Erica Mae R.

Del Rosario
BSBA FM 2 – 2

What is Globalization?
Globalization is the word used to describe the growing interdependence of the world’s
economies, cultures, and populations, brought about by cross-border trade in goods and
services, technology, and flows of investment, people, and information. Countries have built
economic partnerships to facilitate these movements over many centuries. But the term gained
popularity after the Cold War in the early 1990s, as these cooperative arrangements shaped
modern everyday life. This guide uses the term more narrowly to refer to international trade
and some of the investment flows among advanced economies, mostly focusing on the United
States.
The wide-ranging effects of globalization are complex and politically charged. As with major
technological advances, globalization benefits society as a whole, while harming certain groups.
Understanding the relative costs and benefits can pave the way for alleviating problems while
sustaining the wider payoffs.

Factors of Globalization
Historical
The trade routes were made over the years so that goods from one kingdom or country moved
to another. The well-known silk-route from east to west is an example of historical factor.

Economy
The cost of goods and values to the end user determine the movement of goods and value

addition. The overall economics of a particular industry or trade is an important factor in

globalization.

Resources and Markets

The natural resources like minerals, coal, oil, gas, human resources, water, etc. make an
important contribution in globalization.
Production Issues
Utilization of built up capacities of production, sluggishness in domestic market and over

production makes a manufacturing company look outward and go global. The development of

overseas markets and manufacturing plants in autos, four wheelers and two wheelers are a
classical example.

Political
The political issues of a country make globalization channelized as per political bosses. The

regional trade understandings or agreements determine the scope of globalization. Trading in

European Union and special agreement in the erstwhile Soviet block and SAARC are examples.

Industrial Organization
The technological development in the areas of production, product mix and firms are helping

organizations to expand their operations. The hiring of services and procurement of sub-
assemblies and components have a strong influence in the globalization process.

Technologies
The stage of technology in a particular field gives rise to import or export of products or services

from or to the country. European countries like England and Germany exported their chemical,

electrical, mechanical plants in 50s and 60s and exports high tech (then) goods to under

developed countries. Today India is exporting computer / software related services to advanced
counties like UK, USA, etc.

Containerization
The costs of ocean shipping have come down, due to containerization, bulk shipping, and other
efficiencies. The lower unit cost of shipping products around the global economy helps to bring
prices in the country of manufacture closer to those in export markets, and it makes markets
more contestable globally
Technological change
Rapid and sustained technological change has reduced the cost of transmitting and
communicating information – sometimes known as “the death of distance” – a key factor behind
trade in knowledge products using web technology
Economies of scale
Many economists believe that there has been an increase in the minimum efficient scale (MES)
associated with some industries. If the MES is rising, a domestic market may be regarded as too
small to satisfy the selling needs of these industries. Many emerging countries have their own
transnational corporations
Differences in tax systems
The desire of businesses to benefit from lower unit labor costs and other favorable production
factors abroad has encouraged countries to adjust their tax systems to attract foreign direct
investment (FDI). Many countries have become engaged in tax competition between each other
in a bid to win lucrative foreign investment projects.
Less protectionism
Old forms of non-tariff protection such as import licensing and foreign exchange controls have
gradually been dismantled. Borders have opened and average import tariff levels have fallen.
That said, it is worth knowing that, in the last few years, there has been a rise in non-tariff barriers
such as import quotas as countries have struggled to achieve real economic growth and as a
response to persistent trade and current account deficits.
Growth Strategies of Transnational and Multinational Companies
In their pursuit of revenue and profit growth, increasingly global businesses and brands have
invested significantly in expanding internationally. This is particularly the case for businesses
owning brands that have proved they have the potential to be successfully globally, particularly
in faster-growing economies fueled by growing numbers of middle-class consumers.

