Emerging Trends in World Merchandise Trade

The Emerging Global Scenario

                                                                                                               Prof. Mahendra Kumar Ghadoliya

In Modern times, no country can afford to live in isolation. The economic liberalization and the increasing trade in commodities and services under WTO have been responsible for accelerating the pace of progress towards the border less world. We will examines the nature of the operating environment for international business today.  We will review the trends in international business activity and evaluate the various methods that firms can use to assess, enter and develop non-domestic markets.

Before slowing down in the year 2007 the world economy maintained its momentum with estimated overall output growth of 3.4 % between the years 2002 to 2005. The pace and momentum of the global economy was slow in 2011 to 2.7%, and only 2.2% in 2012. Many economies continued to perform below average and the growth in 2013 was again 2.4% only. It slightly recovered in 2014 to remain at 3.2%. The world output growth remained slow in the year 2015 at 3.1 %.  The global growth has been projected at 3.4 percent in 2016 and 3.6 percent in 2017.

 In 2015, global economic activity remained subdued. Growth in emerging market and developing economies declined for the fifth consecutive year, while a modest recovery continued in advanced economies.

The factors responsible for slowdown are mainly:      

Slowdown in China:

The recent slowdown and rebalancing of economic activity in China away from investment and manufacturing towards consumption and services. The Chinese slowdown has spill over effect to other economies through trade channels and weaker commodity prices, as well as through diminishing confidence and increasing volatility in financial markets.

Lower Energy Prices:

Lower prices for energy and commodities in recent years have built pressure on the prices of metal. Although the lower prices should support global demand given a higher propensity to spend in oil importers relative to oil exporters. But several factors have dampened the positive impact of lower oil prices. 

1. Financial strains in many oil exporting countries reduced demand in these countries.
2. The lower oil prices   has caused a notable impact on investment in oil and gas extraction, also lowering aggregate demand.
3. The pickup in consumption in oil importers has so far been somewhat weaker than evidence from past episodes of oil price declines
4. A gradual tightening of Monetary Policy in US

Advanced Economies

Growth in advanced economies is projected to rise by 0.2 percentage point in 2016 to 2.1 percent, and hold steady in 2017. Overall activity remains resilient in the United States, supported by still-easy financial conditions and strengthening housing and labour markets, but with dollar strength weighing on manufacturing activity and lower oil prices curtailing investment in mining structures and equipment. In the euro area, stronger private consumption supported by lower oil prices and easy financial conditions is outweighing a weakening in net exports. Growth in Japan is also expected to firm in 2016, on the back of fiscal support, lower oil prices, accommodative financial conditions, and rising incomes.

Emerging Market and Developing Economies[1]

Growth in 2015 was only 4 percent the lowest since the 2008–09 financial crisis.  Growth in emerging market and developing economies is projected at 4.3% and 4.7% percent in 2016 and 2017, respectively. China and India performed well and continued the fastest growing economies, but the US recession had put a break on the speed of these economies. The performance of developing economies had also been impressive during 2003 to 2007 per capita GDP of these countries increased by 30% compared to 10% in the G-7 countries. After the extended period of excessive growth China’s growth rate has slowed down mainly by slowing down of investment and export in 2015-16. Growth in China is expected to slow to 6.3 percent in 2016 and 6.0 percent in 2017, primarily reflecting weaker investment growth as the economy continues to rebalance. India and the rest of emerging Asia are generally projected to continue growing at a robust pace, although with some countries facing strong headwinds from China’s economic rebalancing and global manufacturing weakness.

The slowdown had affected many economies of the world as China is the top 10 trade partner of more than 100 countries that account for nearly 80 % of the world GDP. These trade effects are both direct (reduced demand for trading partners’ products) and indirect (impact on world prices for specific goods that China imports––for example, commodities), affecting other countries’ exchange rates and asset markets. 

China is a major importer across a range of commodities, especially metals, for which it accounted for about 40 percent of total global demand in 2014. 

China’s investment slowdown has had a significant impact on the demand for and prices of those commodities. Excess capacity of Chinese manufacturing sector has contributed to the lowering prices.

Commodity markets pose two-sided risks. On the downside, further declines in commodity prices would worsen the outlook for already-fragile commodity producers, and increasing yields on energy sector debt threaten a broader tightening of credit conditions. On the upside, the recent decline in oil prices may provide a stronger boost to demand in oil importers than currently envisaged, including through consumers’ possible perception that prices will remain lower for longer.

The strong demand of primary commodities including Africa contributed to the improved external and fiscal balances a decade ago. These have paved the way for more expansionary policies, and for a wide spread recovery in interest rates. 

Although problems of strategies of development pattern and rates of growth may vary all national economies were on growth path till 2007. Africa also achieved a growth rate of 6 per cent in 2007, while growth rate in Latin America and west Asia was around 5 per cent. Indeed, since the beginning of the 21^st century till 2007 per capita GDP in Africa, West Asia and Latin America has increased by more than 15 per cent, a rate not seen in these regimes since the early 1980s. Aggregate GDP in Latin America and the Caribbean is now projected to contract in 2016 as well, albeit at a smaller rate than in 2015, despite positive growth in most countries in the region.  

This reflects the recession in Brazil and other countries in economic distress. Higher growth is projected for the Middle East, but lower oil prices, and in some cases geopolitical tensions and domestic strife, continue to weigh on the outlook. Emerging Europe is projected to continue growing at a broadly steady pace, albeit with some slowing in 2016.

