impact of globalization and liberalization on industries in our country - December 18th, 2006 Q.

1 (a) What is the impact of globalization and liberalization on industries in our country? Ans: 1 (a) The Programme of Economic Liberalization The New Economic policy During the mid 1980s, the Congress Government headed by Rajiv Gandhi made a move to change its policies regarding business, licenses and permits, as also its attitude towards multinational companies (MNCs) operating in India. However, it was only during the succeeding government of Narasimha Rao (1991-96) that a strategy was actually formulated in this direction and marketed both in India and abroad. The strategy aimed to bring the Indian economy into the mainstream of the global economy, and, at the same time allow a whiff of competition and growth to India business. This, it was hoped would bring a new dimension to the concepts of quality, productivity and growth. Inevitably, the winds of liberalization that swept through the nation opened a variable Pandoras box, with far-reaching implications for human resource management. It brought in a new era of technology, quality consciousness and competition, which compelled Indian business to wake up from its somnambulism and reassess its assumptions for dealing with the compete-or-perish

situation. The Pre-reform Scenario In the pre-liberalization period India had pursued a shortsighted policy in the name of self-reliance, blocking out the rest of the world in the manufacturing and services sectors. Relying on bureaucratic controls, through licensing and centralized planning, the government had imposed restrictions on the capacity of business units, their location, choice and source of raw materials and so on. It had also kept a check on corporate takeovers and mergers, through the monopolies and Restrictive Trade Practices Commission (MRTP). India had actively discouraged foreign investments in its capital markets to protect domestic industries. It had also denied itself access to international capital, technology and markets; Unlike the Asian Tigers who went on to beat the first World nations at their own game. However, as seen by the recent downslide in the South Asian economy and the currency crisis in Indonesia, this access to international capital and markets has been a mixed blessing for these countries. Notwithstanding this, the tremendous progress made by the Asian Tigers during the last three decades can certainly serve as an example to developing countries such as India. Not that socialistic state planning did not have its benefits in India. Heavy industries were established and significant strides were made

in the field of agriculture, Industrial growth rose from 7 per cent in the early 1950s to 9% in the early 1960s. However the inevitable

problems of socialism outweighed the benefits. Protected employment led to loss making units where as the License Raj worked against competitive forces. The Reform Process and Imperatives After 1991 there was a two fold shift in the Indian economic policy-at the global level as also the national level. 1. At the global level, it sough to integrate the Indian economy with the world economy by allowing free movement of capital investment, both into and from India. This exchange would also expose India to new technology Table 1.1 indicates that there has been a significant time lag between foreign direct investment (FDI) approvals and actual inflows. This has been possibly due to the governments failure to ensure a smooth single-window clearance for projects. Other factors have been the governments tendency to backtrack on its own policy, and lack of congruity in Center-state clearance for FDI inflows. 2. At the national level, it envisaged a decontrolled business environment where free market forces would be given more freedom to

operate and state control would be reduced or eliminated. The omnipotent role of public sector corporations would be redefined, allowing disinvestments of their equity holdings by the government. One of the desired effects of such a major restructuring of the economy was growth and generation of employment which, it was hoped would lead to more purchasing power for the common man. The central governments reform package was a mix of policy and administrative changes. The budget was used as a major instrument for altering the financial policies. The 1996 budget, which was awaited with both skepticism and hope proved to be turnaround in many ways-custom duties applicable to core industries were reduced, excise duty was rationalized and a commitment was made towards disinvestments of PSUs. The budget identified the existing infrastructure as inadequate for growth and indicated efforts to encourage investment in this critical area. Further it took cognizance of the aspirations of farmers and the poor, offering schemes and subsidies to uplift these neglected sections. Unfortunately the budget elicited a lukewarm response and failed to energies the capital market. This resulted in a slow down of economic reforms and loss of investor confidence in the Indian economy. In February 1997, the budget presented by the formed finance minister, Mr. P.Chidambaram, tried to firmly establish Indias commitment to the reform process and managed to enthuse both

Indian and Foreign business. The budget showed a spirit of optimism and growth. Market-men were amply encouraged and share indices recorded their biggest jump in any post budget session in the last two decades. The budget reformed Indias tax structure in line with the structure

in developed countries; significantly reduced tariffs; rationalized excise rates; encouraged investment in infrastructure; and also opened up the insurance sector partially. On the negative side, however the budget paid more lip-service to reduction in government expenditure and remained silent on the huge oil-pool deficit. (This was subsequently tackled by an administrative decision). One of the imperatives of the environment is to have a skilled and educated workforce, which can understand and cope with the requirements of IT and other technologies in the manufacturing and services sectors. Therefore, the state has to make heavy investments in education. It is worth noting that Yashwant Sinha, minister of finance, in his 1998 budget speech, stressed on the importance of education as a key vehicle for social transformation and provided total budgetary allocation of Rs70, 470 million to the sector. This was an increase of 50% over the preceding years allocation. Here, it must, however, be pointed out that a significant share of this increase would go into paying the increases in salaries. The finance minister also

expressed the governments intention to eventually raise total resource allocation for education to 6% of GDP, in a phased manner. He further stated the governments plan to implement the constitutional provision for making primary education free and compulsory up to fifth standard, and also to go beyond and provide free education for girls up to the college level. Mahajan (1998) estimates that the central governments expenditure on human resource development (HRD), which was Rs 32,410 million in 1989-90, dropped to Rs28, 910 million in 1992-93. The expenditure by the states was Rs 1,23,100 million in 1989-90, which marginally improved to Rs 1,29,020 million in 1992-93. Given Indias vast population, the number of poor and school drop-outs (turned child laborers), it is indeed a critical situation. Unfortunately, not much has gone into the National Renewal Fund (NRF) either, which was originally created to impart training, retrain workers whose skills has become inadequate or redundant as a result of technology up gradation. The new economic programme has opened up the economy to a greater degree of international participation and investments. The service industry has taken significant strides in areas such as tourism, hospitalize or medicine, banking and financial services. Consequently, not only have more players come into India, but mergers and acquisitions of a large number of India companies have also taken place. This has compelled Indian

