One of the important features of the world economy today is that it is globalizing at a fast pace, and the different economies of the world are coming closer to one another in terms of economic relations. The process of global integration is being actively debated, particularly among the developing countries in terms of its impact on domestic economic policies and the rate of economic growth. Globalisation is now being accepted as an inescapable reality and is being built into the process of economic reforms in a number of developing and emerging market economies in East Asia, South Asia, Eastern Europe, Africa and Latin America. The developed and industrial countries already have a high level of international integration. In other parts of the world, a number of countries are moving away from autarkic structures towards open economic systems through international trade, investment, tourism, information exchange and socio- cultural relations.

In India, though globalization is not the explicit objective of macroeconomic policy, yet it is an important pillar of the structure of economic reforms. It may be debatable whether globalization has been accepted by choice or as a force of compulsion, but the fact is that the national and sectoral policies have been designed to develop linkages of the various sectors of the economy with the rest of the world. The process has been slow but the economy is gradually adjusting itself in the global framework and is facing a number of transitional opportunities, challenges and threats. These issues have been taken up in the subsequent sections.

What is Globalisation?

Globalisation is the process of international integration of products, technologies, human resources, capital, information and cultures. It is characterised by increasing social and economic openness and growing interdependence between the countries of the world. As globalization progresses, economic, social and political systems of different countries more freely interact with one another and adapt to promote further interaction. Globalisation, therefore, is not a purely economic or business concept but also has social, cultural and political

dimensions. Globalisation is greatly aided by the social and economic necessity of different countries to come closer to one another and the willingness of their respective governments for the same. There are a number of global concerns like bio-diversity, environmental protection, poverty, sustainable development and international security and co-operation which require global action and solution. Such issues help the different countries to come closer to one another.

Globalisation of Economy

Economic Globalisation refers to the process wherein national economies to a greater or lesser extent, gets absorbed into an interlocking global macro economy. The OECD (1995) thus defined globalization as ‘a shift from a world of distinct national economies to a global economy in which production is internationalized, and financial capital flows freely and instantly between countries’. However, economic globalization should be distinguished from internationalization (discussed later in this chapter). The development of transborder and transnational economic structures has remained a central feature at the world stage, since imperialism. The high point of economic globalization came in the late nineteenth century with the scramble of European states for colonies in Africa and Asia.

Earlier forms of globalizations sometimes seen as ‘proto-globalization’, usually established transnational economic organization to further expansionist political projects. Regardless of their spread and success, empires never succeeded in wiping out boundaries and borders, they merely readjusted them to the benefit of politically dominant powers, establishing new boundaries between the ‘civilized’ world and the ‘barbarian’ one. In the case of the contemporary phenomenon of globalization, the web of economic interconnectedness and interdependence has extended so far that one can possibly for the first time in the history, conceive the world economy as a unified unit. This is the sense in which the economic life has become borderless (Ohmae 1990.

The global economy is not the creation of economic and technological forces alone; political and ideological factors also played an important role. Far from having sidelined states, globalization may, in certain respects, be a tool through which powerful states, and especially the USA, have achieved several of their objectives. So much so that today the world economy is better perceived as a ‘globalizing’ economy than as a ‘global’ economy. Modern economic life is increasingly being shaped up by processes that have a regional and global, and not only national, character. However, the significance of national, regional and global levels differs significantly in different economic sectors and types of activity, and, of course, at different places across the world. Economic globalization is certainly not, an even process. Global interconnectedness has nevertheless increased in a variety of ways. The most important of these include the following:

  • International trade
  • Transnational production
  • Global division of labour
  • Globalized financial system

As a result of which the current world economic landscape can be detailed as follows:

Advances in communication and transportation technology, combined with free-market ideology, have given goods, services, and capital unprecedented mobility. Northern countries want to open world markets to their goods and take advantage of abundant, cheap labor in the South, with policies often supported by Southern elites. They use international financial institutions and regional trade agreements to compel poor countries to “integrate” by reducing tariffs, privatizing state enterprises, and relaxing environmental and labor standards. The results have enlarged profits for investors but offered pittances to laborers, provoking a strong backlash from civil society.

