Prof. Parul Gupta
Transcript of Prof. Parul Gupta
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Globaliation, Privatization andLiberalizationProf. Parul Gupta1
LPG
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Globalization
Globaliation, Privatization andLiberalizationProf. Parul Gupta2
The international Monetary Fund defines it as the
growing economic interdependence of countries
worldwide through the increasing volume and
variety of cross-border transactions in goods andservices and of international capital flows, and also
through the more rapid and widespread diffusion of
technology
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Meaning and dimensions:
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L Expanding the business globally2. No distinction between domestic and
foreign market3* Locating physical facilities like
production etc on consideration of globalbusiness dynamics instead of domestic.Global market consideration for product
development and product planning
Global sourcing of factors of productionGlobal orientation of organizationalstructure and management culture
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Stages of globalization:-
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First stage:-
Linking up of essential service activities of domesticcompanywith local dealers and distributors of foreign market
Second stage:-Company takes over these activities on its own
Third Stage:-Starting of manufacturing, marketing and sales in the
key foreign market
Fourth stage:-
Replication of hardware system and operations in anew environment
Fifth stage :-This stage is known as " global localization stage"
which comprises of ability to serve local customers in
markets around the globe in an efficient manner
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Globaliation, Privatization andLiberalizationProf. Parul Gupta5
Essential conditions for Globalization:-
Business freedom
Facilities
Govt. supportResources
Competitiveness
Orientation
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ec sGlobalization
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Movement Toward Free Trade and TradeBlocs
Types of Trade BlocsFree Trade Area: member countries eliminate
trade barriers among themselves, but retain right
to impose barriers on non-members.Customs Union: member countries remove
barriers among themselves and have commonbarriers on non-member countries
Common market: A customs Union that allows
free movement of factors of productionEconomic Union: A common market whereeconomic policies are also harmonized
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Evolution & Growth of GlobalCompanies
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Principally companies from Europe,United States, Japan and South Korea
Global Companies and their globalnetwork of subsidiaries are connectingcountries and companies world-wide.
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Liberalization
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Challenges FacedBy Businesses in
GlobalEnvironment
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Environmental Challenges
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LiberalizationProf. Parul Gupta10
Political Ideologies
Economic Systems
Technological Sophistication
Legal Challenges
Cultural Distance
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Foreign market entrystrategies;-
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LiberalizationProf. Parul Gupta11
A. Exporting- ,is appropriate in following conditions
1. Volume-of business is small
2. Cost of production in domestic market is low
3. Presence ofproduction barriers overseas4. Political risk
5. Company has no permanent interest in foreign market
6. Foreign investment not favored by foreign govt
7. Other better alternatives are not available
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B. Licensing and Franchising -
Licensing:-Under this strategy a firm in onecountry( licensor ) permits a firm in othercountry (The licensee) to use its intellectual
propertyFranchising:- Is a form of licensing in which
a company (franchisor) grants otherindependent entity (the franchiser) right todo business in a prescribed manner
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C. Contract Manufacturing:-Under this a firm contracts with a foreign company to
manufacture or assemble the product while
retaining the right to market product with itD. Management Contracting: -Here a firm provides management know how to
another firm and may or may not have a equitystake in the firm being managed
E. Turnkey contracts :-Is an arrangement by the seller to supply a buyer witha facility fully equipped and ready to be operated bybuyer's personnel who will be trained by seller
F. Assembly Operations :-When assembly operations are labor intensive andlabor is cheap in foreign country, firm can get itsproducts assembled overseas and bring it backhome or sell globally
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G. Joint VentureAny form of association which implies
collaborations for more than one transitory
periods is a joint venture. There can be manydiverse types of joint venturesa. Sharing of ownership and managementb. Licensing & Franchisingc. Contract manufacturing
d Management contracting.
H. Third country locationWhen direct transactions between two firms of
different countries is not possible due to political
or other reasons firms sometimes take help ofsome third party base
I. Mergers and Acquisitions
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J. Strategic Alliancesa* Technology development allianceb. Marketing sales and services
alliancesc. Multiple Activity alliances
G, Counter tradeIs a form of international trade in which
certain export and import transactions aredirect linked with each other and in whichimport of goods are paid by export ofgoods instead of money payment
Forms of counter trade
A BarterB.Buy BackC. CompensationD. Counter purchase
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Pros and cons ofGlobalization
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Merits Inflation is controlledExport jobs may pay moreInnovations and fresh ideas
DemeritsUnemploymentOften Pay cut demands from
employersCountry can lose its competitive
advantage
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What is Privatization?
