Slide 1

UNIT-1
► GLOBALIZATION
► TRADE

PATTERNS

 THEORIES
1. IPLC
2. FACTOR MOBILITY
COMPARISON OF IPLC AND FACTOR MOBILITY THEORIES.

1

Globalization
1. A holistic approach covers the following aspects:
a. Economic
b. Financial
c. Political
d. Cultural
All the above aspects/factors interact with each
other.
[See Joshi (2011), fig.1.3, p.9]

2

3

2.

Economic globalization has the following five
major components/aspects:
Production
b. Markets
c. Competition
d. Technology
e. Corporations & Industry
All the components work in an interactive manner.
a.

[See Joshi (2011), fig.1.5, p.13]

4

5

3. Movers and Restraining Factors:
3.1. Factors that give impetus to globalization or movers:
a. Economic liberalization
b. Technical break through

Manufacturing
► Transportation
► Information & Communication.
►

c.
d.
e.
f.
g.
h.

Multilateral institutions.
Interventional economic integration.
Move towards free market systems.
Rising R&D costs.
Advents in logistic management.
Emergence of global customer segments.

3.2. Factors that restrain globalization or restraining factors:
Regulatory controls
Emerging new trade barriers.
Cultural factors
Nationalism
e. Wards and civil disturbances.
f. Management myopia.
a.
b.
c.
d.

How much globalization proceeds/progresses depends on the relative strength of
6
factors in 3.1 and 3.2.
[See Joshi (2011), fig.1.6, pg.16]

7

Globalization: A TYPICAL MODERN IMAGE
Conspicuously seen in terms of
 Westernization
 Americanization

Some of the popular examples are:





Walmartization
Cocacolination
Disneyfication
Mc Donalization

1. Walmartization*
Walmart – US Retail Chain
Walmart Effect
 Keeping small competitors out
 Driving down wages
 Keeping inflation low
 Keeping productivity high

2. Cocacolination
Perceived as an invasion of cultural
values.

It has a conservative image as reflected in
 Firm cutting down costs
 Favoring policy of
►
►

*

Cutting down taxes
Keeping welfare state competitive

See Charles Fishman: Walmart Effect

8

3. Walmartization
See George Ritzer (1995)

[MacDonaldization of Society]
Four Dimensions of fast food restaurant:

i. Efficiency: Best mode of production with little scope of individuality.
ii. Calculability: Quantifiable Objective :
- Sale
- Focus on Quantity (big MAC, not so much quality)
iii. Predictability: Uniform Production Process.
iv. Control: Substitution of non-human technologies for human labour.(System of
“Iron Cage” – same principle governs all Institutions).

Criticism:

(a) Irrationality – Every worker performs highly rationalized task leading to
workers’ “Burn Out”.
(b) Deskilling: Workers perform repetitive tasks – cheap training of workers.
workers can be replaced easily.

4. Disneyfication

What is signified? Society dedicated to

i. Themes
ii. Huge consumption
iii. Emotion based labor.
(also signifies a diluted version of original form)

9

INTERNATIONAL PRODUCT LIFE CYCLE THEORY (IPCL)
ISSUES:
1.

Do international markets follow a cyclical Pattern? Why?
What does it explain?
- Shift in markets.
- Shift in production location.

2.

What factors are behind the phenomenon? Does it explain
trade patterns?
- Level of innovation and technology.
- Quantum & Quality of Resources.
- Size of market.
- Competitive structure.
10

IPCL: Four Stages:
What Determines these stages?

Difference/gap in technology between countries/economies.
► Ability (purchasing power) of customers.
► Preferences of customers.
►

Innovation:
What Makes it Effective?

If domestic market is big – economies of scale – cost efficiency
– international competition – (US, China, India): Big markets but
their innovative capacity and technology levels differ.
► Innovation but no big domestic market:
►

How to achieve economies of scale? Set up marketing and production
facilities outside the country.

11

What are the critical factors for expanding into international market?
► Innovative capacity, level of technology
► Scope of economies
► Achieving economies of scale
►
►
►

The innovating firm starts looking for establishing production base in
other high income countries.
When this is successful, these countries (where production base is
established) start exporting to the innovating country.
International competition increases

12

Stages of International Product Life Cycle.
See exhibit and interpret:
In each column, start moving down and interpret against the row title.
Try matching the movements of three types of curves.

13

14

Stage 1: Introduction:Advanced countries – Innovation for new product.




Lot of resources required for R&D.
Initially price of new product is high.
Hence search for markets for new product in high income countries.

Stage 2: Growth:



Search for other developed markets for exports.
Globalization
Trade patterns
Theories
 IPLC
 Factor Mobility
 Comparison.
15

Note & Interpret:
(i)
(ii)

Opposite movements of curves representing high income
countries.
Testes and preferences change in low income countries also.
They too start importing new product.

Stage 3: Maturity:
By now technical know-how is known to many countries. The
innovating country starts setting up production facility in the
third world (low income developing) economies by taking
advantage of low wages in the latter.
► Imports of low income countries decline as the domestic
production of this product increases.
►

Stage 4: Decline:
►

What is the marketing strategy at this stage? Production shifts
even to least developing countries – innovating country imports
from these countries
16

Examples:
i.

ii.

UK was largest manufacturer and exporter of bicycles. Bicycle
industry declined in UK. This industry emerged in low income
countries, including India.
Developed countries shift environmentally hazardous industries to
low income countries.

17

18

Criticism of IPCL Theory:
It explains the emerging pattern of international market. This was ok
earlier. Now information about prices, technology and preferences travels
across the globe. The product may be launched by the innovating country
simultaneously in several countries.

[Discuss Maruti Suzuki case. Japanese company, Suzuki, is an innovating
company. The latter established manufacturing base in India. India first
imported Maruti Suzuki Standard -800 Model. After the product gained
maturity and popularity, Maruti Suzuki Exports Cars to several developed
and semi developed countries. The time has come when India may also
base manufacturing facilities in other least developing countries].

19

Theory of Competitive Advantage


Porter–Diamond Theory:
(Michael Porter, 1990, The competitive advantage of nations).



Main focus is on Domestic Environment.
Contrast it with IPCL. – which lays emphasis on innovation/invention
and looks forward to off-shore investment/production.
Diamond? See four blocks/diamonds The interaction of these explains
and determines the trade competitive advantage of a country. See
arrows in diagram.
4 Diamonds – Blocks:






a) Factor input – Natural & Creaed
b) Demand conditions.
 Greater is the sophistication in demand conditions, more demanding the
consumer is – product quality – better service – change in preferences – (Global
exposure…).

20

c) Related and supporting industries
 Development of ancillary industry (as in auto industry).
 Strong supply chain management.
 Development of industrial clusters.
For example:
IT – Banglore,
Textiles – Tirupur
Metal Handicraft – Moradabad

d) Firm Strategy, Structure & Rivalry






Transformation of family enterprise.
Competition policy
Incentive structure
Global exposure
Domestic rivalry (competition?)
21

22

Summary


IPCL: Explains Sifts in





Theory of competitive advantage: To explain national competitiveness, it focuses
on:








Trade Patterns
Manufacturing base

Environmental factors (factor conditions)
Demand conditions
Related supporting industries
Firm strategy, structure, etc.
Degree of competition (Rivalry, etc).

Merit of above theoretical models:
They help provide basis for:
 Principles for regulatory framework.
 Preparing trade promotion strategies to national as well as international Govt./Bodies. The
relative advantage may vary across countries.

23

24

DISCUSS TWO CASE STUDIES ATTACHED

25

CASE STUDY 1
► CHIP

INDUSTRY

26

27

28

29

30

CASE STUDY 2
► Factor

mobility :TCS-case study

31

Factor mobility theory
► Daniels

et.al
See page no. 247-259

32

Supplementary notes
► Biggest

change being observed is the
demographic one.
► By 2050 – 033 countries will have lower
population than their present population
due to lower fertility ( lower than
population ranging from 14% to 22%.)
► On

the other hand, eight countries will
account for 50% of world population.

33

Consequences

► Labor

mobility across countries likely to be faster in
coming decades than now.

► Why

factors move?

►Capital
Long term movement-FDI
 Shifting manufacturing base
 Shifting services industry base
 Reform capital account convertibility
 Political stability
 Investor friendly policies
34

people
► 200

million ( approx 3% of worlds
population) have migrated not uniformly
all over the world.
► USA got high migration ( 11 % of
population of USA is made up immigrants
)
Two – third’s of UAE population consists of
temporary workers .
► Indonesian labor migrates to Malaysia
(huge- 10 times wage differential)

35

Impact
► Singapore transformed from low-wage
► Labor-intensive to high-wage capital intensive

economy ( due to high capital inflow )

► Trade

and factor mobility
Factor movement
From abundant area to scare area. (eg,maxicon
labor to USA.)

Complementarity
Complementary products-needs equipment. This
happens through foreign investment.
36

Flexible and small scale population
► Services

growing much faster than
manufacturing .
( change in consumption pattern in fast
growing economies)

Many services can be provided by small scale
units.
They have flexibility in labor employment too.
37

38

39

40

41

42


Slide 2

UNIT-1
► GLOBALIZATION
► TRADE

PATTERNS

 THEORIES
1. IPLC
2. FACTOR MOBILITY
COMPARISON OF IPLC AND FACTOR MOBILITY THEORIES.

1

Globalization
1. A holistic approach covers the following aspects:
a. Economic
b. Financial
c. Political
d. Cultural
All the above aspects/factors interact with each
other.
[See Joshi (2011), fig.1.3, p.9]

2

3

2.

Economic globalization has the following five
major components/aspects:
Production
b. Markets
c. Competition
d. Technology
e. Corporations & Industry
All the components work in an interactive manner.
a.

[See Joshi (2011), fig.1.5, p.13]

4

5

3. Movers and Restraining Factors:
3.1. Factors that give impetus to globalization or movers:
a. Economic liberalization
b. Technical break through

Manufacturing
► Transportation
► Information & Communication.
►

c.
d.
e.
f.
g.
h.

Multilateral institutions.
Interventional economic integration.
Move towards free market systems.
Rising R&D costs.
Advents in logistic management.
Emergence of global customer segments.

3.2. Factors that restrain globalization or restraining factors:
Regulatory controls
Emerging new trade barriers.
Cultural factors
Nationalism
e. Wards and civil disturbances.
f. Management myopia.
a.
b.
c.
d.

How much globalization proceeds/progresses depends on the relative strength of
6
factors in 3.1 and 3.2.
[See Joshi (2011), fig.1.6, pg.16]

7

Globalization: A TYPICAL MODERN IMAGE
Conspicuously seen in terms of
 Westernization
 Americanization

Some of the popular examples are:





Walmartization
Cocacolination
Disneyfication
Mc Donalization

1. Walmartization*
Walmart – US Retail Chain
Walmart Effect
 Keeping small competitors out
 Driving down wages
 Keeping inflation low
 Keeping productivity high

2. Cocacolination
Perceived as an invasion of cultural
values.

It has a conservative image as reflected in
 Firm cutting down costs
 Favoring policy of
►
►

*

Cutting down taxes
Keeping welfare state competitive

See Charles Fishman: Walmart Effect

8

3. Walmartization
See George Ritzer (1995)

[MacDonaldization of Society]
Four Dimensions of fast food restaurant:

i. Efficiency: Best mode of production with little scope of individuality.
ii. Calculability: Quantifiable Objective :
- Sale
- Focus on Quantity (big MAC, not so much quality)
iii. Predictability: Uniform Production Process.
iv. Control: Substitution of non-human technologies for human labour.(System of
“Iron Cage” – same principle governs all Institutions).

Criticism:

(a) Irrationality – Every worker performs highly rationalized task leading to
workers’ “Burn Out”.
(b) Deskilling: Workers perform repetitive tasks – cheap training of workers.
workers can be replaced easily.

4. Disneyfication

What is signified? Society dedicated to

i. Themes
ii. Huge consumption
iii. Emotion based labor.
(also signifies a diluted version of original form)

9

INTERNATIONAL PRODUCT LIFE CYCLE THEORY (IPCL)
ISSUES:
1.

Do international markets follow a cyclical Pattern? Why?
What does it explain?
- Shift in markets.
- Shift in production location.

2.

What factors are behind the phenomenon? Does it explain
trade patterns?
- Level of innovation and technology.
- Quantum & Quality of Resources.
- Size of market.
- Competitive structure.
10

IPCL: Four Stages:
What Determines these stages?

Difference/gap in technology between countries/economies.
► Ability (purchasing power) of customers.
► Preferences of customers.
►

Innovation:
What Makes it Effective?

If domestic market is big – economies of scale – cost efficiency
– international competition – (US, China, India): Big markets but
their innovative capacity and technology levels differ.
► Innovation but no big domestic market:
►

How to achieve economies of scale? Set up marketing and production
facilities outside the country.

11

What are the critical factors for expanding into international market?
► Innovative capacity, level of technology
► Scope of economies
► Achieving economies of scale
►
►
►

The innovating firm starts looking for establishing production base in
other high income countries.
When this is successful, these countries (where production base is
established) start exporting to the innovating country.
International competition increases

12

Stages of International Product Life Cycle.
See exhibit and interpret:
In each column, start moving down and interpret against the row title.
Try matching the movements of three types of curves.

13

14

Stage 1: Introduction:Advanced countries – Innovation for new product.




Lot of resources required for R&D.
Initially price of new product is high.
Hence search for markets for new product in high income countries.

Stage 2: Growth:



Search for other developed markets for exports.
Globalization
Trade patterns
Theories
 IPLC
 Factor Mobility
 Comparison.
15

Note & Interpret:
(i)
(ii)

Opposite movements of curves representing high income
countries.
Testes and preferences change in low income countries also.
They too start importing new product.

Stage 3: Maturity:
By now technical know-how is known to many countries. The
innovating country starts setting up production facility in the
third world (low income developing) economies by taking
advantage of low wages in the latter.
► Imports of low income countries decline as the domestic
production of this product increases.
►

Stage 4: Decline:
►

What is the marketing strategy at this stage? Production shifts
even to least developing countries – innovating country imports
from these countries
16

Examples:
i.

ii.

UK was largest manufacturer and exporter of bicycles. Bicycle
industry declined in UK. This industry emerged in low income
countries, including India.
Developed countries shift environmentally hazardous industries to
low income countries.

17

18

Criticism of IPCL Theory:
It explains the emerging pattern of international market. This was ok
earlier. Now information about prices, technology and preferences travels
across the globe. The product may be launched by the innovating country
simultaneously in several countries.

[Discuss Maruti Suzuki case. Japanese company, Suzuki, is an innovating
company. The latter established manufacturing base in India. India first
imported Maruti Suzuki Standard -800 Model. After the product gained
maturity and popularity, Maruti Suzuki Exports Cars to several developed
and semi developed countries. The time has come when India may also
base manufacturing facilities in other least developing countries].

19

Theory of Competitive Advantage


Porter–Diamond Theory:
(Michael Porter, 1990, The competitive advantage of nations).



Main focus is on Domestic Environment.
Contrast it with IPCL. – which lays emphasis on innovation/invention
and looks forward to off-shore investment/production.
Diamond? See four blocks/diamonds The interaction of these explains
and determines the trade competitive advantage of a country. See
arrows in diagram.
4 Diamonds – Blocks:






a) Factor input – Natural & Creaed
b) Demand conditions.
 Greater is the sophistication in demand conditions, more demanding the
consumer is – product quality – better service – change in preferences – (Global
exposure…).

20

c) Related and supporting industries
 Development of ancillary industry (as in auto industry).
 Strong supply chain management.
 Development of industrial clusters.
For example:
IT – Banglore,
Textiles – Tirupur
Metal Handicraft – Moradabad

d) Firm Strategy, Structure & Rivalry






Transformation of family enterprise.
Competition policy
Incentive structure
Global exposure
Domestic rivalry (competition?)
21

22

Summary


IPCL: Explains Sifts in





Theory of competitive advantage: To explain national competitiveness, it focuses
on:








Trade Patterns
Manufacturing base

Environmental factors (factor conditions)
Demand conditions
Related supporting industries
Firm strategy, structure, etc.
Degree of competition (Rivalry, etc).

Merit of above theoretical models:
They help provide basis for:
 Principles for regulatory framework.
 Preparing trade promotion strategies to national as well as international Govt./Bodies. The
relative advantage may vary across countries.

23

24

DISCUSS TWO CASE STUDIES ATTACHED

25

CASE STUDY 1
► CHIP

INDUSTRY

26

27

28

29

30

CASE STUDY 2
► Factor

mobility :TCS-case study

31

Factor mobility theory
► Daniels

et.al
See page no. 247-259

32

Supplementary notes
► Biggest

change being observed is the
demographic one.
► By 2050 – 033 countries will have lower
population than their present population
due to lower fertility ( lower than
population ranging from 14% to 22%.)
► On

the other hand, eight countries will
account for 50% of world population.

33

Consequences

► Labor

mobility across countries likely to be faster in
coming decades than now.

► Why

factors move?

►Capital
Long term movement-FDI
 Shifting manufacturing base
 Shifting services industry base
 Reform capital account convertibility
 Political stability
 Investor friendly policies
34

people
► 200

million ( approx 3% of worlds
population) have migrated not uniformly
all over the world.
► USA got high migration ( 11 % of
population of USA is made up immigrants
)
Two – third’s of UAE population consists of
temporary workers .
► Indonesian labor migrates to Malaysia
(huge- 10 times wage differential)

35

Impact
► Singapore transformed from low-wage
► Labor-intensive to high-wage capital intensive

economy ( due to high capital inflow )

► Trade

and factor mobility
Factor movement
From abundant area to scare area. (eg,maxicon
labor to USA.)

Complementarity
Complementary products-needs equipment. This
happens through foreign investment.
36

Flexible and small scale population
► Services

growing much faster than
manufacturing .
( change in consumption pattern in fast
growing economies)

Many services can be provided by small scale
units.
They have flexibility in labor employment too.
37

38

39

40

41

42


Slide 3

UNIT-1
► GLOBALIZATION
► TRADE

PATTERNS

 THEORIES
1. IPLC
2. FACTOR MOBILITY
COMPARISON OF IPLC AND FACTOR MOBILITY THEORIES.

1

Globalization
1. A holistic approach covers the following aspects:
a. Economic
b. Financial
c. Political
d. Cultural
All the above aspects/factors interact with each
other.
[See Joshi (2011), fig.1.3, p.9]

2

3

2.

Economic globalization has the following five
major components/aspects:
Production
b. Markets
c. Competition
d. Technology
e. Corporations & Industry
All the components work in an interactive manner.
a.

[See Joshi (2011), fig.1.5, p.13]

4

5

3. Movers and Restraining Factors:
3.1. Factors that give impetus to globalization or movers:
a. Economic liberalization
b. Technical break through

Manufacturing
► Transportation
► Information & Communication.
►

c.
d.
e.
f.
g.
h.

Multilateral institutions.
Interventional economic integration.
Move towards free market systems.
Rising R&D costs.
Advents in logistic management.
Emergence of global customer segments.

3.2. Factors that restrain globalization or restraining factors:
Regulatory controls
Emerging new trade barriers.
Cultural factors
Nationalism
e. Wards and civil disturbances.
f. Management myopia.
a.
b.
c.
d.

How much globalization proceeds/progresses depends on the relative strength of
6
factors in 3.1 and 3.2.
[See Joshi (2011), fig.1.6, pg.16]

7

Globalization: A TYPICAL MODERN IMAGE
Conspicuously seen in terms of
 Westernization
 Americanization

Some of the popular examples are:





Walmartization
Cocacolination
Disneyfication
Mc Donalization

1. Walmartization*
Walmart – US Retail Chain
Walmart Effect
 Keeping small competitors out
 Driving down wages
 Keeping inflation low
 Keeping productivity high

2. Cocacolination
Perceived as an invasion of cultural
values.

It has a conservative image as reflected in
 Firm cutting down costs
 Favoring policy of
►
►

*

Cutting down taxes
Keeping welfare state competitive

See Charles Fishman: Walmart Effect

8

3. Walmartization
See George Ritzer (1995)

[MacDonaldization of Society]
Four Dimensions of fast food restaurant:

i. Efficiency: Best mode of production with little scope of individuality.
ii. Calculability: Quantifiable Objective :
- Sale
- Focus on Quantity (big MAC, not so much quality)
iii. Predictability: Uniform Production Process.
iv. Control: Substitution of non-human technologies for human labour.(System of
“Iron Cage” – same principle governs all Institutions).

Criticism:

(a) Irrationality – Every worker performs highly rationalized task leading to
workers’ “Burn Out”.
(b) Deskilling: Workers perform repetitive tasks – cheap training of workers.
workers can be replaced easily.

4. Disneyfication

What is signified? Society dedicated to

i. Themes
ii. Huge consumption
iii. Emotion based labor.
(also signifies a diluted version of original form)

9

INTERNATIONAL PRODUCT LIFE CYCLE THEORY (IPCL)
ISSUES:
1.

Do international markets follow a cyclical Pattern? Why?
What does it explain?
- Shift in markets.
- Shift in production location.

2.

What factors are behind the phenomenon? Does it explain
trade patterns?
- Level of innovation and technology.
- Quantum & Quality of Resources.
- Size of market.
- Competitive structure.
10

IPCL: Four Stages:
What Determines these stages?

Difference/gap in technology between countries/economies.
► Ability (purchasing power) of customers.
► Preferences of customers.
►

Innovation:
What Makes it Effective?

If domestic market is big – economies of scale – cost efficiency
– international competition – (US, China, India): Big markets but
their innovative capacity and technology levels differ.
► Innovation but no big domestic market:
►

How to achieve economies of scale? Set up marketing and production
facilities outside the country.

11

What are the critical factors for expanding into international market?
► Innovative capacity, level of technology
► Scope of economies
► Achieving economies of scale
►
►
►

The innovating firm starts looking for establishing production base in
other high income countries.
When this is successful, these countries (where production base is
established) start exporting to the innovating country.
International competition increases

12

Stages of International Product Life Cycle.
See exhibit and interpret:
In each column, start moving down and interpret against the row title.
Try matching the movements of three types of curves.

13

14

Stage 1: Introduction:Advanced countries – Innovation for new product.




Lot of resources required for R&D.
Initially price of new product is high.
Hence search for markets for new product in high income countries.

Stage 2: Growth:



Search for other developed markets for exports.
Globalization
Trade patterns
Theories
 IPLC
 Factor Mobility
 Comparison.
15

Note & Interpret:
(i)
(ii)

Opposite movements of curves representing high income
countries.
Testes and preferences change in low income countries also.
They too start importing new product.

Stage 3: Maturity:
By now technical know-how is known to many countries. The
innovating country starts setting up production facility in the
third world (low income developing) economies by taking
advantage of low wages in the latter.
► Imports of low income countries decline as the domestic
production of this product increases.
►

Stage 4: Decline:
►

What is the marketing strategy at this stage? Production shifts
even to least developing countries – innovating country imports
from these countries
16

Examples:
i.

ii.

UK was largest manufacturer and exporter of bicycles. Bicycle
industry declined in UK. This industry emerged in low income
countries, including India.
Developed countries shift environmentally hazardous industries to
low income countries.

17

18

Criticism of IPCL Theory:
It explains the emerging pattern of international market. This was ok
earlier. Now information about prices, technology and preferences travels
across the globe. The product may be launched by the innovating country
simultaneously in several countries.

[Discuss Maruti Suzuki case. Japanese company, Suzuki, is an innovating
company. The latter established manufacturing base in India. India first
imported Maruti Suzuki Standard -800 Model. After the product gained
maturity and popularity, Maruti Suzuki Exports Cars to several developed
and semi developed countries. The time has come when India may also
base manufacturing facilities in other least developing countries].

19

Theory of Competitive Advantage


Porter–Diamond Theory:
(Michael Porter, 1990, The competitive advantage of nations).



Main focus is on Domestic Environment.
Contrast it with IPCL. – which lays emphasis on innovation/invention
and looks forward to off-shore investment/production.
Diamond? See four blocks/diamonds The interaction of these explains
and determines the trade competitive advantage of a country. See
arrows in diagram.
4 Diamonds – Blocks:






a) Factor input – Natural & Creaed
b) Demand conditions.
 Greater is the sophistication in demand conditions, more demanding the
consumer is – product quality – better service – change in preferences – (Global
exposure…).

20

c) Related and supporting industries
 Development of ancillary industry (as in auto industry).
 Strong supply chain management.
 Development of industrial clusters.
For example:
IT – Banglore,
Textiles – Tirupur
Metal Handicraft – Moradabad

d) Firm Strategy, Structure & Rivalry






Transformation of family enterprise.
Competition policy
Incentive structure
Global exposure
Domestic rivalry (competition?)
21

22

Summary


IPCL: Explains Sifts in





Theory of competitive advantage: To explain national competitiveness, it focuses
on:








Trade Patterns
Manufacturing base

Environmental factors (factor conditions)
Demand conditions
Related supporting industries
Firm strategy, structure, etc.
Degree of competition (Rivalry, etc).

Merit of above theoretical models:
They help provide basis for:
 Principles for regulatory framework.
 Preparing trade promotion strategies to national as well as international Govt./Bodies. The
relative advantage may vary across countries.

23

24

DISCUSS TWO CASE STUDIES ATTACHED

25

CASE STUDY 1
► CHIP

INDUSTRY

26

27

28

29

30

CASE STUDY 2
► Factor

mobility :TCS-case study

31

Factor mobility theory
► Daniels

et.al
See page no. 247-259

32

Supplementary notes
► Biggest

change being observed is the
demographic one.
► By 2050 – 033 countries will have lower
population than their present population
due to lower fertility ( lower than
population ranging from 14% to 22%.)
► On

the other hand, eight countries will
account for 50% of world population.

33

Consequences

► Labor

mobility across countries likely to be faster in
coming decades than now.

► Why

factors move?

►Capital
Long term movement-FDI
 Shifting manufacturing base
 Shifting services industry base
 Reform capital account convertibility
 Political stability
 Investor friendly policies
34

people
► 200

million ( approx 3% of worlds
population) have migrated not uniformly
all over the world.
► USA got high migration ( 11 % of
population of USA is made up immigrants
)
Two – third’s of UAE population consists of
temporary workers .
► Indonesian labor migrates to Malaysia
(huge- 10 times wage differential)

35

Impact
► Singapore transformed from low-wage
► Labor-intensive to high-wage capital intensive

economy ( due to high capital inflow )

► Trade

and factor mobility
Factor movement
From abundant area to scare area. (eg,maxicon
labor to USA.)

Complementarity
Complementary products-needs equipment. This
happens through foreign investment.
36

Flexible and small scale population
► Services

growing much faster than
manufacturing .
( change in consumption pattern in fast
growing economies)

Many services can be provided by small scale
units.
They have flexibility in labor employment too.
37

38

39

40

41

42


Slide 4

UNIT-1
► GLOBALIZATION
► TRADE

PATTERNS

 THEORIES
1. IPLC
2. FACTOR MOBILITY
COMPARISON OF IPLC AND FACTOR MOBILITY THEORIES.

1

Globalization
1. A holistic approach covers the following aspects:
a. Economic
b. Financial
c. Political
d. Cultural
All the above aspects/factors interact with each
other.
[See Joshi (2011), fig.1.3, p.9]

2

3

2.

Economic globalization has the following five
major components/aspects:
Production
b. Markets
c. Competition
d. Technology
e. Corporations & Industry
All the components work in an interactive manner.
a.

[See Joshi (2011), fig.1.5, p.13]

4

5

3. Movers and Restraining Factors:
3.1. Factors that give impetus to globalization or movers:
a. Economic liberalization
b. Technical break through

Manufacturing
► Transportation
► Information & Communication.
►

c.
d.
e.
f.
g.
h.

Multilateral institutions.
Interventional economic integration.
Move towards free market systems.
Rising R&D costs.
Advents in logistic management.
Emergence of global customer segments.

3.2. Factors that restrain globalization or restraining factors:
Regulatory controls
Emerging new trade barriers.
Cultural factors
Nationalism
e. Wards and civil disturbances.
f. Management myopia.
a.
b.
c.
d.

How much globalization proceeds/progresses depends on the relative strength of
6
factors in 3.1 and 3.2.
[See Joshi (2011), fig.1.6, pg.16]

7

Globalization: A TYPICAL MODERN IMAGE
Conspicuously seen in terms of
 Westernization
 Americanization

Some of the popular examples are:





Walmartization
Cocacolination
Disneyfication
Mc Donalization

1. Walmartization*
Walmart – US Retail Chain
Walmart Effect
 Keeping small competitors out
 Driving down wages
 Keeping inflation low
 Keeping productivity high

2. Cocacolination
Perceived as an invasion of cultural
values.

It has a conservative image as reflected in
 Firm cutting down costs
 Favoring policy of
►
►

*

Cutting down taxes
Keeping welfare state competitive

See Charles Fishman: Walmart Effect

8

3. Walmartization
See George Ritzer (1995)

[MacDonaldization of Society]
Four Dimensions of fast food restaurant:

i. Efficiency: Best mode of production with little scope of individuality.
ii. Calculability: Quantifiable Objective :
- Sale
- Focus on Quantity (big MAC, not so much quality)
iii. Predictability: Uniform Production Process.
iv. Control: Substitution of non-human technologies for human labour.(System of
“Iron Cage” – same principle governs all Institutions).

Criticism:

(a) Irrationality – Every worker performs highly rationalized task leading to
workers’ “Burn Out”.
(b) Deskilling: Workers perform repetitive tasks – cheap training of workers.
workers can be replaced easily.

4. Disneyfication

What is signified? Society dedicated to

i. Themes
ii. Huge consumption
iii. Emotion based labor.
(also signifies a diluted version of original form)

9

INTERNATIONAL PRODUCT LIFE CYCLE THEORY (IPCL)
ISSUES:
1.

Do international markets follow a cyclical Pattern? Why?
What does it explain?
- Shift in markets.
- Shift in production location.

2.

What factors are behind the phenomenon? Does it explain
trade patterns?
- Level of innovation and technology.
- Quantum & Quality of Resources.
- Size of market.
- Competitive structure.
10

IPCL: Four Stages:
What Determines these stages?

Difference/gap in technology between countries/economies.
► Ability (purchasing power) of customers.
► Preferences of customers.
►

Innovation:
What Makes it Effective?

If domestic market is big – economies of scale – cost efficiency
– international competition – (US, China, India): Big markets but
their innovative capacity and technology levels differ.
► Innovation but no big domestic market:
►

How to achieve economies of scale? Set up marketing and production
facilities outside the country.

11

What are the critical factors for expanding into international market?
► Innovative capacity, level of technology
► Scope of economies
► Achieving economies of scale
►
►
►

The innovating firm starts looking for establishing production base in
other high income countries.
When this is successful, these countries (where production base is
established) start exporting to the innovating country.
International competition increases

12

Stages of International Product Life Cycle.
See exhibit and interpret:
In each column, start moving down and interpret against the row title.
Try matching the movements of three types of curves.

13

14

Stage 1: Introduction:Advanced countries – Innovation for new product.




Lot of resources required for R&D.
Initially price of new product is high.
Hence search for markets for new product in high income countries.

Stage 2: Growth:



Search for other developed markets for exports.
Globalization
Trade patterns
Theories
 IPLC
 Factor Mobility
 Comparison.
15

Note & Interpret:
(i)
(ii)

Opposite movements of curves representing high income
countries.
Testes and preferences change in low income countries also.
They too start importing new product.

Stage 3: Maturity:
By now technical know-how is known to many countries. The
innovating country starts setting up production facility in the
third world (low income developing) economies by taking
advantage of low wages in the latter.
► Imports of low income countries decline as the domestic
production of this product increases.
►

Stage 4: Decline:
►

What is the marketing strategy at this stage? Production shifts
even to least developing countries – innovating country imports
from these countries
16

Examples:
i.

ii.

UK was largest manufacturer and exporter of bicycles. Bicycle
industry declined in UK. This industry emerged in low income
countries, including India.
Developed countries shift environmentally hazardous industries to
low income countries.

17

18

Criticism of IPCL Theory:
It explains the emerging pattern of international market. This was ok
earlier. Now information about prices, technology and preferences travels
across the globe. The product may be launched by the innovating country
simultaneously in several countries.

[Discuss Maruti Suzuki case. Japanese company, Suzuki, is an innovating
company. The latter established manufacturing base in India. India first
imported Maruti Suzuki Standard -800 Model. After the product gained
maturity and popularity, Maruti Suzuki Exports Cars to several developed
and semi developed countries. The time has come when India may also
base manufacturing facilities in other least developing countries].

19

Theory of Competitive Advantage


Porter–Diamond Theory:
(Michael Porter, 1990, The competitive advantage of nations).



Main focus is on Domestic Environment.
Contrast it with IPCL. – which lays emphasis on innovation/invention
and looks forward to off-shore investment/production.
Diamond? See four blocks/diamonds The interaction of these explains
and determines the trade competitive advantage of a country. See
arrows in diagram.
4 Diamonds – Blocks:






a) Factor input – Natural & Creaed
b) Demand conditions.
 Greater is the sophistication in demand conditions, more demanding the
consumer is – product quality – better service – change in preferences – (Global
exposure…).

20

c) Related and supporting industries
 Development of ancillary industry (as in auto industry).
 Strong supply chain management.
 Development of industrial clusters.
For example:
IT – Banglore,
Textiles – Tirupur
Metal Handicraft – Moradabad

d) Firm Strategy, Structure & Rivalry






Transformation of family enterprise.
Competition policy
Incentive structure
Global exposure
Domestic rivalry (competition?)
21

22

Summary


IPCL: Explains Sifts in





Theory of competitive advantage: To explain national competitiveness, it focuses
on:








Trade Patterns
Manufacturing base

Environmental factors (factor conditions)
Demand conditions
Related supporting industries
Firm strategy, structure, etc.
Degree of competition (Rivalry, etc).

Merit of above theoretical models:
They help provide basis for:
 Principles for regulatory framework.
 Preparing trade promotion strategies to national as well as international Govt./Bodies. The
relative advantage may vary across countries.

23

24

DISCUSS TWO CASE STUDIES ATTACHED

25

CASE STUDY 1
► CHIP

INDUSTRY

26

27

28

29

30

CASE STUDY 2
► Factor

mobility :TCS-case study

31

Factor mobility theory
► Daniels

et.al
See page no. 247-259

32

Supplementary notes
► Biggest

change being observed is the
demographic one.
► By 2050 – 033 countries will have lower
population than their present population
due to lower fertility ( lower than
population ranging from 14% to 22%.)
► On

the other hand, eight countries will
account for 50% of world population.

33

Consequences

► Labor

mobility across countries likely to be faster in
coming decades than now.

► Why

factors move?

►Capital
Long term movement-FDI
 Shifting manufacturing base
 Shifting services industry base
 Reform capital account convertibility
 Political stability
 Investor friendly policies
34

people
► 200

million ( approx 3% of worlds
population) have migrated not uniformly
all over the world.
► USA got high migration ( 11 % of
population of USA is made up immigrants
)
Two – third’s of UAE population consists of
temporary workers .
► Indonesian labor migrates to Malaysia
(huge- 10 times wage differential)

35

Impact
► Singapore transformed from low-wage
► Labor-intensive to high-wage capital intensive

economy ( due to high capital inflow )

► Trade

and factor mobility
Factor movement
From abundant area to scare area. (eg,maxicon
labor to USA.)

Complementarity
Complementary products-needs equipment. This
happens through foreign investment.
36

Flexible and small scale population
► Services

growing much faster than
manufacturing .
( change in consumption pattern in fast
growing economies)

Many services can be provided by small scale
units.
They have flexibility in labor employment too.
37

38

39

40

41

42


Slide 5

UNIT-1
► GLOBALIZATION
► TRADE

PATTERNS

 THEORIES
1. IPLC
2. FACTOR MOBILITY
COMPARISON OF IPLC AND FACTOR MOBILITY THEORIES.

1

Globalization
1. A holistic approach covers the following aspects:
a. Economic
b. Financial
c. Political
d. Cultural
All the above aspects/factors interact with each
other.
[See Joshi (2011), fig.1.3, p.9]

2

3

2.

Economic globalization has the following five
major components/aspects:
Production
b. Markets
c. Competition
d. Technology
e. Corporations & Industry
All the components work in an interactive manner.
a.

[See Joshi (2011), fig.1.5, p.13]

4

5

3. Movers and Restraining Factors:
3.1. Factors that give impetus to globalization or movers:
a. Economic liberalization
b. Technical break through

Manufacturing
► Transportation
► Information & Communication.
►

c.
d.
e.
f.
g.
h.

Multilateral institutions.
Interventional economic integration.
Move towards free market systems.
Rising R&D costs.
Advents in logistic management.
Emergence of global customer segments.

3.2. Factors that restrain globalization or restraining factors:
Regulatory controls
Emerging new trade barriers.
Cultural factors
Nationalism
e. Wards and civil disturbances.
f. Management myopia.
a.
b.
c.
d.

How much globalization proceeds/progresses depends on the relative strength of
6
factors in 3.1 and 3.2.
[See Joshi (2011), fig.1.6, pg.16]

7

Globalization: A TYPICAL MODERN IMAGE
Conspicuously seen in terms of
 Westernization
 Americanization

Some of the popular examples are:





Walmartization
Cocacolination
Disneyfication
Mc Donalization

1. Walmartization*
Walmart – US Retail Chain
Walmart Effect
 Keeping small competitors out
 Driving down wages
 Keeping inflation low
 Keeping productivity high

2. Cocacolination
Perceived as an invasion of cultural
values.

It has a conservative image as reflected in
 Firm cutting down costs
 Favoring policy of
►
►

*

Cutting down taxes
Keeping welfare state competitive

See Charles Fishman: Walmart Effect

8

3. Walmartization
See George Ritzer (1995)

[MacDonaldization of Society]
Four Dimensions of fast food restaurant:

i. Efficiency: Best mode of production with little scope of individuality.
ii. Calculability: Quantifiable Objective :
- Sale
- Focus on Quantity (big MAC, not so much quality)
iii. Predictability: Uniform Production Process.
iv. Control: Substitution of non-human technologies for human labour.(System of
“Iron Cage” – same principle governs all Institutions).

Criticism:

(a) Irrationality – Every worker performs highly rationalized task leading to
workers’ “Burn Out”.
(b) Deskilling: Workers perform repetitive tasks – cheap training of workers.
workers can be replaced easily.

4. Disneyfication

What is signified? Society dedicated to

i. Themes
ii. Huge consumption
iii. Emotion based labor.
(also signifies a diluted version of original form)

9

INTERNATIONAL PRODUCT LIFE CYCLE THEORY (IPCL)
ISSUES:
1.

Do international markets follow a cyclical Pattern? Why?
What does it explain?
- Shift in markets.
- Shift in production location.

2.

What factors are behind the phenomenon? Does it explain
trade patterns?
- Level of innovation and technology.
- Quantum & Quality of Resources.
- Size of market.
- Competitive structure.
10

IPCL: Four Stages:
What Determines these stages?

Difference/gap in technology between countries/economies.
► Ability (purchasing power) of customers.
► Preferences of customers.
►

Innovation:
What Makes it Effective?

If domestic market is big – economies of scale – cost efficiency
– international competition – (US, China, India): Big markets but
their innovative capacity and technology levels differ.
► Innovation but no big domestic market:
►

How to achieve economies of scale? Set up marketing and production
facilities outside the country.

11

What are the critical factors for expanding into international market?
► Innovative capacity, level of technology
► Scope of economies
► Achieving economies of scale
►
►
►

The innovating firm starts looking for establishing production base in
other high income countries.
When this is successful, these countries (where production base is
established) start exporting to the innovating country.
International competition increases

12

Stages of International Product Life Cycle.
See exhibit and interpret:
In each column, start moving down and interpret against the row title.
Try matching the movements of three types of curves.

13

14

Stage 1: Introduction:Advanced countries – Innovation for new product.




Lot of resources required for R&D.
Initially price of new product is high.
Hence search for markets for new product in high income countries.

Stage 2: Growth:



Search for other developed markets for exports.
Globalization
Trade patterns
Theories
 IPLC
 Factor Mobility
 Comparison.
15

Note & Interpret:
(i)
(ii)

Opposite movements of curves representing high income
countries.
Testes and preferences change in low income countries also.
They too start importing new product.

Stage 3: Maturity:
By now technical know-how is known to many countries. The
innovating country starts setting up production facility in the
third world (low income developing) economies by taking
advantage of low wages in the latter.
► Imports of low income countries decline as the domestic
production of this product increases.
►

Stage 4: Decline:
►

What is the marketing strategy at this stage? Production shifts
even to least developing countries – innovating country imports
from these countries
16

Examples:
i.

ii.

UK was largest manufacturer and exporter of bicycles. Bicycle
industry declined in UK. This industry emerged in low income
countries, including India.
Developed countries shift environmentally hazardous industries to
low income countries.

17

18

Criticism of IPCL Theory:
It explains the emerging pattern of international market. This was ok
earlier. Now information about prices, technology and preferences travels
across the globe. The product may be launched by the innovating country
simultaneously in several countries.

[Discuss Maruti Suzuki case. Japanese company, Suzuki, is an innovating
company. The latter established manufacturing base in India. India first
imported Maruti Suzuki Standard -800 Model. After the product gained
maturity and popularity, Maruti Suzuki Exports Cars to several developed
and semi developed countries. The time has come when India may also
base manufacturing facilities in other least developing countries].

19

Theory of Competitive Advantage


Porter–Diamond Theory:
(Michael Porter, 1990, The competitive advantage of nations).



Main focus is on Domestic Environment.
Contrast it with IPCL. – which lays emphasis on innovation/invention
and looks forward to off-shore investment/production.
Diamond? See four blocks/diamonds The interaction of these explains
and determines the trade competitive advantage of a country. See
arrows in diagram.
4 Diamonds – Blocks:






a) Factor input – Natural & Creaed
b) Demand conditions.
 Greater is the sophistication in demand conditions, more demanding the
consumer is – product quality – better service – change in preferences – (Global
exposure…).

20

c) Related and supporting industries
 Development of ancillary industry (as in auto industry).
 Strong supply chain management.
 Development of industrial clusters.
For example:
IT – Banglore,
Textiles – Tirupur
Metal Handicraft – Moradabad

d) Firm Strategy, Structure & Rivalry






Transformation of family enterprise.
Competition policy
Incentive structure
Global exposure
Domestic rivalry (competition?)
21

22

Summary


IPCL: Explains Sifts in





Theory of competitive advantage: To explain national competitiveness, it focuses
on:








Trade Patterns
Manufacturing base

Environmental factors (factor conditions)
Demand conditions
Related supporting industries
Firm strategy, structure, etc.
Degree of competition (Rivalry, etc).

Merit of above theoretical models:
They help provide basis for:
 Principles for regulatory framework.
 Preparing trade promotion strategies to national as well as international Govt./Bodies. The
relative advantage may vary across countries.

23

24

DISCUSS TWO CASE STUDIES ATTACHED

25

CASE STUDY 1
► CHIP

INDUSTRY

26

27

28

29

30

CASE STUDY 2
► Factor

mobility :TCS-case study

31

Factor mobility theory
► Daniels

et.al
See page no. 247-259

32

Supplementary notes
► Biggest

change being observed is the
demographic one.
► By 2050 – 033 countries will have lower
population than their present population
due to lower fertility ( lower than
population ranging from 14% to 22%.)
► On

the other hand, eight countries will
account for 50% of world population.

33

Consequences

► Labor

mobility across countries likely to be faster in
coming decades than now.

► Why

factors move?

►Capital
Long term movement-FDI
 Shifting manufacturing base
 Shifting services industry base
 Reform capital account convertibility
 Political stability
 Investor friendly policies
34

people
► 200

million ( approx 3% of worlds
population) have migrated not uniformly
all over the world.
► USA got high migration ( 11 % of
population of USA is made up immigrants
)
Two – third’s of UAE population consists of
temporary workers .
► Indonesian labor migrates to Malaysia
(huge- 10 times wage differential)

35

Impact
► Singapore transformed from low-wage
► Labor-intensive to high-wage capital intensive

economy ( due to high capital inflow )

► Trade

and factor mobility
Factor movement
From abundant area to scare area. (eg,maxicon
labor to USA.)

Complementarity
Complementary products-needs equipment. This
happens through foreign investment.
36

Flexible and small scale population
► Services

growing much faster than
manufacturing .
( change in consumption pattern in fast
growing economies)

Many services can be provided by small scale
units.
They have flexibility in labor employment too.
37

38

39

40

41

42


Slide 6

UNIT-1
► GLOBALIZATION
► TRADE

PATTERNS

 THEORIES
1. IPLC
2. FACTOR MOBILITY
COMPARISON OF IPLC AND FACTOR MOBILITY THEORIES.

1

Globalization
1. A holistic approach covers the following aspects:
a. Economic
b. Financial
c. Political
d. Cultural
All the above aspects/factors interact with each
other.
[See Joshi (2011), fig.1.3, p.9]

2

3

2.

Economic globalization has the following five
major components/aspects:
Production
b. Markets
c. Competition
d. Technology
e. Corporations & Industry
All the components work in an interactive manner.
a.

[See Joshi (2011), fig.1.5, p.13]

4

5

3. Movers and Restraining Factors:
3.1. Factors that give impetus to globalization or movers:
a. Economic liberalization
b. Technical break through

Manufacturing
► Transportation
► Information & Communication.
►

c.
d.
e.
f.
g.
h.

Multilateral institutions.
Interventional economic integration.
Move towards free market systems.
Rising R&D costs.
Advents in logistic management.
Emergence of global customer segments.

3.2. Factors that restrain globalization or restraining factors:
Regulatory controls
Emerging new trade barriers.
Cultural factors
Nationalism
e. Wards and civil disturbances.
f. Management myopia.
a.
b.
c.
d.

How much globalization proceeds/progresses depends on the relative strength of
6
factors in 3.1 and 3.2.
[See Joshi (2011), fig.1.6, pg.16]

7

Globalization: A TYPICAL MODERN IMAGE
Conspicuously seen in terms of
 Westernization
 Americanization

Some of the popular examples are:





Walmartization
Cocacolination
Disneyfication
Mc Donalization

1. Walmartization*
Walmart – US Retail Chain
Walmart Effect
 Keeping small competitors out
 Driving down wages
 Keeping inflation low
 Keeping productivity high

2. Cocacolination
Perceived as an invasion of cultural
values.

It has a conservative image as reflected in
 Firm cutting down costs
 Favoring policy of
►
►

*

Cutting down taxes
Keeping welfare state competitive

See Charles Fishman: Walmart Effect

8

3. Walmartization
See George Ritzer (1995)

[MacDonaldization of Society]
Four Dimensions of fast food restaurant:

i. Efficiency: Best mode of production with little scope of individuality.
ii. Calculability: Quantifiable Objective :
- Sale
- Focus on Quantity (big MAC, not so much quality)
iii. Predictability: Uniform Production Process.
iv. Control: Substitution of non-human technologies for human labour.(System of
“Iron Cage” – same principle governs all Institutions).

