Globalization has a great impact on both individual customers, business managers, entire businesses and the countries involved in international trade.
Globalization affects many different stakeholders both in the home country and the host country in many different ways.
The home country is where a multinational company first sets up its operations, where it is incorporated. For example, China is a home country for Huawei, the US is a home country for Apple, Japan is a home country for Toyota and the UK is a home country for AstraZeneca.
The host country is the foreign country where a multinational company sets up its following operations as it growths internationally. Using globalization as a growth strategy for the business presents both benefits and drawbacks.
Opportunities of globalization
There are many opportunities resulting from globalization:
- New markets. Entering into new markets may lead to an increase in the number of customers, therefore will result in increase in sales revenue.
- Cheaper labor. Hiring cheaper workers in underdeveloped and developing countries will enable the company to lower the cost of production, therefore will result in higher gross profits.
- More choices. Globalization leads to increased competition for both local and international businesses. Offering more choices to customers will increase customer satisfaction, therefore will result in higher customer loyalty and repeated purchases.
- Higher efficiency. Because of strong international competition, businesses will have to start operating more efficiently. Reductions in waste will result in lower costs leading to greater profits.
- Lower prices. Thanks to operating on larger scale, the company can achieve reduction in costs due to economies of scale. Higher price competitiveness may enable the business to lower prices of goods and services, therefore encourage sales.
- Multiculturalism. Globalization leads to multiculturalism which promotes mutual understanding between people from different countries. Therefore, as a result, we will end up in a more peaceful world.
- Increased investments. Increased investments by overseas businesses investing in the home country will speed up economic growth. Therefore, the result will be lower unemployment among citizens and better living standards.
However, the growing integration and interdependence of the world’s economies into one single global economy causes problems for businesses in the host country.
Threats of globalization
There are risks and costs associated with globalization:
- Higher unemployment. When domestic companies decide to relocate its operations to another country where labor is much cheaper, local employees in a home country will start losing their jobs. Therefore, it will result in increased unemployment that will lead to lower standards of living.
- Increased competition. Local businesses in the domestic country may struggle as powerful foreign companies start to sell products at a cheaper price to enter the market, and gain market share. Some of them may even go out of business, especially start-up businesses.
- Environmental damage. It is caused by increased demand for goods and services that leads to pollution-generating industrialization.
- Destruction of local cultures. Globalization forces customers to conform to a standard culture where standardized products and services are offered. Therefore, this may lead to a loss of individual characteristics in the domestic countries.
- Higher expenses. The marketing, distribution and legal costs for the international businesses will increase. The international business operating on a very large scale needs to conform to laws and regulations in each country.
- Exchange rate fluctuations. Exchange rate fluctuations may cause changes in the price of raw materials lowering gross profits, if supplies are purchases during unfavorable times.
Globalization presents opportunities for growth and evolution of businesses as well as threats to their operations. Despite the limitations, entry into international markets is an important objective for some businesses. As it will enable the business to grow exponentially. Starbucks, Nike, McDonald’s and Samsung are examples of companies that have grown because of their expansion into other countries.
