GLOBALISATION

AND THE INDIAN ECONOMY

As consumers in today’s world, some of us have a wide choice of goods and services before us.  The latest models of digital cameras, mobile phones and televisions made by the leading manufacturers of the world are within our reach.  Every season, new models of automobiles can be seen on Indian roads.  Gone are the days when Ambassador and Fiat were the only cars on Indian roads.  Today, Indians are buying cars produced by nearly all the top companies in the world.  A similar explosion of brands can be seen for many other goods: from shirts to televisions to processed juices.

Such wide-ranging choice of goods in our markets is a relatively recent phenomenon.  You wouldn’t have found such a wide variety of goods in Indian markets even two decades back.  In a matter of years, our market have been transformed!

How do we understand these rapid transformations?  What are the factors that are bringing about these changes?  And, how are these changes affecting the lives of the people?  We shall dwell on these questions in this chapter.

PRODUCTION ACROSS COUNTRIES .

Until the middle of the twentieth century, production was largely organized within countries.  What crossed the boundaries of these countries were raw material, food stuff and finished products.  Colonies such as India exported raw materials and food stuff and imported finished goods.  Trade was the main channel connecting distant countries.  This was before large companies called multinational corporations (MNCs) emerged on the scene.  A MNC is a company that owns or controls production in more than one nation.  MNCs set up offices and factories for production in regions where they can get cheap labour and other resources.  This is done so that the cost of production is low and the MNCs can earn greater profits.  Consider the following example.

Spreading of Production by an MNC A large MNC, producing industrial equipment, designs its products in research centres in the United States, and then has the components manufactured in China.  These are then shipped to Mexico and Eastern Europe where the products are assembled and the finished products are sold all over the world.  Meanwhile, the company’s customer care is carried out through call centres located in India.

In this example the MNC is not only selling its finished products globally, but more important, the goods and services are produced globally.  As a result, production is organized in increasingly complex ways.  The production process is divided into small parts and spread out across the globe.  In the above example, China provided the advantage of being a cheap manufacturing location, Mexico and Easter Europe are useful for their closeness to the markets in the US and Europe.  India has highly skilled engineers who can understand the technical aspects of production.  It also has educated English speaking youth who can provide customer care services.  And all this probably can mean 50-60 percent cost-savings for the MNC!  The advantage of spreading out production across the borders to the multinationals can be truly immense.  

INTERLINKING PRODUCTION ACROSS COUNTRIES.

In general, MNCs set up production where it is close to the markets; where there is skilled and unskilled labour available at low cost; and where the availability of other factors of production is assured.  In addition, MNCs might look for government policies that look after their interests.  You will read more about the policies later in the chapter.

Having assured themselves of these conditions, MNCs set up factories and offices for production.  The money that is spent to buy assets such as land, building, machines and other equipment is called investment.  Investment made by MNCs is called foreign investment.  Any investment is made with the hope that these assets will earn profits.

At times, MNCs set up production jointly with some of the local companies of these countries.  The benefit to the local company of such joint production is two-fold.  First, MNCs can provide money for additional investments, like buying new machines for faster production.  Second, MNCs might bring with them the latest technology for production.

But the most common route for MNC investments is to buy up  local companies and then to expand production.  MNCs with huge wealth can quite easily do so.  To take an example, Cargill Foods, a very large American MNC, has bought over smaller Indian companies such as Parakh Foods.  Parakh Foods had built a large marketing network in various parts of India, where its brand was well-reputed.  Also, Parakh Foods had four oil refineries, whose control has now shifted to Cargill.  Cargill is now the largest producer of edible oil in India, with a capacity to make 5 million pouches a day!

In fact, many of the top MNCs have wealth exceeding the entire budgets of the developing country governments.  With such enormous wealth, imagine the power and influence of these MNCs!

There’s another way in which MNCs control production.  Large MNCs in developed countries place orders for production with small producers.  Garments, footwear, sports items are examples of industries where production is carried out by a large number of small producers around the world.  The products are supplied to the MNCs, which then sell these under their own brand names to the customers.  These large MNCs have tremendous power to determine price, quality, delivery, and labour conditions for these distant producers.

Thus, we see that there are a variety of ways in which the MNCs are spreading their production and interacting with local producers in various countries across the globe.  By setting up partnerships with local companies, by using the local companies for supplies, by closely competing with the local companies or buying them up.  MNCs are exerting a strong influence on production at these distant locations.  As a result, production in these widely dispersed locations is getting interlinked.

Ford Motors, an American company, in one of the world’s largest automobile manufacturers with production spread over 26 countries of the world.  Ford Motors came to India in 1995 and spent Rs. 1,700 crore to set up large plant near Chennai.  This was done in collaboration with Mahindra and Mahindra, a major Indian manufacturer of jeeps and trucks.  By the year 2014, Ford Motors was selling 77000 cars in the Indian markets, while another 77000 cars were exported from India to South Africa, Mexico and Brazil.  The company wants to develop Ford India as a component supplying base for its other plants across the globe.