Criticism:

(a) Irrationality – Every worker performs highly rationalized task leading to
workers’ “Burn Out”.
(b) Deskilling: Workers perform repetitive tasks – cheap training of workers.
workers can be replaced easily.

4. Disneyfication

What is signified? Society dedicated to

i. Themes
ii. Huge consumption
iii. Emotion based labor.
(also signifies a diluted version of original form)

9

INTERNATIONAL PRODUCT LIFE CYCLE THEORY (IPCL)
ISSUES:
1.

Do international markets follow a cyclical Pattern? Why?
What does it explain?
- Shift in markets.
- Shift in production location.

2.

What factors are behind the phenomenon? Does it explain
trade patterns?
- Level of innovation and technology.
- Quantum & Quality of Resources.
- Size of market.
- Competitive structure.
10

IPCL: Four Stages:
What Determines these stages?

Difference/gap in technology between countries/economies.
► Ability (purchasing power) of customers.
► Preferences of customers.
►

Innovation:
What Makes it Effective?

If domestic market is big – economies of scale – cost efficiency
– international competition – (US, China, India): Big markets but
their innovative capacity and technology levels differ.
► Innovation but no big domestic market:
►

How to achieve economies of scale? Set up marketing and production
facilities outside the country.

11

What are the critical factors for expanding into international market?
► Innovative capacity, level of technology
► Scope of economies
► Achieving economies of scale
►
►
►

The innovating firm starts looking for establishing production base in
other high income countries.
When this is successful, these countries (where production base is
established) start exporting to the innovating country.
International competition increases

12

Stages of International Product Life Cycle.
See exhibit and interpret:
In each column, start moving down and interpret against the row title.
Try matching the movements of three types of curves.

13

14

Stage 1: Introduction:Advanced countries – Innovation for new product.




Lot of resources required for R&D.
Initially price of new product is high.
Hence search for markets for new product in high income countries.

Stage 2: Growth:



Search for other developed markets for exports.
Globalization
Trade patterns
Theories
 IPLC
 Factor Mobility
 Comparison.
15

Note & Interpret:
(i)
(ii)

Opposite movements of curves representing high income
countries.
Testes and preferences change in low income countries also.
They too start importing new product.

Stage 3: Maturity:
By now technical know-how is known to many countries. The
innovating country starts setting up production facility in the
third world (low income developing) economies by taking
advantage of low wages in the latter.
► Imports of low income countries decline as the domestic
production of this product increases.
►

Stage 4: Decline:
►

What is the marketing strategy at this stage? Production shifts
even to least developing countries – innovating country imports
from these countries
16

Examples:
i.

ii.

UK was largest manufacturer and exporter of bicycles. Bicycle
industry declined in UK. This industry emerged in low income
countries, including India.
Developed countries shift environmentally hazardous industries to
low income countries.

17

18

Criticism of IPCL Theory:
It explains the emerging pattern of international market. This was ok
earlier. Now information about prices, technology and preferences travels
across the globe. The product may be launched by the innovating country
simultaneously in several countries.

[Discuss Maruti Suzuki case. Japanese company, Suzuki, is an innovating
company. The latter established manufacturing base in India. India first
imported Maruti Suzuki Standard -800 Model. After the product gained
maturity and popularity, Maruti Suzuki Exports Cars to several developed
and semi developed countries. The time has come when India may also
base manufacturing facilities in other least developing countries].

19

Theory of Competitive Advantage


Porter–Diamond Theory:
(Michael Porter, 1990, The competitive advantage of nations).



Main focus is on Domestic Environment.
Contrast it with IPCL. – which lays emphasis on innovation/invention
and looks forward to off-shore investment/production.
Diamond? See four blocks/diamonds The interaction of these explains
and determines the trade competitive advantage of a country. See
arrows in diagram.
4 Diamonds – Blocks:






a) Factor input – Natural & Creaed
b) Demand conditions.
 Greater is the sophistication in demand conditions, more demanding the
consumer is – product quality – better service – change in preferences – (Global
exposure…).

20

c) Related and supporting industries
 Development of ancillary industry (as in auto industry).
 Strong supply chain management.
 Development of industrial clusters.
For example:
IT – Banglore,
Textiles – Tirupur
Metal Handicraft – Moradabad

d) Firm Strategy, Structure & Rivalry






Transformation of family enterprise.
Competition policy
Incentive structure
Global exposure
Domestic rivalry (competition?)
21

22

Summary


IPCL: Explains Sifts in





Theory of competitive advantage: To explain national competitiveness, it focuses
on:








Trade Patterns
Manufacturing base

Environmental factors (factor conditions)
Demand conditions
Related supporting industries
Firm strategy, structure, etc.
Degree of competition (Rivalry, etc).

Merit of above theoretical models:
They help provide basis for:
 Principles for regulatory framework.
 Preparing trade promotion strategies to national as well as international Govt./Bodies. The
relative advantage may vary across countries.

23

24

DISCUSS TWO CASE STUDIES ATTACHED

25

CASE STUDY 1
► CHIP

INDUSTRY

26

27

28

29

30

CASE STUDY 2
► Factor

mobility :TCS-case study

31

Factor mobility theory
► Daniels

et.al
See page no. 247-259

32

Supplementary notes
► Biggest

change being observed is the
demographic one.
► By 2050 – 033 countries will have lower
population than their present population
due to lower fertility ( lower than
population ranging from 14% to 22%.)
► On

the other hand, eight countries will
account for 50% of world population.

33

Consequences

► Labor

mobility across countries likely to be faster in
coming decades than now.

► Why

factors move?

►Capital
Long term movement-FDI
 Shifting manufacturing base
 Shifting services industry base
 Reform capital account convertibility
 Political stability
 Investor friendly policies
34

people
► 200

million ( approx 3% of worlds
population) have migrated not uniformly
all over the world.
► USA got high migration ( 11 % of
population of USA is made up immigrants
)
Two – third’s of UAE population consists of
temporary workers .
► Indonesian labor migrates to Malaysia
(huge- 10 times wage differential)

35

Impact
► Singapore transformed from low-wage
► Labor-intensive to high-wage capital intensive

economy ( due to high capital inflow )

► Trade

and factor mobility
Factor movement
From abundant area to scare area. (eg,maxicon
labor to USA.)

Complementarity
Complementary products-needs equipment. This
happens through foreign investment.
36

Flexible and small scale population
► Services

growing much faster than
manufacturing .
( change in consumption pattern in fast
growing economies)

Many services can be provided by small scale
units.
They have flexibility in labor employment too.
37

38

39

40

41

42


Slide 7

UNIT-1
► GLOBALIZATION
► TRADE

PATTERNS

 THEORIES
1. IPLC
2. FACTOR MOBILITY
COMPARISON OF IPLC AND FACTOR MOBILITY THEORIES.

1

Globalization
1. A holistic approach covers the following aspects:
a. Economic
b. Financial
c. Political
d. Cultural
All the above aspects/factors interact with each
other.
[See Joshi (2011), fig.1.3, p.9]

2

3

2.

Economic globalization has the following five
major components/aspects:
Production
b. Markets
c. Competition
d. Technology
e. Corporations & Industry
All the components work in an interactive manner.
a.

[See Joshi (2011), fig.1.5, p.13]

4

5

3. Movers and Restraining Factors:
3.1. Factors that give impetus to globalization or movers:
a. Economic liberalization
b. Technical break through

Manufacturing
► Transportation
► Information & Communication.
►

c.
d.
e.
f.
g.
h.

Multilateral institutions.
Interventional economic integration.
Move towards free market systems.
Rising R&D costs.
Advents in logistic management.
Emergence of global customer segments.

3.2. Factors that restrain globalization or restraining factors:
Regulatory controls
Emerging new trade barriers.
Cultural factors
Nationalism
e. Wards and civil disturbances.
f. Management myopia.
a.
b.
c.
d.

How much globalization proceeds/progresses depends on the relative strength of
6
factors in 3.1 and 3.2.
[See Joshi (2011), fig.1.6, pg.16]

7

Globalization: A TYPICAL MODERN IMAGE
Conspicuously seen in terms of
 Westernization
 Americanization

Some of the popular examples are:





Walmartization
Cocacolination
Disneyfication
Mc Donalization

1. Walmartization*
Walmart – US Retail Chain
Walmart Effect
 Keeping small competitors out
 Driving down wages
 Keeping inflation low
 Keeping productivity high

2. Cocacolination
Perceived as an invasion of cultural
values.

It has a conservative image as reflected in
 Firm cutting down costs
 Favoring policy of
►
►

*

Cutting down taxes
Keeping welfare state competitive

See Charles Fishman: Walmart Effect

8

3. Walmartization
See George Ritzer (1995)

[MacDonaldization of Society]
Four Dimensions of fast food restaurant:

i. Efficiency: Best mode of production with little scope of individuality.
ii. Calculability: Quantifiable Objective :
- Sale
- Focus on Quantity (big MAC, not so much quality)
iii. Predictability: Uniform Production Process.
iv. Control: Substitution of non-human technologies for human labour.(System of
“Iron Cage” – same principle governs all Institutions).

Criticism:

(a) Irrationality – Every worker performs highly rationalized task leading to
workers’ “Burn Out”.
(b) Deskilling: Workers perform repetitive tasks – cheap training of workers.
workers can be replaced easily.

4. Disneyfication

What is signified? Society dedicated to

i. Themes
ii. Huge consumption
iii. Emotion based labor.
(also signifies a diluted version of original form)

9

INTERNATIONAL PRODUCT LIFE CYCLE THEORY (IPCL)
ISSUES:
1.

Do international markets follow a cyclical Pattern? Why?
What does it explain?
- Shift in markets.
- Shift in production location.

2.

What factors are behind the phenomenon? Does it explain
trade patterns?
- Level of innovation and technology.
- Quantum & Quality of Resources.
- Size of market.
- Competitive structure.
10

IPCL: Four Stages:
What Determines these stages?

Difference/gap in technology between countries/economies.
► Ability (purchasing power) of customers.
► Preferences of customers.
►

Innovation:
What Makes it Effective?

If domestic market is big – economies of scale – cost efficiency
– international competition – (US, China, India): Big markets but
their innovative capacity and technology levels differ.
► Innovation but no big domestic market:
►

How to achieve economies of scale? Set up marketing and production
facilities outside the country.

11

What are the critical factors for expanding into international market?
► Innovative capacity, level of technology
► Scope of economies
► Achieving economies of scale
►
►
►

The innovating firm starts looking for establishing production base in
other high income countries.
When this is successful, these countries (where production base is
established) start exporting to the innovating country.
International competition increases

12

Stages of International Product Life Cycle.
See exhibit and interpret:
In each column, start moving down and interpret against the row title.
Try matching the movements of three types of curves.

13

14

Stage 1: Introduction:Advanced countries – Innovation for new product.




Lot of resources required for R&D.
Initially price of new product is high.
Hence search for markets for new product in high income countries.

Stage 2: Growth:



Search for other developed markets for exports.
Globalization
Trade patterns
Theories
 IPLC
 Factor Mobility
 Comparison.
15

Note & Interpret:
(i)
(ii)

Opposite movements of curves representing high income
countries.
Testes and preferences change in low income countries also.
They too start importing new product.

Stage 3: Maturity:
By now technical know-how is known to many countries. The
innovating country starts setting up production facility in the
third world (low income developing) economies by taking
advantage of low wages in the latter.
► Imports of low income countries decline as the domestic
production of this product increases.
►

Stage 4: Decline:
►

What is the marketing strategy at this stage? Production shifts
even to least developing countries – innovating country imports
from these countries
16

Examples:
i.

ii.

UK was largest manufacturer and exporter of bicycles. Bicycle
industry declined in UK. This industry emerged in low income
countries, including India.
Developed countries shift environmentally hazardous industries to
low income countries.

17

18

Criticism of IPCL Theory:
It explains the emerging pattern of international market. This was ok
earlier. Now information about prices, technology and preferences travels
across the globe. The product may be launched by the innovating country
simultaneously in several countries.

[Discuss Maruti Suzuki case. Japanese company, Suzuki, is an innovating
company. The latter established manufacturing base in India. India first
imported Maruti Suzuki Standard -800 Model. After the product gained
maturity and popularity, Maruti Suzuki Exports Cars to several developed
and semi developed countries. The time has come when India may also
base manufacturing facilities in other least developing countries].

19

Theory of Competitive Advantage


Porter–Diamond Theory:
(Michael Porter, 1990, The competitive advantage of nations).



Main focus is on Domestic Environment.
Contrast it with IPCL. – which lays emphasis on innovation/invention
and looks forward to off-shore investment/production.
Diamond? See four blocks/diamonds The interaction of these explains
and determines the trade competitive advantage of a country. See
arrows in diagram.
4 Diamonds – Blocks:






a) Factor input – Natural & Creaed
b) Demand conditions.
 Greater is the sophistication in demand conditions, more demanding the
consumer is – product quality – better service – change in preferences – (Global
exposure…).

20

c) Related and supporting industries
 Development of ancillary industry (as in auto industry).
 Strong supply chain management.
 Development of industrial clusters.
For example:
IT – Banglore,
Textiles – Tirupur
Metal Handicraft – Moradabad

d) Firm Strategy, Structure & Rivalry






Transformation of family enterprise.
Competition policy
Incentive structure
Global exposure
Domestic rivalry (competition?)
21

22

Summary


IPCL: Explains Sifts in





Theory of competitive advantage: To explain national competitiveness, it focuses
on:








Trade Patterns
Manufacturing base

Environmental factors (factor conditions)
Demand conditions
Related supporting industries
Firm strategy, structure, etc.
Degree of competition (Rivalry, etc).

Merit of above theoretical models:
They help provide basis for:
 Principles for regulatory framework.
 Preparing trade promotion strategies to national as well as international Govt./Bodies. The
relative advantage may vary across countries.

23

24

DISCUSS TWO CASE STUDIES ATTACHED

25

CASE STUDY 1
► CHIP

INDUSTRY

26

27

28

29

30

CASE STUDY 2
► Factor

mobility :TCS-case study

31

Factor mobility theory
► Daniels

et.al
See page no. 247-259

32

Supplementary notes
► Biggest

change being observed is the
demographic one.
► By 2050 – 033 countries will have lower
population than their present population
due to lower fertility ( lower than
population ranging from 14% to 22%.)
► On

the other hand, eight countries will
account for 50% of world population.

33

Consequences

► Labor

mobility across countries likely to be faster in
coming decades than now.

► Why

factors move?

►Capital
Long term movement-FDI
 Shifting manufacturing base
 Shifting services industry base
 Reform capital account convertibility
 Political stability
 Investor friendly policies
34

people
► 200

million ( approx 3% of worlds
population) have migrated not uniformly
all over the world.
► USA got high migration ( 11 % of
population of USA is made up immigrants
)
Two – third’s of UAE population consists of
temporary workers .
► Indonesian labor migrates to Malaysia
(huge- 10 times wage differential)

35

Impact
► Singapore transformed from low-wage
► Labor-intensive to high-wage capital intensive

economy ( due to high capital inflow )

► Trade

and factor mobility
Factor movement
From abundant area to scare area. (eg,maxicon
labor to USA.)

Complementarity
Complementary products-needs equipment. This
happens through foreign investment.
36

Flexible and small scale population
► Services

growing much faster than
manufacturing .
( change in consumption pattern in fast
growing economies)

Many services can be provided by small scale
units.
They have flexibility in labor employment too.
37

38

39

40

41

42


Slide 8

UNIT-1
► GLOBALIZATION
► TRADE

PATTERNS

 THEORIES
1. IPLC
2. FACTOR MOBILITY
COMPARISON OF IPLC AND FACTOR MOBILITY THEORIES.

1

Globalization
1. A holistic approach covers the following aspects:
a. Economic
b. Financial
c. Political
d. Cultural
All the above aspects/factors interact with each
other.
[See Joshi (2011), fig.1.3, p.9]

2

3

2.

Economic globalization has the following five
major components/aspects:
Production
b. Markets
c. Competition
d. Technology
e. Corporations & Industry
All the components work in an interactive manner.
a.

[See Joshi (2011), fig.1.5, p.13]

4

5

3. Movers and Restraining Factors:
3.1. Factors that give impetus to globalization or movers:
a. Economic liberalization
b. Technical break through

Manufacturing
► Transportation
► Information & Communication.
►

c.
d.
e.
f.
g.
h.

Multilateral institutions.
Interventional economic integration.
Move towards free market systems.
Rising R&D costs.
Advents in logistic management.
Emergence of global customer segments.

3.2. Factors that restrain globalization or restraining factors:
Regulatory controls
Emerging new trade barriers.
Cultural factors
Nationalism
e. Wards and civil disturbances.
f. Management myopia.
a.
b.
c.
d.

How much globalization proceeds/progresses depends on the relative strength of
6
factors in 3.1 and 3.2.
[See Joshi (2011), fig.1.6, pg.16]

7

Globalization: A TYPICAL MODERN IMAGE
Conspicuously seen in terms of
 Westernization
 Americanization

Some of the popular examples are:





Walmartization
Cocacolination
Disneyfication
Mc Donalization

1. Walmartization*
Walmart – US Retail Chain
Walmart Effect
 Keeping small competitors out
 Driving down wages
 Keeping inflation low
 Keeping productivity high

2. Cocacolination
Perceived as an invasion of cultural
values.

It has a conservative image as reflected in
 Firm cutting down costs
 Favoring policy of
►
►

*

Cutting down taxes
Keeping welfare state competitive

See Charles Fishman: Walmart Effect

8

3. Walmartization
See George Ritzer (1995)

[MacDonaldization of Society]
Four Dimensions of fast food restaurant:

i. Efficiency: Best mode of production with little scope of individuality.
ii. Calculability: Quantifiable Objective :
- Sale
- Focus on Quantity (big MAC, not so much quality)
iii. Predictability: Uniform Production Process.
iv. Control: Substitution of non-human technologies for human labour.(System of
“Iron Cage” – same principle governs all Institutions).

Criticism:

(a) Irrationality – Every worker performs highly rationalized task leading to
workers’ “Burn Out”.
(b) Deskilling: Workers perform repetitive tasks – cheap training of workers.
workers can be replaced easily.

4. Disneyfication

What is signified? Society dedicated to

i. Themes
ii. Huge consumption
iii. Emotion based labor.
(also signifies a diluted version of original form)

9

INTERNATIONAL PRODUCT LIFE CYCLE THEORY (IPCL)
ISSUES:
1.

Do international markets follow a cyclical Pattern? Why?
What does it explain?
- Shift in markets.
- Shift in production location.

2.

What factors are behind the phenomenon? Does it explain
trade patterns?
- Level of innovation and technology.
- Quantum & Quality of Resources.
- Size of market.
- Competitive structure.
10

IPCL: Four Stages:
What Determines these stages?

Difference/gap in technology between countries/economies.
► Ability (purchasing power) of customers.
► Preferences of customers.
►

Innovation:
What Makes it Effective?

If domestic market is big – economies of scale – cost efficiency
– international competition – (US, China, India): Big markets but
their innovative capacity and technology levels differ.
► Innovation but no big domestic market:
►

How to achieve economies of scale? Set up marketing and production
facilities outside the country.

11

What are the critical factors for expanding into international market?
► Innovative capacity, level of technology
► Scope of economies
► Achieving economies of scale
►
►
►

The innovating firm starts looking for establishing production base in
other high income countries.
When this is successful, these countries (where production base is
established) start exporting to the innovating country.
International competition increases

12

Stages of International Product Life Cycle.
See exhibit and interpret:
In each column, start moving down and interpret against the row title.
Try matching the movements of three types of curves.

13

14

Stage 1: Introduction:Advanced countries – Innovation for new product.




Lot of resources required for R&D.
Initially price of new product is high.
Hence search for markets for new product in high income countries.

Stage 2: Growth:



Search for other developed markets for exports.
Globalization
Trade patterns
Theories
 IPLC
 Factor Mobility
 Comparison.
15

Note & Interpret:
(i)
(ii)

Opposite movements of curves representing high income
countries.
Testes and preferences change in low income countries also.
They too start importing new product.

Stage 3: Maturity:
By now technical know-how is known to many countries. The
innovating country starts setting up production facility in the
third world (low income developing) economies by taking
advantage of low wages in the latter.
► Imports of low income countries decline as the domestic
production of this product increases.
►

Stage 4: Decline:
►

What is the marketing strategy at this stage? Production shifts
even to least developing countries – innovating country imports
from these countries
16

Examples:
i.

ii.

UK was largest manufacturer and exporter of bicycles. Bicycle
industry declined in UK. This industry emerged in low income
countries, including India.
Developed countries shift environmentally hazardous industries to
low income countries.

17

18

Criticism of IPCL Theory:
It explains the emerging pattern of international market. This was ok
earlier. Now information about prices, technology and preferences travels
across the globe. The product may be launched by the innovating country
simultaneously in several countries.

[Discuss Maruti Suzuki case. Japanese company, Suzuki, is an innovating
company. The latter established manufacturing base in India. India first
imported Maruti Suzuki Standard -800 Model. After the product gained
maturity and popularity, Maruti Suzuki Exports Cars to several developed
and semi developed countries. The time has come when India may also
base manufacturing facilities in other least developing countries].

19

Theory of Competitive Advantage


Porter–Diamond Theory:
(Michael Porter, 1990, The competitive advantage of nations).



Main focus is on Domestic Environment.
Contrast it with IPCL. – which lays emphasis on innovation/invention
and looks forward to off-shore investment/production.
Diamond? See four blocks/diamonds The interaction of these explains
and determines the trade competitive advantage of a country. See
arrows in diagram.
4 Diamonds – Blocks:






a) Factor input – Natural & Creaed
b) Demand conditions.
 Greater is the sophistication in demand conditions, more demanding the
consumer is – product quality – better service – change in preferences – (Global
exposure…).

20

c) Related and supporting industries
 Development of ancillary industry (as in auto industry).
 Strong supply chain management.
 Development of industrial clusters.
For example:
IT – Banglore,
Textiles – Tirupur
Metal Handicraft – Moradabad

d) Firm Strategy, Structure & Rivalry






Transformation of family enterprise.
Competition policy
Incentive structure
Global exposure
Domestic rivalry (competition?)
21

22

Summary


IPCL: Explains Sifts in





Theory of competitive advantage: To explain national competitiveness, it focuses
on:








Trade Patterns
Manufacturing base

Environmental factors (factor conditions)
Demand conditions
Related supporting industries
Firm strategy, structure, etc.
Degree of competition (Rivalry, etc).

Merit of above theoretical models:
They help provide basis for:
 Principles for regulatory framework.
 Preparing trade promotion strategies to national as well as international Govt./Bodies. The
relative advantage may vary across countries.

23

24

DISCUSS TWO CASE STUDIES ATTACHED

25

CASE STUDY 1
► CHIP

INDUSTRY

26

27

28

29

30

CASE STUDY 2
► Factor

mobility :TCS-case study

31

Factor mobility theory
► Daniels

et.al
See page no. 247-259

32

Supplementary notes
► Biggest

change being observed is the
demographic one.
► By 2050 – 033 countries will have lower
population than their present population
due to lower fertility ( lower than
population ranging from 14% to 22%.)
► On

the other hand, eight countries will
account for 50% of world population.

33

Consequences

► Labor

mobility across countries likely to be faster in
coming decades than now.

► Why

factors move?

►Capital
Long term movement-FDI
 Shifting manufacturing base
 Shifting services industry base
 Reform capital account convertibility
 Political stability
 Investor friendly policies
34

people
► 200

million ( approx 3% of worlds
population) have migrated not uniformly
all over the world.
► USA got high migration ( 11 % of
population of USA is made up immigrants
)
Two – third’s of UAE population consists of
temporary workers .
► Indonesian labor migrates to Malaysia
(huge- 10 times wage differential)

35

Impact
► Singapore transformed from low-wage
► Labor-intensive to high-wage capital intensive

economy ( due to high capital inflow )

► Trade

and factor mobility
Factor movement
From abundant area to scare area. (eg,maxicon
labor to USA.)

Complementarity
Complementary products-needs equipment. This
happens through foreign investment.
36

Flexible and small scale population
► Services

growing much faster than
manufacturing .
( change in consumption pattern in fast
growing economies)

Many services can be provided by small scale
units.
They have flexibility in labor employment too.
37

38

39

40

41

42


Slide 9

UNIT-1
► GLOBALIZATION
► TRADE

PATTERNS

 THEORIES
1. IPLC
2. FACTOR MOBILITY
COMPARISON OF IPLC AND FACTOR MOBILITY THEORIES.

1

Globalization
1. A holistic approach covers the following aspects:
a. Economic
b. Financial
c. Political
d. Cultural
All the above aspects/factors interact with each
other.
[See Joshi (2011), fig.1.3, p.9]

2

3

2.

Economic globalization has the following five
major components/aspects:
Production
b. Markets
c. Competition
d. Technology
e. Corporations & Industry
All the components work in an interactive manner.
a.

[See Joshi (2011), fig.1.5, p.13]

4

5

3. Movers and Restraining Factors:
3.1. Factors that give impetus to globalization or movers:
a. Economic liberalization
b. Technical break through

Manufacturing
► Transportation
► Information & Communication.
►

c.
d.
e.
f.
g.
h.

Multilateral institutions.
Interventional economic integration.
Move towards free market systems.
Rising R&D costs.
Advents in logistic management.
Emergence of global customer segments.

3.2. Factors that restrain globalization or restraining factors:
Regulatory controls
Emerging new trade barriers.
Cultural factors
Nationalism
e. Wards and civil disturbances.
f. Management myopia.
a.
b.
c.
d.

How much globalization proceeds/progresses depends on the relative strength of
6
factors in 3.1 and 3.2.
[See Joshi (2011), fig.1.6, pg.16]

7

Globalization: A TYPICAL MODERN IMAGE
Conspicuously seen in terms of
 Westernization
 Americanization

Some of the popular examples are:





Walmartization
Cocacolination
Disneyfication
Mc Donalization

1. Walmartization*
Walmart – US Retail Chain
Walmart Effect
 Keeping small competitors out
 Driving down wages
 Keeping inflation low
 Keeping productivity high

2. Cocacolination
Perceived as an invasion of cultural
values.

It has a conservative image as reflected in
 Firm cutting down costs
 Favoring policy of
►
►

*

Cutting down taxes
Keeping welfare state competitive

See Charles Fishman: Walmart Effect

8

3. Walmartization
See George Ritzer (1995)

[MacDonaldization of Society]
Four Dimensions of fast food restaurant:

i. Efficiency: Best mode of production with little scope of individuality.
ii. Calculability: Quantifiable Objective :
- Sale
- Focus on Quantity (big MAC, not so much quality)
iii. Predictability: Uniform Production Process.
iv. Control: Substitution of non-human technologies for human labour.(System of
“Iron Cage” – same principle governs all Institutions).

Criticism:

(a) Irrationality – Every worker performs highly rationalized task leading to
workers’ “Burn Out”.
(b) Deskilling: Workers perform repetitive tasks – cheap training of workers.
workers can be replaced easily.

4. Disneyfication

What is signified? Society dedicated to

i. Themes
ii. Huge consumption
iii. Emotion based labor.
(also signifies a diluted version of original form)

9

INTERNATIONAL PRODUCT LIFE CYCLE THEORY (IPCL)
ISSUES:
1.

Do international markets follow a cyclical Pattern? Why?
What does it explain?
- Shift in markets.
- Shift in production location.

2.

What factors are behind the phenomenon? Does it explain
trade patterns?
- Level of innovation and technology.
- Quantum & Quality of Resources.
- Size of market.
- Competitive structure.
10

IPCL: Four Stages:
What Determines these stages?

Difference/gap in technology between countries/economies.
► Ability (purchasing power) of customers.
► Preferences of customers.
►

Innovation:
What Makes it Effective?

If domestic market is big – economies of scale – cost efficiency
– international competition – (US, China, India): Big markets but
their innovative capacity and technology levels differ.
► Innovation but no big domestic market:
►

How to achieve economies of scale? Set up marketing and production
facilities outside the country.

11

What are the critical factors for expanding into international market?
► Innovative capacity, level of technology
► Scope of economies
► Achieving economies of scale
►
►
►

The innovating firm starts looking for establishing production base in
other high income countries.
When this is successful, these countries (where production base is
established) start exporting to the innovating country.
International competition increases

12

Stages of International Product Life Cycle.
See exhibit and interpret:
In each column, start moving down and interpret against the row title.
Try matching the movements of three types of curves.

13

14

Stage 1: Introduction:Advanced countries – Innovation for new product.




Lot of resources required for R&D.
Initially price of new product is high.
Hence search for markets for new product in high income countries.

Stage 2: Growth:



Search for other developed markets for exports.
Globalization
Trade patterns
Theories
 IPLC
 Factor Mobility
 Comparison.
15

Note & Interpret:
(i)
(ii)

Opposite movements of curves representing high income
countries.
Testes and preferences change in low income countries also.
They too start importing new product.

Stage 3: Maturity:
By now technical know-how is known to many countries. The
innovating country starts setting up production facility in the
third world (low income developing) economies by taking
advantage of low wages in the latter.
► Imports of low income countries decline as the domestic
production of this product increases.
►

Stage 4: Decline:
►

What is the marketing strategy at this stage? Production shifts
even to least developing countries – innovating country imports
from these countries
16

Examples:
i.

ii.

UK was largest manufacturer and exporter of bicycles. Bicycle
industry declined in UK. This industry emerged in low income
countries, including India.
Developed countries shift environmentally hazardous industries to
low income countries.

17

18

Criticism of IPCL Theory:
It explains the emerging pattern of international market. This was ok
earlier. Now information about prices, technology and preferences travels
across the globe. The product may be launched by the innovating country
simultaneously in several countries.

[Discuss Maruti Suzuki case. Japanese company, Suzuki, is an innovating
company. The latter established manufacturing base in India. India first
imported Maruti Suzuki Standard -800 Model. After the product gained
maturity and popularity, Maruti Suzuki Exports Cars to several developed
and semi developed countries. The time has come when India may also
base manufacturing facilities in other least developing countries].

19

Theory of Competitive Advantage


Porter–Diamond Theory:
(Michael Porter, 1990, The competitive advantage of nations).



Main focus is on Domestic Environment.
Contrast it with IPCL. – which lays emphasis on innovation/invention
and looks forward to off-shore investment/production.
Diamond? See four blocks/diamonds The interaction of these explains
and determines the trade competitive advantage of a country. See
arrows in diagram.
4 Diamonds – Blocks:






a) Factor input – Natural & Creaed
b) Demand conditions.
 Greater is the sophistication in demand conditions, more demanding the
consumer is – product quality – better service – change in preferences – (Global
exposure…).

20

c) Related and supporting industries
 Development of ancillary industry (as in auto industry).
 Strong supply chain management.
 Development of industrial clusters.
For example:
IT – Banglore,
Textiles – Tirupur
Metal Handicraft – Moradabad

d) Firm Strategy, Structure & Rivalry






Transformation of family enterprise.
Competition policy
Incentive structure
Global exposure
Domestic rivalry (competition?)
21

22

Summary


IPCL: Explains Sifts in





Theory of competitive advantage: To explain national competitiveness, it focuses
on:








Trade Patterns
Manufacturing base

Environmental factors (factor conditions)
Demand conditions
Related supporting industries
Firm strategy, structure, etc.
Degree of competition (Rivalry, etc).

Merit of above theoretical models:
They help provide basis for:
 Principles for regulatory framework.
 Preparing trade promotion strategies to national as well as international Govt./Bodies. The
relative advantage may vary across countries.

23

24

DISCUSS TWO CASE STUDIES ATTACHED

25

CASE STUDY 1
► CHIP

INDUSTRY

26

27

28

29

30

CASE STUDY 2
► Factor

mobility :TCS-case study

31

Factor mobility theory
► Daniels

et.al
See page no. 247-259

32

Supplementary notes
► Biggest

change being observed is the
demographic one.
► By 2050 – 033 countries will have lower
population than their present population
due to lower fertility ( lower than
population ranging from 14% to 22%.)
► On

the other hand, eight countries will
account for 50% of world population.

33

Consequences

► Labor

mobility across countries likely to be faster in
coming decades than now.

► Why

factors move?

►Capital
Long term movement-FDI
 Shifting manufacturing base
 Shifting services industry base
 Reform capital account convertibility
 Political stability
 Investor friendly policies
34

people
► 200

million ( approx 3% of worlds
population) have migrated not uniformly
all over the world.
► USA got high migration ( 11 % of
population of USA is made up immigrants
)
Two – third’s of UAE population consists of
temporary workers .
► Indonesian labor migrates to Malaysia
(huge- 10 times wage differential)

35

Impact
► Singapore transformed from low-wage
► Labor-intensive to high-wage capital intensive

economy ( due to high capital inflow )

► Trade

and factor mobility
Factor movement
From abundant area to scare area. (eg,maxicon
labor to USA.)

Complementarity
Complementary products-needs equipment. This
happens through foreign investment.
36

Flexible and small scale population
► Services

growing much faster than
manufacturing .
( change in consumption pattern in fast
growing economies)

Many services can be provided by small scale
units.
They have flexibility in labor employment too.
37

38

39

40

41

42


Slide 10

UNIT-1
► GLOBALIZATION
► TRADE

PATTERNS

 THEORIES
1. IPLC
2. FACTOR MOBILITY
COMPARISON OF IPLC AND FACTOR MOBILITY THEORIES.

1

Globalization
1. A holistic approach covers the following aspects:
a. Economic
b. Financial
c. Political
d. Cultural
All the above aspects/factors interact with each
other.
[See Joshi (2011), fig.1.3, p.9]

2

3

2.

Economic globalization has the following five
major components/aspects:
Production
b. Markets
c. Competition
d. Technology
e. Corporations & Industry
All the components work in an interactive manner.
a.

[See Joshi (2011), fig.1.5, p.13]

4

5

3. Movers and Restraining Factors:
3.1. Factors that give impetus to globalization or movers:
a. Economic liberalization
b. Technical break through

Manufacturing
► Transportation
► Information & Communication.
►

c.
d.
e.
f.
g.
h.

Multilateral institutions.
Interventional economic integration.
Move towards free market systems.
Rising R&D costs.
Advents in logistic management.
Emergence of global customer segments.

3.2. Factors that restrain globalization or restraining factors:
Regulatory controls
Emerging new trade barriers.
Cultural factors
Nationalism
e. Wards and civil disturbances.
f. Management myopia.
a.
b.
c.
d.

How much globalization proceeds/progresses depends on the relative strength of
6
factors in 3.1 and 3.2.
[See Joshi (2011), fig.1.6, pg.16]

7

Globalization: A TYPICAL MODERN IMAGE
Conspicuously seen in terms of
 Westernization
 Americanization

Some of the popular examples are:





Walmartization
Cocacolination
Disneyfication
Mc Donalization

1. Walmartization*
Walmart – US Retail Chain
Walmart Effect
 Keeping small competitors out
 Driving down wages
 Keeping inflation low
 Keeping productivity high

2. Cocacolination
Perceived as an invasion of cultural
values.

It has a conservative image as reflected in
 Firm cutting down costs
 Favoring policy of
►
►

*

Cutting down taxes
Keeping welfare state competitive

See Charles Fishman: Walmart Effect

8

3. Walmartization
See George Ritzer (1995)

[MacDonaldization of Society]
Four Dimensions of fast food restaurant:

i. Efficiency: Best mode of production with little scope of individuality.
ii. Calculability: Quantifiable Objective :
- Sale
- Focus on Quantity (big MAC, not so much quality)
iii. Predictability: Uniform Production Process.
iv. Control: Substitution of non-human technologies for human labour.(System of
“Iron Cage” – same principle governs all Institutions).

Criticism:

(a) Irrationality – Every worker performs highly rationalized task leading to
workers’ “Burn Out”.
(b) Deskilling: Workers perform repetitive tasks – cheap training of workers.
workers can be replaced easily.

4. Disneyfication

What is signified? Society dedicated to

i. Themes
ii. Huge consumption
iii. Emotion based labor.
(also signifies a diluted version of original form)

9

INTERNATIONAL PRODUCT LIFE CYCLE THEORY (IPCL)
ISSUES:
1.

Do international markets follow a cyclical Pattern? Why?
What does it explain?
- Shift in markets.
- Shift in production location.

2.

What factors are behind the phenomenon? Does it explain
trade patterns?
- Level of innovation and technology.
- Quantum & Quality of Resources.
- Size of market.
- Competitive structure.
10

IPCL: Four Stages:
What Determines these stages?

Difference/gap in technology between countries/economies.
► Ability (purchasing power) of customers.
► Preferences of customers.
►

Innovation:
What Makes it Effective?

If domestic market is big – economies of scale – cost efficiency
– international competition – (US, China, India): Big markets but
their innovative capacity and technology levels differ.
► Innovation but no big domestic market:
►

How to achieve economies of scale? Set up marketing and production
facilities outside the country.

11

What are the critical factors for expanding into international market?
► Innovative capacity, level of technology
► Scope of economies
► Achieving economies of scale
►
►
►

The innovating firm starts looking for establishing production base in
other high income countries.
When this is successful, these countries (where production base is
established) start exporting to the innovating country.
International competition increases

12

Stages of International Product Life Cycle.
See exhibit and interpret:
In each column, start moving down and interpret against the row title.
Try matching the movements of three types of curves.

13

14

Stage 1: Introduction:Advanced countries – Innovation for new product.




Lot of resources required for R&D.
Initially price of new product is high.
Hence search for markets for new product in high income countries.

Stage 2: Growth:



Search for other developed markets for exports.
Globalization
Trade patterns
Theories
 IPLC
 Factor Mobility
 Comparison.
15

Note & Interpret:
(i)
(ii)

Opposite movements of curves representing high income
countries.
Testes and preferences change in low income countries also.
They too start importing new product.

Stage 3: Maturity:
By now technical know-how is known to many countries. The
innovating country starts setting up production facility in the
third world (low income developing) economies by taking
advantage of low wages in the latter.
► Imports of low income countries decline as the domestic
production of this product increases.
►

Stage 4: Decline:
►

What is the marketing strategy at this stage? Production shifts
even to least developing countries – innovating country imports
from these countries
16

Examples:
i.

ii.

UK was largest manufacturer and exporter of bicycles. Bicycle
industry declined in UK. This industry emerged in low income
countries, including India.
Developed countries shift environmentally hazardous industries to
low income countries.

17

18

Criticism of IPCL Theory:
It explains the emerging pattern of international market. This was ok
earlier. Now information about prices, technology and preferences travels
across the globe. The product may be launched by the innovating country
simultaneously in several countries.

[Discuss Maruti Suzuki case. Japanese company, Suzuki, is an innovating
company. The latter established manufacturing base in India. India first
imported Maruti Suzuki Standard -800 Model. After the product gained
maturity and popularity, Maruti Suzuki Exports Cars to several developed
and semi developed countries. The time has come when India may also
base manufacturing facilities in other least developing countries].

19

Theory of Competitive Advantage


Porter–Diamond Theory:
(Michael Porter, 1990, The competitive advantage of nations).



Main focus is on Domestic Environment.
Contrast it with IPCL. – which lays emphasis on innovation/invention
and looks forward to off-shore investment/production.
Diamond? See four blocks/diamonds The interaction of these explains
and determines the trade competitive advantage of a country. See
arrows in diagram.
4 Diamonds – Blocks:






a) Factor input – Natural & Creaed
b) Demand conditions.
 Greater is the sophistication in demand conditions, more demanding the
consumer is – product quality – better service – change in preferences – (Global
exposure…).

20

c) Related and supporting industries
 Development of ancillary industry (as in auto industry).
 Strong supply chain management.
 Development of industrial clusters.
For example:
IT – Banglore,
Textiles – Tirupur
Metal Handicraft – Moradabad

d) Firm Strategy, Structure & Rivalry






Transformation of family enterprise.
Competition policy
Incentive structure
Global exposure
Domestic rivalry (competition?)
21

22

Summary


IPCL: Explains Sifts in





Theory of competitive advantage: To explain national competitiveness, it focuses
on:








Trade Patterns
Manufacturing base

Environmental factors (factor conditions)
Demand conditions
Related supporting industries
Firm strategy, structure, etc.
Degree of competition (Rivalry, etc).

Merit of above theoretical models:
They help provide basis for:
 Principles for regulatory framework.
 Preparing trade promotion strategies to national as well as international Govt./Bodies. The
relative advantage may vary across countries.

23

24

DISCUSS TWO CASE STUDIES ATTACHED

25

CASE STUDY 1
► CHIP

INDUSTRY

26

27

28

29

30

CASE STUDY 2
► Factor

mobility :TCS-case study

31

Factor mobility theory
► Daniels

et.al
See page no. 247-259

32

Supplementary notes
► Biggest

change being observed is the
demographic one.
► By 2050 – 033 countries will have lower
population than their present population
due to lower fertility ( lower than
population ranging from 14% to 22%.)
► On

the other hand, eight countries will
account for 50% of world population.

33

Consequences

► Labor

mobility across countries likely to be faster in
coming decades than now.

► Why

factors move?

►Capital
Long term movement-FDI
 Shifting manufacturing base
 Shifting services industry base
 Reform capital account convertibility
 Political stability
 Investor friendly policies
34

people
► 200

million ( approx 3% of worlds
population) have migrated not uniformly
all over the world.
► USA got high migration ( 11 % of
population of USA is made up immigrants
)
Two – third’s of UAE population consists of
temporary workers .
► Indonesian labor migrates to Malaysia
(huge- 10 times wage differential)

35

Impact
► Singapore transformed from low-wage
► Labor-intensive to high-wage capital intensive

economy ( due to high capital inflow )

► Trade

and factor mobility
Factor movement
From abundant area to scare area. (eg,maxicon
labor to USA.)

Complementarity
Complementary products-needs equipment. This
happens through foreign investment.
36

Flexible and small scale population
► Services

growing much faster than
manufacturing .
( change in consumption pattern in fast
growing economies)

Many services can be provided by small scale
units.
They have flexibility in labor employment too.
37

38

39

40

41

42


Slide 11

UNIT-1
► GLOBALIZATION
► TRADE

PATTERNS

 THEORIES
1. IPLC
2. FACTOR MOBILITY
COMPARISON OF IPLC AND FACTOR MOBILITY THEORIES.

1

Globalization
1. A holistic approach covers the following aspects:
a. Economic
b. Financial
c. Political
d. Cultural
All the above aspects/factors interact with each
other.
[See Joshi (2011), fig.1.3, p.9]

2

3

2.

Economic globalization has the following five
major components/aspects:
Production
b. Markets
c. Competition
d. Technology
e. Corporations & Industry
All the components work in an interactive manner.
a.

[See Joshi (2011), fig.1.5, p.13]

4

5

3. Movers and Restraining Factors:
3.1. Factors that give impetus to globalization or movers:
a. Economic liberalization
b. Technical break through

Manufacturing
► Transportation
► Information & Communication.
►

c.
d.
e.
f.
g.
h.

Multilateral institutions.
Interventional economic integration.
Move towards free market systems.
Rising R&D costs.
Advents in logistic management.
Emergence of global customer segments.

3.2. Factors that restrain globalization or restraining factors:
Regulatory controls
Emerging new trade barriers.
Cultural factors
Nationalism
e. Wards and civil disturbances.
f. Management myopia.
a.
b.
c.
d.

How much globalization proceeds/progresses depends on the relative strength of
6
factors in 3.1 and 3.2.
[See Joshi (2011), fig.1.6, pg.16]

7

Globalization: A TYPICAL MODERN IMAGE
Conspicuously seen in terms of
 Westernization
 Americanization

Some of the popular examples are:





Walmartization
Cocacolination
Disneyfication
Mc Donalization

1. Walmartization*
Walmart – US Retail Chain
Walmart Effect
 Keeping small competitors out
 Driving down wages
 Keeping inflation low
 Keeping productivity high

2. Cocacolination
Perceived as an invasion of cultural
values.

It has a conservative image as reflected in
 Firm cutting down costs
 Favoring policy of
►
►

*

Cutting down taxes
Keeping welfare state competitive

See Charles Fishman: Walmart Effect

8

3. Walmartization
See George Ritzer (1995)

[MacDonaldization of Society]
Four Dimensions of fast food restaurant:

i. Efficiency: Best mode of production with little scope of individuality.
ii. Calculability: Quantifiable Objective :
- Sale
- Focus on Quantity (big MAC, not so much quality)
iii. Predictability: Uniform Production Process.
iv. Control: Substitution of non-human technologies for human labour.(System of
“Iron Cage” – same principle governs all Institutions).

Criticism:

(a) Irrationality – Every worker performs highly rationalized task leading to
workers’ “Burn Out”.
(b) Deskilling: Workers perform repetitive tasks – cheap training of workers.
workers can be replaced easily.

4. Disneyfication

What is signified? Society dedicated to

i. Themes
ii. Huge consumption
iii. Emotion based labor.
(also signifies a diluted version of original form)

9

INTERNATIONAL PRODUCT LIFE CYCLE THEORY (IPCL)
ISSUES:
1.

Do international markets follow a cyclical Pattern? Why?
What does it explain?
- Shift in markets.
- Shift in production location.

2.

What factors are behind the phenomenon? Does it explain
trade patterns?
- Level of innovation and technology.
- Quantum & Quality of Resources.
- Size of market.
- Competitive structure.
10

IPCL: Four Stages:
What Determines these stages?

Difference/gap in technology between countries/economies.
► Ability (purchasing power) of customers.
► Preferences of customers.
►

Innovation:
What Makes it Effective?

If domestic market is big – economies of scale – cost efficiency
– international competition – (US, China, India): Big markets but
their innovative capacity and technology levels differ.
► Innovation but no big domestic market:
►

How to achieve economies of scale? Set up marketing and production
facilities outside the country.

11

What are the critical factors for expanding into international market?
► Innovative capacity, level of technology
► Scope of economies
► Achieving economies of scale
►
►
►

The innovating firm starts looking for establishing production base in
other high income countries.
When this is successful, these countries (where production base is
established) start exporting to the innovating country.
International competition increases

12

Stages of International Product Life Cycle.
See exhibit and interpret:
In each column, start moving down and interpret against the row title.
Try matching the movements of three types of curves.

13

14

Stage 1: Introduction:Advanced countries – Innovation for new product.




Lot of resources required for R&D.
Initially price of new product is high.
Hence search for markets for new product in high income countries.

