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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