Effects of Globalization on Informational sector of India.

Aims:-
The aim of this project is to find the relationship between globalization and Informational
sector of India. We have to analyze the effects of globalization on the given sector.

Objectives:-
 INTRODUCTION:

The globe is becoming smaller and smaller, not in terms of diameter

but in terms of accessibility. Products manufactured in one country can be
consumed globally by any consumer residing in any part of the world. This
is the biggest benefit of globalisation. India is no different from any other
country. It is also immensely influenced by globalisation and its effects,
giving a rise to the interest to study the phenomena of globalisation and its
impact on India especially its IT sector. Importance of the IT sector for any
country’s economy and to an extent with any country it is trading, this forms
the reason for selecting the Indian IT sector.
This report goes through a brief about globalisation, its impact on
world, India and especially its IT sector. Then it covers a case of Infosys
(India’s IT giant), Critical analysis of this relationship between Globalisation
and Indian IT sector and finally the report summed up with a conclusion.
GLOBALISATION:-

There is so much ideology surrounding this notion, and its implications, that it is essential to
characterize globalization precisely, and then determine its extent and eevolution in empirical
terms (Hirst and Thompson, 1996). Although globalization is multidimensional, it can be better
understood starting with its economic dimension. A global economy is an economy whose core
activities work as a unit in real time on a planetary scale. Thus capital markets are interconnected
worldwide, so that savings and investment in all countries, even if most of them are not globally
invested, depend for their performance on the evolution and behaviours of global financial
markets. (castells.)

Globalisation has been defined as a concept, which refers both to the "shrinking" of the
world and the increased consciousness of the world as a whole. It is a term used to
describe the changes in societies and the world economy that are the result of
dramatically increased cross-border trade, investment, and cultural exchange. The
processes and actions to which the concept of globalization now refers have been
proceeding, with some interruptions, for many centuries, but only in relatively recent
times has globalization become a main focus of discussion."1 However, I would define
globalisation as a phenomenon which consists of a world-wide economic, political and
social integration. It is a phenomenon that had started centuries ago and is only getting
more evident due to its ever increasing scale and its effects around the world.
Globalisation today affects the day-to-day life of almost every one around the world
directly or indirectly. It affects global and local politics, economies, businesses and social
behaviours or people all over the world.

The concept of globalisation is being sold as a phenomenon that should benefit all people
because it can create greater economic value on the whole. However, the legacy of
colonialism, which causes a lingering arrogance among the powers in the Group of Eight
and creates suspicion in the developing world, means that for many people, globalization
1
http://www.newworldencyclopedia.org/entry/Globalization viewed on 2/12/08
is feared and resisted as a negative2. Thus, while most of the world is accepting
globalisation with open arms, it still faces resistance in many places.

Between 1910 and 1950, a series of political and economic upheavals dramatically
reduced the volume and importance of international trade flows. Globalization trends
reversed beginning with World War I and continuing until the end of World War II, when
the Bretton Woods institutions were created (that is, the International Monetary Fund, or
IMF, World Bank, and the General Agreement on Tariffs and Trade, later re-organized
into the World Trade Organization, or WTO). In the post-World War II environment,
fostered by international economic institutions and rebuilding programs, international
trade and investment dramatically expanded.3 However, in 1972 due to liquidity problems
and the unwillingness of countries to revalue or devalue their currencies, US finally
‘came off gold’ leading to a collapse of Bretton Woods. This was followed by many
global and regional financial crises that had origins in one country and affected other
countries.

1.1 Advantages and disadvantages of globalisation:

Advantages:

• Increased free trade between nations

• Increased liquidity of capital.
• Easy for organisations to operate in other countries
• Enables media to create more awareness around the world.
• Huge boost to local and international communication facilities.
• Greater interdependence of nation-states.
• Reduction of likelihood of war between nations.
• Enables people to visit different places and experience their cultures.
• Creates a platform for nations to seek help from other nations in crisis
management.
• Reduces poverty in developing countries.

2
http://www.newworldencyclopedia.org/entry/Globalization viewed on 2/12/08
3
http://www.newworldencyclopedia.org/entry/Globalization viewed on 2/12/08
 • Increased role of international organizations such as WTO, UN, IMF and World
Bank that deal with international transactions.

