The Impact of Globalization on Economic Growth

Globalization has impacted many aspects of modern life. It has affected trade, jobs, technology, and law, name it. And there is a positive indication that it will be a growing force that will shape the global economy. Globalization also has some drawbacks, but then renowned economists have agreed that it’s a force that cannot be stopped, and offers enormous benefits to the world economy.

A look at how globalization has impacted trade, jobs, technology, and the law gives a better understanding with regards to the extent globalization has affected modern life.

What’s the Impact of Globalization on Wages, Jobs and the Cost of Living?

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 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.

Now let’s take a close look at the impact it has had or having on trade and job.

  • Comparative Advantage

No company would like to continue operating in a particular region when it can lower its production cost by moving elsewhere. And globalized trade has made this a reality, as companies can now take their businesses to any country they deem fit.

Now the term comparative advantage is simple to understand. It refers to the process whereby a country recognizes that it would cost more to produce a particular product, but less to acquire the same product from another country. So, instead of creating that specific product, the company can purchase it from the said country, and concentrate more effort on products they are good at and that is economically viable to produce.

A clear example is the cars we drive, particularly some that are made in the USA. You see, most of these cars travel from one place to another before production is complete. The point is a US-based car manufacturing company can have its plant in another country, particularly those that can provide cheap labor. Back in the USA, the company has skilled workers that handle the more technically demanding tasks. Then after that, the cars are shipped out to their plants in other countries, where the services of hundreds of unskilled workers are required to complete numerous aspects of the car manufacturing process.

This allows car manufacturing companies to produce a large number of their cars on a cheap. The NAFTA auto alley is a clear example of the above description where cars get shipped across the US border to Mexico. The company benefits from the labor-intense workforce Mexico has and at the same time the skilled-intense workforce available in the USA.

  • Competitive Advantage

Lucrative global trade agreements have made it possible for companies to move their offices or plants to another environment, particularly where they can access the required raw materials, labor or run their businesses on a cheap.

For instance, most of the goods used in the United States of America, are manufactured overseas.  In short, many companies have relocated some of their departments to other countries to reduce cost and compete favorably in their respective industry. Harley Davidson Inc., a heavyweight motorcycle company in Wisconsin once announced that it would start manufacturing some of their products overseas, following a hike in EU tariff, considered to be retaliation to Donald Trump’s new trade policy.

  • Create New Markets for Goods and Services

As a result of global trade, companies that have products to sell can consider sourcing for buyers in another country. As long as the product does satisfy the requirements of regulatory agencies in the said country and also does not violate the laws of the land, the company can take advantage of new markets to establish their presence there.

How Globalization has Impacted Technology?

Technological advancement has made life simpler in many aspects. Telecommunication has also improved a lot. Broadband penetration and speed have increased so much that doctors can even control scalpel-wielding robots hundreds of miles away.

People can now access different information, source products and order from any part of the world. Transportation infrastructure, on the other hand, has also improved tremendously. Plus it has become cheaper and faster to import or export products to other countries.

People can even request for products online from the comfort of their homes and have them shipped to their doorsteps.

How Globalization has Impacted the Law?

Compared to previous years, many countries have started to embrace free trade. But in the past years, trade barriers and hefty tariffs made foreign trade almost impossible.

Today, many governments have started to see reasons why businesses operating within and other their jurisdiction should be given a chance to operate freely. They have also seen that allowing companies to function without trade barriers or massive tariffs can lead to expansion of the business, which will affect the country’s economy positively, in the long run.

Compared to previous years, businesses now have the freedom to source products, raw materials, and labor from wherever they deem fit, particular as the global market permits.

EFFECTS OF GLOBALIZATION ON BUSINESS MANAGEMENT IN DEVELOPED COUNTRIES.

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 GLOBALIZATION 

  • 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 nation’s 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. This 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 investments 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.

  • Innovation 

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 GLOBALIZATION

  • 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 this means fewer opportunities in developed worlds. In short, globalization takes jobs from one country and provides them to another. This can be negative or positive depending on what part of the world you are in.

Sonia Kukreja

I am a mother of a lovely kid, and an avid fan technology, computing and management related topics. I hold a degree in MBA from well known management college in India. After completing my post graduation I thought to start a website where I can share management related concepts with rest of the people.
Sonia Kukreja