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It can be defined as a process of
economic integration of the entire world
through the removal of barriers to free
trade and capital mobility as well as
diffusion of knowledge and information
It would mainly consist of
Globalisation of Production
Globalisation of Markets
National Controls/ Barriers to Entry
Orientations of Management (EPRG)
International Monetary Framework
World Trading System
Regional Trade Agreement
Domestic Economic Growth
Communications & Transportation
Global/ Transnational Corporations
Beginning of 1990s saw growth of US as a
major Economy followed by Japan and
It could be attributed to ,willingness of US
business to cut their workforce,reorganize
their operations, invest heavily in R & D
OECD; organization for economic and
Cooperation Development (OECD); A
group of 30 wealthy members countries
that facilitates a forum for the discussion
of economic, social and governance issues
across the world.
International Business has seen the
emergence of trade and investment
GATT ; General agreement on Tariffs and
Trade; was established to negotiate trade
concession among member countries. It
gave way to WTO
WTO; World Trade Organisation; deals
with the rules of trade among member
countries. One of the most important
function is to act as a dispute settlement
The 3 major trading and investment blocs in
the international arena: the US, EU and
US has the largest economy of the world
with GDP of over 10$ trillion
NAFTA ;North American Free trade
agreement between the Canada, the US and
EU; today there are 15 members and large
number are applicants
The collective GDP of EU is greater than US
Technology for production of Goods
Quality standards and technology
Reasons For Entering
Achieving Economics of Scale
Access to Imported Inputs
Uniqueness of Product or Service
Business Opportunities due to life cycle
Spreading R & D Costs
ETHNOCENTRIC; home country is
superior,sees similarities in foreign countries
POLYCENTRIC; Each host country is unique,
sees differences in foreign countries
REGIOCENTRIC; sees similarities and
differences in world region; is ethnocentric
or regiocentric in its view of the rest of the
GEOCENTRIC; world view, sees similarities
and differences in home and host countries
Evolutionary process of
Global Business / Transnational
Extending to similar market
Extends Business, manufacturing and other
activities in other countries
It normally has an international division
Focus is on home country market
Business strategy is extension
Adaptation of Business mix
Multidomestic strategy,each subsidy is an
Will either have a global Business strategy or
a global sourcing strategy but not both
Key assets are in home country
Works in integration, linking global resources
with global markets at a profit
Geocentric in approach
Recognizes similarities and differences and
adopts a world view to add value
Key assets are dispersed interdependent and
Experience and knowledge are shared globally
It is a ranking of globalised countries
carried out by A T Kearnery
It has following key components
Personal Integration;telephone, travel,
remittances, personal transfers
Technology Integration;Internet users,
Internet hosts, secure Internet services
organisations, UN peacekeeping, treaties and
Definitions Of The Term “Liberalization”
and “Economic Liberalization”
The term “Liberalization” stands for “the act of making less
Liberalization in Economy stands for “The process of
making policies less constraining of economic activity." And
also “Reduction of tariffs and/or removal of non-tariff
Economic liberalization is a very broad term that usually
refers to fewer government regulations and restrictions in the
economy in exchange for greater participation of private
In developing countries, economic liberalization refers
more to liberalization or further "opening up" of their
respective economies to foreign capital and
The fastest growing developing economies today;
Brazil, Russia, India, and China have achieved rapid
economic growth in the past several years or decades
after they have "liberalized" their economies to
Pre-Liberalization Era of Indian
The low annual growth rate of the economy of India
before 1980, which stagnated around 3.5% from
1950s to 1980s, while per capital income averaged
Only four or five licenses would be given for steel,
power and communications. License owners built up
huge powerful empires.
A huge public sector emerged. State-owned
enterprises made large losses.
License Raj established the "irresponsible, self-
perpetuating bureaucracy that still exists throughout
much of the country”.
Infrastructure investment was poor because of the
public sector monopoly.
Indian economy had experienced major policy changes
in early 1990s.
The new economic reform, popularly known as,
Liberalization, Privatization and Globalization (LPG
model) aimed at making the Indian economy as fast
growing economy and globally competitive.
The series of reforms undertaken were in respect to
industrial sector, trade as well as financial sector
aimed at making the economy more efficient.
Liberalization in Indian Economy
With the onset of reforms to liberalize the Indian
economy in July of 1991, a new chapter has dawned
for India and her billion plus population.
This period of economic transition has had a
tremendous impact on the overall economic
development of almost all major sectors of the
economy, and its effects over the last decade can
hardly be overlooked.
Besides, it also marks the advent of the real
integration of the Indian economy into the global
This era of reforms has also ushered in a
remarkable change in the Indian mindset, as it
deviates from the traditional values held since
Independence in 1947.
Such as self reliance and socialistic policies of
economic development, which mainly due to the
inward looking restrictive form of governance.
Resulted in the isolation, overall backwardness and
inefficiency of the economy, amongst a host of other
Though, India has always had the potential to be on
the fast track to prosperity.
Now that India is in the process of restructuring her
economy, with aspirations of elevating herself from her
present desolate position in the world.
The need to speed up her economic development is even
And having witnessed the positive role that Foreign Direct
Investment (FDI) has played in the rapid economic growth
of most of the Southeast Asian countries and most notably
India has embarked on an ambitious plan to emulate the
successes of her neighbors to the east and is trying to sell
herself as a safe and profitable destination for FDI.
