Businesses that operate internationally are able to tremendously benefit from business growth. By operating on the global scale, those firms are able to reap the benefits of globalization to become the largest companies on the planet.
Let’s take a look at a few ways how globalization helps to stimulate business growth:
- Increases healthy competition. Globalization considerably increases the level of competition between companies from different countries. These large companies from each country are now fighting with one another for market share in the global market. It is not that easy.
Example 1: Telecommunication firms from many countries are now competing with each other globally such as Vodafone from the UK, Telefonica from Spain, Reliance Communications from India, T-Mobile from Germany, Verizon from the US and China Mobile from China.
- Reduces barriers to entry. The Internet has also greatly reduced business costs of running the firm internationally for many industries, for example clothing retailers. By reducing barriers to entry, the international market has attracted more competition in this way.
Example 2: Online travel booking agencies such as Booking.com and Trip.com, which operate globally, are now successfully competing with more established brick-and-mortar local travel agencies in each country.
- Improves quality of products. When doing business globally, it is a difficult task to meet customer expectations. It is because people in different countries have various expectations regarding product quality, the level of customer services or after sale services.Â
- Increases customer base. Multinational firms greatly benefit from the increased customer base that globalization brings to them. Even smaller firms which enter into the international market through E-commerce, can gain a tremendous increase in the number of customers.Â
Example 3: China and India alone are two world’s most populous countries which citizens account for approximately 35% of the world’s total population.
- Exposes customers to new products. Globalization has had a huge impact on changing the lifestyles and tastes of hundreds of millions of customers throughout the world economy. It created a new type of customer who is always opened to try new things which were previously not available in his country.Â
Example 4: Almost everyone in the world these days can eat the American fast-food, drink Brazilian coffee or Chinese tea, learn from British textbooks, drive German cars, taste Canadian maple syrup, drink Russian vodka and use Japanese electronic gadgets.
- Provides a first-mover advantage. Being the first company in a specific market to offer a particular product or service, gives that business competitive advantage. A business that is able to expand overseas before its rivals may also gain a first-mover advantage to establish itself and build up a loyal customer base. The company also gains invaluable time to improve its products and set appropriate pricing for the global customer.
A first-mover advantage. A first-mover advantage is a term used to describe the benefits of being the first company in a specific market segment.
- Allows for economies of scale. Businesses that are able to operate globally and build global brand awareness benefit from internal economies of scale. Multinationals firms usually benefit from purchasing economies of scale, marketing economies of scale and risk-bearing economies of scale.
Example 5: The multinational company Unilever has accumulated a portfolio of brands in several different industries such as cosmetics, home care, foods, refreshments, etc. Every day, 2.5 billion people use Unilever products with more than 400 brands bought in 190 countries.
- Opens up new attractive locations. Globalization presents multinational companies with greater choice of location. By being able to operate a business from any place in the world, the increased choice of location can help to reduce a firm’s costs of production, better reach target customers and improve branding.Â
Example 6: Apple chose to outsource production in China due to the relatively low costs of labor and rent. Apple’s products are ‘Created in California. Assembled in China’ due to advanced supply chains and cheaper labor costs. Apple also has some of the world’s most diverse sales channels, delivering products and services to consumers, enterprises, and education and government customers in more than 80 countries.
- Increases access to new sources of finance. Globalization presents many more opportunities for seeking additional sources of finance. By being listed on another country’s stock market, the company can access investors’ funds from that particular to raise money for business growth. Also, by operating in another country, that country’s banks may be more willing to lend money to the business due to lower legal risks.
- Provides opportunities for external growth. Globalization enables businesses to have more choices in their expansion plans. The business may participate in global mergers, acquisitions, takeovers, Joint Ventures (JV) and Strategic Alliances (SA). It will allow the firm grow at a much faster pace. Another growth option to use can be franchising which has helped many famous American companies such as McDonald’s or Starbucks to grow its global network of fast-food restaurants and coffee shops.
Example 7: Audi China was founded in 2009 headquartered in Beijing. The company has more than 750 employees and coordinates the business cooperation between AUDI AG, FAW Group and the Joint Venture FAW-Volkswagen.
Example 8: Warren Buffett bought a 10% stake in BYD, a Chinese manufacturer of cars and rechargeable batteries.
Example 9: BMW created a joint venture with Brilliance China Automotive in 2003 to gain direct access to the Chinese market.
The globalization of markets made the world a smaller place in terms of time to market the product, distance to potential customers and favorable conditions for international trade. And with improved information and communications technology, as well as high-speed travel, businesses can trade even more efficiently.
