Globalization of India’s Business: Why Go International?

Sanjay K. Katait

Vidya Bharati Mahavidyalaya

sanjay.katait @ rediffmail.com

1. Introduction

Globalization is considered as an important element in the reform package. But what constitute globalization?

The term globalization has four parameters:

1. Reduction of trade barriers so as to permit free flows of goods across national frontiers.

2. Creation of an environment in which free flow of capital can take place among the nation- states.

3. Creation of environment, permitting of free flow of technology.

4. Developing countries, creation of an environment in which free movement can take place in different

countries of the world.

The advocates of globalization, more especially from developed countries, limit the definition of globalization

only to three components like unhindered trade flow, capital flow and flow of technology. Globalization which

is a more romantic word indicating the desire to integrate nation-state within the overall framework of WTO, is

nothing but a modern version of comparative cost advantage which was propagate by the classical economist to

provide foundation of unrestricted flow of goods from one nation to another. Globalization of business has

become a subject matter of serious discussion in the national economic policies and corporate board- rooms. The

subject has assumed a great significance in the light of the recent changes in the global business environment

and the national economic policy changes. International trade is growing faster than world output and

international investment is growing much faster than the global trade. These are the clear indication of growing

internationalization.

Globalization means adopting a global outlook for the business and business strategies aimed at enhancing

global competitiveness. Companies, which have adopted a global outlook for the business and business

strategies, aimed at enhancing global competitiveness. Companies, which have adopted a global outlook “stop

thinking of themselves as a national marketers who venture abroad and start thinking themselves as a global

marketers.

The top management and staff are involved in the planning of worldwide manufacturing facilities, marketing

policies, financial flows and logistical system.

Why go International?

There are several answers to the question “why firms go international?” The factors, which provoke firms to

go international, are broadly divided into two groups.

1. Pull Factor:

2. Push Factor:

1. Pull Factor:

The pull factor, most of which are proactive reasons are those forces of attraction, which pulls the business to

the foreign markets. In other words, companies are motivated to internationalize because of the attractiveness of

the foreign market. Such attractiveness includes relatively profitability and growth prospects

.

2. Push Factor:

The push factor refers to the compulsion of the domestic market, which prompt companies to internationalize.

Most of the push factors are reactive in nature.

Other element, which provoke Globalization:

A. Profit Advantage.

B. Growth opportunities.

C. Domestic Market Constraints.

D. Competition.

E. Government Policies and Regulations.

F. Spin-off Benefits.

G. Strategic Vision.

A. Profit Advantage:

An important incentive for international business is the profit advantage. International business could be more

profitable than the domestic. There are several cases where more than 100% of the total profit of the company

is made in the foreign markets.

Even when international business is less profitable than the domestic, it could increase the total profit if the

international business enables the form to achieve optimum capacity utilization or economies of scale.

One of the important motivations for foreign investment is to reduce the cost of production by taking

advantage of the cheap labor. While in some cases, the whole manufacturing of a product may be carried out in

foreign locations, in some cases only certain stages of it are done abroad.

B. Growth Opportunities:

The enormous growth potential of many foreign markets is very strong attraction for companies. In number of

developing countries, both the population and income are growing very fast. Naisbitt and Aburden observed

Asians will be the consumers of 2000, which means greater opportunities for Asian countries for the

developmental purposes.

It may be noted that several developing countries, the newly industrializing countries and the peoples of

Republic of China in particular have been growing much faster than the developed countries.

Even if the market for several goods in these countries is not very substantial at present, many companies are

eager to establish foothold there, by considering their future potential.

C. Domestic Market Constraints:

Domestic demand constraints drive many companies to expanding the market beyond the national border.

The market for number of products has tended to saturate or decline in the advanced countries. This often

happens when the market potential has been almost tapped.

Another type of domestic market constraints arises from the scale of economies. The technological advance

have increased the size of the optimum scale of operation substantially in many industries making it necessary to

have foreign market, in addition to the domestic market, to take advantage of scale of economies. It is thrust

given to export that enable certain countries to setup economic size plants.

D. Competition:

Competition may become a driving force behind internationalization. A product market does not normally

motivate companies to seek business outside the home market. Until the liberalization, which started in July

1991, the Indian economy was highly protected market. Not only that the domestic producers were protected

from foreign competition but also domestic competition was restricted by several policy induced entry barriers,

operated by such measures as industrial licensing and MRTP regulations

Being in the sellers market, the Indian companies, in general, did not take the foreign market seriously. The

economic liberalization ushered in India since 1991, which have increased competition from foreign firms as

well as from those within the countries, however, significant changes observed and the result of which many

Indian companies are now systematically planning to go international in a big way.

The strategy of counter-competition is to penetrate the home market of the potential foreign competitor so as

to diminish its competitive strength and to protect the domestic market share from foreign penetration. Direct

market penetration can drain vital cash flow from the foreign companies domestic operations. This drain can

result in lost opportunities, reduced income, and limited production, impairing the competitor’s ability to make

overseas thrust.

E. Government Policies and Regulations:

Government policies and regulations may also motivate internationalization. There are both positive and

negative factors, which could cause internationalization.

Many government gives a number of incentives and other positive support to domestic companies to export

and to invest in foreign countries. Similarly several countries give a lot of importance to import development

and foreign investment.

In India companies maybe obliged to earn foreign exchange to finance their imports and to meet certain other

foreign exchange requirement like payment of royalty, dividend etc. Further, In India, permission to enter

certain industries by the large companies and foreign companies was subject to specific export obligation.

Some companies also moves to foreign countries because of certain regulations, like environmental laws in

advanced countries.

F. Spin-off Benefit:

International business has certain spin-off benefit too. International business may help the company to

improve its domestic business; international business helps improve the image of the company. Foreign

exchange earnings may enable a company to imports capital goods, technology etc. Which may not otherwise

be possible for countries like India.

Another attraction of exports is the economic incentives offered by the government.

G. Strategic Vision:

The systematic and growing internationalization of many companies is essentially a part of their business

policy or strategic management. The stimulus for internationalization comes from the urge to grow, the need to

become competitive, the need to diversify and to gain the strategic advantages of internationalization. There are

number of corporate which are truly global, planning of manufacturing facilities, logistical systems, financial

flows and marketing policies in such corporations are done considering the entire world as its, and a single

market – a borderless world

2. Conclusion

The new economic policy of India is expected to encourage the Globalization of India business. The increasing

domestic competition is compelling many companies to pursue Globalization. The liberalization policy towards

foreign technology and collaborations is enabling Indian companies to upgrade their production facilities or to

establish new facilities, which will help them to enter in the foreign market.

3. References

1. Indian Economy – Mishra & Puri, Himalaya Publication,New Delhi. 2005.

2. Indian Economy - K.P. Sundaram, S.Chand & Sons, New Delhi. 2005.