Stage 2: Growth:



Search for other developed markets for exports.
Globalization
Trade patterns
Theories
 IPLC
 Factor Mobility
 Comparison.
15

Note & Interpret:
(i)
(ii)

Opposite movements of curves representing high income
countries.
Testes and preferences change in low income countries also.
They too start importing new product.

Stage 3: Maturity:
By now technical know-how is known to many countries. The
innovating country starts setting up production facility in the
third world (low income developing) economies by taking
advantage of low wages in the latter.
► Imports of low income countries decline as the domestic
production of this product increases.
►

Stage 4: Decline:
►

What is the marketing strategy at this stage? Production shifts
even to least developing countries – innovating country imports
from these countries
16

Examples:
i.

ii.

UK was largest manufacturer and exporter of bicycles. Bicycle
industry declined in UK. This industry emerged in low income
countries, including India.
Developed countries shift environmentally hazardous industries to
low income countries.

17

18

Criticism of IPCL Theory:
It explains the emerging pattern of international market. This was ok
earlier. Now information about prices, technology and preferences travels
across the globe. The product may be launched by the innovating country
simultaneously in several countries.

[Discuss Maruti Suzuki case. Japanese company, Suzuki, is an innovating
company. The latter established manufacturing base in India. India first
imported Maruti Suzuki Standard -800 Model. After the product gained
maturity and popularity, Maruti Suzuki Exports Cars to several developed
and semi developed countries. The time has come when India may also
base manufacturing facilities in other least developing countries].

19

Theory of Competitive Advantage


Porter–Diamond Theory:
(Michael Porter, 1990, The competitive advantage of nations).



Main focus is on Domestic Environment.
Contrast it with IPCL. – which lays emphasis on innovation/invention
and looks forward to off-shore investment/production.
Diamond? See four blocks/diamonds The interaction of these explains
and determines the trade competitive advantage of a country. See
arrows in diagram.
4 Diamonds – Blocks:






a) Factor input – Natural & Creaed
b) Demand conditions.
 Greater is the sophistication in demand conditions, more demanding the
consumer is – product quality – better service – change in preferences – (Global
exposure…).

20

c) Related and supporting industries
 Development of ancillary industry (as in auto industry).
 Strong supply chain management.
 Development of industrial clusters.
For example:
IT – Banglore,
Textiles – Tirupur
Metal Handicraft – Moradabad

d) Firm Strategy, Structure & Rivalry






Transformation of family enterprise.
Competition policy
Incentive structure
Global exposure
Domestic rivalry (competition?)
21

22

Summary


IPCL: Explains Sifts in





Theory of competitive advantage: To explain national competitiveness, it focuses
on:








Trade Patterns
Manufacturing base

Environmental factors (factor conditions)
Demand conditions
Related supporting industries
Firm strategy, structure, etc.
Degree of competition (Rivalry, etc).

Merit of above theoretical models:
They help provide basis for:
 Principles for regulatory framework.
 Preparing trade promotion strategies to national as well as international Govt./Bodies. The
relative advantage may vary across countries.

23

24

DISCUSS TWO CASE STUDIES ATTACHED

25

CASE STUDY 1
► CHIP

INDUSTRY

26

27

28

29

30

CASE STUDY 2
► Factor

mobility :TCS-case study

31

Factor mobility theory
► Daniels

et.al
See page no. 247-259

32

Supplementary notes
► Biggest

change being observed is the
demographic one.
► By 2050 – 033 countries will have lower
population than their present population
due to lower fertility ( lower than
population ranging from 14% to 22%.)
► On

the other hand, eight countries will
account for 50% of world population.

33

Consequences

► Labor

mobility across countries likely to be faster in
coming decades than now.

► Why

factors move?

►Capital
Long term movement-FDI
 Shifting manufacturing base
 Shifting services industry base
 Reform capital account convertibility
 Political stability
 Investor friendly policies
34

people
► 200

million ( approx 3% of worlds
population) have migrated not uniformly
all over the world.
► USA got high migration ( 11 % of
population of USA is made up immigrants
)
Two – third’s of UAE population consists of
temporary workers .
► Indonesian labor migrates to Malaysia
(huge- 10 times wage differential)

35

Impact
► Singapore transformed from low-wage
► Labor-intensive to high-wage capital intensive

economy ( due to high capital inflow )

► Trade

and factor mobility
Factor movement
From abundant area to scare area. (eg,maxicon
labor to USA.)

Complementarity
Complementary products-needs equipment. This
happens through foreign investment.
36

Flexible and small scale population
► Services

growing much faster than
manufacturing .
( change in consumption pattern in fast
growing economies)

Many services can be provided by small scale
units.
They have flexibility in labor employment too.
37

38

39

40

41

42


Slide 12

UNIT-1
► GLOBALIZATION
► TRADE

PATTERNS

 THEORIES
1. IPLC
2. FACTOR MOBILITY
COMPARISON OF IPLC AND FACTOR MOBILITY THEORIES.

1

Globalization
1. A holistic approach covers the following aspects:
a. Economic
b. Financial
c. Political
d. Cultural
All the above aspects/factors interact with each
other.
[See Joshi (2011), fig.1.3, p.9]

2

3

2.

Economic globalization has the following five
major components/aspects:
Production
b. Markets
c. Competition
d. Technology
e. Corporations & Industry
All the components work in an interactive manner.
a.

[See Joshi (2011), fig.1.5, p.13]

4

5

3. Movers and Restraining Factors:
3.1. Factors that give impetus to globalization or movers:
a. Economic liberalization
b. Technical break through

Manufacturing
► Transportation
► Information & Communication.
►

c.
d.
e.
f.
g.
h.

Multilateral institutions.
Interventional economic integration.
Move towards free market systems.
Rising R&D costs.
Advents in logistic management.
Emergence of global customer segments.

3.2. Factors that restrain globalization or restraining factors:
Regulatory controls
Emerging new trade barriers.
Cultural factors
Nationalism
e. Wards and civil disturbances.
f. Management myopia.
a.
b.
c.
d.

How much globalization proceeds/progresses depends on the relative strength of
6
factors in 3.1 and 3.2.
[See Joshi (2011), fig.1.6, pg.16]

7

Globalization: A TYPICAL MODERN IMAGE
Conspicuously seen in terms of
 Westernization
 Americanization

Some of the popular examples are:





Walmartization
Cocacolination
Disneyfication
Mc Donalization

1. Walmartization*
Walmart – US Retail Chain
Walmart Effect
 Keeping small competitors out
 Driving down wages
 Keeping inflation low
 Keeping productivity high

2. Cocacolination
Perceived as an invasion of cultural
values.

It has a conservative image as reflected in
 Firm cutting down costs
 Favoring policy of
►
►

*

Cutting down taxes
Keeping welfare state competitive

See Charles Fishman: Walmart Effect

8

3. Walmartization
See George Ritzer (1995)

[MacDonaldization of Society]
Four Dimensions of fast food restaurant:

i. Efficiency: Best mode of production with little scope of individuality.
ii. Calculability: Quantifiable Objective :
- Sale
- Focus on Quantity (big MAC, not so much quality)
iii. Predictability: Uniform Production Process.
iv. Control: Substitution of non-human technologies for human labour.(System of
“Iron Cage” – same principle governs all Institutions).

Criticism:

(a) Irrationality – Every worker performs highly rationalized task leading to
workers’ “Burn Out”.
(b) Deskilling: Workers perform repetitive tasks – cheap training of workers.
workers can be replaced easily.

4. Disneyfication

What is signified? Society dedicated to

i. Themes
ii. Huge consumption
iii. Emotion based labor.
(also signifies a diluted version of original form)

9

INTERNATIONAL PRODUCT LIFE CYCLE THEORY (IPCL)
ISSUES:
1.

Do international markets follow a cyclical Pattern? Why?
What does it explain?
- Shift in markets.
- Shift in production location.

2.

What factors are behind the phenomenon? Does it explain
trade patterns?
- Level of innovation and technology.
- Quantum & Quality of Resources.
- Size of market.
- Competitive structure.
10

IPCL: Four Stages:
What Determines these stages?

Difference/gap in technology between countries/economies.
► Ability (purchasing power) of customers.
► Preferences of customers.
►

Innovation:
What Makes it Effective?

If domestic market is big – economies of scale – cost efficiency
– international competition – (US, China, India): Big markets but
their innovative capacity and technology levels differ.
► Innovation but no big domestic market:
►

How to achieve economies of scale? Set up marketing and production
facilities outside the country.

11

What are the critical factors for expanding into international market?
► Innovative capacity, level of technology
► Scope of economies
► Achieving economies of scale
►
►
►

The innovating firm starts looking for establishing production base in
other high income countries.
When this is successful, these countries (where production base is
established) start exporting to the innovating country.
International competition increases

12

Stages of International Product Life Cycle.
See exhibit and interpret:
In each column, start moving down and interpret against the row title.
Try matching the movements of three types of curves.

13

14

Stage 1: Introduction:Advanced countries – Innovation for new product.




Lot of resources required for R&D.
Initially price of new product is high.
Hence search for markets for new product in high income countries.

Stage 2: Growth:



Search for other developed markets for exports.
Globalization
Trade patterns
Theories
 IPLC
 Factor Mobility
 Comparison.
15

Note & Interpret:
(i)
(ii)

Opposite movements of curves representing high income
countries.
Testes and preferences change in low income countries also.
They too start importing new product.

Stage 3: Maturity:
By now technical know-how is known to many countries. The
innovating country starts setting up production facility in the
third world (low income developing) economies by taking
advantage of low wages in the latter.
► Imports of low income countries decline as the domestic
production of this product increases.
►

Stage 4: Decline:
►

What is the marketing strategy at this stage? Production shifts
even to least developing countries – innovating country imports
from these countries
16

Examples:
i.

ii.

UK was largest manufacturer and exporter of bicycles. Bicycle
industry declined in UK. This industry emerged in low income
countries, including India.
Developed countries shift environmentally hazardous industries to
low income countries.

17

18

Criticism of IPCL Theory:
It explains the emerging pattern of international market. This was ok
earlier. Now information about prices, technology and preferences travels
across the globe. The product may be launched by the innovating country
simultaneously in several countries.

[Discuss Maruti Suzuki case. Japanese company, Suzuki, is an innovating
company. The latter established manufacturing base in India. India first
imported Maruti Suzuki Standard -800 Model. After the product gained
maturity and popularity, Maruti Suzuki Exports Cars to several developed
and semi developed countries. The time has come when India may also
base manufacturing facilities in other least developing countries].

19

Theory of Competitive Advantage


Porter–Diamond Theory:
(Michael Porter, 1990, The competitive advantage of nations).



Main focus is on Domestic Environment.
Contrast it with IPCL. – which lays emphasis on innovation/invention
and looks forward to off-shore investment/production.
Diamond? See four blocks/diamonds The interaction of these explains
and determines the trade competitive advantage of a country. See
arrows in diagram.
4 Diamonds – Blocks:






a) Factor input – Natural & Creaed
b) Demand conditions.
 Greater is the sophistication in demand conditions, more demanding the
consumer is – product quality – better service – change in preferences – (Global
exposure…).

20

c) Related and supporting industries
 Development of ancillary industry (as in auto industry).
 Strong supply chain management.
 Development of industrial clusters.
For example:
IT – Banglore,
Textiles – Tirupur
Metal Handicraft – Moradabad

d) Firm Strategy, Structure & Rivalry






Transformation of family enterprise.
Competition policy
Incentive structure
Global exposure
Domestic rivalry (competition?)
21

22

Summary


IPCL: Explains Sifts in





Theory of competitive advantage: To explain national competitiveness, it focuses
on:








Trade Patterns
Manufacturing base

Environmental factors (factor conditions)
Demand conditions
Related supporting industries
Firm strategy, structure, etc.
Degree of competition (Rivalry, etc).

Merit of above theoretical models:
They help provide basis for:
 Principles for regulatory framework.
 Preparing trade promotion strategies to national as well as international Govt./Bodies. The
relative advantage may vary across countries.

23

24

DISCUSS TWO CASE STUDIES ATTACHED

25

CASE STUDY 1
► CHIP

INDUSTRY

26

27

28

29

30

CASE STUDY 2
► Factor

mobility :TCS-case study

31

Factor mobility theory
► Daniels

et.al
See page no. 247-259

32

Supplementary notes
► Biggest

change being observed is the
demographic one.
► By 2050 – 033 countries will have lower
population than their present population
due to lower fertility ( lower than
population ranging from 14% to 22%.)
► On

the other hand, eight countries will
account for 50% of world population.

33

Consequences

► Labor

mobility across countries likely to be faster in
coming decades than now.

► Why

factors move?

►Capital
Long term movement-FDI
 Shifting manufacturing base
 Shifting services industry base
 Reform capital account convertibility
 Political stability
 Investor friendly policies
34

people
► 200

million ( approx 3% of worlds
population) have migrated not uniformly
all over the world.
► USA got high migration ( 11 % of
population of USA is made up immigrants
)
Two – third’s of UAE population consists of
temporary workers .
► Indonesian labor migrates to Malaysia
(huge- 10 times wage differential)

35

Impact
► Singapore transformed from low-wage
► Labor-intensive to high-wage capital intensive

economy ( due to high capital inflow )

► Trade

and factor mobility
Factor movement
From abundant area to scare area. (eg,maxicon
labor to USA.)

Complementarity
Complementary products-needs equipment. This
happens through foreign investment.
36

Flexible and small scale population
► Services

growing much faster than
manufacturing .
( change in consumption pattern in fast
growing economies)

Many services can be provided by small scale
units.
They have flexibility in labor employment too.
37

38

39

40

41

42


Slide 13

UNIT-1
► GLOBALIZATION
► TRADE

PATTERNS

 THEORIES
1. IPLC
2. FACTOR MOBILITY
COMPARISON OF IPLC AND FACTOR MOBILITY THEORIES.

1

Globalization
1. A holistic approach covers the following aspects:
a. Economic
b. Financial
c. Political
d. Cultural
All the above aspects/factors interact with each
other.
[See Joshi (2011), fig.1.3, p.9]

2

3

2.

Economic globalization has the following five
major components/aspects:
Production
b. Markets
c. Competition
d. Technology
e. Corporations & Industry
All the components work in an interactive manner.
a.

[See Joshi (2011), fig.1.5, p.13]

4

5

3. Movers and Restraining Factors:
3.1. Factors that give impetus to globalization or movers:
a. Economic liberalization
b. Technical break through

Manufacturing
► Transportation
► Information & Communication.
►

c.
d.
e.
f.
g.
h.

Multilateral institutions.
Interventional economic integration.
Move towards free market systems.
Rising R&D costs.
Advents in logistic management.
Emergence of global customer segments.

3.2. Factors that restrain globalization or restraining factors:
Regulatory controls
Emerging new trade barriers.
Cultural factors
Nationalism
e. Wards and civil disturbances.
f. Management myopia.
a.
b.
c.
d.

How much globalization proceeds/progresses depends on the relative strength of
6
factors in 3.1 and 3.2.
[See Joshi (2011), fig.1.6, pg.16]

7

Globalization: A TYPICAL MODERN IMAGE
Conspicuously seen in terms of
 Westernization
 Americanization

Some of the popular examples are:





Walmartization
Cocacolination
Disneyfication
Mc Donalization

1. Walmartization*
Walmart – US Retail Chain
Walmart Effect
 Keeping small competitors out
 Driving down wages
 Keeping inflation low
 Keeping productivity high

2. Cocacolination
Perceived as an invasion of cultural
values.

It has a conservative image as reflected in
 Firm cutting down costs
 Favoring policy of
►
►

*

Cutting down taxes
Keeping welfare state competitive

See Charles Fishman: Walmart Effect

8

3. Walmartization
See George Ritzer (1995)

[MacDonaldization of Society]
Four Dimensions of fast food restaurant:

i. Efficiency: Best mode of production with little scope of individuality.
ii. Calculability: Quantifiable Objective :
- Sale
- Focus on Quantity (big MAC, not so much quality)
iii. Predictability: Uniform Production Process.
iv. Control: Substitution of non-human technologies for human labour.(System of
“Iron Cage” – same principle governs all Institutions).

Criticism:

(a) Irrationality – Every worker performs highly rationalized task leading to
workers’ “Burn Out”.
(b) Deskilling: Workers perform repetitive tasks – cheap training of workers.
workers can be replaced easily.

4. Disneyfication

What is signified? Society dedicated to

i. Themes
ii. Huge consumption
iii. Emotion based labor.
(also signifies a diluted version of original form)

9

INTERNATIONAL PRODUCT LIFE CYCLE THEORY (IPCL)
ISSUES:
1.

Do international markets follow a cyclical Pattern? Why?
What does it explain?
- Shift in markets.
- Shift in production location.

2.

What factors are behind the phenomenon? Does it explain
trade patterns?
- Level of innovation and technology.
- Quantum & Quality of Resources.
- Size of market.
- Competitive structure.
10

IPCL: Four Stages:
What Determines these stages?

Difference/gap in technology between countries/economies.
► Ability (purchasing power) of customers.
► Preferences of customers.
►

Innovation:
What Makes it Effective?

If domestic market is big – economies of scale – cost efficiency
– international competition – (US, China, India): Big markets but
their innovative capacity and technology levels differ.
► Innovation but no big domestic market:
►

How to achieve economies of scale? Set up marketing and production
facilities outside the country.

11

What are the critical factors for expanding into international market?
► Innovative capacity, level of technology
► Scope of economies
► Achieving economies of scale
►
►
►

The innovating firm starts looking for establishing production base in
other high income countries.
When this is successful, these countries (where production base is
established) start exporting to the innovating country.
International competition increases

12

Stages of International Product Life Cycle.
See exhibit and interpret:
In each column, start moving down and interpret against the row title.
Try matching the movements of three types of curves.

13

14

Stage 1: Introduction:Advanced countries – Innovation for new product.




Lot of resources required for R&D.
Initially price of new product is high.
Hence search for markets for new product in high income countries.

Stage 2: Growth:



Search for other developed markets for exports.
Globalization
Trade patterns
Theories
 IPLC
 Factor Mobility
 Comparison.
15

Note & Interpret:
(i)
(ii)

Opposite movements of curves representing high income
countries.
Testes and preferences change in low income countries also.
They too start importing new product.

Stage 3: Maturity:
By now technical know-how is known to many countries. The
innovating country starts setting up production facility in the
third world (low income developing) economies by taking
advantage of low wages in the latter.
► Imports of low income countries decline as the domestic
production of this product increases.
►

Stage 4: Decline:
►

What is the marketing strategy at this stage? Production shifts
even to least developing countries – innovating country imports
from these countries
16

Examples:
i.

ii.

UK was largest manufacturer and exporter of bicycles. Bicycle
industry declined in UK. This industry emerged in low income
countries, including India.
Developed countries shift environmentally hazardous industries to
low income countries.

17

18

Criticism of IPCL Theory:
It explains the emerging pattern of international market. This was ok
earlier. Now information about prices, technology and preferences travels
across the globe. The product may be launched by the innovating country
simultaneously in several countries.

[Discuss Maruti Suzuki case. Japanese company, Suzuki, is an innovating
company. The latter established manufacturing base in India. India first
imported Maruti Suzuki Standard -800 Model. After the product gained
maturity and popularity, Maruti Suzuki Exports Cars to several developed
and semi developed countries. The time has come when India may also
base manufacturing facilities in other least developing countries].

19

Theory of Competitive Advantage


Porter–Diamond Theory:
(Michael Porter, 1990, The competitive advantage of nations).



Main focus is on Domestic Environment.
Contrast it with IPCL. – which lays emphasis on innovation/invention
and looks forward to off-shore investment/production.
Diamond? See four blocks/diamonds The interaction of these explains
and determines the trade competitive advantage of a country. See
arrows in diagram.
4 Diamonds – Blocks:






a) Factor input – Natural & Creaed
b) Demand conditions.
 Greater is the sophistication in demand conditions, more demanding the
consumer is – product quality – better service – change in preferences – (Global
exposure…).

20

c) Related and supporting industries
 Development of ancillary industry (as in auto industry).
 Strong supply chain management.
 Development of industrial clusters.
For example:
IT – Banglore,
Textiles – Tirupur
Metal Handicraft – Moradabad

d) Firm Strategy, Structure & Rivalry






Transformation of family enterprise.
Competition policy
Incentive structure
Global exposure
Domestic rivalry (competition?)
21

22

Summary


IPCL: Explains Sifts in





Theory of competitive advantage: To explain national competitiveness, it focuses
on:








Trade Patterns
Manufacturing base

Environmental factors (factor conditions)
Demand conditions
Related supporting industries
Firm strategy, structure, etc.
Degree of competition (Rivalry, etc).

Merit of above theoretical models:
They help provide basis for:
 Principles for regulatory framework.
 Preparing trade promotion strategies to national as well as international Govt./Bodies. The
relative advantage may vary across countries.

23

24

DISCUSS TWO CASE STUDIES ATTACHED

25

CASE STUDY 1
► CHIP

INDUSTRY

26

27

28

29

30

CASE STUDY 2
► Factor

mobility :TCS-case study

31

Factor mobility theory
► Daniels

et.al
See page no. 247-259

32

Supplementary notes
► Biggest

change being observed is the
demographic one.
► By 2050 – 033 countries will have lower
population than their present population
due to lower fertility ( lower than
population ranging from 14% to 22%.)
► On

the other hand, eight countries will
account for 50% of world population.

33

Consequences

► Labor

mobility across countries likely to be faster in
coming decades than now.

► Why

factors move?

►Capital
Long term movement-FDI
 Shifting manufacturing base
 Shifting services industry base
 Reform capital account convertibility
 Political stability
 Investor friendly policies
34

people
► 200

million ( approx 3% of worlds
population) have migrated not uniformly
all over the world.
► USA got high migration ( 11 % of
population of USA is made up immigrants
)
Two – third’s of UAE population consists of
temporary workers .
► Indonesian labor migrates to Malaysia
(huge- 10 times wage differential)

35

Impact
► Singapore transformed from low-wage
► Labor-intensive to high-wage capital intensive

economy ( due to high capital inflow )

► Trade

and factor mobility
Factor movement
From abundant area to scare area. (eg,maxicon
labor to USA.)

Complementarity
Complementary products-needs equipment. This
happens through foreign investment.
36

Flexible and small scale population
► Services

growing much faster than
manufacturing .
( change in consumption pattern in fast
growing economies)

Many services can be provided by small scale
units.
They have flexibility in labor employment too.
37

38

39

40

41

42


Slide 14

UNIT-1
► GLOBALIZATION
► TRADE

PATTERNS

 THEORIES
1. IPLC
2. FACTOR MOBILITY
COMPARISON OF IPLC AND FACTOR MOBILITY THEORIES.

1

Globalization
1. A holistic approach covers the following aspects:
a. Economic
b. Financial
c. Political
d. Cultural
All the above aspects/factors interact with each
other.
[See Joshi (2011), fig.1.3, p.9]

2

3

2.

Economic globalization has the following five
major components/aspects:
Production
b. Markets
c. Competition
d. Technology
e. Corporations & Industry
All the components work in an interactive manner.
a.

[See Joshi (2011), fig.1.5, p.13]

4

5

3. Movers and Restraining Factors:
3.1. Factors that give impetus to globalization or movers:
a. Economic liberalization
b. Technical break through

Manufacturing
► Transportation
► Information & Communication.
►

c.
d.
e.
f.
g.
h.

Multilateral institutions.
Interventional economic integration.
Move towards free market systems.
Rising R&D costs.
Advents in logistic management.
Emergence of global customer segments.

3.2. Factors that restrain globalization or restraining factors:
Regulatory controls
Emerging new trade barriers.
Cultural factors
Nationalism
e. Wards and civil disturbances.
f. Management myopia.
a.
b.
c.
d.

How much globalization proceeds/progresses depends on the relative strength of
6
factors in 3.1 and 3.2.
[See Joshi (2011), fig.1.6, pg.16]

7

Globalization: A TYPICAL MODERN IMAGE
Conspicuously seen in terms of
 Westernization
 Americanization

Some of the popular examples are:





Walmartization
Cocacolination
Disneyfication
Mc Donalization

1. Walmartization*
Walmart – US Retail Chain
Walmart Effect
 Keeping small competitors out
 Driving down wages
 Keeping inflation low
 Keeping productivity high

2. Cocacolination
Perceived as an invasion of cultural
values.

It has a conservative image as reflected in
 Firm cutting down costs
 Favoring policy of
►
►

*

Cutting down taxes
Keeping welfare state competitive

See Charles Fishman: Walmart Effect

8

3. Walmartization
See George Ritzer (1995)

[MacDonaldization of Society]
Four Dimensions of fast food restaurant:

i. Efficiency: Best mode of production with little scope of individuality.
ii. Calculability: Quantifiable Objective :
- Sale
- Focus on Quantity (big MAC, not so much quality)
iii. Predictability: Uniform Production Process.
iv. Control: Substitution of non-human technologies for human labour.(System of
“Iron Cage” – same principle governs all Institutions).

Criticism:

(a) Irrationality – Every worker performs highly rationalized task leading to
workers’ “Burn Out”.
(b) Deskilling: Workers perform repetitive tasks – cheap training of workers.
workers can be replaced easily.

4. Disneyfication

What is signified? Society dedicated to

i. Themes
ii. Huge consumption
iii. Emotion based labor.
(also signifies a diluted version of original form)

9

INTERNATIONAL PRODUCT LIFE CYCLE THEORY (IPCL)
ISSUES:
1.

Do international markets follow a cyclical Pattern? Why?
What does it explain?
- Shift in markets.
- Shift in production location.

2.

What factors are behind the phenomenon? Does it explain
trade patterns?
- Level of innovation and technology.
- Quantum & Quality of Resources.
- Size of market.
- Competitive structure.
10

IPCL: Four Stages:
What Determines these stages?

Difference/gap in technology between countries/economies.
► Ability (purchasing power) of customers.
► Preferences of customers.
►

Innovation:
What Makes it Effective?

If domestic market is big – economies of scale – cost efficiency
– international competition – (US, China, India): Big markets but
their innovative capacity and technology levels differ.
► Innovation but no big domestic market:
►

How to achieve economies of scale? Set up marketing and production
facilities outside the country.

11

What are the critical factors for expanding into international market?
► Innovative capacity, level of technology
► Scope of economies
► Achieving economies of scale
►
►
►

The innovating firm starts looking for establishing production base in
other high income countries.
When this is successful, these countries (where production base is
established) start exporting to the innovating country.
International competition increases

12

Stages of International Product Life Cycle.
See exhibit and interpret:
In each column, start moving down and interpret against the row title.
Try matching the movements of three types of curves.

13

14

Stage 1: Introduction:Advanced countries – Innovation for new product.




Lot of resources required for R&D.
Initially price of new product is high.
Hence search for markets for new product in high income countries.

Stage 2: Growth:



Search for other developed markets for exports.
Globalization
Trade patterns
Theories
 IPLC
 Factor Mobility
 Comparison.
15

Note & Interpret:
(i)
(ii)

Opposite movements of curves representing high income
countries.
Testes and preferences change in low income countries also.
They too start importing new product.

Stage 3: Maturity:
By now technical know-how is known to many countries. The
innovating country starts setting up production facility in the
third world (low income developing) economies by taking
advantage of low wages in the latter.
► Imports of low income countries decline as the domestic
production of this product increases.
►

Stage 4: Decline:
►

What is the marketing strategy at this stage? Production shifts
even to least developing countries – innovating country imports
from these countries
16

Examples:
i.

ii.

UK was largest manufacturer and exporter of bicycles. Bicycle
industry declined in UK. This industry emerged in low income
countries, including India.
Developed countries shift environmentally hazardous industries to
low income countries.

17

18

Criticism of IPCL Theory:
It explains the emerging pattern of international market. This was ok
earlier. Now information about prices, technology and preferences travels
across the globe. The product may be launched by the innovating country
simultaneously in several countries.

[Discuss Maruti Suzuki case. Japanese company, Suzuki, is an innovating
company. The latter established manufacturing base in India. India first
imported Maruti Suzuki Standard -800 Model. After the product gained
maturity and popularity, Maruti Suzuki Exports Cars to several developed
and semi developed countries. The time has come when India may also
base manufacturing facilities in other least developing countries].

19

Theory of Competitive Advantage


Porter–Diamond Theory:
(Michael Porter, 1990, The competitive advantage of nations).



Main focus is on Domestic Environment.
Contrast it with IPCL. – which lays emphasis on innovation/invention
and looks forward to off-shore investment/production.
Diamond? See four blocks/diamonds The interaction of these explains
and determines the trade competitive advantage of a country. See
arrows in diagram.
4 Diamonds – Blocks:






a) Factor input – Natural & Creaed
b) Demand conditions.
 Greater is the sophistication in demand conditions, more demanding the
consumer is – product quality – better service – change in preferences – (Global
exposure…).

20

c) Related and supporting industries
 Development of ancillary industry (as in auto industry).
 Strong supply chain management.
 Development of industrial clusters.
For example:
IT – Banglore,
Textiles – Tirupur
Metal Handicraft – Moradabad

d) Firm Strategy, Structure & Rivalry






Transformation of family enterprise.
Competition policy
Incentive structure
Global exposure
Domestic rivalry (competition?)
21

22

Summary


IPCL: Explains Sifts in





Theory of competitive advantage: To explain national competitiveness, it focuses
on:








Trade Patterns
Manufacturing base

Environmental factors (factor conditions)
Demand conditions
Related supporting industries
Firm strategy, structure, etc.
Degree of competition (Rivalry, etc).

Merit of above theoretical models:
They help provide basis for:
 Principles for regulatory framework.
 Preparing trade promotion strategies to national as well as international Govt./Bodies. The
relative advantage may vary across countries.

23

24

DISCUSS TWO CASE STUDIES ATTACHED

25

CASE STUDY 1
► CHIP

INDUSTRY

26

27

28

29

30

CASE STUDY 2
► Factor

mobility :TCS-case study

31

Factor mobility theory
► Daniels

et.al
See page no. 247-259

32

Supplementary notes
► Biggest

change being observed is the
demographic one.
► By 2050 – 033 countries will have lower
population than their present population
due to lower fertility ( lower than
population ranging from 14% to 22%.)
► On

the other hand, eight countries will
account for 50% of world population.

33

Consequences

► Labor

mobility across countries likely to be faster in
coming decades than now.

► Why

factors move?

►Capital
Long term movement-FDI
 Shifting manufacturing base
 Shifting services industry base
 Reform capital account convertibility
 Political stability
 Investor friendly policies
34

people
► 200

million ( approx 3% of worlds
population) have migrated not uniformly
all over the world.
► USA got high migration ( 11 % of
population of USA is made up immigrants
)
Two – third’s of UAE population consists of
temporary workers .
► Indonesian labor migrates to Malaysia
(huge- 10 times wage differential)

35

Impact
► Singapore transformed from low-wage
► Labor-intensive to high-wage capital intensive

economy ( due to high capital inflow )

► Trade

and factor mobility
Factor movement
From abundant area to scare area. (eg,maxicon
labor to USA.)

Complementarity
Complementary products-needs equipment. This
happens through foreign investment.
36

Flexible and small scale population
► Services

growing much faster than
manufacturing .
( change in consumption pattern in fast
growing economies)

Many services can be provided by small scale
units.
They have flexibility in labor employment too.
37

38

39

40

41

42


Slide 15

UNIT-1
► GLOBALIZATION
► TRADE

PATTERNS

 THEORIES
1. IPLC
2. FACTOR MOBILITY
COMPARISON OF IPLC AND FACTOR MOBILITY THEORIES.

1

Globalization
1. A holistic approach covers the following aspects:
a. Economic
b. Financial
c. Political
d. Cultural
All the above aspects/factors interact with each
other.
[See Joshi (2011), fig.1.3, p.9]

2

3

2.

Economic globalization has the following five
major components/aspects:
Production
b. Markets
c. Competition
d. Technology
e. Corporations & Industry
All the components work in an interactive manner.
a.

[See Joshi (2011), fig.1.5, p.13]

4

5

3. Movers and Restraining Factors:
3.1. Factors that give impetus to globalization or movers:
a. Economic liberalization
b. Technical break through

Manufacturing
► Transportation
► Information & Communication.
►

c.
d.
e.
f.
g.
h.

Multilateral institutions.
Interventional economic integration.
Move towards free market systems.
Rising R&D costs.
Advents in logistic management.
Emergence of global customer segments.

3.2. Factors that restrain globalization or restraining factors:
Regulatory controls
Emerging new trade barriers.
Cultural factors
Nationalism
e. Wards and civil disturbances.
f. Management myopia.
a.
b.
c.
d.

How much globalization proceeds/progresses depends on the relative strength of
6
factors in 3.1 and 3.2.
[See Joshi (2011), fig.1.6, pg.16]

7

Globalization: A TYPICAL MODERN IMAGE
Conspicuously seen in terms of
 Westernization
 Americanization

Some of the popular examples are:





Walmartization
Cocacolination
Disneyfication
Mc Donalization

1. Walmartization*
Walmart – US Retail Chain
Walmart Effect
 Keeping small competitors out
 Driving down wages
 Keeping inflation low
 Keeping productivity high

2. Cocacolination
Perceived as an invasion of cultural
values.

It has a conservative image as reflected in
 Firm cutting down costs
 Favoring policy of
►
►

*

Cutting down taxes
Keeping welfare state competitive

See Charles Fishman: Walmart Effect

8

3. Walmartization
See George Ritzer (1995)

[MacDonaldization of Society]
Four Dimensions of fast food restaurant:

i. Efficiency: Best mode of production with little scope of individuality.
ii. Calculability: Quantifiable Objective :
- Sale
- Focus on Quantity (big MAC, not so much quality)
iii. Predictability: Uniform Production Process.
iv. Control: Substitution of non-human technologies for human labour.(System of
“Iron Cage” – same principle governs all Institutions).

Criticism:

(a) Irrationality – Every worker performs highly rationalized task leading to
workers’ “Burn Out”.
(b) Deskilling: Workers perform repetitive tasks – cheap training of workers.
workers can be replaced easily.

4. Disneyfication

What is signified? Society dedicated to

i. Themes
ii. Huge consumption
iii. Emotion based labor.
(also signifies a diluted version of original form)

9

INTERNATIONAL PRODUCT LIFE CYCLE THEORY (IPCL)
ISSUES:
1.

Do international markets follow a cyclical Pattern? Why?
What does it explain?
- Shift in markets.
- Shift in production location.

2.

What factors are behind the phenomenon? Does it explain
trade patterns?
- Level of innovation and technology.
- Quantum & Quality of Resources.
- Size of market.
- Competitive structure.
10

IPCL: Four Stages:
What Determines these stages?

Difference/gap in technology between countries/economies.
► Ability (purchasing power) of customers.
► Preferences of customers.
►

Innovation:
What Makes it Effective?

If domestic market is big – economies of scale – cost efficiency
– international competition – (US, China, India): Big markets but
their innovative capacity and technology levels differ.
► Innovation but no big domestic market:
►

How to achieve economies of scale? Set up marketing and production
facilities outside the country.

11

What are the critical factors for expanding into international market?
► Innovative capacity, level of technology
► Scope of economies
► Achieving economies of scale
►
►
►

The innovating firm starts looking for establishing production base in
other high income countries.
When this is successful, these countries (where production base is
established) start exporting to the innovating country.
International competition increases

12

Stages of International Product Life Cycle.
See exhibit and interpret:
In each column, start moving down and interpret against the row title.
Try matching the movements of three types of curves.

13

14

Stage 1: Introduction:Advanced countries – Innovation for new product.




Lot of resources required for R&D.
Initially price of new product is high.
Hence search for markets for new product in high income countries.

Stage 2: Growth:



Search for other developed markets for exports.
Globalization
Trade patterns
Theories
 IPLC
 Factor Mobility
 Comparison.
15

Note & Interpret:
(i)
(ii)

Opposite movements of curves representing high income
countries.
Testes and preferences change in low income countries also.
They too start importing new product.

Stage 3: Maturity:
By now technical know-how is known to many countries. The
innovating country starts setting up production facility in the
third world (low income developing) economies by taking
advantage of low wages in the latter.
► Imports of low income countries decline as the domestic
production of this product increases.
►

Stage 4: Decline:
►

What is the marketing strategy at this stage? Production shifts
even to least developing countries – innovating country imports
from these countries
16

Examples:
i.

ii.

UK was largest manufacturer and exporter of bicycles. Bicycle
industry declined in UK. This industry emerged in low income
countries, including India.
Developed countries shift environmentally hazardous industries to
low income countries.

17

18

Criticism of IPCL Theory:
It explains the emerging pattern of international market. This was ok
earlier. Now information about prices, technology and preferences travels
across the globe. The product may be launched by the innovating country
simultaneously in several countries.

[Discuss Maruti Suzuki case. Japanese company, Suzuki, is an innovating
company. The latter established manufacturing base in India. India first
imported Maruti Suzuki Standard -800 Model. After the product gained
maturity and popularity, Maruti Suzuki Exports Cars to several developed
and semi developed countries. The time has come when India may also
base manufacturing facilities in other least developing countries].

19

Theory of Competitive Advantage


Porter–Diamond Theory:
(Michael Porter, 1990, The competitive advantage of nations).



Main focus is on Domestic Environment.
Contrast it with IPCL. – which lays emphasis on innovation/invention
and looks forward to off-shore investment/production.
Diamond? See four blocks/diamonds The interaction of these explains
and determines the trade competitive advantage of a country. See
arrows in diagram.
4 Diamonds – Blocks:






a) Factor input – Natural & Creaed
b) Demand conditions.
 Greater is the sophistication in demand conditions, more demanding the
consumer is – product quality – better service – change in preferences – (Global
exposure…).

20

c) Related and supporting industries
 Development of ancillary industry (as in auto industry).
 Strong supply chain management.
 Development of industrial clusters.
For example:
IT – Banglore,
Textiles – Tirupur
Metal Handicraft – Moradabad

d) Firm Strategy, Structure & Rivalry






Transformation of family enterprise.
Competition policy
Incentive structure
Global exposure
Domestic rivalry (competition?)
21

22

Summary


IPCL: Explains Sifts in





Theory of competitive advantage: To explain national competitiveness, it focuses
on:








Trade Patterns
Manufacturing base

Environmental factors (factor conditions)
Demand conditions
Related supporting industries
Firm strategy, structure, etc.
Degree of competition (Rivalry, etc).

Merit of above theoretical models:
They help provide basis for:
 Principles for regulatory framework.
 Preparing trade promotion strategies to national as well as international Govt./Bodies. The
relative advantage may vary across countries.

23

24

DISCUSS TWO CASE STUDIES ATTACHED

25

CASE STUDY 1
► CHIP

INDUSTRY

26

27

28

29

30

CASE STUDY 2
► Factor

mobility :TCS-case study

31

Factor mobility theory
► Daniels

et.al
See page no. 247-259

32

Supplementary notes
► Biggest

change being observed is the
demographic one.
► By 2050 – 033 countries will have lower
population than their present population
due to lower fertility ( lower than
population ranging from 14% to 22%.)
► On

the other hand, eight countries will
account for 50% of world population.

33

Consequences

► Labor

mobility across countries likely to be faster in
coming decades than now.

► Why

factors move?

►Capital
Long term movement-FDI
 Shifting manufacturing base
 Shifting services industry base
 Reform capital account convertibility
 Political stability
 Investor friendly policies
34

people
► 200

million ( approx 3% of worlds
population) have migrated not uniformly
all over the world.
► USA got high migration ( 11 % of
population of USA is made up immigrants
)
Two – third’s of UAE population consists of
temporary workers .
► Indonesian labor migrates to Malaysia
(huge- 10 times wage differential)

35

Impact
► Singapore transformed from low-wage
► Labor-intensive to high-wage capital intensive

economy ( due to high capital inflow )

► Trade

and factor mobility
Factor movement
From abundant area to scare area. (eg,maxicon
labor to USA.)

Complementarity
Complementary products-needs equipment. This
happens through foreign investment.
36

Flexible and small scale population
► Services

growing much faster than
manufacturing .
( change in consumption pattern in fast
growing economies)

Many services can be provided by small scale
units.
They have flexibility in labor employment too.
37

38

39

40

41

42


Slide 16

UNIT-1
► GLOBALIZATION
► TRADE

PATTERNS

 THEORIES
1. IPLC
2. FACTOR MOBILITY
COMPARISON OF IPLC AND FACTOR MOBILITY THEORIES.

1

Globalization
1. A holistic approach covers the following aspects:
a. Economic
b. Financial
c. Political
d. Cultural
All the above aspects/factors interact with each
other.
[See Joshi (2011), fig.1.3, p.9]

2

3

2.

Economic globalization has the following five
major components/aspects:
Production
b. Markets
c. Competition
d. Technology
e. Corporations & Industry
All the components work in an interactive manner.
a.

[See Joshi (2011), fig.1.5, p.13]

4

5

3. Movers and Restraining Factors:
3.1. Factors that give impetus to globalization or movers:
a. Economic liberalization
b. Technical break through

Manufacturing
► Transportation
► Information & Communication.
►

c.
d.
e.
f.
g.
h.

Multilateral institutions.
Interventional economic integration.
Move towards free market systems.
Rising R&D costs.
Advents in logistic management.
Emergence of global customer segments.

3.2. Factors that restrain globalization or restraining factors:
Regulatory controls
Emerging new trade barriers.
Cultural factors
Nationalism
e. Wards and civil disturbances.
f. Management myopia.
a.
b.
c.
d.

How much globalization proceeds/progresses depends on the relative strength of
6
factors in 3.1 and 3.2.
[See Joshi (2011), fig.1.6, pg.16]

7

Globalization: A TYPICAL MODERN IMAGE
Conspicuously seen in terms of
 Westernization
 Americanization

Some of the popular examples are:





Walmartization
Cocacolination
Disneyfication
Mc Donalization

1. Walmartization*
Walmart – US Retail Chain
Walmart Effect
 Keeping small competitors out
 Driving down wages
 Keeping inflation low
 Keeping productivity high

2. Cocacolination
Perceived as an invasion of cultural
values.

It has a conservative image as reflected in
 Firm cutting down costs
 Favoring policy of
►
►

*

Cutting down taxes
Keeping welfare state competitive

See Charles Fishman: Walmart Effect

8

3. Walmartization
See George Ritzer (1995)

[MacDonaldization of Society]
Four Dimensions of fast food restaurant:

i. Efficiency: Best mode of production with little scope of individuality.
ii. Calculability: Quantifiable Objective :
- Sale
- Focus on Quantity (big MAC, not so much quality)
iii. Predictability: Uniform Production Process.
iv. Control: Substitution of non-human technologies for human labour.(System of
“Iron Cage” – same principle governs all Institutions).

Criticism:

(a) Irrationality – Every worker performs highly rationalized task leading to
workers’ “Burn Out”.
(b) Deskilling: Workers perform repetitive tasks – cheap training of workers.
workers can be replaced easily.

4. Disneyfication

What is signified? Society dedicated to

i. Themes
ii. Huge consumption
iii. Emotion based labor.
(also signifies a diluted version of original form)

9

INTERNATIONAL PRODUCT LIFE CYCLE THEORY (IPCL)
ISSUES:
1.

Do international markets follow a cyclical Pattern? Why?
What does it explain?
- Shift in markets.
- Shift in production location.

2.

What factors are behind the phenomenon? Does it explain
trade patterns?
- Level of innovation and technology.
- Quantum & Quality of Resources.
- Size of market.
- Competitive structure.
10

IPCL: Four Stages:
What Determines these stages?

Difference/gap in technology between countries/economies.
► Ability (purchasing power) of customers.
► Preferences of customers.
►

Innovation:
What Makes it Effective?

If domestic market is big – economies of scale – cost efficiency
– international competition – (US, China, India): Big markets but
their innovative capacity and technology levels differ.
► Innovation but no big domestic market:
►

How to achieve economies of scale? Set up marketing and production
facilities outside the country.

11

What are the critical factors for expanding into international market?
► Innovative capacity, level of technology
► Scope of economies
► Achieving economies of scale
►
►
►

The innovating firm starts looking for establishing production base in
other high income countries.
When this is successful, these countries (where production base is
established) start exporting to the innovating country.
International competition increases

12

Stages of International Product Life Cycle.
See exhibit and interpret:
In each column, start moving down and interpret against the row title.
Try matching the movements of three types of curves.

13

14

Stage 1: Introduction:Advanced countries – Innovation for new product.




Lot of resources required for R&D.
Initially price of new product is high.
Hence search for markets for new product in high income countries.

Stage 2: Growth:



Search for other developed markets for exports.
Globalization
Trade patterns
Theories
 IPLC
 Factor Mobility
 Comparison.
15

Note & Interpret:
(i)
(ii)

Opposite movements of curves representing high income
countries.
Testes and preferences change in low income countries also.
They too start importing new product.

Stage 3: Maturity:
By now technical know-how is known to many countries. The
innovating country starts setting up production facility in the
third world (low income developing) economies by taking
advantage of low wages in the latter.
► Imports of low income countries decline as the domestic
production of this product increases.
►

Stage 4: Decline:
►

What is the marketing strategy at this stage? Production shifts
even to least developing countries – innovating country imports
from these countries
16

Examples:
i.

ii.

UK was largest manufacturer and exporter of bicycles. Bicycle
industry declined in UK. This industry emerged in low income
countries, including India.
Developed countries shift environmentally hazardous industries to
low income countries.

17

18

Criticism of IPCL Theory:
It explains the emerging pattern of international market. This was ok
earlier. Now information about prices, technology and preferences travels
across the globe. The product may be launched by the innovating country
simultaneously in several countries.

[Discuss Maruti Suzuki case. Japanese company, Suzuki, is an innovating
company. The latter established manufacturing base in India. India first
imported Maruti Suzuki Standard -800 Model. After the product gained
maturity and popularity, Maruti Suzuki Exports Cars to several developed
and semi developed countries. The time has come when India may also
base manufacturing facilities in other least developing countries].

19

Theory of Competitive Advantage


Porter–Diamond Theory:
(Michael Porter, 1990, The competitive advantage of nations).



Main focus is on Domestic Environment.
Contrast it with IPCL. – which lays emphasis on innovation/invention
and looks forward to off-shore investment/production.
Diamond? See four blocks/diamonds The interaction of these explains
and determines the trade competitive advantage of a country. See
arrows in diagram.
4 Diamonds – Blocks:






a) Factor input – Natural & Creaed
b) Demand conditions.
 Greater is the sophistication in demand conditions, more demanding the
consumer is – product quality – better service – change in preferences – (Global
exposure…).

