Top 3 advantages of globalization in India

March 15, 2022

India boasts the fastest growing economy on the planet, and it’s projected to join the U.S. and China over the next decade as one of the top three economic world powers.

India’s massive economic growth is largely due to globalization—a transformational change that didn’t occur until the 1990s. Since then, the country’s gross domestic product (GDP) has grown at an exponential rate, increasing from $270 billion in 1991 to $2.87 trillion by 2019, with projections that it’ll reach a whopping $4.5 trillion by 2026.

But why did this globalization occur and what are the advantages of globalization in India for foreign businesses? 

What is globalization?

Globalization is the integration of a national economy and culture with that of the global economy. Metaphorically, a country throws open its gates, welcoming in communication, international trade, capital, technology and cultural practices from foreign countries.

Globalism increases international economic interdependence due to the increasing scale of cross-border trade of capital, commodities, services and technologies. In doing so, this incentivizes foreign businesses to invest and expand globally into the newly opened country.

The impacts of globalization on India’s economy

Globalization has had a significant and nearly instantaneous impact on India as a whole.

The reduction of export subsidies and import barriers enabled free trade that made the untapped Indian market incredibly attractive to the international community. And nowhere were these reforms more consequential than the significant changes made to its industrial, financial and agricultural sectors:

  • Industrial – There has been a massive influx of both foreign capital investment and companies expanding to and offshoring in India, particularly in the pharmaceutical manufacturing, chemical and petroleum industries. They brought with them advanced technologies and processes that have helped modernize the Indian industrial sector.
  • Financial – Prior to globalization and privatization, India’s financial sector had been mismanaged by a combination of corrupt and inept government officials—many of whom were risk-averse and reluctant to embrace change. By taking control of the financial sector out of the hands of the bureaucracy, market competition spurred on innovation, creating a much more dynamic financial services sector.
  • Agricultural – India used to be a largely an agrarian society, with a significant majority of the country’s population depending on this sector either directly or indirectly for their livelihood. Thanks to India opening its doors, the technological capabilities of farmers have increased—helping drive global exports of Indian products such as tea, coffee and sugar.

The byproduct of these sectors has brought about an increase in national income, employment, exports and GDP growth. 

The advantages of globalization for foreign entities and investors

For international companies, the globalization of India presented an unprecedented opportunity for growth and expansion. Suddenly, the world’s second-most populous country was open for business. And this development still has advantageous ripple effects to this day, including: 

1. Access to untapped markets

The increasing globalization of India has opened up the country to eager foreign companies seeking to invest and operate within the massive Indian market.

  • For the country and its citizenry, this boosted foreign capital inflows both from portfolio investment and foreign direct investment. As a result, the import-export sector experienced explosive growth.
  • For international companies, it expanded their capabilities and market share—they gained instant access to hundreds of millions of new consumers and potential workers.

Thanks to globalization, now is a great time to expand your business to India. You can not only grow your potential market share but can also increase your economies of scale and specialization, thus lowering your unit cost per production.

2. A surplus of employment opportunities

The revitalization and expansion of the Indian economy helped lift hundreds of millions out of extreme poverty, while also improving the employee benefits offered. This was due to two primary factors:

  • Export growth thanks to comparative cost advantage created countless new jobs across the country.
  • The lifting of restrictions on capital inflows and outflows increased employment opportunities. 

Initially, globalization gave foreigners access to an inexpensive, robust labor force. And, as the country has progressed, that labor force has grown more skilled and educated over time. Along these lines, India has the largest diaspora living abroad.

These expatriates work and attend school in foreign countries. This helps facilitate the transfer of skills, knowledge and technology back to the Indian economy, seeing as a significant minority of Indians living abroad eventually return home. 

For product-based businesses and multinational corporations, labor costs are often the largest expenditure. Offshoring in and outsourcing to a place like India enables companies to reduce their labor costs. This results in a freeing up of capital for strategic reinvestment while also driving specialization. 

However, businesses can’t seize on the hiring opportunities in India without a legal entity, which can be a costly and timely process. However, an employer of record like Global Employment Outsourcing (GEO) enables businesses to hire employees in India quickly and compliantly without the need for an entity.

Related: Learn more about hiring and onboarding in India

3. Reduced risk profile

For companies considering global expansion to the Indian market, especially for manufacturing purposes, doing so can help reduce your overall risk profile. Having multiple locations around the globe helps prevent supply chain issues. If one location is held up, it won’t negatively impact the entire supply chain.

And for foreign investors considering the economy as a whole, India offers a well-diversified export basket. According to OECD’s 2019 Economic Survey of India:

“India has succeeded in increasing the number of goods exported and in serving new markets/countries. Its export basket is highly diversified and exports to emerging markets are growing fast. Such a diversification reveals the high potential of the Indian economy to adjust to new demands. It also reduces exposure to risks such as lower demand in one country or for one specific product.” 

Expansion to India

Globalization of the Indian economy has helped change the world economy for the better. And for foreign companies, it presents them with the competitive advantage of accessing massive consumer and labor markets, thus creating an attractive opportunity for strategic investment and expansion. 

India is quickly becoming a top destination for new operations—and if it’s not on your radar, it should be. Avoid costly and lengthy entity set-up with Global Employment Outsourcing (GEO) from Safeguard Global. With GEO acting as the legal employer of record, companies can quickly expand to India and seize on the opportunities that globalization has brought to the economy.

Speak with Safeguard Global today!

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