What is Globalization?
Globalization refers to the process of integration of the national economy with the world economy. It integrates the nation’s economy and businesses and increases the economic, socio-cultural, demographic, political, technological, and environmental interdependence of different places around the world.
Globalization is driven by international trade, investment, information technology, and a free-market economic system. It has given the domestic market global competition.
It has integrated all nation’s economies and made the whole world a single marketplace through liberalization and removal of trade barriers.
Globalization promotes interdependence between countries because it assumes no single country can have its all needed products and services by itself. International trades/sales are promoted and governments’ interventions have no stopping effects. Mainly it includes:
- The economic interdependence of countries in the world.
- Integrating national economies into one global economy, and national businesses into global businesses.
- Free movement of products and services across borders.
- Free flow of capital, labor, and technologies across the national borders.
- A process of not just integrating the economy but also culture, technology, values, and governance.
Globalization is facilitated by global organizations like World Trade Organization (WTO), International Monetary Fund (IMF), European Union (EU), World Bank (WB), etc., and promoted by information technology. It transforms a local phenomenon into a global phenomenon.
It has been understood differently by different professionals, some majors are:
- To a Business Executive: Globalization is a strategy to cross the national boundaries through globalized production and marketing networks. This includes import, export, direct investment, and collaborative strategies.
- To an Economist: Globalization is an economic interdependence between countries in terms of the flow of technology, capital, and labor. With lessening barriers and restrictions, the factors of production are moving rapidly among the countries. It is promoting an integrated world economy.
- To a Political Scientist: Globalization is the integration of the world in terms of ideas, norms, and values. The countries in the world are being borderless in terms of political ideology.
It offers diversified products in a national economy and supports businesses to compete in a free market. It has also been defined by many:
- Sundaram and Black – Globalization is the process by which an activity or undertaking becomes worldwide in scope.
- Zia Qureshi – Globalization is the growing international integration of markets for goods, services, and capital.
- M.P. Todaro – Globalization is the increasing integration of national economies into global markets.
- Slaughter and Swagel – Globalization is the international integration of goods, technology, labor, and capital, that is firms implement global strategies which link and coordinate their international activities on a worldwide basis.
Characteristics of Globalization
It connects the world’s economies and promotes free trade of goods, services, technology, capital, labor, norms, values, and political ideology across the globe.
There seems confusion about what is international business and globalization. The fact is globalization is macroeconomic and international business is microeconomic. International business covers the part of the transactions of goods and services and FDIs internationally, on the other hand, globalization covers more than that.
Its features are what reflect what it is, some major characteristics are:
- Economy Integration. It integrates the national economy into the global economy.
- Free Market Economies. There are no direct interventions of the government to business rather it facilitates and regulates them.
- Free Movements of Products. Due to this different trade and tariff barriers are cut down to promote the free flow of goods and services across the countries.
- Free Flow of Factors of Production. Capital, Labor, technology, and management are free to move.
- Standarized Technology. It promotes even forces to use standard technologies in domestic businesses in order to compete in global competition.
- Global Competition. Due to it, the competition is not limited to a country but the whole world.
- Global Corporations and Image. It flourishes with the emergence of MNCs like Apple, Microsoft, etc.
- Growth in Merger and Acquisitions. Both national and international companies are offered for mergers and acquisitions.
- Change in Lifestyles. Since it has aviled quality products people’s lifestyles and consumption and living standards have improved.
Types (Forms) of Globalization
The main types of globalization are:
It is today’s most dynamic and dominant force in human life. Economic globalization entails a growing number of globally interconnected marketplaces for products, services, capital, and finance.
Liberalization, deregulation, privatization, and lower transportation and communication costs are all part of economic globalization. Deregulation of foreign exchange leading to full convertibility of money, as well as delicensing of merchandise trade, are some of the other policies that have aided in igniting and speeding up the process.
Under the WTO rule, the global system for removing barriers to foreign exchange and trade has thrived. The expansion of international corporations has also contributed to the acceleration of this trend.
It is a mutual framework in which countries exchange thoughts and ideas on how to implement and bill policies, plans, and other implementations. There are discussions among nations about the construction of a legal system, the protection of women’s right to property, human and child rights, free media, sustainable development, a decentralized government structure, and other topics.
It’s a more multifaceted, reflecting, and refracted phenomenon. It is occurring as a result of the global absorption of cultural values, beliefs, and customs via communication technologies, media, tourism, and consumer habits, as well as the international flow of ideas.
Mutual understanding, peaceful coexistence, and learning from one another are all implications of cultural globalization. Tattoos on the exposed regions of the body are becoming increasingly popular around the world.
It has evolved into a broad spectrum of solutions to the most serious and unprecedented challenges of global warming, ozone depletion, acute biodiversity loss, and trans-border pollution.
These situations have aided in the growth of unification among nations that have reached an agreement and a new integration mindset. They are collaborating to protect the global ecosystem by preventing further ecological damage.
Water management, sensible use of nonrenewable resources, wildlife management, air pollution control, and other challenges have all become global issues that require globalized solutions.