 Russia, which continues to adjust to low oil prices and Western sanctions, is expected to remain in recession in 2016. Other economies of the Commonwealth of Independent States are caught in the slipstream of Russia’s recession and geopolitical tensions, and in some cases affected by domestic structural weaknesses and low oil prices; they are projected to expand only modestly in 2016 but gather speed in 2017. Most countries in sub-Saharan Africa will see a gradual pickup in growth, but with lower commodity prices, to rates that are lower than those seen over the past decade. This mainly reflects the continued adjustment to lower commodity prices and higher borrowing costs, which are weighing heavily on some of the region’s largest economies (Angola, Nigeria, and South Africa) as well as a number of smaller commodity exporters.

Growing exports and net capital outflows from developing countries: 

The dynamics of overall growth in developing countries have been stimulated by strong growth in developing economies. Real exports of developing economies more than doubled during 1998 to 2006 where as those of G-7 rose by less than 50 per cent. As a result of this the share of developing countries in global trade rose from 29 per cent in 1996 to 37 per cent in 2006. • Trade experienced fairly strong growth from 1995 to 2001, followed by a boom from 2002 to 2008 accompanied by rising commodity prices. Following the financial crisis in 2008, trade fell steeply in 2009 by nearly 22% before rebounding strongly in 2010 and 2011. However, trade growth since then has been unusually weak. The 2008 financial crisis, triggered by the subprime lending crisis in the United States, led to a global recession between 2008 and 2011. The volume of world exports plunged 12 per cent in 2009 while world gross domestic product (GDP) dropped 2 per cent.

Table -1 reveals that world trade expanded vigorously in 2006 and total exports grew by almost 15 Per cent in current dollar prices with an increase in volume terms of 8 per cent and in unit value terms of 6.5 per cent. In 2006 export, expansion was evenly distributed among developed and developing countries. USA also registered strong export growth of 10 per cent its highest since the beginning of the 2000s. China and India also experienced higher growth in export volumes e.g. China got 25% growth whereas India’s export growth was 14 per cent. China overtook Japan as the leading Asian exporter in 2004, three years after its accession to the WTO. China surpassed the United States in 2007 and Germany in 2009 to become the world’s leading exporter.  The share of developing economies’ exports in world trade increased from 26 per cent in 1995 to 44 per cent in 2014 while the share of developed economies’ exports decreased from 70 per cent to 52 per cent. Among the most significant accessions in terms of trade volume was in December 2001, when China became the WTO’s 143rd member. Before joining the WTO, merchandise exports from China accounted for 3 per cent of total world exports in 1995, increasing to just 4 per cent by 2000. In the years following WTO accession, China has shown rapid gains in merchandise exports. Its share of the world’s total exports was 5 per cent in 2002, growing to 6 per cent in 2003 and 2004. By 2014, China’s merchandise exports accounted for 12 per cent of the world’s trade merchandise exports.

The export performance of other countries in East and South Asia was also good. The factors responsible for this robust growth were growing global demand and increased intra-regional trade in manufacturing. Greater integration with EU is also the reason for increasing trade volumes in South-East Europe, but in these countries and CIS growth in imports (by volume) was higher than growth in exports (by volume).

Export performance (in volume terms) was less buoyant in Africa, Latin America and in Caribbean and West Asia. In the year 2004, these countries experienced a rapid expansion in oil exports that could not maintain its momentum in 2005 and 2006 before slowing down. Export volumes were relatively stable in Africa and west Asia and increased by 4 % in Latin America and Caribbean. The current figures have been given in Appendix-I.

Global growth is picking up somewhat after a number of weak years. A global GDP growth rate of 3.5%, the latest IMF forecast, is lower than the 4.5% average that preceded the decade before the great recession, but it is better than the average over the past five years.

The US and UK recoveries are self-sustained, but weaker than during a normal post-crisis period. In the Euro zone, expansionary policy is still called for and further steps to support growth could be expected. In the US and Europe alike, investments levels are low, productivity growth is very weak and the export sector is only providing a small contribution to the recovery. At the same time growth is slowing in Asia and world trade is likely to grow at a slower rate than GDP. It is a recovery without a real upturn in the business cycle, threatened by a range of factors.

One: the year of political populism?

2016 could become a year marked by political populism. Weak economic activity and low productivity growth mean that real wages and consumption are likely to continue to be disappointing. When reality is coming short of expectations, there are grievances to be exploited. Donald Trump, Jeremy Corbyn, Alexis Tsipras, Nigel Farage, Marine Le Pen, Bernie Sanders, Pablo Iglesias Turrión and many others are taking advantage of stagnating living standards and increasing economic insecurity.
A number of factors are reinforcing populism and discontent. Job security is undermined by global competition, digitalisation and robotisation. New work opportunities ahead are more likely to be short-term contracts, part-time jobs, self-employment without full social benefits and full job security. The so-called “Uber” class of insecure workers is a new reality to be dealt with. The demands for education, expert knowledge and social skills have taken a quantum leap upwards and increased the threshold for people seeking to enter the labour market. Unionization is on the retreat. Increased insecurity in labour markets, the weaker negotiation power of the unions and low productivity are setting narrow limitations for wage negotiations and real wages.
In a period when most advanced economies needs strong governments to implement far-reaching structural reforms, voters are favouring shorttermism and asking for simple solutions. To restore political trust, governments needs to deliver real wage increases, more jobs and better welfare. This can only happen if growth is revitalised by reforms to increase labour market flexibility and to improve the business climate.
There is a clear risk that the fear of political populism will undermine the way leaders deal with long-term challenges and thereby creates a vicious negative spiral where disappointment further weakens trust in governments.