20

c) Related and supporting industries
 Development of ancillary industry (as in auto industry).
 Strong supply chain management.
 Development of industrial clusters.
For example:
IT – Banglore,
Textiles – Tirupur
Metal Handicraft – Moradabad

d) Firm Strategy, Structure & Rivalry






Transformation of family enterprise.
Competition policy
Incentive structure
Global exposure
Domestic rivalry (competition?)
21

22

Summary


IPCL: Explains Sifts in





Theory of competitive advantage: To explain national competitiveness, it focuses
on:








Trade Patterns
Manufacturing base

Environmental factors (factor conditions)
Demand conditions
Related supporting industries
Firm strategy, structure, etc.
Degree of competition (Rivalry, etc).

Merit of above theoretical models:
They help provide basis for:
 Principles for regulatory framework.
 Preparing trade promotion strategies to national as well as international Govt./Bodies. The
relative advantage may vary across countries.

23

24

DISCUSS TWO CASE STUDIES ATTACHED

25

CASE STUDY 1
► CHIP

INDUSTRY

26

27

28

29

30

CASE STUDY 2
► Factor

mobility :TCS-case study

31

Factor mobility theory
► Daniels

et.al
See page no. 247-259

32

Supplementary notes
► Biggest

change being observed is the
demographic one.
► By 2050 – 033 countries will have lower
population than their present population
due to lower fertility ( lower than
population ranging from 14% to 22%.)
► On

the other hand, eight countries will
account for 50% of world population.

33

Consequences

► Labor

mobility across countries likely to be faster in
coming decades than now.

► Why

factors move?

►Capital
Long term movement-FDI
 Shifting manufacturing base
 Shifting services industry base
 Reform capital account convertibility
 Political stability
 Investor friendly policies
34

people
► 200

million ( approx 3% of worlds
population) have migrated not uniformly
all over the world.
► USA got high migration ( 11 % of
population of USA is made up immigrants
)
Two – third’s of UAE population consists of
temporary workers .
► Indonesian labor migrates to Malaysia
(huge- 10 times wage differential)

35

Impact
► Singapore transformed from low-wage
► Labor-intensive to high-wage capital intensive

economy ( due to high capital inflow )

► Trade

and factor mobility
Factor movement
From abundant area to scare area. (eg,maxicon
labor to USA.)

Complementarity
Complementary products-needs equipment. This
happens through foreign investment.
36

Flexible and small scale population
► Services

growing much faster than
manufacturing .
( change in consumption pattern in fast
growing economies)

Many services can be provided by small scale
units.
They have flexibility in labor employment too.
37

38

39

40

41

42


Slide 17

UNIT-1
► GLOBALIZATION
► TRADE

PATTERNS

 THEORIES
1. IPLC
2. FACTOR MOBILITY
COMPARISON OF IPLC AND FACTOR MOBILITY THEORIES.

1

Globalization
1. A holistic approach covers the following aspects:
a. Economic
b. Financial
c. Political
d. Cultural
All the above aspects/factors interact with each
other.
[See Joshi (2011), fig.1.3, p.9]

2

3

2.

Economic globalization has the following five
major components/aspects:
Production
b. Markets
c. Competition
d. Technology
e. Corporations & Industry
All the components work in an interactive manner.
a.

[See Joshi (2011), fig.1.5, p.13]

4

5

3. Movers and Restraining Factors:
3.1. Factors that give impetus to globalization or movers:
a. Economic liberalization
b. Technical break through

Manufacturing
► Transportation
► Information & Communication.
►

c.
d.
e.
f.
g.
h.

Multilateral institutions.
Interventional economic integration.
Move towards free market systems.
Rising R&D costs.
Advents in logistic management.
Emergence of global customer segments.

3.2. Factors that restrain globalization or restraining factors:
Regulatory controls
Emerging new trade barriers.
Cultural factors
Nationalism
e. Wards and civil disturbances.
f. Management myopia.
a.
b.
c.
d.

How much globalization proceeds/progresses depends on the relative strength of
6
factors in 3.1 and 3.2.
[See Joshi (2011), fig.1.6, pg.16]

7

Globalization: A TYPICAL MODERN IMAGE
Conspicuously seen in terms of
 Westernization
 Americanization

Some of the popular examples are:





Walmartization
Cocacolination
Disneyfication
Mc Donalization

1. Walmartization*
Walmart – US Retail Chain
Walmart Effect
 Keeping small competitors out
 Driving down wages
 Keeping inflation low
 Keeping productivity high

2. Cocacolination
Perceived as an invasion of cultural
values.

It has a conservative image as reflected in
 Firm cutting down costs
 Favoring policy of
►
►

*

Cutting down taxes
Keeping welfare state competitive

See Charles Fishman: Walmart Effect

8

3. Walmartization
See George Ritzer (1995)

[MacDonaldization of Society]
Four Dimensions of fast food restaurant:

i. Efficiency: Best mode of production with little scope of individuality.
ii. Calculability: Quantifiable Objective :
- Sale
- Focus on Quantity (big MAC, not so much quality)
iii. Predictability: Uniform Production Process.
iv. Control: Substitution of non-human technologies for human labour.(System of
“Iron Cage” – same principle governs all Institutions).

Criticism:

(a) Irrationality – Every worker performs highly rationalized task leading to
workers’ “Burn Out”.
(b) Deskilling: Workers perform repetitive tasks – cheap training of workers.
workers can be replaced easily.

4. Disneyfication

What is signified? Society dedicated to

i. Themes
ii. Huge consumption
iii. Emotion based labor.
(also signifies a diluted version of original form)

9

INTERNATIONAL PRODUCT LIFE CYCLE THEORY (IPCL)
ISSUES:
1.

Do international markets follow a cyclical Pattern? Why?
What does it explain?
- Shift in markets.
- Shift in production location.

2.

What factors are behind the phenomenon? Does it explain
trade patterns?
- Level of innovation and technology.
- Quantum & Quality of Resources.
- Size of market.
- Competitive structure.
10

IPCL: Four Stages:
What Determines these stages?

Difference/gap in technology between countries/economies.
► Ability (purchasing power) of customers.
► Preferences of customers.
►

Innovation:
What Makes it Effective?

If domestic market is big – economies of scale – cost efficiency
– international competition – (US, China, India): Big markets but
their innovative capacity and technology levels differ.
► Innovation but no big domestic market:
►

How to achieve economies of scale? Set up marketing and production
facilities outside the country.

11

What are the critical factors for expanding into international market?
► Innovative capacity, level of technology
► Scope of economies
► Achieving economies of scale
►
►
►

The innovating firm starts looking for establishing production base in
other high income countries.
When this is successful, these countries (where production base is
established) start exporting to the innovating country.
International competition increases

12

Stages of International Product Life Cycle.
See exhibit and interpret:
In each column, start moving down and interpret against the row title.
Try matching the movements of three types of curves.

13

14

Stage 1: Introduction:Advanced countries – Innovation for new product.




Lot of resources required for R&D.
Initially price of new product is high.
Hence search for markets for new product in high income countries.

Stage 2: Growth:



Search for other developed markets for exports.
Globalization
Trade patterns
Theories
 IPLC
 Factor Mobility
 Comparison.
15

Note & Interpret:
(i)
(ii)

Opposite movements of curves representing high income
countries.
Testes and preferences change in low income countries also.
They too start importing new product.

Stage 3: Maturity:
By now technical know-how is known to many countries. The
innovating country starts setting up production facility in the
third world (low income developing) economies by taking
advantage of low wages in the latter.
► Imports of low income countries decline as the domestic
production of this product increases.
►

Stage 4: Decline:
►

What is the marketing strategy at this stage? Production shifts
even to least developing countries – innovating country imports
from these countries
16

Examples:
i.

ii.

UK was largest manufacturer and exporter of bicycles. Bicycle
industry declined in UK. This industry emerged in low income
countries, including India.
Developed countries shift environmentally hazardous industries to
low income countries.

17

18

Criticism of IPCL Theory:
It explains the emerging pattern of international market. This was ok
earlier. Now information about prices, technology and preferences travels
across the globe. The product may be launched by the innovating country
simultaneously in several countries.

[Discuss Maruti Suzuki case. Japanese company, Suzuki, is an innovating
company. The latter established manufacturing base in India. India first
imported Maruti Suzuki Standard -800 Model. After the product gained
maturity and popularity, Maruti Suzuki Exports Cars to several developed
and semi developed countries. The time has come when India may also
base manufacturing facilities in other least developing countries].

19

Theory of Competitive Advantage


Porter–Diamond Theory:
(Michael Porter, 1990, The competitive advantage of nations).



Main focus is on Domestic Environment.
Contrast it with IPCL. – which lays emphasis on innovation/invention
and looks forward to off-shore investment/production.
Diamond? See four blocks/diamonds The interaction of these explains
and determines the trade competitive advantage of a country. See
arrows in diagram.
4 Diamonds – Blocks:






a) Factor input – Natural & Creaed
b) Demand conditions.
 Greater is the sophistication in demand conditions, more demanding the
consumer is – product quality – better service – change in preferences – (Global
exposure…).

20

c) Related and supporting industries
 Development of ancillary industry (as in auto industry).
 Strong supply chain management.
 Development of industrial clusters.
For example:
IT – Banglore,
Textiles – Tirupur
Metal Handicraft – Moradabad

d) Firm Strategy, Structure & Rivalry






Transformation of family enterprise.
Competition policy
Incentive structure
Global exposure
Domestic rivalry (competition?)
21

22

Summary


IPCL: Explains Sifts in





Theory of competitive advantage: To explain national competitiveness, it focuses
on:








Trade Patterns
Manufacturing base

Environmental factors (factor conditions)
Demand conditions
Related supporting industries
Firm strategy, structure, etc.
Degree of competition (Rivalry, etc).

Merit of above theoretical models:
They help provide basis for:
 Principles for regulatory framework.
 Preparing trade promotion strategies to national as well as international Govt./Bodies. The
relative advantage may vary across countries.

23

24

DISCUSS TWO CASE STUDIES ATTACHED

25

CASE STUDY 1
► CHIP

INDUSTRY

26

27

28

29

30

CASE STUDY 2
► Factor

mobility :TCS-case study

31

Factor mobility theory
► Daniels

et.al
See page no. 247-259

32

Supplementary notes
► Biggest

change being observed is the
demographic one.
► By 2050 – 033 countries will have lower
population than their present population
due to lower fertility ( lower than
population ranging from 14% to 22%.)
► On

the other hand, eight countries will
account for 50% of world population.

33

Consequences

► Labor

mobility across countries likely to be faster in
coming decades than now.

► Why

factors move?

►Capital
Long term movement-FDI
 Shifting manufacturing base
 Shifting services industry base
 Reform capital account convertibility
 Political stability
 Investor friendly policies
34

people
► 200

million ( approx 3% of worlds
population) have migrated not uniformly
all over the world.
► USA got high migration ( 11 % of
population of USA is made up immigrants
)
Two – third’s of UAE population consists of
temporary workers .
► Indonesian labor migrates to Malaysia
(huge- 10 times wage differential)

35

Impact
► Singapore transformed from low-wage
► Labor-intensive to high-wage capital intensive

economy ( due to high capital inflow )

► Trade

and factor mobility
Factor movement
From abundant area to scare area. (eg,maxicon
labor to USA.)

Complementarity
Complementary products-needs equipment. This
happens through foreign investment.
36

Flexible and small scale population
► Services

growing much faster than
manufacturing .
( change in consumption pattern in fast
growing economies)

Many services can be provided by small scale
units.
They have flexibility in labor employment too.
37

38

39

40

41

42


Slide 18

UNIT-1
► GLOBALIZATION
► TRADE

PATTERNS

 THEORIES
1. IPLC
2. FACTOR MOBILITY
COMPARISON OF IPLC AND FACTOR MOBILITY THEORIES.

1

Globalization
1. A holistic approach covers the following aspects:
a. Economic
b. Financial
c. Political
d. Cultural
All the above aspects/factors interact with each
other.
[See Joshi (2011), fig.1.3, p.9]

2

3

2.

Economic globalization has the following five
major components/aspects:
Production
b. Markets
c. Competition
d. Technology
e. Corporations & Industry
All the components work in an interactive manner.
a.

[See Joshi (2011), fig.1.5, p.13]

4

5

3. Movers and Restraining Factors:
3.1. Factors that give impetus to globalization or movers:
a. Economic liberalization
b. Technical break through

Manufacturing
► Transportation
► Information & Communication.
►

c.
d.
e.
f.
g.
h.

Multilateral institutions.
Interventional economic integration.
Move towards free market systems.
Rising R&D costs.
Advents in logistic management.
Emergence of global customer segments.

3.2. Factors that restrain globalization or restraining factors:
Regulatory controls
Emerging new trade barriers.
Cultural factors
Nationalism
e. Wards and civil disturbances.
f. Management myopia.
a.
b.
c.
d.

How much globalization proceeds/progresses depends on the relative strength of
6
factors in 3.1 and 3.2.
[See Joshi (2011), fig.1.6, pg.16]

7

Globalization: A TYPICAL MODERN IMAGE
Conspicuously seen in terms of
 Westernization
 Americanization

Some of the popular examples are:





Walmartization
Cocacolination
Disneyfication
Mc Donalization

1. Walmartization*
Walmart – US Retail Chain
Walmart Effect
 Keeping small competitors out
 Driving down wages
 Keeping inflation low
 Keeping productivity high

2. Cocacolination
Perceived as an invasion of cultural
values.

It has a conservative image as reflected in
 Firm cutting down costs
 Favoring policy of
►
►

*

Cutting down taxes
Keeping welfare state competitive

See Charles Fishman: Walmart Effect

8

3. Walmartization
See George Ritzer (1995)

[MacDonaldization of Society]
Four Dimensions of fast food restaurant:

i. Efficiency: Best mode of production with little scope of individuality.
ii. Calculability: Quantifiable Objective :
- Sale
- Focus on Quantity (big MAC, not so much quality)
iii. Predictability: Uniform Production Process.
iv. Control: Substitution of non-human technologies for human labour.(System of
“Iron Cage” – same principle governs all Institutions).

Criticism:

(a) Irrationality – Every worker performs highly rationalized task leading to
workers’ “Burn Out”.
(b) Deskilling: Workers perform repetitive tasks – cheap training of workers.
workers can be replaced easily.

4. Disneyfication

What is signified? Society dedicated to

i. Themes
ii. Huge consumption
iii. Emotion based labor.
(also signifies a diluted version of original form)

9

INTERNATIONAL PRODUCT LIFE CYCLE THEORY (IPCL)
ISSUES:
1.

Do international markets follow a cyclical Pattern? Why?
What does it explain?
- Shift in markets.
- Shift in production location.

2.

What factors are behind the phenomenon? Does it explain
trade patterns?
- Level of innovation and technology.
- Quantum & Quality of Resources.
- Size of market.
- Competitive structure.
10

IPCL: Four Stages:
What Determines these stages?

Difference/gap in technology between countries/economies.
► Ability (purchasing power) of customers.
► Preferences of customers.
►

Innovation:
What Makes it Effective?

If domestic market is big – economies of scale – cost efficiency
– international competition – (US, China, India): Big markets but
their innovative capacity and technology levels differ.
► Innovation but no big domestic market:
►

How to achieve economies of scale? Set up marketing and production
facilities outside the country.

11

What are the critical factors for expanding into international market?
► Innovative capacity, level of technology
► Scope of economies
► Achieving economies of scale
►
►
►

The innovating firm starts looking for establishing production base in
other high income countries.
When this is successful, these countries (where production base is
established) start exporting to the innovating country.
International competition increases

12

Stages of International Product Life Cycle.
See exhibit and interpret:
In each column, start moving down and interpret against the row title.
Try matching the movements of three types of curves.

13

14

Stage 1: Introduction:Advanced countries – Innovation for new product.




Lot of resources required for R&D.
Initially price of new product is high.
Hence search for markets for new product in high income countries.

Stage 2: Growth:



Search for other developed markets for exports.
Globalization
Trade patterns
Theories
 IPLC
 Factor Mobility
 Comparison.
15

Note & Interpret:
(i)
(ii)

Opposite movements of curves representing high income
countries.
Testes and preferences change in low income countries also.
They too start importing new product.

Stage 3: Maturity:
By now technical know-how is known to many countries. The
innovating country starts setting up production facility in the
third world (low income developing) economies by taking
advantage of low wages in the latter.
► Imports of low income countries decline as the domestic
production of this product increases.
►

Stage 4: Decline:
►

What is the marketing strategy at this stage? Production shifts
even to least developing countries – innovating country imports
from these countries
16

Examples:
i.

ii.

UK was largest manufacturer and exporter of bicycles. Bicycle
industry declined in UK. This industry emerged in low income
countries, including India.
Developed countries shift environmentally hazardous industries to
low income countries.

17

18

Criticism of IPCL Theory:
It explains the emerging pattern of international market. This was ok
earlier. Now information about prices, technology and preferences travels
across the globe. The product may be launched by the innovating country
simultaneously in several countries.

[Discuss Maruti Suzuki case. Japanese company, Suzuki, is an innovating
company. The latter established manufacturing base in India. India first
imported Maruti Suzuki Standard -800 Model. After the product gained
maturity and popularity, Maruti Suzuki Exports Cars to several developed
and semi developed countries. The time has come when India may also
base manufacturing facilities in other least developing countries].

19

Theory of Competitive Advantage


Porter–Diamond Theory:
(Michael Porter, 1990, The competitive advantage of nations).



Main focus is on Domestic Environment.
Contrast it with IPCL. – which lays emphasis on innovation/invention
and looks forward to off-shore investment/production.
Diamond? See four blocks/diamonds The interaction of these explains
and determines the trade competitive advantage of a country. See
arrows in diagram.
4 Diamonds – Blocks:






a) Factor input – Natural & Creaed
b) Demand conditions.
 Greater is the sophistication in demand conditions, more demanding the
consumer is – product quality – better service – change in preferences – (Global
exposure…).

20

c) Related and supporting industries
 Development of ancillary industry (as in auto industry).
 Strong supply chain management.
 Development of industrial clusters.
For example:
IT – Banglore,
Textiles – Tirupur
Metal Handicraft – Moradabad

d) Firm Strategy, Structure & Rivalry






Transformation of family enterprise.
Competition policy
Incentive structure
Global exposure
Domestic rivalry (competition?)
21

22

Summary


IPCL: Explains Sifts in





Theory of competitive advantage: To explain national competitiveness, it focuses
on:








Trade Patterns
Manufacturing base

Environmental factors (factor conditions)
Demand conditions
Related supporting industries
Firm strategy, structure, etc.
Degree of competition (Rivalry, etc).

Merit of above theoretical models:
They help provide basis for:
 Principles for regulatory framework.
 Preparing trade promotion strategies to national as well as international Govt./Bodies. The
relative advantage may vary across countries.

23

24

DISCUSS TWO CASE STUDIES ATTACHED

25

CASE STUDY 1
► CHIP

INDUSTRY

26

27

28

29

30

CASE STUDY 2
► Factor

mobility :TCS-case study

31

Factor mobility theory
► Daniels

et.al
See page no. 247-259

32

Supplementary notes
► Biggest

change being observed is the
demographic one.
► By 2050 – 033 countries will have lower
population than their present population
due to lower fertility ( lower than
population ranging from 14% to 22%.)
► On

the other hand, eight countries will
account for 50% of world population.

33

Consequences

► Labor

mobility across countries likely to be faster in
coming decades than now.

► Why

factors move?

►Capital
Long term movement-FDI
 Shifting manufacturing base
 Shifting services industry base
 Reform capital account convertibility
 Political stability
 Investor friendly policies
34

people
► 200

million ( approx 3% of worlds
population) have migrated not uniformly
all over the world.
► USA got high migration ( 11 % of
population of USA is made up immigrants
)
Two – third’s of UAE population consists of
temporary workers .
► Indonesian labor migrates to Malaysia
(huge- 10 times wage differential)

35

Impact
► Singapore transformed from low-wage
► Labor-intensive to high-wage capital intensive

economy ( due to high capital inflow )

► Trade

and factor mobility
Factor movement
From abundant area to scare area. (eg,maxicon
labor to USA.)

Complementarity
Complementary products-needs equipment. This
happens through foreign investment.
36

Flexible and small scale population
► Services

growing much faster than
manufacturing .
( change in consumption pattern in fast
growing economies)

Many services can be provided by small scale
units.
They have flexibility in labor employment too.
37

38

39

40

41

42


Slide 19

UNIT-1
► GLOBALIZATION
► TRADE

PATTERNS

 THEORIES
1. IPLC
2. FACTOR MOBILITY
COMPARISON OF IPLC AND FACTOR MOBILITY THEORIES.

1

Globalization
1. A holistic approach covers the following aspects:
a. Economic
b. Financial
c. Political
d. Cultural
All the above aspects/factors interact with each
other.
[See Joshi (2011), fig.1.3, p.9]

2

3

2.

Economic globalization has the following five
major components/aspects:
Production
b. Markets
c. Competition
d. Technology
e. Corporations & Industry
All the components work in an interactive manner.
a.

[See Joshi (2011), fig.1.5, p.13]

4

5

3. Movers and Restraining Factors:
3.1. Factors that give impetus to globalization or movers:
a. Economic liberalization
b. Technical break through

Manufacturing
► Transportation
► Information & Communication.
►

c.
d.
e.
f.
g.
h.

Multilateral institutions.
Interventional economic integration.
Move towards free market systems.
Rising R&D costs.
Advents in logistic management.
Emergence of global customer segments.

3.2. Factors that restrain globalization or restraining factors:
Regulatory controls
Emerging new trade barriers.
Cultural factors
Nationalism
e. Wards and civil disturbances.
f. Management myopia.
a.
b.
c.
d.

How much globalization proceeds/progresses depends on the relative strength of
6
factors in 3.1 and 3.2.
[See Joshi (2011), fig.1.6, pg.16]

7

Globalization: A TYPICAL MODERN IMAGE
Conspicuously seen in terms of
 Westernization
 Americanization

Some of the popular examples are:





Walmartization
Cocacolination
Disneyfication
Mc Donalization

1. Walmartization*
Walmart – US Retail Chain
Walmart Effect
 Keeping small competitors out
 Driving down wages
 Keeping inflation low
 Keeping productivity high

2. Cocacolination
Perceived as an invasion of cultural
values.

It has a conservative image as reflected in
 Firm cutting down costs
 Favoring policy of
►
►

*

Cutting down taxes
Keeping welfare state competitive

See Charles Fishman: Walmart Effect

8

3. Walmartization
See George Ritzer (1995)

[MacDonaldization of Society]
Four Dimensions of fast food restaurant:

i. Efficiency: Best mode of production with little scope of individuality.
ii. Calculability: Quantifiable Objective :
- Sale
- Focus on Quantity (big MAC, not so much quality)
iii. Predictability: Uniform Production Process.
iv. Control: Substitution of non-human technologies for human labour.(System of
“Iron Cage” – same principle governs all Institutions).

Criticism:

(a) Irrationality – Every worker performs highly rationalized task leading to
workers’ “Burn Out”.
(b) Deskilling: Workers perform repetitive tasks – cheap training of workers.
workers can be replaced easily.

4. Disneyfication

What is signified? Society dedicated to

i. Themes
ii. Huge consumption
iii. Emotion based labor.
(also signifies a diluted version of original form)

9

INTERNATIONAL PRODUCT LIFE CYCLE THEORY (IPCL)
ISSUES:
1.

Do international markets follow a cyclical Pattern? Why?
What does it explain?
- Shift in markets.
- Shift in production location.

2.

What factors are behind the phenomenon? Does it explain
trade patterns?
- Level of innovation and technology.
- Quantum & Quality of Resources.
- Size of market.
- Competitive structure.
10

IPCL: Four Stages:
What Determines these stages?

Difference/gap in technology between countries/economies.
► Ability (purchasing power) of customers.
► Preferences of customers.
►

Innovation:
What Makes it Effective?

If domestic market is big – economies of scale – cost efficiency
– international competition – (US, China, India): Big markets but
their innovative capacity and technology levels differ.
► Innovation but no big domestic market:
►

How to achieve economies of scale? Set up marketing and production
facilities outside the country.

11

What are the critical factors for expanding into international market?
► Innovative capacity, level of technology
► Scope of economies
► Achieving economies of scale
►
►
►

The innovating firm starts looking for establishing production base in
other high income countries.
When this is successful, these countries (where production base is
established) start exporting to the innovating country.
International competition increases

12

Stages of International Product Life Cycle.
See exhibit and interpret:
In each column, start moving down and interpret against the row title.
Try matching the movements of three types of curves.

13

14

Stage 1: Introduction:Advanced countries – Innovation for new product.




Lot of resources required for R&D.
Initially price of new product is high.
Hence search for markets for new product in high income countries.

Stage 2: Growth:



Search for other developed markets for exports.
Globalization
Trade patterns
Theories
 IPLC
 Factor Mobility
 Comparison.
15

Note & Interpret:
(i)
(ii)

Opposite movements of curves representing high income
countries.
Testes and preferences change in low income countries also.
They too start importing new product.

Stage 3: Maturity:
By now technical know-how is known to many countries. The
innovating country starts setting up production facility in the
third world (low income developing) economies by taking
advantage of low wages in the latter.
► Imports of low income countries decline as the domestic
production of this product increases.
►

Stage 4: Decline:
►

What is the marketing strategy at this stage? Production shifts
even to least developing countries – innovating country imports
from these countries
16

Examples:
i.

ii.

UK was largest manufacturer and exporter of bicycles. Bicycle
industry declined in UK. This industry emerged in low income
countries, including India.
Developed countries shift environmentally hazardous industries to
low income countries.

17

18

Criticism of IPCL Theory:
It explains the emerging pattern of international market. This was ok
earlier. Now information about prices, technology and preferences travels
across the globe. The product may be launched by the innovating country
simultaneously in several countries.

[Discuss Maruti Suzuki case. Japanese company, Suzuki, is an innovating
company. The latter established manufacturing base in India. India first
imported Maruti Suzuki Standard -800 Model. After the product gained
maturity and popularity, Maruti Suzuki Exports Cars to several developed
and semi developed countries. The time has come when India may also
base manufacturing facilities in other least developing countries].

19

Theory of Competitive Advantage


Porter–Diamond Theory:
(Michael Porter, 1990, The competitive advantage of nations).



Main focus is on Domestic Environment.
Contrast it with IPCL. – which lays emphasis on innovation/invention
and looks forward to off-shore investment/production.
Diamond? See four blocks/diamonds The interaction of these explains
and determines the trade competitive advantage of a country. See
arrows in diagram.
4 Diamonds – Blocks:






a) Factor input – Natural & Creaed
b) Demand conditions.
 Greater is the sophistication in demand conditions, more demanding the
consumer is – product quality – better service – change in preferences – (Global
exposure…).

20

c) Related and supporting industries
 Development of ancillary industry (as in auto industry).
 Strong supply chain management.
 Development of industrial clusters.
For example:
IT – Banglore,
Textiles – Tirupur
Metal Handicraft – Moradabad

d) Firm Strategy, Structure & Rivalry






Transformation of family enterprise.
Competition policy
Incentive structure
Global exposure
Domestic rivalry (competition?)
21

22

Summary


IPCL: Explains Sifts in





Theory of competitive advantage: To explain national competitiveness, it focuses
on:








Trade Patterns
Manufacturing base

Environmental factors (factor conditions)
Demand conditions
Related supporting industries
Firm strategy, structure, etc.
Degree of competition (Rivalry, etc).

Merit of above theoretical models:
They help provide basis for:
 Principles for regulatory framework.
 Preparing trade promotion strategies to national as well as international Govt./Bodies. The
relative advantage may vary across countries.

23

24

DISCUSS TWO CASE STUDIES ATTACHED

25

CASE STUDY 1
► CHIP

INDUSTRY

26

27

28

29

30

CASE STUDY 2
► Factor

mobility :TCS-case study

31

Factor mobility theory
► Daniels

et.al
See page no. 247-259

32

Supplementary notes
► Biggest

change being observed is the
demographic one.
► By 2050 – 033 countries will have lower
population than their present population
due to lower fertility ( lower than
population ranging from 14% to 22%.)
► On

the other hand, eight countries will
account for 50% of world population.

33

Consequences

► Labor

mobility across countries likely to be faster in
coming decades than now.

► Why

factors move?

►Capital
Long term movement-FDI
 Shifting manufacturing base
 Shifting services industry base
 Reform capital account convertibility
 Political stability
 Investor friendly policies
34

people
► 200

million ( approx 3% of worlds
population) have migrated not uniformly
all over the world.
► USA got high migration ( 11 % of
population of USA is made up immigrants
)
Two – third’s of UAE population consists of
temporary workers .
► Indonesian labor migrates to Malaysia
(huge- 10 times wage differential)

35

Impact
► Singapore transformed from low-wage
► Labor-intensive to high-wage capital intensive

economy ( due to high capital inflow )

► Trade

and factor mobility
Factor movement
From abundant area to scare area. (eg,maxicon
labor to USA.)

Complementarity
Complementary products-needs equipment. This
happens through foreign investment.
36

Flexible and small scale population
► Services

growing much faster than
manufacturing .
( change in consumption pattern in fast
growing economies)

Many services can be provided by small scale
units.
They have flexibility in labor employment too.
37

38

39

40

41

42


Slide 20

UNIT-1
► GLOBALIZATION
► TRADE

PATTERNS

 THEORIES
1. IPLC
2. FACTOR MOBILITY
COMPARISON OF IPLC AND FACTOR MOBILITY THEORIES.

1

Globalization
1. A holistic approach covers the following aspects:
a. Economic
b. Financial
c. Political
d. Cultural
All the above aspects/factors interact with each
other.
[See Joshi (2011), fig.1.3, p.9]

2

3

2.

Economic globalization has the following five
major components/aspects:
Production
b. Markets
c. Competition
d. Technology
e. Corporations & Industry
All the components work in an interactive manner.
a.

[See Joshi (2011), fig.1.5, p.13]

4

5

3. Movers and Restraining Factors:
3.1. Factors that give impetus to globalization or movers:
a. Economic liberalization
b. Technical break through

Manufacturing
► Transportation
► Information & Communication.
►

c.
d.
e.
f.
g.
h.

Multilateral institutions.
Interventional economic integration.
Move towards free market systems.
Rising R&D costs.
Advents in logistic management.
Emergence of global customer segments.

3.2. Factors that restrain globalization or restraining factors:
Regulatory controls
Emerging new trade barriers.
Cultural factors
Nationalism
e. Wards and civil disturbances.
f. Management myopia.
a.
b.
c.
d.

How much globalization proceeds/progresses depends on the relative strength of
6
factors in 3.1 and 3.2.
[See Joshi (2011), fig.1.6, pg.16]

7

Globalization: A TYPICAL MODERN IMAGE
Conspicuously seen in terms of
 Westernization
 Americanization

Some of the popular examples are:





Walmartization
Cocacolination
Disneyfication
Mc Donalization

1. Walmartization*
Walmart – US Retail Chain
Walmart Effect
 Keeping small competitors out
 Driving down wages
 Keeping inflation low
 Keeping productivity high

2. Cocacolination
Perceived as an invasion of cultural
values.

It has a conservative image as reflected in
 Firm cutting down costs
 Favoring policy of
►
►

*

Cutting down taxes
Keeping welfare state competitive

See Charles Fishman: Walmart Effect

8

3. Walmartization
See George Ritzer (1995)

[MacDonaldization of Society]
Four Dimensions of fast food restaurant:

i. Efficiency: Best mode of production with little scope of individuality.
ii. Calculability: Quantifiable Objective :
- Sale
- Focus on Quantity (big MAC, not so much quality)
iii. Predictability: Uniform Production Process.
iv. Control: Substitution of non-human technologies for human labour.(System of
“Iron Cage” – same principle governs all Institutions).

Criticism:

(a) Irrationality – Every worker performs highly rationalized task leading to
workers’ “Burn Out”.
(b) Deskilling: Workers perform repetitive tasks – cheap training of workers.
workers can be replaced easily.

4. Disneyfication

What is signified? Society dedicated to

i. Themes
ii. Huge consumption
iii. Emotion based labor.
(also signifies a diluted version of original form)

9

INTERNATIONAL PRODUCT LIFE CYCLE THEORY (IPCL)
ISSUES:
1.

Do international markets follow a cyclical Pattern? Why?
What does it explain?
- Shift in markets.
- Shift in production location.

2.

What factors are behind the phenomenon? Does it explain
trade patterns?
- Level of innovation and technology.
- Quantum & Quality of Resources.
- Size of market.
- Competitive structure.
10

IPCL: Four Stages:
What Determines these stages?

Difference/gap in technology between countries/economies.
► Ability (purchasing power) of customers.
► Preferences of customers.
►

Innovation:
What Makes it Effective?

If domestic market is big – economies of scale – cost efficiency
– international competition – (US, China, India): Big markets but
their innovative capacity and technology levels differ.
► Innovation but no big domestic market:
►

How to achieve economies of scale? Set up marketing and production
facilities outside the country.

11

What are the critical factors for expanding into international market?
► Innovative capacity, level of technology
► Scope of economies
► Achieving economies of scale
►
►
►

The innovating firm starts looking for establishing production base in
other high income countries.
When this is successful, these countries (where production base is
established) start exporting to the innovating country.
International competition increases

12

Stages of International Product Life Cycle.
See exhibit and interpret:
In each column, start moving down and interpret against the row title.
Try matching the movements of three types of curves.

13

14

Stage 1: Introduction:Advanced countries – Innovation for new product.




Lot of resources required for R&D.
Initially price of new product is high.
Hence search for markets for new product in high income countries.

Stage 2: Growth:



Search for other developed markets for exports.
Globalization
Trade patterns
Theories
 IPLC
 Factor Mobility
 Comparison.
15

Note & Interpret:
(i)
(ii)

Opposite movements of curves representing high income
countries.
Testes and preferences change in low income countries also.
They too start importing new product.

Stage 3: Maturity:
By now technical know-how is known to many countries. The
innovating country starts setting up production facility in the
third world (low income developing) economies by taking
advantage of low wages in the latter.
► Imports of low income countries decline as the domestic
production of this product increases.
►

Stage 4: Decline:
►

What is the marketing strategy at this stage? Production shifts
even to least developing countries – innovating country imports
from these countries
16

Examples:
i.

ii.

UK was largest manufacturer and exporter of bicycles. Bicycle
industry declined in UK. This industry emerged in low income
countries, including India.
Developed countries shift environmentally hazardous industries to
low income countries.

17

18

Criticism of IPCL Theory:
It explains the emerging pattern of international market. This was ok
earlier. Now information about prices, technology and preferences travels
across the globe. The product may be launched by the innovating country
simultaneously in several countries.

[Discuss Maruti Suzuki case. Japanese company, Suzuki, is an innovating
company. The latter established manufacturing base in India. India first
imported Maruti Suzuki Standard -800 Model. After the product gained
maturity and popularity, Maruti Suzuki Exports Cars to several developed
and semi developed countries. The time has come when India may also
base manufacturing facilities in other least developing countries].

19

Theory of Competitive Advantage


Porter–Diamond Theory:
(Michael Porter, 1990, The competitive advantage of nations).



Main focus is on Domestic Environment.
Contrast it with IPCL. – which lays emphasis on innovation/invention
and looks forward to off-shore investment/production.
Diamond? See four blocks/diamonds The interaction of these explains
and determines the trade competitive advantage of a country. See
arrows in diagram.
4 Diamonds – Blocks:






a) Factor input – Natural & Creaed
b) Demand conditions.
 Greater is the sophistication in demand conditions, more demanding the
consumer is – product quality – better service – change in preferences – (Global
exposure…).

20

c) Related and supporting industries
 Development of ancillary industry (as in auto industry).
 Strong supply chain management.
 Development of industrial clusters.
For example:
IT – Banglore,
Textiles – Tirupur
Metal Handicraft – Moradabad

d) Firm Strategy, Structure & Rivalry






Transformation of family enterprise.
Competition policy
Incentive structure
Global exposure
Domestic rivalry (competition?)
21

22

Summary


IPCL: Explains Sifts in





Theory of competitive advantage: To explain national competitiveness, it focuses
on:








Trade Patterns
Manufacturing base

Environmental factors (factor conditions)
Demand conditions
Related supporting industries
Firm strategy, structure, etc.
Degree of competition (Rivalry, etc).

Merit of above theoretical models:
They help provide basis for:
 Principles for regulatory framework.
 Preparing trade promotion strategies to national as well as international Govt./Bodies. The
relative advantage may vary across countries.

23

24

DISCUSS TWO CASE STUDIES ATTACHED

25

CASE STUDY 1
► CHIP

INDUSTRY

26

27

28

29

30

CASE STUDY 2
► Factor

mobility :TCS-case study

31

Factor mobility theory
► Daniels

et.al
See page no. 247-259

32

Supplementary notes
► Biggest

change being observed is the
demographic one.
► By 2050 – 033 countries will have lower
population than their present population
due to lower fertility ( lower than
population ranging from 14% to 22%.)
► On

the other hand, eight countries will
account for 50% of world population.

33

Consequences

► Labor

mobility across countries likely to be faster in
coming decades than now.

► Why

factors move?

►Capital
Long term movement-FDI
 Shifting manufacturing base
 Shifting services industry base
 Reform capital account convertibility
 Political stability
 Investor friendly policies
34

people
► 200

million ( approx 3% of worlds
population) have migrated not uniformly
all over the world.
► USA got high migration ( 11 % of
population of USA is made up immigrants
)
Two – third’s of UAE population consists of
temporary workers .
► Indonesian labor migrates to Malaysia
(huge- 10 times wage differential)

35

Impact
► Singapore transformed from low-wage
► Labor-intensive to high-wage capital intensive

economy ( due to high capital inflow )

► Trade

and factor mobility
Factor movement
From abundant area to scare area. (eg,maxicon
labor to USA.)

Complementarity
Complementary products-needs equipment. This
happens through foreign investment.
36

Flexible and small scale population
► Services

growing much faster than
manufacturing .
( change in consumption pattern in fast
growing economies)

Many services can be provided by small scale
units.
They have flexibility in labor employment too.
37

38

39

40

41

42


Slide 21

UNIT-1
► GLOBALIZATION
► TRADE

PATTERNS

 THEORIES
1. IPLC
2. FACTOR MOBILITY
COMPARISON OF IPLC AND FACTOR MOBILITY THEORIES.

1

Globalization
1. A holistic approach covers the following aspects:
a. Economic
b. Financial
c. Political
d. Cultural
All the above aspects/factors interact with each
other.
[See Joshi (2011), fig.1.3, p.9]

2

3

2.

Economic globalization has the following five
major components/aspects:
Production
b. Markets
c. Competition
d. Technology
e. Corporations & Industry
All the components work in an interactive manner.
a.

[See Joshi (2011), fig.1.5, p.13]

4

5

3. Movers and Restraining Factors:
3.1. Factors that give impetus to globalization or movers:
a. Economic liberalization
b. Technical break through

Manufacturing
► Transportation
► Information & Communication.
►

c.
d.
e.
f.
g.
h.

Multilateral institutions.
Interventional economic integration.
Move towards free market systems.
Rising R&D costs.
Advents in logistic management.
Emergence of global customer segments.

3.2. Factors that restrain globalization or restraining factors:
Regulatory controls
Emerging new trade barriers.
Cultural factors
Nationalism
e. Wards and civil disturbances.
f. Management myopia.
a.
b.
c.
d.

How much globalization proceeds/progresses depends on the relative strength of
6
factors in 3.1 and 3.2.
[See Joshi (2011), fig.1.6, pg.16]

7

Globalization: A TYPICAL MODERN IMAGE
Conspicuously seen in terms of
 Westernization
 Americanization

Some of the popular examples are:





Walmartization
Cocacolination
Disneyfication
Mc Donalization

1. Walmartization*
Walmart – US Retail Chain
Walmart Effect
 Keeping small competitors out
 Driving down wages
 Keeping inflation low
 Keeping productivity high

2. Cocacolination
Perceived as an invasion of cultural
values.

It has a conservative image as reflected in
 Firm cutting down costs
 Favoring policy of
►
►

*

Cutting down taxes
Keeping welfare state competitive

See Charles Fishman: Walmart Effect

8

3. Walmartization
See George Ritzer (1995)

[MacDonaldization of Society]
Four Dimensions of fast food restaurant:

i. Efficiency: Best mode of production with little scope of individuality.
ii. Calculability: Quantifiable Objective :
- Sale
- Focus on Quantity (big MAC, not so much quality)
iii. Predictability: Uniform Production Process.
iv. Control: Substitution of non-human technologies for human labour.(System of
“Iron Cage” – same principle governs all Institutions).

Criticism:

(a) Irrationality – Every worker performs highly rationalized task leading to
workers’ “Burn Out”.
(b) Deskilling: Workers perform repetitive tasks – cheap training of workers.
workers can be replaced easily.

4. Disneyfication

What is signified? Society dedicated to

i. Themes
ii. Huge consumption
iii. Emotion based labor.
(also signifies a diluted version of original form)

9

INTERNATIONAL PRODUCT LIFE CYCLE THEORY (IPCL)
ISSUES:
1.

Do international markets follow a cyclical Pattern? Why?
What does it explain?
- Shift in markets.
- Shift in production location.

2.

What factors are behind the phenomenon? Does it explain
trade patterns?
- Level of innovation and technology.
- Quantum & Quality of Resources.
- Size of market.
- Competitive structure.
10

IPCL: Four Stages:
What Determines these stages?

Difference/gap in technology between countries/economies.
► Ability (purchasing power) of customers.
► Preferences of customers.
►

Innovation:
What Makes it Effective?

If domestic market is big – economies of scale – cost efficiency
– international competition – (US, China, India): Big markets but
their innovative capacity and technology levels differ.
► Innovation but no big domestic market:
►

How to achieve economies of scale? Set up marketing and production
facilities outside the country.

11

What are the critical factors for expanding into international market?
► Innovative capacity, level of technology
► Scope of economies
► Achieving economies of scale
►
►
►

The innovating firm starts looking for establishing production base in
other high income countries.
When this is successful, these countries (where production base is
established) start exporting to the innovating country.
International competition increases

12

Stages of International Product Life Cycle.
See exhibit and interpret:
In each column, start moving down and interpret against the row title.
Try matching the movements of three types of curves.

13

14

Stage 1: Introduction:Advanced countries – Innovation for new product.




Lot of resources required for R&D.
Initially price of new product is high.
Hence search for markets for new product in high income countries.

Stage 2: Growth:



Search for other developed markets for exports.
Globalization
Trade patterns
Theories
 IPLC
 Factor Mobility
 Comparison.
15

Note & Interpret:
(i)
(ii)

Opposite movements of curves representing high income
countries.
Testes and preferences change in low income countries also.
They too start importing new product.

Stage 3: Maturity:
By now technical know-how is known to many countries. The
innovating country starts setting up production facility in the
third world (low income developing) economies by taking
advantage of low wages in the latter.
► Imports of low income countries decline as the domestic
production of this product increases.
►

Stage 4: Decline:
►

What is the marketing strategy at this stage? Production shifts
even to least developing countries – innovating country imports
from these countries
16

Examples:
i.

ii.

UK was largest manufacturer and exporter of bicycles. Bicycle
industry declined in UK. This industry emerged in low income
countries, including India.
Developed countries shift environmentally hazardous industries to
low income countries.

17

18

Criticism of IPCL Theory:
It explains the emerging pattern of international market. This was ok
earlier. Now information about prices, technology and preferences travels
across the globe. The product may be launched by the innovating country
simultaneously in several countries.

[Discuss Maruti Suzuki case. Japanese company, Suzuki, is an innovating
company. The latter established manufacturing base in India. India first
imported Maruti Suzuki Standard -800 Model. After the product gained
maturity and popularity, Maruti Suzuki Exports Cars to several developed
and semi developed countries. The time has come when India may also
base manufacturing facilities in other least developing countries].

19

Theory of Competitive Advantage


Porter–Diamond Theory:
(Michael Porter, 1990, The competitive advantage of nations).



Main focus is on Domestic Environment.
Contrast it with IPCL. – which lays emphasis on innovation/invention
and looks forward to off-shore investment/production.
Diamond? See four blocks/diamonds The interaction of these explains
and determines the trade competitive advantage of a country. See
arrows in diagram.
4 Diamonds – Blocks:






a) Factor input – Natural & Creaed
b) Demand conditions.
 Greater is the sophistication in demand conditions, more demanding the
consumer is – product quality – better service – change in preferences – (Global
exposure…).

20

c) Related and supporting industries
 Development of ancillary industry (as in auto industry).
 Strong supply chain management.
 Development of industrial clusters.
For example:
IT – Banglore,
Textiles – Tirupur
Metal Handicraft – Moradabad

d) Firm Strategy, Structure & Rivalry






Transformation of family enterprise.
Competition policy
Incentive structure
Global exposure
Domestic rivalry (competition?)
21

22

Summary


IPCL: Explains Sifts in





Theory of competitive advantage: To explain national competitiveness, it focuses
on:








Trade Patterns
Manufacturing base

Environmental factors (factor conditions)
Demand conditions
Related supporting industries
Firm strategy, structure, etc.
Degree of competition (Rivalry, etc).

Merit of above theoretical models:
They help provide basis for:
 Principles for regulatory framework.
 Preparing trade promotion strategies to national as well as international Govt./Bodies. The
relative advantage may vary across countries.

23

24

DISCUSS TWO CASE STUDIES ATTACHED

25

CASE STUDY 1
► CHIP

INDUSTRY

26

27

28

29

30

CASE STUDY 2
► Factor

mobility :TCS-case study

31

Factor mobility theory
► Daniels

et.al
See page no. 247-259

32

Supplementary notes
► Biggest

change being observed is the
demographic one.
► By 2050 – 033 countries will have lower
population than their present population
due to lower fertility ( lower than
population ranging from 14% to 22%.)
► On

the other hand, eight countries will
account for 50% of world population.

33

Consequences

► Labor

mobility across countries likely to be faster in
coming decades than now.

► Why

factors move?

►Capital
Long term movement-FDI
 Shifting manufacturing base
 Shifting services industry base
 Reform capital account convertibility
 Political stability
 Investor friendly policies
34

people
► 200

million ( approx 3% of worlds
population) have migrated not uniformly
all over the world.
► USA got high migration ( 11 % of
population of USA is made up immigrants
)
Two – third’s of UAE population consists of
temporary workers .
► Indonesian labor migrates to Malaysia
(huge- 10 times wage differential)

35

Impact
► Singapore transformed from low-wage
► Labor-intensive to high-wage capital intensive

economy ( due to high capital inflow )

► Trade

and factor mobility
Factor movement
From abundant area to scare area. (eg,maxicon
labor to USA.)

Complementarity
Complementary products-needs equipment. This
happens through foreign investment.
36

Flexible and small scale population
► Services

growing much faster than
manufacturing .
( change in consumption pattern in fast
growing economies)

Many services can be provided by small scale
units.
They have flexibility in labor employment too.
37

38

39

40

41

42


Slide 22

UNIT-1
► GLOBALIZATION
► TRADE

PATTERNS

 THEORIES
1. IPLC
2. FACTOR MOBILITY
COMPARISON OF IPLC AND FACTOR MOBILITY THEORIES.

