Globalization refers to the spread or expansion of a company or business entity, technology, information, and consequently jobs across a geopolitical zone, national borders, cultures, and continents. In economics, globalization refers to an affiliations between nations resulting from access to free trades.
Globalization has good effects and bad ones too. On the positive side, it helps to create more job opportunities in less developed nations which will in turn raise the standard of living of the nationals. Also, globalization fosters modernization, access to goods and services and the ability to move to environment that matches a person’s desirous living standard. On the negative side, globalization can eliminate or reduce job openings in the nation in which the firm is headquartered. This will be possible because the cost of production in less developed nations is way cheaper than that of more developed areas. This will make the companies shift production to these areas, thus eliminating most job openings in their initial region.
While globalization can be said to be effective and beneficial to large firms and companies, we cannot pinpoint a single effect on workers. For small businesses stationed in different parts of the world, globalization can threaten their existence. The same goes for workers. In nations where wages are higher, a multi-national firm might choose to hire less employees, and fill up the numbers with those from less developed nations where wages are lower.
A Little More on What is Globalization
Companies benefit a competitive advantage amongst their peers through globalization. It gives them the ability to reduce production costs while maintaining standard output by manufacturing products abroad. They also have access to cheaper raw materials due to the nonexistent nature of tariffs or due to the presence of surplus raw materials in those areas. Most importantly, globalization gives firms access to new customers. The term globalization can be used as legal, cultural and political phenomenon. Here are the reasons for this:
- Globalization leads to better communication with a new population or people (socially)
- It helps and aids in the exchange of ideas, values and expressions between persons of different cultures (cultural)
- Globalization also aids in unity
- Globalization has focused it attention on different international organizations like the United Nations (UN) and the World Trade Organization (WTO) (Political)
- Globalization has also made an impact on the creation and enactment of international laws and regulations (legal)
Important Details on Globalization
- Globalization seems to have been growing faster since the 1990s, with public communication and policy changes being the two fastest driving forces
- China and India are at the top of nations that have benefited from globalization
- Globalization can have a negative effect on a firm because if one nation happens to delve into recession, there is a chance that it would affect another nation in which that firm has also expanded to.
Origin of Globalization
Globalization is not a fairly new concept as many traders have travelled across nations to buy materials where they were cheapest in ancient times. However, modern globalization didn’t start having a track record till the 19th century where Industrial Revolution brought about some advances in the 19th century. Transportation and communication helped eased tension in international trades.
According to Peterson Institute for International Economics (PIIE), globalization stalled after World War I as each nation decided it was best to practice a system known as protectionism by launching a series of tariffs and import duties to guard their nations after the effects of the war. Protectionism continued through the Great Depression and World War II, until the United States decided it was best to open their trade routes, which subsequently led to other nations opening their trade routes.
Globalization has however encountered a fast pace since the innovation and implementation of public policy changes and technological communications, which are the top two driving forces behind globalization.
Another step towards heightened globalization came with the North American Free Trade Agreement (NAFTA), which was signed in 1993. NAFTA aimed to provide auto manufacturers in the United State with the ability to move some of their production processes and industries to Mexico due to the low cost of labor. However, the NAFTA agreement was due by February 2019, and currently, a new trade agreement by Canada, Mexico, and the United States is awaiting approval at the Congress.
Government bodies in all parts of the world have integrated a free economic market system through fiscal policies and trade agreements for the past 20 years. Most of this agreements are focused on the removal or reduction of tariffs and import duties. This has led to an incentive for financial and economic growth in many parts of the world, and government officials are more focused than ever on how to keep reducing tariffs and taxes and fostering the economy by international trades and relationships.
Pros of Globalization
Individuals in support of globalization believe that it helps developing countries and nations to meet the standards of more developed nations via increments in production, unrestricted diversification, economic expansion, and a higher standard of living. Companies which go global (often called multinational firms) assist the economy of developing nations by providing jobs and technology to the citizens. The elimination of supply-side restrictions has also helped speed up the pace of globalization and economic growth. Multinationals make sure to stick to providing basic human rights in every country where they are located.
Cons of Globalization
Using the effect of Portugal, Ireland, Greece, and Spain economic recessions in 2008, one can argue that a decline in one of the nations where a multinational firm is located might lead to a decline in all other branches around the world, as the headquarter would surely want to swoop in to save their international branches. Critics of globalization claim that it is a tool by the world elites to gobble resources from all parts of the world because of the small number of competitors which they may have. Also, in the United States, many firms have decided to leave entirely to other international locations, and this has caused a problem for middle class citizens. It is also argued that globalization has led to homogenization. Firms like Starbucks, McDonalds, and KFC are dominators in the commercial space in different nations, and this has led to a one-sided affair in cultural exchanges across nations.
Examples of Globalization
Globalization can take place in different forms. For instance, someone who manufactures fabrics (cotton) can choose to source materials from different nations, send it over to other nations for design and assembly, and then finally sell the finished fabric in any nation if his or her choice. At the moment, China and India are among the foremost examples of nations that are benefitting from globalization. Other nations like Cambodia, Vietnam, and Indonesia are also growing fast in the globalization space.
According to a World Bank report in 2018, Ghana and Ethiopia are the among the fastest growing economies in Africa.