production. MNCs with huge amounts of wealth can quite easily do so. For example, Cargill Foods, a large American MNC, has bought over smaller Indian companies such as Parakh Foods. Parakh Foods had four edible T, oil refineries and a large marketing network in various parts of India, where its brand was well-reputed. With the takeovers, Cargill is now the largest producer of ER edible oil in India. In fact, many of the top MNCs have wealth exceeding the entire budgets of the governments of developing country. With such enormous amount of wealth, imagine SC the power and influence of these MNCs! There’s another way in which MNCs control production. Large MNCs in developed countries place orders for production with small producers. Garments, footwear, sports items are examples of industries where production is carried out by a large number of small producers around the world. The products are supplied to the MNCs, which then sell them under their own brand name to the customers. These large MNCs have tremendous power to determine the price, quality, delivery and labour conditions for these distant producers. Because of the MNCs, production in widely dispersed locations is getting interlinked. 120 Social Studies Globalisation  Foreign Trade and ‘WE WILL SHIFT THIS FACTORY TO Integration of Market ANOTHER COUNTRY. IT HAS BECOME EXPENSIVE HERE.’ For a long time, trade has been the main channel for connecting countries. In history, you would have read about the trade routes connecting India and South Asia to markets both in the East and West A and the extensive trade that took place along these routes. You would AN also remember that it was trading interests which attracted various trading companies such as East G India Company to India. What is the basic function of foreign trade? AN To put it simply, foreign trade creates an opportunity for the producers to reach beyond the domestic markets. Similarly, for the buyers, trade expands the choice of goods beyond what is domestically produced. Foreign trade, thus, results AL in connecting the markets or integration of markets in different countries. Ford Motors, an American company, is one of the world’s largest automobile TE manufacturers with production spread over 26 countries of the world. Ford Motors came to India in 1995 and spent Rs. 1700 crores to set up a large plant near Chennai. This was done in collaboration with Mahindra and Mahindra, a major Indian manufacturer of jeeps T, and trucks. By the year 2004, Ford Motors was selling 27,000 cars in the Indian markets, while 24,000 cars were exported from India to South Africa, Mexico and Brazil. The ER company wants to develop Ford India as a component supplying base for its other plants across the globe. SC Would you say Ford Motors is an MNC? Why? What is foreign investment? How much did Ford Motors invest in India? Free distribution by T.S. Government 2021-22 121  By setting up their production plants in India, MNCs such as Ford Motors tap the advantage not only of the large markets that countries such as India provide, but also the lower costs of production. Explain the statement. Why do you think would the company want to develop India as a base for manufacturing car components for its global operations? Discuss the following factors: (a) cost of labour and other resources in India (b) the presence of several local manufacturers who supply auto parts to Ford Motors A (c) closeness to a large number of buyers in India and China AN In what ways will the production of cars by Ford Motors in India lead to interlinking of production? In what ways is an MNC different from other companies? G Nearly all major multinationals are American, Japanese or European, such as AN Nike, Coca-Cola, Pepsi, Honda, Nokia. Can you guess why? MNCs and Globalisation In the past three or four decades, more and more MNCs have been looking for AL locations around the world which would make production cheaper for them. Foreign investment by MNCs in these countries has been rising. At the same time, foreign TE trade between countries has been rising rapidly. A large part of foreign trade is also controlled by MNCs. For instance, the car manufacturing plant of Ford Motors in India not only produces cars for the Indian markets, it also exports cars to other developing countries and exports car components for its many factories around T, the world. Likewise, activities of most MNCs involve substantial trade in goods and services. ER What was the main channel for connecting the countries in the past? How is it different now? SC Distinguish between foreign trade and foreign investment. In recent years, China has been importing steel from India. Explain how the import of steel by China will affect: (a) steel companies in China. (b) steel companies in India. (c) industries buying steel for production of other industrial goods in China. How will the import of steel from India into the Chinese markets lead to integration of markets for steel in the two countries? 