Two: global insecurity and the refugee crisis

US presidential elections is a major political event during 2016. From a global perspective, the key issue is whether the President Trump will be able to restore the US as a global force for stability after the apparent lethargy of President Obama’s administration.
Europe needs to step up its ability to deal with emerging security issues, although that is an unlikely outcome without leadership from the USA. The tragic events in Paris have created a momentum for a coalition bringing the US, France, the United Kingdom and, unexpectedly, also Russia together for global security risk.
The refugee crises in Europe will remain a major factor during 2016. UN estimates indicate that over one million people have entered Europe with the intention of claiming asylum during 2015. Germany, Sweden, Hungary, Austria and Italy have been the most affected countries in Europe.The historical pattern has been that it takes a few years before the refugee numbers normalise after a period of conflict. The number of refugees coming to Europe is most likely going to be lower in 2016, but they will remain much higher than the long-term average for both 2016 and 2017.
In the short term, the task of integrating such a large number of people will be a challenge. In Sweden the historical experience has been that people from Syria have integrated well into the labour market. However, to be able to integrate a large number of people coming from a much less developed country Looking ahead it is likely that unemployment will be somewhat higher in 2017 and 2018 and this will dampen wage pressure and inflation pressure somewhat.

Three: Britain’s exit from the EU:

A key factor shaping Europe’s political future in the decades to come is the referendum on the UK’s membership of the EU. The   United Kingdom decided to move out from the European Union. The economic and political consequences of a British move towards isolationism are yet any bodies guess.
The political balance in Europe would shift from the idea of a Europe open to free trade and dynamic markets, turning the balance towards a more bureaucratic and centralising perspective. Europe and the UK would both be in a much worse position in the competition with the United States, China, Japan and India. For the UK, the long-term economic consequences are likely to be deeply concerning. 

Four: Russia’s role in the world

Another political factor contributing to financial uncertainty is Russia. At the end of 2015, President Putin has rapidly repositioned Russia from being the outsider rocking the boat to a constructive force dealing with Daesh in Syria and Iraq. The repositioning is obviously fragile. Putin has in no way backed down in principle from the aggressive stance in the conflict in eastern Ukraine. So far the Russian intervention seems to have provided more support for President Al-Assad than actual damage to Daesh.
In the long run, Russia is likely to be a declining power under the current regime. Low fertility rates and premature alcohol-related death among men, combined with excessive dependence on natural resources rather than productivity and innovations, are undermining the long-term prospects. But in the short run, any neighbouring country that shows signs of weakness face the risk that Russia will try to exploit the situation. President Putin has been a master of navigating the age of populism and could revert to the anti-western rhetoric at any point of time.

Five: weak growth, choppy markets

Global growth will be weak next year. Furthermore, we are also likely to see substantial turmoil in financial markets. The combination of the recovery in the US and, even if weaker, in Europe, as well as a deceleration of growth in China is creating uncertainty for the financial markets. The extraordinary monetary policy measures over the last few years have pumped short-term money into the global financial system. In combination with low liquidity in markets, partly due to the new regulatory structures that are reshaping banking everywhere, this has set the tone for turbulence.
The potential is clearly there. Many start-up companies have been printing very strong growth numbers for years, but the macro-economic impact has so far been on the weaker side because the growth has come from a low level. Every year this is gradually changing. When more and more people do their shopping and banking online that will also mean that the broader implications becomes more pronounced. The pressure on existing firms to adapt to increased competition is likely to mean that prices and profit margins are being squeezed.

Six: China’s reforms

If inflation expectations in the US are a key factor shaping the financial year of 2016, reforms in China are on another scale. If China is able to gradually move forward with rebalancing the economy from investments to consumption, that could open a path towards more sustainable growth and a gradual return of optimism in the Chinese business sector.
The Chinese government has many times, not least at the last meeting in Davos and at the Dalian summit, stated its ambition to push forward with reforms to open the economy and continue the transformation towards a well-functioning market economy. The downside risk seems to be that these reforms are dependent on the ability to deal with resistance from special interest groups, including state-owned enterprises and more conservative centres of power. For the global economy, it is key to monitor any sign that reforms are being accelerated and that resistance to change is being pushed backwards.
Any sign that a credit contraction is hampering growth would imply that it is necessary for the People’s Bank of China, PBOC, to push monetary policy in an expansionary direction. In such a scenario, the RMB would weaken and that would imply second round depreciation in the rest of Asia. In any such scenario we would also see continued turbulence on commodity markets as well. Commodity prices are likely to contribute to the low-inflation environment. It will take time before we see the recovery of the super-cycle.
It is important to underline how important China is for the rest of the emerging market countries. Growth in Asia, Latin America and Africa has been bolstered by the growing demand for iron ore, copper and oil from China. If China succeeds in dealing with domestic challenges, that would also contribute to reviving optimism in emerging markets.
It is important to take on board the fundamental optimism that globalisation is bringing to emerging markets. According to the IMF forecast for 2016 there will be more than 3.4 billion people living in countries with a GDP growing faster than 6%. A growth rate of 6% means that the total economy will triple in two decades. That is the fastest transformation out of poverty that humanity has ever experience. Whether 2016 will bring a revival of the fundamental emerging market story or a year of disappointment is an open question, and the more market pressure is seen as an argument for reform the better the outcome will be. 2016 is likely to be a difficult year. Growth is increasing, led by the recovery in the US and other advanced economies, but populism, geopolitical risks and market turmoil are likely to cast some shadows over the optimism

Forecast Revisions

Overall, forecasts for global growth have been revised downward by 0.2 percentage point for both 2016 and 2017. Prospects for global trade growth have also been marked down by more than ½ percentage point for 2016 and 2017, reflecting developments in China as well as distressed economies.

