Stages of Internationalization

Bartlett & Ghoshal Model

• The Bartlett & Ghoshal Model indicates the strategic options
for businesses wanting to manage their international
operations based on two pressures: local responsiveness &
global integration.
• The two "pressures" or forces on firms wanting to compete
in international markets, which determine the four grids in the
box above are:
 Multinational Corporation
 A multinational corporation is a company incorporated in its
home country (country of origin) but it carries out business
operations beyond that country in many other foreign
countries (host countries). Its head office will be in the
home country.
 MNCs have managerial headquarters in home countries,
while they carry out operations in a number of other (host)
countries.
 For Examples- Nike, Apple, LG, Google, Amazon etc
 LTI, TCS, Tech Mahindra, Deloitte, IBM are some of the
examples of MNCs in India.
 Models of Multinational Corporations
1. Centralized: In the centralized model, companies put up an executive headquarters in its home
country and then build various manufacturing plants and production facilities in other countries.
Its most important advantage is being able to avoid tariffs and import quotas and take
advantage of lower production costs.

2. Regional: The regionalized model states that a company keeps its headquarters in one country
that supervises a collection of offices that are located in various countries. Unlike the centralized
model, the regionalized model includes subsidiaries and affiliates that all report to the
headquarters.

3. Multinational: In the multinational model, a parent company operates in the home country and
puts up subsidiaries in different countries. The difference is that the subsidiaries and affiliates
are more independent in their operations.
 New Economic Policy
 New Economic Policy refers to economic liberalisation or relaxation in the import
tariffs, deregulation of markets or opening the markets for private and foreign players
and reduction of taxes to expand the economic wings of the country.
 Former Prime Minister Manmohan Singh is considered to be the father of New
Economic Policy (NEP) of India.
 Manmohan Singh introduced the NEP on July 24, 1991.
 The thrust of the New Economic Policy has been towards creating a more
competitive environment in the economy as a means to improving the
productivity and efficiency of the system.
 Main Objectives of New Economic Policy
 The main objective was to plunge Indian Economy in to the arena of
‘Globalization’ and to give it a new thrust on market orientation.
 The NEP intended to bring down the rate of inflation.
 It intended to move towards higher economic growth rate and to build
sufficient foreign exchange reserves.
 It wanted to achieve economic stabilization and to convert the economy into a
market economy by removing all kinds of un-necessary restrictions.
 It wanted to permit the international flow of goods, services, capital, human
resources and technology without many restrictions.
 It wanted to increase the participation of private players in the all sectors of
the economy.
Highlights the four major economic reforms under new
economic policy of India since 1991.

1. De-Reservation of Industries of the Public Sector

2. Liberalisation:- Abolition of Industrial Licensing System
3. Privatisation of Public Sector Enterprise
4. Globalisation
New Economic Policy,1991
 LPG framework
• Liberalization refers to the relaxation of government regulations and
restrictions in the economy in exchange of free flow of goods and services
between the countries for greater participation of private entities.

• Privatization is defined as transfer of ownership and management of an

enterprise from the public sector to the private sector

• Globalization is described as the process by which regional economies, societies

and cultures have become integrated through a global network of
communication, transportation and trade.
 The major aspects of liberalization in India
 Abolition of licensing: New Industrial Policy, 1991 abolished licensing for most
industries except 6 industries of strategic significance. They include alcohol,
cigarettes, industrial explosives, defence products, drugs and pharmaceuticals,
hazardous chemicals and certain others reserved for the public sector. This
would boost to setup of new industries and shift focus to productive activities.

 Liberalization of Foreign Investment: Earlier prior approval was essential by

foreign companies, but in present situation automatic approvals were given for
Foreign Direct Investment to flow into the country. A list of high-priority and
investment-intensive industries were delicensed and could invite up to 100% FDI
including sectors such as hotel and tourism, infrastructure, software development
etc. Use of foreign brand name or trade mark was permitted for sale of goods.
 The major aspects of liberalization in India
 Relaxation of Locational Restrictions: There was no requirement to get approval
from the Central Government for setting up industries anywhere in the country
except those specified under compulsory licensing or in cities with population
exceeding 1 million. Polluting industries were required to be located 25 kms
away from the city peripheries if the city population was greater than 1
million.

 Liberalization of Foreign Technology imports: For business projects in which

imported capital goods are required, automatic license would be given for foreign
technology imports up to 2 million US dollars. No permissions would be required
for hiring foreign technicians and foreign testing of indigenously developed
technologies.
 The major aspects of liberalization in India
 Phased Manufacturing Programmes: Under PMP, any enterprise had to progressively
substitute imported inputs, components with domestically produced inputs under local content
policy. However new industrial policy’1991 abolished PMP for all industrial enterprises.
Foreign Investment Promotion Board (FIPB) was set up to speed up approval for foreign
investment proposals.