122 Social Studies Globalisation Chinese manufacturers started exporting plastic toys to India. Buyers in India now have the option of choosing between Indian and the Chinese toys. Because of the cheaper prices and new designs, Chinese toys became popular in the Indian markets. Within a year, 70 to 80 per cent of the toy shops have replaced Indian toys with Chinese toys. Toys are now cheaper in the Indian markets than earlier. For the Chinese toy makers, this trade provided an opportunity to expand their business. This situation is different for Indian toy makers. Competition has forced some of the Indian producers to innovate, whereas others have perished. A The result of greater foreign investment and greater foreign trade has been AN greater integration of production and markets across countries. Globalisation is a process of rapid integration or interconnection between countries. MNCs are playing a major role in the globalisation process. More and more goods and services, G investments and technology are moving between countries. Most regions of the world are now in closer contact with each other as compared to a few decades back. AN The flow of capital, people and technology is supposed to have created a borderless world. As a result, states lose power to determine many aspects of life even within their borders. For instance, the most important decisions regarding the value of a currency, which were earlier made by sovereign governments, are today AL made outside government corridors and more often by market players and forces over which governments have very little control. TE Factors that have enabled Globalisation GLOBALISATION IS Technology FUN, MADE THE Rapid growth of technology has been one WORLD FLAT. major factor that has stimulated the T, YES. YOU HAVE TAKEN globalisation process. For instance, the past AWAY OUR HILLS AND fifty years have seen several improvements in ER TREES. BE CAREFUL, YOU transportation technology. As a result, goods ARE PLAYING WITH MY are delivered faster across long distances at WORLD. IT’S OURS TOO. lower costs. SC The developments in information and communication technology have been even more remarkable and rapid. Telecommunication facilities (telegraph, telephone including mobile phones, fax) are used to contact one another around the world, to access information instantly and to communicate from remote areas. This has been facilitated by satellite communication devices. Computers have now entered almost every field of activity. You might have also ventured into the amazing world of internet, where you can obtain and share information on almost anything you want to know. Internet also Free distribution by T.S. Government 2021-22 123  What is the role of MNCs in the process of globalisation ? What are the various ways in which countries can be linked? Choose the correct option: Globalisation, by connecting countries, results in (a) lesser competition among producers. (b) greater competition among producers. (c) no change in competition among producers. A allows us to send instant electronic mail (e-mail) and talk (voice-mail) across the world at negligible costs. AN Liberalisation of foreign trade and foreign investment policy Let us return to the example of import of Chinese toys in India. Suppose, the Indian government imposes a tax on import of toys. And because of the tax, buyers G will have to pay a higher price on imported toys. Chinese toys will no longer be as cheap in the Indian markets, imports from China will automatically reduce and Indian toy-makers will prosper. AN Tax on imports is an example of trade barrier. It is called a barrier because some restriction has been set up. Governments can use trade barriers to increase AL or decrease (regulate) foreign trade and to decide what kinds of goods and how much of each, should come into the country. The Indian government, after Independence, had put barriers to foreign trade TE and foreign investment. This was considered necessary to protect the producers within the country from foreign competition. Industries were just coming up in the 1950s and 1960s and competition from imports at that stage would not have allowed these industries to survive. Thus, India allowed import of only essential items such T, Urban India Rural India ER SC Some 20 years ago: Some 20 years ago: Rural India “We had electricity problem.” Urban India “We got fast connections Currently in Rural India “We are still for computers.” Currently in Urban struggling for stable power connections. India “We got internet on mobiles too.” We don’t know about 3G and 4G.” 124 Social Studies Globalisation  In this example, underline the words A news magazine published for London describing the use of technology readers is to be designed and printed in in production. Delhi. The text of the magazine is sent How is information technology through Internet to the Delhi office. The connected with globalisation? designers in the Delhi office get instructions Would globalisation have been on how to design the magazine are given possible without the expansion of from the office in London using IT? A telecommunication facilities. The designing AN is done on a computer. After printing, the magazines are sent by air to London. Even the payment of money for designing and printing from a bank in London to a bank in Delhi is done instantly through the Internet (e-banking)! G as machinery, fertilisers, petroleum etc. Note that all the developed countries, during the early stages of development, have given protection to domestic producers through a variety of means. AN However, around 1991, some far reaching changes in policy were made in India. The government identify that the time had come for Indian producers to compete AL with producers around the globe. It felt that competition would improve the performance of producers within the country since they would have to improve their quality. This decision was supported by powerful international organisations. TE Thus, barriers on foreign trade and foreign investment were removed to a large extent. This meant that goods could be imported and exported easily and foreign companies could also set up factories and offices here. Removing barriers or restrictions set by the government is known as T, liberalisation. With