Chapter Notes

PRODUCTION ACROSS COUNTRIES

Until the mid-20th century, production was mostly organized within individual countries. The main things that crossed national borders were raw materials, food, and finished products. For example, colonies like India would export raw materials and import finished goods. The primary way distant countries were connected was through trade.

This changed with the rise of large companies called multinational corporations (MNCs).

• An MNC is a company that owns or controls production in more than one country.
• MNCs set up factories and offices in regions where they can find cheap labor and other resources.
• The main goal is to lower the cost of production and earn greater profits.

MNCs don't just sell their products globally; they also produce their goods and services globally. This means production is organized in very complex ways, often broken down into small parts and spread across different countries to take advantage of what each location offers best.

INTERLINKING PRODUCTION ACROSS COUNTRIES

MNCs choose where to set up production based on several factors:

• Closeness to markets.
• Availability of skilled and unskilled labor at low costs.
• Availability of other resources (like raw materials).
• Government policies that are favorable to their interests.

The money an MNC spends to buy assets like land, buildings, and machines is called investment. When this investment is made by an MNC, it is called foreign investment. The hope is that these assets will earn profits.

MNCs use several methods to set up and control production in other countries:

1. Joint Production with Local Companies: MNCs sometimes partner with local businesses. This benefits the local company in two ways: the MNC provides money for new machines and technology, and it brings the latest production techniques.

2. Buying Local Companies: The most common way for MNCs to expand is by buying existing local companies. With their enormous wealth, which can exceed the entire budgets of some developing countries, MNCs can easily do this. [!example] Cargill Foods, a large American MNC, bought a smaller Indian company called Parakh Foods. Parakh Foods already had a large marketing network and a well-known brand in India. By acquiring it, Cargill also gained control of its four oil refineries and became the largest producer of edible oil in India.

3. Placing Orders with Small Producers: Large MNCs in developed countries often place orders for production with a network of small producers around the world. This is common in industries like garments, footwear, and sports items. The MNCs then sell these products under their own brand names. In this relationship, the large MNCs have tremendous power to determine the price, quality, delivery schedule, and labor conditions for the small, distant producers.

FOREIGN TRADE AND INTEGRATION OF MARKETS

For a long time, foreign trade has been the main way of connecting countries. Historically, trade routes connected India and South Asia with markets in both the East and West.

The basic function of foreign trade is to create opportunities for producers to reach beyond their domestic markets.

• For Producers: They can sell their products not just in their own country but also in markets all over the world.
• For Buyers: Imports expand the choice of goods available, going beyond what is produced domestically.

When trade opens up, goods travel from one market to another. This leads to several key outcomes:

• The choice of goods in the market increases.
• The prices of similar goods in different markets tend to become equal.
• Producers in different countries begin to compete directly with each other.

WHAT IS GLOBALISATION?

Over the last few decades, MNCs have increasingly sought out the cheapest locations for production worldwide. This has led to a rise in foreign investment and a rapid increase in foreign trade, much of which is controlled by MNCs.

This combination of greater foreign investment and greater foreign trade results in the integration of production and markets across countries.

• Globalisation is this process of rapid integration or interconnection between countries.
• MNCs are a major driving force in the globalisation process.
• More and more goods, services, investments, and technology are moving between countries, bringing most regions of the world into closer contact.

Besides these movements, countries can also be connected through the movement of people, who may move for better jobs, income, or education. However, due to various restrictions, the movement of people has not increased as much as the movement of goods and capital.

FACTORS THAT HAVE ENABLED GLOBALISATION

Several factors have made globalisation possible. Two of the most important are technology and the liberalisation of trade policies.

Technology

Rapid improvements in technology have been a major driver of globalisation.

• Transportation Technology: Over the past fifty years, improvements in transportation have made it possible to deliver goods much faster across long distances at lower costs. The use of containers for shipping has dramatically reduced port handling costs and increased the speed of exports.
• Information and Communication Technology (IT): Developments in telecommunications, computers, and the internet have been even more remarkable. Facilities like telephones (including mobiles), fax, and the internet allow people to access information instantly and communicate from remote areas. The internet allows for instant electronic mail (e-mail) and voice mail across the world at negligible costs. This technology is crucial for organizing production across different countries.