companies to sit up and re-examine their strategies and practices, as also the type of business they are in. Such a shake-out is indeed in stark contrast to their attitude in the recent past, where cornering a license mattered more than a companys product or competence. Liberalization has thus resulted in paradigmatic shift. 1 (b) What is the effect of competition on Human Resource Management? Ans: 1 (b) Effect of competition on Human Resource Management As a result of domestic and international competition, human resource management is being given a key role. Our survey highlighted the following changes in human resource policies and programmes. 1 With manpower costs going up, and the need to bring product prices down to meet competition, manpower productivity has become a central issue in organizations. Human resource professionals will have to play a critical role to fulfill this need. 2 Another area of intervention would be in the case of joint ventures where professional will have to predict and manage culture-fit policies. Companies are focusing on people with the right profiles as also those who are more capable. 3 There is increasing emphasis on training, and retraining to tap latent talent. 4 Companies have started paying attention to career growth and career planning for

employee. 5 Companies are showing increasing willingness to retail talent and redeploys manpower when necessary. 6 In some industry, Indian employees are being sought after abroad. This, coupled with competition for employees among Indian companies, has led to an alarming attrition rate for some companies. To meet ambitious career aspirations and salary expectations, human resource departments are using industry-wise benchmarking for salary revisions. 7 Employee compensation is being linked and programmes are becoming more focused, responsive and are also constantly reviewed against the external environment. 8 Contemporary practices, policies and programmes are becoming more focused, responsive and are also constantly reviewed against the external environment. 9 Globalization has resulted in an influx of foreign managers to India. There is evidence of greater mobility both within India and abroad. Furthermore, there is greater integration with world market dynamics and practices. 10 Corporate restructuring and redefining of roles are areas also under focus. Conclusion The aftermath of Liberalization and globalization has made Indian companies conscious of competition and quality and acquire a totally global mindset. According to Gurcharan Das they need to:

1. Focus on a single area of competence and not hopelessly diversify. 2. Initially concentrate on the domestic market and then leverage their economies of scale overseas. 3. Be able to capitalize on global trade. 4. Not ignore quality even when they are pursuing a low cost strategy. 5. Be able to overcome their historic phobia for investing in product development. Das (1996) in his article Nation and Corporation-III has recommended the adopting of a strategy based on superior service, rather than a focus on the strategy of cost-leadership. According to him, a cost strategy in vulnerable to the exchange rates of competitions and the rising labor cost of domestic employees. A strategy based on superior service, on the other hand, can be very powerful as the value added is high, i.e., superior service delivered by highly trained knowledge workers (scientists, engineers, market researchers, lawyers) and provides a powerful insulation against competition. Not only can knowledge workers harness the power of IT, they can also be trained to benchmark their deliverables against the competition and against customer needs. If Indian companies pursue this approach seriously and strategically, they stand a vast potential to emerge as winners. Q.2 (a) What is Performance Appraisal? What are the objectives of the Performance Appraisal System?

Ans 2 (a) Performance Appraisal is a formal exercise in which an organization makes an evaluation form, of its employees, in terms of contributions made towards achieving organizational objectives and/ or their personal strengths and weaknesses, and in terms of attributes and behaviors demonstrate for meeting whatever objective the originations may consider relevant. Performance appraisal systems are widely used today. None is perhaps perfect. Many advocate their discontinuance. More rational ones plead for their improvement through continuous dialogue with line managers. However some appraisal systems fail, efforts to improve them notwithstanding. There are several reasons for such a failure. Some major ones are: 1 Some appraisal systems demand of the superior to assess his subordinate in terms of personality traits. While talking generally of personality traits is accepted, no subordinate would like such assessment to be recorded in an official document as a negative evaluation may adversely affect his career. The human personality is a complex reality. Even physiologists disagree on how it should be defined. Personality traits as well are extremely difficult to define. Moreover, how many executives are properly trained to assess him to change aspects of his personality? 2 The results of a subordinates behaviour are easy to describe. However, the problem starts

when the superior tries to identify the cause. For example, in a case of inter-personal problems, the superior may determine that it is because the subordinate is stubborn. The subordinate may claim that he is only being assertive. The word stubborn itself may make him defensive. This will block further communication reducing the effectiveness of appraisal system. 3 A superior may not want to pass judgement on another person it he feels that his negative judgement may have an adverse influence on the individuals future. In such a case, the superior tends to be non-committal and vague in his assessment. No wonder in some organizations most of the managers get rated above average. 4 These factors may greatly neutralize the beneficial effects of appraisal systems. Objectives of the Performance Appraisal Performance appraisal system can serve the following purposes: 1 To enable each employee to understand his role better and become more effective on the job. 2 To understand his own strengths and weakness with respect to his role in the organization. 3 To identify the developmental needs of each employee. 4 To improve relationship between the superior and the subordinate through the realization that each is dependent 2(b) Explain the concept of 360-degree appraisal. How is this concept used in industry to appraise the employees?

riors, subordinates, peers, internal customers, and external customers. The appraisal is done anonymously by the concerned persons and the final assessment is collected by the HRD. The assessment is made on questionnaire designed to measure behaviors considered critical for performance. 360-degree appraisal system involves 5 main phases to appraise the employees. a. Participants Orientation and modalities of the exercise b. Questionnaire distribution c. Monitoring and Follow-up d. Data feeding reports and analysis e. Workshop