1

Globalization
1. A holistic approach covers the following aspects:
a. Economic
b. Financial
c. Political
d. Cultural
All the above aspects/factors interact with each
other.
[See Joshi (2011), fig.1.3, p.9]

2

3

2.

Economic globalization has the following five
major components/aspects:
Production
b. Markets
c. Competition
d. Technology
e. Corporations & Industry
All the components work in an interactive manner.
a.

[See Joshi (2011), fig.1.5, p.13]

4

5

3. Movers and Restraining Factors:
3.1. Factors that give impetus to globalization or movers:
a. Economic liberalization
b. Technical break through

Manufacturing
► Transportation
► Information & Communication.
►

c.
d.
e.
f.
g.
h.

Multilateral institutions.
Interventional economic integration.
Move towards free market systems.
Rising R&D costs.
Advents in logistic management.
Emergence of global customer segments.

3.2. Factors that restrain globalization or restraining factors:
Regulatory controls
Emerging new trade barriers.
Cultural factors
Nationalism
e. Wards and civil disturbances.
f. Management myopia.
a.
b.
c.
d.

How much globalization proceeds/progresses depends on the relative strength of
6
factors in 3.1 and 3.2.
[See Joshi (2011), fig.1.6, pg.16]

7

Globalization: A TYPICAL MODERN IMAGE
Conspicuously seen in terms of
 Westernization
 Americanization

Some of the popular examples are:





Walmartization
Cocacolination
Disneyfication
Mc Donalization

1. Walmartization*
Walmart – US Retail Chain
Walmart Effect
 Keeping small competitors out
 Driving down wages
 Keeping inflation low
 Keeping productivity high

2. Cocacolination
Perceived as an invasion of cultural
values.

It has a conservative image as reflected in
 Firm cutting down costs
 Favoring policy of
►
►

*

Cutting down taxes
Keeping welfare state competitive

See Charles Fishman: Walmart Effect

8

3. Walmartization
See George Ritzer (1995)

[MacDonaldization of Society]
Four Dimensions of fast food restaurant:

i. Efficiency: Best mode of production with little scope of individuality.
ii. Calculability: Quantifiable Objective :
- Sale
- Focus on Quantity (big MAC, not so much quality)
iii. Predictability: Uniform Production Process.
iv. Control: Substitution of non-human technologies for human labour.(System of
“Iron Cage” – same principle governs all Institutions).

Criticism:

(a) Irrationality – Every worker performs highly rationalized task leading to
workers’ “Burn Out”.
(b) Deskilling: Workers perform repetitive tasks – cheap training of workers.
workers can be replaced easily.

4. Disneyfication

What is signified? Society dedicated to

i. Themes
ii. Huge consumption
iii. Emotion based labor.
(also signifies a diluted version of original form)

9

INTERNATIONAL PRODUCT LIFE CYCLE THEORY (IPCL)
ISSUES:
1.

Do international markets follow a cyclical Pattern? Why?
What does it explain?
- Shift in markets.
- Shift in production location.

2.

What factors are behind the phenomenon? Does it explain
trade patterns?
- Level of innovation and technology.
- Quantum & Quality of Resources.
- Size of market.
- Competitive structure.
10

IPCL: Four Stages:
What Determines these stages?

Difference/gap in technology between countries/economies.
► Ability (purchasing power) of customers.
► Preferences of customers.
►

Innovation:
What Makes it Effective?

If domestic market is big – economies of scale – cost efficiency
– international competition – (US, China, India): Big markets but
their innovative capacity and technology levels differ.
► Innovation but no big domestic market:
►

How to achieve economies of scale? Set up marketing and production
facilities outside the country.

11

What are the critical factors for expanding into international market?
► Innovative capacity, level of technology
► Scope of economies
► Achieving economies of scale
►
►
►

The innovating firm starts looking for establishing production base in
other high income countries.
When this is successful, these countries (where production base is
established) start exporting to the innovating country.
International competition increases

12

Stages of International Product Life Cycle.
See exhibit and interpret:
In each column, start moving down and interpret against the row title.
Try matching the movements of three types of curves.

13

14

Stage 1: Introduction:Advanced countries – Innovation for new product.




Lot of resources required for R&D.
Initially price of new product is high.
Hence search for markets for new product in high income countries.

Stage 2: Growth:



Search for other developed markets for exports.
Globalization
Trade patterns
Theories
 IPLC
 Factor Mobility
 Comparison.
15

Note & Interpret:
(i)
(ii)

Opposite movements of curves representing high income
countries.
Testes and preferences change in low income countries also.
They too start importing new product.

Stage 3: Maturity:
By now technical know-how is known to many countries. The
innovating country starts setting up production facility in the
third world (low income developing) economies by taking
advantage of low wages in the latter.
► Imports of low income countries decline as the domestic
production of this product increases.
►

Stage 4: Decline:
►

What is the marketing strategy at this stage? Production shifts
even to least developing countries – innovating country imports
from these countries
16

Examples:
i.

ii.

UK was largest manufacturer and exporter of bicycles. Bicycle
industry declined in UK. This industry emerged in low income
countries, including India.
Developed countries shift environmentally hazardous industries to
low income countries.

17

18

Criticism of IPCL Theory:
It explains the emerging pattern of international market. This was ok
earlier. Now information about prices, technology and preferences travels
across the globe. The product may be launched by the innovating country
simultaneously in several countries.

[Discuss Maruti Suzuki case. Japanese company, Suzuki, is an innovating
company. The latter established manufacturing base in India. India first
imported Maruti Suzuki Standard -800 Model. After the product gained
maturity and popularity, Maruti Suzuki Exports Cars to several developed
and semi developed countries. The time has come when India may also
base manufacturing facilities in other least developing countries].

19

Theory of Competitive Advantage


Porter–Diamond Theory:
(Michael Porter, 1990, The competitive advantage of nations).



Main focus is on Domestic Environment.
Contrast it with IPCL. – which lays emphasis on innovation/invention
and looks forward to off-shore investment/production.
Diamond? See four blocks/diamonds The interaction of these explains
and determines the trade competitive advantage of a country. See
arrows in diagram.
4 Diamonds – Blocks:






a) Factor input – Natural & Creaed
b) Demand conditions.
 Greater is the sophistication in demand conditions, more demanding the
consumer is – product quality – better service – change in preferences – (Global
exposure…).

20

c) Related and supporting industries
 Development of ancillary industry (as in auto industry).
 Strong supply chain management.
 Development of industrial clusters.
For example:
IT – Banglore,
Textiles – Tirupur
Metal Handicraft – Moradabad

d) Firm Strategy, Structure & Rivalry






Transformation of family enterprise.
Competition policy
Incentive structure
Global exposure
Domestic rivalry (competition?)
21

22

Summary


IPCL: Explains Sifts in





Theory of competitive advantage: To explain national competitiveness, it focuses
on:








Trade Patterns
Manufacturing base

Environmental factors (factor conditions)
Demand conditions
Related supporting industries
Firm strategy, structure, etc.
Degree of competition (Rivalry, etc).

Merit of above theoretical models:
They help provide basis for:
 Principles for regulatory framework.
 Preparing trade promotion strategies to national as well as international Govt./Bodies. The
relative advantage may vary across countries.

23

24

DISCUSS TWO CASE STUDIES ATTACHED

25

CASE STUDY 1
► CHIP

INDUSTRY

26

27

28

29

30

CASE STUDY 2
► Factor

mobility :TCS-case study

31

Factor mobility theory
► Daniels

et.al
See page no. 247-259

32

Supplementary notes
► Biggest

change being observed is the
demographic one.
► By 2050 – 033 countries will have lower
population than their present population
due to lower fertility ( lower than
population ranging from 14% to 22%.)
► On

the other hand, eight countries will
account for 50% of world population.

33

Consequences

► Labor

mobility across countries likely to be faster in
coming decades than now.

► Why

factors move?

►Capital
Long term movement-FDI
 Shifting manufacturing base
 Shifting services industry base
 Reform capital account convertibility
 Political stability
 Investor friendly policies
34

people
► 200

million ( approx 3% of worlds
population) have migrated not uniformly
all over the world.
► USA got high migration ( 11 % of
population of USA is made up immigrants
)
Two – third’s of UAE population consists of
temporary workers .
► Indonesian labor migrates to Malaysia
(huge- 10 times wage differential)

35

Impact
► Singapore transformed from low-wage
► Labor-intensive to high-wage capital intensive

economy ( due to high capital inflow )

► Trade

and factor mobility
Factor movement
From abundant area to scare area. (eg,maxicon
labor to USA.)

Complementarity
Complementary products-needs equipment. This
happens through foreign investment.
36

Flexible and small scale population
► Services

growing much faster than
manufacturing .
( change in consumption pattern in fast
growing economies)

Many services can be provided by small scale
units.
They have flexibility in labor employment too.
37

38

39

40

41

42


Slide 23

UNIT-1
► GLOBALIZATION
► TRADE

PATTERNS

 THEORIES
1. IPLC
2. FACTOR MOBILITY
COMPARISON OF IPLC AND FACTOR MOBILITY THEORIES.

1

Globalization
1. A holistic approach covers the following aspects:
a. Economic
b. Financial
c. Political
d. Cultural
All the above aspects/factors interact with each
other.
[See Joshi (2011), fig.1.3, p.9]

2

3

2.

Economic globalization has the following five
major components/aspects:
Production
b. Markets
c. Competition
d. Technology
e. Corporations & Industry
All the components work in an interactive manner.
a.

[See Joshi (2011), fig.1.5, p.13]

4

5

3. Movers and Restraining Factors:
3.1. Factors that give impetus to globalization or movers:
a. Economic liberalization
b. Technical break through

Manufacturing
► Transportation
► Information & Communication.
►

c.
d.
e.
f.
g.
h.

Multilateral institutions.
Interventional economic integration.
Move towards free market systems.
Rising R&D costs.
Advents in logistic management.
Emergence of global customer segments.

3.2. Factors that restrain globalization or restraining factors:
Regulatory controls
Emerging new trade barriers.
Cultural factors
Nationalism
e. Wards and civil disturbances.
f. Management myopia.
a.
b.
c.
d.

How much globalization proceeds/progresses depends on the relative strength of
6
factors in 3.1 and 3.2.
[See Joshi (2011), fig.1.6, pg.16]

7

Globalization: A TYPICAL MODERN IMAGE
Conspicuously seen in terms of
 Westernization
 Americanization

Some of the popular examples are:





Walmartization
Cocacolination
Disneyfication
Mc Donalization

1. Walmartization*
Walmart – US Retail Chain
Walmart Effect
 Keeping small competitors out
 Driving down wages
 Keeping inflation low
 Keeping productivity high

2. Cocacolination
Perceived as an invasion of cultural
values.

It has a conservative image as reflected in
 Firm cutting down costs
 Favoring policy of
►
►

*

Cutting down taxes
Keeping welfare state competitive

See Charles Fishman: Walmart Effect

8

3. Walmartization
See George Ritzer (1995)

[MacDonaldization of Society]
Four Dimensions of fast food restaurant:

i. Efficiency: Best mode of production with little scope of individuality.
ii. Calculability: Quantifiable Objective :
- Sale
- Focus on Quantity (big MAC, not so much quality)
iii. Predictability: Uniform Production Process.
iv. Control: Substitution of non-human technologies for human labour.(System of
“Iron Cage” – same principle governs all Institutions).

Criticism:

(a) Irrationality – Every worker performs highly rationalized task leading to
workers’ “Burn Out”.
(b) Deskilling: Workers perform repetitive tasks – cheap training of workers.
workers can be replaced easily.

4. Disneyfication

What is signified? Society dedicated to

i. Themes
ii. Huge consumption
iii. Emotion based labor.
(also signifies a diluted version of original form)

9

INTERNATIONAL PRODUCT LIFE CYCLE THEORY (IPCL)
ISSUES:
1.

Do international markets follow a cyclical Pattern? Why?
What does it explain?
- Shift in markets.
- Shift in production location.

2.

What factors are behind the phenomenon? Does it explain
trade patterns?
- Level of innovation and technology.
- Quantum & Quality of Resources.
- Size of market.
- Competitive structure.
10

IPCL: Four Stages:
What Determines these stages?

Difference/gap in technology between countries/economies.
► Ability (purchasing power) of customers.
► Preferences of customers.
►

Innovation:
What Makes it Effective?

If domestic market is big – economies of scale – cost efficiency
– international competition – (US, China, India): Big markets but
their innovative capacity and technology levels differ.
► Innovation but no big domestic market:
►

How to achieve economies of scale? Set up marketing and production
facilities outside the country.

11

What are the critical factors for expanding into international market?
► Innovative capacity, level of technology
► Scope of economies
► Achieving economies of scale
►
►
►

The innovating firm starts looking for establishing production base in
other high income countries.
When this is successful, these countries (where production base is
established) start exporting to the innovating country.
International competition increases

12

Stages of International Product Life Cycle.
See exhibit and interpret:
In each column, start moving down and interpret against the row title.
Try matching the movements of three types of curves.

13

14

Stage 1: Introduction:Advanced countries – Innovation for new product.




Lot of resources required for R&D.
Initially price of new product is high.
Hence search for markets for new product in high income countries.

Stage 2: Growth:



Search for other developed markets for exports.
Globalization
Trade patterns
Theories
 IPLC
 Factor Mobility
 Comparison.
15

Note & Interpret:
(i)
(ii)

Opposite movements of curves representing high income
countries.
Testes and preferences change in low income countries also.
They too start importing new product.

Stage 3: Maturity:
By now technical know-how is known to many countries. The
innovating country starts setting up production facility in the
third world (low income developing) economies by taking
advantage of low wages in the latter.
► Imports of low income countries decline as the domestic
production of this product increases.
►

Stage 4: Decline:
►

What is the marketing strategy at this stage? Production shifts
even to least developing countries – innovating country imports
from these countries
16

Examples:
i.

ii.

UK was largest manufacturer and exporter of bicycles. Bicycle
industry declined in UK. This industry emerged in low income
countries, including India.
Developed countries shift environmentally hazardous industries to
low income countries.

17

18

Criticism of IPCL Theory:
It explains the emerging pattern of international market. This was ok
earlier. Now information about prices, technology and preferences travels
across the globe. The product may be launched by the innovating country
simultaneously in several countries.

[Discuss Maruti Suzuki case. Japanese company, Suzuki, is an innovating
company. The latter established manufacturing base in India. India first
imported Maruti Suzuki Standard -800 Model. After the product gained
maturity and popularity, Maruti Suzuki Exports Cars to several developed
and semi developed countries. The time has come when India may also
base manufacturing facilities in other least developing countries].

19

Theory of Competitive Advantage


Porter–Diamond Theory:
(Michael Porter, 1990, The competitive advantage of nations).



Main focus is on Domestic Environment.
Contrast it with IPCL. – which lays emphasis on innovation/invention
and looks forward to off-shore investment/production.
Diamond? See four blocks/diamonds The interaction of these explains
and determines the trade competitive advantage of a country. See
arrows in diagram.
4 Diamonds – Blocks:






a) Factor input – Natural & Creaed
b) Demand conditions.
 Greater is the sophistication in demand conditions, more demanding the
consumer is – product quality – better service – change in preferences – (Global
exposure…).

20

c) Related and supporting industries
 Development of ancillary industry (as in auto industry).
 Strong supply chain management.
 Development of industrial clusters.
For example:
IT – Banglore,
Textiles – Tirupur
Metal Handicraft – Moradabad

d) Firm Strategy, Structure & Rivalry






Transformation of family enterprise.
Competition policy
Incentive structure
Global exposure
Domestic rivalry (competition?)
21

22

Summary


IPCL: Explains Sifts in





Theory of competitive advantage: To explain national competitiveness, it focuses
on:








Trade Patterns
Manufacturing base

Environmental factors (factor conditions)
Demand conditions
Related supporting industries
Firm strategy, structure, etc.
Degree of competition (Rivalry, etc).

Merit of above theoretical models:
They help provide basis for:
 Principles for regulatory framework.
 Preparing trade promotion strategies to national as well as international Govt./Bodies. The
relative advantage may vary across countries.

23

24

DISCUSS TWO CASE STUDIES ATTACHED

25

CASE STUDY 1
► CHIP

INDUSTRY

26

27

28

29

30

CASE STUDY 2
► Factor

mobility :TCS-case study

31

Factor mobility theory
► Daniels

et.al
See page no. 247-259

32

Supplementary notes
► Biggest

change being observed is the
demographic one.
► By 2050 – 033 countries will have lower
population than their present population
due to lower fertility ( lower than
population ranging from 14% to 22%.)
► On

the other hand, eight countries will
account for 50% of world population.

33

Consequences

► Labor

mobility across countries likely to be faster in
coming decades than now.

► Why

factors move?

►Capital
Long term movement-FDI
 Shifting manufacturing base
 Shifting services industry base
 Reform capital account convertibility
 Political stability
 Investor friendly policies
34

people
► 200

million ( approx 3% of worlds
population) have migrated not uniformly
all over the world.
► USA got high migration ( 11 % of
population of USA is made up immigrants
)
Two – third’s of UAE population consists of
temporary workers .
► Indonesian labor migrates to Malaysia
(huge- 10 times wage differential)

35

Impact
► Singapore transformed from low-wage
► Labor-intensive to high-wage capital intensive

economy ( due to high capital inflow )

► Trade

and factor mobility
Factor movement
From abundant area to scare area. (eg,maxicon
labor to USA.)

Complementarity
Complementary products-needs equipment. This
happens through foreign investment.
36

Flexible and small scale population
► Services

growing much faster than
manufacturing .
( change in consumption pattern in fast
growing economies)

Many services can be provided by small scale
units.
They have flexibility in labor employment too.
37

38

39

40

41

42


Slide 24

UNIT-1
► GLOBALIZATION
► TRADE

PATTERNS

 THEORIES
1. IPLC
2. FACTOR MOBILITY
COMPARISON OF IPLC AND FACTOR MOBILITY THEORIES.

1

Globalization
1. A holistic approach covers the following aspects:
a. Economic
b. Financial
c. Political
d. Cultural
All the above aspects/factors interact with each
other.
[See Joshi (2011), fig.1.3, p.9]

2

3

2.

Economic globalization has the following five
major components/aspects:
Production
b. Markets
c. Competition
d. Technology
e. Corporations & Industry
All the components work in an interactive manner.
a.

[See Joshi (2011), fig.1.5, p.13]

4

5

3. Movers and Restraining Factors:
3.1. Factors that give impetus to globalization or movers:
a. Economic liberalization
b. Technical break through

Manufacturing
► Transportation
► Information & Communication.
►

c.
d.
e.
f.
g.
h.

Multilateral institutions.
Interventional economic integration.
Move towards free market systems.
Rising R&D costs.
Advents in logistic management.
Emergence of global customer segments.

3.2. Factors that restrain globalization or restraining factors:
Regulatory controls
Emerging new trade barriers.
Cultural factors
Nationalism
e. Wards and civil disturbances.
f. Management myopia.
a.
b.
c.
d.

How much globalization proceeds/progresses depends on the relative strength of
6
factors in 3.1 and 3.2.
[See Joshi (2011), fig.1.6, pg.16]

7

Globalization: A TYPICAL MODERN IMAGE
Conspicuously seen in terms of
 Westernization
 Americanization

Some of the popular examples are:





Walmartization
Cocacolination
Disneyfication
Mc Donalization

1. Walmartization*
Walmart – US Retail Chain
Walmart Effect
 Keeping small competitors out
 Driving down wages
 Keeping inflation low
 Keeping productivity high

2. Cocacolination
Perceived as an invasion of cultural
values.

It has a conservative image as reflected in
 Firm cutting down costs
 Favoring policy of
►
►

*

Cutting down taxes
Keeping welfare state competitive

See Charles Fishman: Walmart Effect

8

3. Walmartization
See George Ritzer (1995)

[MacDonaldization of Society]
Four Dimensions of fast food restaurant:

i. Efficiency: Best mode of production with little scope of individuality.
ii. Calculability: Quantifiable Objective :
- Sale
- Focus on Quantity (big MAC, not so much quality)
iii. Predictability: Uniform Production Process.
iv. Control: Substitution of non-human technologies for human labour.(System of
“Iron Cage” – same principle governs all Institutions).

Criticism:

(a) Irrationality – Every worker performs highly rationalized task leading to
workers’ “Burn Out”.
(b) Deskilling: Workers perform repetitive tasks – cheap training of workers.
workers can be replaced easily.

4. Disneyfication

What is signified? Society dedicated to

i. Themes
ii. Huge consumption
iii. Emotion based labor.
(also signifies a diluted version of original form)

9

INTERNATIONAL PRODUCT LIFE CYCLE THEORY (IPCL)
ISSUES:
1.

Do international markets follow a cyclical Pattern? Why?
What does it explain?
- Shift in markets.
- Shift in production location.

2.

What factors are behind the phenomenon? Does it explain
trade patterns?
- Level of innovation and technology.
- Quantum & Quality of Resources.
- Size of market.
- Competitive structure.
10

IPCL: Four Stages:
What Determines these stages?

Difference/gap in technology between countries/economies.
► Ability (purchasing power) of customers.
► Preferences of customers.
►

Innovation:
What Makes it Effective?

If domestic market is big – economies of scale – cost efficiency
– international competition – (US, China, India): Big markets but
their innovative capacity and technology levels differ.
► Innovation but no big domestic market:
►

How to achieve economies of scale? Set up marketing and production
facilities outside the country.

11

What are the critical factors for expanding into international market?
► Innovative capacity, level of technology
► Scope of economies
► Achieving economies of scale
►
►
►

The innovating firm starts looking for establishing production base in
other high income countries.
When this is successful, these countries (where production base is
established) start exporting to the innovating country.
International competition increases

12

Stages of International Product Life Cycle.
See exhibit and interpret:
In each column, start moving down and interpret against the row title.
Try matching the movements of three types of curves.

13

14

Stage 1: Introduction:Advanced countries – Innovation for new product.




Lot of resources required for R&D.
Initially price of new product is high.
Hence search for markets for new product in high income countries.

Stage 2: Growth:



Search for other developed markets for exports.
Globalization
Trade patterns
Theories
 IPLC
 Factor Mobility
 Comparison.
15

Note & Interpret:
(i)
(ii)

Opposite movements of curves representing high income
countries.
Testes and preferences change in low income countries also.
They too start importing new product.

Stage 3: Maturity:
By now technical know-how is known to many countries. The
innovating country starts setting up production facility in the
third world (low income developing) economies by taking
advantage of low wages in the latter.
► Imports of low income countries decline as the domestic
production of this product increases.
►

Stage 4: Decline:
►

What is the marketing strategy at this stage? Production shifts
even to least developing countries – innovating country imports
from these countries
16

Examples:
i.

ii.

UK was largest manufacturer and exporter of bicycles. Bicycle
industry declined in UK. This industry emerged in low income
countries, including India.
Developed countries shift environmentally hazardous industries to
low income countries.

17

18

Criticism of IPCL Theory:
It explains the emerging pattern of international market. This was ok
earlier. Now information about prices, technology and preferences travels
across the globe. The product may be launched by the innovating country
simultaneously in several countries.

[Discuss Maruti Suzuki case. Japanese company, Suzuki, is an innovating
company. The latter established manufacturing base in India. India first
imported Maruti Suzuki Standard -800 Model. After the product gained
maturity and popularity, Maruti Suzuki Exports Cars to several developed
and semi developed countries. The time has come when India may also
base manufacturing facilities in other least developing countries].

19

Theory of Competitive Advantage


Porter–Diamond Theory:
(Michael Porter, 1990, The competitive advantage of nations).



Main focus is on Domestic Environment.
Contrast it with IPCL. – which lays emphasis on innovation/invention
and looks forward to off-shore investment/production.
Diamond? See four blocks/diamonds The interaction of these explains
and determines the trade competitive advantage of a country. See
arrows in diagram.
4 Diamonds – Blocks:






a) Factor input – Natural & Creaed
b) Demand conditions.
 Greater is the sophistication in demand conditions, more demanding the
consumer is – product quality – better service – change in preferences – (Global
exposure…).

20

c) Related and supporting industries
 Development of ancillary industry (as in auto industry).
 Strong supply chain management.
 Development of industrial clusters.
For example:
IT – Banglore,
Textiles – Tirupur
Metal Handicraft – Moradabad

d) Firm Strategy, Structure & Rivalry






Transformation of family enterprise.
Competition policy
Incentive structure
Global exposure
Domestic rivalry (competition?)
21

22

Summary


IPCL: Explains Sifts in





Theory of competitive advantage: To explain national competitiveness, it focuses
on:








Trade Patterns
Manufacturing base

Environmental factors (factor conditions)
Demand conditions
Related supporting industries
Firm strategy, structure, etc.
Degree of competition (Rivalry, etc).

Merit of above theoretical models:
They help provide basis for:
 Principles for regulatory framework.
 Preparing trade promotion strategies to national as well as international Govt./Bodies. The
relative advantage may vary across countries.

23

24

DISCUSS TWO CASE STUDIES ATTACHED

25

CASE STUDY 1
► CHIP

INDUSTRY

26

27

28

29

30

CASE STUDY 2
► Factor

mobility :TCS-case study

31

Factor mobility theory
► Daniels

et.al
See page no. 247-259

32

Supplementary notes
► Biggest

change being observed is the
demographic one.
► By 2050 – 033 countries will have lower
population than their present population
due to lower fertility ( lower than
population ranging from 14% to 22%.)
► On

the other hand, eight countries will
account for 50% of world population.

33

Consequences

► Labor

mobility across countries likely to be faster in
coming decades than now.

► Why

factors move?

►Capital
Long term movement-FDI
 Shifting manufacturing base
 Shifting services industry base
 Reform capital account convertibility
 Political stability
 Investor friendly policies
34

people
► 200

million ( approx 3% of worlds
population) have migrated not uniformly
all over the world.
► USA got high migration ( 11 % of
population of USA is made up immigrants
)
Two – third’s of UAE population consists of
temporary workers .
► Indonesian labor migrates to Malaysia
(huge- 10 times wage differential)

35

Impact
► Singapore transformed from low-wage
► Labor-intensive to high-wage capital intensive

economy ( due to high capital inflow )

► Trade

and factor mobility
Factor movement
From abundant area to scare area. (eg,maxicon
labor to USA.)

Complementarity
Complementary products-needs equipment. This
happens through foreign investment.
36

Flexible and small scale population
► Services

growing much faster than
manufacturing .
( change in consumption pattern in fast
growing economies)

Many services can be provided by small scale
units.
They have flexibility in labor employment too.
37

38

39

40

41

42


Slide 25

UNIT-1
► GLOBALIZATION
► TRADE

PATTERNS

 THEORIES
1. IPLC
2. FACTOR MOBILITY
COMPARISON OF IPLC AND FACTOR MOBILITY THEORIES.

1

Globalization
1. A holistic approach covers the following aspects:
a. Economic
b. Financial
c. Political
d. Cultural
All the above aspects/factors interact with each
other.
[See Joshi (2011), fig.1.3, p.9]

2

3

2.

Economic globalization has the following five
major components/aspects:
Production
b. Markets
c. Competition
d. Technology
e. Corporations & Industry
All the components work in an interactive manner.
a.

[See Joshi (2011), fig.1.5, p.13]

4

5

3. Movers and Restraining Factors:
3.1. Factors that give impetus to globalization or movers:
a. Economic liberalization
b. Technical break through

Manufacturing
► Transportation
► Information & Communication.
►

c.
d.
e.
f.
g.
h.

Multilateral institutions.
Interventional economic integration.
Move towards free market systems.
Rising R&D costs.
Advents in logistic management.
Emergence of global customer segments.

3.2. Factors that restrain globalization or restraining factors:
Regulatory controls
Emerging new trade barriers.
Cultural factors
Nationalism
e. Wards and civil disturbances.
f. Management myopia.
a.
b.
c.
d.

How much globalization proceeds/progresses depends on the relative strength of
6
factors in 3.1 and 3.2.
[See Joshi (2011), fig.1.6, pg.16]

7

Globalization: A TYPICAL MODERN IMAGE
Conspicuously seen in terms of
 Westernization
 Americanization

Some of the popular examples are:





Walmartization
Cocacolination
Disneyfication
Mc Donalization

1. Walmartization*
Walmart – US Retail Chain
Walmart Effect
 Keeping small competitors out
 Driving down wages
 Keeping inflation low
 Keeping productivity high

2. Cocacolination
Perceived as an invasion of cultural
values.

It has a conservative image as reflected in
 Firm cutting down costs
 Favoring policy of
►
►

*

Cutting down taxes
Keeping welfare state competitive

See Charles Fishman: Walmart Effect

8

3. Walmartization
See George Ritzer (1995)

[MacDonaldization of Society]
Four Dimensions of fast food restaurant:

i. Efficiency: Best mode of production with little scope of individuality.
ii. Calculability: Quantifiable Objective :
- Sale
- Focus on Quantity (big MAC, not so much quality)
iii. Predictability: Uniform Production Process.
iv. Control: Substitution of non-human technologies for human labour.(System of
“Iron Cage” – same principle governs all Institutions).

Criticism:

(a) Irrationality – Every worker performs highly rationalized task leading to
workers’ “Burn Out”.
(b) Deskilling: Workers perform repetitive tasks – cheap training of workers.
workers can be replaced easily.

4. Disneyfication

What is signified? Society dedicated to

i. Themes
ii. Huge consumption
iii. Emotion based labor.
(also signifies a diluted version of original form)

9

INTERNATIONAL PRODUCT LIFE CYCLE THEORY (IPCL)
ISSUES:
1.

Do international markets follow a cyclical Pattern? Why?
What does it explain?
- Shift in markets.
- Shift in production location.

2.

What factors are behind the phenomenon? Does it explain
trade patterns?
- Level of innovation and technology.
- Quantum & Quality of Resources.
- Size of market.
- Competitive structure.
10

IPCL: Four Stages:
What Determines these stages?

Difference/gap in technology between countries/economies.
► Ability (purchasing power) of customers.
► Preferences of customers.
►

Innovation:
What Makes it Effective?

If domestic market is big – economies of scale – cost efficiency
– international competition – (US, China, India): Big markets but
their innovative capacity and technology levels differ.
► Innovation but no big domestic market:
►

How to achieve economies of scale? Set up marketing and production
facilities outside the country.

11

What are the critical factors for expanding into international market?
► Innovative capacity, level of technology
► Scope of economies
► Achieving economies of scale
►
►
►

The innovating firm starts looking for establishing production base in
other high income countries.
When this is successful, these countries (where production base is
established) start exporting to the innovating country.
International competition increases

12

Stages of International Product Life Cycle.
See exhibit and interpret:
In each column, start moving down and interpret against the row title.
Try matching the movements of three types of curves.

13

14

Stage 1: Introduction:Advanced countries – Innovation for new product.




Lot of resources required for R&D.
Initially price of new product is high.
Hence search for markets for new product in high income countries.

Stage 2: Growth:



Search for other developed markets for exports.
Globalization
Trade patterns
Theories
 IPLC
 Factor Mobility
 Comparison.
15

Note & Interpret:
(i)
(ii)

Opposite movements of curves representing high income
countries.
Testes and preferences change in low income countries also.
They too start importing new product.

Stage 3: Maturity:
By now technical know-how is known to many countries. The
innovating country starts setting up production facility in the
third world (low income developing) economies by taking
advantage of low wages in the latter.
► Imports of low income countries decline as the domestic
production of this product increases.
►

Stage 4: Decline:
►

What is the marketing strategy at this stage? Production shifts
even to least developing countries – innovating country imports
from these countries
16

Examples:
i.

ii.

UK was largest manufacturer and exporter of bicycles. Bicycle
industry declined in UK. This industry emerged in low income
countries, including India.
Developed countries shift environmentally hazardous industries to
low income countries.

17

18

Criticism of IPCL Theory:
It explains the emerging pattern of international market. This was ok
earlier. Now information about prices, technology and preferences travels
across the globe. The product may be launched by the innovating country
simultaneously in several countries.

[Discuss Maruti Suzuki case. Japanese company, Suzuki, is an innovating
company. The latter established manufacturing base in India. India first
imported Maruti Suzuki Standard -800 Model. After the product gained
maturity and popularity, Maruti Suzuki Exports Cars to several developed
and semi developed countries. The time has come when India may also
base manufacturing facilities in other least developing countries].

19

Theory of Competitive Advantage


Porter–Diamond Theory:
(Michael Porter, 1990, The competitive advantage of nations).



Main focus is on Domestic Environment.
Contrast it with IPCL. – which lays emphasis on innovation/invention
and looks forward to off-shore investment/production.
Diamond? See four blocks/diamonds The interaction of these explains
and determines the trade competitive advantage of a country. See
arrows in diagram.
4 Diamonds – Blocks:






a) Factor input – Natural & Creaed
b) Demand conditions.
 Greater is the sophistication in demand conditions, more demanding the
consumer is – product quality – better service – change in preferences – (Global
exposure…).

20

c) Related and supporting industries
 Development of ancillary industry (as in auto industry).
 Strong supply chain management.
 Development of industrial clusters.
For example:
IT – Banglore,
Textiles – Tirupur
Metal Handicraft – Moradabad

d) Firm Strategy, Structure & Rivalry






Transformation of family enterprise.
Competition policy
Incentive structure
Global exposure
Domestic rivalry (competition?)
21

22

Summary


IPCL: Explains Sifts in





Theory of competitive advantage: To explain national competitiveness, it focuses
on:








Trade Patterns
Manufacturing base

Environmental factors (factor conditions)
Demand conditions
Related supporting industries
Firm strategy, structure, etc.
Degree of competition (Rivalry, etc).

Merit of above theoretical models:
They help provide basis for:
 Principles for regulatory framework.
 Preparing trade promotion strategies to national as well as international Govt./Bodies. The
relative advantage may vary across countries.

23

24

DISCUSS TWO CASE STUDIES ATTACHED

25

CASE STUDY 1
► CHIP

INDUSTRY

26

27

28

29

30

CASE STUDY 2
► Factor

mobility :TCS-case study

31

Factor mobility theory
► Daniels

et.al
See page no. 247-259

32

Supplementary notes
► Biggest

change being observed is the
demographic one.
► By 2050 – 033 countries will have lower
population than their present population
due to lower fertility ( lower than
population ranging from 14% to 22%.)
► On

the other hand, eight countries will
account for 50% of world population.

33

Consequences

► Labor

mobility across countries likely to be faster in
coming decades than now.

► Why

factors move?

►Capital
Long term movement-FDI
 Shifting manufacturing base
 Shifting services industry base
 Reform capital account convertibility
 Political stability
 Investor friendly policies
34

people
► 200

million ( approx 3% of worlds
population) have migrated not uniformly
all over the world.
► USA got high migration ( 11 % of
population of USA is made up immigrants
)
Two – third’s of UAE population consists of
temporary workers .
► Indonesian labor migrates to Malaysia
(huge- 10 times wage differential)

35

Impact
► Singapore transformed from low-wage
► Labor-intensive to high-wage capital intensive

economy ( due to high capital inflow )

► Trade

and factor mobility
Factor movement
From abundant area to scare area. (eg,maxicon
labor to USA.)

Complementarity
Complementary products-needs equipment. This
happens through foreign investment.
36

Flexible and small scale population
► Services

growing much faster than
manufacturing .
( change in consumption pattern in fast
growing economies)

Many services can be provided by small scale
units.
They have flexibility in labor employment too.
37

38

39

40

41

42


Slide 26

UNIT-1
► GLOBALIZATION
► TRADE

PATTERNS

 THEORIES
1. IPLC
2. FACTOR MOBILITY
COMPARISON OF IPLC AND FACTOR MOBILITY THEORIES.

1

Globalization
1. A holistic approach covers the following aspects:
a. Economic
b. Financial
c. Political
d. Cultural
All the above aspects/factors interact with each
other.
[See Joshi (2011), fig.1.3, p.9]

2

3

2.

Economic globalization has the following five
major components/aspects:
Production
b. Markets
c. Competition
d. Technology
e. Corporations & Industry
All the components work in an interactive manner.
a.

[See Joshi (2011), fig.1.5, p.13]

4

5

3. Movers and Restraining Factors:
3.1. Factors that give impetus to globalization or movers:
a. Economic liberalization
b. Technical break through

Manufacturing
► Transportation
► Information & Communication.
►

c.
d.
e.
f.
g.
h.

Multilateral institutions.
Interventional economic integration.
Move towards free market systems.
Rising R&D costs.
Advents in logistic management.
Emergence of global customer segments.

3.2. Factors that restrain globalization or restraining factors:
Regulatory controls
Emerging new trade barriers.
Cultural factors
Nationalism
e. Wards and civil disturbances.
f. Management myopia.
a.
b.
c.
d.

How much globalization proceeds/progresses depends on the relative strength of
6
factors in 3.1 and 3.2.
[See Joshi (2011), fig.1.6, pg.16]

7

Globalization: A TYPICAL MODERN IMAGE
Conspicuously seen in terms of
 Westernization
 Americanization

Some of the popular examples are:





Walmartization
Cocacolination
Disneyfication
Mc Donalization

1. Walmartization*
Walmart – US Retail Chain
Walmart Effect
 Keeping small competitors out
 Driving down wages
 Keeping inflation low
 Keeping productivity high

2. Cocacolination
Perceived as an invasion of cultural
values.

It has a conservative image as reflected in
 Firm cutting down costs
 Favoring policy of
►
►

*

Cutting down taxes
Keeping welfare state competitive

See Charles Fishman: Walmart Effect

8

3. Walmartization
See George Ritzer (1995)

[MacDonaldization of Society]
Four Dimensions of fast food restaurant:

i. Efficiency: Best mode of production with little scope of individuality.
ii. Calculability: Quantifiable Objective :
- Sale
- Focus on Quantity (big MAC, not so much quality)
iii. Predictability: Uniform Production Process.
iv. Control: Substitution of non-human technologies for human labour.(System of
“Iron Cage” – same principle governs all Institutions).

Criticism:

(a) Irrationality – Every worker performs highly rationalized task leading to
workers’ “Burn Out”.
(b) Deskilling: Workers perform repetitive tasks – cheap training of workers.
workers can be replaced easily.

4. Disneyfication

What is signified? Society dedicated to

i. Themes
ii. Huge consumption
iii. Emotion based labor.
(also signifies a diluted version of original form)

9

INTERNATIONAL PRODUCT LIFE CYCLE THEORY (IPCL)
ISSUES:
1.

Do international markets follow a cyclical Pattern? Why?
What does it explain?
- Shift in markets.
- Shift in production location.

2.

What factors are behind the phenomenon? Does it explain
trade patterns?
- Level of innovation and technology.
- Quantum & Quality of Resources.
- Size of market.
- Competitive structure.
10

IPCL: Four Stages:
What Determines these stages?

Difference/gap in technology between countries/economies.
► Ability (purchasing power) of customers.
► Preferences of customers.
►

Innovation:
What Makes it Effective?

If domestic market is big – economies of scale – cost efficiency
– international competition – (US, China, India): Big markets but
their innovative capacity and technology levels differ.
► Innovation but no big domestic market:
►

How to achieve economies of scale? Set up marketing and production
facilities outside the country.

11

What are the critical factors for expanding into international market?
► Innovative capacity, level of technology
► Scope of economies
► Achieving economies of scale
►
►
►

The innovating firm starts looking for establishing production base in
other high income countries.
When this is successful, these countries (where production base is
established) start exporting to the innovating country.
International competition increases

12

Stages of International Product Life Cycle.
See exhibit and interpret:
In each column, start moving down and interpret against the row title.
Try matching the movements of three types of curves.

13

14

Stage 1: Introduction:Advanced countries – Innovation for new product.




Lot of resources required for R&D.
Initially price of new product is high.
Hence search for markets for new product in high income countries.

Stage 2: Growth:



Search for other developed markets for exports.
Globalization
Trade patterns
Theories
 IPLC
 Factor Mobility
 Comparison.
15

Note & Interpret:
(i)
(ii)

Opposite movements of curves representing high income
countries.
Testes and preferences change in low income countries also.
They too start importing new product.

Stage 3: Maturity:
By now technical know-how is known to many countries. The
innovating country starts setting up production facility in the
third world (low income developing) economies by taking
advantage of low wages in the latter.
► Imports of low income countries decline as the domestic
production of this product increases.
►

Stage 4: Decline:
►

What is the marketing strategy at this stage? Production shifts
even to least developing countries – innovating country imports
from these countries
16

Examples:
i.

ii.

UK was largest manufacturer and exporter of bicycles. Bicycle
industry declined in UK. This industry emerged in low income
countries, including India.
Developed countries shift environmentally hazardous industries to
low income countries.

17

18

Criticism of IPCL Theory:
It explains the emerging pattern of international market. This was ok
earlier. Now information about prices, technology and preferences travels
across the globe. The product may be launched by the innovating country
simultaneously in several countries.

[Discuss Maruti Suzuki case. Japanese company, Suzuki, is an innovating
company. The latter established manufacturing base in India. India first
imported Maruti Suzuki Standard -800 Model. After the product gained
maturity and popularity, Maruti Suzuki Exports Cars to several developed
and semi developed countries. The time has come when India may also
base manufacturing facilities in other least developing countries].

19

Theory of Competitive Advantage


Porter–Diamond Theory:
(Michael Porter, 1990, The competitive advantage of nations).



Main focus is on Domestic Environment.
Contrast it with IPCL. – which lays emphasis on innovation/invention
and looks forward to off-shore investment/production.
Diamond? See four blocks/diamonds The interaction of these explains
and determines the trade competitive advantage of a country. See
arrows in diagram.
4 Diamonds – Blocks:






a) Factor input – Natural & Creaed
b) Demand conditions.
 Greater is the sophistication in demand conditions, more demanding the
consumer is – product quality – better service – change in preferences – (Global
exposure…).

20

c) Related and supporting industries
 Development of ancillary industry (as in auto industry).
 Strong supply chain management.
 Development of industrial clusters.
For example:
IT – Banglore,
Textiles – Tirupur
Metal Handicraft – Moradabad

d) Firm Strategy, Structure & Rivalry






Transformation of family enterprise.
Competition policy
Incentive structure
Global exposure
Domestic rivalry (competition?)
21

22

Summary


IPCL: Explains Sifts in





Theory of competitive advantage: To explain national competitiveness, it focuses
on:








Trade Patterns
Manufacturing base

Environmental factors (factor conditions)
Demand conditions
Related supporting industries
Firm strategy, structure, etc.
Degree of competition (Rivalry, etc).

Merit of above theoretical models:
They help provide basis for:
 Principles for regulatory framework.
 Preparing trade promotion strategies to national as well as international Govt./Bodies. The
relative advantage may vary across countries.

23

24

DISCUSS TWO CASE STUDIES ATTACHED

25

CASE STUDY 1
► CHIP

INDUSTRY

26

27

28

29

30

CASE STUDY 2
► Factor

mobility :TCS-case study

31

Factor mobility theory
► Daniels

et.al
See page no. 247-259

32

Supplementary notes
► Biggest

change being observed is the
demographic one.
► By 2050 – 033 countries will have lower
population than their present population
due to lower fertility ( lower than
population ranging from 14% to 22%.)
► On

the other hand, eight countries will
account for 50% of world population.

33

Consequences

► Labor

mobility across countries likely to be faster in
coming decades than now.

► Why

factors move?

►Capital
Long term movement-FDI
 Shifting manufacturing base
 Shifting services industry base
 Reform capital account convertibility
 Political stability
 Investor friendly policies
34

people
► 200

million ( approx 3% of worlds
population) have migrated not uniformly
all over the world.
► USA got high migration ( 11 % of
population of USA is made up immigrants
)
Two – third’s of UAE population consists of
temporary workers .
► Indonesian labor migrates to Malaysia
(huge- 10 times wage differential)

35

Impact
► Singapore transformed from low-wage
► Labor-intensive to high-wage capital intensive

economy ( due to high capital inflow )

► Trade

and factor mobility
Factor movement
From abundant area to scare area. (eg,maxicon
labor to USA.)

Complementarity
Complementary products-needs equipment. This
happens through foreign investment.
36

Flexible and small scale population
► Services

growing much faster than
manufacturing .
( change in consumption pattern in fast
growing economies)

Many services can be provided by small scale
units.
They have flexibility in labor employment too.
37

38

39

40

41

42


Slide 27

UNIT-1
► GLOBALIZATION
► TRADE

PATTERNS

 THEORIES
1. IPLC
2. FACTOR MOBILITY
COMPARISON OF IPLC AND FACTOR MOBILITY THEORIES.

1

Globalization
1. A holistic approach covers the following aspects:
a. Economic
b. Financial
c. Political
d. Cultural
All the above aspects/factors interact with each
other.
[See Joshi (2011), fig.1.3, p.9]

2

3

2.

Economic globalization has the following five
major components/aspects:
Production
b. Markets
c. Competition
d. Technology
e. Corporations & Industry
All the components work in an interactive manner.
a.

[See Joshi (2011), fig.1.5, p.13]

4

5

3. Movers and Restraining Factors:
3.1. Factors that give impetus to globalization or movers:
a. Economic liberalization
b. Technical break through

Manufacturing
► Transportation
► Information & Communication.
►

c.
d.
e.
f.
g.
h.

Multilateral institutions.
Interventional economic integration.
Move towards free market systems.
Rising R&D costs.
Advents in logistic management.
Emergence of global customer segments.

3.2. Factors that restrain globalization or restraining factors:
Regulatory controls
Emerging new trade barriers.
Cultural factors
Nationalism
e. Wards and civil disturbances.
f. Management myopia.
a.
b.
c.
d.

How much globalization proceeds/progresses depends on the relative strength of
6
factors in 3.1 and 3.2.
[See Joshi (2011), fig.1.6, pg.16]

7

Globalization: A TYPICAL MODERN IMAGE
Conspicuously seen in terms of
 Westernization
 Americanization

Some of the popular examples are:





Walmartization
Cocacolination
Disneyfication
Mc Donalization

1. Walmartization*
Walmart – US Retail Chain
Walmart Effect
 Keeping small competitors out
 Driving down wages
 Keeping inflation low
 Keeping productivity high

2. Cocacolination
Perceived as an invasion of cultural
values.

It has a conservative image as reflected in
 Firm cutting down costs
 Favoring policy of
►
►

*

Cutting down taxes
Keeping welfare state competitive

See Charles Fishman: Walmart Effect

8

3. Walmartization
See George Ritzer (1995)

[MacDonaldization of Society]
Four Dimensions of fast food restaurant:

i. Efficiency: Best mode of production with little scope of individuality.
ii. Calculability: Quantifiable Objective :
- Sale
- Focus on Quantity (big MAC, not so much quality)
iii. Predictability: Uniform Production Process.
iv. Control: Substitution of non-human technologies for human labour.(System of
“Iron Cage” – same principle governs all Institutions).