Disadvantages:

• Increased likelihood of economic disruptions in one nation effecting all nations

• Threat that control of world media by a handful of corporations can be misused.
• Greater risk of diseases being transported unintentionally between nations.
• International bodies like the World Trade Organization infringe on national and
individual sovereignty.
• Increase in the chances of civil war within developing countries and open war
between countries as they vie for resources.
• Corporations take advantage of weak regulatory rules in developing countries.

Untangling the Globalization Debate:

Globalization means different to different people. A business person may see

globalization as a opportunity to source goods and services from lower-cost locations and
to pry open new markets An economist may see it as an opportunity to examine the
impact of globalization on jobs and standards of living. An environmentalist may be
concerned with how globalisation affects our economy.

It is because of these different lenses through which each of us view the world and the
happening around us that the debate the surroundings globalization is so complex.
Opponents of globalization are found in every walk of life.
Globalization context:

From mid 1800s to the 1920s there was a first stage of globalization, although even
today’s migration level are high, the world’s labour market then was also highly mobile.
Trade and capital also flowed more freely than ever before during the first stage. Huge
companies from wealthy nations built facilities in distant lands to extract raw material
and produce all sorts of goods. Large cargo ships piled the seas to deliver their
manufacturers to distant market. The translatic cable allowed news between Europe and
United states to travel faster than ever before.

Globalization impact on Jobs and Wages:-

Groups opposed to globalization blame it for eroding standards of living and running
ways of life in developed nations.Oppostions groups make several specific complaints
about hoe globalization and its associated practises affects jobs and wages:

Eliminates Jobs in Developed Nations:-

Impact of Globalisation on India:-

Effects of Globalization on Indian Industry started when the British came to India and
used it as their trade hub. Post independence, the government opened the country's
markets to foreign investments in the early 1990s. Various industries like steel,
pharmaceutical, petroleum, chemical, textile, cement, retail, and BPO got exposed to the
effects of globalisation. This brought in foreign investments in India and also helped
India to unlock its values by enabling it to easily export and import goods from other
countries. This reduced unemployment rates in India besides allowing foreign companies
to bring in highly advanced technologies with them which helped to make the Indian
Industry more technologically advanced. This however came at a cost to many Indian
companies who lost their customers to foreign companies with better quality products.

Global institutions like the World Bank and IMF constantly played a key role in forming
and changing India’s international business policies. The World Bank has played a very
important role in funding India’s infrastructure sector which is evident from the proposed
lending program of US$14 billion for 2009 to 2012 in order to boost infrastructure
development and support the seven poorest states to achieve higher standards of living.4
Globalisation has enabled India to adopt many practices and cultures witnessed in the
developed countries. As it was a British colony, English was used in the business world
and is also the language used by government agencies as their formal language for
correspondence. This enabled the Indian IT and BPO companies to capture the out
sourcing contracts in many of the developed countries as they could offer the same
services as their competitors in the west but at a much lower cost. Indian IT companies
successfully penetrated the American BPO industry which truly put India on the business
map of the world. This largely enabled the Indian IT industry to grow from mere $150
million in 1991-92 to almost a $50 billion industry today.

4
http://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/SOUTHASIAEXT/INDIAEXTN/0,,men
uPK:295589~pagePK:141159~piPK:141110~theSitePK:295584,00.html viewed on 7/01/09
India’s IT Industry and IT culture: -

The information technology industry in India has taken center stage on the
global platform and is poised towards a period of new growth opportunities.
As the global IT opportunity increases Irom its current size of more than half
a trillion dollars, Indian IT industry with its mature processes and robust business
models is well placed to take a bigger share of the market. The industry has been able
to handle both the growth as well as the scale. This is clear from the fact that while
the industry has grown over 200 times in less than 15 years, the five pioneers of the
industry still enjoy a leadership position in IT services. Much of this growth has been
possible because of the vision and courage of pioneer companies but forces of economic
change have played their part as well. It is helpful to remember that rapid economic
growth across the globe is a relatively recent phenomenon.
The results are palpable. Annual growth rates are running at 8%. Absolute poverty blights
20% of the population, but this is better than 35% of all Indians in 1990 and 50% in 1980.
India is more globalised. Trade is about 30% of GDP (up from 5% in 1980), and inward
investment flows were over $10 billion in 2006 (compared with hardly anything in 1980).
The business landscape has been transformed. There is a boom in IT services, large
manufacturers are much more efficient, and Indian multinationals are going on a buying
spree abroad

