RISE OF GLOBALIZATION

WHAT IS GLOBALIZATION?
Is used to describe the growing interdependence
of the world’s economies, cultures, and
populations, brought about by cross-border
trade in goods and services, technology, and
flows of investment, people, and information.
WHAT IS GLOBALIZATION?
Countries have built economic partnerships to facilitate these
movements over many centuries. But the term gained popularity
after the Cold War in the early 1990s, as these cooperative
arrangements shaped modern everyday life. This guide uses the
term more narrowly to refer to international trade and some of
the investment flows among advanced economy.
WHAT IS GLOBALIZATION?
The wide-ranging effects of globalization are complex and
politically charged. As with major technological advances,
globalization benefits society as a whole, while harming certain
groups. Understanding the relative costs and benefits can pave
the way for alleviating problems while sustaining wider payoffs.
HISTORY OF GLOBALIZATION
During ancient times, humans have sought distant places to settle,
produce, and exchange goods enabled by improvements in technology
and transportation. But not until the 19th century did global integration
take off. Following centuries of European colonization and trade activity,
that first “wave” of globalization was propelled by steamships,
railroads, the telegraph, and other breakthroughs, and also by
increasing economic cooperation among countries. The globalization
trend eventually waned and crashed in the catastrophe of World War I,
followed by postwar protectionism, the Great Depression, and World
War II. After World War II in the mid-1940s, the United States led efforts
to revive international trade and investment under negotiated ground
rules, starting a second wave of globalization, which remains ongoing,
though buffeted by periodic downturns and mounting political scrutiny.
 TYPES OF GLOBALIZATION
• Political Globalization- refers to the diplomatic negotiations between nation-states. It includes the
standardization of global rules around trade, criminality, and the rule of law.
Example: International bodies including the United Nations, European Union and World Trade Organization
are key multinational organizations designed to facilitate increasing political globalization. This includes
growing free trade and multilateral agreements on investment.
• Social Globalization- also known as social globalization refers to the integration of our societies or to the
idea that we now live in a shared society.
Example: What happens in Afghanistan can affect what happens in the United States.
A contagion in China spreads to all corners of the world.
A nuclear weapon in North Korea can threaten lives in New Zealand.
• Economic Globalization- refers to the ways corporations do business as multinational organizations
nowadays.
Example: McDonald’s only existed in the USA and HSBC only existed in the UK, now these companies are all
over the world in a ‘globalized economy’.
 TYPES OF GLOBALIZATION
• Technological Globalization- refers to the spread of technology around the world.
Example: spread of the internet, solar panel technology and medical technologies
• Financial Globalization- refers to the ease at which money can be spread around
the world.
• Cultural Globalization- refers to the spread and mixing of cultures around the
world.
• Ecological Globalization- refers to the idea that the world needs to be considered
one interconnected ecosystem.
• Geographical Globalization- refers to the idea that the world is no longer seen as
groups of distinct nations as much as it once was.
ADVANTAGE OF GLOBALIZATION
• Economies of scale- globalization provides companies with a much bigger
effective market in which to sell their goods, they can scale up their
production. As the level of production increases, their margin on each good
or service provided can increase as their fixed costs remain the same, or
become incrementally smaller.
• Increased competition- the presence of increased competition in a
country’s economy from foreign companies means a more efficient market
and lower prices for consumers. Suppliers of goods and services need to
keep their prices low to stay competitive.
• Increased choice- no individual country could produce the sheer variety of
goods that can be produced globally. Through globalization, consumers in
one country can have access to goods and services that they would never
otherwise have access to.
• Increased capital flows -capital is able to flow into developing economies
providing a significant form of finance that businesses in that economy
would not otherwise have access to.
ADVANTAGE OF GLOBALIZATION
• Increased labor mobility- by allowing individual workers to move to
other countries, the global economy can better match supply and
demand. Countries that are excellent in educating certain
professionals can export those professionals to other countries
which do not have the same specialty.
• Higher quality goods- as each nation concentrates on its own
specialty industries, there is far less ‘re-inventing the wheel’. For
example, every country does not need to waste its scarce resources
producing its own version of the smartphone when one can be
imported from a country that specializes in this product.
• Improved international relations- countries that have a positive
trade relationship with each other, have an incentive not to get into
conflict. On a global scale, this should reduce the likelihood of armed
conflict between countries.
DISDVANTAGE OF GLOBALIZATION
• Possible monopolization of multi-national companies- large enterprises
from developed countries may move into smaller developing nations and
take over the market. Their specialization and efficiency in providing a
particular good or service may mean that local producers in a developing
country are knocked out of the market.
• Structural unemployment- if a country is no longer competitive in the
production of a particular good, this may mean that its production rapidly
moves offshore, and workers are left unemployed. While it may be possible
to re-train these staff and deploy them to a more efficient market, this lag
can take years, resulting in a significant rise in unemployment and
inequality.
• Tax avoidance- some companies are able to avoid paying taxes that one
might expect that company to pay in a given country through legal tax
arrangements.
• Inter-dependence- individual countries become dependent on other nations
for their supply chains. If there is a disruption to this chain, they may no
 SEVERAL COMPANIES CAN ENTER IN FOREIGN MARKET

• Exporting- direct sale of goods and/or services in another country. It is

possibly the best-known method of entering a foreign market, as well as the
lowest risk. It may also be cost-effective as you will not need to invest in
production facilities in your chosen country and all goods are still produced in
your home country and then sent to foreign countries for sale.
• Joint venture- consists of two companies establishing a jointly-owned
business. One of the owners will be a local business. And two companies
would then provide the new business with a management team and share
control of the joint venture.
• Licensing- allows another company in your target country to use your
property. The property in question is normally intangible.
• Franchising- similar to licensing in that intellectual property rights are sold to a
franchisee. However, the rules for how the franchisee carries out business are
usually very strict
 SEVERAL COMPANIES CAN ENTER IN FOREIGN MARKET

• Foreign direct investment (FDI)- when you directly invest in facilities in a

foreign market. It requires a lot of capital to cover costs such as premises,
technology and staff. FDI can be done either by establishing a new venture or
acquiring an existing company.
• Piggybacking- involves two non-competing companies working together to
cross-sell the other’s products or services in their home country. Although it is
a low-risk method involving little capital, some companies may not be
comfortable with this method as it involves a high degree of trust as well as
allowing the partner company to take a large degree of control over how your
product is marketed abroad.
• Wholly owned subsidiary- similar to foreign direct investment in that money
goes into a foreign company but instead of money being invested into another
company, with a WOS the foreign business is bought outright. It is then up to
the owners whether it continues to run as before or they take more control of
the WOS.