Globalisation of Politics

Political globalization refers to the growing importance of international organizations. These are organizations that are transnational, such that they exert influence not within a single state, but across an international area comprising several states. Traditionally politics has been undertaken within national political systems. National governments have been ultimately responsible for maintaining the security and economic welfare of their citizens, as well as the protection of human rights and the environment within their borders. With global ecological changes, an ever more integrated global economy, and other global trends, political activity increasingly takes place at the global level.

In a globalized world, politics takes place above the state through political integration schemes such as the European Union and through intergovernmental organizations such as the International Monetary Fund, the World Bank and the World Trade Organization. Political activity transcend national borders through global movements and NGOs. Civil society organizations act globally by forming alliances with organizations in other countries, using global communications systems, and lobbying international organizations and other actors directly, instead of working through their national governments. However, the kind of political globalization and its consequences for the state vary depending upon whether it is modeled on the principle of intergovernmentatlism or supranationlism. Intergovernmental international organizations provide a mechanism that empowers states, at least in theory, to take concerted action without sacrificing sovereignty. Supranational bodies, on the other hand, are able to insist over their wills on states. Most commentators nevertheless accept that political globalization lags significantly behind economic and cultural forms of globalization. What remains answered is that if this process of globalisation has had any effects on the sovereignty of the state. It is very difficult to argue that the state and sovereignty have not been affected by the forces of globalization. This particularly applies in the case of the territorial jurisdiction of the state. The age old theory of sovereignty was based on the idea that state had supreme control over what took place within their borders, so much so that they also controlled what crossed their borders. However, developments such as the rise of international migration and the spread of cultural globalization have turned state borders increasingly ‘permeable’. This can be seen in the growth of cross-border communications and information exchange through, for instance, radio, satellite television, mobile telephones and the internet, which takes place both at a speed and in quantities that defy the capability of any state to detect them, still less effectively control them. Most of the discussion about the transforming nature and power of the state has nevertheless concerned the impact of economic globalization. One of the primary features of economic globalization is the rise of ‘superaterritorality’, reflected in the declining importance of territorial locations, geographical expanse and state borders. An increasing range of economic activities take place within a ‘borderless world’ (Ohmae 1990). If border have become permeable and old geographical certainties have been compromised, state sovereignty, at least in its traditional sense, cannot survive. This is the point at which governance in the twenty-first century has assumed a genuinely post-sovereign character.

Globalisation of Culture

Cultural Globalization is the process along which information, commodities and images that have been produced in one part of the world enter into a global sync that tends to ‘flatten out’ cultural differences between nations, regions and individuals. Cultural globalization is closely connected and emerged in association with economic globalization and the communication and information revolution. Technology has now created the possibility and even the likelihood of a global culture. The Internet, fax machines, satellites, and cable TV are sweeping away cultural boundaries. Global entertainment companies shape the perceptions and dreams of ordinary citizens, wherever they live. However, where cultural globalization generates homogenization or cultural ‘flattening’, it also generates polarization and diversity. The latter may occur both because cultural products spread more widely if they adapt to local traditions and understandings, and because the perceived domination by foreign ideas, values and lifestyles can give rise to a cultural backlash, fuelling the rise of ethnic, religious or national movements.

The process of cultural globalization has often been seen to be yet more significant. In this view, the essence of globalization is the process wherein cultural differences between nations and regions are day-to-day being ‘flattened out’. Such an approach to globalization links it to cultural homogenization, as cultural diversity is weakened or destroyed in a world in which everybody has access to the same television programmes, they buy the same commodities, eat the same food, support the same sports celebrities, follow the antics of the same ‘global figures’, and so on. The chief factors fuelling cultural globalization have been the growth of TNCs, and especially global media corporations (such as AOL-Time Warner, Viacom, Disney, News Corporation, Vivendi Universal and Bertelsmann AG), the growing popularity of international travel and tourism and of course, the information and communications revolution.

