Game called 'Globalization' - Part2

Friday, June 11, 2010

This post is in continuation of my earlier post, If you have not read my earlier post you can read the same here

Indian Economy was in a pretty bad shape in early 90's, many public sector promoted post independence turned loss making one . This is primarily because since India was a closed economy, the companies had not bother much to improve them self on the technology front and were more complacent. I still remember those days, when people use to wait for 7 years after booking a Bajaj scooter or pay a premium to get through alternative means, get a land line was even more worse, the wait was endless. Well, "it was owner pride, neighbours envy", whenever a home had Bajaj scooter, TV and phone. Since it was considered as a luxury, as pay scales was almost 1/10 of what people used to get these days.

In early 90's , Indian Government was facing the balance of payment crisis and with high debt in place, it had to pledge gold to IMF towards loans, this was been the starting point towards globalization. Terms were put in place towards Economic reforms, which called for liberalization of foreign companies to make investment and operate in India to facilitate their operation import custom duty were reduced across the board starting in 90's. This paved the way to foreign companies to start operation in India. Indian companies were either acquired and went out of operation, there were more companies which went out of operation rather been acquired. There were lot more pain particularly when companies go out of operation as the promoter lost their money, employee lost their job and Bank started accumulating the non performing assets. So I would say 90's was the pain period for India, though there was growth, in some form or other.

Apart from technology, it was money power which made Indian made companies to vanish. The cost of capital in developed economy was much cheaper as compared to India, the bank interest rates where in the range of 18% to 21%, whereas foreign grown companies can get this capital with interest rate of less than 5 %. Naturally, very few Indian companies associated with strong capital and a good product mix where able to compete with foreign operated companies. The early nineties was a transition period and off course India did grow with foreign investment brought inside India. As India progressed into the later part of 90's, US were looking for severe shortage of people towards the computer hence came the H1 visa and this was followed by outsourcing activity to Offshore as cost cutting measure, so called optimization of cost.

At the same time, if you look at the high end FMCG market we had multi national companies operating, Indian companies vanished and so was the slogan 'BE INDIAN, BUY INDIAN'. From 2005, onwards, foreign invested companies found operating in India and elsewhere in the developing economies more competitive as compared to their operation in developed countries. Interestingly, there were statement from developed economies like 'We want to create jobs in Buffalo, rather than Bangalore', we need to see whether this really takes off, as the developed economies are under severe stress now.

Well, the world is getting flatter and small, with telecommunication facilities, faster transport it does not matter whether goods and services are offered from a developed nation or from under developed nation. As long as prices are competitive and the consumer is in position to get comparable quality and features, they would naturally opt for the best. Ultimately, Darwin theory holds good " Survival of the fittest".

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