 Public Sector Reforms: There was more autonomy to the Public Sector Units through the
Memorandum of Understanding restricting interference of the government officials and
allowing their management’s greater freedom in decision-making.

 MRTP Act: The Industrial Policy 1991 modernised the Monopolies and Restrictive Trade
Practises Act. Regulations relating to concentration of economic power, pre-entry
restrictions for setting up new enterprises, expansion of existing businesses, mergers and
acquisitions have been abolished.
 Impact of Liberalization on Indian Economy:
 Increase in Employment.
 Arrival of New Technology or Development of Technology.
 Development of Infrastructure.
 Identity at World Level.
 Increase Our Currency Value (INR).
 GDP Growth.
 Increase Consumption and Adaptation of New Lifestyle.
 Increment in Competition.
 Increment in Foreign Investor.
New Economic Policy,1991
 Main objective of privatization
 Improve the financial situation of the government.
 Reduce the workload of public sector companies.
 Raise funds from disinvestment.
 Increase the efficiency of government organizations.
 Provide better and improved goods and services to the
consumer.
 Create healthy competition in the society.
 Encouraging foreign direct investments (FDI) in India.
 Examples of privatization in India
 Lagan Jute Machinery Company Limited (LJMC)
 Modern Food Industries Limited (MFIL)
 Bharat Aluminium Company Limited (BALCO)
 Videsh Sanchar Nigam Limited (VSNL)
 India Tourism Development Corporation (ITDC)
 Hotel Corporation of India Limited (HCI)
 Paradeep Phosphates Limited (PPL)
 Jessop and Company Limited (JCL)
 Hindustan Zinc Limited (HZL)
 Maruti Udyog Limited (MUL)
 Indian Petrochemical Corporation (IPCC)
Privatization can be of three prominent types:
1. Delegation: Government keeps hold of responsibility and
private enterprise handles fully or partly the delivery of
product and services.

2. Divestment: Government surrenders the responsibility, i.e.

transfer of public sector enterprise to private sector.

3. Displacement: The private enterprise expands and gradually

displaces the government entity.
 Merits of Privatization
 It allows profit making public sector units (PSUs) to modernize
and diversify their business and thus, make them competitive
 It will help to revive sick units which are a burden on the public
sector
 It will bring in accountability and responsibility in PSUs
 It will decrease budgetary deficits that results from expenditure on
loss making PSUs
 Privatization facilitates globalization by opening out the economy
and increasing its competitiveness in the international market
 It will mitigate political interference on decision making and
make business decisions rational
 Demerits of Privatization
 Privatization leads to monopoly that would increase disparity in income
and wealth.
 Private sector displays lack of interest in buying shares of sick or loss
making PSUs such sick units continue to function in the public sector
 Private enterprises aim at maximizing profits and ignore the needs of the
economy
 Private entrepreneurs will not be interested in long period projects
(infrastructure investments) which may retard the growth of capital
goods industries
 Some private sector enterprises lack experience and expertise in facing
foreign competition
 Globalization
 The concept of globalization has been explained by the IMF
(International Monetary Fund) as ‘the growing economic
interdependence of countries worldwide through increasing
volume and variety of cross border transactions in goods and
services and of international capital flows and also through the
more rapid and widespread diffusion of technology.’
 India signed many agreements with the WTO affirming it’s
commitment to liberalize trade such as TRIPs (Trade Related
Intellectual Property Rights), TRIMs (Trade Related
Investment Measures) and AOA (Agreement On Agriculture).
 Steps taken for Globalisation
• Reduction in tariffs: Custom duties and tariffs imposed on imports and
exports are reduced gradually just to make India economy attractive to the
global investors.
• Long term Trade Policy: trade policy was enforced for longer duration.
• Increase in Equity Limit of Foreign Investment: Equity limit of foreign
capital investment has been raised by the government in specific sectors. In
47 high priority industries foreign direct investment to the extent of
100% will be allowed without any restriction.
• Partial Convertibility of Indian currency: Partial convertibility can be
defined as to convert Indian currency in the currency of other countries.
• Under the partial convertibility of Rupee, dispensation of 40% of the
Foreign exchange had to be surrendered to the Reserve Bank of India at the
official rate and balance 60% at market rate.
 Pros and Cons of Globalization
Positive effect Negative effects
• Free flow of capital and technology.  Loss of domestic industries
• Spread of production facilities
 Exploits Human resource
throughout the globe.
• Balanced development of world  Decline in income
economies.  Unemployment
• Increase in production and consumption.  Transfer of natural resources
• Commodities at lower price with high  Widening gap between rich
quality. and poor
• Increase in jobs and income.
 Dominance of foreign
• Higher Standard of living.
institutions
• Balanced human development
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