Many commentators see cultural globalization having a ‘top-down’ approach, the establishment of a single global system that imprints itself on all parts of the world; in effect, a global monoculture. From this perspective, cultural globalization will result into a form of cultural imperialism, emphasizing that cultural flows are among unequal partners and are used as a means through which powerful states exert domination over weaker states, and as dominant a state can be in this sphere, as strong is considered its soft power. Some therefore portray cultural globalization as ‘westernization’ or, more specifically, as ‘Americanization’. The portrayal of globalization as homogenization is at best a partial one, however. Globalization often goes hand in hand with localization, regionalization and multiculturalism. The fear or threat of homogenization, especially when it is obeserved being imposed ‘from above’, or ‘from outside’, provokes cultural and political resistance.

In one of the most influential documentation of trends in global consumerism, Benjamin Barber (2003) portrayed the emerging world as a ‘McWorld’. McWorld is held together by technology, ecology, communications and commerce, giving rise to a ‘shimmering scenario of integration and uniformity’ in which people across the world are mesmerized by ‘fast music, fast computer, fast food – with MTV, McIntosh and McDonald’s, limiting nations into one commercially homogeneous theme park’. Along these developments, there has been an increasing standardization of business organization and practices, commonly referred to as ‘McDonaldization’. The foundation for the spread of McWorld has been the seemingly relentless spread of materialist values, based on the notion of an intrinsic link between wealth and happiness.

Globalisation of Law

Law has traditionally been the province of the nation state, whose courts and police enforce legal rules. By contrast, international law has been comparatively weak, with little effective enforcement powers. But globalization is changing the contours of law and creating new global legal institutions and norms. The International Criminal Court promises to bring to justic odious public offenders based on a worldwide criminal code, while inter-governmental cooperation increasingly brings to trial some of the most notorious international criminals. Business law is globalizing fastest of all, as nations agree to standard regulations, rules and legal practices. Diplomats and jurists are creating international rules for bankruptcy, intellectual property, banking procedures and many other areas of corporate law. In response to this internationalization, and in order to serve giant, transnational companies, law firms are globalizing their practice. The biggest firms are merging across borders, creating mega practices with several thousand professionals in dozens of countries.

For centuries, jurists defined international law largely in terms of relations between sovereign states. After the Second World War it became clear that states did not always safeguard the rights of their citizens and the issue of protecting individuals became more important in international law. Consequently, individuals became increasingly seen as subjects of international law. In the 1990s, the Security Council set up special tribunals for the Former Yugoslavia and Rwanda to address the legal responsibilities of individuals in those conflicts.

In 2002, the “International Criminal Court” came into being with a broad mandate to consider genocide, war crimes, crimes against humanity and the crime of aggression. While very promising, the ICC has become embroiled in criticism that it focuses almost exclusively on criminal cases in Africa, without looking at breaches of the law elsewhere.

National courts have now begun to exercise jurisdiction over political leaders of other states under a concept known as “Universal Jurisdiction”. This allows national courts to pursue serious crimes even if committed by non-nationals and if the crime took place in another jurisdiction. The case of Augusto Pinochet broke new ground in 1998, when the former Chilean dictator was charged in Spain and arrested in the UK for crimes committed in Chile. Other high officials, such as Henry Kissinger of the US and Ehud Barak of Israel have been pursued in numerous jurisdictions and cannot travel freely for fear of arrest.

The “International Court of Justice” is the UN system’s highest judicial body. The ICJ settles legal disputes between states, who must agree to abide by the Court’s jurisdiction before their case will be heard. The ICJ also gives advisory opinions on legal questions submitted to it by UN bodies and agencies. In this section, we give particular emphasis to the relationship between the ICJ and the Security Council.

In response to the globalization of business law and in order to serve giant, transnational companies, law firms are globalizing their practice. The biggest firms are merging across borders, creating mega practices with several thousand professionals in dozens of countries.



Globalisation Glocalisation
Organization Worldwide Concentrated in the Triad (EU, North America and Japan)
Locational requirements Comparative advantage and economies of scale Depressed regions of major international trade blocs
Labour and management Foreign managers in senior ranks; spatial division of labour Very difficult for foreign managers to reach senior ranks
Market Production for world markets Geographically dispersed Production for local or regional markets Geographically concentrated
Export-orientated strategy Export-orientated strategy

Levels and Indicators of Globalisation

Globalisation can be perceived over a wide spectrum of entities right from an individual firm to the world as a whole. These levels are discussed below.

