Globalisation, here, refers to the growing interdependence among countries as reflected in cross-border flows of goods, services, capital, and know-how. The following trends are an indicator of growing level of globalisation at the worldwide level:
1. World trade has grown five times in real terms since 1980, and its share of world GDP has risen from 36% to 55% from 1980 to 2005. In the year 2006, the world trade crossed $ 11780 billion. In 2006 GDP growth rate was 4% (3.4% in 2007) whereas total merchandise exports grew by almost 15%. In volume terms exports grew at 8% and imports grew at 7%.
2. Financial globalisation has also proceeded at a very rapid pace over the past two decades. Total cross border financial assets have more than doubled, from 58% of global GDP in 1990 to 131% in 2004.
3. Trading in foreign exchange (forex) markets rose from $ 15billion per day in 1973 to 2.3 trillion now.
4. The world market for financial assets rose from 5% of GDP in 1970 in the US, Germany and Japan to a huge % of GDP in the USA alone.
Globalisation at the country level:
At the level of a specific country, globalisation refers to the range of inter-linkages between a specific country’s economy and the rest of the world. It is measured through exports and imports of a country as a ratio of GDP, inward and outward flows of FDI and portfolio investment and outward flows of royalty payments associated with technology transfer. In 2006 India’s GDP grew at 9.2%, whereas India’s exports grew by 14% and imports by 9% in value terms. It clearly shows that Indian economy is more global-oriented than earlier.
Globalisation at the level of a specific industry:
At the level of a specific industry, it refers to the degree to which a company’s competitive position within that industry is interdependent with that in another country. According to Govindrajan and Gupta, the more global an industry, the greater is the advantage that a company can derive from leveraging technology, manufacturing prowess, brand names and/or capital across countries. Globalised industries tend to be dominated in every market by the same set of global companies, which coordinate their strategies across countries.
For example, the athletic footwear industry is dominated by Nike, Adidas and Reebok. “The key indicators of the globalisation of an industry are the extent of cross-border investment as a ratio of total capital invested in the industry, and the proportion of industry revenue accounted for by companies that compete in all major regions.” Globalisation is growing in pharmaceutical industry as the cross-border investment is growing faster than the cross-border trade.
Globalisation at the level of a specific company:
At the level of a particular company, globalisation refers to the degree to which a company has expanded its revenue and asset across countries and engages in cross-border flows of capital, goods and know-how across subsidiaries. Main parameters are – international dispersion of sales revenues and asset base, intra-firm trade in intermediate and finished goods, and intra-firm flows of technology.
To illustrate, Toyota is a good example. Its global output comes from wholly or partially owned affiliates in 25 foreign countries spread over the America, Europe and Asia. Within its south Asian network, it exports diesel. Engines from Thailand, transmissions from the Philippines, and steering gears from Malaysia.
The first two ‘levels’ of globalisation discussed above fall in the category of ‘macro’ globalisation with which economists are more concerned; and the last two ‘levels’ are micro in nature, with which management experts are more concerned.