Globalisation is the process by which countries, economies, societies, and cultures have become increasingly integrated and interdependent through the movement of goods, services, capital, people, and ideas across national borders.
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Production Across Countries
- Modern production is often spread across multiple countries. A mobile phone might be designed in the USA, have chips from Taiwan, be assembled in China with Indian software, and sold globally. This is possible because of:
- Improved transport (faster and cheaper shipping by sea and air).
- Improved communication (internet, telephones, digital networks).
- Investment by multinational corporations (MNCs).
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Multinational Corporations (MNCs)
- MNC is a company that owns or controls production in more than one country.
- MNCs set up factories where labour and land are cheap (e.g., Bangladesh, Vietnam, China).
- They source raw materials globally and sell in rich country markets.
- They link distant producers and consumers, creating global production networks (GPNs).
MNCs invest in foreign countries through Foreign Direct Investment (FDI).
Examples of MNCs in India: Samsung, Nokia (historical), Ford, Maruti Suzuki (Japan-India joint venture), McDonald's.
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How Globalisation Works: Key Enablers
Trade Liberalisation: Reducing taxes (tariffs) on imports — called import duties — allows foreign goods to flow freely.
World Trade Organisation (WTO): An international body that sets rules for global trade. It pushes for free trade by pressuring countries to remove trade barriers.
Investment Liberalisation: Countries allow foreign companies to invest freely (FDI).
Technology: The internet enables digital trade; improved containers and aircraft reduce transport costs.
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Liberalisation of Foreign Trade in India
- Before 1991, India had high import duties and strict quotas protecting domestic industries. From 1991 onwards:
- Import duties were progressively reduced.
- Foreign investment was allowed in many sectors.
- Government barriers were removed ("liberalisation").
- This integrated India into the global economy.
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Impact of Globalisation on India
- Positive Impacts:
- IT/software boom: India became a global software hub.
- FDI brought technology, capital, and global management practices.
- Consumers got access to better quality goods at lower prices.
- Export growth — textiles, software, pharmaceuticals, auto components.
- Economic growth rate increased significantly.
- Negative Impacts:
- Small domestic manufacturers (e.g., battery, plastic, toy industries) faced stiff competition from cheaper Chinese imports and closed down.
- Workers in unorganised sectors lost jobs.
- MNCs may exploit cheap labour, offering poor wages and working conditions.
- "Race to the bottom" — governments compete to offer MNCs lower wages and weaker labour/environmental laws to attract investment.
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Fair Globalisation
- Not everyone has benefited equally from globalisation. Fair globalisation requires:
- Trade rules that give developing countries an equal footing.
- Protection of workers' rights globally.
- Using globalisation's gains to fund education and healthcare for the poor.
- Governments standing firm on labour and environmental standards.
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Worked Examples
How does an MNC create a global production network?
Ford designs cars in the USA, sources steel from India, electronics from South Korea, and assembles vehicles in India for the Asian market. Profit flows back to the USA while jobs are created in each supplier country — illustrating how MNCs integrate national economies.
Why did Indian small-scale battery manufacturers suffer after trade liberalisation?
Before 1991, high import duties made foreign batteries expensive, protecting Indian makers. After liberalisation, cheap Chinese batteries flooded the market. Indian factories with older technology and higher costs could not compete and had to shut down.
What role did the WTO play in India's trade liberalisation?
The WTO required member countries, including India, to reduce import tariffs and remove quantitative restrictions. India had to comply to remain a member, opening its markets faster than it might have chosen independently.
How has globalisation benefited India's IT sector?
The internet allowed Indian software engineers to serve clients in the USA and Europe from Indian cities without relocating. Cheap bandwidth, English proficiency, and lower wages made India a global IT outsourcing destination, creating millions of jobs and earning billions in foreign exchange.
Explain the "race to the bottom" concern in globalisation.
If MNCs threaten to move factories to countries with fewer regulations, governments may compete by weakening labour laws, cutting wages, or relaxing environmental standards to attract investment. This can harm workers and the environment even while boosting GDP.
Why did India retain some import duties on agricultural products even after WTO membership?
Indian agriculture employs over half the workforce; many farmers are small and subsistence-level. If cheap subsidised food from the USA flooded India, millions of farmers would be ruined. India retained some protections arguing this was essential for food security and rural livelihoods.
How does FDI differ from Foreign Portfolio Investment (FPI)?
FDI is when a foreign company sets up or takes significant ownership in a real business (factory, office) — creating long-term employment and technology transfer. FPI is short-term investment in financial markets (stocks, bonds). FPI can leave quickly in a crisis, destabilising the economy; FDI is more stable.
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Common mistakes
- Students say "globalisation started in 1991 in India" — globalisation is a global process that intensified after 1991; India's liberalisation started in 1991.
- The WTO is about trade rules, not currency — the IMF handles currency.
- Globalisation is not purely positive OR negative — it has mixed effects that differ across groups and sectors.
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Summary
Globalisation integrates national economies through trade, investment, and technology. MNCs create global production networks. India's 1991 liberalisation opened the economy to foreign trade and investment, boosting IT and manufacturing but creating challenges for small industries and unorganised workers. Fair globalisation requires trade rules that protect all, especially the vulnerable.