Globalization – Meaning & Theoretical Basis

Globalisation is one of the most important trends affecting business today.

1. Meaning of Globalisation

Globalisation refers to the increasing integration of economies of the world through trade, investment, technology and movement of people and information.

Key aspects:

• Growth of international trade and capital flows.
• Expansion of multinational corporations (MNCs).
• Spread of technology, ideas and culture across borders.

2. Theoretical Basis – Comparative Advantage (Simple Idea)

• Countries differ in resources, skills and technology.
• According to comparative advantage theory, a country should specialise in producing goods in which it has lower opportunity cost and trade for other goods.

Example (simplified):

• India has advantage in services and labour‑intensive goods.
• Some other countries have advantage in capital‑intensive goods or high‑tech products.

Trade allows both to gain.

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3. Drivers of Globalisation

• Trade liberalisation – lower tariffs and quotas.
• FDI and MNCs – firms setting up operations abroad.
• Technological advances – internet, communication, transport.
• Policy reforms in many countries (including India after 1991).

4. Globalisation and Business Strategy

• Firms can access global markets for selling products.
• Can source raw materials, components and finance globally.
• Face global competition; must upgrade quality and efficiency.

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5. Quick Revision Points

• Globalisation = integration of national economies through trade, investment and technology.
• Theoretical support from comparative advantage – specialisation and trade raise welfare.
• Driven by trade liberalisation, FDI, technology and policy reforms.

6. Quiz Time 🎯

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