What Is Globalization?
Globalization is defined as the interdependence of world economies and the cross-border trade of goods and services,
technology, investment, and information. In business, globalization provides access to capital, labor, and resources. An
auto manufacturer, for example, may design a car in Japan, produce parts in the United States, and have it assembled in
Mexico.
Yet cultural, political, and linguistic differences can make it difficult to enter new markets. To increase the odds of
success, companies adapt products to meet the needs and preferences of local buyers through a process known as
localization. Think of localization as one piece of a wider globalization strategy. (For more information, read our blog
on globalization vs. localization.)
The Pros and Cons of Globalization
Today, globalization—and the localization it sparks—is growing faster than ever. As we enter a third wave that involves a
digital economy, advanced technology, and cybercrimes, it’s vital to understand the impact worldwide.
Pros of Globalization
1. Access to New Markets
Globalization gives businesses the opportunity to expand into new markets, reach international buyers, and increase
revenue.
Over time, companies can experience saturation for demand of their products or services domestically. By expanding
globally, they can continue growing by meeting foreign demand. In many cases, you may just need to translate your
website in order to achieve this.
2. Spread of Knowledge and Technology
In order to cooperate globally, companies must share similar technology and a technological structure. E-commerce, for
example, allows companies to sell products worldwide through [Link].
Similarly, a centralized base of knowledge allows companies to quickly transfer information and develop innovative
solutions. For example, in the healthcare sector that means new medications and medical devices can go to market
faster in different countries.
3. Enhanced Global Cooperation and Tolerance
Globalization enhances cooperation by enabling countries to specialize. This allows them to leverage their economic
strengths and trade those products for other resources. For example, a country in South America that specializes in sugar
cane can export it to a developed country in exchange for manufactured goods.
On an interpersonal level, studies have shown that globalization promotes tolerance, as people are exposed to new
cultures and network with others across the globe.
4. Promotes Economic Growth
Studies have found that globalization enhances economic growth by distributing resources more efficiently because
countries can specialize in activities with comparative advantages. It also promotes growth indirectly through
complementary reforms in terms of capital and financial development.
China, the country with the biggest positive change in globalization, saw a growth rate in 2000 that is 2.33 percentage
points higher than in 1975 due to increased integration.
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Cons of Globalization
1. Increased Competition
Although free trade can increase a nation’s wealth, it also increases competition. Local businesses must compete with
multinational corporations that produce cheaper goods at lower costs, which puts them at a disadvantage.
At the same time, the increase in choices impacts buying behaviors, as customers expect high quality products at low
prices. That means companies must continuously adapt to meet demands.
2. Exploitation of Labor and Resources
Wealthy, industrialized nations sometimes enter trade agreements with developing countries in order to exploit weak
labor and environmental laws. For example, the United States has been known to use foreign sweatshop labor to
produce cheaper goods.
Lack of environmental regulations in some developing countries also allows developed countries to import resources
such as precious metals at lower prices. This results in both lasting environmental damage and human rights abuses.
3. Imbalanced Trade
A trade imbalance, also known as a trade deficit, occurs when a country spends more on imports than it makes on
exports. This creates a shortfall in capital that the country must make up for either by borrowing money from foreign
lenders or permitting foreign investments in its assets.
While lending and investment help promote economic growth, these strategies can be risky—especially for a developing
country. Throughout the 1990s, Thailand, Indonesia, and Malaysia ran large trade deficits and relied on foreign capital to
make up for it. Yet when the Asian financial crisis hit in 1997, foreign investors backed out, leaving these countries in a
precarious financial position.
4. Domestic Job Loss
When industrialized countries outsource labor, it causes a shortage of jobs domestically. Laborers whose skills are no
longer in demand experience higher unemployment, and struggle to adapt to the changing labor market.
For example, the U.S. trade deficit with China eliminated 3.7 million jobs between 2001 and 2018, and more than 75% of
those losses were in manufacturing.