Technology has brought the world even closer together. Science, information communication, and entertainment technologies have all witnessed enormous advancements around the world. Production, operations, and communications technology established in one region of the world become insanely globalized and used in other parts of the world.
Effects of Globalization
It is globalization that is bringing the whole world into one forum. It has a number of benefits or positive aspects but also has various drawbacks or negative impacts.
The positive effects are mentioned below:
Growth in Trade
International trade is becoming more open as a result of globalization. The globalized approach has resulted in a significant reduction in international trade obstacles. Import and export trade volumes have both increased.
It also results in a more competitive business environment. It is possible to generate high-quality goods and services. Trade’s significance to the economy is increasing. The World Trade Organization (WTO) was established to facilitate global trade.
As a result, there is a lot of competition among business firms. It ultimately aids in the improvement of product and service quality. Companies from the national level should compete with those from other countries.
To increase client happiness and remain competitive, they must improve the quality of their products. Customer supremacy is maintained in such a situation.
Foreign Direct Investments (FDIs)
Increased foreign direct investment is the result. The countries’ liberalized economic policies create the conditions for capital to migrate from industrialized to developing and impoverished countries.
Aside from technology, those countries are also receiving management systems. Foreign direct investment (FDI) has long been a cornerstone of emerging and underdeveloped countries’ economic development.
Globalization promotes international cooperation through trade and economic relationships. Such relationships are driven by multinational companies, reduced trade barriers, and increased interdependence among the countries.
Some negative effects are:
Threat to National Sovereignty
MNCs are the drives of globalization. They are very powerful. They may attempt to influence a country for their economic benefit. This may threaten national sovereignty.
Threat to Domestic Businesses
At the international level, it raises the level of competitiveness. Due to a lack of cash, technology, and economies of scale, local enterprises may not be able to compete with multinationals. Domestic enterprises, particularly cottage and small firms, may have difficulties in such a circumstance.
It does not help all countries in the same way. It is said that only developed countries can reap the benefits of globalization. The least developed countries may not be able to fully benefit from globalization due to a lack of capital, technology, and other resources. The wealthy are becoming wealthier, while the poor are becoming poorer.
It may also result in the degradation of the environment. Multinational companies operate operation in developing and least developed countries and exploit natural resources. This may seriously threaten the biodiversity and environmental situation in those countries.
Threat to Social and Cultural Values
Domestic countries are also negatively affected by the social and cultural environment of globalization. Such as developing country Nepal has diverse social and cultural values but due to this youngsters have given more focus to western cultures than their one.
Driving/Promoting Factors of Globalization
The main driving forces of globalization are mentioned below:
Status of Technology
Today the status of technology is sophisticated, advanced, and updated even emerging. The expansion of the internet, the world wide web, communication, and transportation technologies have affected globalization.
Due to this, the cost is reduced, and they enhance a manager’s ability to foreign operations. Small companies can reach global customers and suppliers with the help of the internet and WWW easily at a low cost.
Liberalization of Cross-Border Trade and Resource Movement
To protect its own industries, every country restricts the movement across its borders. Over time, most governments have reduced restrictions on international movements of products and services mainly for three reasons.
- Their citizens want a greater variety of goods and services at a lower price.
- Competition spurs domestic producers to become more efficient.
- They hope to introduce other countries to lower their barriers in turn.
Services that Support International Business
Today we enjoy the benefits of different services which are produced by foreign countries and companies. Financial and technology services are dominating the world.
For eg., Nike (US Company) sells sportswear to a French soccer/football team. As soon as the shipment arrives at the French customer, a bank in Paris can collect payment in Euros from the soccers team and pay Nike in US dollars through a US bank.
Today customer pressures are high on the companies. They want quality products at fewer costs. Due to the internet and WWW customers know more about which products are where, quality, and prices already before such products entering in the domestic market.
It gives companies under pressure to provide such products otherwise they will no longer survive in the market due to international free trade.
Pressure, both present, and the potential of increased foreign competition can strongly persuade companies to buy or sell abroad. Introducing products into markets that are cheap, qualitative, and competitive with competitors is essential to be alive in the international market.
Even in recent years more companies have merged & acquired foreign companies to gain operating efficiencies and large global market shares and to gain competitive advantages.
Changing Political Situations
The end of the Schism (difference in beliefs/opinion) between the non-communist world and what was once the Communist world is a major reason for the expansion of international business.
Following WWII, trade between the two worlds was minimal. Following the transition of political and economic policies in the former Soviet Union, Eastern Europe, China, and Vietnam, trade between those regions and the rest of the globe has flourished.
The government has encouraged travel efficiency by enhancing airport and seaport facilities, lowering the cost of sending goods abroad. The government now offers a variety of services to assist domestic businesses in expanding their international sales.
Governments have come to realize that their interest can be addressed through international cooperation by means of treaties, agreements, and consultation. The willingness to pursue such policies is due to the following:
- To join reciprocals advantages.
- To attack problems jointly that one country acting alone can’t solve.
- To deal with areas of concern that lie outside the territory of any nation.
Globalization hence is the freeing of nations to join internationally consisting of different commercial and non-commercial activities. Today globalization has become a compulsion for the world. In fact, the world without globalization in this 21st century can not be imagined.