World Level Globalisation

It is the highest level at which globalization can be perceived. Theoretically speaking, there would be no globalization of the world if all the countries live in autarky. Globalisation process begins with international economic, social and political relations between the countries. Though these relations have important implications for international business, still the major focus from the standpoint of business environment is on economic or business relations between the countries. Globalisation at the world level has the following alternative indicators:

  • The share of world trade in world GDP
  • World stock of Foreign Direct Investment (FDI) in the world as a proportion of world GDP or world investment.
  • Total foreign output of Multinational Companies (MNCs) as percentage of world GDP.
  • Aggregate turnover in foreign exchange markets.
  • Total Balance of Payments (BoP) receipts of all the countries of the world as a proportion of world GDP.

Changes in the above parameters reflect the progress of globalization as seen from different angles. A few other indicators like cross-border transactions in financial securities, time spent in international communication and international tourist traffic also reflect movement towards globalization. In a globalizing world, there is an increasing cross-border-flow of human resources so that the share of expatriate population in the world population also serves as an indicator of globalization. Expatriate population spreads home country culture and social values and generates flow of international remittances.

Country-level Globalisation

Globalisation of a country is indicated by the extent to which it is integrated with the rest of the world. There are various interlinkages through which a large number of cross-border transactions are generated. A systematic record of these transactions with the rest of the world are recorded by all the countries in the form of balance of payments. The major international transactions include import and export of goods, services, private remittances, interest and dividend payments, foreign loans and investments, commercial borrowings and transactions with the International Monetary Fund. The main indicators of a country’s globalization level are the following:

  • Share of foreign trade (imports + exports) in national income (called foreign trade orientation).
  • Foreign investment (inward as well as outward) as a proportion of total domestic investment or national income.
  • Transactions in foreign exchange as a proportion of the total value of transactions in the economy.
  • International investment income flows (inward as well as outward) as a proportion of aggregate investment income (dividend plus interest plus royalty etc.) in the country.
  • Emigrant and immigrant population as a proportion of total population in the country.
  • International tourism traffic as a proportion of total population of the country.
  • The share of foreign output of domestic multinationals plus domestic output of foreign multinationals as a proportion of national income of the country.
  • Share of inward plus outward foreign remittances in national income.
  • Value of BoP credits plus debits as a proportion of national income.

Depending upon the nature of international linkages and external transactions, different indicators command different levels of significance in different countries. The above indicators are not mutually exclusive, there exists some degree of overlap between them. The indicators based on BOP flows or foreign exchange transactions are much more comprehensive than others. There are also a few transitory or intermediate indicators which point to the globalization level of a country. Such indicators are in terms of people-to-people contact (for example, through international telephone calls), exposure to international media (for example, foreign TV channels, magazines, etc.) and internet use.

Globalisation level of a country can also be assessed in terms of its sensitivity to changes in the economic or social conditions in other regions of the world. In this context, a few correlative measures may be used to show to what extent the economic changes in the country are related to the economic conditions abroad. In particular, correlation coefficients between the following pairs of variables can be used to indicate a country’s globalization level:

  • World price index and home price index.
  • Leading world stock price indices and home stock price index.
  • Mean level of world rate of interest and mean level of home country interest rate.
  • World growth rate and home country exports.
  • World growth rate and domestic growth rate.
  • Variations in the exchange rate of leading world currencies and exchange rate of home currency.

Globalisation generally tends to reduce the international differences in price levels, rates of interest and other macro-economic variables. The difference between the world level of these variables and the domestic macro variables can therefore be taken as indicators of globalization level. These differences are smaller in economies which are more open and globalised. Countries with capitalist economic system which operate on a competitive basis with relatively smaller direct intervention of the government are generally more globalised than the economies which have strong state monopolies, inward-looking economic policies or where government intervention and state control are widespread.

