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Advantages and Disadvantages of Globalization for Business

Evaluate the Advantages and Disadvantages of Globalization for Business

Globalization is a major notion that has played a important role over the previous centuries in business processes. In different respects, globalization impacts businesses, the environment, world economies and societies. Those mostly impacted by globalization are nearly all corporations. Organizational changes are probable due to vibrant technological advances, fast competition and exchange of data. To respond to these dynamic changes companies are required to recognize the various elements of the major effects of globalization. A couple of years ago management guru peter Drucker foresaw what global firms would look like, explaining that they were going to be integrated jointly  and managed through strategies not by their proprietors.

Also Study: Pros and Cons of Globalization Research Paper

Globalization can be defined as the incorporation of national economies into the world market. Integration is achieved through international direct investment, trade migration, cash flow and the advancement and spread of technology (Rick, 2013). Markets where it is prevalent and specifically widespread are financial markets such as credit and money markets, insurance markets and capital markets. Commodity markets for example gold, oil, coffee and tin. Product markets for example consumer electronics and motor vehicle. Globalization in relation to business can be described as the process allowing investment and financial markets to carry out business internationally mainly as a result of deregulation and better communications.

Advantages and Disadvantages of Globalization for Business

It is obvious that the present world is strongly linked. However it is easy to loose focus just how rapid and systematically globalization is occurring and how much business organizations are being run. Drucker observed that globalization is not an economic but a psychological phenomenon. He noted that all of the advanced western principles and approaches are taken as the norm by many nations. The view took shape for Drucker in 2001 when an old student from Taiwan working in china paid him a visit. Drucker questioned him, “What is the most significant thing about the last three to five years that has occurred in China?” the former student paused for a while and answered that the Chinese at that time considered purchasing a vehicle is a need not a luxury. The exact situation is same in Russia where business analysts anticipate the country surpassing Germany and becoming the biggest car market within Europe. However taking advantage of such opportunities need a specific set of expertise. For instance there is no need in strategizing the activities of the forever more intricate network of world suppliers, extracting profit on every deal. In his book, Management Challenges for the 21st Century, Drucker wrote “to succeed in the ever competitive world market, a company has to know the costs of its entire economic chain and has to work with other members of the chain to manage costs and maximize yields”. Drucker predicted this balancing step as a trademark for current business to function split global polity and global world economies. Drucker however points out that proprietorship will definitely still exist. In his book Management in the Next Society however, business enterprise, pacts, know-how, contracts treaties and joint ventures will steadily be the building blocks of a business mergers.

Advantages of Globalization

Globalization brings numerous potential advantages to world products and world economies. It is the benefits of globalization that cause economic wellbeing on global levels, therefore benefiting a wider population.  Explained below are the benefits of globalization to business which enables the growth of international economies hugely. These benefits are; free trade which is the manner in which different countries exchange goods/services and resources. Meaning countries can focus on manufacturing products that have a less relative benefit. (World Bank World Development Indicators, 2010). This translates into countries manufacturing products at a very low opportunity cost. This consequently leads to reduced product prices for consumers, larger export opportunities for local manufactures, great choice for products, and economies of scale through focusing on specific products, free labor movement and increased competitive advantage. Rapid labor migration offers advantage to local citizens and its workers. When unemployment rates go up in a country, the result is increased opportunism to source for recruits elsewhere. (Broda and Weinstein, 2006)

Also Study: Globalization Pros and Cons

The practice of labor migration further facilitates reduction of geographical bias. For instance many nationals from Eastern European nations have largely migrated to the Western for better salaried positions. In addition it enables organizations with fewer workers to recruit employees (International Organization for Migration, 2010). For instance the United Kingdom hired citizens from Eastern Europe to fill in vacant nursing positions. Nevertheless labor migration is quite a contentious issue. Some are worried that free migration of people across the world can create extra pressure for some nations (Revenga, 1999). Countries like America have responded by attempting to control the influx of immigrant workers. Secondly globalization has facilitated the manufacture and distribution of goods across the globe. With the rise in economies of scale, production is certainly customized. Better specialization leads to reduced product prices for consumers and lower production costs.

Another advantage of a global world economy is it presents greater competition. Local monopolies were safeguarded by lack of rivalry. Nevertheless globalization translates to companies facing greater competition from foreign ones. Globalization of mass media has lessened world space considerably (Economy Watch, 2010). Many people are conscious of the current world news through various electronic and print media. Advancement in international communication network results to easy flow of vital data not only to person’s but at business levels too. Democratic opinions are quickly spread among nations across the globe. Economic globalization steers up the theory   of open economy. This necessitates new concepts and ideas to be imported from overseas. Hiring and recruitment in the export leaning nations generally offer good salaries by about 15 percent compared to the import oriented job countries. (Muendler, 2004)

As a result of globalization increased investment levels has enabled countries to appeal to current and future investment. Investment by successful global organizations plays a major function in developing the economies of third word countries. Advantages of foreign investment to host countries include exchange of technology and knowledge between nations. Globalization also aids in international access to low cost materials thus enabling companies to be cost competitive within their economies and abroad. Importing cheap   materials form around the globe is known as global sourcing. Due to lowered costs and improved profit returns, globalization ensures increased benefits for company shareholders.

