The effects of Globalization on

International Trade and Commerce

(Alternative economics, 2014)

Fatima Ezzahra MORJANI Pr. Achraf TRIBAK

2023-2024
 ABSTRACT

The present research will be about one of the most important topics in our field of study,
“The effects of Globalization on International Trade and Commerce”. Whether those
effects come positively or negatively, they will be highlighted into this research using
real life examples (IBM, Toys “R” Us).

This research has covered multiple aspects starting from the basic definitions and history
of each term concerning this topic, to the why and how they are affecting each other’s. To
conclude in the end that for international commerce and trade, globalization can be a
double ended sword that should be treated with caution and getting hold of the right way
in order to improve international relationships and knowledge for companies, and reach
successful results instead of the opposite.

RÉSUMÉ
La présente recherche portera sur l’un des sujets les plus importants dans notre domaine
d’études, « Les effets de la mondialisation sur le commerce international ». Que ces effets
soient positifs ou négatifs, On va les discuter dans cette recherche à l’aide d’exemples
concrets (IBM, Toys « R » Us).

Cette recherche a couvert plusieurs aspects commençant par des définitions de base et de
l’histoire de chaque terme concernant ce sujet, au pourquoi et comment ils affectent les
uns les autres. Pour conclure en fin de compte que pour le commerce international, la
mondialisation peut être une épée à double tranchant qui doit être traitée avec prudence et
mettre la main sur la bonne voie afin d’améliorer les relations internationales et les
connaissances pour les entreprises, et obtenir des résultats positifs au lieu du contraire.

Key words: International trade, Commerce, Globalization, SupplyChain, Economic

opportunities, Offshoring, Market expansion
 PLAN

I. Definitions:

a. Definition (Trade, Globalization, ...)

b. Difference between international trade and international trade and international

commerce

c. History

II. Importance and role of international trade and commerce

III. Positive effects of globalization on international trade and commerce:

a. How it expands the market

b. Role and technology

c. Impact

IV. Challenges caused by globalization

a. Negative impacts

b. Economic Crisis

V. Influence

VI. Examples (Brief Case Study)

a. Positive impact (IBM)

b. Negative impact (Starbucks)

VII. Conclusion

VIII. References
I. Definitions And History

International trade, referrers to the exchange between countries around the world,
considering goods, services and capital. It allows the reach of wider range of products
and resources which leads to an increase of efficiency and access to a wider variety of
products.

The terms are close, but international commerce, and unlike international trade, it
is a broader term that not only concerns goods and services but also a wider range of
economic activities related to international business as a whole.

Moving to globalization, it is a term used to describe the way technology and most
importantly in our case, trade, made the world into a more connected interdependent
place.

“The world economies have become more intertwined through globalization and international
trade is a major part of most economies. It provides consumers with a variety of options and
increases competition so that businesses must produce cost-efficient and high-quality goods,
benefiting these consumers.”

(HEAKAL, n.d.)

Let’s dig into a little history considering our main two topics:

• International trade: Its history dates back to the Silk Road1 which connected the
south and the west. Over the centuries, international trade has played a crucial role in
the integration of national economies into a global economic system. It then
developed further Post-World War II. In modern history, the main factors were
technology and globalization.

1
The Silk Road was a historic network of trade routes that spanned from the Mediterranean to East Asia,
facilitating significant cultural and economic exchange between the East and the West.
• Globalization: “Some world historians attach globalization 'big bang' significance to 1498.
Such scholars are on the side of Adam Smith2 who believed these were the two most
important events in recorded history. Other world historians insist that globalization stretches
back even earlier.”

(O’Rourke & Williamson, 2002)

II. Importance and role of international trade and commerce

International trade is a key driver of economic growth, innovation, and development,

and it plays a crucial role in improving living conditions globally, its importance is
generally put as the following aspects:

• Wider range of goods: As it allows different markets to access a variety of products,

and countries rely on other countries for the import of goods that cannot be readily
found domestically, it also allows consumers accessibility to a wider range of offers at
competitive prices and qualities;
• Economic opportunities: It leads to an expansion in markets in areas that were not
economically active before, promoting specialization, facilitating access to resources,
and enabling the transfer of technology and knowledge;
• Decreasing the unemployment rate: By expanding market access, international
trade can lead to the creation of jobs in industries involved in exporting goods and
services, as well as opening new job opportunities;
• Offshoring3: Help companies reduce labor and production costs, which may lead to
lower prices for consumers and improved profitability for businesses.
• Access to talents: It allows companies to access a broader talent pool and specialized
skills;

2
Adam Smith was the 'forefather' of capitalist thinking. His assumption was that humans were self-serving by
nature but that as long as every individual were to seek the fulfillment of her/his own self-interest, the material needs
of the whole society would be met. (Adam Smith, The Wealth of Nations, 1776)
3
Offshoring is the transferring activities or ownership of a complete business process to a different country from
the country (or countries) where the company receiving the services is located. (TTEC, 2023)
• Wider knowledge and technology: facilitating the transfer of knowledge, skills, and
technologies between countries, which can promote innovation and technological
progress.

