International Business Environment
India in this 21st century is among the top five economies and is the leading nation in software export and various other IT enabled services. The country has singular advantage in software sector as well as other auxiliary services including BPO and call center services (Website 5). The presence of highly qualified IT engineers at comparatively low cost makes it as the most appealing to the foreign investors interested in software business and service sector. This report has concentrated on India’s recent policies in promoting FDI, international trade and the instruments it used to influence the market.
Issues concerning International monetary system, social culture factors and intellectual property have also been analyzed in the following. Topic 1: Globalization of Trade and Investment News reports suggest that economic giants from third world Asia namely China and India are expected to grow at the rate of 9. 7 and 6. 5 percent respectively. Though the difference between the two is quite high but both the nations are one of the fastest growing economies in the world.
The GDP growth rate of these nations is much higher than that of any developed nation. It’s not just the growth rate but also the sheer size of the economies of these nations that has made them an indispensable part of the world economy. China has now become the factory of the world with large multinational companies infusing lots of money in establishing manufacturing units and India is now one of the major destinations for back office jobs and is the leading service sector economy.
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The globalization has started giving results. The process which has got its roots right from the beginning of 20th century with the beginning of economic cooperation between Europe and the United States has now become synonymous with the word development no only in western world but also in Far East Asian Countries (The World Bank Group, 2000). Figure 1. 1 Major Korean Economic Indicators (1990-1999) Note: Unemployment rate and exchange rate are annual averages. Source: Bank of Korea.
The globalization as a whole might have a single definition but in reality it has multiple faces. In the beginning it was as simple as a trade agreement and associations. Later it got itself transformed into collaborations between firms of different nations not only for trade but for technological development also. The case of man made fiber is a very good example of cooperation between firms of US and Europe. But after Second World War, globalization started to spread across third world nations of Asia and Latin America.
The Latin American nations of Mexico, Brazil and others were more or less became one of the fastest developing regions of the world with annual growth of the countries lied between 6 to 9 percent with Brazil termed as a miracle economy leading the race with 9% economic growth in the period 1965 to 1980. The other South American giant Mexico continued to grow at a pace of 6 % over the three decade period from1950 to 1980. But the region could not sustain its growth and had to face economic slump in 1980s due to debt crisis.
Though it has been argued that it’s the internal factors like corruption, wrong policy and microeconomic failure which had caused the failure of South American economy but in reality the globalization of the region despite giving good results for a period of three decades failed in the long run. Conditions in Asia were different from the beginning. The Middle East region of Asia saw many western firms building establishments to gain control of the world’s most important commodity i. e.
, oil and hence the first wave of Asian globalization post World War II was for oil though it was not absolute rather an attempt of the west to maintain an uninterrupted supply of oil. The actual Asian Globalization began with the countries of South East Asia who were termed as Asian tigers. South Korea along with Taiwan was leading the pack and was only behind Japan. With a strategy of export oriented economic integration, the degree of integration were not uniform rather varied in different spheres and changed over a phase of time.
For almost 30 years these countries maintained import control to provide them cushion of domestic market and hence competitive edge in international pricing. Though in 1990s some countries of South East Asia faced economic crisis but they continued to grow with crisis not extending to a very long period. Some of the major currencies of region saw unprecedented fall due to the withdrawal of money by western investors who lost their interest in the securities of East Asian nations.
But it was the support from IMF and World Bank which helped these nations in getting over the problem and again the region is showing high economic growth (Panelver, 2002). Hence the globalization has shown great results but in almost all cases it has also been a reason behind every economic crisis irrespective of region. On close analysis this globalization can be understood as a combination of four major trends.
The four trends in a globalize world are the expansion of international trade, financial flows where FDI is a major entity, global communications which includes transportation and finally the immigration i. e. , transnational movements of people. These four trends have been a part of every phase of globalization right from the beginning of 20th century. They were very much present in phases post World War II and later in 1990s when FDI age began. The point of discussion and research has now moved from the causes and determinants of the globalization to its various components and interaction between them.
These four trends have worked quite differently while implementing the globalization process among different nations. If we talk about FDI only, then it has been observed that the same FDI has given different result sin different nations. Some countries have made significant increase in their share of trade with very little FDI like India while some nations received high levels of FDI forming a major percentage of GDP in 1990s but didn’t show any economic growth e. g. Angola, Ecuador.