  Unless the key transitions in the world economy are successfully navigated, global growth could be derailed. Downside risks, which are particularly prominent for emerging market and developing economies, include the following:

• A sharper-than-expected slowdown along China’s needed transition to more balanced growth, with more international spill overs through trade, commodity prices, and confidence, with attendant effects on global financial markets and currency valuations.
• Adverse corporate balance sheet effects and funding challenges related to potential further dollar appreciation and tighter global financing conditions as the United States exits from extraordinarily accommodative monetary policy.
• A sudden rise in global risk aversion, regardless of the trigger, leading to sharp further depreciations and possible financial strains in vulnerable emerging market economies. Indeed, in an environment of higher risk aversion and market volatility, even idiosyncratic shocks in a relatively large emerging market or developing economy could generate broader contagion effects.
• An escalation of ongoing geopolitical tensions in a number of regions affecting confidence and disrupting global trade, financial, and tourism flows.

Policy Priorities

As per the World Economic Outlook published by IMF in 2016  the projected pickup in growth being once again weaker than previously expected and the balance of risks remaining tilted to the downside, raising actual and potential output through a mix of demand support and structural reforms is even more urgent.

In advanced economies, where inflation rates are still well below central banks’ targets, accommodative monetary policy remains essential. Where conditions allow, near-term fiscal policy should be more supportive of the recovery, especially through investments that would augment future productive capital. Fiscal consolidation, where warranted by fiscal imbalances, should be growth friendly and equitable. Efforts to raise potential output through structural reforms remain critical. 

Although the structural reform agenda should be country specific, common areas of focus should include strengthening labor market participation and trend employment, tackling legacy debt overhang, and reducing barriers to entry in product and services markets. In Europe, where the tide of refugees is presenting major challenges to the absorptive capacity of European Union labor markets and testing political systems, policy actions to support the integration of migrants into the labour force are critical to allay concerns about social exclusion and long-term fiscal costs, and unlock the potential long-term economic benefits of the refugee inflow.

In emerging market and developing economies, policy priorities are varied given the diversity in conditions. Policymakers in emerging market and developing economies need to press on with structural reforms to alleviate infrastructure bottlenecks, facilitate a dynamic and innovation-friendly business environment, and bolster human capital. Deepening local capital markets, improving fiscal revenue mobilization, and diversifying exports away from commodities are also ongoing challenges in many of these economies.

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[1] IMF, World Economic Outlook, 2016

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                              Appendix-I: Merchandise trade volume and real GDP, 2012-2017a
                                         

                                                                                      Annual % change                     

                            

 Figures for 2016 and 2017 are projections.
b Other regions comprise Africa, Commonwealth of Independent States and Middle East.
Sources: WTO Secretariat for trade, consensus estimates for GDP.

Positive and Negative Factors of Globalisation:

Positive and Negative Factors of Globalisation:

As we know, globalisation insists sharp and continuing integration of the world economy and free movement of goods, services, capital and finance across national boundaries. In the world currency markets, trillions of dollars are exchanged every day. Goods and services are traded across countries and help in achieving higher growth rates for the countries. During the last decades there have been several discussions on the implications and impact of globalisation on development economy culture and moral values.

 According to Sobel (2009) “Globalisation consists of multiple processes by which people in one society become culturally, economically, politically, socially, informational, strategically epidemiologically and ecologically closer to people in geographically distinct societies”.

These processes include the expansion of cross border trade, production of goods and services by MNCs, out sourcing the work across borders, movement of people, exchange of ideas and popular culture, flow of environmental effects and flow of disease from one state to another, and routine transfer of billions of dollars across borders in no time. They connect communities, cultures, national markets, for goods and services and national markets for labour and capital. Today every aspect of our life has a global component.

The extent of global influence on our lives, and our interpretation of globalisation varies depending upon where we live, our nationality, our income, our professions, the openness and strength of our national political economies and how the process of globalisation affects us at any specific time. Creating connections across national boundaries can bring good and bad consequences. Some of the consequences of globalisation improve the human wellbeing, enhance social welfare, create wealth and enrich our life. Globalisation like any other process may also have its negative effects. It may spread illness, contribute to violent conflicts and threaten our environment.

Positive Effects Globalisation:

One of the positive effects of globalisation is that it enhances the movement of goods and services across border easier. We shall now discuss in brief the factors favouring globalisation in India.

