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06 BE Globalisation SEM 5
06 BE Globalisation SEM 5
Unit 3 Chapter 1
Globalisation
Meaning
The term globalisation refers to the integration of the economy of the nation with
the world economy. It is a multifaceted aspect. It is a result of the collection of
multiple strategies that are directed at transforming the world towards greater
interdependence and integration.
Definition
In the context of economic reforms, Globalization means the integration of the
Indian economy with the world economy. It means that the economy of India will
now also depend on the world economy and vice versa. It encourages FDI and
foreign trade with different countries.
Indicators of Globalization
1. International Trade: The volume and value of international trade in goods
and services is a crucial indicator of globalisation. Increasing trade flows,
higher export-import ratios, and the growth of global supply chains
indicate deeper integration and interdependence among nations.
Types of FDI
There are two main types of FDI:
1. Greenfield investment: involves the creation of a new company or
establishment of facilities abroad. A greenfield investment is a form of
market entry commonly used when a company wants to achieve the
highest degree of control over foreign activities
2. M&A: amounts to transferring the ownership of existing assets to an
owner abroad. In a merger, two companies are merged to form one, while
in an acquisition one company is taken over by another.
Importance of FDI
➔ It Helps in Diversifying Investor's Portfolio investing in FDI will have a
diversified portfolio comprising many investments that can be national
investments or FDI. A diversified portfolio is by investing in a variety of
different foreign companies, an investor can reduce their risk.
➔ It Infuses New Technology in Developing Nation Advanced countries
making FDI a great opportunity for developing countries. They are likely to
bring cutting-edge technology and skills with them to the host country
which can be very helpful to a developing country like India.
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➔ Creates Further Jobs and Openings Foreign Direct Investments (FDI) create
more job opportunities in the host country, indirectly boosting the economy
and attracting more investments.
Benefits of FDI
➔ Job creation: FDI can create jobs in the host country, both directly and
indirectly.
➔ Technology transfer: FDI can help to transfer technology from the home
country to the host country. This can help to improve productivity and
competitiveness in the host country.
➔ Increased exports: FDI can lead to increased exports from the host
country. This can help to boost the host country's economy.
➔ Increased investment: FDI can lead to increased investment in the host
country. This can help to improve the host country's infrastructure and
economy.
Risks of FDI
➔ Job losses: FDI can lead to job losses in the home country, as companies
move production to the host country where labour is cheaper.
➔ The exploitation of natural resources: FDI can lead to the exploitation of
natural resources in the host country, as companies extract resources
without giving back to the local community.
➔ Environmental damage: FDI can lead to environmental damage in the host
country, as companies pollute the environment without taking steps to
clean up their mess.