liberalisation of trade, businesses are allowed to make decisions freely about what they wish to import or export. The government imposes less ER restrictions than earlier and is therefore said to be more liberal. We must now ask ourselves what actually drives globalisation. Is it a political decision or is it an economic and technological revolution? Economic proponents SC of globalisation argue that it is the economic forces that are responsible for globalisation and control its contours and borders. Those holding the political line argue that it is the government decisions that allow movement in the first place. Governments place restrictions or ease regulations. The attractiveness or unattractiveness of places has to do with the political climate and not necessarily the market conditions. Therefore the territory still matters. In reality, both are connected. We must remember that political decisions are taken in a particular context which accounts for the economic and technological change that has already taken place. Free distribution by T.S. Government 2021-22 125 Institutions of Global Governance Today, many decisions on key issues that affect large parts of the world are taken by institutions of global What do you understand by governance. A good example is the liberalisation of foreign trade? issue of climate change. Initially, the Tax on imports is one type of trade issue of reducing carbon emissions were left to individual countries. barrier. The government could also However, it was soon found that if one place a limit on the number of goods country were to attempt to reduce A that can be imported. This is known carbon emissions, industry could just as quotas. Can you explain, using the shift to another location where there AN example of Chinese toys, how quotas are lower regulations. Consequently, can be used as trade barriers? Do you the issue of carbon emissions and climate change has to be tackled by think this should be used? Discuss. countries together. G Let us look at another institution of global governance, the WTO, in slightly more detail. World Trade Organisation (WTO) AN We read earlier that the liberalisation of foreign trade and investment in India was supported by some very powerful international organisations. These AL organisations believe that barriers to foreign trade and investment are harmful. Trade between countries should be ‘free’ without any barriers. World Trade Organisation (WTO) is one such organisation whose aim is to liberalise international TE trade. Started at the initiative of the developed countries, WTO establishes rules regarding international trade, and sees that these rules are obeyed. Nearly 150 countries of the world are currently members of the WTO. Though WTO is supposed to allow free trade for all, in practice it is often seen T, that the developed countries have unfairly retained trade barriers. On the other hand, WTO rules have forced the developing countries to remove trade barriers. An ER example of this is the current debate on trade in agricultural products. Impact of Globalisation in India What has been the effect of globalisation on the lives of people? Globalisation has been of advantage to consumers, particularly the well-off sections in the urban SC areas. There is greater choice before these consumers who now enjoy improved quality and lower price products. As a result, these people today enjoy much higher standards of living than was possible earlier. Among producers and workers, the impact of globalisation has not been uniform. Firstly, MNCs have increased their investments in India, which means investing in India has been beneficial for them. MNCs have been interested in industries such as cell phones, automobiles, electronics, soft drinks, fast food or services such as banking in urban areas. These products have a large number of well-off buyers. In these industries and services, new jobs have been created. Local companies supplying raw materials etc. to these industries have also prospered. 126 Social Studies Globalisation  Secondly, several of the top Indian companies have been able to benefit from the increased competition. They have invested in newer technology and production methods and raised their production standards. Some have gained from successful collaborations with foreign companies. The agriculture sector provides the bulk of Fill in the blanks. employment in India. Compare this with a WTO was started at the initiative of developed country such as the US with the ________ countries. The aim of the share of agriculture in GDP at 1% and its WTO is to _____. WTO establishes A share in total employment a tiny 0.5%! And rules regarding _________ for all yet this very small percentage of people who countries, and sees that _____. In AN are engaged in agriculture in the US receive massive sums of money from the US practice, trade between countries is government for production and for exports not ______. Developing countries to other countries. Due to this large amount like India have _________, whereas G of money that they receive, US farmers can developed countries, in many cases, have continued to provide protection sell the farm products at abnormally low prices. The surplus farm products are sold in the markets in other country at low prices, AN to their producers. What do you think can be done so that adversely affecting farmers in these trade between countries is fairer? AL countries. In the example on the left, we saw Developing countries are, therefore, asking that the US government gives massive the governments of developed country, “We TE sums of money to farmers for have