1. Human Resources: India has advantage that it has largest pool of scientific and technical work force. Scientists and technical persons are hard workers and loyal to their employers. Given the right environment Indians can do excellent job not only in the fields of computers, electronics and software but also in the other professional fields such as C.A. financial analyst, stock market banks insurance and managements. India has an advantage that it has young and working age population who can be employed at a low cost in comparison with other developed countries. Many youths are working in other countries and sending their earning back to India in the form of remittances. Remittances clearly improve the life of the households that receives them in addition of the income recipients. Officially recorded remittances to developing countries reached at $ 330 billion in the year 2008. In India remittances jumped 19% to $ 66 billion in the year 2011-12. Remittances in the current fiscal from non-resident Indians are likely to exceed $75 billion despite global recession. This is because of fall in the value of rupee in 2012-13.   

Table-1: Remittances Received in India (in US $ Billion)

S.No.	Year	Amount
1.	2006-2007	29.10
2.	2007-2008	37.20
3.	2008-2009	51.60
4.	2009-2010	55.06
5.	2011-2012	66.10
6.	2012-2013	67.60
7.	2013-2014	70.39
8.	2014-2015	66.30
9.	2015-2016	68.9

2. Higher Growth: It is also believed that the globalisation also helps countries to achieve higher growth rates and human welfare. The rate of growth of GDP of India has increased from 5.4% during 1980-90 to nearly 6.3% during 1992 to 2005. It reached at a peak of 9.5 % during 2005 to 2008. It started declining due to the adverse effect of global slowdown during 2008-09 to around 7% and further declined to below 6% in the year 2012-13. Thus the figures reveal that the effects of globalisation on Indian economic growth have been quite positive.

3. Market Expansion: Between 1950 and 2005 world GDP increased six fold from about $ 8 trillion to $ 48 trillion, but the world trade in goods increased much faster from less than $ 1 trillion to $ 24 trillion or half the value of global output. India has also been a beneficiary of the globalisation process. Indian share in world trade has shown significant improvement from about 0.7 % in 2001 to 1.2% in 2010.  Now the economies have recovered from the shock and the year 2010 have shown the fastest growth in the trade volume reports WTO.

Reduces marketing costs:

 Companies that sell global products can reduce costs by standardizing certain marketing activities. A company selling a global consumer good, such as shampoo, can make an identical product for the global market and then simply design different packaging to account for the language spoken in each market. Companies can achieve further cost savings by keeping an ad’s visual component the same for all markets but dubbing TV ads and translating print ads into local languages.

Creates new market opportunities:

 A company that sells a global product can explore opportunities abroad if the home market is small or becomes saturated. For example, China holds enormous potential for e-business with more than 400 million Internet users, which is greater than the population of the entire United States. But while more than 70 percent of people in the United States actively surf the Web, just 30 percent of people in China do. Levels income across seasons:

A company that sells a product with universal, but seasonal, appeal can use international sales to level its income stream. By supplementing domestic sales with international sales, the company can reduce or eliminate wide variations in sales between seasons and steady its cash flow

Local tastes are important:

Despite the potential benefits of global markets, managers must constantly monitor the match between the firm’s products and markets to not overlook the needs of buyers. The benefit of serving customers with an adapted product may outweigh the benefit of a standardized one. For instance, soft drinks, fast food, and other consumer goods are global products that continue to penetrate markets around the world. But sometimes these products require small modifications to better suit local tastes.

4. Increase in Competition: Globalisation is seen as an opportunity by many as the firms can import technology and raw material at the lowest available rate and cut cost, improve quality and sell anywhere in the world. Liberalisation and competition enhance consumer choice and consumer satisfaction.

5. Improvement in Health: India is already a signatory of Alma-Ata. The declaration of Alma-Ata was adopted at the International Conference on Primary Health Care (PHC), Almaty (formerly Alma-Ata), Kazakhstan 6-12 September 1978. India is committed to attain the goal of “Health for All”. At Alma-Ata.  World Health Organisation (WHO) and UNICEF presented a new strategy based on primary health care   for achieving this goal. The declaration has 10 points and is non-binding on member states. The National Health Policy, which was declared by the Parliament in 1983, reiterated India’s commitment to attain the goal of Health for all by the year 2000 to ensure improved quality of life.

The Millennium Development Goals (MGDs) are 8 international targets that all 192 United Nations member states and a large number of international Organisations have agreed to achieve by the year 2015. They include cutting extreme poverty, reducing child mortality rates, fighting diseases such as AIDS and developing a global partnership for development around the world. The globalisation helps in expansion of health infrastructure, availability of good medical facilities and health services and serves people.

6. Improvement in Education: Investing in education seems to be an important strategic intervention that government can make. Education seems to have capability to influence many other variables. The world conference on Education for All listed some consequences of investment in primary education;

            To improve productivity of factor (Worker);        

            To help people in the field by providing skills for self employment and entrepreneurship;

            To help people to earn higher incomes;

To contribute to increase in productivity;

The world Conference on Education for All expanded the vision of basic education for all and emphasised:

            Universalising Access and promoting equity;

            Focus on Learning

            Broadening the means and scope of Basic Education;

            Enhancing the environment of learning;

            Strengthening partnership

The period of Globalisation helps in setting such targets and managing resources through international; financial institutions and agencies.

10.                          Globalisation of Production:

Many production activities are also becoming global. Globalization of production refers to the dispersal of production activities to locations that help a company achieve its cost-minimization or quality-maximization objectives for a good or service. This includes the sourcing of key production inputs (such as raw materials or products for assembly) as well as the international outsourcing of services. Let’s now explore the benefits that companies obtain from the globalization of production.