Criticism:

(a) Irrationality – Every worker performs highly rationalized task leading to
workers’ “Burn Out”.
(b) Deskilling: Workers perform repetitive tasks – cheap training of workers.
workers can be replaced easily.

4. Disneyfication

What is signified? Society dedicated to

i. Themes
ii. Huge consumption
iii. Emotion based labor.
(also signifies a diluted version of original form)

9

INTERNATIONAL PRODUCT LIFE CYCLE THEORY (IPCL)
ISSUES:
1.

Do international markets follow a cyclical Pattern? Why?
What does it explain?
- Shift in markets.
- Shift in production location.

2.

What factors are behind the phenomenon? Does it explain
trade patterns?
- Level of innovation and technology.
- Quantum & Quality of Resources.
- Size of market.
- Competitive structure.
10

IPCL: Four Stages:
What Determines these stages?

Difference/gap in technology between countries/economies.
► Ability (purchasing power) of customers.
► Preferences of customers.
►

Innovation:
What Makes it Effective?

If domestic market is big – economies of scale – cost efficiency
– international competition – (US, China, India): Big markets but
their innovative capacity and technology levels differ.
► Innovation but no big domestic market:
►

How to achieve economies of scale? Set up marketing and production
facilities outside the country.

11

What are the critical factors for expanding into international market?
► Innovative capacity, level of technology
► Scope of economies
► Achieving economies of scale
►
►
►

The innovating firm starts looking for establishing production base in
other high income countries.
When this is successful, these countries (where production base is
established) start exporting to the innovating country.
International competition increases

12

Stages of International Product Life Cycle.
See exhibit and interpret:
In each column, start moving down and interpret against the row title.
Try matching the movements of three types of curves.

13

14

Stage 1: Introduction:Advanced countries – Innovation for new product.




Lot of resources required for R&D.
Initially price of new product is high.
Hence search for markets for new product in high income countries.

Stage 2: Growth:



Search for other developed markets for exports.
Globalization
Trade patterns
Theories
 IPLC
 Factor Mobility
 Comparison.
15

Note & Interpret:
(i)
(ii)

Opposite movements of curves representing high income
countries.
Testes and preferences change in low income countries also.
They too start importing new product.

Stage 3: Maturity:
By now technical know-how is known to many countries. The
innovating country starts setting up production facility in the
third world (low income developing) economies by taking
advantage of low wages in the latter.
► Imports of low income countries decline as the domestic
production of this product increases.
►

Stage 4: Decline:
►

What is the marketing strategy at this stage? Production shifts
even to least developing countries – innovating country imports
from these countries
16

Examples:
i.

ii.

UK was largest manufacturer and exporter of bicycles. Bicycle
industry declined in UK. This industry emerged in low income
countries, including India.
Developed countries shift environmentally hazardous industries to
low income countries.

17

18

Criticism of IPCL Theory:
It explains the emerging pattern of international market. This was ok
earlier. Now information about prices, technology and preferences travels
across the globe. The product may be launched by the innovating country
simultaneously in several countries.

[Discuss Maruti Suzuki case. Japanese company, Suzuki, is an innovating
company. The latter established manufacturing base in India. India first
imported Maruti Suzuki Standard -800 Model. After the product gained
maturity and popularity, Maruti Suzuki Exports Cars to several developed
and semi developed countries. The time has come when India may also
base manufacturing facilities in other least developing countries].

19

Theory of Competitive Advantage


Porter–Diamond Theory:
(Michael Porter, 1990, The competitive advantage of nations).



Main focus is on Domestic Environment.
Contrast it with IPCL. – which lays emphasis on innovation/invention
and looks forward to off-shore investment/production.
Diamond? See four blocks/diamonds The interaction of these explains
and determines the trade competitive advantage of a country. See
arrows in diagram.
4 Diamonds – Blocks:






a) Factor input – Natural & Creaed
b) Demand conditions.
 Greater is the sophistication in demand conditions, more demanding the
consumer is – product quality – better service – change in preferences – (Global
exposure…).

20

c) Related and supporting industries
 Development of ancillary industry (as in auto industry).
 Strong supply chain management.
 Development of industrial clusters.
For example:
IT – Banglore,
Textiles – Tirupur
Metal Handicraft – Moradabad

d) Firm Strategy, Structure & Rivalry






Transformation of family enterprise.
Competition policy
Incentive structure
Global exposure
Domestic rivalry (competition?)
21

22

Summary


IPCL: Explains Sifts in





Theory of competitive advantage: To explain national competitiveness, it focuses
on:








Trade Patterns
Manufacturing base

Environmental factors (factor conditions)
Demand conditions
Related supporting industries
Firm strategy, structure, etc.
Degree of competition (Rivalry, etc).

Merit of above theoretical models:
They help provide basis for:
 Principles for regulatory framework.
 Preparing trade promotion strategies to national as well as international Govt./Bodies. The
relative advantage may vary across countries.

23

24

DISCUSS TWO CASE STUDIES ATTACHED

25

CASE STUDY 1
► CHIP

INDUSTRY

26

27

28

29

30

CASE STUDY 2
► Factor

mobility :TCS-case study

31

Factor mobility theory
► Daniels

et.al
See page no. 247-259

32

Supplementary notes
► Biggest

change being observed is the
demographic one.
► By 2050 – 033 countries will have lower
population than their present population
due to lower fertility ( lower than
population ranging from 14% to 22%.)
► On

the other hand, eight countries will
account for 50% of world population.

33

Consequences

► Labor

mobility across countries likely to be faster in
coming decades than now.

► Why

factors move?

►Capital
Long term movement-FDI
 Shifting manufacturing base
 Shifting services industry base
 Reform capital account convertibility
 Political stability
 Investor friendly policies
34

people
► 200

million ( approx 3% of worlds
population) have migrated not uniformly
all over the world.
► USA got high migration ( 11 % of
population of USA is made up immigrants
)
Two – third’s of UAE population consists of
temporary workers .
► Indonesian labor migrates to Malaysia
(huge- 10 times wage differential)

35

Impact
► Singapore transformed from low-wage
► Labor-intensive to high-wage capital intensive

economy ( due to high capital inflow )

► Trade

and factor mobility
Factor movement
From abundant area to scare area. (eg,maxicon
labor to USA.)

Complementarity
Complementary products-needs equipment. This
happens through foreign investment.
36

Flexible and small scale population
► Services

growing much faster than
manufacturing .
( change in consumption pattern in fast
growing economies)

Many services can be provided by small scale
units.
They have flexibility in labor employment too.
37

38

39

40

41

42


Slide 28

UNIT-1
► GLOBALIZATION
► TRADE

PATTERNS

 THEORIES
1. IPLC
2. FACTOR MOBILITY
COMPARISON OF IPLC AND FACTOR MOBILITY THEORIES.

1

Globalization
1. A holistic approach covers the following aspects:
a. Economic
b. Financial
c. Political
d. Cultural
All the above aspects/factors interact with each
other.
[See Joshi (2011), fig.1.3, p.9]

2

3

2.

Economic globalization has the following five
major components/aspects:
Production
b. Markets
c. Competition
d. Technology
e. Corporations & Industry
All the components work in an interactive manner.
a.

[See Joshi (2011), fig.1.5, p.13]

4

5

3. Movers and Restraining Factors:
3.1. Factors that give impetus to globalization or movers:
a. Economic liberalization
b. Technical break through

Manufacturing
► Transportation
► Information & Communication.
►

c.
d.
e.
f.
g.
h.

Multilateral institutions.
Interventional economic integration.
Move towards free market systems.
Rising R&D costs.
Advents in logistic management.
Emergence of global customer segments.

3.2. Factors that restrain globalization or restraining factors:
Regulatory controls
Emerging new trade barriers.
Cultural factors
Nationalism
e. Wards and civil disturbances.
f. Management myopia.
a.
b.
c.
d.

How much globalization proceeds/progresses depends on the relative strength of
6
factors in 3.1 and 3.2.
[See Joshi (2011), fig.1.6, pg.16]

7

Globalization: A TYPICAL MODERN IMAGE
Conspicuously seen in terms of
 Westernization
 Americanization

Some of the popular examples are:





Walmartization
Cocacolination
Disneyfication
Mc Donalization

1. Walmartization*
Walmart – US Retail Chain
Walmart Effect
 Keeping small competitors out
 Driving down wages
 Keeping inflation low
 Keeping productivity high

2. Cocacolination
Perceived as an invasion of cultural
values.

It has a conservative image as reflected in
 Firm cutting down costs
 Favoring policy of
►
►

*

Cutting down taxes
Keeping welfare state competitive

See Charles Fishman: Walmart Effect

8

3. Walmartization
See George Ritzer (1995)

[MacDonaldization of Society]
Four Dimensions of fast food restaurant:

i. Efficiency: Best mode of production with little scope of individuality.
ii. Calculability: Quantifiable Objective :
- Sale
- Focus on Quantity (big MAC, not so much quality)
iii. Predictability: Uniform Production Process.
iv. Control: Substitution of non-human technologies for human labour.(System of
“Iron Cage” – same principle governs all Institutions).

Criticism:

(a) Irrationality – Every worker performs highly rationalized task leading to
workers’ “Burn Out”.
(b) Deskilling: Workers perform repetitive tasks – cheap training of workers.
workers can be replaced easily.

4. Disneyfication

What is signified? Society dedicated to

i. Themes
ii. Huge consumption
iii. Emotion based labor.
(also signifies a diluted version of original form)

9

INTERNATIONAL PRODUCT LIFE CYCLE THEORY (IPCL)
ISSUES:
1.

Do international markets follow a cyclical Pattern? Why?
What does it explain?
- Shift in markets.
- Shift in production location.

2.

What factors are behind the phenomenon? Does it explain
trade patterns?
- Level of innovation and technology.
- Quantum & Quality of Resources.
- Size of market.
- Competitive structure.
10

IPCL: Four Stages:
What Determines these stages?

Difference/gap in technology between countries/economies.
► Ability (purchasing power) of customers.
► Preferences of customers.
►

Innovation:
What Makes it Effective?

If domestic market is big – economies of scale – cost efficiency
– international competition – (US, China, India): Big markets but
their innovative capacity and technology levels differ.
► Innovation but no big domestic market:
►

How to achieve economies of scale? Set up marketing and production
facilities outside the country.

11

What are the critical factors for expanding into international market?
► Innovative capacity, level of technology
► Scope of economies
► Achieving economies of scale
►
►
►

The innovating firm starts looking for establishing production base in
other high income countries.
When this is successful, these countries (where production base is
established) start exporting to the innovating country.
International competition increases

12

Stages of International Product Life Cycle.
See exhibit and interpret:
In each column, start moving down and interpret against the row title.
Try matching the movements of three types of curves.

13

14

Stage 1: Introduction:Advanced countries – Innovation for new product.




Lot of resources required for R&D.
Initially price of new product is high.
Hence search for markets for new product in high income countries.

Stage 2: Growth:



Search for other developed markets for exports.
Globalization
Trade patterns
Theories
 IPLC
 Factor Mobility
 Comparison.
15

Note & Interpret:
(i)
(ii)

Opposite movements of curves representing high income
countries.
Testes and preferences change in low income countries also.
They too start importing new product.

Stage 3: Maturity:
By now technical know-how is known to many countries. The
innovating country starts setting up production facility in the
third world (low income developing) economies by taking
advantage of low wages in the latter.
► Imports of low income countries decline as the domestic
production of this product increases.
►

Stage 4: Decline:
►

What is the marketing strategy at this stage? Production shifts
even to least developing countries – innovating country imports
from these countries
16

Examples:
i.

ii.

UK was largest manufacturer and exporter of bicycles. Bicycle
industry declined in UK. This industry emerged in low income
countries, including India.
Developed countries shift environmentally hazardous industries to
low income countries.

17

18

Criticism of IPCL Theory:
It explains the emerging pattern of international market. This was ok
earlier. Now information about prices, technology and preferences travels
across the globe. The product may be launched by the innovating country
simultaneously in several countries.

[Discuss Maruti Suzuki case. Japanese company, Suzuki, is an innovating
company. The latter established manufacturing base in India. India first
imported Maruti Suzuki Standard -800 Model. After the product gained
maturity and popularity, Maruti Suzuki Exports Cars to several developed
and semi developed countries. The time has come when India may also
base manufacturing facilities in other least developing countries].

19

Theory of Competitive Advantage


Porter–Diamond Theory:
(Michael Porter, 1990, The competitive advantage of nations).



Main focus is on Domestic Environment.
Contrast it with IPCL. – which lays emphasis on innovation/invention
and looks forward to off-shore investment/production.
Diamond? See four blocks/diamonds The interaction of these explains
and determines the trade competitive advantage of a country. See
arrows in diagram.
4 Diamonds – Blocks:






a) Factor input – Natural & Creaed
b) Demand conditions.
 Greater is the sophistication in demand conditions, more demanding the
consumer is – product quality – better service – change in preferences – (Global
exposure…).

20

c) Related and supporting industries
 Development of ancillary industry (as in auto industry).
 Strong supply chain management.
 Development of industrial clusters.
For example:
IT – Banglore,
Textiles – Tirupur
Metal Handicraft – Moradabad

d) Firm Strategy, Structure & Rivalry






Transformation of family enterprise.
Competition policy
Incentive structure
Global exposure
Domestic rivalry (competition?)
21

22

Summary


IPCL: Explains Sifts in





Theory of competitive advantage: To explain national competitiveness, it focuses
on:








Trade Patterns
Manufacturing base

Environmental factors (factor conditions)
Demand conditions
Related supporting industries
Firm strategy, structure, etc.
Degree of competition (Rivalry, etc).

Merit of above theoretical models:
They help provide basis for:
 Principles for regulatory framework.
 Preparing trade promotion strategies to national as well as international Govt./Bodies. The
relative advantage may vary across countries.

23

24

DISCUSS TWO CASE STUDIES ATTACHED

25

CASE STUDY 1
► CHIP

INDUSTRY

26

27

28

29

30

CASE STUDY 2
► Factor

mobility :TCS-case study

31

Factor mobility theory
► Daniels

et.al
See page no. 247-259

32

Supplementary notes
► Biggest

change being observed is the
demographic one.
► By 2050 – 033 countries will have lower
population than their present population
due to lower fertility ( lower than
population ranging from 14% to 22%.)
► On

the other hand, eight countries will
account for 50% of world population.

33

Consequences

► Labor

mobility across countries likely to be faster in
coming decades than now.

► Why

factors move?

►Capital
Long term movement-FDI
 Shifting manufacturing base
 Shifting services industry base
 Reform capital account convertibility
 Political stability
 Investor friendly policies
34

people
► 200

million ( approx 3% of worlds
population) have migrated not uniformly
all over the world.
► USA got high migration ( 11 % of
population of USA is made up immigrants
)
Two – third’s of UAE population consists of
temporary workers .
► Indonesian labor migrates to Malaysia
(huge- 10 times wage differential)

35

Impact
► Singapore transformed from low-wage
► Labor-intensive to high-wage capital intensive

economy ( due to high capital inflow )

► Trade

and factor mobility
Factor movement
From abundant area to scare area. (eg,maxicon
labor to USA.)

Complementarity
Complementary products-needs equipment. This
happens through foreign investment.
36

Flexible and small scale population
► Services

growing much faster than
manufacturing .
( change in consumption pattern in fast
growing economies)

Many services can be provided by small scale
units.
They have flexibility in labor employment too.
37

38

39

40

41

42


Slide 29

UNIT-1
► GLOBALIZATION
► TRADE

PATTERNS

 THEORIES
1. IPLC
2. FACTOR MOBILITY
COMPARISON OF IPLC AND FACTOR MOBILITY THEORIES.

1

Globalization
1. A holistic approach covers the following aspects:
a. Economic
b. Financial
c. Political
d. Cultural
All the above aspects/factors interact with each
other.
[See Joshi (2011), fig.1.3, p.9]

2

3

2.

Economic globalization has the following five
major components/aspects:
Production
b. Markets
c. Competition
d. Technology
e. Corporations & Industry
All the components work in an interactive manner.
a.

[See Joshi (2011), fig.1.5, p.13]

4

5

3. Movers and Restraining Factors:
3.1. Factors that give impetus to globalization or movers:
a. Economic liberalization
b. Technical break through

Manufacturing
► Transportation
► Information & Communication.
►

c.
d.
e.
f.
g.
h.

Multilateral institutions.
Interventional economic integration.
Move towards free market systems.
Rising R&D costs.
Advents in logistic management.
Emergence of global customer segments.

3.2. Factors that restrain globalization or restraining factors:
Regulatory controls
Emerging new trade barriers.
Cultural factors
Nationalism
e. Wards and civil disturbances.
f. Management myopia.
a.
b.
c.
d.

How much globalization proceeds/progresses depends on the relative strength of
6
factors in 3.1 and 3.2.
[See Joshi (2011), fig.1.6, pg.16]

7

Globalization: A TYPICAL MODERN IMAGE
Conspicuously seen in terms of
 Westernization
 Americanization

Some of the popular examples are:





Walmartization
Cocacolination
Disneyfication
Mc Donalization

1. Walmartization*
Walmart – US Retail Chain
Walmart Effect
 Keeping small competitors out
 Driving down wages
 Keeping inflation low
 Keeping productivity high

2. Cocacolination
Perceived as an invasion of cultural
values.

It has a conservative image as reflected in
 Firm cutting down costs
 Favoring policy of
►
►

*

Cutting down taxes
Keeping welfare state competitive

See Charles Fishman: Walmart Effect

8

3. Walmartization
See George Ritzer (1995)

[MacDonaldization of Society]
Four Dimensions of fast food restaurant:

i. Efficiency: Best mode of production with little scope of individuality.
ii. Calculability: Quantifiable Objective :
- Sale
- Focus on Quantity (big MAC, not so much quality)
iii. Predictability: Uniform Production Process.
iv. Control: Substitution of non-human technologies for human labour.(System of
“Iron Cage” – same principle governs all Institutions).

Criticism:

(a) Irrationality – Every worker performs highly rationalized task leading to
workers’ “Burn Out”.
(b) Deskilling: Workers perform repetitive tasks – cheap training of workers.
workers can be replaced easily.

4. Disneyfication

What is signified? Society dedicated to

i. Themes
ii. Huge consumption
iii. Emotion based labor.
(also signifies a diluted version of original form)

9

INTERNATIONAL PRODUCT LIFE CYCLE THEORY (IPCL)
ISSUES:
1.

Do international markets follow a cyclical Pattern? Why?
What does it explain?
- Shift in markets.
- Shift in production location.

2.

What factors are behind the phenomenon? Does it explain
trade patterns?
- Level of innovation and technology.
- Quantum & Quality of Resources.
- Size of market.
- Competitive structure.
10

IPCL: Four Stages:
What Determines these stages?

Difference/gap in technology between countries/economies.
► Ability (purchasing power) of customers.
► Preferences of customers.
►

Innovation:
What Makes it Effective?

If domestic market is big – economies of scale – cost efficiency
– international competition – (US, China, India): Big markets but
their innovative capacity and technology levels differ.
► Innovation but no big domestic market:
►

How to achieve economies of scale? Set up marketing and production
facilities outside the country.

11

What are the critical factors for expanding into international market?
► Innovative capacity, level of technology
► Scope of economies
► Achieving economies of scale
►
►
►

The innovating firm starts looking for establishing production base in
other high income countries.
When this is successful, these countries (where production base is
established) start exporting to the innovating country.
International competition increases

12

Stages of International Product Life Cycle.
See exhibit and interpret:
In each column, start moving down and interpret against the row title.
Try matching the movements of three types of curves.

13

14

Stage 1: Introduction:Advanced countries – Innovation for new product.




Lot of resources required for R&D.
Initially price of new product is high.
Hence search for markets for new product in high income countries.

Stage 2: Growth:



Search for other developed markets for exports.
Globalization
Trade patterns
Theories
 IPLC
 Factor Mobility
 Comparison.
15

Note & Interpret:
(i)
(ii)

Opposite movements of curves representing high income
countries.
Testes and preferences change in low income countries also.
They too start importing new product.

Stage 3: Maturity:
By now technical know-how is known to many countries. The
innovating country starts setting up production facility in the
third world (low income developing) economies by taking
advantage of low wages in the latter.
► Imports of low income countries decline as the domestic
production of this product increases.
►

Stage 4: Decline:
►

What is the marketing strategy at this stage? Production shifts
even to least developing countries – innovating country imports
from these countries
16

Examples:
i.

ii.

UK was largest manufacturer and exporter of bicycles. Bicycle
industry declined in UK. This industry emerged in low income
countries, including India.
Developed countries shift environmentally hazardous industries to
low income countries.

17

18

Criticism of IPCL Theory:
It explains the emerging pattern of international market. This was ok
earlier. Now information about prices, technology and preferences travels
across the globe. The product may be launched by the innovating country
simultaneously in several countries.

[Discuss Maruti Suzuki case. Japanese company, Suzuki, is an innovating
company. The latter established manufacturing base in India. India first
imported Maruti Suzuki Standard -800 Model. After the product gained
maturity and popularity, Maruti Suzuki Exports Cars to several developed
and semi developed countries. The time has come when India may also
base manufacturing facilities in other least developing countries].

19

Theory of Competitive Advantage


Porter–Diamond Theory:
(Michael Porter, 1990, The competitive advantage of nations).



Main focus is on Domestic Environment.
Contrast it with IPCL. – which lays emphasis on innovation/invention
and looks forward to off-shore investment/production.
Diamond? See four blocks/diamonds The interaction of these explains
and determines the trade competitive advantage of a country. See
arrows in diagram.
4 Diamonds – Blocks:






a) Factor input – Natural & Creaed
b) Demand conditions.
 Greater is the sophistication in demand conditions, more demanding the
consumer is – product quality – better service – change in preferences – (Global
exposure…).

20

c) Related and supporting industries
 Development of ancillary industry (as in auto industry).
 Strong supply chain management.
 Development of industrial clusters.
For example:
IT – Banglore,
Textiles – Tirupur
Metal Handicraft – Moradabad

d) Firm Strategy, Structure & Rivalry






Transformation of family enterprise.
Competition policy
Incentive structure
Global exposure
Domestic rivalry (competition?)
21

22

Summary


IPCL: Explains Sifts in





Theory of competitive advantage: To explain national competitiveness, it focuses
on:








Trade Patterns
Manufacturing base

Environmental factors (factor conditions)
Demand conditions
Related supporting industries
Firm strategy, structure, etc.
Degree of competition (Rivalry, etc).

Merit of above theoretical models:
They help provide basis for:
 Principles for regulatory framework.
 Preparing trade promotion strategies to national as well as international Govt./Bodies. The
relative advantage may vary across countries.

23

24

DISCUSS TWO CASE STUDIES ATTACHED

25

CASE STUDY 1
► CHIP

INDUSTRY

26

27

28

29

30

CASE STUDY 2
► Factor

mobility :TCS-case study

31

Factor mobility theory
► Daniels

et.al
See page no. 247-259

32

Supplementary notes
► Biggest

change being observed is the
demographic one.
► By 2050 – 033 countries will have lower
population than their present population
due to lower fertility ( lower than
population ranging from 14% to 22%.)
► On

the other hand, eight countries will
account for 50% of world population.

33

Consequences

► Labor

mobility across countries likely to be faster in
coming decades than now.

► Why

factors move?

►Capital
Long term movement-FDI
 Shifting manufacturing base
 Shifting services industry base
 Reform capital account convertibility
 Political stability
 Investor friendly policies
34

people
► 200

million ( approx 3% of worlds
population) have migrated not uniformly
all over the world.
► USA got high migration ( 11 % of
population of USA is made up immigrants
)
Two – third’s of UAE population consists of
temporary workers .
► Indonesian labor migrates to Malaysia
(huge- 10 times wage differential)

35

Impact
► Singapore transformed from low-wage
► Labor-intensive to high-wage capital intensive

economy ( due to high capital inflow )

► Trade

and factor mobility
Factor movement
From abundant area to scare area. (eg,maxicon
labor to USA.)

Complementarity
Complementary products-needs equipment. This
happens through foreign investment.
36

Flexible and small scale population
► Services

growing much faster than
manufacturing .
( change in consumption pattern in fast
growing economies)

Many services can be provided by small scale
units.
They have flexibility in labor employment too.
37

38

39

40

41

42


Slide 30

UNIT-1
► GLOBALIZATION
► TRADE

PATTERNS

 THEORIES
1. IPLC
2. FACTOR MOBILITY
COMPARISON OF IPLC AND FACTOR MOBILITY THEORIES.

1

Globalization
1. A holistic approach covers the following aspects:
a. Economic
b. Financial
c. Political
d. Cultural
All the above aspects/factors interact with each
other.
[See Joshi (2011), fig.1.3, p.9]

2

3

2.

Economic globalization has the following five
major components/aspects:
Production
b. Markets
c. Competition
d. Technology
e. Corporations & Industry
All the components work in an interactive manner.
a.

[See Joshi (2011), fig.1.5, p.13]

4

5

3. Movers and Restraining Factors:
3.1. Factors that give impetus to globalization or movers:
a. Economic liberalization
b. Technical break through

Manufacturing
► Transportation
► Information & Communication.
►

c.
d.
e.
f.
g.
h.

Multilateral institutions.
Interventional economic integration.
Move towards free market systems.
Rising R&D costs.
Advents in logistic management.
Emergence of global customer segments.

3.2. Factors that restrain globalization or restraining factors:
Regulatory controls
Emerging new trade barriers.
Cultural factors
Nationalism
e. Wards and civil disturbances.
f. Management myopia.
a.
b.
c.
d.

How much globalization proceeds/progresses depends on the relative strength of
6
factors in 3.1 and 3.2.
[See Joshi (2011), fig.1.6, pg.16]

7

Globalization: A TYPICAL MODERN IMAGE
Conspicuously seen in terms of
 Westernization
 Americanization

Some of the popular examples are:





Walmartization
Cocacolination
Disneyfication
Mc Donalization

1. Walmartization*
Walmart – US Retail Chain
Walmart Effect
 Keeping small competitors out
 Driving down wages
 Keeping inflation low
 Keeping productivity high

2. Cocacolination
Perceived as an invasion of cultural
values.

It has a conservative image as reflected in
 Firm cutting down costs
 Favoring policy of
►
►

*

Cutting down taxes
Keeping welfare state competitive

See Charles Fishman: Walmart Effect

8

3. Walmartization
See George Ritzer (1995)

[MacDonaldization of Society]
Four Dimensions of fast food restaurant:

i. Efficiency: Best mode of production with little scope of individuality.
ii. Calculability: Quantifiable Objective :
- Sale
- Focus on Quantity (big MAC, not so much quality)
iii. Predictability: Uniform Production Process.
iv. Control: Substitution of non-human technologies for human labour.(System of
“Iron Cage” – same principle governs all Institutions).

Criticism:

(a) Irrationality – Every worker performs highly rationalized task leading to
workers’ “Burn Out”.
(b) Deskilling: Workers perform repetitive tasks – cheap training of workers.
workers can be replaced easily.

4. Disneyfication

What is signified? Society dedicated to

i. Themes
ii. Huge consumption
iii. Emotion based labor.
(also signifies a diluted version of original form)

9

INTERNATIONAL PRODUCT LIFE CYCLE THEORY (IPCL)
ISSUES:
1.

Do international markets follow a cyclical Pattern? Why?
What does it explain?
- Shift in markets.
- Shift in production location.

2.

What factors are behind the phenomenon? Does it explain
trade patterns?
- Level of innovation and technology.
- Quantum & Quality of Resources.
- Size of market.
- Competitive structure.
10

IPCL: Four Stages:
What Determines these stages?

Difference/gap in technology between countries/economies.
► Ability (purchasing power) of customers.
► Preferences of customers.
►

Innovation:
What Makes it Effective?

If domestic market is big – economies of scale – cost efficiency
– international competition – (US, China, India): Big markets but
their innovative capacity and technology levels differ.
► Innovation but no big domestic market:
►

How to achieve economies of scale? Set up marketing and production
facilities outside the country.

11

What are the critical factors for expanding into international market?
► Innovative capacity, level of technology
► Scope of economies
► Achieving economies of scale
►
►
►

The innovating firm starts looking for establishing production base in
other high income countries.
When this is successful, these countries (where production base is
established) start exporting to the innovating country.
International competition increases

12

Stages of International Product Life Cycle.
See exhibit and interpret:
In each column, start moving down and interpret against the row title.
Try matching the movements of three types of curves.

13

14

Stage 1: Introduction:Advanced countries – Innovation for new product.




Lot of resources required for R&D.
Initially price of new product is high.
Hence search for markets for new product in high income countries.

Stage 2: Growth:



Search for other developed markets for exports.
Globalization
Trade patterns
Theories
 IPLC
 Factor Mobility
 Comparison.
15

Note & Interpret:
(i)
(ii)

Opposite movements of curves representing high income
countries.
Testes and preferences change in low income countries also.
They too start importing new product.

Stage 3: Maturity:
By now technical know-how is known to many countries. The
innovating country starts setting up production facility in the
third world (low income developing) economies by taking
advantage of low wages in the latter.
► Imports of low income countries decline as the domestic
production of this product increases.
►

Stage 4: Decline:
►

What is the marketing strategy at this stage? Production shifts
even to least developing countries – innovating country imports
from these countries
16

Examples:
i.

ii.

UK was largest manufacturer and exporter of bicycles. Bicycle
industry declined in UK. This industry emerged in low income
countries, including India.
Developed countries shift environmentally hazardous industries to
low income countries.

17

18

Criticism of IPCL Theory:
It explains the emerging pattern of international market. This was ok
earlier. Now information about prices, technology and preferences travels
across the globe. The product may be launched by the innovating country
simultaneously in several countries.

[Discuss Maruti Suzuki case. Japanese company, Suzuki, is an innovating
company. The latter established manufacturing base in India. India first
imported Maruti Suzuki Standard -800 Model. After the product gained
maturity and popularity, Maruti Suzuki Exports Cars to several developed
and semi developed countries. The time has come when India may also
base manufacturing facilities in other least developing countries].

19

Theory of Competitive Advantage


Porter–Diamond Theory:
(Michael Porter, 1990, The competitive advantage of nations).



Main focus is on Domestic Environment.
Contrast it with IPCL. – which lays emphasis on innovation/invention
and looks forward to off-shore investment/production.
Diamond? See four blocks/diamonds The interaction of these explains
and determines the trade competitive advantage of a country. See
arrows in diagram.
4 Diamonds – Blocks:






a) Factor input – Natural & Creaed
b) Demand conditions.
 Greater is the sophistication in demand conditions, more demanding the
consumer is – product quality – better service – change in preferences – (Global
exposure…).

20

c) Related and supporting industries
 Development of ancillary industry (as in auto industry).
 Strong supply chain management.
 Development of industrial clusters.
For example:
IT – Banglore,
Textiles – Tirupur
Metal Handicraft – Moradabad

d) Firm Strategy, Structure & Rivalry






Transformation of family enterprise.
Competition policy
Incentive structure
Global exposure
Domestic rivalry (competition?)
21

22

Summary


IPCL: Explains Sifts in





Theory of competitive advantage: To explain national competitiveness, it focuses
on:








Trade Patterns
Manufacturing base

Environmental factors (factor conditions)
Demand conditions
Related supporting industries
Firm strategy, structure, etc.
Degree of competition (Rivalry, etc).

Merit of above theoretical models:
They help provide basis for:
 Principles for regulatory framework.
 Preparing trade promotion strategies to national as well as international Govt./Bodies. The
relative advantage may vary across countries.

23

24

DISCUSS TWO CASE STUDIES ATTACHED

25

CASE STUDY 1
► CHIP

INDUSTRY

26

27

28

29

30

CASE STUDY 2
► Factor

mobility :TCS-case study

31

Factor mobility theory
► Daniels

et.al
See page no. 247-259

32

Supplementary notes
► Biggest

change being observed is the
demographic one.
► By 2050 – 033 countries will have lower
population than their present population
due to lower fertility ( lower than
population ranging from 14% to 22%.)
► On

the other hand, eight countries will
account for 50% of world population.

33

Consequences

► Labor

mobility across countries likely to be faster in
coming decades than now.

► Why

factors move?

►Capital
Long term movement-FDI
 Shifting manufacturing base
 Shifting services industry base
 Reform capital account convertibility
 Political stability
 Investor friendly policies
34

people
► 200

million ( approx 3% of worlds
population) have migrated not uniformly
all over the world.
► USA got high migration ( 11 % of
population of USA is made up immigrants
)
Two – third’s of UAE population consists of
temporary workers .
► Indonesian labor migrates to Malaysia
(huge- 10 times wage differential)

35

Impact
► Singapore transformed from low-wage
► Labor-intensive to high-wage capital intensive

economy ( due to high capital inflow )

► Trade

and factor mobility
Factor movement
From abundant area to scare area. (eg,maxicon
labor to USA.)

Complementarity
Complementary products-needs equipment. This
happens through foreign investment.
36

Flexible and small scale population
► Services

growing much faster than
manufacturing .
( change in consumption pattern in fast
growing economies)

Many services can be provided by small scale
units.
They have flexibility in labor employment too.
37

38

39

40

41

42


Slide 31

UNIT-1
► GLOBALIZATION
► TRADE

PATTERNS

 THEORIES
1. IPLC
2. FACTOR MOBILITY
COMPARISON OF IPLC AND FACTOR MOBILITY THEORIES.

1

Globalization
1. A holistic approach covers the following aspects:
a. Economic
b. Financial
c. Political
d. Cultural
All the above aspects/factors interact with each
other.
[See Joshi (2011), fig.1.3, p.9]

2

3

2.

Economic globalization has the following five
major components/aspects:
Production
b. Markets
c. Competition
d. Technology
e. Corporations & Industry
All the components work in an interactive manner.
a.

[See Joshi (2011), fig.1.5, p.13]

4

5

3. Movers and Restraining Factors:
3.1. Factors that give impetus to globalization or movers:
a. Economic liberalization
b. Technical break through

Manufacturing
► Transportation
► Information & Communication.
►

c.
d.
e.
f.
g.
h.

Multilateral institutions.
Interventional economic integration.
Move towards free market systems.
Rising R&D costs.
Advents in logistic management.
Emergence of global customer segments.

3.2. Factors that restrain globalization or restraining factors:
Regulatory controls
Emerging new trade barriers.
Cultural factors
Nationalism
e. Wards and civil disturbances.
f. Management myopia.
a.
b.
c.
d.

How much globalization proceeds/progresses depends on the relative strength of
6
factors in 3.1 and 3.2.
[See Joshi (2011), fig.1.6, pg.16]

7

Globalization: A TYPICAL MODERN IMAGE
Conspicuously seen in terms of
 Westernization
 Americanization

Some of the popular examples are:





Walmartization
Cocacolination
Disneyfication
Mc Donalization

1. Walmartization*
Walmart – US Retail Chain
Walmart Effect
 Keeping small competitors out
 Driving down wages
 Keeping inflation low
 Keeping productivity high

2. Cocacolination
Perceived as an invasion of cultural
values.

It has a conservative image as reflected in
 Firm cutting down costs
 Favoring policy of
►
►

*

Cutting down taxes
Keeping welfare state competitive

See Charles Fishman: Walmart Effect

8

3. Walmartization
See George Ritzer (1995)

[MacDonaldization of Society]
Four Dimensions of fast food restaurant:

i. Efficiency: Best mode of production with little scope of individuality.
ii. Calculability: Quantifiable Objective :
- Sale
- Focus on Quantity (big MAC, not so much quality)
iii. Predictability: Uniform Production Process.
iv. Control: Substitution of non-human technologies for human labour.(System of
“Iron Cage” – same principle governs all Institutions).

Criticism:

(a) Irrationality – Every worker performs highly rationalized task leading to
workers’ “Burn Out”.
(b) Deskilling: Workers perform repetitive tasks – cheap training of workers.
workers can be replaced easily.

4. Disneyfication

What is signified? Society dedicated to

i. Themes
ii. Huge consumption
iii. Emotion based labor.
(also signifies a diluted version of original form)

9

INTERNATIONAL PRODUCT LIFE CYCLE THEORY (IPCL)
ISSUES:
1.

Do international markets follow a cyclical Pattern? Why?
What does it explain?
- Shift in markets.
- Shift in production location.

2.

What factors are behind the phenomenon? Does it explain
trade patterns?
- Level of innovation and technology.
- Quantum & Quality of Resources.
- Size of market.
- Competitive structure.
10

IPCL: Four Stages:
What Determines these stages?

Difference/gap in technology between countries/economies.
► Ability (purchasing power) of customers.
► Preferences of customers.
►

Innovation:
What Makes it Effective?

If domestic market is big – economies of scale – cost efficiency
– international competition – (US, China, India): Big markets but
their innovative capacity and technology levels differ.
► Innovation but no big domestic market:
►

How to achieve economies of scale? Set up marketing and production
facilities outside the country.

11

What are the critical factors for expanding into international market?
► Innovative capacity, level of technology
► Scope of economies
► Achieving economies of scale
►
►
►

The innovating firm starts looking for establishing production base in
other high income countries.
When this is successful, these countries (where production base is
established) start exporting to the innovating country.
International competition increases

12

Stages of International Product Life Cycle.
See exhibit and interpret:
In each column, start moving down and interpret against the row title.
Try matching the movements of three types of curves.

13

14

Stage 1: Introduction:Advanced countries – Innovation for new product.




Lot of resources required for R&D.
Initially price of new product is high.
Hence search for markets for new product in high income countries.

Stage 2: Growth:



Search for other developed markets for exports.
Globalization
Trade patterns
Theories
 IPLC
 Factor Mobility
 Comparison.
15

Note & Interpret:
(i)
(ii)

Opposite movements of curves representing high income
countries.
Testes and preferences change in low income countries also.
They too start importing new product.

Stage 3: Maturity:
By now technical know-how is known to many countries. The
innovating country starts setting up production facility in the
third world (low income developing) economies by taking
advantage of low wages in the latter.
► Imports of low income countries decline as the domestic
production of this product increases.
►

Stage 4: Decline:
►

What is the marketing strategy at this stage? Production shifts
even to least developing countries – innovating country imports
from these countries
16

Examples:
i.

ii.

UK was largest manufacturer and exporter of bicycles. Bicycle
industry declined in UK. This industry emerged in low income
countries, including India.
Developed countries shift environmentally hazardous industries to
low income countries.

17

18

Criticism of IPCL Theory:
It explains the emerging pattern of international market. This was ok
earlier. Now information about prices, technology and preferences travels
across the globe. The product may be launched by the innovating country
simultaneously in several countries.

[Discuss Maruti Suzuki case. Japanese company, Suzuki, is an innovating
company. The latter established manufacturing base in India. India first
imported Maruti Suzuki Standard -800 Model. After the product gained
maturity and popularity, Maruti Suzuki Exports Cars to several developed
and semi developed countries. The time has come when India may also
base manufacturing facilities in other least developing countries].

19

Theory of Competitive Advantage


Porter–Diamond Theory:
(Michael Porter, 1990, The competitive advantage of nations).



Main focus is on Domestic Environment.
Contrast it with IPCL. – which lays emphasis on innovation/invention
and looks forward to off-shore investment/production.
Diamond? See four blocks/diamonds The interaction of these explains
and determines the trade competitive advantage of a country. See
arrows in diagram.
4 Diamonds – Blocks:






a) Factor input – Natural & Creaed
b) Demand conditions.
 Greater is the sophistication in demand conditions, more demanding the
consumer is – product quality – better service – change in preferences – (Global
exposure…).

20

c) Related and supporting industries
 Development of ancillary industry (as in auto industry).
 Strong supply chain management.
 Development of industrial clusters.
For example:
IT – Banglore,
Textiles – Tirupur
Metal Handicraft – Moradabad

d) Firm Strategy, Structure & Rivalry






Transformation of family enterprise.
Competition policy
Incentive structure
Global exposure
Domestic rivalry (competition?)
21

22

Summary


IPCL: Explains Sifts in





Theory of competitive advantage: To explain national competitiveness, it focuses
on:








Trade Patterns
Manufacturing base

Environmental factors (factor conditions)
Demand conditions
Related supporting industries
Firm strategy, structure, etc.
Degree of competition (Rivalry, etc).

Merit of above theoretical models:
They help provide basis for:
 Principles for regulatory framework.
 Preparing trade promotion strategies to national as well as international Govt./Bodies. The
relative advantage may vary across countries.

23

24

DISCUSS TWO CASE STUDIES ATTACHED

25

CASE STUDY 1
► CHIP

INDUSTRY

26

27

28

29

30

CASE STUDY 2
► Factor

mobility :TCS-case study

31

Factor mobility theory
► Daniels

et.al
See page no. 247-259

32

Supplementary notes
► Biggest

change being observed is the
demographic one.
► By 2050 – 033 countries will have lower
population than their present population
due to lower fertility ( lower than
population ranging from 14% to 22%.)
► On

the other hand, eight countries will
account for 50% of world population.

33

Consequences

► Labor

mobility across countries likely to be faster in
coming decades than now.

► Why

factors move?

►Capital
Long term movement-FDI
 Shifting manufacturing base
 Shifting services industry base
 Reform capital account convertibility
 Political stability
 Investor friendly policies
34

people
► 200

million ( approx 3% of worlds
population) have migrated not uniformly
all over the world.
► USA got high migration ( 11 % of
population of USA is made up immigrants
)
Two – third’s of UAE population consists of
temporary workers .
► Indonesian labor migrates to Malaysia
(huge- 10 times wage differential)

35

Impact
► Singapore transformed from low-wage
► Labor-intensive to high-wage capital intensive

economy ( due to high capital inflow )

► Trade

and factor mobility
Factor movement
From abundant area to scare area. (eg,maxicon
labor to USA.)

Complementarity
Complementary products-needs equipment. This
happens through foreign investment.
36

Flexible and small scale population
► Services

growing much faster than
manufacturing .
( change in consumption pattern in fast
growing economies)

Many services can be provided by small scale
units.
They have flexibility in labor employment too.
37

38

39

40

41

42


Slide 32

UNIT-1
► GLOBALIZATION
► TRADE

PATTERNS

 THEORIES
1. IPLC
2. FACTOR MOBILITY
COMPARISON OF IPLC AND FACTOR MOBILITY THEORIES.

1

Globalization
1. A holistic approach covers the following aspects:
a. Economic
b. Financial
c. Political
d. Cultural
All the above aspects/factors interact with each
other.
[See Joshi (2011), fig.1.3, p.9]

2

3

2.

Economic globalization has the following five
major components/aspects:
Production
b. Markets
c. Competition
d. Technology
e. Corporations & Industry
All the components work in an interactive manner.
a.

[See Joshi (2011), fig.1.5, p.13]

4

5

3. Movers and Restraining Factors:
3.1. Factors that give impetus to globalization or movers:
a. Economic liberalization
b. Technical break through

Manufacturing
► Transportation
► Information & Communication.
►

c.
d.
e.
f.
g.
h.

Multilateral institutions.
Interventional economic integration.
Move towards free market systems.
Rising R&D costs.
Advents in logistic management.
Emergence of global customer segments.

3.2. Factors that restrain globalization or restraining factors:
Regulatory controls
Emerging new trade barriers.
Cultural factors
Nationalism
e. Wards and civil disturbances.
f. Management myopia.
a.
b.
c.
d.

How much globalization proceeds/progresses depends on the relative strength of
6
factors in 3.1 and 3.2.
[See Joshi (2011), fig.1.6, pg.16]

7

Globalization: A TYPICAL MODERN IMAGE
Conspicuously seen in terms of
 Westernization
 Americanization

Some of the popular examples are:





Walmartization
Cocacolination
Disneyfication
Mc Donalization

1. Walmartization*
Walmart – US Retail Chain
Walmart Effect
 Keeping small competitors out
 Driving down wages
 Keeping inflation low
 Keeping productivity high

2. Cocacolination
Perceived as an invasion of cultural
values.

It has a conservative image as reflected in
 Firm cutting down costs
 Favoring policy of
►
►

*

Cutting down taxes
Keeping welfare state competitive

See Charles Fishman: Walmart Effect

8

3. Walmartization
See George Ritzer (1995)

[MacDonaldization of Society]
Four Dimensions of fast food restaurant:

i. Efficiency: Best mode of production with little scope of individuality.
ii. Calculability: Quantifiable Objective :
- Sale
- Focus on Quantity (big MAC, not so much quality)
iii. Predictability: Uniform Production Process.
iv. Control: Substitution of non-human technologies for human labour.(System of
“Iron Cage” – same principle governs all Institutions).

Criticism:

(a) Irrationality – Every worker performs highly rationalized task leading to
workers’ “Burn Out”.
(b) Deskilling: Workers perform repetitive tasks – cheap training of workers.
workers can be replaced easily.

4. Disneyfication

What is signified? Society dedicated to

i. Themes
ii. Huge consumption
iii. Emotion based labor.
(also signifies a diluted version of original form)

9

INTERNATIONAL PRODUCT LIFE CYCLE THEORY (IPCL)
ISSUES:
1.

Do international markets follow a cyclical Pattern? Why?
What does it explain?
- Shift in markets.
- Shift in production location.

2.

What factors are behind the phenomenon? Does it explain
trade patterns?
- Level of innovation and technology.
- Quantum & Quality of Resources.
- Size of market.
- Competitive structure.
10

IPCL: Four Stages:
What Determines these stages?

Difference/gap in technology between countries/economies.
► Ability (purchasing power) of customers.
► Preferences of customers.
►

Innovation:
What Makes it Effective?

If domestic market is big – economies of scale – cost efficiency
– international competition – (US, China, India): Big markets but
their innovative capacity and technology levels differ.
► Innovation but no big domestic market:
►

How to achieve economies of scale? Set up marketing and production
facilities outside the country.

11

What are the critical factors for expanding into international market?
► Innovative capacity, level of technology
► Scope of economies
► Achieving economies of scale
►
►
►

The innovating firm starts looking for establishing production base in
other high income countries.
When this is successful, these countries (where production base is
established) start exporting to the innovating country.
International competition increases

12

Stages of International Product Life Cycle.
See exhibit and interpret:
In each column, start moving down and interpret against the row title.
Try matching the movements of three types of curves.

13

14

Stage 1: Introduction:Advanced countries – Innovation for new product.




Lot of resources required for R&D.
Initially price of new product is high.
Hence search for markets for new product in high income countries.