Industry-level Globalisation

Within a country, a few specific industries might be operating at the global level whereas others may be home-oriented. Such industries are those, which have high degree of technological advancement and strong competitive advantages on the basis of which they are able to compete in the world market. In developing countries in particular, such industries have significant presence in the form of multinational companies (MNCs). Because of their international linkages, they have better access to foreign markets and can do global sourcing for vital inputs like finance and technical expertise. They have wider choices in outsourcing and are in a better position to arrange international vertical integration of manufacturing processes to reduce cost, reduce tax liability and gain competitive edge. Some of the alternative indicators of the globalization level of an industry are the following:

  • Industry exports plus imports as a proportion of industry output.
  • Foreign investment in the industry plus foreign investment by the firms of the industry as a proportion of total investment in the industry.
  • Total foreign exchange transactions conducted by the firms in the industry as a proportion of total transactions of the industry.
  • Total foreign output as a proportion of total output (domestic plus foreign) of the firms in the industry.
  • Investment income received from abroad and repatriated as a proportion of total dividend plus interest paid by the firms in the industry to domestic and foreign entities.

Firm Level Globalisation

Within an industrial segment, individual firms can also operate globally. These firms can be foreign collaborations or domestic firms having global operations. These firms often have high level of technological development, strong competitive advantages, international outsourcing connections and access to foreign markers. These firms find entry to foreign markets through exporting, foreign direct investment, international licensing and franchising, joint ventures, assembly operations, contact manufacturing, management contracts or through strategic alliances and international market-sharing arrangements. These firms are generally mature and enjoy good reputation in domestic and foreign markets. Generally, they are able to attract foreign expertise and foreign portfolio investment in their bonds and equities. Most of the indicators for industry-level globalization can also be applied to indicate globalization at the firm level. Firm-level globalization is often triggered by survival strategies to retain oligopolistic position, international contacts, unique technological and material resource advantages, economies of scale and product and risk diversification.

Globalisation Trends

As already pointed out, the Indian economy has been gradually opening up under the process of economic reforms initiated in 1991. Over the last one decade or so, various sectors of the economy have been thrown open to foreign competition. Before the decade of 1980s, Indian economy was largely inward-oriented, highly protected and ridden with widespread state controls. During 1980s, the economy witnessed some relaxation and liberalization of government controls and economic policies as a result of which the linkages of the economy with the outside world increased.

Under economic reforms, the opening up and globalization for the economy has been slow but clear. In many segments, policies are already in place which are favourable to globalization but the trend is yet to emerge. In India, main measures taken in the direction of globalization of the economy are the following:

  • Trade liberalisation predominantly through reduction in import tariffs, removal of quantitative restrictions on imports, wide ranging incentives for exports and simplification and standardization of trade procedures and documentation.
  • Liberalisation of norms for the entry of multinational corporative and foreign direct investment.
  • Liberalisation of foreign exchange management regime.
  • Greater freedom to foreign institutional investors (FIIs) to participate in the money and capital markets of the country.
  • Convertibility of the rupee on current account. It means that subject to certain standard conditions and restrictions, rupee can be converted into foreign exchange and vice-versa for international transactions relating to foreign trade in goods and services, short-term banking and credit facilities, foreign debt servicing and moderate remittances for family maintenance.
  • Strengthening of trade infrastructure including ports.
  • Widening, deepening and streamlining of the foreign exchange market.
  • Wide-ranging policies and incentives to attract NRI funds and investments.
  • Greater freedom to corporate organizations to raise funds directly from abroad.

Benefits and Costs of Globalisation

As already pointed out, globalisation is not the explicitly declared policy objective of the government; rather, has been the consequence of economic liberalisation. It is in this sense that globalisation stands accepted as an inevitable phenomenon rather than a necessary evil or as a part of government policy. Nevertheless, globalisation might appear indirectly present on the list of objectives of macroeconomic policy. The various macroeconomic policies explicitly recognise the benefits of global integration and the precautions to be observed. There has, however, been an ongoing controversy regarding the benefits and costs of globalisation of the economy keeping in view the perennial problems like poverty and hunger, malnutrition, morbidity, unemployment, price instability, income inequality and growing marginalisation of social classes. There has also been a debate on whether the economy is ready and mature to face global competition. Apart from this, there have been issues relating to the safe limits and transition to globalisation. Main aspects of such issues are discussed in the following sections.