The software industry appears to have introduced into India a work culture that is quite
different from than that found in old economy or ‘traditional’ Indian companies. Closer
examination of the organisation of software companies and their work culture, however,
reveals a more complex situation: while most companies (especially large and medium
size Indian companies and MNCs) do have comparatively more open and flexible
organisational structures compared to the typical family-owned businesses in India, these
positive features are often offset by periodic intense work pressure, long working hours,
and job insecurity.5

As in any service or ‘knowledge’ industry, ‘people’ are the primary resource for software
companies. Recruiting and retaining a sufficient and qualified workforce is a central
concern of software companies and their HR departments, due to which new techniques
5
http://www.union-
network.org/uniindep.nsf/2135ca57dacb358dc1256aa2002eba4f/40601d743f5e3567c125723b0034587d/
$FILE/NIAS-IDPAD%20IT%20Study%20Final%20Report.pdf viewed on 7/1/09
of organisational control and ‘resource management’ (‘resource’ refers to software
engineers) are being continually tested and introduced.

3.2 Globalisation’s impact on India’s IT industry:

With the growing trend of outsourcing world wide, India is continuously focusing
towards deepening its roots in the outsourcing market. India has made it possible to
provide good quality at lower costs, the main requirements a company looks for while
outsourcing its business processes. This is the reason why India has been successfully
able to drive all the big banners to its land and establish itself as the world's biggest
software outsourcing destination. Today, India exports software and services to many
countries around the world, with North America (U.S. & Canada) leading ahead in India's
software exports. The success of any business is greatly affected by the resources
available and the business polices of the nation. The tremendous heights that take the
Indian Information Technology industry to the top of the world cannot be only rewarded
to the resources, price cut outs, etc factor, but to a great extent it is the encouragement
and promotion techniques adopted by the Indian Government to take forth the Indian IT
industry. IT Act 2000 was a major development in this respect which laid down a clear
picture of the industry, and secures the Indian business, making many domestic and
offshore customers to rely over the Indian Industry and many entrepreneurs to securely
join or move ahead in the field.6 One of the companies that captured the success mantra
in the IT industry is Infosys.

4.1 Infosys’ strategy:

6
http://www.softwareprojects.org/indian-it-industry.htm viewed on 24/12/08
When the company was barely 6 years old, in 1987 Infosys opened its first international
office in Boston, USA. It went public in 1993 and within 2 years it opened its first
European office in UK. In 1997 it opened another office in Toronto, Canada and in 1999
it listed on NASDAQ while touching revenues of $100 million and opening offices in
Germany, Sweden, Belgium, Australia, and two development centers in the US. It
doubled its revenues to $200 million in just one year while opening offices in France and
Hong Kong, a global development center in Canada and UK, and three development
centers in the US; it again doubled it to $400 million in 2001 while opening offices in

UAE and Argentina, and a Development Center in Japan. In 2002, Infosys opened offices
in The Netherlands, Singapore and Switzerland. Further the company’s revenues shot up
to $1 billion in 2004 and again doubled its revenues in just 2 years time.7 Thus we can see
that Infosys kept expanding into other countries as its core global strategy. At the same
time it kept introducing more and more products to cater to different kind of customers.
Infosys has made the most of the opportunities that globalisation could provide it with. It
became an export focused company in order to maximise margins, became the first
Indian company to get listed on NASDAQ in order to raise funds from abroad, and
rapidly grew all over the world through organic and inorganic methods in order to cater
to more customers.

While Infosys’ growth has been fuelled by globalisation it is also open to be harmed by
it. For example, the cost advantages would be affected if there would be intense
competition in the market for technology services; this would further lead in reduction of
business share and decrease in revenue. The economic slowdown in USA and other
countries can also lead to a decrease in revenue as major part of the business depends
from this region. Most of Infosys’ revenues come from abroad in currencies other than
Indian Rupee, thus any revaluation of Rupee or the currency Infosys deals with will
directly affect its profits. In case of a terrorist attack on its campus, Infosys would face

7
http://www.infosys.com/about/who-we-are/history.asp viewed on 7/1/09
huge monetary and personal losses. There would also be a reduction in the net income of
Infosys if the government of India withdraws or reduces tax benefits and other incentives.