Liberalisation of foreign trade and foreign investment policy

Governments can use trade barriers, such as a tax on imports, to regulate foreign trade. A tax makes imported goods more expensive, which reduces imports and protects domestic producers from foreign competition.

After independence, the Indian government put up barriers to foreign trade and investment. This was done to protect its new industries in the 1950s and 1960s from foreign competition, allowing them to grow.

Starting around 1991, India made major policy changes. The government decided that the time had come for Indian producers to compete globally, believing that competition would force them to improve their quality. Supported by powerful international organizations, India removed many of its barriers on foreign trade and investment.

• Liberalisation is the process of removing barriers or restrictions set by the government.
• With liberalisation, businesses are allowed to make their own decisions about what to import or export, and foreign companies can set up factories and offices more easily.

WORLD TRADE ORGANISATION (WTO)

The push for liberalisation has been strongly supported by international organizations like the World Trade Organisation (WTO).

• The WTO was started at the initiative of developed countries.
• Its aim is to liberalise international trade.
• It establishes rules for international trade and ensures that member countries (about 160) obey them.

The WTO claims to promote free trade for all. However, in practice, developed countries have often unfairly kept their own trade barriers while forcing developing countries to remove theirs.

IMPACT OF GLOBALISATION IN INDIA

Globalisation has affected different groups of people in India in very different ways. The impact has not been uniform.

Positive Impacts:

• For Consumers: Well-off urban consumers have benefited the most. They now have a greater choice of goods, enjoy improved quality, and pay lower prices for many products, leading to a higher standard of living.
• For MNCs and Local Suppliers: MNCs have increased their investments in India in sectors like cell phones, automobiles, soft drinks, and banking. This has created new jobs, and local companies that supply raw materials to these industries have also prospered.
• For Top Indian Companies: Some top Indian companies have benefited from the increased competition by investing in new technology and raising their production standards. Some have even become MNCs themselves. [!example] Tata Motors (automobiles), Infosys (IT), and Ranbaxy (medicines) are Indian companies that are now spreading their operations worldwide.
• For Service Companies: Globalisation has created new opportunities for companies providing services, especially those involving IT. Services like data entry, accounting, and engineering are now done cheaply in India and exported to developed countries.

To attract more foreign investment, governments in India have set up Special Economic Zones (SEZs). These are industrial zones with world-class facilities where companies get tax exemptions for an initial period. The government has also allowed more flexibility in labor laws, making it easier for companies to hire workers on a temporary basis to reduce labor costs.

Negative Impacts:

• For Small Producers: Many small producers have faced major challenges. They cannot compete with the low prices of imported goods. [!example] Ravi, a small industrialist who produced capacitors, saw his business decline after the government removed import restrictions in 2001. His clients, TV manufacturers, started importing cheaper capacitors. Ravi had to cut his production by more than half and lay off most of his workers. Many small manufacturers in industries like batteries, plastics, and toys have shut down, causing many workers to lose their jobs.
• For Workers (Uncertain Employment): The pressure of competition has changed the lives of workers. To cut costs, employers now prefer to hire workers "flexibly" on a temporary basis, meaning jobs are no longer secure. [!example] In the garment industry, Indian exporters face intense competition to get orders from large MNCs. To lower their costs, they cut labor costs by hiring workers temporarily, especially during peak season. These workers face long hours, low wages, and have no job security. Sushila, a garment worker, lost her permanent job with benefits and now works as a temporary worker, earning less than half of what she used to, with no days off or benefits.

THE STRUGGLE FOR A FAIR GLOBALISATION

The evidence shows that not everyone has benefited from globalisation. People with education, skills, and wealth have made the best use of the new opportunities, while many others have not shared in the benefits.

The question now is how to make globalisation more "fair." Fair globalisation would create opportunities for all and ensure that the benefits are shared more equally.

The government has a major role to play in achieving this:

• It can ensure that labor laws are properly implemented to protect workers' rights.
• It can support small producers to help them improve and become strong enough to compete.
• It can use trade and investment barriers if necessary to protect vulnerable industries.
• It can negotiate at the WTO for fairer rules and align with other developing countries to fight against the domination of developed countries.

In recent years, massive campaigns by people's organizations have influenced important decisions at the WTO, showing that people can also play a crucial role in the struggle for fair globalisation.