Influences of Globalization
Beneficial Effects
Some economists have a positive outlook regarding the net effects of globalization on economic
growth. These effects have been analyzed over the years by several studies attempting to
measure the impact of globalization on various nations' economies using variables such as trade,
capital flows and their openness, GDP per capita, foreign direct investment (FDI) and more. These
studies examined the effects of several components of globalization on growth using time series
cross sectional data on trade, FDI and portfolio investment. Although they provide an analysis of
individual components of globalization on economic growth, some of the results are inconclusive
or even contradictory. However, overall, the findings of those studies seem to be supportive of
the economists' positive position, instead of the one held by the public and non-economist view.
Harmful Effects
Non-economists and the wide public expect the costs associated with globalization to outweigh
the benefits, especially in the short-run. Less wealthy countries from those among the
industrialized nations may not have the same highly-accentuated beneficial effect from
globalization as more wealthy countries, measured by GDP per capita etc. Although free trade
increases opportunities for international trade, it also increases the risk of failure for smaller
companies that cannot compete globally. Additionally, free trade may drive up production and
labor costs, including higher wages for more skilled workforce, which again can lead to
outsourcing of jobs from countries with higher wages.
The Bottom Line
One of the major potential benefits of globalization is to provide opportunities for reducing
macroeconomic volatility on output and consumption via diversification of risk. The overall
evidence of the globalization effect on macroeconomic volatility of output indicates that
although direct effects are ambiguous in theoretical models, financial integration helps in a
nation's production base diversification, and leads to an increase in specialization of production.
However, the specialization of production, based on the concept of comparative advantage, can
also lead to higher volatility in specific industries within an economy and society of a nation. As
time passes, successful companies, independent of size, will be the ones that are part of the
global economy.

What drives Globalization

Cost

Maximizing their investment is a motivator for many global companies. Single-nation markets might not
be large enough to offer a company’s country subsidiaries all possible economies of scale and scope,
especially given the dramatic changes in the marketplace. The goal, then, is to get the most mileage from
the investment cost. At the same time, advertising and promotion can bleed across borders, so it makes
sense to make the product available where people are going to hear or learn about it.

A realistic, objective assessment of global opportunities and costs will probably lead to tough decisions
about which markets, customer segments, or product positioning to focus on and which ones to bypass
as well as appropriate strategies. In pursuing price leadership, for example, the global marketer offers a
product or service that is nearly identical to the competition’s, but at a lower price. This often means
investing in scale economies and controlling costs that typically include overheads, research and
development, and logistics.

Market

Consumers in advanced economies are becoming more similar in terms of education, income, lifestyles,
aspirations, and their use of leisure time. Marketers of certain products find ready buyers in countries
with high purchasing power and well-developed infrastructures. Still other products might fare best in
markets that are less sophisticated.

Having a global strategy does not mean that a company should serve the entire globe. Critical choices
include deciding where to spend resources and where to hang back. The usual approach is to start by
picking regions and then countries within them. Regional groupings might follow the organizational
structure of existing multinational management or export offices, such as splitting Europe into northern,
central, and southern regions that have similar demographic and behavioral traits. Market data might be
more readily available in situations where the firm is grouping markets according to existing structures
and frameworks.

Environment

Increasing consumer wealth and mobility, rapid information transfer across borders, publicity about the
benefits of globalization, and technological revolutions continue to accelerate demands for global
products and services. Newly emerging markets are benefiting from advanced communications by leaping
over economic development stages that others slogged through in earlier years.

A new group of global players is taking advantage of the increase in trading regions and newer
technologies. These “mini-nationals” or “born globals” serve world markets from a handful of
manufacturing bases rather than building a plant in every country as was the procedure in earlier years.
Their smaller bureaucracies also allow these companies to move quickly to conquer new markets, develop
new products, or change directions when the situation calls for it.

Competition

To remain competitive, global rivals have to intensify their marketing everywhere by attempting to sustain
advantages that, if weakened, could make them susceptible to market share erosion worldwide.
Competitive companies introduce, upgrade, and distribute new products faster than ever before. A
company that does not remain ahead of the competition risks seeing its carefully researched ideas picked
off by other global players.

Leading companies drive the globalization process. There is no structural reason why soft drinks should
be at a more advanced stage of globalization than beer and spirits, except for the opportunistic behavior
of Coca-Cola. Similarly, German beauty products maker Nivea is driving its business in a global direction
by creating global brands, a global demand for those brands, and a global supply chain that helps the
company meet those demands.