In today's world, consumers have a wide choice of goods and services. The latest models of digital cameras, mobile phones, and automobiles from leading global manufacturers are easily accessible. This rapid transformation of markets has occurred over the last few decades, changing how we understand production and trade.
Until the middle of the twentieth century, production was largely organised within countries. Trade in raw materials, foodstuff, and finished products was the main channel connecting distant nations.
A Multinational Corporation (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 to minimise production costs and maximise profits.
MNCs do not just sell their finished products globally; their goods and services are also produced globally. Production is organised in increasingly complex ways, divided into small parts and spread across the globe:
MNCs set up production where it is close to markets, where cheap skilled and unskilled labour is available, and where other factors of production are assured.
The money spent to buy assets such as land, buildings, machines, and other equipment is called investment. Investment made by MNCs is called foreign investment, made with the hope of earning profits.
Foreign trade has historically been the main channel connecting countries, creating opportunities for producers to reach beyond domestic markets and offering buyers choices beyond domestically produced goods.
Chinese manufacturers exported cheap, plastic toys to India. Because of cheaper prices and new designs, Chinese toys quickly replaced Indian toys, capturing 70 to 80 percent of the toy shops within a year. This illustrates how trade leads to competition and price equalisation across markets.
Foreign trade results in connecting the markets or integration of markets in different countries. Goods travel from one market to another, choices rise, and prices of similar goods tend to become equal.
Globalisation is the process of rapid integration or interconnection between countries. MNCs play a major role in this process, facilitating the movement of goods, services, investments, technology, and people across borders.
Governments use trade barriers (like taxes on imports or quotas) to regulate foreign trade and protect domestic industries. Removing these barriers or restrictions is known as liberalisation.
In India, far-reaching policy changes were introduced around 1991, removing barriers to foreign trade and investment to encourage domestic producers to compete globally and improve quality.
The World Trade Organisation (WTO) is an international organisation whose aim is to liberalise international trade. It establishes rules regarding international trade and ensures they are obeyed.
While WTO aims for free trade, developing countries argue that developed nations have unfairly retained trade barriers (e.g., massive agricultural subsidies in the US) while forcing developing nations to remove theirs, raising questions about "free and fair trade."
The impact of globalisation has not been uniform across different sections of society.
To attract foreign investment, central and state governments are setting up Special Economic Zones (SEZs) with world-class infrastructure. Companies in SEZs enjoy tax exemptions for an initial period of five years and flexibility in labour laws (hiring workers "flexibly" on a temporary basis).
Fair globalisation would create opportunities for all and ensure that its benefits are shared better.
The government can play a major role by:
Massive public campaigns and representations by people's organisations have successfully influenced critical decisions related to trade and investment at the WTO, proving that citizens can play an active role in the struggle for fair globalisation.