Gains and opportunities

Globalisation unfolds a number of gains and opportunities to the economy. Most of these are potential benefits. To what extent these are or can be realised depends upon such factors as the macroeconomic policy, economic institutional system, entrepreneurship and the overall nature of the production system including infrastructure which together determine the absorptive capacity of the economy. These factors are subject to slow change but gradual progress can be made through sustained efforts in this direction.

Competitive and Learning Effects

Globalisation adds new dimensions to domestic competition which spur the domestic firms towards higher efficiency, product innovation, cost cutting and greater professionalisation. Competition is introduced both through imports and foreign direct investment carried by multinational corporations. Domestic firms and entrepreneurs learn about new products, new technologies and new methods of management and try to adopt these in their own systems. A lot, of course, depends upon learning orientation and abilities as well as entrepreneurship. The firms which fail to learn from rivals are generally marginalised in the long run.

Technological Gains

Globalisation introduces not only new products but also new technologies. Technology encompasses many areas including production, distribution, promotion, information and communication, packaging, transportation, financial operations as well as management. Technology, both embodied and disembodied, is transferred through foreign direct investment, international licensing and franchising, management contracts, joint ventures, assembly operations and international consulting. There are also full-fledged open markets for technology from which product-specific technologies can be bought out on an outright basis. Firms with goods R&D base are also sometimes able to derive and learn technologies from product examination – a process which is known as reverse engineering. Countries living in autarky-like conditions or with limited openness are deprived of these gains.

Larger Markets

Globalisation provides larger markets to domestic producers by way of exports. Domestic firms are able to develop international marketing channels – both direct and indirect – which can be used to understand the nature of foreign demand and to export products accordingly. Foreign markets appear to be a boon in times of domestic recession. Since domestic and foreign demand and competitive situations vary markedly, on many occasions, domestic firms are able to realise high prices from foreign markets – often a multiple of domestic prices. The firms gain better image through global operations which helps them to attract better managerial talents.

Outsourcing and Sub-contracting Advantages

Globalisation provides many sourcing advantages. Firms with worldwide contacts are able to do global sourcing for funds and reduce the cost of capital. They can outsource technology, distribution and even consumer research. Subcontracting arrangements can be negotiated which enable the domestic firms to remain focused on their core-competence areas. These advantages enhance operational efficiency and help in compressing costs. Due to these advantages, international sub-contracting has been on the rise in recent years.

Greater Specialisation

Globalisation provides motivation to domestic firms to specialise in areas where they have competitive or comparative advantage. Each firm enjoys advantage in certain functional or product areas where it has good competence to compete in the market. Core-competence versus diversified operations continues to be a major debate area in strategic management. Though it is not possible to draw a universal conclusion, the widely accepted fact is that entry of a firm in non-competence areas raises costs and reduces overall competitiveness. To stay successfully in competition, globalisation provides a good inducement to firms to remain close to their competence areas. At the national level, it saves resources and promotes growth and exports.

Price Stabilisation

Globalisation can be expected to reduce international differences in price levels. Theoretically, when a export-surplus country trades with a deficit country, prices tend to recover in the former and come down in the latter country. Under free trade and competitive conditions, international price differences should reflect only the additional risk factors, transportation and distribution costs, if mark-ups are not disturbed. For a particular country, international trade as a driver of globalisation provides a route to production surplus and a channel to meet shortages. Price stability is an important factor for a conducive environment.

International Investment Co-operation

Countries with a higher degree of globalisation generally tend to have larger international investment inflow, other things being equal. Foreign investors need freedom to operate or transfer funds globally in order to meet their corporate objectives. Globally integrated countries provide an excellent environment to international investment – both direct and portfolio. Foreign investment further promotes globalisation. For the recipient country, foreign investment supplements domestic resources, brings in foreign exchange, improves balance of payments and gives strength to the domestic currency. Foreign direct investment, as pointed out above, also provides the benefit of technology transfer.