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LiberalizationProf. Parul Gupta17
The act of reducing the role ofgovernment or increasing the role ofthe private sector in an activity or theownership of assets.Contracting with a private companyAwarding a contract to a private firm for
management servicesVouchers to purchase some or all services from a
private vendorDeregulating entry into an area in which most
services have traditionally been delivered bypublic institutions,
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HISTORY :
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LiberalizationProf. Parul Gupta18
The history of privatisation is very shortjust 10 to 15 years old to be precise.Though real disinvestment started only inthe later 1980s. The word privatisation first
made its appearance way back in the late60s.
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NATURE AND OBJECTIVE:
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LiberalizationProf. Parul Gupta19
Transfer of ownership to private.Improve the performance of PSUs
To improve the results.
To improve the quality of service.To make things more competitive.
To make the enterprise more efficient.
To encourage innovation.To bring in Foreign exchange
Generate revenues
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PRIVATISATION ROUTES:
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LiberalizationProf. Parul Gupta20
Sale to outsider.Management employee buyout.
Equal-access voucher privatisation.
Spontaneous privatisation.
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CONDITIONS FOR SUCCESS:
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LiberalizationProf. Parul Gupta21
Commitment by the political leadership.Multiplicity of private suppliers.
Freedom of entry to provide goods and
services.Long term contracts and franchises limit
competition and consumer choice.
Consumers should be able to lionk the
benefits.Privately supplied services should be less
susceptible to fraud.
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OBSTACLES:
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LiberalizationProf. Parul Gupta22
Govt sells those enterprises which privatesector is not ready to buy.
Obstacles created by employees who mayloose their jobs.
Underemployed capital market sometimesmake it difficult for govt to float shares andfor individual buyers to finance largepurchases.
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PRIVATISATION IN INDIA
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RANGA RAJAN COMMITTEE:
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LiberalizationProf. Parul Gupta24
Units to be disinvested to be identified.Need for the govt to retain the majority
holdings in areas like defence andatomic energy. In others disinvestment
can be to any level.Disinvestment shall be in stages andsales to be done in such a way so as toget max possible price from the bidders.Workers interests to be protected.Disinvestment must be transparent.An autonomous body needs to be set up
to monitor the process of disinvestment.
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BENEFITS:
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LiberalizationProf. Parul Gupta25
Reduces fiscal burden on the state.It helps govt to mop up funds.It helps the state to trim the size of
administrative machinery.
It helps govt to concentrate more onessential state functions.Accelerating pace of economic
development.Better management of the enterprises.Encouraging entrepreneurship.Increases shareholders.
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ARGUMENT AGAINSTPRIVATISATION
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PITFALLS:
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Lack of proper strategy.Ambiguity of objectives.Hidden objectives of politicians.Wrong timings.
Lack of political consensusLack of political will.Poor financial stratigies.Wrong environment.Prevailance of monopoly elements.Problems of cultural change.
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Privatisation succeeds and fails for severalreasons of relevance to the Indian situation
are four factors:1.Commitment.
2.Competition.
3.Transparancy.
4.Mitigation.
These four factors indirectly make privatisationyield the necessary results. Of these four
factors India scores highly on competition andtransparancy. But it scores poorly on the othertwo.
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Most CommonlyPrivatized Services
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LiberalizationProf. Parul Gupta29
Transportationover 30%
Food Servicedoubled in last 10 years to 28%
Maintenance Serviceover 18%Clerical/Information Services
Paraprofessionalseducation mgmt. companies
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India
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LiberalizationProf. Parul Gupta30Slide | 30
Indian taxregime
Income tax
Foreign Trade Policy
Customs Duty
Service tax
R&D cess
Cenvat (Excise) Duty
Sales tax/ ValueAdded Tax (VAT)
Indirecttaxes
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LIBERALIZATION
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Free trade is a market model in which the
trade of goods and services between orwithin countries flows unhindered bygovernment-imposed restrictions.
These restrictions may increase costs to
goods and services, producers, businesses,and customers, and may include taxes andtariffs, as well as other non-tariff barriers,such as regulatory legislation and quotas.
Trade liberalization entails reductions tothese trade barriers in an effort forrelatively unimpeded transactions.
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FREE TRADE
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Trade of goods without taxes (including tariffs) or other tradebarriers (e.g., quotas on imports or subsidies for producers) Trade in services without taxes or other trade barriers The absence of trade-distorting policies (such as taxes, subsidies,
regulations or laws) that give some firms, households or factors ofproduction an advantage over others
Free access to markets
Free access to market information Inability of firms to distort markets through government-imposed
monopoly or oligopoly power The free movement of labor between and within countries The free movement of capital between and within countries
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Free trade can be contrasted withprotectionism, which is the economic
policy of restricting trade betweennations. Trade may be restricted by hightariffs on imported or exported goods,restrictive quotas, a variety ofrestrictive government regulations
designed to discourage imports, andanti-dumping laws designed to protectdomestic industries from foreign take-over or competition