What Is Globalization in Business? Everything You Need To Know. Globalization has a rich history and is full of intricacies. Find out more inside.
By Dan Bova
Globalization is the expansion of businesses all over the world due to advances in technology and transportation.
Globalization includes an increase in the flow of:
- Goods and services
- Capital
- People
- International ideas
While trade is no new concept, businesses can become a presence in more areas all over the globe than ever before. But how did this happen? And what business industries experience globalization? Keep reading to find out everything you need to know about globalization.
Related: Has Globalization Benefited Our Entrepreneurs?
History of globalization
Globalization's rich history began long before giant conglomerates such as Amazon and Google existed. There is a timeline of discovery, protectionism, liberalization, financial crisis, and economic development that can all be traced back to the BC era as the phenomenon of international trade developed.
The Silk Road
The Silk Road was the cultural phenomenon that made luxury goods accessible across countries in the first century BC through the fourteenth century AD. Silk was exported from China to Rome, meaning that many other countries were involved along the route.
However, with an abundance of wars and conquerings and fallen empires changing accessibility of routes, the Silk Road could no longer sustain the turmoil or trade barriers, and ultimately collapsed despite its export efforts.
The spice routes
The spice routes flourished because they were tied to the spread of the Islamic religion. The prophet Mohammed was not only the founder of Islam but also a merchant who traded his spices as he preached across countries.
This spread lasted from the seventh to the 15th century, beginning in the Arabian heartland and expanding to places like Spain, India, Indonesia, and Europe.
The age of discovery
From the 15th to the 18th century, explorers ventured out to new lands and began integrating resources of those new lands into their economies through trade.
Countries began to establish global trade supply chains from the new land to their country to other countries, thus expanding the world's economy.
The first wave
At the turn of the 19th century, the most advanced form of globalization began. The British Empire continued to expand its range, and the Industrial Revolution was in full swing.
With technological advancement, the U.K. could manufacture goods in demand all over new parts of the world, including textiles and iron. Globalization grew exponentially over the next century and continued rapid expansion until the world wars.
The World Wars
World War I and World War II brought globalization to a halt. While war boosted the economy, it destroyed the cycle of a trade. By the end of the second world war, the gross domestic product fell to five percent, the lowest percentage in one hundred years.
The second wave
The end of World War II brought more peace and more trade. During the second wave of the Industrial Revolution, cars and planes were manufactured more than ever.
Because of the increased access to transportation and the new free trade agreement, economic globalization boomed bigger than ever.
The third wave
The third wave of globalization occurred on the heels of the Soviet Union collapse and the creation of the World Trade Organization (WTO).
The Internet began to take shape, transportation and communication technology became more manageable and accessible, and globalization seemed to make the world much smaller.
The tech age
America and China lead globalization in the cyber age. Ecommerce has grown significantly year after year and shows no sign of slowing down.
As operations become more extensive and streamlined, manufacturing happens faster and faster. Deliveries can be made overnight, and trade seems to have no boundaries. Keep an eye out for how economists predict the impact of globalization in the coming years.
Related: 2 Years Since Trade Deal with China, Tariffs Aren't Working for American Businesses
Types of global businesses
An international business operates by selling or producing goods or services in more than one country. There are a few different types of global business, each with a unique form of operation.
Transnational corporations
This type of international corporation has offices in multiple countries, and each location is responsible for various organization departments.
This means that one location might be focused on marketing, another on research, and another on distribution. Each site operates independently on its specific service, working towards one company goal.
Multinational corporations
This type of international corporation also has offices in multiple countries; however, each location has every department in every location — like a smaller version of its headquarters.
Related: 5 Tips for Building a Successful Multicultural Company
For example, Nike's headquarters are in Beaverton, Oregon, with departments ranging from marketing to finance to market analysis. But Nike also has other full-service corporate locations in the Netherlands, Mexico City, and Los Angeles.
Related: Brexit Is Just One More Problem European Entrepreneurs Have to Deal With
Considerations global businesses must make
Whenever a company moves into a new environment, there are cultural nuances and factors of national economies it must consider.
Politics, policies, laws
A business that operates over national lines must be aware of the legal requirements of the country it moves into. As the laws and trade policies in the country change, the company must stay aware and abide by them to remain compliant.
Two key areas to focus on are human rights and labor laws, which vary from country to country. In addition, the business must keep up with current events and foreign affairs to keep the peace with its business operations and the country it is in.
Related: Compliance with European Union Law by Online Businesses
Environmental affairs
When a company decides to move or start an office in an international location, it must research the environmental affairs in the new country.
Countries worldwide have various operation requirements to preserve their environment, so being a proponent of sustainability is key to respecting the new country and climate change.
Economics
A business that moves into another country needs to be aware of the economic activity of its new territory. The company should research and watch international economic trends before deciding to relocate.
Economic data to watch for includes:
- Currency exchange rate
- Degree of income inequality
- Rate of inflation
- Rate of unemployment
- Gross domestic product (GDP)
Cultural differences
Other cultures have many differences and formalities that must be followed to keep positive working relationships with their citizens.
For example, it might be customary in a country to exchange pleasantries before jumping into a business conversation. In addition to that, the business should have employees that speak the language, or translators readily available to show respect for the culture.
Pros and cons of business globalization
When making business decisions, weighing the pros and cons to make the most informed verdict possible is essential. Take a look at the pros and cons of business globalization to form your opinion.
Pros of business globalization:
The pros for a business and its economy include the following:
- Increased economic growth: Technological advances, international exchange of goods, and other valuable information can improve a country's income, living standards, and overall financial health.
- More affordable production: A broader price range is available when more goods are available, making products more accessible to consumers.
- Promotes international cooperation: Countries that trade goods and services form relationships and rely on each other for business ventures.
- Promotes job opportunity: When businesses move into new countries, it means new jobs. Often companies move into countries where they can find cheaper labor, which can help the poorer country's workforce strengthen.
Cons of business globalization:
The negative effects of globalization on a business and its economy include:
- Inequality in economic growth and labor exploitation: The old adage "the rich get richer and the poor stay poor" applies to business globalization, as rich countries and multinational corporations often move into developing countries for cheap labor and lax workplace regulations, reaping the profits while paying incredibly low wages and offering dangerous workplace conditions.
- A diminished number of local businesses: Businesses that can move into other countries likely have vast financial power, resources, and a well-known name attached. This means that when these companies move in, they fiercely compete for local businesses and often put smaller establishments in the industry out of business.
- Increased potential for global recession: When countries start to form partnerships, it can cause interdependence on certain goods and services. If one country's economy or labor force begins to decline, it can negatively affect the global market.
- Potential for job displacement: When a business decides to move its production to another country, every worker who had a job at that location is suddenly out of work. If the company is large enough, it can negatively affect the country's whole economy.
What's next for globalization in business?
Globalization is the expansion of businesses all over the world due to advances in technology and transportation.
Throughout centuries, the global supply chain has increased astronomically. As the world becomes more globalized, there is no telling where financial markets will end up.
For more information on the global economy, visit Entrepreneur today.
