Globalization in Business With History and Pros and Cons

What Is Globalization?

Globalization refers to the spread of the flow of financial products, goods, technology, information, and
jobs across national borders and cultures. In economic terms, it describes an interdependence of nations
around the globe fostered through free trade.

KEY TAKEAWAYS

Globalization is the spread of products, technology, information, and jobs across nations.

Corporations in developed nations can gain a competitive edge through globalization.

Developing countries also benefit through globalization as they tend to be more cost-effective and
therefore attract jobs.

The benefits of globalization have been questioned as the positive effects are not necessarily distributed
equally.

One clear result of globalization is that an economic downturn in one country can create a domino effect
through its trade partners.

Understanding Globalization

Corporations gain a competitive advantage on multiple fronts through globalization. They can reduce
operating costs by manufacturing abroad, buy raw materials more cheaply because of the reduction or
removal of tariffs, and most of all, they gain access to millions of new consumers.

Globalization is a social, cultural, political, and legal phenomenon.

Socially, it leads to greater interaction among various populations.

Culturally, globalization represents the exchange of ideas, values, and artistic expression among
cultures.

Globalization also represents a trend toward the development of a single world culture.

Politically, globalization has shifted attention to intergovernmental organizations like the United Nations
(UN) and the World Trade Organization (WTO).

Legally, globalization has altered how international law is created and enforced.

On one hand, globalization has created new jobs and economic growth through the cross-border flow of
goods, capital, and labor. On the other hand, this growth and job creation are not distributed evenly
across industries or countries.
Specific industries in certain countries, such as textile manufacturing in the U.S. or corn farming in
Mexico, have suffered severe disruption or outright collapse as a result of increased international
competition.

Globalization’s motives are idealistic, as well as opportunistic, but the development of a global free
market has benefited large corporations based in the Western world. Its impact remains mixed for
workers, cultures, and small businesses around the globe, in both developed and emerging nations.

The History of Globalization

Globalization is not a new concept. Traders traveled vast distances in ancient times to buy commodities
that were rare and expensive for sale in their homelands. The Industrial Revolution brought advances in
transportation and communication in the 19 th century that eased trade across borders.

The think tank, Peterson Institute for International Economics (PIIE), states globalization stalled after
World War I, and nations’ moved toward protectionism as they launched import taxes to more closely
guard their industries in the aftermath of the conflict. This trend continued through the Great
Depression and World War II until the U.S. took on an instrumental role in reviving international trade.

Globalization has sped up at an unprecedented pace, with public policy changes and communications
technology innovations cited as the two main driving factors.

One of the critical steps in the path to globalization came with the North American Free Trade
Agreement (NAFTA), signed in 1993.

One of NAFTA’s many effects was to give American auto manufacturers the incentive to relocate a
portion of their manufacturing to Mexico where they could save on the costs of labor.

NAFTA was replaced in 2020 by the United States-Mexico-Canada Agreement (USMC).

Governments worldwide have integrated a free market economic system through fiscal policies and
trade agreements over the last 20 years. The core of most trade agreements is the removal or reduction
of tariffs.
This evolution of economic systems has increased industrialization and financial opportunities in many
nations. Governments now focus on removing barriers to trade and promoting international commerce.

Pros and Cons of Globalization

Pros

Proponents of globalization believe it allows developing countries to catch up to industrialized nations

through increased manufacturing, diversification, economic expansion, and improvements in standards
of living.

Outsourcing by companies brings jobs and technology to developing countries, which helps them to
grow their economies. Trade initiatives increase cross-border trading by removing supply-side and
trade-related constraints.

Globalization has advanced social justice on an international scale as well, and advocates report that it
has focused attention on human rights worldwide that might have otherwise been ignored on a large
scale.

Cons

One clear result of globalization is that an economic downturn in one country can create a domino effect
through its trade partners. For example, the 2008 financial crisis had a severe impact on Portugal,
Ireland, Greece, and Spain. All these countries were members of the European Union, which had to step
in to bail out debt-laden nations, which were thereafter known by the acronym PIIGS.

Globalization detractors argue that it has created a concentration of wealth and power in the hands of a
small corporate elite that can gobble up smaller competitors around the globe.

Globalization has become a polarizing issue in the U.S. with the disappearance of entire industries to
new locations abroad. It’s seen as a major factor in the economic squeeze on the middle class.

For better and worse, globalization has also increased homogenization. Starbucks, Nike, and Gap
dominate commercial space in many nations. The sheer size and reach of the U.S. have made the
cultural exchange among nations largely a one-sided affair.
Pros and Cons of Globalization

Pros

A larger market for goods and services

Cheaper consumer prices

Outsourcing can benefit both domestic firms and foreign labor

Increased standard of living

Cons

Concentrates wealth in richer countries

Some poorer countries can be left behind

Poorer countries can be exploited of their labor and physical & intellectual resources

Cultures and the products consumed around the world can become homogenized

What Is Globalization and Why Is it Important?

In essence, globalization is about the world becoming increasingly interconnected. Countries today are
more connected than ever before, due to factors such as air travel, containerized sea shipping,
international trade agreements and legal treaties, and the Internet. In the world of business,
globalization is associated with trends such as outsourcing, free trade, and international supply chains.
Globalization is important as it increases the size of the global market, and allows more and different
goods to be produced and sold for cheaper prices.

Globalization is also important because it is one of the most powerful forces affecting the modern world,
so much so that it can be difficult to make sense of the world without understanding globalization. For
example, many of the largest and most successful corporations in the world are in effect truly
multinational organizations, with offices and supply chains stretched right across the world. These
companies would not be able to exist if not for the complex network of trade routes, international legal
agreements, and telecommunications infrastructure that were made possible through globalization.
Important political developments, such as the ongoing trade conflict between the United States and
China, are also directly related to globalization.

Is Globalization Good or Bad?

It depends. Proponents of globalization will point to the dramatic decline in poverty that has taken place
throughout the world over the past several decades, which many economists attribute in part to
increased trade and investment between nations. Similarly, they will argue that globalization has
allowed products and services such as cellphones, airplanes, and information technology to be spread
far more widely throughout the world. On the other hand, critics of globalization will point to the
negative impact it has had on specific nations’ industries, which might face increased competition from
international firms. Globalization can also have negative environmental impacts due to economic
development, industrialization, and international travel.

How Does Globalization Impact Society?

Globalization has had a large impact on societies around the world, leading to massive migrations from
rural to industrial or urban areas, leading to the rapid growth of cities and trade hubs. While this has led
to an overall increase in incomes and a higher standard of living in general, it has also led to problems of
urbanization including crime, domestic violence, homelessness, and poverty. Concepts of national
identity, culture, and consumption patterns also change as goods from around the world become
increasingly available and at low prices. The competitiveness of global capitalism may also lead to more
individualistic ideals that contradict the cultural orientations of certain, more collectivist societies.

What Is an Example of Globalization?

A simple example of globalization would be a car manufactured in the U.S. that sources parts from
China, Japan, S. Korea, Sri Lanka, and South Africa. The car is then exported to Europe, where it is sold to
a driver who fills the car’s gas tank with gasoline refined from Saudi oil.

What Is the North American Free Trade Agreement (NAFTA)?

The North American Free Trade Agreement (NAFTA) was implemented in 1994 to encourage trade
between the countries of United States, Mexico, and Canada. More