reduced trade barriers as per WTO rules. But you have ignored the rules of WTO production. At times, governments and have continued to pay your farmers vast also give support to promote sums of money. You have asked our production of certain types of goods, T, governments to stop supporting our such as those which are farmers, but you are doing so yourselves. Is environmentally friendly. Discuss ER this free and fair trade?” whether these are fair or not. Moreover, globalisation has enabled some large Indian companies to emerge SC as multinationals themselves! Tata Motors (automobiles), Infosys (IT), Ranbaxy (medicines), Asian Paints (paints), Sundaram Fasteners (nuts and bolts) are some Indian companies which are spreading their operations worldwide. Globalisation has also created new opportunities for companies providing services, particularly those involving IT. The Indian company producing a magazine for the London based company and call centres are some examples. Besides, a host of services such as data entry, accounting, administrative tasks, engineering are now being done at cheaper costs in countries such as India and are exported to the developed countries. Free distribution by T.S. Government 2021-22 127 Small producers: Compete or perish For a large number of small producers and workers, globalisation has posed major challenges. In recent years, the central and state governments in India have been taking special steps to attract foreign companies to invest in India. Industrial zones, called A Special Economic Zones (SEZs), are being set AN up. SEZs are to have world class facilities: electricity, water, roads, transport, storage, Ravi did not expect that he would recreational and educational facilities. have to face a crisis in such a short pe- G Companies who set up production units in riod of his life as an industrialist. Ravi the SEZs do not have to pay taxes for an initial took a loan from the bank to start his own company producing capacitors in 1992 in Hosur, an industrial town in AN period of five years. Government has also allowed flexibility in the labour laws to attract foreign investment. Instead of hiring Tamil Nadu. Capacitors are used in many AL workers on a regular basis, companies hire electronic home appliances including workers ‘flexibly’ for short periods when tube lights, television etc. Within three there is intense pressure of work. This is TE years, he was able to expand production done to reduce the cost of labour for the and had 20 workers under him. company. However, foreign companies are demanding further flexibility in labour laws. How has competition benefitted T, the people in India? Should more Indian companies Write an imaginary caption for the image ER here. What does it tell about the emerge as MNCs? How would it globalisation benefit the people in the country? Why do governments try to attract SC more foreign investment? Elsewhere, we read that what may be development for one may be destructive for others. The setting of SEZs has been opposed by some people in India. Find out who are these people and why are they opposing it. 128 Social Studies Globalisation  His struggle to run his company started when the government removed re- strictions on imports of capacitors as per its agreement at WTO in 2001. His main clients, the television companies, used to buy different components in- cluding capacitors in bulk for the manufacture of television sets. However, com- petition from the MNC brands forced the Indian television companies to move into assembling activities for MNCs. Even when some of them bought capaci- tors, they would prefer to import as the price of the imported item was half the price charged by people like Ravi. A Ravi now produces less than half the capacitors that he produced in the year AN 2000 and has only seven workers working for him. Many of Ravi’s friends in the same business in Hyderabad and Chennai have closed their units. What are the ways in which Ravi’s small production unit was affected by rising G competition? AN Should producers like Ravi stop production because their cost of production is higher compared to producers in other countries? What do you think? Recent studies point out that small producers in India need three things to AL compete better in the market: (a) better roads, power, water, raw materials, marketing and information network, (b) improvement and modernisation of technology, and (c) timely availability of credit at reasonable interest rates. TE Explain how these three things would help Indian producers. Do you think MNCs will be interested in investing in these? Why? Do you think the government has a role in making these facilities available? T, Why? Think of any other steps that the government could take. Discuss. ER The Struggle for Fair Globalisation The above evidence indicates that not everyone has benefited from globalisation. SC People with education, skill and wealth have made the best use of the new opportunities. On the other hand, there are many people who have not shared the benefits. Since globalisation is now a reality, the question is how to make globalisation more ‘fair’? Fair globalisation would create opportunities for all, and ensure that the benefits of globalisation are shared better. The government can play a major role in making this possible. Its policies must protect the interests not only of the rich and the powerful, but also the interests of all the people in the country. You have read about some of the possible steps that the government can take to ensure this. For instance, the government can ensure Free distribution by T.S. Government 2021-22 129