International Economic Cooperation

Globally integrated economies reap in the fruits of international economic cooperation. The cooperation comes in the form of trade agreements, investment treaties, avoidance of double taxation, standardisation of commercial procedures, intellectual property protection and the like. International cooperation also enables countries to harmonise their macroeconomic policies for their mutual benefit. This cooperation provides a good environment for the domestic companies to internationalise their operations. The ability of a country to derive or maximise gains from globalisation depends on its size, efficiency, material resource strength, technology and, above all, quality of human resources and socio-economic institutions. Good governance in public services and in the corporate sector play a key role in this regard.

Risks and Threats

Globalisation is not a pure bundle of opportunities and benefits. It carries with it certain risks and threats which, if not appropriately dealt with, might create crises in the economy. Globalisation both as an opportunity and as a threat must be managed both at the macroeconomic and microeconomic levels. Some of the major risks and threats are as follows:

  1. International economic problems and crises like inflation, unemployment, recession and currency depreciation tend to spread, internationally, particularly among globally- integrated countries, through various channels of international influence.
  2. Globalisation tends to cause industrial and employment restructuring. As countries and companies gradually move into their competitive and comparative advantage areas and as technological upgradation takes place, unemployment tends to swell among low-skill categories of workers and demand for higher-skill workers tends to rise alongwith compensation. It might be difficult for the low-skill workforce to acquire higher skills in the short run because of their limited learning abilities and inadequacy of training infrastructure. This might result in greater income inequality, poverty, social unrest and even larger unemployment at the national levels.
  3. Globalisation raises the degree of dependence or interdependence resulting in lesser control over the domestic economy and loss of economic sovereignty. Developing economies, in particular, as weak partner may face the problems associated with foreign economic dominance.
  4. Availability of readymade foreign technology – both embodied, and disembodied ~ in the open market scuttles domestic R&D and promotes external technological dependence. In a number of cases, foreign technologies are not adaptable to local conditions. Market imperfections, which are rampant in the technology sphere, often substantially raise the acquisition costs for developing countries which generally negotiate from a weak or inferior position.
  5. Globalisation has been instrumental in the drain of basic raw materials through low value added exports. The value added structure of world trade evidences that the less developed countries are the seller of low value-added and buyers of high-value products in the world markets. The exploitative character of trade has often been cited as a factor for the perpetuation of their economic underdevelopment. Globalisation of the markets tends to transfer talented human resources from the less developed to industrial countries which offer better career prospects and facilities for fuller utilisation of talents. From a global perspective, it may be desirable but from the standpoint of losing countries, the brain drain is one of their formidable problems.
  6. Globalisation promotes consumption cultures that may not be in consonance with the lifestyles and values of all the countries. For countries with limited resources, it might cause the problem of shift in the industrialisation pattern away from national priorities.
  7. Finally, globalisation through foreign direct investment and multinational companies might erode the domestic production base. The domestic resourceful but uncompetitive firms might be acquired by foreign firms thereby reducing competition.

Countries with growing presence of MNCs are confronted with the problem of high burden of dividend outflow in foreign exchange and monopolistic practices.


Globalisation is not an unmixed blessing. What is important is how and in what direction the economy is opened up to international influences. Globalisation lands an economy in international competition in various areas and it is important to see that the sectors which are opened up through international trade or foreign investment are able to withstand the rigours of international competition and the overall impact on the economy is not adverse. In the present phase of the world economy, when most of the countries of the world are liberalising their economies, it is difficult to remain in isolation. Domestic economic policies must be so designed as to maximise the gains and minimise the costs and risks of globalisation. At the firm level, managers must monitor the trend and pattern of dynamic globalisation and develop suitable response strategies.

Review Questions

    1. Globalization of Trade and industry.
    2. Discuss how globalisation has affected manufacturing in developed and developing countries.
    3. Differentiate between globalisation and glocalisation.
    4. Can globalisation lead to use of local wisdom and resources in a sustainable manner. Analyse.