Globalization essentially means that people around the world have become increasingly connected politically, economically, and socially. Nations are moving away from being self-contained and are becoming part of a more integrated global system.
Globalisation of business refers to the transformation of a firm from operating in a single country to managing and conducting business activities across multiple countries. This shift allows organizations to compete internationally and access wider markets, resources, and talent pools.
Objectives of Globalisation of Business
The primary objective of globalization is to provide organizations with a stronger competitive position by:
- Reducing operational and labor costs
- Expanding markets and customer base
- Increasing production of goods and services
- Accessing new raw materials and resources
This competitive advantage is achieved through diversification of resources, foreign investments, and entry into new international markets.
Diversification of Resources
Diversification of resources is a business strategy that increases the variety of products and services offered by an organization. It strengthens businesses by:
- Reducing organizational risk
- Spreading economic benefits across regions
- Exploiting new market opportunities
- Acquiring companies through horizontal and vertical integration
Most organizations go global to increase market size, boost sales, and maximize profits. One of the strongest enablers of globalization has been the rapid development of communication systems, especially the Internet, which allows instant information flow worldwide.
Dimensions of Globalization
With the collapse of the USSR, globalization expanded rapidly across social, technological, economic, environmental, and political dimensions, reshaping global interactions.
Social Dimension
The expansion of global capitalism has transformed social class structures worldwide. Global capitalism has often been linked to class conflict and rising inequality, leading to:
- Increased migration and refugee movement
- Social unrest in developing regions
- Debates about labor exploitation in low-cost economies
In many developing nations, globalization has been associated with debt, poverty, and overutilization of resources. These inequalities have triggered protests, strikes, and resistance against multinational corporations.
Technological Dimension
The launch of the World Wide Web in 1991 revolutionized globalization. Commercial internet usage expanded the global economy dramatically, enabling rapid knowledge sharing and innovation.
Today:
- Over 3.2 billion people use the Internet
- Information flows instantly across borders
- New concerns have emerged regarding data security and regulation
While technology boosts innovation, increased regulation may raise costs and limit future growth.
Economic Dimension
Post-Cold War globalization reduced trade barriers and increased global economic interdependence. This interconnectedness was evident during the Global Financial Crisis (GFC) of 2008, which spread almost instantly across countries.
“While it took weeks for the impact of the 1929 financial crisis to reach Europe, the impact of the 2008 crisis was almost instantaneous.”
- Baylis, Smith and Owens (2017)
This highlights the need for strong global regulatory frameworks to manage systemic risks that extend beyond finance into infrastructure and energy systems.
Environmental Dimension
Rapid global trade and resource extraction have placed immense strain on the environment. This led to international agreements such as:
- Paris Climate Accord
- Kyoto Protocol
Globalization has accelerated resource depletion and widened income inequality, leading to migration and the rise of anti-globalization movements. Without regulation, globalization risks severe environmental damage.
Political Dimension
The rise of new global powers like China has reshaped international politics. While globalization has increased bargaining power for developing nations, many argue it weakens national sovereignty.
Key political reactions include:
- Protectionist policies in the US
- Brexit as a rejection of EU economic integration
In the digital era, NGOs and civil societies play a stronger role in shaping globalization debates.
Drivers of Globalization
Globalization is driven by four broad factors:
- Growing global interconnectedness
- Rapid and discontinuous change
- Increasing number of global participants
- Rising complexity (Parker, 2005)
1. Trade Liberalization
Trade liberalization involves reducing tariffs and non-tariff barriers to encourage free trade. Organizations like the World Trade Organization (WTO) play a key role in promoting open markets.
For example, China’s market reforms since 1978 resulted in decades of high GDP growth and lifted millions out of poverty. However, liberalization has not benefited all countries equally, as seen in the decline of local producers in some developing economies.
2. Differences in Cost Between Countries
Variations in labor, capital, and land costs drive globalization. Manufacturing and service operations often shift to developing countries due to:
- Low labor costs
- Fewer entry barriers
- Availability of skilled professionals at lower wages
This cost advantage fuels outsourcing and foreign investment.
Forces of Globalization
1. Advancement of Technology
Improved IT and telecommunications since the 1990s have enhanced global connectivity and economic integration.
2. Reduction in Cross-Border Trade Barriers
Gradual removal of tariffs and quotas encourages free trade and economic growth.
3. Increase in Consumer Demand
Rising incomes and global awareness have increased demand for international products and services.
4. High Competition
Intense domestic competition pushes firms to expand globally through exports, mergers, acquisitions, joint ventures, and strategic alliances.
Other Articles
To understand how globalization directly affects global workforce management, read our detailed article on International Human Resource Management:
This article explains how globalization creates complex HR challenges for multinational organizations.
FAQs
What is globalization of business?
Globalization of business refers to expanding operations beyond national borders to operate in multiple countries for competitive advantage.
What are the main drivers of globalization?
Key drivers include trade liberalization, technological advancement, cost differences between countries, increased consumer demand, and global competition.
What are the dimensions of globalization?
The main dimensions are social, technological, economic, environmental, and political globalization.
How does globalization impact developing countries?
Globalization can bring growth and investment but may also increase inequality, resource exploitation, and social unrest if not managed properly.
Why is globalization important for businesses?
It helps businesses expand markets, reduce costs, access resources, and remain competitive in the global economy.
