what is globalization in business essay

Effects of Globalization

Definition of globalization, drivers of globalization.

Globalization is defined as interaction among different countries in order to develop global economy. It entails political, technological, cultural and political exchanges which are facilitated by infrastructure, transport and communication. Some of the traditional international theories of globalization include Ricardian theory of international trade, Heckscher-Ohlin model and Adam Smith’s model (Scholte, 2005).

For globalization to take place, it must be driven by certain factors. The first factor that drives globalization is competitiveness in the market, which focuses on aspects such as global competitors, interdependence among countries and high two-way trade. The second factor that drives globalization is the government.

The government drives globalization through regulation of marketing activities, provision of technical standards that are compatible and elimination of restrictions imposed on trade and investment procedures. The third factor that drives globalization is cost.

Cost in globalization deals with efficiency in sourcing activities, world economies and emerging technological trends. The fourth factor that drives globalization is market, which covers ordinary needs of customers, channels of world markets and marketing techniques that can be transferred to different regions.

Globalization is associated with both positive and negative effects. Its first positive effect is that it makes it possible for different countries to exchange their products. The second positive effect of globalization is that it promotes international trade and growth of wealth as a result of economic integration and free trade among countries.

However, globalization is also associated with negative effects. Its first negative effect is that it causes unemployment. Since companies compete with their rivals in the market, sometimes they are forced to sack some of their employees in order to reduce salary costs and instead maximize profits. This is common in developing countries, where large numbers of unemployed people live in urban areas.

The second negative effect of globalization is that it promotes terrorism and criminal activities because people, food and materials are allowed to move freely from one country to the other. Individuals with evil intentions take advantage of this freedom and carry out terrorism activities and other crimes (Negative Effects of Globalization, 2013).

Negative Effects of Globalization. (2013). Web.

Scholte, J. (2005). Globalization: A Critical Introduction. New York: Palgrave Macmillan.

• The Impact of Globalization on Indigenous Communities
• "Closing of America" and "New Competitors" analysis
• The Law of Comparative Advantage Forms the Basis of International Trade
• Hecksher-Ohlin Theory and Today’s World Trade
• Analysis of Article The Mind’s Eye by Oliver Sacks
• Globalization, Leadership and Organizational Change
• Is Globalization the Main Culprit for the 2008 Global Financial Crisis?
• Poverty and the Environment
• Politics of Globalization in Taiwan
• The Economics of Globalization In South Korea
• Chicago (A-D)
• Chicago (N-B)

IvyPanda. (2018, June 17). Effects of Globalization. https://ivypanda.com/essays/globalization/

"Effects of Globalization." IvyPanda , 17 June 2018, ivypanda.com/essays/globalization/.

IvyPanda . (2018) 'Effects of Globalization'. 17 June.

IvyPanda . 2018. "Effects of Globalization." June 17, 2018. https://ivypanda.com/essays/globalization/.

1. IvyPanda . "Effects of Globalization." June 17, 2018. https://ivypanda.com/essays/globalization/.

Bibliography

IvyPanda . "Effects of Globalization." June 17, 2018. https://ivypanda.com/essays/globalization/.

• To find inspiration for your paper and overcome writer’s block
• As a source of information (ensure proper referencing)
• As a template for you assignment

• Search Search Please fill out this field.

What Is Globalization?

• How It Works
• Pros & Cons

The Bottom Line

• Macroeconomics

Globalization in Business With History and Pros and Cons

Globalization refers to the growing interconnection of nations' economies. It represents the flow of financial products, goods, technology, information, and jobs across national borders and cultures. In economic terms, it describes an interdependence of countries around the globe fostered through free trade .

Key Takeaways

• Globalization is the spread of products, technology, information, and jobs across nations.
• Corporations in developed nations can gain a competitive edge through globalization.
• Developing countries also benefit from globalization as they tend to be more cost-effective locations and therefore attract jobs.
• The benefits of globalization have been questioned as the positive effects are not necessarily distributed equally.
• One clear result of globalization is that an economic downturn in one country can have a domino effect on its trade partners.

Alex Dos Diaz / Investopedia

Understanding Globalization

Corporations gain a competitive advantage on multiple fronts from globalization. They can reduce operating costs by manufacturing abroad, buy raw materials more cheaply because of the reduction or removal of tariffs , and most of all, gain access to millions of new consumers.

What Globalization Means

Globalization is a social, cultural, political, and legal phenomenon. 

• Socially, it leads to greater interaction among various populations.
• Culturally, globalization represents the exchange of ideas, values, and artistic expression among cultures.
• Globalization also represents a trend toward the development of a single world culture. 
• Politically, globalization has shifted attention to intergovernmental organizations like the United Nations (UN) and the World Trade Organization (WTO) .
• Legally, globalization has altered how international law is created and enforced.

On the one hand, globalization has created new jobs and economic growth through the cross-border flow of goods, capital, and labor. On the other hand, this growth and job creation are not distributed evenly across industries or countries.

Specific industries in certain countries, such as textile manufacturing in the United States or corn farming in Mexico, have suffered severe disruption or outright collapse as a result of increased international competition.

Globalization's motives are idealistic, as well as opportunistic, but the development of a global free market has benefited large corporations based in the Western world. Its impact remains mixed for workers, cultures, and small businesses around the globe, in both developed and emerging nations .

Globalization has grown at an unprecedented pace, with public policy changes and communications technology innovations cited as the two main driving factors.

The History of Globalization

Globalization is not a new concept. Traders traveled vast distances in ancient times to buy commodities that were rare and expensive for sale in their homelands. The Industrial Revolution brought advances in transportation and communication in the 19th century that eased trade across borders.