Now moving on to the role:

“Trade contributes to global efficiency4. When a country opens up to trade, capital and labor shift
toward industries in which they are used more efficiently. That movement provides society a
higher level of economic welfare5.”

(McDonald, 2021)

From the citation above, we can conclude that when a country opens up to international
trade, it encourages the movement of capital and labor towards industries where they can
be used more efficiently. This leads to a more effective allocation of resources, ultimately
benefiting society with a higher level of economic welfare. Therefore, trade promotes
specialization, efficient resource allocation, and the mobility of capital and labor, all of
which contribute to an enhanced economic well-being on a global scale.

III. Positive effects of globalization on international trade and commerce

Globalization has an important role in expanding markets and improving

international commerce as a whole, which is by connecting businesses and consumers
from all over the world, allowing companies to reach new customers and tap into new
markets. With globalization, businesses can access a larger pool of potential buyers,
which can lead to increased sales and growth. It also promotes competition, innovation,
and specialization, as companies strive to offer unique products and services to stand out
in the global market.

4
The optimal allocation of resources on a worldwide scale
5
Utility gained through the achievement of material goods and services
 Globalization has faced criticism for certain negative impacts, which will be
mentioned later on this paper, but it has undeniably brought about significant positive
effects on international trade and commerce:

• Economic Growth: By spreading technologies, productivity and efficiency

improvements in various industries, globalization has contributed to overall economic
growth by promoting trade liberalization and creating new opportunities for
investment and innovation.
• Access to new cultures: Allowing companies to open to new cultures, which leads to
a better understanding of the environment in which a company will need business
relations with.
• Lowering costs: Globalization enables businesses to discover more cost-effective
methods for manufacturing their goods. Additionally, it fosters heightened global
competition, leading to reduced prices and a wider array of options for consumers.
• Access to new markets: Globalization made it easier for goods, services, and capital
to move across borders, expanding trade prospects for businesses of all scales.

Overall, “Globalization has resulted in greater interconnectedness among markets around the
world and increased communication and awareness of business opportunities in the far corners of
the globe. More investors can access new investment opportunities and study new markets at a
greater distance than before. Potential risks and profit opportunities are within easier reach
thanks to improved communications technology.”

(ModulTrade, 2018)

With technology facilitating international commerce and boosting globalization

was a game changer. It has made communication faster and more efficient, allowing
businesses to connect with partners and customers around the world in an instant. E-
commerce platforms and online marketplaces have made it easier for businesses to sell
their products globally, reaching a wider audience. Additionally, advancements in
transportation and logistics have made it faster and more cost-effective to ship goods
internationally.

“Technology empowers efficiency in global trade and reduces cost and time. In addition,
production processes became more efficient due to globalization as companies want to maintain
their competitive advantage.”

(ModulTrade, 2018b)

IV. Challenges caused by globalization to international commerce

As just mentioned above, globalization has brought numerous benefits, but it has
also presented challenges for international commerce that businesses and policymakers
need to address and navigate effectively.

• Environmental impact: Globalization has resulted in increased production therefore,

waste, leading to environmental challenges such as pollution, resource depletion, and
climate change, which can affect international commerce.
• Immigration challenges and local job loss: “The political climates in the U.S. and
Europe show that there are different viewpoints on the results of globalization. Many
countries around the globe are tightening their immigration rules, and it is harder for
immigrants to find jobs in new countries.”
(Velocity Global, 2020)
• Regulatory complexity6: The process of globalization has created difficulties in
dealing with various regulatory systems in different countries, resulting in problems
with following rules and regulations and legal complications for companies involved
in global trade.
• Supply chain7 issues: Globalization has led to complex and interconnected supply
chains, making businesses more vulnerable to disruptions caused by natural disasters,

6
Applying a regulation to a particular entity or group of entities is costly in terms of time and resources
7
A network of organizations and activities involved in producing and delivering goods and services to consumers
 geopolitical tensions, or global health crises.

V. Influence

Globalization has had a significant influence on international trade, it has opened

up new opportunities for countries to engage in trade with one another, breaking down
barriers and expanding market access. Through globalization, countries can specialize in
producing goods and services that they have a comparative advantage in, leading to
increased efficiency and productivity. It has also facilitated the flow of capital,
technology, and knowledge across borders, further enhancing trade.

“Globalization has opened up new markets and expanded trade opportunities for countries
around the world. Reductions in trade barriers, such as tariffs and quotas, have allowed
businesses to access larger consumer bases and explore new markets for their products and
services.”

