Globalization has shown relatively steady and rapid progress due to technological advancements with increases in speed and scale, enabling engagement among all five continents. Globalization allows businesses or other organizations to create influence and develop operations in many regions.
Key Takeaways
- Globalization allows businesses or other organizations to create influence and develop operations in many regions.
- Globalization combines gross domestic product (GDP), industrialization, and the Human Development Index (HDI).
- Developed nations benefit from globalization in production, international trade, and the financial markets.
How Globalization Affects Developed Countries
What Is Globalization?
Globalization expands business operations worldwide and is facilitated by communications, technological advancements, and socioeconomic, political, and environmental developments. It gives organizations a superior competitive position and lower operating costs to increase products, services, and consumers.
This approach to competition is gained via diversification of resources, new investment opportunities, and new raw materials and resources. Diversification strengthens institutions by lowering organizational risk factors, spreading interests in different areas, taking advantage of market opportunities, and acquiring companies horizontally and vertically.
Industrialized or developed nations are countries with a high level of economic development and meet certain socioeconomic criteria based on gross domestic product (GDP), industrialization, and human development index (HDI) as defined by the International Monetary Fund (IMF), the United Nations (UN) and the World Trade Organization (WTO).
Components of Globalization
- GDP is the market value of all finished goods and services produced within a country's borders in a year and serves as a measure of a country's overall economic output.
- Industrialization is a process driven by technological innovation that effectuates social change and economic development by transforming a country into a developed nation.
- The Human Development Index comprises a country's population's life expectancy, knowledge, and education measured by adult literacy and income.
Global Strategies
Businesses that compete globally must develop strategies to balance the rights and interests of the individual and the community. This change enables businesses to compete worldwide and signifies a dramatic change for business leaders, labor, and management.
Diversification
Risk reduction via diversification can be accomplished through company involvement with international financial institutions and partnering with local and multinational businesses.
Reorganization
Businesses must reorganize at the international, national, and sub-national levels in production, international trade, and the integration of financial markets. The transformation of production systems affects the class structure, the labor process, the application of technology, and the structure and organization of capital. Business expansion will no longer imply increased employment.
Financial Markets
Globalization of product and financial markets means an increased economic integration in specialization and economies of scale, which results in trade in financial services through capital flows and cross-border entry activity.
Technology
Telecommunication and information availability have facilitated remote delivery and provided new access and distribution channels while revamping industrial structures for financial services by allowing entry of non-bank entities, such as telecoms and utilities.
Deregulation
Deregulation is the liberalization of capital accounts and financial services in products, markets, and geographic locations. It integrates banks by offering a broad array of services, allows entry of new providers, and increases multinational presence in many markets and more cross-border activities.
Benefits of Globalization
The impact of globalization on the economic growth of a nation depends on trade, capital flows, GDP per capita, and foreign direct investment (FDI). Studies have examined the effects of several components of globalization on growth using time-series cross-sectional data on trade, FDI, and portfolio investment. Overall, economists support globalization as a prime position for growth. Trade and foreign direct investment also result in higher growth rates. A strong correlation exists between the openness to trade flows and the effect on economic growth and performance.
Globalization provides opportunities for reducing macroeconomic volatility on output and consumption via risk diversification.
How Do Businesses Thrive in a Global Market?
In a global economy, a company can command tangible and intangible assets that create customer loyalty, regardless of location. Independent of size or geographic location, a company can meet global standards and tap into global networks, thrive, and act as a world-class thinker, maker, and trader by using its concepts, competence, and connections.
Are the Benefits of Globalization Equal Among Nations?
Less wealthy countries from among the industrialized nations may not have the same highly-accentuated beneficial effect from globalization as wealthy countries, measured by factors such as GDP per capita. Domestic industries in some countries may be endangered due to the comparative or absolute advantage of other countries in specific industries. Another concern is the overuse of natural resources to meet higher demands in production.
What Are the Effects of Free Trade in a Global Marketplace?
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 a more skilled workforce, which can lead to outsourcing jobs from countries with higher wages.
The Bottom Line
Globalization provides opportunities for reducing macroeconomic volatility on output and consumption via diversification of risk. The globalization effect indicates that financial integration helps in a nation's production base and leads to an increase in the specialization of production. Globalization can give companies a competitive position and lower operating costs.
