NCERT Class 10 Economics Chapter 4: Globalization & Indian Economy Complete Notes Part 1

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Globalization & Indian Economy

Before we start with understanding the concept of globalization, let’s first understanding that’s a different between trade and globalization. So let’s say during the period of pre-independence or during the period of British rule, what use to happened in India was predominately trade. It was not a part of globalization. It was trade and terms of fact that we use to supply raw material, for example cotton to Britain, in turn Britain used to supply finished product that’s the cotton textile so that is what is trade.

It is nothing to do with globalization when we talk about globalization basically means we are spreading from one country to another in terms of production. It is not in terms of the trade but it’s mainly in terms of production so the basic key idea you must be clear about is what is the difference when it comes to globalization per se, under globalization we try to understand the fact that we are trying to produce not only to specific country, we are trying to move production base across the globe.

MNCs

  • Owns or controls production in more than one nation (cheap labor & resource, low cost, more profit)

  • NOT selling globally but producing globally (complex way)

  • Cheap production – China

  • Closeness to market – Mexico & Eastern Europe

  • Skilled Engineers – India

  • English speaking – Customer care

  • Favorable govt. policies

  • Save 50-60% cost of MNC

Now what are Multinational Corporation and how do they function? Let’s say you have company of McDonald’s in America, so you have North America, South America and Africa and India. Now let’s say you have McDonald’s started in North America, now these McDonald’s for some reason is filling that production that is doing here is becomes expensive, so what we try to do is move it’s production base to another country, say India or Africa or South America and all this movement are in terms of production.

So a company which is producing in more than one nation is technically is known as multinational corporation. The basic idea of this dispersal is maximize the profits and minimize the cost. There are two basic things that go together: the reduction in the cost and the increase in the profit. So these are the two basic driving forces for any multinational corporations to expand. Now let’s say in America you have expensive labor, so what the multination company what do is it would move to China for cheap labor. So one of segment, now you have closeness or proximity to market so this proximity because of this it would move one of to its branch in Mexico then there could be another set of people who are good at speaking in English. So let’s say in India you have decent set of population who can speak English, so you would have customer service panel move in India. Again you have unit for some region you need online platform for the same company, so need a kind of skill set for engineer or technocrats and you have good skilled engineer in India, for example or the developing nations, so would you move another production sector to India. Now what is happing is based on requirement of the multinational company it is moving to different sector or to different parts of world and finally the most important things would be thrust on the government policies. So if the government policies are favorable, the company is easily moving to the another nation, if the government policies in a particular nation are not favorable the company would consider to move to another nation as a result as movement in the production base, multinational corporation can reduce its cost by 50-60 %.

Interlinking Production

  • Investment – money to buy land, machine & building

  • Foreign Investment – made by MNC – to earn profit

  • MNC brings latest technology for production

  • MNC provides money for investment (huge wealth)

  • Cargill foods bought Indian Parakh foods – now Cargill (largest edible oil producer in India with 5 million pouches daily)

  • MNC place order with small producers – garment, footwear – determine price, quality, delivery, and labor conditions

  • With dispersed production locations are interlinked

Now what are interlinking in the production, first and the foremost is it enhancement of the profit motive, so one of the main objective of the multinational company would be to increase the profit, the next is the multinational company always try to bring in latest technology to stand apart from other. That is to excel in technology. So technology is another key aspect. Another important thing is they try to hire small produce so let’s say in garment industries they would try to hire local expertise from different nation and would insure some specific things, quality, and the uniqueness in the market.

The next price they control is because they would have to pay definitely lesser amount to small producer so they could have more profit margins and the finally the labor conditions, they would maintain where they are hiring.

Now another example of Cargill foods is an American company recently it brought Parakh food in India and now it is one of the largest edible oil producer in India with 5 million pouches in a day. So that is the extent how Multinational Corporation can expand by position of another smaller local market that’s the available in the region. So what is the predominate thing that multinationals require, multinational require to buy land, machinery and finally build or establish place where it can start.