Disadvantages of Globalization

Globalization has evidently benefited many businesses across the globe; however these advantages come with risks. One of the major disadvantages of globalization to companies is raising risks linked to inter-reliance across markets. As nations continue to rely on each other, a harmful financial shock in one nation can easily spread to others. For instance a decline in automobile sale in the United Kingdom was felt across other European markets because many of the vehicles purchased in the UK were imports form the EU zone. The 1990s Far East crisis was prompted by the decline of some Japanese financial credit banks. Most present example is the downturn of America’s sub-prime housing sector which generated a world crisis in the world banking system. Banks across the globe suffered a decline of asset value further decreased by borrowing among each other. As a result of the crisis it generated a liquidity problem and triggered a severe collapse in the world economy. Over customization for example, over dependence on manufacturing a limited amount of products for the international market is another disadvantage linked to globalization. An abrupt decline in global demand for one of the goods can throw several economies into recessive state. Several third world nations suffer by over customizing in a restricted range of goods such as tourism and agriculture sector.

Karl Marx in his communist manifesto cautioned that small companies will be mopped out of the market by larger businesses in a capitalist setting. According Marx, the devastation on domestic enterprises leads to rise of monopoly and culture change which to some extent vary across nations. Visiting the present China, it is hard to dispute Marx’s sentiments. The modern scenery is littered with global company brands such as McDonalds, KFCs, Starbucks and Pizza Huts. Also a visit to the a Chinese store display is almost similar to department stores in the US, with alike world brands such as Gucci, Chanel, Coach, Armani displayed in designer shops. (Thoenig and Verdier, 2003).  On the other hand at a keen look, present global organizations are not close to described as menacing capitalist that Marx foresaw. Products are highly customized to cater for local consumer taste. Businesses have created shared valuable relations with foreign nations to improve their sales. Even as some small companies as described, suffer at the hands of global brands, there are ones that have evaded being eliminated by bigger brands. In China for example, there are a numerous and successful coffee shops and restaurants even with the flood of American cafes chains. These local restaurants prevailed by offering local menu delicacies such as Peking duck, noodles, dumplings than foreign restaurant lack the knowledge to prepare. Lesson for small companies is to make products different from competition. (Leo, 2010)

As a result of globalization winner and loose emerge. From this rationale inequality is likely to rise where the gap between the rich and the poor widens especially among developing countries. Another danger linked to globalization is the over regulation of goods through universal branding (Rodrik, 2009). Such as a large number of global computers apply Microsoft windows operating system. Obviously standardization as argued by many, offer a lot of advantages however critics point out that it causes a decline in product efficiency and creating barriers of penetrating local and smaller markets. Large corporations influence and power is also disadvantageous. To enable them to alter their investment interest in prospects of favourable country laws between nations. They can run their business as domestic monopolies of work, alter salaries compared to the free market standards (Feenstra, and Hanson 2003). Critics of globalization also point out that it is disadvantageous; owing to impartial trade, there is a high likelihood of losing local work markets.

Also Study: Impact of Globalization on International Business Strategy

Tax competition and tax evasion is another disadvantage linked to globalization and business. Large firms like Google and Amazon can build outlets in nations such as Luxembourg and Bermuda where they charge minimal tax rates, later channel their returns through their subsidiary. Low tax rates are bad business for hosting countries because governments have to raise income tax and VAT. It is further viewed as discriminative for local companies who do conform to the same tax evasion guidelines. The higher the cash flow means that nations have resorted to promote local investment by allowing the lowest tax for businesses. For example Ireland offers minimal tax rules thus leading to increase charges of other tax means (Goldberg, and Pavcnik, 2003). A further problem caused by globalization on business is environmental costs. Increased consumption of non renewable energy by industries leads to climate change and pollution.

Business growth has further increased the reduction on non re usable energy sources for example oil. Jobs sometimes are lost owing to the structural transformation due to globalization. These changes may culminate into structural unemployment and sometimes broaden the gap between foreigner and locals within a country. Globalization advances the rate of deindustrialization which means the gradual erosion of an economies production base. Large corporations are able to set up factories in countries where environmental rules are less stringent. Though possibly the crisis is not stressed much on climate change but failure by countries to create and implement suitable environmental regulations. Some businesses suffer labor drain as a result of globalization. This is because they find it hard to retain their highly talented employees who migrate to other countries for better wages. Free market trade can be hazardous for economies in third world countries since they constantly fight to compete with advanced nations (Angie, 2005). It is disputed that free market trade is more advantageous to developing countries. There exists an infant industry case that states that upcoming industries in developing nations require security from free market economies to be able to realize growth. However these nations are frequently harmed by tariff safety Western nations put on agricultural products.

Several experts argue that currently we require a different sort of globalization. There ought to be methods to ensure that all countries benefit from the advantageous side of globalization. Developed nations should assist poorer countries by offering better education standards and demonstrating to them how new innovations work. Globalization has promoted ridding off man made obstacles, enabling rapid standardization of platforms and process, by integrating and linking nations that had initially lived separately. Globalization has created fresh resurgence bringing great opportunity to more individuals than any development in the past (Rodrik, 2011)

Hitherto this very unique process has rendered businesses to new threats. Companies have to strategize on how to manage these disadvantages. Businesses also has a significant responsibility of assisting local governments and non profit organizations raise community awareness in order to make certain that threats are acknowledged. It is certain that companies have benefited from the gradual assimilation and development of markets. However the threats related to globalization keep on growing. Organizations all over will have to concentrate on managing and supervising these risks altogether. Yearly, managers of the world’s largest industrial nations around the globe meet to discuss global economic problems. The gathering is also referred to as the G8 summit. Within the past few years opponents of globalization organized demonstrations to highlight that not every citizen is pleased with the manner in which global economies are growing.

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