Production Across Countries & Interlinking Production

NCERT Understanding Economic Development | Chapter 4: Globalisation and the Indian Economy

A World of Choices — How Globalisation Connects Markets

Look around your home and you will likely spot goods manufactured by companies headquartered thousands of kilometres away. The newest smartphones, digital cameras, and automobiles from leading global brands are easily available in Indian markets today. Gone are the days when consumers had only a handful of domestic brands to choose from. Within just a few decades, Indian markets have undergone a remarkable transformation, offering an extraordinary variety of products from across the globe.

How did this change happen? What forces are driving this transformation? And how are these shifts affecting the lives of ordinary people? These are the central questions that this chapter on globalisation^? sets out to explore.

How Do MNCs Spread Production Across Countries?

Until the middle of the twentieth century, the production of goods was largely confined within national boundaries. What moved across borders were mostly raw materials, foodstuffs, and finished products. Colonial territories like India exported raw materials and food items while importing manufactured goods from their colonial rulers. International trade served as the primary channel connecting distant countries.

This pattern changed dramatically with the emergence of large companies called multinational corporations (MNCs)^?. An MNC is a company that owns or controls production operations in more than one country. These corporations establish their offices and factories in regions where they can access cheap labour and resources, thereby reducing their production costs and maximising profits.

How MNCs Spread Production Globally

Consider the example of a large MNC manufacturing industrial equipment. It designs its products at research centres in the United States, manufactures components in China (where manufacturing costs are low), ships them to Mexico and Eastern Europe for assembly (locations close to the US and European markets), and sells the finished products worldwide. Meanwhile, the customer service operations are handled through call centres based in India, where skilled, English-speaking workers are available at comparatively lower wages.

In this arrangement, the MNC is not merely selling its products globally but is also producing them globally. The production process is broken down into smaller tasks and distributed across the globe based on each location's comparative advantage. This can result in cost savings of 50 to 60 per cent for the corporation.

What Is Interlinking of Production — Global Supply Chains

Joint Ventures and Local Partnerships

MNCs do not always set up production entirely on their own. In many cases, they form partnerships or joint ventures with local companies in the host country. Such collaborations offer two key advantages to the local firm: first, the MNC brings in additional capital for investment in new machinery and infrastructure; second, the MNC often introduces cutting-edge production technologies that enhance efficiency and output quality.

Factors Influencing MNC Location Decisions

When deciding where to establish production, MNCs typically consider several factors:

Ways MNCs Control Production

Beyond joint ventures, MNCs use several strategies to establish control over production in other countries:

Through all these strategies — partnerships with local firms, buying up existing companies, using small producers as suppliers, and direct competition — MNCs are linking production across widely dispersed geographical locations. This interlinking of production is a fundamental feature of the modern global economy.

Case Study — Ford Motors Investment in India and Its Impact

Ford Motors, an American automobile giant, operates production facilities in 26 countries worldwide. The company entered India in 1995, investing approximately Rs 1,700 crore to establish a large manufacturing plant near Chennai in collaboration with Mahindra and Mahindra, a major Indian manufacturer of jeeps and trucks.

By 2017, Ford was selling around 88,000 cars annually in the Indian domestic market while simultaneously exporting over 1,81,000 vehicles from India to countries like South Africa, Mexico, Brazil, and the United States. In more recent years, Ford stopped selling cars directly in the Indian market but continues to export cars and car engines on a smaller scale to other countries, using India as a manufacturing base.