GLOBALIZATION

 

Globalization means a world without international borders, or with borders having reduced significance. In the broadest terms, globalization is the spread of products, services, people, and activities across national borders and across cultures. Sometimes it is used to refer to a more specific phenomenon in economics - the spread of “free market” policies across the world economy.

Benefit of Globalization for Economies.

Increased choice.

No individual country could produce the sheer variety of goods that can be produced globally. Through globalization, consumers in one country can have access to goods and services that they would never otherwise have access to.

Higher quality goods.

As each nation concentrates on its own specialty industries, there is far less ‘re-inventing the wheel’. For example, every country does not need to waste its scarce resources producing its own version of the smartphone when one can be imported from a country that specializes in this product.

Increased competition.

The presence of increased competition in a country’s economy from foreign companies means a more efficient market and lower prices for consumers. Suppliers of goods and services need to keep their prices low to stay competitive.

Economies of scale.

As globalization provides companies with a much bigger effective market in which to sell their goods, they can scale up their production. As the level of production increases, their margin on each good or service provided can increase as their fixed costs remain the same, or become incrementally smaller.

Increased capital flows.

Capital is able to flow into developing economies providing a significant form of finance that businesses in that economy would not otherwise have access to.

Increased labour mobility.

By allowing individual workers to move to other countries, the global economy can better match supply and demand. Countries that are excellent in educating certain professionals can export those professionals to other countries which do not have the same specialty. 

Improved international relations.

Countries that have a positive trade relationship with each other, have an incentive not to get into conflict. On a global scale, this should reduce the likelihood of armed conflict between countries.

Benefit of Globalization for Businesses

Cost savings.

By outsourcing certain functions, such as payroll and human resources to countries where this can be provided at a lower cost, an international enterprise can increase its overall profitability.

International recruitment.

If you struggle to find the right talent in your own country, you may be able to source workers in another country where there is significant capability in that area.

Specific market opportunities.

You may have identified specific countries where there is an opportunity to corner the market with your product or service. Moving into that market can be an important growth opportunity for your business.

Spreading risk.

Individual countries are vulnerable to economic events and fluctuations specific to that country. By expanding into multiple countries, an enterprise can spread this risk and ensure that they do not place ‘all their eggs in the same basket'.

Disadvantages of Globalization.

Possible monopolization by the multi-national companies.

Large enterprises from developed countries may move into smaller developing nations and take over the market. Their specialization and efficiency in providing a particular good or service may mean that local producers in a developing country are knocked out of the market.

Structural unemployment.

If a country is no longer competitive in the production of a particular product, this may mean that its production rapidly moves offshore, and workers are left unemployed. While it may be possible to re-train these staff and deploy them to a more efficient market, this time lag may take years, resulting in a significant rise in unemployment and inequality.

Inter-dependence.

Individual countries become dependent on other nations for their supply chains. If there is a disruption to this chain, they may no longer be able to produce the goods themselves.

Tax avoidance.

It may be that some companies are able to avoid paying taxes that one might expect that company to pay in a given country through legal tax arrangements.

It is worth emphasizing that all these potential disadvantages are ones that apply to the economy as a whole, they are not costs to the individual businesses.

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