But China being the biggest receiver of FDI showed highest growth in the history of modern economy and has now become the factory of the world. The South East nations gained status of being an economic powerhouse with greater export especially of electronic items and before 1990s these nations depended on foreign money inform of investment in securities with government of these nations investing a bulk of that in exportable products like automobile and electronic items (Panelver, 2002). Figure 1. 2 Korean Trade Statistics
Source: Korea International Trade Association. But the real success of India has been observed in form of the success of software giants like Infosys, TCS, Wipro and many smaller ones (Bromley et. al. , 2004, p. 209). These companies opened new era of business through outsourcing of jobs from US and this led to the advent of many of the US based MNCs like Accenture, IBM, GE and others investing a lot in India. The condition has become so different that the growth of Indian firms is dependent on US.
Now the other sectors like retail, automobile, telecommunication etc. are getting large input through FDI channel (Perkovich, 2003). Now this US supported growth of economy has made the government to follow foreign policies with extra care so that the interests of US must be taken into account and the mutually beneficial relationship between the two countries should remain intact. Figure 1. 3 Geographical Distribution of Korean Trade Source: Korea International Trade Association
So the new India or better to say the liberalized India post reforms presents a beautiful case where Kenneth Waltz’s theory of International Relations which states that the action of a state can often get affected due to pressures being exerted by international forces and thereby limiting the options available to them(1979). The neorealist or structured model has been developed with the aim to explain the repeating patterns of state behavior and power and its extent which is the combination of its capacity to resist external influence while influencing others to behave according to its wishes.
After a series changes in economic policies in the beginning of last decade of 20th century, Indian government have made considerable improvement in the business environment becomes open, competitive and stronger than before. Its fast growing service industry attracts more and more investors to invest and hence its role as a major trading nation in international standard has amplified. In 2007’s Fortune publication, a total of 11 native companies which were included among the Global 500 World’s largest corporations headquartered in Korea, all of these famous corporations have their branches in the oversea market.
Not only has their native brand trended to exploit the oversea market, but also the foreign investors from every corner of the world increasingly trended to enter this market because of its diversification of economy. Hence, Korea is supposed to be a good place for international business and investment. Topic 2: Political Economy There has been widespread speculation that the nation India has arrived on economic ground. The successful run of first phase of reforms has set a very strong platform from where a growth of 8 percent for the next five years appears within reach.
The more optimistic approach can make one believe that the growth rate may surpass the magical figure of 10 percent. The way Indian stock exchanges have performed, the confidence among investors is an all time high. Even the Indian Corporate Sector is churning out a number of large companies getting into the mould of MNCs. The successful run of Indian Software Industry which includes the firms namely Infosys, TCS, Wipro etc.
is a very glaring example of the economic successes the nation has achieved in the last decades (Bromley, Mackintosh, Brown & Wuyts, p. 209). Even the core sector like Steel, Aluminum, Textile, Yarn and automobile are showing signs of world class performance. The petroleum sector has its own success story with the presence of large firms like Reliance Industries, Indian Oil and ONGC. So, the facts which have been illustrated above might appear as more than sufficient information to attract a new wave of FDI and economic reform.
But the actual scenario is far from what one can imagine from the above mentioned figures. The country is severely lacking on important economic factors like infrastructure and education and healthcare (The Economist). Market-based reform After entering into a new economic fold, the Indian State’s decision showed the signs of getting influenced through external international forces which includes IMF, World Bank and other trade partners including US and EU.
On economic issues, the Indian government for obtaining loans from IMF and World Bank had to observe their demands. Some of the demands that IMF made were import liberalization, tariff reduction, decontrolling the food grains market, decreasing subsidies in food and agricultural sector, PSU privatizations, enabling law for attracting FDI in manufacturing and infrastructure projects and opening the domestic banking and insurance sector i.
e. , financial liberalization (Bromley et. al, 2004, p. 199).. The Indian government reacted cautiously but in a considerably long period, opened some of the sectors with foreign players holding majority stakes while in most of the sectors FDI was promoted to some percentage that may be 26 percent or up to 49 percent (Govt. of India, 2005). The economic reforms of Indian economy went into super fast mode during the regime of BJP.
The BJP government was found to be pro-reformist with measures taken by continued to follow the path initiated by the Narashimha Rao Government. This stand of BJP was in sharp contrast to what it had observed during the beginning of the reform movement (Bromley et. al. , 2004, p. 168). Under the BJP government, India tested five nuclear weapons and was widely criticized by most of the countries (Perkovich, 2003). The US government imposed a series of economic sanctions and the relationship between the two nations started showing down turn.
But the Indian economy showed resilience and even the US congress and other western nations realized this fact and the sanctions were removed in a number of phases. The terrorist attack of September 11 2001 changed the scenario and the world under US leadership started considering terrorism as an international threat and India being a victim of Pakistan sponsored terrorism gave unequivocal support to US led war against terror (Perkovich, 2003).