Definitions Of The Term “Privatization” and
The term “Privatization” refers to “The transfer of
ownership of property or businesses from a
government to a privately owned entity.”
The transition from a publicly traded and owned
company to a company which is privately owned and
no longer trades publicly on a stock exchange.
The process of converting or "selling off"
government-owned assets, properties, or production
activities to private ownership.
After several decades of increasing
government control over productive
activities, privatization came into vogue in
the 1980s, along with business deregulation
and an overall movement toward greater
use of markets.”
Privatization is frequently associated with
industrial or service-oriented enterprises,
such as mining, manufacturing or power
generation, but it can also apply to any
asset, such as land, roads, or even rights to
In recent years, government services such as health,
sanitation, and education have been particularly
targeted for privatization
Privatization helps establish a "free market", as well
as fostering capitalist competition, which will give the
public greater choice at a competitive price.
Reason for Indian Privatization
1. Crippling Budget deficit
2. Spectacular growth by economies of Korea,
Taiwan, Malaysia in private sector
3. Collapse of USSR& communist government in
4. Changes in China
5. Emergence of professional management
6. IMF & World Bank extended arm to capitalism
8.Lack of demand in economy
9.Integration of world trade
10. Developed local capital market and Financing
•To STENGTHEN Competition
•To improve public finance
•To fund Infrastructure Growth
•Accountability of share holders
•To reduce unnecessary interference
The main reason for increased efficiency gain as a result
of privatization can be attributed to
(i)Less political interference in decision making
(i)Staff remuneration is more closely linked to productivity
(ii)Firm are exposed to open market discipline as opposed to
(iii)Firm’s cost reducing effort are higher under competitive
Key obstacle to privatization
(i)Lack of strong and high level political commitment to the
(ii) Unclear and weak institutional frame work-
decentralized or centralized. (ministry and provincial
iii) Lack of proper preparation of enterprise for
privatization or divestment eg. Accounting and auditing ,
treatment of losses, social and environmental safety net
(iv) Insufficient transparency and flexibility in
term of the method of privatization, balancing,
ownership, and control (corporate governance)
(v) Vested interest of manager, employees and
(vi) Lack of appropriate legal frame work (eg.
Property right, foreign ownershipbankruptcy
(vii) Underdeveloped capital markets
WAYS OF PRIVATIZATION
PREMITING PRIVATE SECTOR ENTER INTO
PSU RESERVED AREA
Foreign Exchange Management
The Foreign Exchange Regulation Act of 1973
(FERA) Enacted in 1973, in the backdrop of
acute shortage of Foreign Exchange in the
FERA had a controversial 27 year stint during
which many bosses of the Indian Corporate
world found themselves at the mercy of the
Enforcement Directorate (E.D.).
FERA was repealed on 1st June, 2000. It was
replaced by the Foreign Exchange Management Act
(FEMA), which was passed in 1999.
FEMA is an Act to consolidate and amend the law
relating to foreign exchange with the objective of
facilitating external trade and payments and for
promoting the orderly development and maintenance
of foreign exchange market in India.
It extends to the whole of India and also
applies to all branches, offices and
agencies outside India, owned or
controlled by a person resident in India.
•Facilitate external trade and payments.
•Promote the orderly development and
maintenance of Foreign exchange market
Dealings in Foreign Exchange :
•Section 3 of FEMA imposes restrictions on
dealings in foreign exchange and foreign
security and payments to and receipts
from any person outside India.
•Accordingly except as provided in terms of
the act, or with the general or special
permission of the Reserve Bank , no
person shall :
Deal in any foreign exchange or foreign
security with any person other than an
authorized person .
Make any payment to or for the credit of any
person resident outside India in anymanner.
Receive otherwise through an authorized
person , any payment by order or on
behalf of a person resident outside India
in any manner.
Enter in to any Financial Transaction in India
as a consideration for or in
association with acquisition or creation or
transfer of a right to acquire , any asset
outside India by any person.
Holding of Foreign Exchange:
•Save as otherwise provided in this act ,
no person resident in India shall acquire ,
hold , own , possess or transfer any
foreign exchange , foreign security or any
immediate property situated outside India.
Current Account Transactions:
•FEMA permits dealings in Foreign
exchange through authorized persons for
current account transactions. However the
central govt. can impose reasonable
restrictions in public interest.
Capital account Transactions:
Any person shall sell or draw foreign
exchange to or from an authorized person for
a capital account Transaction permitted by
the RBI in consultation with the central govt.
A person resident in India may hold , own,
transfer or invest in foreign currency , foreign
security or any immovable property situated
outside India if such currency , security or
property was acquired , held or owned by
such person when he was resident outside
India or inherited from a
person who was resident outside India.
The RBI is empowered by this act to
prohibit , restrict, or regulate establishment
in India of a branch, office or other place of
business by a person resident outside India
for carrying on any such activity relating to
such branch, office or other place of
Export of Goods and services:
Every exporter of goods shall furnish to
RBI or to such other authority a
declaration as specified containing true
and correct material, particulars ,
including the amount representing the
full export value.
Contravention and Penalties:
•Any kind of contravention under this act is
liable to a penalty up to thrice the amount
involved where it is quantifiable or up to 2
lakhs where it is not quantifiable.
•Further penalty may extend up to five
thousand rupees for every day after the
•In FERA there was provision for
imprisonment and no limit on fine.
In FEMA a person will be liable to civil
imprisonment only if he does not pay the
fine within 90 days from the date of notice.