11.                          Access lower cost workers:

Global production activities allow companies to reduce overall production costs through access to low-cost labour. For decades, companies located their factories in low-wage nations to churn out all kinds of goods, including toys, small appliances, inexpensive electronics, and textiles. Yet whereas moving production to low-cost locales traditionally meant production of goods almost exclusively, it increasingly applies to the production of services such as accounting and research. Although most services must be produced where they are consumed, some services can be performed at remote locations where labour costs are lower. Many European and U.S. businesses have moved their customer service and other nonessential operations to places as far away as India to slash costs by as much as 60 percent.

12.                          Access production inputs:

 Globalization of production allows companies to access resources that are unavailable or more costly at home. The quest for natural resources draws many companies into international markets. Japan, for example, is a small, densely populated island nation with very few natural resources of its own—especially forests it therefore imports pulp and also owns forests in other countries.   This gives the firm not only access to an essential resource but also control over earlier stages in the papermaking process. As a result, the company is guaranteed a steady flow of its key ingredient (wood pulp) that is less subject to swings in prices and supply associated with buying pulp on the open market. Likewise, to access cheaper energy resources used in manufacturing, a variety of Japanese firms are relocating production to China and Vietnam, where energy costs are lower. Despite its benefits, globalization also creates new risks and accentuates old ones for companies. To read about several key risks that globalization heightens and how companies can better manage them, see this chapter’s Global Challenges feature, titled “Managing Security in the Age of Globalization.”

10.   Increased Free Trade between Nations:  Though India’s foreign trade has made cumulative progress but the size of foreign trade and its value both have increased at a slow rate that cannot be said satisfactory from any angle. Indian share in world trade was only 0.57 per cent in 1980s, which came down to 0.53 per cent in 1991. However, after liberalisation, it started picking up and has gone above one per cent. Our Balance of Payments has always remained negative since the beginning of the planning with the exception for few intervening years. Economists generally welcome liberalization of international trade and prescribed free trade as the regime that maximize global economic welfare.

11. Increased flow of communication: The improvement in communication, through the introduction and constant development high speed and accessibility of the internet has allowed international exchange to be done at one click of a button. The increased communication helps in expansion of knowledge of the residents. Newer culture and technology are opened to a particular country; their knowledge base also grows and expands. Employment opportunities are also available to the citizens.

12. Easy and Speedy: Transportation of goods and people: Economists also recommends free trade as a policy that is likely to produce welfare gain for each national economy. Consumers can get goods from those countries that produce them at low cost. Thus, both countries gain. The high price country can gain by importing godsend services, capital and labour at a lower price. While the lower price country can gain by exporting the goods at higher price that it would fetch at home.

13. Increased cooperation and reduction of likelihood of War: Where some of the consequences of globalisation improve the human condition, enhance social welfare, create wealth and enrich our lives The very extent of economic globalisation and the cross border cooperation necessary to fuel that that globalisation can produce dislocation, spread illness and contribute to violent conflicts. World have seen two such World Wars in which more than 70 million people dead and far more injured physically and psychologically.

Disadvantages of Globalisation

1.                  Increase Poverty and Inequality:

During the 20th century, global average per capita income rose strongly, but with considerable variation among countries. It is clear that the income gap between rich and poor countries has been widening for many decades. The most recent World Economic Outlook studies 42 countries (representing almost 90 percent of world population) for which data are available for the entire 20th century. It reaches the conclusion that output per capita has risen appreciably but that the distribution of income among countries has become more unequal than at the beginning of the century.

But incomes do not tell the whole story; broader measures of welfare that take account of social conditions show that poorer countries have made considerable progress. For instance, some low-income countries, e.g. Sri Lanka, have quite impressive social indicators. One recent paper finds that if countries are compared using the UN’s Human Development Indicators (HDI), which take education and life expectancy into account, then the picture that emerges is quite different from that suggested by the income data alone.

Indeed the gaps may have narrowed. A striking inference from the study is a contrast between what may be termed an "income gap" and an "HDI gap". The (inflation adjusted) income levels of today’s poor countries are still well below those of the leading countries in 1870. And the gap in incomes has increased. But judged by their HDIs, today’s poor countries are well ahead of where the leading countries were in 1870. This is largely because medical advances and improved living standards have brought strong increases in life expectancy. But even if the HDI gap has narrowed in the long-term, far too many people are losing ground. Life expectancy may have increased but the quality of life for many has not improved, with many still in abject poverty. And the spread of AIDS through Africa in the past decade is reducing life expectancy in many countries. This has brought new urgency to policies specifically designed to alleviate poverty.

Countries with a strong growth record, pursuing the right policies, can expect to see a sustained reduction in poverty, since recent evidence suggests that there exists at least a one-to-one correspondence between growth and poverty reduction. And if strongly pro-poor policies for instance in well-targeted social expenditure are pursued then there are a better chance that growth will be amplified into more rapid poverty reduction. This is one compelling reason for all economic policy makers, including the IMF, to pay heed more explicitly to the objective of poverty reduction.

 It is very difficult to reach at consensus on the issue of globalisation. Some experts praise globalization and integration of various economies. Alongside the numerous advantages s of globalisation there do exists some disadvantages of globalisation. While some experts see great opportunities in interdependence in the biggest problem of globalisation- as domino effect of economic crisis in one country can result in some severe repercussions on various countries with whom it shares economies ties. The following are the disadvantages of globalisation:

2.                  Globalization Harm Workers’ Interests:

Anxiety about globalization also exists in advanced economies. How real is the perceived threat that competition from "low-wage economies" displaces workers from high-wage jobs and decreases the demand for less skilled workers? Are the changes taking place in these economies and societies a direct result of globalization? Economies are continually evolving and globalization is one among several other continuing trends.

