Driving Forces of Globalization

9 Major Driving Forces/Factors of Globalization (Explained)

Forces/Drivers/Factors/Causes of Globalization

There are various driving forces or factors behind the emergence of globalization. Two major macro factors seem to have a great influence on globalization.

The first is the decline in barriers to the free flow of goods, services, and capital that has occurred since the end of World War II (1939). And, the second is technological change, particularly the dramatic developments in recent years in communication, information processing, the internet, WWW, and transportation technologies.

These major driving forces of globalization are mentioned below:

Rapid Technology Change

Technology has been one of the main promoting factors of globalization. It is technology that has connected the world closer more than ever.

Rapid development is taking place in the product, process, information, communication, and transportation technologies. Over the past few decades, there has been a revolution in global communications through developments in satellite, optical fiber, wireless technologies, the internet, and the worldwide web (WWW).

Now firms have moved towards globalization to reap advantages of the economics of scale as telecommunication, computers, and the internet have greatly facilitated the growth of globalization. It further accelerated the efficiency of business deals, international delivery, and performance of firms.

E-business, e-commerce, and e-banking are serving as the engine of globalization.

Liberalization of Trade and Resources

People now want different, quality, and various products and services at lower prices, and this trend is increasing. Because of the technological advances, the internet has reached everyone’s house, people are more informed about the market, products, and services available in the market both national and international.

Countries are now liberalizing their policies – developed countries have achieved it and in developing countries, this is trending. Free international trade and free flow of various resources were previously restricted by the various countries.

But now due to the liberalization concept governments are withdrawing or loosening their stake from restricting free trade and the flow of labor, capital, and other resources. Governments’ interventions are reduced instead they facilitate and regulate.

International trade and investment barriers are declining. The volume of international business is growing. And, privatization of public enterprises in developing countries has further boosted globalization.

Development of Services that Support International Business

Companies and governments have developed a variety of services that facilitate the conduct of international business. The development of payment systems that support payment internationally.

Paypal, Mastercard, multi-currencies cards, credit cards, debit cards, etc. have made it easy for the companies to pay and get paid worldwide. With the use of the SWIFT code, and bank credit agreements, companies are influenced to trade globally.

Many more countries have created different types of services to send goods and capital to other countries or the rest of the world.

Consumer Pressures

International business is expanded to serve international customers. Consumer pressures are growing day by day in terms of more new, quality, better, and finely differentiated products even though they strongly want to use international products.

This has brought the attention of companies both among and within countries, to think of the global business.

Different companies are now in those countries where incomes and consumption are growing rapidly. Many companies spend more heavily on research and development to search worldwide; namely on the internet, industry journals, and trade fairs.

More consumers are searching themselves on the internet for lowered-priced prescriptions by foreign sellers. Companies are now forced to respond to consumer pressure otherwise they will likely face a reduced number of customers. Since they have become one of the main forces of globalization

Increased Competition

Today the competition in the local and international markets is increased. The potential competition in the global market influences companies to participate in abroad buying and selling.

Quality products and services are already introduced in the market. Companies now need to involve in extensive research to find the customer market from which they can get the most profits. And sell differently to get competitive advantages.

Companies mainly opt for international markets, first, to avoid domestic competition and to exploit competitive potential from the international market. In many cases companies explore new foreign markets to sell their products as there is tougher competition in their domestic market.

Also, another competitive driving force of globalization is the fact that companies are defending their home markets from the competition by entering competitors’ home markets to distract them.

Changing Political Situations

The integration of political ideology across the countries has also promoted globalization. Different political agendas are introduced to promote global trade.

After the end of World War II, there had been an increased understanding between countries about the economic and political policies. Starting from the Soviet Union, Eastern Europe, China, and Vietnam the whole world started adopting the integration of economic and political policies.

International trade, movement of goods & services, and technologies are increased since the political situation became stable. Governments now also provide an array of services to help domestic companies sell more abroad.

Supportive Institutions

The emergence of supportive institutions such as the World Bank (WB) and the International Monetary Fund (IMF) has also been a great force to facilitate globalization. They generally prescribe uniform economic, fiscal, and monetary policies through structural adjustment programs in developing countries.

They advocate:

  • Free market economies & private sector development.
  • Privatization of public enterprise.
  • Removal of subsidies.
  • Liberalization through deregulation & decontrol.
  • Devaluation of currencies.
  • Incentives for FDI, by global corporations.

Regional Economic Groupings

The regional economic grouping such as ASIAN, EU, BIMSTEC, NAFTA, ADB, and global organizations such as WB, IMF, WTO, etc. give pressure on international business.

These economic groupings have been important for countries to do business internationally without any hurdles. The member countries of the regional economic groupings have the right to do trade freely within the member countries.

They promote economic integration and harmonize trade policies, laws, and rules for members. They are effective means for member countries to flourish in global trade.

Global organizations – WB, IMF, WTO – have a significant role in managing global business issues. WTO covers 97% of world trade.

In fact, all the above, organizations are active players that support international business, and in doing so they strongly promote globalization. Because of them liberalized and the globalized world has been achieved.

International Media Outreach

Media both at home and abroad have expanded their outreach today. As a result, the happening in one part of the world will be instantly known to the other part of the world. The media including electric, print, online, and social media – have brought the world’s people closer and closer and promoted interactions and exchanges in culture, knowledge, and understanding.

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