CH – 9

Globalization

What is globalization
Globalization is about the world becoming increasingly interconnected. It is the
increase in the flow of goods, services, capital, people, and ideas across international
boundaries. Nowadays, a business could hold its head office in London, borrow money
from a bank in Japan, manufacture products in China, deal with customers from a call
center in India and sell goods to countries all over the world. Countries today are more
connected than ever before. When globalization takes place:
-> goods and services are traded freely across international borders without any
government laws to prevent them from selling overseas.
-> people are free to live and work in any country they choose
-> a high level of interdependence between nations is obtained
-> capital can flow freely between different countries
-> technology and intellectual property (information) can be exchanged freely across
borders

Government and Globalization

Globalization can only take place if governments are committed to it. For example:
-> countries cannot trade if governments keep their international borders closed
-> international trade will be very limited if governments put up trade barriers
-> people cannot be free to live and work in overseas countries unless borders are
kept open
-> firms cannot develop their businesses overseas if planning permission is denied
Governments can aid globalization by relaxing laws and regulations that prevent,
restrict or complicate trade and business
Advantages of globalization for a business
Access to larger markets: Businesses will now have access to global markets and
may
be able to attract customers globally. This would provide
huge opportunities for the businesses to increase sales.
Access to global markets may result in higher sales
revenue
and an increase profits for businesses which will then lead
them to grow.
Lower costs: If businesses are able to increase sales by selling more output to larger
markets, they can exploit economies of scales. By exploiting economies
of scale, businesses may be able to enjoy lower costs. With lower costs
businesses will gain a competitive edge. This might help them to win a
larger market share of the market, increase sales and raise profit
margins.
Access to labor: Businesses will have access to larger pool of labor as they can
employ
anyone from any parts of the world. Which means that businesses will

also have more people to choose from when recruiting. As a result

they
may be able to recruit better quality and well skilled workers.
Reduced taxation: One benefit of globalization is that businesses can choose where to

locate their base. Consequently, they can reduce the amount of tax
they pay by locating their head office in a country where business
taxes are low.

Disadvantages of globalization for a business

Competition: Business will face increased competition as a result of globalization as
the
competition is not only local but international. There are many businesses

around the world, trying to sell their goods and services. And often such
businesses that are able to exploit globalization are well resourced and
influential so some businesses may have their survival threatened.
International takeovers: With the free movement of capital that globalization brings, it is

possible for a business in one country to take over a business

in
another. Some businesses may even face hostile takeovers.
This happens when a business is taken over against it wills.
Increased risks of external shocks: As national economies are more connected and
interdependent as the result of globalization,
there
are higher chances of the risk of contagion. This
means that events in one economy are likely to
affect other economies.