• One such trend is that as industrial economies mature, they are becoming more Service oriented to meet the changing demands of their population.

• Another trend is the shift toward more highly skilled jobs.

In fact, globalization is making this process easier and less costly to the economy as a whole by bringing the benefits of capital flows, technological innovations, and lower import prices. Economic growth, employment and living standards are all higher than they would be in a closed economy. But the gains are typically distributed unevenly among groups within countries, and some groups may lose out. For instance, workers in declining older industries may not be able to make an easy transition to new industries.

What is the appropriate policy response? Should governments try to protect particular groups, like low-paid workers or old industries, by restricting trade or capital flows? Such an approach might help some in the short-term, but ultimately it is at the expense of the living standards of the population at large. Rather, governments should pursue policies that encourage integration into the global economy while putting in place measures to help those adversely affected by the changes. The economy as a whole will prosper more from policies that embrace globalization by promoting an open economy, and, at the same time, squarely address the need to ensure the benefits are widely shared. Government policy should focus on two important areas:

• Education and vocational training, to make sure that workers have the opportunity to acquire the right skills in dynamic changing economies; and

• Well-targeted social safety nets to assist people who are displaced.

The MNCs from the developed countries invest in developing countries wherein they get cheap labour. Critics seek it as exploitation of labour.

 3. Economic Problem: In the globalised world, there are greater chances that economic disputation in one nation may have a disastrous impact on various other nations, closely related to it in terms of trade and commerce. It will be a Domino effect, wherein disturbances in one economy will result in disturbance in another and so on.

4. Cultural Problems: Culture and Globalisation seem to be at the loggerheads. Critics have a definite opinion that globalisation will hamper the age-old culture which have been followed religiously all over the world. The impact of the globalisation is noticeable in popular culture as well. Whether it is music, films or TV shows the international influence is slowly taking over. The western culture stands as an example of disadvantage and destroying the age-old traditions and culture in India.

5. Rise in Unemployment: One may feel that globalisation is promoting employment, but in fact, the developed countries are facing serious competition from cheap labour coming from highly populated countries. In developed countries, people are losing jobs because of outsourcing. Countries in developed world are facing great threat from out sourcing and decline in employment opportunities. This is also becoming a big political issue now a day.

6. Spread of Disease: Increase in flow of people will also result in spread of diseases, and thus make people more vulnerable to health issues. We do have many such examples wherein outbreak of a particular disease happened in some part of the world spread through the world before various stakeholders realise.

There are a few more disadvantages of globalisation such as environmental hazards, transfer of harmful and old technologies to developing countries and use of international; platform to fulfil the national objectives of developed world. Besides bilateral and regional trade blocks and treaties for cooperation among developing and developed countries can also work against the objectives of international cooperation.

The strong point that the critics of globalisation and supporters of anti-globalisation movement want to make is that this process will result in implications in terms of economics, culture, health, and employment and most of the countries are not ready to take on these disadvantages head-on. Therefore, the need of the hour is to discuss various pros and cons of globalisation and find out ways where advantages are maximised in the interest of the nation.

7. Globalization reduces national sovereignty:

Does increased integration, particularly in the financial sphere make it more difficult for governments to manage economic activity, for instance by limiting governments’ choices of tax rates and tax systems, or their freedom of action on monetary or exchange rate policies? If it is assumed that countries aim to achieve sustainable growth, low inflation and social progress, then the evidence of the past 50 years is that globalization contributes to these objectives in the long term.

In the short-term, as we have seen in the past few years, volatile short-term capital flows can threaten macroeconomic stability. Thus, in a world of integrated financial markets, countries will find it increasingly risky to follow policies that do not promote financial stability. This discipline also applies to the private sector, which will find it more difficult to implement wage increases and price mark ups that would make the country concerned become uncompetitive. In short, globalisation does not reduce national sovereignty. It does create a strong incentive to pursue sound economic policies. However, there remains a risk of huge capital in and out flow in the country generating economic fluctuations.

Indian Economy: Recent Trend of Globalisation and Liberalisation:

For the Indian economy to grow with equality and economic justice, the informal sector, home-based production and cottage industries need to achieve high growth with policy and institutional support. The contribution of these sectors to any economy cannot be ignored. This is especially true for a country like India, as they are important sources of employment and income for many families. They have 40 percent share in the total industrial output, 35 percent in exports, and over 80 percent in employment. However, many of such sectors are not doing well in this era of globalisation, which encompasses economic liberalisation. It has been found that in order to overcome the challenges and avail opportunities of globalisation and economic liberalisation, these sectors and associated entrepreneurs need institutional support for technology up-gradation, infrastructure support for market penetration, and adequate working capital finance from the banking sector.

India embarked upon the process of economic liberalisation in 1991. Since then liberalization has exposed all industrial units including small home-based enterprises in the informal sector to the inherent risks of free market competition. Globalisation has intensified the market competition by allowing imports and multinational corporations. The reform process of the

Indian economy has a far reaching impact on Indian informal sector. Most of the problems, during this era of economic liberalisation, arise due to the unorganised nature of the sector, lack of data and information, use of low technology and poor infrastructure of the sector.

