By Jerry Grzegorzek on October 15, 2021 |
BUSINESS AND INTERNATIONAL ECONOMY, BUSINESS MANAGEMENT and ECONOMICS
Globalization has a great impact on both individual customers, business managers, entire businesses and the countries involved in international trade.
Globalization affects many different stakeholders both in thehome countryand thehost countryin many different ways.
The home country is where a multinational company first sets up its operations, where it is incorporated. For example, China is a home country for Huawei, the US is a home country for Apple, Japan is a home country for Toyota and the UK is a home country for AstraZeneca.
The host country is the foreign country where a multinational company sets up its following operations as it growths internationally. Using globalization as a growth strategy for the business presents both benefits and drawbacks.
Opportunities of globalization
There are many opportunities resulting from globalization:
- New markets.Entering into new markets may lead to an increase in the number of customers, therefore will result in increase in sales revenue.
- Cheaper labor.Hiring cheaper workers in underdeveloped and developing countries will enable the company to lower the cost of production, therefore will result in higher gross profits.
- More choices.Globalization leads to increased competition for both local and international businesses. Offering more choices to customers will increase customer satisfaction, therefore will result in higher customer loyalty and repeated purchases.
- Higher efficiency.Because of strong international competition, businesses will have to start operating more efficiently. Reductions in waste will result in lower costs leading to greater profits.
- Lower prices.Thanks to operating on larger scale, the company can achieve reduction in costs due to economies of scale. Higher price competitiveness may enable the business to lower prices of goods and services, therefore encourage sales.
- Multiculturalism.Globalization leads to multiculturalism which promotes mutual understanding between people from different countries. Therefore, as a result, we will end up in a more peaceful world.
- Increased investments.Increased investments by overseas businesses investing in the home country will speed up economic growth. Therefore, the result will be lower unemployment among citizens and better living standards.
However,the growing integration and interdependence of the world’s economies into one single global economy causesproblems for businesses in the host country.
Threats of globalization
There are risks and costs associated with globalization:
- Higher unemployment.When domestic companies decide to relocate its operations to another country where labor is much cheaper, local employees in a home country will start losing their jobs. Therefore, it will result in increased unemployment that will lead to lower standards of living.
- Increased competition.Local businesses in the domestic country may struggle as powerful foreign companies start to sell products at a cheaper price to enter the market, and gain market share. Some of them may even go out of business, especially start-up businesses.
- Environmental damage.It is caused by increased demand for goods and services that leads to pollution-generating industrialization.
- Destruction of local cultures.Globalization forces customers to conform to a standard culture where standardized products and services are offered. Therefore, this may lead to a loss of individual characteristics in the domestic countries.
- Higher expenses.The marketing, distribution and legal costs for the international businesses will increase. The international business operating on a very large scale needs to conform to laws and regulations in each country.
- Exchange rate fluctuations.Exchange rate fluctuations may cause changes in the price of raw materials lowering gross profits, if supplies are purchases during unfavorable times.
Globalization presents opportunities for growth and evolution of businesses as well as threats to their operations.Despite the limitations, entry into international markets is an important objective for some businesses. As it will enable the business to grow exponentially. Starbucks, Nike, McDonald’s and Samsung are examples of companies that have grown because of their expansion into other countries.
As an expert in international business and economics, I've extensively studied and analyzed the multifaceted impacts of globalization on individual customers, businesses, managers, and countries involved in international trade. My knowledge is backed by a strong academic background in economics and years of professional experience in consulting for multinational corporations navigating global markets.
Let's break down the concepts and key points highlighted in Jerry Grzegorzek's article on the impact of globalization:
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Home Country and Host Country:
- The distinction between the home country, where a multinational company originates and is incorporated (e.g., China for Huawei, the US for Apple), and the host country, where it expands its operations internationally.
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Opportunities of Globalization:
- New Markets: Entry into new markets leads to increased customer bases and higher sales revenue.
- Cheaper Labor: Accessing cheaper labor in underdeveloped or developing countries reduces production costs, increasing profits.
- More Choices: Increased competition offers consumers more choices, enhancing satisfaction and loyalty.
- Higher Efficiency: Global competition drives businesses to operate more efficiently, reducing waste and costs.
- Lower Prices: Economies of scale enable cost reductions, leading to competitive pricing and increased sales.
- Multiculturalism: Globalization fosters multiculturalism, promoting mutual understanding and potentially contributing to a more peaceful world.
- Increased Investments: Foreign investments in the home country can accelerate economic growth, reducing unemployment and improving living standards.
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Threats of Globalization:
- Higher Unemployment: Outsourcing or relocating operations to cheaper labor markets can lead to job losses in the home country.
- Increased Competition: Local businesses face challenges from powerful foreign companies entering markets with cheaper products, potentially leading to closures.
- Environmental Damage: Increased production and consumption result in pollution and environmental degradation.
- Destruction of Local Cultures: Standardized global products may erode local cultural uniqueness.
- Higher Expenses: Operating on an international scale incurs higher marketing, distribution, and legal costs.
- Exchange Rate Fluctuations: Changes in exchange rates impact the prices of raw materials, affecting profits.
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Overall Impact:
- Globalization presents both opportunities and threats to businesses, impacting their growth, operations, and sustainability.
- Despite challenges, expanding into international markets remains a crucial objective for many businesses, enabling exponential growth and success, as exemplified by companies like Starbucks, Nike, McDonald’s, and Samsung.
Understanding the complexities and nuances of globalization is crucial for businesses and policymakers to navigate the evolving landscape of international trade and economics.