The think tank Peterson Institute for International Economics (PIIE) states globalization stalled after World War I. Nations moved toward protectionism as they launched import taxes to guard their industries in the aftermath of the conflict. This trend continued through the Great Depression and World War II until the U.S. took on an instrumental role in reviving international trade .

One of the critical steps in the path to globalization came with the North American Free Trade Agreement (NAFTA) , signed in 1993. One of NAFTA's many effects was to give American auto manufacturers the incentive to relocate a portion of their manufacturing to Mexico where they could save on the costs of labor. NAFTA was replaced in 2020 by the United States-Mexico-Canada Agreement (USMC) .

Governments worldwide have integrated a free market economic system through  fiscal policies  and trade agreements in the 20th century. The core of most trade agreements is the removal or reduction of tariffs.

This evolution of economic systems has increased industrialization and financial opportunities in many nations. Governments now focus on removing barriers to trade and promoting international commerce.

Pros and Cons of Globalization

• Proponents of globalization believe it allows developing countries to catch up to industrialized nations through increased manufacturing, diversification, economic expansion, and improvements in standards of living .
• Outsourcing by companies brings jobs and technology to developing countries, which helps them to grow their economies. Trade initiatives increase cross-border trading by removing supply-side and trade-related constraints.
• Globalization has advanced  social justice  on an international scale as well, and advocates report that it has focused attention on human rights worldwide that might have otherwise been ignored on a large scale.
• One clear result of globalization is that an economic downturn in one country can have a domino effect on its trade partners. For example, the 2008 financial crisis had a severe impact on Portugal, Ireland, Italy, Greece, and Spain. All of these countries were members of the European Union , which had to bail out debt-laden nations, which were thereafter known by the acronym PIIGS .
• Globalization detractors argue that it has created a concentration of wealth and power in the hands of a small corporate elite that can gobble up smaller competitors around the globe.
• Globalization has become a polarizing issue in the U.S. with the disappearance of entire industries to new locations abroad. It's seen as a major factor in the economic squeeze on the middle class .
• For better or worse, globalization can reduce the cultural and social aspects unique to people and geographic areas around the world and increase product homogeneity. Starbucks, Nike, and Gap dominate commercial space in many nations. The sheer size and reach of the U.S. have made the cultural exchange among nations largely a one-sided affair.

A larger market for goods and services

Cheaper consumer prices

Outsourcing can benefit domestic firms and foreign labor

Increased standard of living

Concentrates wealth in richer countries

Some poorer countries can be left behind

Labor and the physical and intellectual resources of poorer countries can be exploited

Regions and cultures lose their uniqueness and products available around the world can become homogeneous

Why Is Globalization Important?

Globalization is important as it increases the size of the global market, and allows more and different goods to be produced and sold for cheaper prices. It is also important because it is one of the most powerful forces affecting the modern world, so much so that it can be difficult to make sense of the world without understanding globalization.

For example, many of the largest and most successful corporations in the world are in effect truly multinational organizations, with offices and supply chains stretched right across the world. These companies would not be able to exist if not for the complex network of trade routes, international legal agreements, and telecommunications infrastructure that were made possible through globalization. Important political developments, such as the ongoing trade conflict between the U.S. and China, are also directly related to globalization.

Is Globalization Good or Bad?

It depends. Proponents of globalization will point to the dramatic decline in poverty throughout the world for more than two decades after around year 2000, which many economists attribute in part to increased trade and investment between nations. Similarly, they will argue that globalization has allowed products and services such as cellphones, airplanes, and information technology to be spread far more widely throughout the world.

On the other hand, critics of globalization will point to the negative impact it has had on specific nations’ industries, which might face increased competition from international firms. Globalization can also have negative environmental impacts due to economic development, industrialization, and international travel.

How Does Globalization Impact Society?

Globalization has had a large impact on societies around the world, leading to massive migrations from rural to industrial or urban areas and to the rapid growth of cities and trade hubs. While this has meant an overall increase in incomes and a higher standard of living in general, it has also led to problems such as crime, domestic violence, homelessness, and poverty. Concepts of national identity, national or regional culture, and consumption patterns also change as goods from around the world become increasingly available and at low prices. The competitiveness of global capitalism may also lead to more individualistic ideals that contradict the cultural orientations of certain, more collectivist societies.

What Is an Example of Globalization?

A simple example of globalization would be a car manufactured in the U.S. that sources parts from China, Japan, South Korea, Sri Lanka, and South Africa. The car is then exported to Europe, where it is sold to a driver who fills the car's gas tank with gasoline refined from Saudi oil.

Globalization refers to the ongoing trend of increased interconnectivity of nations across the globe, as enabled by advancements in transportation and information technology, among others.

Globalization is facilitated economically by free trade agreements, which permit barrier-free imports and exports across borders. While globalization brings many advantages—including lower prices and higher standards of living to some—it also has drawbacks, including wealth concentration and cultural homogeneity.

Peterson Institute for International Economics. " What Is Globalization? "

Congressional Research Service. " The North American Free Trade Agreement ," Page 1.

Congressional Research Service. " The North American Free Trade Agreement ." Pages 16-17.

Office of the United States Trade Representative. " United States-Mexico-Canada Agreement ."

FasterCapital. “ Financial Bailout: PIIGS and Financial Bailouts: Lessons From the Crisis .”

Macrotrends. “ World Poverty Rate 1981-2024 .”

• Terms of Service
• Editorial Policy
• Privacy Policy
• Your Privacy Choices