What is Globalization: The Concept, Causes, and Consequences
The world is a global village. This is a phrase you must have had thrown around during business discussions. Those who say this are most likely referring to how small the world has become due to globalization which has removed boundaries to trade and communication between people in different countries.
A Simple Globalization Definition
According to WHO, globalization can be defined as ” the increased interconnectedness and interdependence of peoples and countries. It is generally understood to include two interrelated elements: the opening of international borders to increasingly fast flows of goods, services, finance, people, and ideas; and the changes in institutions and policies at national and international levels that facilitate or promote such flows.”
“Globalization a process where people, companies, and governments from different nations interact and integrate through international trade and investments has effects on the environment, culture, political systems, economic development and on the human physical well-being in societies around the world”. Through the Internet, media, planes, international business, and embassies we are now more connected to each other than ever before.
Due to globalization someone in China can easily communicate and sell their products to an individual in the US. The rise of globalization is largely attributed to major changes in the telecommunications and transportation industries. Globalization today allows for goods to be made and sold all over the world.
Companies to establish and compete for customers in many countries for example fast food chains are opening outlets every day around the world. Also, companies can operate where production costs are the cheapest due to globalization. And it’s not only products globalization also makes it possible to get services from around the word e.g. via the internet a US-based company can hire an accountant in India to do its taxes.
Globalization is not only about trade there is also the cultural aspect to it. Through it, different cultures meet and people get to know and understand the various ways of life and accept them. Now that you know what globalization is let’s get into its impact.
What Caused Globalization?
There is no denying that globalization has made foreign trade simpler than it used to be. In the past, importing or exporting goods to other countries was a difficult task. It was also a time-consuming and expensive process. Getting products to other countries took a long process because of the ties that existed between different regions.
But now a lot has changed. Globalized trade has taken a different form, moving away from the rigid and challenging process it involved in the past. However, the term globalized trade also implies engaging in import and export businesses with other countries.
There are also different reasons why many companies get involved in foreign trade in the first place. But the beauty of the whole process is that globalization has not only made the process a bit easier. It has also opened more opportunities for traders or countries with high interest to do business.
For example, companies that are into the production of certain goods can source their raw materials required for production elsewhere, mainly when not available locally. They can import materials from other countries for production to continue and to meet the demands of their customers.
In addition to that Globalized trade also gives companies and entrepreneurs the privilege of creating a new market for their products. On the other hand, through comparative advantage, companies can relocate to other places that are far less expensive or cost-effective with regards to the day-to-day running of the business.
The explanation above gives insight into the impact globalization has had in almost every facet of the global economy and modern life.
What Are the Consequences of Globalisation?
Globalization has brought benefits in developed countries as well as negative effects. The positive effects include a number of factors which are education, trade, technology, competition, investments and capital flows, employment, culture, and organization structure.
POSITIVE IMPACTS OF GLOBALISATION
- Gives Access to a Larger Market
Through globalization countries and companies have access to a bigger consumer base. Instead of only selling products in their country a business can expand to other regions boosting sales and in the process making more money.
- Provides Cheaper Goods for Consumers
Because of globalization a lot of companies are moving to areas where their cost of production is low they, in turn, offer cheaper products because they are not expensive to make hence lower prices for consumers.
- Globalization Wets Countries do what They do Best
For example, a country can buy cheap steel from another country instead of making its own steel. They can then focus their efforts on making other things they are good at like computers and export them to the countries they import cheap steal from.
- Leads to Better Economies
With many multi nations heading to Africa to tap the consumer base in this part of the world more jobs are being created helping people in these countries get better wages and improve their stands of living.
These investments by these multinationals or foreign countries also help strengthen the economies of these countries with the foreign exchange they bring in. With an increased number of investors looking for investment opportunities around the globe, country economies will benefit wherever they invest. Through globalization economies of different countries are becoming more connected to one another since they depend on each other for trade.
- Promotes World Peace and Unity
Globalization brings governments together so that they can tackle common goals together. For example, due to globalization world leaders have seen the impact of pollution and have resolved to tackle climate change together. Also, it is unlikely that a country trading a lot of products and services with another will attack it or want to go to war with it.
The desire to make a profit has always been a spur to expanded trade, innovation, and the communication of ideas. The great ideas from leaders spread more easily.
- Better Quality and Variety
Competition from different countries drives firms to improve their products. Consumers have better quality products and more variety as a result.
NEGATIVE IMPACTS OF GLOBALISATION
- Causes Environmental Damage
Globalization has led to increased production for businesses in order to meet global demand. Increased production means more natural resources are used and this can be used up before they are regenerated leading to a negative impact on the environment. Also in developing countries rules and regulations on environmental protection are not as strict as in developed countries.
This has seen some multinationals leave their countries to set up in developing countries to take advantage of this lax regulation in the process they manufacture products that are harmful to the environment.
- Causes Fluctuation of Prices
Increased competition means that businesses with the best prices win. Due to competition prices are always fluctuating, for example, a country like the US has to reduce its prices often to compete with prices for the same product coming from China. China’s production costs are lower than the US hence they can have ridiculously low prices. For the US companies reducing prices will have a negative effect on their profits which in turn may lead to actions like laying off workers.
- Job Insecurity
Globalization provides a double-edged sword when it comes to jobs. It creates jobs for people in developing countries who provide cheaper manufacturing jobs. For example, many companies are setting up in India and China because wages and manufacturing jobs are cheaper there which means fewer opportunities in developed worlds. In short, globalization takes jobs from one country and provides them with another. This can be negative or positive depending on what part of the world you are in.