The setting up of the WTO (World Trade Organization) in 1995 has intensified global competition. The World Trade Organization regulates multilateral trade and enforces its member countries to remove import quotas and other import restrictions, and to reduce import tariffs. In addition, countries, especially the developing countries, are asked to stop subsidies to exports as well as to domestic production. As a result, every single individual enterprise in India, small or large, whether exporting or serving the domestic market, has to face competition.

In India, selective de-reservation of some SSI products and removal of QRs (Quantitative

Restrictions) have started taking place with a view to enhancing exports and competing effectively in the global market. Out of 836 items reserved for production under SSI, 162items have been de-reserved and almost all the items are placed on the OGL (open general license) list of imports. This opens up the possibility of direct competition in the domestic market with the imports of high quality goods from the developed countries and cheap products from the other less developed countries.

Competition in the domestic market would further be intensified with the arrival of multinational companies as the restrictions on foreign direct investment have been removed.

Removal of quantitative restrictions and lowering tariffs are creating a serious impact on the small and informal sector, leading to closure of some units and consequent displacement of labour. In view of several desirable socio-economic objectives, Abid Hussain Committee made out a strong case for support and promotional policies to encourage the development of

SSIs left to free market forces. The committee recommended to effectively addressing the problems faced by the SSI units.

The silver lining amidst the fierce competition lies in exploiting the opportunities of globalization in terms of outsourcing, sub- contracting and ancillarisation of the products manufactured by corporate. To be able to face competition in a level playing ground the Indian informal sector needs to be endowed with technological up-gradation and modernisation. In the changing economic scenario, it is the knowledge-based technology, organization and information which will be able to improve the quality and competitiveness of products and thus help to face competition from imports. The free economy will usher inaccessibility to bigger markets, greater linkages for SSI with larger companies and marketing outfits, improved manufacturing techniques and processes.

However, the sector is afraid of adopting new technology because of the huge initial capital investment and adjustment of production process, uncertain input supply, marketing prospect and profit of the products manufactured with new technology. Other major impediments are lack of knowledge of technology sourcing, evaluation and demonstration facilities, lack of surveys and feasibility studies etc. Therefore, for the development of this sector there needs to be a major thrust on technology intervention in clusters which offers the small units an opportunity and easier access to get acquainted with new technologies.

Civil society and government agencies can play a significant role in educating small units about the changes in the business environment and the necessity of going in for technological up-gradation. Civil society organizations are mostly unable to come to a platform for conducting meaningful dialogues (exchange of information and views), taking forward the outcomes at appropriate levels and disseminate the learning to their respective constituencies. Thus, there is the need to facilitate the process of learning (through exchange of information and views) for policy advocacy at different levels. This will go a long way to instil trust and confidence in these units.

A Look to Current Phase of Globalization

Globalization, of course, is not a new phenomenon. The period 1870 to 1913 experiences growing trend towards globalization. The new phase of globalization which started around mid-20th century became very wide spread, more pronounced and over charging since the late 1980s by getting more momentum from the political and economic changes that swept across the communist countries, the economic reforms in other countries, the latest multilateral trade agreement which seeks to substantially liberalize international trade and investment and the technological and communication revolutions. There are several similarities and differences between the two phases of globalization. The Human

Development Report, 1999, mentioned the following as the new features of current phase of globalization:

1) New Market

• Growing global markets in services- banking, insurance, transport.

• New financial markets- deregulated, globally linked, working around the clock, with action at a distance in real time, with new instruments as derivatives.

• Deregulation of antitrust laws and proliferation of mergers and acquisitions.

• Global consumers market with global trends.

2) New Actors

• Multinational corporations integrating their production and marketing, dominating food production.

• The World Trade Organization- the first multilateral organization with authority to enforce national governments’ compliance with rules.

• An international criminal court system in the making.

• A booming international network of NGOs.

• Regional blocs proliferating and gaining importance- European Union, Association of

South-East Asian Nations, North American Free Trade Association, Southern

Africa Development Community, among many others.

• More policy coordination groups- G-7, G-40, G-22, G-77, and OECD.

3) New Rules and Norms

• Market and economic policies spreading around the world, with greater privatization and liberalization.

• Widespread adoption of democracy as the choice of political regime.

• Human rights conventions and instruments building up in both coverage and number of signatories and growing awareness among people around the world.

• Consensus goals and action agenda for development.

• Conventions and agreements on the global environment- biodiversity, ozone layer, disposal of hazardous wastes, desertification, and climate change.

• Multilateral agreement in trade, taking on such new agenda as environmental and social conditions.

• New multilateral agreement for services, intellectual property, communications, more binding on national governments than any previous agreements.

• The Multilateral Agreement on Investment under debate.

4) IT Revolution:

• Internet and electronic communication linking many people simultaneously.

• Cellular phones.

• Fax machines

• Faster and cheaper transport by air, rail and road.

• Computer aided design.

Exercise

1. What do you mean by Globalization? Bring out the nature and causes for globalization of Industry.

2. Discuss the issues involved in globalization. Does globalisation harm poor and increases inequalities?

3. Discuss the meaning of Globalisation. What are its advantages and disadvantages?

4. Globalisation is harmful and does not help developing countries to increase the rate of   growth. Discuss this statement.

5. Define globalization. How does denationalization differ from internationalization?

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