Globalization in Business With History and Pros and Cons (2024)

What Is Globalization?

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.

Globalization in Business With History and Pros and Cons (1)

Understanding Globalization

Corporations gaina 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 representsa 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 alteredhow international law is created and enforced.

On the one hand, globalization hascreated 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.

The History of Globalization

Globalization is not anew concept. Traderstraveled vast distances in ancient times to buy commodities that were rare and expensive for sale in their homelands. The Industrial Revolutionbrought advances in transportation and communication in the 19th century that eased trade across borders.

Thethink 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 throughfiscal policiesand 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

Pros

  • Proponents of globalization believeitallowsdeveloping countries to catch up to industrialized nations through increased manufacturing, diversification, economic expansion, and improvements in standardsof 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 advancedsocial justiceon an international scale as well, andadvocates report that it has focused attention on human rights worldwide that might have otherwise been ignored on a large scale.

Cons

  • 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 aconcentration of wealthand 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 hom*ogeneity. Starbucks,Nike, andGap dominate commercial spacein many nations. The sheer size and reach of the U.S. have made the cultural exchange among nations largely a one-sided affair.

Pros

Cons

  • 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 hom*ogeneous

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.

The Bottom Line

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 hom*ogeneity.

Globalization in Business With History and Pros and Cons (2024)

FAQs

What are the pros and cons of globalization for business? ›

The benefits of globalization for businesses include expanded customer bases, more revenue streams, and a diverse workforce. But globalization also poses some daunting challenges like environmental degradation, legal compliance issues, and worker exploitation.

What are the 5 advantages and 5 disadvantages of globalization? ›

The Pros and Cons of Globalization
  • Access to New Markets. ...
  • Spread of Knowledge and Technology. ...
  • Enhanced Global Cooperation and Tolerance. ...
  • Promotes Economic Growth. ...
  • Increased Competition. ...
  • Exploitation of Labor and Resources. ...
  • Imbalanced Trade. ...
  • Domestic Job Loss.
Jul 25, 2022

What are the pros and cons of globalization essay? ›

Some praise globalization for opening borders and connecting cultures and politics. Others blame it for disrupting local economies and eliminating jobs. The fact is that globalization has been around since ancient times, and it is fully integrated into different aspects of modern life.

What are the positive and negative effects of globalization? ›

Effects of Globalisation - Key takeaways

Globalisation has been positive by improving the quality of life in many countries. On the other hand, there have been negative impacts of globalisation, such as increased global inequality, increased corruption, loss of jobs and environmental degradation, to name a few.

Is globalization good or bad for people and for businesses? ›

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 hom*ogeneity.

Which is a negative impact of globalization? ›

Increased greenhouse gas emissions, ocean acidification, deforestation (and other forms of habitat loss or destruction), climate change, and the introduction of invasive species all work to reduce biodiversity around the globe.

What are 5 bad things about globalization? ›

Disadvantages of Globalization
  • Increased Competition. When viewed as a whole, global free trade is beneficial to the entire system. ...
  • Disproportionate Growth. Another issue of globalization is that it can introduce disproportionate growth both between and within nations. ...
  • Environmental Concerns.
Apr 1, 2021

What are the 6 main disadvantages of globalization? ›

Here are the cons of globalization:
  • Exploitation.
  • Trade Imbalance.
  • Job Displacement.
  • Competition.
  • Global Recession.
Sep 16, 2023

What are 3 positives of globalization? ›

What are the benefits of globalization?
  • Access to new cultures. ...
  • The spread of technology and innovation. ...
  • Lower costs for products. ...
  • Higher standards of living across the globe. ...
  • Access to new markets. ...
  • Access to new talent.
Nov 17, 2023

What is one major drawback of globalization? ›

Increased competition can harm businesses in developing countries.

What is the meaning of cons of globalization? ›

The Cons of Globalization

The oppression of weaker and poorer economies by those that are more robust; “the rich get richer, the poor get poorer” The danger of job loss, with certain industries and sectors sending jobs to countries where workers are willing to do the same amount of work or more for smaller wages.

How does globalization affect the economy? ›

In general, globalization decreases the cost of manufacturing. This means that companies can offer goods at a lower price to consumers. The average cost of goods is a key aspect that contributes to increases in the standard of living. Consumers also have access to a wider variety of goods.

How does globalization affect your life? ›

Globalization impacts our daily lives through changes in communication, finance, technology, healthcare, and the economy. Globalization impacts our daily lives by increasing consumer demand, changing marketing communication, and promoting the implementation of a circular economy.

What are the positive and negative effects of globalization on health? ›

Globalization increases medical access for people and countries that may not have access or may not be able to afford care. It also increases the world's knowledge and allows for collaboration between nations. The main disadvantage of health globalization is the rapid spread of diseases.

How does globalization impact poverty? ›

In this period of rapid globalization, average income grew by 24 percent globally, the global poverty headcount ratio declined from 35% to 10.7%, and the income of the bottom 40 percent of the world population increased by close to 50 percent.

What are the benefits of Globalisation in business? ›

What are the benefits of globalization?
  • Access to new cultures. ...
  • The spread of technology and innovation. ...
  • Lower costs for products. ...
  • Higher standards of living across the globe. ...
  • Access to new markets. ...
  • Access to new talent. ...
  • International recruiting. ...
  • Managing employee immigration.
Nov 17, 2023

What are the impacts of globalization on business? ›

The impact of globalization on business is best evidenced by the huge proliferation of cross-border transactions. In order to protect yields and maintain competitiveness, businesses are continuing to diversify their footprint as it lowers the beta factor on their investments by spreading risk across a broader market.

In what ways will globalization impact US businesses? ›

Increased competition: Globalization opens up markets around the world, exposing U.S. businesses to increased competition from foreign companies. Concerns for product safety: As U.S. businesses expand globally, they must navigate different regulations and standards, raising concerns about product safety and quality.

What is brand globalization advantages and disadvantages? ›

The advantages of creating a global brand are economies of scale in production and packaging, which lower marketing costs while leveraging power and scope. The disadvantages, however, are that consumer needs differ across countries, as do legal and competitive environments.

Top Articles
Latest Posts
Article information

Author: Dean Jakubowski Ret

Last Updated:

Views: 6249

Rating: 5 / 5 (50 voted)

Reviews: 89% of readers found this page helpful

Author information

Name: Dean Jakubowski Ret

Birthday: 1996-05-10

Address: Apt. 425 4346 Santiago Islands, Shariside, AK 38830-1874

Phone: +96313309894162

Job: Legacy Sales Designer

Hobby: Baseball, Wood carving, Candle making, Jigsaw puzzles, Lacemaking, Parkour, Drawing

Introduction: My name is Dean Jakubowski Ret, I am a enthusiastic, friendly, homely, handsome, zealous, brainy, elegant person who loves writing and wants to share my knowledge and understanding with you.