Modern markets and consumer choices
Consumers today have access to a multitude of choices of goods and services. New models of digital cameras, mobile phones, televisions and cars are easily available. Old cars like Ambassadors and Fiats have now been replaced by cars from the world's top companies on Indian roads. The number of brands in other products like televisions, clothes and fruit juices has also grown rapidly. However, this change is new. Until two decades ago, India's markets were not so diverse. Our markets have changed completely in recent years. Why has this change happened and what is driving it? How is this change affecting people's lives? We will consider these questions in this chapter.
Inter-country production and multinational companies
Until the middle of the twentieth century, production took place mainly within national borders. Only raw materials, food, and finished products were traded between countries.
1. Rise of Multinational Companies:
- Multinational companies (MNCs) are those that control production in more than one country.
- These companies set up factories and offices in places where cheap labour and other resources are easily available, so as to reduce the production cost and earn more profits.
2. Production Process on a Global Level:
- Multinational companies are no longer limited to just selling products but they also divide their production process across different countries.
- For example, China has emerged as a cheap manufacturing hub, while Mexico and Eastern Europe have become production hubs due to their proximity to the US and Europe.
- India is known for skilled engineers and English speaking customer service staff.
3. Benefits
- The production process becomes more efficient and profitable, with savings of up to 50-60% in production costs possible.
Connecting production across the world
1. Multinational Companies (MNCs):
Usually manufacturers set up their production units at places where they find the following advantages:
- Being close to the market.
- Availability of cheap and skilled labour.
- Availability of other necessary factors of production.
- Government policies that take care of their interests.
2. Investment and foreign investment
- When multinational companies set up factories and offices for their production, it is called investment.
- If this investment is made from one country to another, it is called foreign investment.
- Companies make this investment to earn profits from the land, machines and equipment they purchase.
3. Impact of multinational companies on production
Multinational companies (MNCs) expand their production and increase their influence in a variety of ways, including through partnerships or competition with local companies.
- Joint Production: MNCs enter into joint production with local companies, which provides two important advantages to the local companies: first, additional investment, which provides money for machines and other resources, and second, new technology, as MNCs bring in advanced technology.
- Buying local companies: MNCs often expand production by buying local companies. For example, Cargill Foods bought India's Parakh Foods and has now become the largest manufacturer of edible oils in India.
- Substituting orders to small producers: Large companies substituting orders to small producers to make products such as clothing, footwear, and sporting goods. These companies control the price, quality, and labor conditions, and then sell these products under their own brand names.
- Control over distant production: MNCs partner with, out-compete or buy out local companies. In this process, various parts of production are dispersed, but MNCs effectively control them by integrating them together.
Foreign trade and integration of markets
Foreign trade has long been one of the main means of connecting countries. It provides new opportunities and choices to producers and consumers.
1. Importance of foreign trade
- Reach beyond domestic market: Producers can sell their products not only in their own country but also in the markets of other countries.
- Import Substitutes: Import of goods from other countries provides consumers with alternatives other than domestic products.
2. The impact of trade
- With the opening of trade, movement of goods from one market to another becomes easier.
- When two markets are connected, the price of the same commodity becomes almost the same in both the places, which leads to price stability.
- Moreover, now producers from two countries, even if far apart, can compete with each other, which promotes global competition.
3. Foreign trade and market integration
- Through foreign trade, markets of different countries are linked together. This leads to integration of markets, where both producers and consumers get more opportunities and benefits.
What is globalization?
Globalization is a process through which the markets and production of different countries have started connecting with each other. This has been possible due to the growth of multinational companies and foreign trade.
- Major aspects of globalization: Many multinational companies are now manufacturing in countries where labor is cheap. For example, Ford Motors' car plant in India not only makes cars in India but also exports cars and parts to other countries.
- Foreign Trade and Investment: Due to the increase in foreign trade and investment, the markets of different countries are getting linked with each other, and multinational companies are playing a major role in this process.
- Global Connectivity: There is now an exchange of goods, services, investments and technology between different countries, resulting in increased global connectivity.
- Movement of people: People move from one country to another in search of better living standards, employment and education, but in the last few decades this process has not increased due to many restrictions on the movement of people between countries.
Factors that made globalization possible
The biggest contribution in promoting globalization is the advancement in technology. It is the progress of technology that has helped in connecting the world.
- Improvements in transportation technology: Modes of transportation have advanced tremendously over the past 50 years, making it easier to move goods over long distances faster and at a lower cost.
- Development of Information and Communication Technology: Telecommunications, such as telephone, mobile and fax, have made communication easier and faster across the world. With the help of communication satellites, communication has now become possible even from remote areas.
- Use of Internet and Computer: Internet has made information from all over the world available at one place, while mediums like e-mail and voice mail have allowed people to communicate instantly at very low cost. Also, computers have brought about a revolution in almost every field.
Liberalisation of Foreign Trade and Foreign Investment Policy
Liberalisation means removing restrictions on foreign trade and investment to make business easier and faster. In India, this process began in 1991.
How does an import ban work?
- If the government imposes taxes on imported goods, the imported goods become more expensive, which benefits domestic producers because competition from foreign goods is reduced. This is called a trade barrier, which imposes certain rules or restrictions on trade.
Situation before liberalisation in India
- After independence, India imposed restrictions on foreign trade and investment to promote domestic industry. At that time, only essential goods, such as machinery and petroleum, were imported. This approach was common in developing countries like India, as was also adopted by developed countries during their early development.
Situation after 1991
- The government believed that Indian producers should now join the global competition, as competition would improve the quality and efficiency of Indian industries. With this view, the government removed many restrictions on trade and investment and allowed foreign companies to invest and do business in India.
Advantages of liberalisation
- Importing and exporting has become easier now, as Indian businessmen have the freedom to decide what they want to import or export. With less government control, business processes have become faster and simpler.
World Trade Organisation (WTO)
The World Trade Organization (WTO) is an international organization whose purpose is to promote free trade between countries and enforce trade-related rules. Its main objective is to liberalize and facilitate trade.
- Role of WTO: WTO sets the rules related to trade and ensures that all countries follow these rules. Also, it encourages countries to remove restrictions on foreign trade and investment.
- Impact of WTO: The WTO, which has a membership of around 160 countries, aims to facilitate trade between developed and developing countries.
- Problems in practice: Developed countries often maintain their trade barriers while developing countries are pressured to remove theirs. An example of this is the ongoing dispute over inequality in trade in agricultural products.
impact of globalisation in india
Globalization has brought many changes in India in the last 20 years. It has had different impacts on the lives of people, companies and workers.
- Impact on Consumers: Affluent consumers in urban areas have started getting better choice and high quality products at lower prices, thereby improving their standard of living.
- Investments by multinational companies: Multinational companies increased investment in cellphones, automobiles, electronics and banking services in India, creating new jobs and helping local supplier companies prosper.
- Growth of Indian Companies: Indian companies improved the quality of their products by adopting new technology which has enabled some Indian companies like Tata Motors, Infosys and Ranbaxy to emerge as multinational companies at the global level.
- Growth in Services Sector: Information and communication technology has created new opportunities, with call centres, data entry, accounting and engineering services available cheaply in India and exported to foreign countries.
- Impact on workers: A large portion of workers work in the unorganized sector, where they get neither protection nor benefits. Even in the organized sector, the working conditions are gradually becoming like those in the unorganized sector.
Struggle for equitable globalization
Globalisation has greatly benefited some people, but not everyone. The educated, skilled and wealthy class have got more opportunities, while many people have been deprived of it. Now the question is how to ensure equitable globalisation, so that its benefits reach everyone.
1. Role of the Government