Stage 2: Growth:



Search for other developed markets for exports.
Globalization
Trade patterns
Theories
 IPLC
 Factor Mobility
 Comparison.
15

Note & Interpret:
(i)
(ii)

Opposite movements of curves representing high income
countries.
Testes and preferences change in low income countries also.
They too start importing new product.

Stage 3: Maturity:
By now technical know-how is known to many countries. The
innovating country starts setting up production facility in the
third world (low income developing) economies by taking
advantage of low wages in the latter.
► Imports of low income countries decline as the domestic
production of this product increases.
►

Stage 4: Decline:
►

What is the marketing strategy at this stage? Production shifts
even to least developing countries – innovating country imports
from these countries
16

Examples:
i.

ii.

UK was largest manufacturer and exporter of bicycles. Bicycle
industry declined in UK. This industry emerged in low income
countries, including India.
Developed countries shift environmentally hazardous industries to
low income countries.

17

18

Criticism of IPCL Theory:
It explains the emerging pattern of international market. This was ok
earlier. Now information about prices, technology and preferences travels
across the globe. The product may be launched by the innovating country
simultaneously in several countries.

[Discuss Maruti Suzuki case. Japanese company, Suzuki, is an innovating
company. The latter established manufacturing base in India. India first
imported Maruti Suzuki Standard -800 Model. After the product gained
maturity and popularity, Maruti Suzuki Exports Cars to several developed
and semi developed countries. The time has come when India may also
base manufacturing facilities in other least developing countries].

19

Theory of Competitive Advantage


Porter–Diamond Theory:
(Michael Porter, 1990, The competitive advantage of nations).



Main focus is on Domestic Environment.
Contrast it with IPCL. – which lays emphasis on innovation/invention
and looks forward to off-shore investment/production.
Diamond? See four blocks/diamonds The interaction of these explains
and determines the trade competitive advantage of a country. See
arrows in diagram.
4 Diamonds – Blocks:






a) Factor input – Natural & Creaed
b) Demand conditions.
 Greater is the sophistication in demand conditions, more demanding the
consumer is – product quality – better service – change in preferences – (Global
exposure…).

20

c) Related and supporting industries
 Development of ancillary industry (as in auto industry).
 Strong supply chain management.
 Development of industrial clusters.
For example:
IT – Banglore,
Textiles – Tirupur
Metal Handicraft – Moradabad

d) Firm Strategy, Structure & Rivalry






Transformation of family enterprise.
Competition policy
Incentive structure
Global exposure
Domestic rivalry (competition?)
21

22

Summary


IPCL: Explains Sifts in





Theory of competitive advantage: To explain national competitiveness, it focuses
on:








Trade Patterns
Manufacturing base

Environmental factors (factor conditions)
Demand conditions
Related supporting industries
Firm strategy, structure, etc.
Degree of competition (Rivalry, etc).

Merit of above theoretical models:
They help provide basis for:
 Principles for regulatory framework.
 Preparing trade promotion strategies to national as well as international Govt./Bodies. The
relative advantage may vary across countries.

23

24

DISCUSS TWO CASE STUDIES ATTACHED

25

CASE STUDY 1
► CHIP

INDUSTRY

26

27

28

29

30

CASE STUDY 2
► Factor

mobility :TCS-case study

31

Factor mobility theory
► Daniels

et.al
See page no. 247-259

32

Supplementary notes
► Biggest

change being observed is the
demographic one.
► By 2050 – 033 countries will have lower
population than their present population
due to lower fertility ( lower than
population ranging from 14% to 22%.)
► On

the other hand, eight countries will
account for 50% of world population.

33

Consequences

► Labor

mobility across countries likely to be faster in
coming decades than now.

► Why

factors move?

►Capital
Long term movement-FDI
 Shifting manufacturing base
 Shifting services industry base
 Reform capital account convertibility
 Political stability
 Investor friendly policies
34

people
► 200

million ( approx 3% of worlds
population) have migrated not uniformly
all over the world.
► USA got high migration ( 11 % of
population of USA is made up immigrants
)
Two – third’s of UAE population consists of
temporary workers .
► Indonesian labor migrates to Malaysia
(huge- 10 times wage differential)

35

Impact
► Singapore transformed from low-wage
► Labor-intensive to high-wage capital intensive

economy ( due to high capital inflow )

► Trade

and factor mobility
Factor movement
From abundant area to scare area. (eg,maxicon
labor to USA.)

Complementarity
Complementary products-needs equipment. This
happens through foreign investment.
36

Flexible and small scale population
► Services

growing much faster than
manufacturing .
( change in consumption pattern in fast
growing economies)

Many services can be provided by small scale
units.
They have flexibility in labor employment too.
37

38

39

40

41

42


Slide 33

UNIT-1
► GLOBALIZATION
► TRADE

PATTERNS

 THEORIES
1. IPLC
2. FACTOR MOBILITY
COMPARISON OF IPLC AND FACTOR MOBILITY THEORIES.

1

Globalization
1. A holistic approach covers the following aspects:
a. Economic
b. Financial
c. Political
d. Cultural
All the above aspects/factors interact with each
other.
[See Joshi (2011), fig.1.3, p.9]

2

3

2.

Economic globalization has the following five
major components/aspects:
Production
b. Markets
c. Competition
d. Technology
e. Corporations & Industry
All the components work in an interactive manner.
a.

[See Joshi (2011), fig.1.5, p.13]

4

5

3. Movers and Restraining Factors:
3.1. Factors that give impetus to globalization or movers:
a. Economic liberalization
b. Technical break through

Manufacturing
► Transportation
► Information & Communication.
►

c.
d.
e.
f.
g.
h.

Multilateral institutions.
Interventional economic integration.
Move towards free market systems.
Rising R&D costs.
Advents in logistic management.
Emergence of global customer segments.

3.2. Factors that restrain globalization or restraining factors:
Regulatory controls
Emerging new trade barriers.
Cultural factors
Nationalism
e. Wards and civil disturbances.
f. Management myopia.
a.
b.
c.
d.

How much globalization proceeds/progresses depends on the relative strength of
6
factors in 3.1 and 3.2.
[See Joshi (2011), fig.1.6, pg.16]

7

Globalization: A TYPICAL MODERN IMAGE
Conspicuously seen in terms of
 Westernization
 Americanization

Some of the popular examples are:





Walmartization
Cocacolination
Disneyfication
Mc Donalization

1. Walmartization*
Walmart – US Retail Chain
Walmart Effect
 Keeping small competitors out
 Driving down wages
 Keeping inflation low
 Keeping productivity high

2. Cocacolination
Perceived as an invasion of cultural
values.

It has a conservative image as reflected in
 Firm cutting down costs
 Favoring policy of
►
►

*

Cutting down taxes
Keeping welfare state competitive

See Charles Fishman: Walmart Effect

8

3. Walmartization
See George Ritzer (1995)

[MacDonaldization of Society]
Four Dimensions of fast food restaurant:

i. Efficiency: Best mode of production with little scope of individuality.
ii. Calculability: Quantifiable Objective :
- Sale
- Focus on Quantity (big MAC, not so much quality)
iii. Predictability: Uniform Production Process.
iv. Control: Substitution of non-human technologies for human labour.(System of
“Iron Cage” – same principle governs all Institutions).

Criticism:

(a) Irrationality – Every worker performs highly rationalized task leading to
workers’ “Burn Out”.
(b) Deskilling: Workers perform repetitive tasks – cheap training of workers.
workers can be replaced easily.

4. Disneyfication

What is signified? Society dedicated to

i. Themes
ii. Huge consumption
iii. Emotion based labor.
(also signifies a diluted version of original form)

9

INTERNATIONAL PRODUCT LIFE CYCLE THEORY (IPCL)
ISSUES:
1.

Do international markets follow a cyclical Pattern? Why?
What does it explain?
- Shift in markets.
- Shift in production location.

2.

What factors are behind the phenomenon? Does it explain
trade patterns?
- Level of innovation and technology.
- Quantum & Quality of Resources.
- Size of market.
- Competitive structure.
10

IPCL: Four Stages:
What Determines these stages?

Difference/gap in technology between countries/economies.
► Ability (purchasing power) of customers.
► Preferences of customers.
►

Innovation:
What Makes it Effective?

If domestic market is big – economies of scale – cost efficiency
– international competition – (US, China, India): Big markets but
their innovative capacity and technology levels differ.
► Innovation but no big domestic market:
►

How to achieve economies of scale? Set up marketing and production
facilities outside the country.

11

What are the critical factors for expanding into international market?
► Innovative capacity, level of technology
► Scope of economies
► Achieving economies of scale
►
►
►

The innovating firm starts looking for establishing production base in
other high income countries.
When this is successful, these countries (where production base is
established) start exporting to the innovating country.
International competition increases

12

Stages of International Product Life Cycle.
See exhibit and interpret:
In each column, start moving down and interpret against the row title.
Try matching the movements of three types of curves.

13

14

Stage 1: Introduction:Advanced countries – Innovation for new product.




Lot of resources required for R&D.
Initially price of new product is high.
Hence search for markets for new product in high income countries.

Stage 2: Growth:



Search for other developed markets for exports.
Globalization
Trade patterns
Theories
 IPLC
 Factor Mobility
 Comparison.
15

Note & Interpret:
(i)
(ii)

Opposite movements of curves representing high income
countries.
Testes and preferences change in low income countries also.
They too start importing new product.

Stage 3: Maturity:
By now technical know-how is known to many countries. The
innovating country starts setting up production facility in the
third world (low income developing) economies by taking
advantage of low wages in the latter.
► Imports of low income countries decline as the domestic
production of this product increases.
►

Stage 4: Decline:
►

What is the marketing strategy at this stage? Production shifts
even to least developing countries – innovating country imports
from these countries
16

Examples:
i.

ii.

UK was largest manufacturer and exporter of bicycles. Bicycle
industry declined in UK. This industry emerged in low income
countries, including India.
Developed countries shift environmentally hazardous industries to
low income countries.

17

18

Criticism of IPCL Theory:
It explains the emerging pattern of international market. This was ok
earlier. Now information about prices, technology and preferences travels
across the globe. The product may be launched by the innovating country
simultaneously in several countries.

[Discuss Maruti Suzuki case. Japanese company, Suzuki, is an innovating
company. The latter established manufacturing base in India. India first
imported Maruti Suzuki Standard -800 Model. After the product gained
maturity and popularity, Maruti Suzuki Exports Cars to several developed
and semi developed countries. The time has come when India may also
base manufacturing facilities in other least developing countries].

19

Theory of Competitive Advantage


Porter–Diamond Theory:
(Michael Porter, 1990, The competitive advantage of nations).



Main focus is on Domestic Environment.
Contrast it with IPCL. – which lays emphasis on innovation/invention
and looks forward to off-shore investment/production.
Diamond? See four blocks/diamonds The interaction of these explains
and determines the trade competitive advantage of a country. See
arrows in diagram.
4 Diamonds – Blocks:






a) Factor input – Natural & Creaed
b) Demand conditions.
 Greater is the sophistication in demand conditions, more demanding the
consumer is – product quality – better service – change in preferences – (Global
exposure…).

20

c) Related and supporting industries
 Development of ancillary industry (as in auto industry).
 Strong supply chain management.
 Development of industrial clusters.
For example:
IT – Banglore,
Textiles – Tirupur
Metal Handicraft – Moradabad

d) Firm Strategy, Structure & Rivalry






Transformation of family enterprise.
Competition policy
Incentive structure
Global exposure
Domestic rivalry (competition?)
21

22

Summary


IPCL: Explains Sifts in





Theory of competitive advantage: To explain national competitiveness, it focuses
on:








Trade Patterns
Manufacturing base

Environmental factors (factor conditions)
Demand conditions
Related supporting industries
Firm strategy, structure, etc.
Degree of competition (Rivalry, etc).

Merit of above theoretical models:
They help provide basis for:
 Principles for regulatory framework.
 Preparing trade promotion strategies to national as well as international Govt./Bodies. The
relative advantage may vary across countries.

23

24

DISCUSS TWO CASE STUDIES ATTACHED

25

CASE STUDY 1
► CHIP

INDUSTRY

26

27

28

29

30

CASE STUDY 2
► Factor

mobility :TCS-case study

31

Factor mobility theory
► Daniels

et.al
See page no. 247-259

32

Supplementary notes
► Biggest

change being observed is the
demographic one.
► By 2050 – 033 countries will have lower
population than their present population
due to lower fertility ( lower than
population ranging from 14% to 22%.)
► On

the other hand, eight countries will
account for 50% of world population.

33

Consequences

► Labor

mobility across countries likely to be faster in
coming decades than now.

► Why

factors move?

►Capital
Long term movement-FDI
 Shifting manufacturing base
 Shifting services industry base
 Reform capital account convertibility
 Political stability
 Investor friendly policies
34

people
► 200

million ( approx 3% of worlds
population) have migrated not uniformly
all over the world.
► USA got high migration ( 11 % of
population of USA is made up immigrants
)
Two – third’s of UAE population consists of
temporary workers .
► Indonesian labor migrates to Malaysia
(huge- 10 times wage differential)

35

Impact
► Singapore transformed from low-wage
► Labor-intensive to high-wage capital intensive

economy ( due to high capital inflow )

► Trade

and factor mobility
Factor movement
From abundant area to scare area. (eg,maxicon
labor to USA.)

Complementarity
Complementary products-needs equipment. This
happens through foreign investment.
36

Flexible and small scale population
► Services

growing much faster than
manufacturing .
( change in consumption pattern in fast
growing economies)

Many services can be provided by small scale
units.
They have flexibility in labor employment too.
37

38

39

40

41

42


Slide 34

UNIT-1
► GLOBALIZATION
► TRADE

PATTERNS

 THEORIES
1. IPLC
2. FACTOR MOBILITY
COMPARISON OF IPLC AND FACTOR MOBILITY THEORIES.

1

Globalization
1. A holistic approach covers the following aspects:
a. Economic
b. Financial
c. Political
d. Cultural
All the above aspects/factors interact with each
other.
[See Joshi (2011), fig.1.3, p.9]

2

3

2.

Economic globalization has the following five
major components/aspects:
Production
b. Markets
c. Competition
d. Technology
e. Corporations & Industry
All the components work in an interactive manner.
a.

[See Joshi (2011), fig.1.5, p.13]

4

5

3. Movers and Restraining Factors:
3.1. Factors that give impetus to globalization or movers:
a. Economic liberalization
b. Technical break through

Manufacturing
► Transportation
► Information & Communication.
►

c.
d.
e.
f.
g.
h.

Multilateral institutions.
Interventional economic integration.
Move towards free market systems.
Rising R&D costs.
Advents in logistic management.
Emergence of global customer segments.

3.2. Factors that restrain globalization or restraining factors:
Regulatory controls
Emerging new trade barriers.
Cultural factors
Nationalism
e. Wards and civil disturbances.
f. Management myopia.
a.
b.
c.
d.

How much globalization proceeds/progresses depends on the relative strength of
6
factors in 3.1 and 3.2.
[See Joshi (2011), fig.1.6, pg.16]

7

Globalization: A TYPICAL MODERN IMAGE
Conspicuously seen in terms of
 Westernization
 Americanization

Some of the popular examples are:





Walmartization
Cocacolination
Disneyfication
Mc Donalization

1. Walmartization*
Walmart – US Retail Chain
Walmart Effect
 Keeping small competitors out
 Driving down wages
 Keeping inflation low
 Keeping productivity high

2. Cocacolination
Perceived as an invasion of cultural
values.

It has a conservative image as reflected in
 Firm cutting down costs
 Favoring policy of
►
►

*

Cutting down taxes
Keeping welfare state competitive

See Charles Fishman: Walmart Effect

8

3. Walmartization
See George Ritzer (1995)

[MacDonaldization of Society]
Four Dimensions of fast food restaurant:

i. Efficiency: Best mode of production with little scope of individuality.
ii. Calculability: Quantifiable Objective :
- Sale
- Focus on Quantity (big MAC, not so much quality)
iii. Predictability: Uniform Production Process.
iv. Control: Substitution of non-human technologies for human labour.(System of
“Iron Cage” – same principle governs all Institutions).

Criticism:

(a) Irrationality – Every worker performs highly rationalized task leading to
workers’ “Burn Out”.
(b) Deskilling: Workers perform repetitive tasks – cheap training of workers.
workers can be replaced easily.

4. Disneyfication

What is signified? Society dedicated to

i. Themes
ii. Huge consumption
iii. Emotion based labor.
(also signifies a diluted version of original form)

9

INTERNATIONAL PRODUCT LIFE CYCLE THEORY (IPCL)
ISSUES:
1.

Do international markets follow a cyclical Pattern? Why?
What does it explain?
- Shift in markets.
- Shift in production location.

2.

What factors are behind the phenomenon? Does it explain
trade patterns?
- Level of innovation and technology.
- Quantum & Quality of Resources.
- Size of market.
- Competitive structure.
10

IPCL: Four Stages:
What Determines these stages?

Difference/gap in technology between countries/economies.
► Ability (purchasing power) of customers.
► Preferences of customers.
►

Innovation:
What Makes it Effective?

If domestic market is big – economies of scale – cost efficiency
– international competition – (US, China, India): Big markets but
their innovative capacity and technology levels differ.
► Innovation but no big domestic market:
►

How to achieve economies of scale? Set up marketing and production
facilities outside the country.

11

What are the critical factors for expanding into international market?
► Innovative capacity, level of technology
► Scope of economies
► Achieving economies of scale
►
►
►

The innovating firm starts looking for establishing production base in
other high income countries.
When this is successful, these countries (where production base is
established) start exporting to the innovating country.
International competition increases

12

Stages of International Product Life Cycle.
See exhibit and interpret:
In each column, start moving down and interpret against the row title.
Try matching the movements of three types of curves.

13

14

Stage 1: Introduction:Advanced countries – Innovation for new product.




Lot of resources required for R&D.
Initially price of new product is high.
Hence search for markets for new product in high income countries.

Stage 2: Growth:



Search for other developed markets for exports.
Globalization
Trade patterns
Theories
 IPLC
 Factor Mobility
 Comparison.
15

Note & Interpret:
(i)
(ii)

Opposite movements of curves representing high income
countries.
Testes and preferences change in low income countries also.
They too start importing new product.

Stage 3: Maturity:
By now technical know-how is known to many countries. The
innovating country starts setting up production facility in the
third world (low income developing) economies by taking
advantage of low wages in the latter.
► Imports of low income countries decline as the domestic
production of this product increases.
►

Stage 4: Decline:
►

What is the marketing strategy at this stage? Production shifts
even to least developing countries – innovating country imports
from these countries
16

Examples:
i.

ii.

UK was largest manufacturer and exporter of bicycles. Bicycle
industry declined in UK. This industry emerged in low income
countries, including India.
Developed countries shift environmentally hazardous industries to
low income countries.

17

18

Criticism of IPCL Theory:
It explains the emerging pattern of international market. This was ok
earlier. Now information about prices, technology and preferences travels
across the globe. The product may be launched by the innovating country
simultaneously in several countries.

[Discuss Maruti Suzuki case. Japanese company, Suzuki, is an innovating
company. The latter established manufacturing base in India. India first
imported Maruti Suzuki Standard -800 Model. After the product gained
maturity and popularity, Maruti Suzuki Exports Cars to several developed
and semi developed countries. The time has come when India may also
base manufacturing facilities in other least developing countries].

19

Theory of Competitive Advantage


Porter–Diamond Theory:
(Michael Porter, 1990, The competitive advantage of nations).



Main focus is on Domestic Environment.
Contrast it with IPCL. – which lays emphasis on innovation/invention
and looks forward to off-shore investment/production.
Diamond? See four blocks/diamonds The interaction of these explains
and determines the trade competitive advantage of a country. See
arrows in diagram.
4 Diamonds – Blocks:






a) Factor input – Natural & Creaed
b) Demand conditions.
 Greater is the sophistication in demand conditions, more demanding the
consumer is – product quality – better service – change in preferences – (Global
exposure…).

20

c) Related and supporting industries
 Development of ancillary industry (as in auto industry).
 Strong supply chain management.
 Development of industrial clusters.
For example:
IT – Banglore,
Textiles – Tirupur
Metal Handicraft – Moradabad

d) Firm Strategy, Structure & Rivalry






Transformation of family enterprise.
Competition policy
Incentive structure
Global exposure
Domestic rivalry (competition?)
21

22

Summary


IPCL: Explains Sifts in





Theory of competitive advantage: To explain national competitiveness, it focuses
on:








Trade Patterns
Manufacturing base

Environmental factors (factor conditions)
Demand conditions
Related supporting industries
Firm strategy, structure, etc.
Degree of competition (Rivalry, etc).

Merit of above theoretical models:
They help provide basis for:
 Principles for regulatory framework.
 Preparing trade promotion strategies to national as well as international Govt./Bodies. The
relative advantage may vary across countries.

23

24

DISCUSS TWO CASE STUDIES ATTACHED

25

CASE STUDY 1
► CHIP

INDUSTRY

26

27

28

29

30

CASE STUDY 2
► Factor

mobility :TCS-case study

31

Factor mobility theory
► Daniels

et.al
See page no. 247-259

32

Supplementary notes
► Biggest

change being observed is the
demographic one.
► By 2050 – 033 countries will have lower
population than their present population
due to lower fertility ( lower than
population ranging from 14% to 22%.)
► On

the other hand, eight countries will
account for 50% of world population.

33

Consequences

► Labor

mobility across countries likely to be faster in
coming decades than now.

► Why

factors move?

►Capital
Long term movement-FDI
 Shifting manufacturing base
 Shifting services industry base
 Reform capital account convertibility
 Political stability
 Investor friendly policies
34

people
► 200

million ( approx 3% of worlds
population) have migrated not uniformly
all over the world.
► USA got high migration ( 11 % of
population of USA is made up immigrants
)
Two – third’s of UAE population consists of
temporary workers .
► Indonesian labor migrates to Malaysia
(huge- 10 times wage differential)

35

Impact
► Singapore transformed from low-wage
► Labor-intensive to high-wage capital intensive

economy ( due to high capital inflow )

► Trade

and factor mobility
Factor movement
From abundant area to scare area. (eg,maxicon
labor to USA.)

Complementarity
Complementary products-needs equipment. This
happens through foreign investment.
36

Flexible and small scale population
► Services

growing much faster than
manufacturing .
( change in consumption pattern in fast
growing economies)

Many services can be provided by small scale
units.
They have flexibility in labor employment too.
37

38

39

40

41

42


Slide 35

UNIT-1
► GLOBALIZATION
► TRADE

PATTERNS

 THEORIES
1. IPLC
2. FACTOR MOBILITY
COMPARISON OF IPLC AND FACTOR MOBILITY THEORIES.

1

Globalization
1. A holistic approach covers the following aspects:
a. Economic
b. Financial
c. Political
d. Cultural
All the above aspects/factors interact with each
other.
[See Joshi (2011), fig.1.3, p.9]

2

3

2.

Economic globalization has the following five
major components/aspects:
Production
b. Markets
c. Competition
d. Technology
e. Corporations & Industry
All the components work in an interactive manner.
a.

[See Joshi (2011), fig.1.5, p.13]

4

5

3. Movers and Restraining Factors:
3.1. Factors that give impetus to globalization or movers:
a. Economic liberalization
b. Technical break through

Manufacturing
► Transportation
► Information & Communication.
►

c.
d.
e.
f.
g.
h.

Multilateral institutions.
Interventional economic integration.
Move towards free market systems.
Rising R&D costs.
Advents in logistic management.
Emergence of global customer segments.

3.2. Factors that restrain globalization or restraining factors:
Regulatory controls
Emerging new trade barriers.
Cultural factors
Nationalism
e. Wards and civil disturbances.
f. Management myopia.
a.
b.
c.
d.

How much globalization proceeds/progresses depends on the relative strength of
6
factors in 3.1 and 3.2.
[See Joshi (2011), fig.1.6, pg.16]

7

Globalization: A TYPICAL MODERN IMAGE
Conspicuously seen in terms of
 Westernization
 Americanization

Some of the popular examples are:





Walmartization
Cocacolination
Disneyfication
Mc Donalization

1. Walmartization*
Walmart – US Retail Chain
Walmart Effect
 Keeping small competitors out
 Driving down wages
 Keeping inflation low
 Keeping productivity high

2. Cocacolination
Perceived as an invasion of cultural
values.

It has a conservative image as reflected in
 Firm cutting down costs
 Favoring policy of
►
►

*

Cutting down taxes
Keeping welfare state competitive

See Charles Fishman: Walmart Effect

8

3. Walmartization
See George Ritzer (1995)

[MacDonaldization of Society]
Four Dimensions of fast food restaurant:

i. Efficiency: Best mode of production with little scope of individuality.
ii. Calculability: Quantifiable Objective :
- Sale
- Focus on Quantity (big MAC, not so much quality)
iii. Predictability: Uniform Production Process.
iv. Control: Substitution of non-human technologies for human labour.(System of
“Iron Cage” – same principle governs all Institutions).

Criticism:

(a) Irrationality – Every worker performs highly rationalized task leading to
workers’ “Burn Out”.
(b) Deskilling: Workers perform repetitive tasks – cheap training of workers.
workers can be replaced easily.

4. Disneyfication

What is signified? Society dedicated to

i. Themes
ii. Huge consumption
iii. Emotion based labor.
(also signifies a diluted version of original form)

9

INTERNATIONAL PRODUCT LIFE CYCLE THEORY (IPCL)
ISSUES:
1.

Do international markets follow a cyclical Pattern? Why?
What does it explain?
- Shift in markets.
- Shift in production location.

2.

What factors are behind the phenomenon? Does it explain
trade patterns?
- Level of innovation and technology.
- Quantum & Quality of Resources.
- Size of market.
- Competitive structure.
10

IPCL: Four Stages:
What Determines these stages?

Difference/gap in technology between countries/economies.
► Ability (purchasing power) of customers.
► Preferences of customers.
►

Innovation:
What Makes it Effective?

If domestic market is big – economies of scale – cost efficiency
– international competition – (US, China, India): Big markets but
their innovative capacity and technology levels differ.
► Innovation but no big domestic market:
►

How to achieve economies of scale? Set up marketing and production
facilities outside the country.

11

What are the critical factors for expanding into international market?
► Innovative capacity, level of technology
► Scope of economies
► Achieving economies of scale
►
►
►

The innovating firm starts looking for establishing production base in
other high income countries.
When this is successful, these countries (where production base is
established) start exporting to the innovating country.
International competition increases

12

Stages of International Product Life Cycle.
See exhibit and interpret:
In each column, start moving down and interpret against the row title.
Try matching the movements of three types of curves.

13

14

Stage 1: Introduction:Advanced countries – Innovation for new product.




Lot of resources required for R&D.
Initially price of new product is high.
Hence search for markets for new product in high income countries.

Stage 2: Growth:



Search for other developed markets for exports.
Globalization
Trade patterns
Theories
 IPLC
 Factor Mobility
 Comparison.
15

Note & Interpret:
(i)
(ii)

Opposite movements of curves representing high income
countries.
Testes and preferences change in low income countries also.
They too start importing new product.

Stage 3: Maturity:
By now technical know-how is known to many countries. The
innovating country starts setting up production facility in the
third world (low income developing) economies by taking
advantage of low wages in the latter.
► Imports of low income countries decline as the domestic
production of this product increases.
►

Stage 4: Decline:
►

What is the marketing strategy at this stage? Production shifts
even to least developing countries – innovating country imports
from these countries
16

Examples:
i.

ii.

UK was largest manufacturer and exporter of bicycles. Bicycle
industry declined in UK. This industry emerged in low income
countries, including India.
Developed countries shift environmentally hazardous industries to
low income countries.

17

18

Criticism of IPCL Theory:
It explains the emerging pattern of international market. This was ok
earlier. Now information about prices, technology and preferences travels
across the globe. The product may be launched by the innovating country
simultaneously in several countries.

[Discuss Maruti Suzuki case. Japanese company, Suzuki, is an innovating
company. The latter established manufacturing base in India. India first
imported Maruti Suzuki Standard -800 Model. After the product gained
maturity and popularity, Maruti Suzuki Exports Cars to several developed
and semi developed countries. The time has come when India may also
base manufacturing facilities in other least developing countries].

19

Theory of Competitive Advantage


Porter–Diamond Theory:
(Michael Porter, 1990, The competitive advantage of nations).



Main focus is on Domestic Environment.
Contrast it with IPCL. – which lays emphasis on innovation/invention
and looks forward to off-shore investment/production.
Diamond? See four blocks/diamonds The interaction of these explains
and determines the trade competitive advantage of a country. See
arrows in diagram.
4 Diamonds – Blocks:






a) Factor input – Natural & Creaed
b) Demand conditions.
 Greater is the sophistication in demand conditions, more demanding the
consumer is – product quality – better service – change in preferences – (Global
exposure…).

20

c) Related and supporting industries
 Development of ancillary industry (as in auto industry).
 Strong supply chain management.
 Development of industrial clusters.
For example:
IT – Banglore,
Textiles – Tirupur
Metal Handicraft – Moradabad

d) Firm Strategy, Structure & Rivalry






Transformation of family enterprise.
Competition policy
Incentive structure
Global exposure
Domestic rivalry (competition?)
21

22

Summary


IPCL: Explains Sifts in





Theory of competitive advantage: To explain national competitiveness, it focuses
on:








Trade Patterns
Manufacturing base

Environmental factors (factor conditions)
Demand conditions
Related supporting industries
Firm strategy, structure, etc.
Degree of competition (Rivalry, etc).

Merit of above theoretical models:
They help provide basis for:
 Principles for regulatory framework.
 Preparing trade promotion strategies to national as well as international Govt./Bodies. The
relative advantage may vary across countries.

23

24

DISCUSS TWO CASE STUDIES ATTACHED

25

CASE STUDY 1
► CHIP

INDUSTRY

26

27

28

29

30

CASE STUDY 2
► Factor

mobility :TCS-case study

31

Factor mobility theory
► Daniels

et.al
See page no. 247-259

32

Supplementary notes
► Biggest

change being observed is the
demographic one.
► By 2050 – 033 countries will have lower
population than their present population
due to lower fertility ( lower than
population ranging from 14% to 22%.)
► On

the other hand, eight countries will
account for 50% of world population.

33

Consequences

► Labor

mobility across countries likely to be faster in
coming decades than now.

► Why

factors move?

►Capital
Long term movement-FDI
 Shifting manufacturing base
 Shifting services industry base
 Reform capital account convertibility
 Political stability
 Investor friendly policies
34

people
► 200

million ( approx 3% of worlds
population) have migrated not uniformly
all over the world.
► USA got high migration ( 11 % of
population of USA is made up immigrants
)
Two – third’s of UAE population consists of
temporary workers .
► Indonesian labor migrates to Malaysia
(huge- 10 times wage differential)

35

Impact
► Singapore transformed from low-wage
► Labor-intensive to high-wage capital intensive

economy ( due to high capital inflow )

► Trade

and factor mobility
Factor movement
From abundant area to scare area. (eg,maxicon
labor to USA.)

Complementarity
Complementary products-needs equipment. This
happens through foreign investment.
36

Flexible and small scale population
► Services

growing much faster than
manufacturing .
( change in consumption pattern in fast
growing economies)

Many services can be provided by small scale
units.
They have flexibility in labor employment too.
37

38

39

40

41

42


Slide 36

UNIT-1
► GLOBALIZATION
► TRADE

PATTERNS

 THEORIES
1. IPLC
2. FACTOR MOBILITY
COMPARISON OF IPLC AND FACTOR MOBILITY THEORIES.

1

Globalization
1. A holistic approach covers the following aspects:
a. Economic
b. Financial
c. Political
d. Cultural
All the above aspects/factors interact with each
other.
[See Joshi (2011), fig.1.3, p.9]

2

3

2.

Economic globalization has the following five
major components/aspects:
Production
b. Markets
c. Competition
d. Technology
e. Corporations & Industry
All the components work in an interactive manner.
a.

[See Joshi (2011), fig.1.5, p.13]

4

5

3. Movers and Restraining Factors:
3.1. Factors that give impetus to globalization or movers:
a. Economic liberalization
b. Technical break through

Manufacturing
► Transportation
► Information & Communication.
►

c.
d.
e.
f.
g.
h.

Multilateral institutions.
Interventional economic integration.
Move towards free market systems.
Rising R&D costs.
Advents in logistic management.
Emergence of global customer segments.

3.2. Factors that restrain globalization or restraining factors:
Regulatory controls
Emerging new trade barriers.
Cultural factors
Nationalism
e. Wards and civil disturbances.
f. Management myopia.
a.
b.
c.
d.

How much globalization proceeds/progresses depends on the relative strength of
6
factors in 3.1 and 3.2.
[See Joshi (2011), fig.1.6, pg.16]

7

Globalization: A TYPICAL MODERN IMAGE
Conspicuously seen in terms of
 Westernization
 Americanization

Some of the popular examples are:





Walmartization
Cocacolination
Disneyfication
Mc Donalization

1. Walmartization*
Walmart – US Retail Chain
Walmart Effect
 Keeping small competitors out
 Driving down wages
 Keeping inflation low
 Keeping productivity high

2. Cocacolination
Perceived as an invasion of cultural
values.

It has a conservative image as reflected in
 Firm cutting down costs
 Favoring policy of
►
►

*

Cutting down taxes
Keeping welfare state competitive

See Charles Fishman: Walmart Effect

8

3. Walmartization
See George Ritzer (1995)

[MacDonaldization of Society]
Four Dimensions of fast food restaurant:

i. Efficiency: Best mode of production with little scope of individuality.
ii. Calculability: Quantifiable Objective :
- Sale
- Focus on Quantity (big MAC, not so much quality)
iii. Predictability: Uniform Production Process.
iv. Control: Substitution of non-human technologies for human labour.(System of
“Iron Cage” – same principle governs all Institutions).

Criticism:

(a) Irrationality – Every worker performs highly rationalized task leading to
workers’ “Burn Out”.
(b) Deskilling: Workers perform repetitive tasks – cheap training of workers.
workers can be replaced easily.

4. Disneyfication

What is signified? Society dedicated to

i. Themes
ii. Huge consumption
iii. Emotion based labor.
(also signifies a diluted version of original form)

9

INTERNATIONAL PRODUCT LIFE CYCLE THEORY (IPCL)
ISSUES:
1.

Do international markets follow a cyclical Pattern? Why?
What does it explain?
- Shift in markets.
- Shift in production location.

2.

What factors are behind the phenomenon? Does it explain
trade patterns?
- Level of innovation and technology.
- Quantum & Quality of Resources.
- Size of market.
- Competitive structure.
10

IPCL: Four Stages:
What Determines these stages?

Difference/gap in technology between countries/economies.
► Ability (purchasing power) of customers.
► Preferences of customers.
►

Innovation:
What Makes it Effective?

If domestic market is big – economies of scale – cost efficiency
– international competition – (US, China, India): Big markets but
their innovative capacity and technology levels differ.
► Innovation but no big domestic market:
►

How to achieve economies of scale? Set up marketing and production
facilities outside the country.

11

What are the critical factors for expanding into international market?
► Innovative capacity, level of technology
► Scope of economies
► Achieving economies of scale
►
►
►

The innovating firm starts looking for establishing production base in
other high income countries.
When this is successful, these countries (where production base is
established) start exporting to the innovating country.
International competition increases

12

Stages of International Product Life Cycle.
See exhibit and interpret:
In each column, start moving down and interpret against the row title.
Try matching the movements of three types of curves.

13

14

Stage 1: Introduction:Advanced countries – Innovation for new product.




Lot of resources required for R&D.
Initially price of new product is high.
Hence search for markets for new product in high income countries.

Stage 2: Growth:



Search for other developed markets for exports.
Globalization
Trade patterns
Theories
 IPLC
 Factor Mobility
 Comparison.
15

Note & Interpret:
(i)
(ii)

Opposite movements of curves representing high income
countries.
Testes and preferences change in low income countries also.
They too start importing new product.

Stage 3: Maturity:
By now technical know-how is known to many countries. The
innovating country starts setting up production facility in the
third world (low income developing) economies by taking
advantage of low wages in the latter.
► Imports of low income countries decline as the domestic
production of this product increases.
►

Stage 4: Decline:
►

What is the marketing strategy at this stage? Production shifts
even to least developing countries – innovating country imports
from these countries
16

Examples:
i.

ii.

UK was largest manufacturer and exporter of bicycles. Bicycle
industry declined in UK. This industry emerged in low income
countries, including India.
Developed countries shift environmentally hazardous industries to
low income countries.

17

18

Criticism of IPCL Theory:
It explains the emerging pattern of international market. This was ok
earlier. Now information about prices, technology and preferences travels
across the globe. The product may be launched by the innovating country
simultaneously in several countries.

[Discuss Maruti Suzuki case. Japanese company, Suzuki, is an innovating
company. The latter established manufacturing base in India. India first
imported Maruti Suzuki Standard -800 Model. After the product gained
maturity and popularity, Maruti Suzuki Exports Cars to several developed
and semi developed countries. The time has come when India may also
base manufacturing facilities in other least developing countries].

19

Theory of Competitive Advantage


Porter–Diamond Theory:
(Michael Porter, 1990, The competitive advantage of nations).



Main focus is on Domestic Environment.
Contrast it with IPCL. – which lays emphasis on innovation/invention
and looks forward to off-shore investment/production.
Diamond? See four blocks/diamonds The interaction of these explains
and determines the trade competitive advantage of a country. See
arrows in diagram.
4 Diamonds – Blocks:






a) Factor input – Natural & Creaed
b) Demand conditions.
 Greater is the sophistication in demand conditions, more demanding the
consumer is – product quality – better service – change in preferences – (Global
exposure…).

20

c) Related and supporting industries
 Development of ancillary industry (as in auto industry).
 Strong supply chain management.
 Development of industrial clusters.
For example:
IT – Banglore,
Textiles – Tirupur
Metal Handicraft – Moradabad

d) Firm Strategy, Structure & Rivalry






Transformation of family enterprise.
Competition policy
Incentive structure
Global exposure
Domestic rivalry (competition?)
21

22

Summary


IPCL: Explains Sifts in





Theory of competitive advantage: To explain national competitiveness, it focuses
on:








Trade Patterns
Manufacturing base

Environmental factors (factor conditions)
Demand conditions
Related supporting industries
Firm strategy, structure, etc.
Degree of competition (Rivalry, etc).

Merit of above theoretical models:
They help provide basis for:
 Principles for regulatory framework.
 Preparing trade promotion strategies to national as well as international Govt./Bodies. The
relative advantage may vary across countries.

23

24

DISCUSS TWO CASE STUDIES ATTACHED

25

CASE STUDY 1
► CHIP

INDUSTRY

26

27

28

29

30

CASE STUDY 2
► Factor

mobility :TCS-case study

31

Factor mobility theory
► Daniels

et.al
See page no. 247-259

32

Supplementary notes
► Biggest

change being observed is the
demographic one.
► By 2050 – 033 countries will have lower
population than their present population
due to lower fertility ( lower than
population ranging from 14% to 22%.)
► On

the other hand, eight countries will
account for 50% of world population.

33

Consequences

► Labor

mobility across countries likely to be faster in
coming decades than now.

► Why

factors move?

►Capital
Long term movement-FDI
 Shifting manufacturing base
 Shifting services industry base
 Reform capital account convertibility
 Political stability
 Investor friendly policies
34

people
► 200

million ( approx 3% of worlds
population) have migrated not uniformly
all over the world.
► USA got high migration ( 11 % of
population of USA is made up immigrants
)
Two – third’s of UAE population consists of
temporary workers .
► Indonesian labor migrates to Malaysia
(huge- 10 times wage differential)

35

Impact
► Singapore transformed from low-wage
► Labor-intensive to high-wage capital intensive

economy ( due to high capital inflow )

► Trade

and factor mobility
Factor movement
From abundant area to scare area. (eg,maxicon
labor to USA.)

Complementarity
Complementary products-needs equipment. This
happens through foreign investment.
36

Flexible and small scale population
► Services

growing much faster than
manufacturing .
( change in consumption pattern in fast
growing economies)

Many services can be provided by small scale
units.
They have flexibility in labor employment too.
37

38

39

40

41

42


Slide 37

UNIT-1
► GLOBALIZATION
► TRADE

PATTERNS

 THEORIES
1. IPLC
2. FACTOR MOBILITY
COMPARISON OF IPLC AND FACTOR MOBILITY THEORIES.

1

Globalization
1. A holistic approach covers the following aspects:
a. Economic
b. Financial
c. Political
d. Cultural
All the above aspects/factors interact with each
other.
[See Joshi (2011), fig.1.3, p.9]

2

3

2.

Economic globalization has the following five
major components/aspects:
Production
b. Markets
c. Competition
d. Technology
e. Corporations & Industry
All the components work in an interactive manner.
a.

[See Joshi (2011), fig.1.5, p.13]

4

5

3. Movers and Restraining Factors:
3.1. Factors that give impetus to globalization or movers:
a. Economic liberalization
b. Technical break through

Manufacturing
► Transportation
► Information & Communication.
►

c.
d.
e.
f.
g.
h.

Multilateral institutions.
Interventional economic integration.
Move towards free market systems.
Rising R&D costs.
Advents in logistic management.
Emergence of global customer segments.

3.2. Factors that restrain globalization or restraining factors:
Regulatory controls
Emerging new trade barriers.
Cultural factors
Nationalism
e. Wards and civil disturbances.
f. Management myopia.
a.
b.
c.
d.

How much globalization proceeds/progresses depends on the relative strength of
6
factors in 3.1 and 3.2.
[See Joshi (2011), fig.1.6, pg.16]

7

Globalization: A TYPICAL MODERN IMAGE
Conspicuously seen in terms of
 Westernization
 Americanization

Some of the popular examples are:





Walmartization
Cocacolination
Disneyfication
Mc Donalization

1. Walmartization*
Walmart – US Retail Chain
Walmart Effect
 Keeping small competitors out
 Driving down wages
 Keeping inflation low
 Keeping productivity high

2. Cocacolination
Perceived as an invasion of cultural
values.

It has a conservative image as reflected in
 Firm cutting down costs
 Favoring policy of
►
►

*

Cutting down taxes
Keeping welfare state competitive

See Charles Fishman: Walmart Effect

8

3. Walmartization
See George Ritzer (1995)

[MacDonaldization of Society]
Four Dimensions of fast food restaurant:

i. Efficiency: Best mode of production with little scope of individuality.
ii. Calculability: Quantifiable Objective :
- Sale
- Focus on Quantity (big MAC, not so much quality)
iii. Predictability: Uniform Production Process.
iv. Control: Substitution of non-human technologies for human labour.(System of
“Iron Cage” – same principle governs all Institutions).

Criticism:

(a) Irrationality – Every worker performs highly rationalized task leading to
workers’ “Burn Out”.
(b) Deskilling: Workers perform repetitive tasks – cheap training of workers.
workers can be replaced easily.

4. Disneyfication

What is signified? Society dedicated to

i. Themes
ii. Huge consumption
iii. Emotion based labor.
(also signifies a diluted version of original form)

9

INTERNATIONAL PRODUCT LIFE CYCLE THEORY (IPCL)
ISSUES:
1.

Do international markets follow a cyclical Pattern? Why?
What does it explain?
- Shift in markets.
- Shift in production location.

2.

What factors are behind the phenomenon? Does it explain
trade patterns?
- Level of innovation and technology.
- Quantum & Quality of Resources.
- Size of market.
- Competitive structure.
10

IPCL: Four Stages:
What Determines these stages?

Difference/gap in technology between countries/economies.
► Ability (purchasing power) of customers.
► Preferences of customers.
►

Innovation:
What Makes it Effective?

If domestic market is big – economies of scale – cost efficiency
– international competition – (US, China, India): Big markets but
their innovative capacity and technology levels differ.
► Innovation but no big domestic market:
►

How to achieve economies of scale? Set up marketing and production
facilities outside the country.

11

What are the critical factors for expanding into international market?
► Innovative capacity, level of technology
► Scope of economies
► Achieving economies of scale
►
►
►

The innovating firm starts looking for establishing production base in
other high income countries.
When this is successful, these countries (where production base is
established) start exporting to the innovating country.
International competition increases

12

Stages of International Product Life Cycle.
See exhibit and interpret:
In each column, start moving down and interpret against the row title.
Try matching the movements of three types of curves.

13

14

Stage 1: Introduction:Advanced countries – Innovation for new product.




Lot of resources required for R&D.
Initially price of new product is high.
Hence search for markets for new product in high income countries.

Stage 2: Growth:



Search for other developed markets for exports.
Globalization
Trade patterns
Theories
 IPLC
 Factor Mobility
 Comparison.
15

Note & Interpret:
(i)
(ii)

Opposite movements of curves representing high income
countries.
Testes and preferences change in low income countries also.
They too start importing new product.

Stage 3: Maturity:
By now technical know-how is known to many countries. The
innovating country starts setting up production facility in the
third world (low income developing) economies by taking
advantage of low wages in the latter.
► Imports of low income countries decline as the domestic
production of this product increases.
►

Stage 4: Decline:
►

What is the marketing strategy at this stage? Production shifts
even to least developing countries – innovating country imports
from these countries
16

Examples:
i.

ii.

UK was largest manufacturer and exporter of bicycles. Bicycle
industry declined in UK. This industry emerged in low income
countries, including India.
Developed countries shift environmentally hazardous industries to
low income countries.

17

18

Criticism of IPCL Theory:
It explains the emerging pattern of international market. This was ok
earlier. Now information about prices, technology and preferences travels
across the globe. The product may be launched by the innovating country
simultaneously in several countries.

[Discuss Maruti Suzuki case. Japanese company, Suzuki, is an innovating
company. The latter established manufacturing base in India. India first
imported Maruti Suzuki Standard -800 Model. After the product gained
maturity and popularity, Maruti Suzuki Exports Cars to several developed
and semi developed countries. The time has come when India may also
base manufacturing facilities in other least developing countries].

19

Theory of Competitive Advantage


Porter–Diamond Theory:
(Michael Porter, 1990, The competitive advantage of nations).



Main focus is on Domestic Environment.
Contrast it with IPCL. – which lays emphasis on innovation/invention
and looks forward to off-shore investment/production.
Diamond? See four blocks/diamonds The interaction of these explains
and determines the trade competitive advantage of a country. See
arrows in diagram.
4 Diamonds – Blocks:






a) Factor input – Natural & Creaed
b) Demand conditions.
 Greater is the sophistication in demand conditions, more demanding the
consumer is – product quality – better service – change in preferences – (Global
exposure…).

