Gains from Globalization: From India perspective

Globalization can be generalized as the concept of cross-border integration of technologies, ideas, people, capital, information, finance and services. Such an integration may involve several factors which may be classified as social, economic, political or even cultural.

Why do emerging economies rely on Globalization? What are the gains from these exchanges and integrations? In what way is that impacting the choices of today’s Entrepreneurs in IT industry?

Let us start with the gains first. IT industry is strongly influenced by economic factors. Therefore economic integration and its implications matter. The Economic Advisory Council to the Prime Minister of India, believes that there are 3 ways of achieving economic integration

1. Trade in services and goods
2. Movement of capital
3. Financial flow

International trade is beneficial as it allows for resource allocation that is consistent with a nation’s comparative advantage which in turn results in enhanced productivity due to specializations. According to their reports, emerging economies face ‘special and differentiated treatment’, which has now become an accepted principle while trading. The reason behind this is ‘Capability building through existing productive-resource utilization requires time’ and therefore international trade agreements make exceptions by allowing longer time to such economies in terms of reduction in tariff and non-tariff barriers. Looking at it positively, this is the right time for IT product entrepreneurs to act and build their capabilities.

Capital flows are essential to improve production base. Such a flow could be in the form of foreign direct investment and portfolio investment. Developing economies such as India prefer foreign direct investment to enhance their production base.

Growth in capital and foreign exchange markets facilitates growth, and international transfer of capital. Financial flows have very strong impact on macro-economic stability of a nation. A most important observation is that financial markets exhibit a herd instinct as it believes in exaggerating weaknesses more and therefore crisis in one country affects the other. In addition sometimes foreign exchange traders could add to financial crisis depending on the nature of controls exerted over their investments. Therefore with globalization, ‘macro-economic stability’ gains more focus at national level to reduce such negative forces operating in ecosystem.

The IT industry is largely guided by human resources availability. It is predicted that with increase in ‘knowledge intensive’ activities replacing earlier prevalent ‘resource intensive’ activities, specialized human resources will become a deciding criteria for economic growth in future. This shifts the focus to the area that is gradually gaining larger visibility in India – Digital Divide, which has in a way handicapped growing economy. Increased productivity will lead to faster growth in future and therefore balancing mechanisms have to be identified to bridge the visible divide to improve nation’s comparative advantage to facilitate further international trades. This could be an opportunity to tap by IT product entrepreneurs as this is the area that will gain more focus in the next few years to come. The cultural sensitivity that an Indian product could offer to Indians mapped under Digital divide, may carry an edge over a transnational firm’s offerings due to the difference in approach. That is a visible area of growth for the opportunistic in future.