Globalisation means integrating the economy of a country with the economies of other countries under conditions of free flow of trade, capital and movement of persons across borders. It includes
(i) Increase in foreign trade
(ii) Export and import of techniques of production.
(iii) Flow of capital and finance from one country to another
(iv) Migration of people from one country to another.
What was the reason for putting barriers to foreign trade and foreign investment by the Indian government? Why did it wish to remove these barriers?
The Indian government had put barriers to foreign trade and foreign investment to protect domestic producers from foreign competition, especially when industries had just begun to come up in the 1950s and 1960s. At this time, competition from imports would have been a death blow to growing industries. Hence, India allowed imports of only essential goods.
In New Economic Policy in 1991, the government wished to remove these barriers because it felt that domestic producers were ready to compete with foreign industries. It felt that foreign competition would in fact improve the quality of goods produced by Indian industries. This decision was also supported by powerful international organisations.
Flexibility in labour laws will help companies in being competitive and progressive. By easing up on labour laws, company heads can negotiate wages and terminate employment, depending on market conditions. This will lead to an increase in the company's competitiveness.
What are the various ways in which MNCs set up, or control, production in other countries?
Multinational Corporations (MNCs) set up their factories or production units close to markets where they can get desired type of skilled or unskilled labour at low costs along with other factors of production. After ensuring these conditions MNCs set up production units in the following ways :
→ Jointly with some local companies of the existing country.
→ Buy the local companies and then expand its production with the help of modern technology.
→ They place orders for small producers and sell these products under their own brand name to the customers worldwide.
Why do developed countries want developing countries to liberalise their trade and investment? What do you think should the developing countries demand in return?
Developed countries want developing countries to liberalise their trade and investment because then the MNCs belonging to the developed countries can set up factories in less-expensive developing nations, and thereby increase profits, with lower manufacturing costs and the same sale price.
In my opinion, the developing countries should demand, in return, for some manner of protection of domestic producers against competition from imports. Also, charges should be levied on MNCs looking to set base in developing nations.