20

c) Related and supporting industries
 Development of ancillary industry (as in auto industry).
 Strong supply chain management.
 Development of industrial clusters.
For example:
IT – Banglore,
Textiles – Tirupur
Metal Handicraft – Moradabad

d) Firm Strategy, Structure & Rivalry






Transformation of family enterprise.
Competition policy
Incentive structure
Global exposure
Domestic rivalry (competition?)
21

22

Summary


IPCL: Explains Sifts in





Theory of competitive advantage: To explain national competitiveness, it focuses
on:








Trade Patterns
Manufacturing base

Environmental factors (factor conditions)
Demand conditions
Related supporting industries
Firm strategy, structure, etc.
Degree of competition (Rivalry, etc).

Merit of above theoretical models:
They help provide basis for:
 Principles for regulatory framework.
 Preparing trade promotion strategies to national as well as international Govt./Bodies. The
relative advantage may vary across countries.

23

24

DISCUSS TWO CASE STUDIES ATTACHED

25

CASE STUDY 1
► CHIP

INDUSTRY

26

27

28

29

30

CASE STUDY 2
► Factor

mobility :TCS-case study

31

Factor mobility theory
► Daniels

et.al
See page no. 247-259

32

Supplementary notes
► Biggest

change being observed is the
demographic one.
► By 2050 – 033 countries will have lower
population than their present population
due to lower fertility ( lower than
population ranging from 14% to 22%.)
► On

the other hand, eight countries will
account for 50% of world population.

33

Consequences

► Labor

mobility across countries likely to be faster in
coming decades than now.

► Why

factors move?

►Capital
Long term movement-FDI
 Shifting manufacturing base
 Shifting services industry base
 Reform capital account convertibility
 Political stability
 Investor friendly policies
34

people
► 200

million ( approx 3% of worlds
population) have migrated not uniformly
all over the world.
► USA got high migration ( 11 % of
population of USA is made up immigrants
)
Two – third’s of UAE population consists of
temporary workers .
► Indonesian labor migrates to Malaysia
(huge- 10 times wage differential)

35

Impact
► Singapore transformed from low-wage
► Labor-intensive to high-wage capital intensive

economy ( due to high capital inflow )

► Trade

and factor mobility
Factor movement
From abundant area to scare area. (eg,maxicon
labor to USA.)

Complementarity
Complementary products-needs equipment. This
happens through foreign investment.
36

Flexible and small scale population
► Services

growing much faster than
manufacturing .
( change in consumption pattern in fast
growing economies)

Many services can be provided by small scale
units.
They have flexibility in labor employment too.
37

38

39

40

41

42


Slide 38

UNIT-1
► GLOBALIZATION
► TRADE

PATTERNS

 THEORIES
1. IPLC
2. FACTOR MOBILITY
COMPARISON OF IPLC AND FACTOR MOBILITY THEORIES.

1

Globalization
1. A holistic approach covers the following aspects:
a. Economic
b. Financial
c. Political
d. Cultural
All the above aspects/factors interact with each
other.
[See Joshi (2011), fig.1.3, p.9]

2

3

2.

Economic globalization has the following five
major components/aspects:
Production
b. Markets
c. Competition
d. Technology
e. Corporations & Industry
All the components work in an interactive manner.
a.

[See Joshi (2011), fig.1.5, p.13]

4

5

3. Movers and Restraining Factors:
3.1. Factors that give impetus to globalization or movers:
a. Economic liberalization
b. Technical break through

Manufacturing
► Transportation
► Information & Communication.
►

c.
d.
e.
f.
g.
h.

Multilateral institutions.
Interventional economic integration.
Move towards free market systems.
Rising R&D costs.
Advents in logistic management.
Emergence of global customer segments.

3.2. Factors that restrain globalization or restraining factors:
Regulatory controls
Emerging new trade barriers.
Cultural factors
Nationalism
e. Wards and civil disturbances.
f. Management myopia.
a.
b.
c.
d.

How much globalization proceeds/progresses depends on the relative strength of
6
factors in 3.1 and 3.2.
[See Joshi (2011), fig.1.6, pg.16]

7

Globalization: A TYPICAL MODERN IMAGE
Conspicuously seen in terms of
 Westernization
 Americanization

Some of the popular examples are:





Walmartization
Cocacolination
Disneyfication
Mc Donalization

1. Walmartization*
Walmart – US Retail Chain
Walmart Effect
 Keeping small competitors out
 Driving down wages
 Keeping inflation low
 Keeping productivity high

2. Cocacolination
Perceived as an invasion of cultural
values.

It has a conservative image as reflected in
 Firm cutting down costs
 Favoring policy of
►
►

*

Cutting down taxes
Keeping welfare state competitive

See Charles Fishman: Walmart Effect

8

3. Walmartization
See George Ritzer (1995)

[MacDonaldization of Society]
Four Dimensions of fast food restaurant:

i. Efficiency: Best mode of production with little scope of individuality.
ii. Calculability: Quantifiable Objective :
- Sale
- Focus on Quantity (big MAC, not so much quality)
iii. Predictability: Uniform Production Process.
iv. Control: Substitution of non-human technologies for human labour.(System of
“Iron Cage” – same principle governs all Institutions).

Criticism:

(a) Irrationality – Every worker performs highly rationalized task leading to
workers’ “Burn Out”.
(b) Deskilling: Workers perform repetitive tasks – cheap training of workers.
workers can be replaced easily.

4. Disneyfication

What is signified? Society dedicated to

i. Themes
ii. Huge consumption
iii. Emotion based labor.
(also signifies a diluted version of original form)

9

INTERNATIONAL PRODUCT LIFE CYCLE THEORY (IPCL)
ISSUES:
1.

Do international markets follow a cyclical Pattern? Why?
What does it explain?
- Shift in markets.
- Shift in production location.

2.

What factors are behind the phenomenon? Does it explain
trade patterns?
- Level of innovation and technology.
- Quantum & Quality of Resources.
- Size of market.
- Competitive structure.
10

IPCL: Four Stages:
What Determines these stages?

Difference/gap in technology between countries/economies.
► Ability (purchasing power) of customers.
► Preferences of customers.
►

Innovation:
What Makes it Effective?

If domestic market is big – economies of scale – cost efficiency
– international competition – (US, China, India): Big markets but
their innovative capacity and technology levels differ.
► Innovation but no big domestic market:
►

How to achieve economies of scale? Set up marketing and production
facilities outside the country.

11

What are the critical factors for expanding into international market?
► Innovative capacity, level of technology
► Scope of economies
► Achieving economies of scale
►
►
►

The innovating firm starts looking for establishing production base in
other high income countries.
When this is successful, these countries (where production base is
established) start exporting to the innovating country.
International competition increases

12

Stages of International Product Life Cycle.
See exhibit and interpret:
In each column, start moving down and interpret against the row title.
Try matching the movements of three types of curves.

13

14

Stage 1: Introduction:Advanced countries – Innovation for new product.




Lot of resources required for R&D.
Initially price of new product is high.
Hence search for markets for new product in high income countries.

Stage 2: Growth:



Search for other developed markets for exports.
Globalization
Trade patterns
Theories
 IPLC
 Factor Mobility
 Comparison.
15

Note & Interpret:
(i)
(ii)

Opposite movements of curves representing high income
countries.
Testes and preferences change in low income countries also.
They too start importing new product.

Stage 3: Maturity:
By now technical know-how is known to many countries. The
innovating country starts setting up production facility in the
third world (low income developing) economies by taking
advantage of low wages in the latter.
► Imports of low income countries decline as the domestic
production of this product increases.
►

Stage 4: Decline:
►

What is the marketing strategy at this stage? Production shifts
even to least developing countries – innovating country imports
from these countries
16

Examples:
i.

ii.

UK was largest manufacturer and exporter of bicycles. Bicycle
industry declined in UK. This industry emerged in low income
countries, including India.
Developed countries shift environmentally hazardous industries to
low income countries.

17

18

Criticism of IPCL Theory:
It explains the emerging pattern of international market. This was ok
earlier. Now information about prices, technology and preferences travels
across the globe. The product may be launched by the innovating country
simultaneously in several countries.

[Discuss Maruti Suzuki case. Japanese company, Suzuki, is an innovating
company. The latter established manufacturing base in India. India first
imported Maruti Suzuki Standard -800 Model. After the product gained
maturity and popularity, Maruti Suzuki Exports Cars to several developed
and semi developed countries. The time has come when India may also
base manufacturing facilities in other least developing countries].

19

Theory of Competitive Advantage


Porter–Diamond Theory:
(Michael Porter, 1990, The competitive advantage of nations).



Main focus is on Domestic Environment.
Contrast it with IPCL. – which lays emphasis on innovation/invention
and looks forward to off-shore investment/production.
Diamond? See four blocks/diamonds The interaction of these explains
and determines the trade competitive advantage of a country. See
arrows in diagram.
4 Diamonds – Blocks:






a) Factor input – Natural & Creaed
b) Demand conditions.
 Greater is the sophistication in demand conditions, more demanding the
consumer is – product quality – better service – change in preferences – (Global
exposure…).

20

c) Related and supporting industries
 Development of ancillary industry (as in auto industry).
 Strong supply chain management.
 Development of industrial clusters.
For example:
IT – Banglore,
Textiles – Tirupur
Metal Handicraft – Moradabad

d) Firm Strategy, Structure & Rivalry






Transformation of family enterprise.
Competition policy
Incentive structure
Global exposure
Domestic rivalry (competition?)
21

22

Summary


IPCL: Explains Sifts in





Theory of competitive advantage: To explain national competitiveness, it focuses
on:








Trade Patterns
Manufacturing base

Environmental factors (factor conditions)
Demand conditions
Related supporting industries
Firm strategy, structure, etc.
Degree of competition (Rivalry, etc).

Merit of above theoretical models:
They help provide basis for:
 Principles for regulatory framework.
 Preparing trade promotion strategies to national as well as international Govt./Bodies. The
relative advantage may vary across countries.

23

24

DISCUSS TWO CASE STUDIES ATTACHED

25

CASE STUDY 1
► CHIP

INDUSTRY

26

27

28

29

30

CASE STUDY 2
► Factor

mobility :TCS-case study

31

Factor mobility theory
► Daniels

et.al
See page no. 247-259

32

Supplementary notes
► Biggest

change being observed is the
demographic one.
► By 2050 – 033 countries will have lower
population than their present population
due to lower fertility ( lower than
population ranging from 14% to 22%.)
► On

the other hand, eight countries will
account for 50% of world population.

33

Consequences

► Labor

mobility across countries likely to be faster in
coming decades than now.

► Why

factors move?

►Capital
Long term movement-FDI
 Shifting manufacturing base
 Shifting services industry base
 Reform capital account convertibility
 Political stability
 Investor friendly policies
34

people
► 200

million ( approx 3% of worlds
population) have migrated not uniformly
all over the world.
► USA got high migration ( 11 % of
population of USA is made up immigrants
)
Two – third’s of UAE population consists of
temporary workers .
► Indonesian labor migrates to Malaysia
(huge- 10 times wage differential)

35

Impact
► Singapore transformed from low-wage
► Labor-intensive to high-wage capital intensive

economy ( due to high capital inflow )

► Trade

and factor mobility
Factor movement
From abundant area to scare area. (eg,maxicon
labor to USA.)

Complementarity
Complementary products-needs equipment. This
happens through foreign investment.
36

Flexible and small scale population
► Services

growing much faster than
manufacturing .
( change in consumption pattern in fast
growing economies)

Many services can be provided by small scale
units.
They have flexibility in labor employment too.
37

38

39

40

41

42


Slide 39

UNIT-1
► GLOBALIZATION
► TRADE

PATTERNS

 THEORIES
1. IPLC
2. FACTOR MOBILITY
COMPARISON OF IPLC AND FACTOR MOBILITY THEORIES.

1

Globalization
1. A holistic approach covers the following aspects:
a. Economic
b. Financial
c. Political
d. Cultural
All the above aspects/factors interact with each
other.
[See Joshi (2011), fig.1.3, p.9]

2

3

2.

Economic globalization has the following five
major components/aspects:
Production
b. Markets
c. Competition
d. Technology
e. Corporations & Industry
All the components work in an interactive manner.
a.

[See Joshi (2011), fig.1.5, p.13]

4

5

3. Movers and Restraining Factors:
3.1. Factors that give impetus to globalization or movers:
a. Economic liberalization
b. Technical break through

Manufacturing
► Transportation
► Information & Communication.
►

c.
d.
e.
f.
g.
h.

Multilateral institutions.
Interventional economic integration.
Move towards free market systems.
Rising R&D costs.
Advents in logistic management.
Emergence of global customer segments.

3.2. Factors that restrain globalization or restraining factors:
Regulatory controls
Emerging new trade barriers.
Cultural factors
Nationalism
e. Wards and civil disturbances.
f. Management myopia.
a.
b.
c.
d.

How much globalization proceeds/progresses depends on the relative strength of
6
factors in 3.1 and 3.2.
[See Joshi (2011), fig.1.6, pg.16]

7

Globalization: A TYPICAL MODERN IMAGE
Conspicuously seen in terms of
 Westernization
 Americanization

Some of the popular examples are:





Walmartization
Cocacolination
Disneyfication
Mc Donalization

1. Walmartization*
Walmart – US Retail Chain
Walmart Effect
 Keeping small competitors out
 Driving down wages
 Keeping inflation low
 Keeping productivity high

2. Cocacolination
Perceived as an invasion of cultural
values.

It has a conservative image as reflected in
 Firm cutting down costs
 Favoring policy of
►
►

*

Cutting down taxes
Keeping welfare state competitive

See Charles Fishman: Walmart Effect

8

3. Walmartization
See George Ritzer (1995)

[MacDonaldization of Society]
Four Dimensions of fast food restaurant:

i. Efficiency: Best mode of production with little scope of individuality.
ii. Calculability: Quantifiable Objective :
- Sale
- Focus on Quantity (big MAC, not so much quality)
iii. Predictability: Uniform Production Process.
iv. Control: Substitution of non-human technologies for human labour.(System of
“Iron Cage” – same principle governs all Institutions).

Criticism:

(a) Irrationality – Every worker performs highly rationalized task leading to
workers’ “Burn Out”.
(b) Deskilling: Workers perform repetitive tasks – cheap training of workers.
workers can be replaced easily.

4. Disneyfication

What is signified? Society dedicated to

i. Themes
ii. Huge consumption
iii. Emotion based labor.
(also signifies a diluted version of original form)

9

INTERNATIONAL PRODUCT LIFE CYCLE THEORY (IPCL)
ISSUES:
1.

Do international markets follow a cyclical Pattern? Why?
What does it explain?
- Shift in markets.
- Shift in production location.

2.

What factors are behind the phenomenon? Does it explain
trade patterns?
- Level of innovation and technology.
- Quantum & Quality of Resources.
- Size of market.
- Competitive structure.
10

IPCL: Four Stages:
What Determines these stages?

Difference/gap in technology between countries/economies.
► Ability (purchasing power) of customers.
► Preferences of customers.
►

Innovation:
What Makes it Effective?

If domestic market is big – economies of scale – cost efficiency
– international competition – (US, China, India): Big markets but
their innovative capacity and technology levels differ.
► Innovation but no big domestic market:
►

How to achieve economies of scale? Set up marketing and production
facilities outside the country.

11

What are the critical factors for expanding into international market?
► Innovative capacity, level of technology
► Scope of economies
► Achieving economies of scale
►
►
►

The innovating firm starts looking for establishing production base in
other high income countries.
When this is successful, these countries (where production base is
established) start exporting to the innovating country.
International competition increases

12

Stages of International Product Life Cycle.
See exhibit and interpret:
In each column, start moving down and interpret against the row title.
Try matching the movements of three types of curves.

13

14

Stage 1: Introduction:Advanced countries – Innovation for new product.




Lot of resources required for R&D.
Initially price of new product is high.
Hence search for markets for new product in high income countries.

Stage 2: Growth:



Search for other developed markets for exports.
Globalization
Trade patterns
Theories
 IPLC
 Factor Mobility
 Comparison.
15

Note & Interpret:
(i)
(ii)

Opposite movements of curves representing high income
countries.
Testes and preferences change in low income countries also.
They too start importing new product.

Stage 3: Maturity:
By now technical know-how is known to many countries. The
innovating country starts setting up production facility in the
third world (low income developing) economies by taking
advantage of low wages in the latter.
► Imports of low income countries decline as the domestic
production of this product increases.
►

Stage 4: Decline:
►

What is the marketing strategy at this stage? Production shifts
even to least developing countries – innovating country imports
from these countries
16

Examples:
i.

ii.

UK was largest manufacturer and exporter of bicycles. Bicycle
industry declined in UK. This industry emerged in low income
countries, including India.
Developed countries shift environmentally hazardous industries to
low income countries.

17

18

Criticism of IPCL Theory:
It explains the emerging pattern of international market. This was ok
earlier. Now information about prices, technology and preferences travels
across the globe. The product may be launched by the innovating country
simultaneously in several countries.

[Discuss Maruti Suzuki case. Japanese company, Suzuki, is an innovating
company. The latter established manufacturing base in India. India first
imported Maruti Suzuki Standard -800 Model. After the product gained
maturity and popularity, Maruti Suzuki Exports Cars to several developed
and semi developed countries. The time has come when India may also
base manufacturing facilities in other least developing countries].

19

Theory of Competitive Advantage


Porter–Diamond Theory:
(Michael Porter, 1990, The competitive advantage of nations).



Main focus is on Domestic Environment.
Contrast it with IPCL. – which lays emphasis on innovation/invention
and looks forward to off-shore investment/production.
Diamond? See four blocks/diamonds The interaction of these explains
and determines the trade competitive advantage of a country. See
arrows in diagram.
4 Diamonds – Blocks:






a) Factor input – Natural & Creaed
b) Demand conditions.
 Greater is the sophistication in demand conditions, more demanding the
consumer is – product quality – better service – change in preferences – (Global
exposure…).

20

c) Related and supporting industries
 Development of ancillary industry (as in auto industry).
 Strong supply chain management.
 Development of industrial clusters.
For example:
IT – Banglore,
Textiles – Tirupur
Metal Handicraft – Moradabad

d) Firm Strategy, Structure & Rivalry






Transformation of family enterprise.
Competition policy
Incentive structure
Global exposure
Domestic rivalry (competition?)
21

22

Summary


IPCL: Explains Sifts in





Theory of competitive advantage: To explain national competitiveness, it focuses
on:








Trade Patterns
Manufacturing base

Environmental factors (factor conditions)
Demand conditions
Related supporting industries
Firm strategy, structure, etc.
Degree of competition (Rivalry, etc).

Merit of above theoretical models:
They help provide basis for:
 Principles for regulatory framework.
 Preparing trade promotion strategies to national as well as international Govt./Bodies. The
relative advantage may vary across countries.

23

24

DISCUSS TWO CASE STUDIES ATTACHED

25

CASE STUDY 1
► CHIP

INDUSTRY

26

27

28

29

30

CASE STUDY 2
► Factor

mobility :TCS-case study

31

Factor mobility theory
► Daniels

et.al
See page no. 247-259

32

Supplementary notes
► Biggest

change being observed is the
demographic one.
► By 2050 – 033 countries will have lower
population than their present population
due to lower fertility ( lower than
population ranging from 14% to 22%.)
► On

the other hand, eight countries will
account for 50% of world population.

33

Consequences

► Labor

mobility across countries likely to be faster in
coming decades than now.

► Why

factors move?

►Capital
Long term movement-FDI
 Shifting manufacturing base
 Shifting services industry base
 Reform capital account convertibility
 Political stability
 Investor friendly policies
34

people
► 200

million ( approx 3% of worlds
population) have migrated not uniformly
all over the world.
► USA got high migration ( 11 % of
population of USA is made up immigrants
)
Two – third’s of UAE population consists of
temporary workers .
► Indonesian labor migrates to Malaysia
(huge- 10 times wage differential)

35

Impact
► Singapore transformed from low-wage
► Labor-intensive to high-wage capital intensive

economy ( due to high capital inflow )

► Trade

and factor mobility
Factor movement
From abundant area to scare area. (eg,maxicon
labor to USA.)

Complementarity
Complementary products-needs equipment. This
happens through foreign investment.
36

Flexible and small scale population
► Services

growing much faster than
manufacturing .
( change in consumption pattern in fast
growing economies)

Many services can be provided by small scale
units.
They have flexibility in labor employment too.
37

38

39

40

41

42


Slide 40

UNIT-1
► GLOBALIZATION
► TRADE

PATTERNS

 THEORIES
1. IPLC
2. FACTOR MOBILITY
COMPARISON OF IPLC AND FACTOR MOBILITY THEORIES.

1

Globalization
1. A holistic approach covers the following aspects:
a. Economic
b. Financial
c. Political
d. Cultural
All the above aspects/factors interact with each
other.
[See Joshi (2011), fig.1.3, p.9]

2

3

2.

Economic globalization has the following five
major components/aspects:
Production
b. Markets
c. Competition
d. Technology
e. Corporations & Industry
All the components work in an interactive manner.
a.

[See Joshi (2011), fig.1.5, p.13]

4

5

3. Movers and Restraining Factors:
3.1. Factors that give impetus to globalization or movers:
a. Economic liberalization
b. Technical break through

Manufacturing
► Transportation
► Information & Communication.
►

c.
d.
e.
f.
g.
h.

Multilateral institutions.
Interventional economic integration.
Move towards free market systems.
Rising R&D costs.
Advents in logistic management.
Emergence of global customer segments.

3.2. Factors that restrain globalization or restraining factors:
Regulatory controls
Emerging new trade barriers.
Cultural factors
Nationalism
e. Wards and civil disturbances.
f. Management myopia.
a.
b.
c.
d.

How much globalization proceeds/progresses depends on the relative strength of
6
factors in 3.1 and 3.2.
[See Joshi (2011), fig.1.6, pg.16]

7

Globalization: A TYPICAL MODERN IMAGE
Conspicuously seen in terms of
 Westernization
 Americanization

Some of the popular examples are:





Walmartization
Cocacolination
Disneyfication
Mc Donalization

1. Walmartization*
Walmart – US Retail Chain
Walmart Effect
 Keeping small competitors out
 Driving down wages
 Keeping inflation low
 Keeping productivity high

2. Cocacolination
Perceived as an invasion of cultural
values.

It has a conservative image as reflected in
 Firm cutting down costs
 Favoring policy of
►
►

*

Cutting down taxes
Keeping welfare state competitive

See Charles Fishman: Walmart Effect

8

3. Walmartization
See George Ritzer (1995)

[MacDonaldization of Society]
Four Dimensions of fast food restaurant:

i. Efficiency: Best mode of production with little scope of individuality.
ii. Calculability: Quantifiable Objective :
- Sale
- Focus on Quantity (big MAC, not so much quality)
iii. Predictability: Uniform Production Process.
iv. Control: Substitution of non-human technologies for human labour.(System of
“Iron Cage” – same principle governs all Institutions).

Criticism:

(a) Irrationality – Every worker performs highly rationalized task leading to
workers’ “Burn Out”.
(b) Deskilling: Workers perform repetitive tasks – cheap training of workers.
workers can be replaced easily.

4. Disneyfication

What is signified? Society dedicated to

i. Themes
ii. Huge consumption
iii. Emotion based labor.
(also signifies a diluted version of original form)

9

INTERNATIONAL PRODUCT LIFE CYCLE THEORY (IPCL)
ISSUES:
1.

Do international markets follow a cyclical Pattern? Why?
What does it explain?
- Shift in markets.
- Shift in production location.

2.

What factors are behind the phenomenon? Does it explain
trade patterns?
- Level of innovation and technology.
- Quantum & Quality of Resources.
- Size of market.
- Competitive structure.
10

IPCL: Four Stages:
What Determines these stages?

Difference/gap in technology between countries/economies.
► Ability (purchasing power) of customers.
► Preferences of customers.
►

Innovation:
What Makes it Effective?

If domestic market is big – economies of scale – cost efficiency
– international competition – (US, China, India): Big markets but
their innovative capacity and technology levels differ.
► Innovation but no big domestic market:
►

How to achieve economies of scale? Set up marketing and production
facilities outside the country.

11

What are the critical factors for expanding into international market?
► Innovative capacity, level of technology
► Scope of economies
► Achieving economies of scale
►
►
►

The innovating firm starts looking for establishing production base in
other high income countries.
When this is successful, these countries (where production base is
established) start exporting to the innovating country.
International competition increases

12

Stages of International Product Life Cycle.
See exhibit and interpret:
In each column, start moving down and interpret against the row title.
Try matching the movements of three types of curves.

13

14

Stage 1: Introduction:Advanced countries – Innovation for new product.




Lot of resources required for R&D.
Initially price of new product is high.
Hence search for markets for new product in high income countries.

Stage 2: Growth:



Search for other developed markets for exports.
Globalization
Trade patterns
Theories
 IPLC
 Factor Mobility
 Comparison.
15

Note & Interpret:
(i)
(ii)

Opposite movements of curves representing high income
countries.
Testes and preferences change in low income countries also.
They too start importing new product.

Stage 3: Maturity:
By now technical know-how is known to many countries. The
innovating country starts setting up production facility in the
third world (low income developing) economies by taking
advantage of low wages in the latter.
► Imports of low income countries decline as the domestic
production of this product increases.
►

Stage 4: Decline:
►

What is the marketing strategy at this stage? Production shifts
even to least developing countries – innovating country imports
from these countries
16

Examples:
i.

ii.

UK was largest manufacturer and exporter of bicycles. Bicycle
industry declined in UK. This industry emerged in low income
countries, including India.
Developed countries shift environmentally hazardous industries to
low income countries.

17

18

Criticism of IPCL Theory:
It explains the emerging pattern of international market. This was ok
earlier. Now information about prices, technology and preferences travels
across the globe. The product may be launched by the innovating country
simultaneously in several countries.

[Discuss Maruti Suzuki case. Japanese company, Suzuki, is an innovating
company. The latter established manufacturing base in India. India first
imported Maruti Suzuki Standard -800 Model. After the product gained
maturity and popularity, Maruti Suzuki Exports Cars to several developed
and semi developed countries. The time has come when India may also
base manufacturing facilities in other least developing countries].

19

Theory of Competitive Advantage


Porter–Diamond Theory:
(Michael Porter, 1990, The competitive advantage of nations).



Main focus is on Domestic Environment.
Contrast it with IPCL. – which lays emphasis on innovation/invention
and looks forward to off-shore investment/production.
Diamond? See four blocks/diamonds The interaction of these explains
and determines the trade competitive advantage of a country. See
arrows in diagram.
4 Diamonds – Blocks:






a) Factor input – Natural & Creaed
b) Demand conditions.
 Greater is the sophistication in demand conditions, more demanding the
consumer is – product quality – better service – change in preferences – (Global
exposure…).

20

c) Related and supporting industries
 Development of ancillary industry (as in auto industry).
 Strong supply chain management.
 Development of industrial clusters.
For example:
IT – Banglore,
Textiles – Tirupur
Metal Handicraft – Moradabad

d) Firm Strategy, Structure & Rivalry






Transformation of family enterprise.
Competition policy
Incentive structure
Global exposure
Domestic rivalry (competition?)
21

22

Summary


IPCL: Explains Sifts in





Theory of competitive advantage: To explain national competitiveness, it focuses
on:








Trade Patterns
Manufacturing base

Environmental factors (factor conditions)
Demand conditions
Related supporting industries
Firm strategy, structure, etc.
Degree of competition (Rivalry, etc).

Merit of above theoretical models:
They help provide basis for:
 Principles for regulatory framework.
 Preparing trade promotion strategies to national as well as international Govt./Bodies. The
relative advantage may vary across countries.

23

24

DISCUSS TWO CASE STUDIES ATTACHED

25

CASE STUDY 1
► CHIP

INDUSTRY

26

27

28

29

30

CASE STUDY 2
► Factor

mobility :TCS-case study

31

Factor mobility theory
► Daniels

et.al
See page no. 247-259

32

Supplementary notes
► Biggest

change being observed is the
demographic one.
► By 2050 – 033 countries will have lower
population than their present population
due to lower fertility ( lower than
population ranging from 14% to 22%.)
► On

the other hand, eight countries will
account for 50% of world population.

33

Consequences

► Labor

mobility across countries likely to be faster in
coming decades than now.

► Why

factors move?

►Capital
Long term movement-FDI
 Shifting manufacturing base
 Shifting services industry base
 Reform capital account convertibility
 Political stability
 Investor friendly policies
34

people
► 200

million ( approx 3% of worlds
population) have migrated not uniformly
all over the world.
► USA got high migration ( 11 % of
population of USA is made up immigrants
)
Two – third’s of UAE population consists of
temporary workers .
► Indonesian labor migrates to Malaysia
(huge- 10 times wage differential)

35

Impact
► Singapore transformed from low-wage
► Labor-intensive to high-wage capital intensive

economy ( due to high capital inflow )

► Trade

and factor mobility
Factor movement
From abundant area to scare area. (eg,maxicon
labor to USA.)

Complementarity
Complementary products-needs equipment. This
happens through foreign investment.
36

Flexible and small scale population
► Services

growing much faster than
manufacturing .
( change in consumption pattern in fast
growing economies)

Many services can be provided by small scale
units.
They have flexibility in labor employment too.
37

38

39

40

41

42


Slide 41

UNIT-1
► GLOBALIZATION
► TRADE

PATTERNS

 THEORIES
1. IPLC
2. FACTOR MOBILITY
COMPARISON OF IPLC AND FACTOR MOBILITY THEORIES.

1

Globalization
1. A holistic approach covers the following aspects:
a. Economic
b. Financial
c. Political
d. Cultural
All the above aspects/factors interact with each
other.
[See Joshi (2011), fig.1.3, p.9]

2

3

2.

Economic globalization has the following five
major components/aspects:
Production
b. Markets
c. Competition
d. Technology
e. Corporations & Industry
All the components work in an interactive manner.
a.

[See Joshi (2011), fig.1.5, p.13]

4

5

3. Movers and Restraining Factors:
3.1. Factors that give impetus to globalization or movers:
a. Economic liberalization
b. Technical break through

Manufacturing
► Transportation
► Information & Communication.
►

c.
d.
e.
f.
g.
h.

Multilateral institutions.
Interventional economic integration.
Move towards free market systems.
Rising R&D costs.
Advents in logistic management.
Emergence of global customer segments.

3.2. Factors that restrain globalization or restraining factors:
Regulatory controls
Emerging new trade barriers.
Cultural factors
Nationalism
e. Wards and civil disturbances.
f. Management myopia.
a.
b.
c.
d.

How much globalization proceeds/progresses depends on the relative strength of
6
factors in 3.1 and 3.2.
[See Joshi (2011), fig.1.6, pg.16]

7

Globalization: A TYPICAL MODERN IMAGE
Conspicuously seen in terms of
 Westernization
 Americanization

Some of the popular examples are:





Walmartization
Cocacolination
Disneyfication
Mc Donalization

1. Walmartization*
Walmart – US Retail Chain
Walmart Effect
 Keeping small competitors out
 Driving down wages
 Keeping inflation low
 Keeping productivity high

2. Cocacolination
Perceived as an invasion of cultural
values.

It has a conservative image as reflected in
 Firm cutting down costs
 Favoring policy of
►
►

*

Cutting down taxes
Keeping welfare state competitive

See Charles Fishman: Walmart Effect

8

3. Walmartization
See George Ritzer (1995)

[MacDonaldization of Society]
Four Dimensions of fast food restaurant:

i. Efficiency: Best mode of production with little scope of individuality.
ii. Calculability: Quantifiable Objective :
- Sale
- Focus on Quantity (big MAC, not so much quality)
iii. Predictability: Uniform Production Process.
iv. Control: Substitution of non-human technologies for human labour.(System of
“Iron Cage” – same principle governs all Institutions).

Criticism:

(a) Irrationality – Every worker performs highly rationalized task leading to
workers’ “Burn Out”.
(b) Deskilling: Workers perform repetitive tasks – cheap training of workers.
workers can be replaced easily.

4. Disneyfication

What is signified? Society dedicated to

i. Themes
ii. Huge consumption
iii. Emotion based labor.
(also signifies a diluted version of original form)

9

INTERNATIONAL PRODUCT LIFE CYCLE THEORY (IPCL)
ISSUES:
1.

Do international markets follow a cyclical Pattern? Why?
What does it explain?
- Shift in markets.
- Shift in production location.

2.

What factors are behind the phenomenon? Does it explain
trade patterns?
- Level of innovation and technology.
- Quantum & Quality of Resources.
- Size of market.
- Competitive structure.
10

IPCL: Four Stages:
What Determines these stages?

Difference/gap in technology between countries/economies.
► Ability (purchasing power) of customers.
► Preferences of customers.
►

Innovation:
What Makes it Effective?

If domestic market is big – economies of scale – cost efficiency
– international competition – (US, China, India): Big markets but
their innovative capacity and technology levels differ.
► Innovation but no big domestic market:
►

How to achieve economies of scale? Set up marketing and production
facilities outside the country.

11

What are the critical factors for expanding into international market?
► Innovative capacity, level of technology
► Scope of economies
► Achieving economies of scale
►
►
►

The innovating firm starts looking for establishing production base in
other high income countries.
When this is successful, these countries (where production base is
established) start exporting to the innovating country.
International competition increases

12

Stages of International Product Life Cycle.
See exhibit and interpret:
In each column, start moving down and interpret against the row title.
Try matching the movements of three types of curves.

13

14

Stage 1: Introduction:Advanced countries – Innovation for new product.




Lot of resources required for R&D.
Initially price of new product is high.
Hence search for markets for new product in high income countries.

Stage 2: Growth:



Search for other developed markets for exports.
Globalization
Trade patterns
Theories
 IPLC
 Factor Mobility
 Comparison.
15

Note & Interpret:
(i)
(ii)

Opposite movements of curves representing high income
countries.
Testes and preferences change in low income countries also.
They too start importing new product.

Stage 3: Maturity:
By now technical know-how is known to many countries. The
innovating country starts setting up production facility in the
third world (low income developing) economies by taking
advantage of low wages in the latter.
► Imports of low income countries decline as the domestic
production of this product increases.
►

Stage 4: Decline:
►

What is the marketing strategy at this stage? Production shifts
even to least developing countries – innovating country imports
from these countries
16

Examples:
i.

ii.

UK was largest manufacturer and exporter of bicycles. Bicycle
industry declined in UK. This industry emerged in low income
countries, including India.
Developed countries shift environmentally hazardous industries to
low income countries.

17

18

Criticism of IPCL Theory:
It explains the emerging pattern of international market. This was ok
earlier. Now information about prices, technology and preferences travels
across the globe. The product may be launched by the innovating country
simultaneously in several countries.

[Discuss Maruti Suzuki case. Japanese company, Suzuki, is an innovating
company. The latter established manufacturing base in India. India first
imported Maruti Suzuki Standard -800 Model. After the product gained
maturity and popularity, Maruti Suzuki Exports Cars to several developed
and semi developed countries. The time has come when India may also
base manufacturing facilities in other least developing countries].

19

Theory of Competitive Advantage


Porter–Diamond Theory:
(Michael Porter, 1990, The competitive advantage of nations).



Main focus is on Domestic Environment.
Contrast it with IPCL. – which lays emphasis on innovation/invention
and looks forward to off-shore investment/production.
Diamond? See four blocks/diamonds The interaction of these explains
and determines the trade competitive advantage of a country. See
arrows in diagram.
4 Diamonds – Blocks:






a) Factor input – Natural & Creaed
b) Demand conditions.
 Greater is the sophistication in demand conditions, more demanding the
consumer is – product quality – better service – change in preferences – (Global
exposure…).

20

c) Related and supporting industries
 Development of ancillary industry (as in auto industry).
 Strong supply chain management.
 Development of industrial clusters.
For example:
IT – Banglore,
Textiles – Tirupur
Metal Handicraft – Moradabad

d) Firm Strategy, Structure & Rivalry






Transformation of family enterprise.
Competition policy
Incentive structure
Global exposure
Domestic rivalry (competition?)
21

22

Summary


IPCL: Explains Sifts in





Theory of competitive advantage: To explain national competitiveness, it focuses
on:








Trade Patterns
Manufacturing base

Environmental factors (factor conditions)
Demand conditions
Related supporting industries
Firm strategy, structure, etc.
Degree of competition (Rivalry, etc).

Merit of above theoretical models:
They help provide basis for:
 Principles for regulatory framework.
 Preparing trade promotion strategies to national as well as international Govt./Bodies. The
relative advantage may vary across countries.

23

24

DISCUSS TWO CASE STUDIES ATTACHED

25

CASE STUDY 1
► CHIP

INDUSTRY

26

27

28

29

30

CASE STUDY 2
► Factor

mobility :TCS-case study

31

Factor mobility theory
► Daniels

et.al
See page no. 247-259

32

Supplementary notes
► Biggest

change being observed is the
demographic one.
► By 2050 – 033 countries will have lower
population than their present population
due to lower fertility ( lower than
population ranging from 14% to 22%.)
► On

the other hand, eight countries will
account for 50% of world population.

33

Consequences

► Labor

mobility across countries likely to be faster in
coming decades than now.

► Why

factors move?

►Capital
Long term movement-FDI
 Shifting manufacturing base
 Shifting services industry base
 Reform capital account convertibility
 Political stability
 Investor friendly policies
34

people
► 200

million ( approx 3% of worlds
population) have migrated not uniformly
all over the world.
► USA got high migration ( 11 % of
population of USA is made up immigrants
)
Two – third’s of UAE population consists of
temporary workers .
► Indonesian labor migrates to Malaysia
(huge- 10 times wage differential)

35

Impact
► Singapore transformed from low-wage
► Labor-intensive to high-wage capital intensive

economy ( due to high capital inflow )

► Trade

and factor mobility
Factor movement
From abundant area to scare area. (eg,maxicon
labor to USA.)

Complementarity
Complementary products-needs equipment. This
happens through foreign investment.
36

Flexible and small scale population
► Services

growing much faster than
manufacturing .
( change in consumption pattern in fast
growing economies)

Many services can be provided by small scale
units.
They have flexibility in labor employment too.
37

38

39

40

41

42


Slide 42

UNIT-1
► GLOBALIZATION
► TRADE

PATTERNS

 THEORIES
1. IPLC
2. FACTOR MOBILITY
COMPARISON OF IPLC AND FACTOR MOBILITY THEORIES.

1

Globalization
1. A holistic approach covers the following aspects:
a. Economic
b. Financial
c. Political
d. Cultural
All the above aspects/factors interact with each
other.
[See Joshi (2011), fig.1.3, p.9]

2

3

2.

Economic globalization has the following five
major components/aspects:
Production
b. Markets
c. Competition
d. Technology
e. Corporations & Industry
All the components work in an interactive manner.
a.

[See Joshi (2011), fig.1.5, p.13]

4

5

3. Movers and Restraining Factors:
3.1. Factors that give impetus to globalization or movers:
a. Economic liberalization
b. Technical break through

Manufacturing
► Transportation
► Information & Communication.
►

c.
d.
e.
f.
g.
h.

Multilateral institutions.
Interventional economic integration.
Move towards free market systems.
Rising R&D costs.
Advents in logistic management.
Emergence of global customer segments.

3.2. Factors that restrain globalization or restraining factors:
Regulatory controls
Emerging new trade barriers.
Cultural factors
Nationalism
e. Wards and civil disturbances.
f. Management myopia.
a.
b.
c.
d.

How much globalization proceeds/progresses depends on the relative strength of
6
factors in 3.1 and 3.2.
[See Joshi (2011), fig.1.6, pg.16]

7

Globalization: A TYPICAL MODERN IMAGE
Conspicuously seen in terms of
 Westernization
 Americanization

Some of the popular examples are:





Walmartization
Cocacolination
Disneyfication
Mc Donalization

1. Walmartization*
Walmart – US Retail Chain
Walmart Effect
 Keeping small competitors out
 Driving down wages
 Keeping inflation low
 Keeping productivity high

2. Cocacolination
Perceived as an invasion of cultural
values.

It has a conservative image as reflected in
 Firm cutting down costs
 Favoring policy of
►
►

*

Cutting down taxes
Keeping welfare state competitive

See Charles Fishman: Walmart Effect

8

3. Walmartization
See George Ritzer (1995)

[MacDonaldization of Society]
Four Dimensions of fast food restaurant:

i. Efficiency: Best mode of production with little scope of individuality.
ii. Calculability: Quantifiable Objective :
- Sale
- Focus on Quantity (big MAC, not so much quality)
iii. Predictability: Uniform Production Process.
iv. Control: Substitution of non-human technologies for human labour.(System of
“Iron Cage” – same principle governs all Institutions).

Criticism:

(a) Irrationality – Every worker performs highly rationalized task leading to
workers’ “Burn Out”.
(b) Deskilling: Workers perform repetitive tasks – cheap training of workers.
workers can be replaced easily.

4. Disneyfication

What is signified? Society dedicated to

i. Themes
ii. Huge consumption
iii. Emotion based labor.
(also signifies a diluted version of original form)

9

INTERNATIONAL PRODUCT LIFE CYCLE THEORY (IPCL)
ISSUES:
1.

Do international markets follow a cyclical Pattern? Why?
What does it explain?
- Shift in markets.
- Shift in production location.

2.

What factors are behind the phenomenon? Does it explain
trade patterns?
- Level of innovation and technology.
- Quantum & Quality of Resources.
- Size of market.
- Competitive structure.
10

IPCL: Four Stages:
What Determines these stages?

Difference/gap in technology between countries/economies.
► Ability (purchasing power) of customers.
► Preferences of customers.
►

Innovation:
What Makes it Effective?

If domestic market is big – economies of scale – cost efficiency
– international competition – (US, China, India): Big markets but
their innovative capacity and technology levels differ.
► Innovation but no big domestic market:
►

How to achieve economies of scale? Set up marketing and production
facilities outside the country.

11

What are the critical factors for expanding into international market?
► Innovative capacity, level of technology
► Scope of economies
► Achieving economies of scale
►
►
►

The innovating firm starts looking for establishing production base in
other high income countries.
When this is successful, these countries (where production base is
established) start exporting to the innovating country.
International competition increases

12

Stages of International Product Life Cycle.
See exhibit and interpret:
In each column, start moving down and interpret against the row title.
Try matching the movements of three types of curves.

13

14

Stage 1: Introduction:Advanced countries – Innovation for new product.




Lot of resources required for R&D.
Initially price of new product is high.
Hence search for markets for new product in high income countries.

Stage 2: Growth:



Search for other developed markets for exports.
Globalization
Trade patterns
Theories
 IPLC
 Factor Mobility
 Comparison.
15

Note & Interpret:
(i)
(ii)

Opposite movements of curves representing high income
countries.
Testes and preferences change in low income countries also.
They too start importing new product.

Stage 3: Maturity:
By now technical know-how is known to many countries. The
innovating country starts setting up production facility in the
third world (low income developing) economies by taking
advantage of low wages in the latter.
► Imports of low income countries decline as the domestic
production of this product increases.
►

Stage 4: Decline:
►

What is the marketing strategy at this stage? Production shifts
even to least developing countries – innovating country imports
from these countries
16

Examples:
i.

ii.

UK was largest manufacturer and exporter of bicycles. Bicycle
industry declined in UK. This industry emerged in low income
countries, including India.
Developed countries shift environmentally hazardous industries to
low income countries.

17

18

Criticism of IPCL Theory:
It explains the emerging pattern of international market. This was ok
earlier. Now information about prices, technology and preferences travels
across the globe. The product may be launched by the innovating country
simultaneously in several countries.

[Discuss Maruti Suzuki case. Japanese company, Suzuki, is an innovating
company. The latter established manufacturing base in India. India first
imported Maruti Suzuki Standard -800 Model. After the product gained
maturity and popularity, Maruti Suzuki Exports Cars to several developed
and semi developed countries. The time has come when India may also
base manufacturing facilities in other least developing countries].

19

Theory of Competitive Advantage


Porter–Diamond Theory:
(Michael Porter, 1990, The competitive advantage of nations).



Main focus is on Domestic Environment.
Contrast it with IPCL. – which lays emphasis on innovation/invention
and looks forward to off-shore investment/production.
Diamond? See four blocks/diamonds The interaction of these explains
and determines the trade competitive advantage of a country. See
arrows in diagram.
4 Diamonds – Blocks:






a) Factor input – Natural & Creaed
b) Demand conditions.
 Greater is the sophistication in demand conditions, more demanding the
consumer is – product quality – better service – change in preferences – (Global
exposure…).

20

c) Related and supporting industries
 Development of ancillary industry (as in auto industry).
 Strong supply chain management.
 Development of industrial clusters.
For example:
IT – Banglore,
Textiles – Tirupur
Metal Handicraft – Moradabad

d) Firm Strategy, Structure & Rivalry






Transformation of family enterprise.
Competition policy
Incentive structure
Global exposure
Domestic rivalry (competition?)
21

22

Summary


IPCL: Explains Sifts in





Theory of competitive advantage: To explain national competitiveness, it focuses
on:








Trade Patterns
Manufacturing base

Environmental factors (factor conditions)
Demand conditions
Related supporting industries
Firm strategy, structure, etc.
Degree of competition (Rivalry, etc).

Merit of above theoretical models:
They help provide basis for:
 Principles for regulatory framework.
 Preparing trade promotion strategies to national as well as international Govt./Bodies. The
relative advantage may vary across countries.

23

24

DISCUSS TWO CASE STUDIES ATTACHED

25

CASE STUDY 1
► CHIP

INDUSTRY

26

27

28

29

30

CASE STUDY 2
► Factor

mobility :TCS-case study

31

Factor mobility theory
► Daniels

et.al
See page no. 247-259

32

Supplementary notes
► Biggest

change being observed is the
demographic one.
► By 2050 – 033 countries will have lower
population than their present population
due to lower fertility ( lower than
population ranging from 14% to 22%.)
► On

the other hand, eight countries will
account for 50% of world population.

33

Consequences

► Labor

mobility across countries likely to be faster in
coming decades than now.

► Why

factors move?

►Capital
Long term movement-FDI
 Shifting manufacturing base
 Shifting services industry base
 Reform capital account convertibility
 Political stability
 Investor friendly policies
34

people
► 200

million ( approx 3% of worlds
population) have migrated not uniformly
all over the world.
► USA got high migration ( 11 % of
population of USA is made up immigrants
)
Two – third’s of UAE population consists of
temporary workers .
► Indonesian labor migrates to Malaysia
(huge- 10 times wage differential)

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Impact
► Singapore transformed from low-wage
► Labor-intensive to high-wage capital intensive

economy ( due to high capital inflow )

► Trade

and factor mobility
Factor movement
From abundant area to scare area. (eg,maxicon
labor to USA.)

Complementarity
Complementary products-needs equipment. This
happens through foreign investment.
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Flexible and small scale population
► Services

growing much faster than
manufacturing .
( change in consumption pattern in fast
growing economies)

Many services can be provided by small scale
units.
They have flexibility in labor employment too.
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