(Orbit, 2023)

VI. Examples (Brief Case Study)

a. Positive Impact (IBM)

IBM (International Business

Machines Corporation), is a
multinational technology and
consulting company that offers a
wide range of hardware, software, and services. It is known for its expertise in areas such
as artificial intelligence, cloud computing8, blockchain9, and quantum

8
The delivery of computing services, including servers, storage, databases, networking, software, and analytics
9
Digital ledger technology that is used to record transactions across multiple computers
computing. IBM has a global presence and has been a major player in the technology
industry for many decades.

This company is a great example of how globalization can impact an international

business positively, as a leader on its field, IBM was able to successfully get globalization
to its side, the benefits are included in:

• Innovation and R&D10: Globalization has provided IBM with access to diverse
markets and technological ecosystems, fostering innovation and research and
development (R&D) collaborations, which have contributed to the company's
technological advancements.
• Strategic partnerships: IBM has been able to form strategic partnerships and
alliances with international organizations, governments, and businesses, fostering
collaboration and mutual growth opportunities.
• Market expansion: Globalization has allowed IBM to access and expand into new
markets around the world, reaching a broader customer base and diversifying its
revenue streams.
• Talent acquisition: IBM has been able to utilize the benefits of globalization to
acquire talent from all around the world. This has allowed them to attract highly
skilled individuals from various backgrounds and fields of expertise, ultimately
improving their innovation and giving them a competitive edge.

“The company describes its globalization strategy as being based around "3 Golden Pillars".
These are "cloud, data, and engagement." One example of these pillars in action is IBM's
approach to emerging markets, such as those in Africa. They are prioritizing a mobile-first
strategy as most people in these markets don't have a computer or bank account.”

(Owen-Hill, 2022)

Overall, IBM is a great example on how to use globalization to benefit one’s

10
a series of activities that companies undertake to innovate and introduce new products and services
company, globalization has allowed IBM to capitalize on international opportunities,
optimize its operations, and strengthen its position as a global technology and services
provider.

b. Negative Impact (Toys “R” Us)

Toys “R” Us was a well-known international toy

and juvenile-products retailer. It was established
in 1948 and grew to become a prominent
destination for toys, games, and children's products. The company operated numerous
stores globally, offering a wide range of toys and related merchandise for children of all
ages. With its iconic branding and extensive product selection.

The negative impact of globalization on Toys "R" Us, ultimately leading to its inability to
compete effectively in the evolving global retail landscape, lead to this company’s
downfall, so let’s explore the reasons:

• Debt and Financial Struggles: The company's global expansion and debt burden
also contributed to its challenges. Toys "R" Us faced financial struggles, including
high levels of debt, which ultimately led to its bankruptcy and the closure of its stores.
• Supply Chain Pressures: Globalization led to increased pressure on supply chains,
as companies sought to optimize sourcing and manufacturing from around the
world. Toys "R" Us, like many retailers, faced challenges in managing its supply
chain to stay competitive and meet customer demand.
• Competition from Global E-commerce: International e-commerce companies like
Amazon, increased competitivity for Toys “R” Us, these digital merchants provided a
vast array of toys, competitive prices, and the ease of online shopping, creating a
major obstacle for traditional physical retailers
• Consumer Behavior: Globalization also influenced consumer behavior, with a shift
towards online shopping and a preference for diverse and innovative products. Toys
 "R" Us struggled to adapt to these changing consumer preferences and the shift
towards digital retail experiences.

Toys "R" Us closed its stores in the United States and several other countries after filing
for bankruptcy in 2017. The company struggled with financial challenges, including debt
and intense competition from online retailers, ultimately leading to the decision to
liquidate its assets and close its stores.
 VII. CONCLUSION

In conclusion, globalization has important effects on international trade and commerce,

either them being positive or negative, it enables businesses to discover more cost-
effective methods for manufacturing their goods. Additionally, it fosters heightened
global competition, leading to reduced prices and a wider array of options for consumers.

It has faced criticism for certain negative impacts, such as potential job displacement and
environmental concerns, it has undeniably brought about significant positive effects on
international trade and commerce.

It has opened up new opportunities for countries to engage in trade with one another,
breaking down barriers and expanding market access.

And as we have seen in the examples stated of IBM and Toys “R” Us, we can confirm
that for international commerce, globalization is a double-edged sword, that can cause
great success and help companies maintain their leadership or become it if used and
treated wisely, while at the same time can cause a big company’s downfall if not studied
well.

By promoting fair trade practices, sustainable development, and inclusive economic

policies, stakeholders can work towards harnessing the benefits of globalization while
mitigating its adverse effects for a more equitable and prosperous global economy.
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