Globalization refers to the integration of economies and people worldwide through the exchange of goods, services, ideas, and capital. The phenomenon arguably first emerged with the Silk Road passing through Central Asia, China, and the Mediterranean all the way back between 50 B.C.E and 250 C.E.
Globalization encompasses economic, cultural, and technological aspects.
- Economic: Globalization refers to the increasing interdependence of nations through international trade, investment, and financial transactions. This has led to the emergence of a global economic system, where organizations like the International Monetary Fund, the World Bank, and the World Trade Organization play vital roles in shaping global economic policies and regulations..
- Cultural: Globalization involves the spread of cultural practices, values, and ideas across the world. This is facilitated by factors such as tourism, education, social media, traditional media, and face-to-face interactions. Cultural globalization can lead to the homogenization of global culture or the creation of a dominant global culture, significantly impacting international relations and cultural interactions.
- Technological: The rapid advancement of digital technologies has been a driving force behind globalization. The internet, in particular, has played a crucial role in expanding global connections, enabling international communication, and facilitating the global exchange of goods and services.
Three Powerful Impacts of Globalization
The exchange of goods, services, and cultural attributes has an impact on multiple fronts across nations.
According to the International Monetary Fund, while companies have raked in profits and countries have clocked growth, people worldwide have experienced better living standards and higher incomes.
1. Global trade
Globalization has reduced tariff and non-tariff trade barriers, making it easier to exchange goods and services across borders. Thus commodities are more accessible across the world. Such free-flow trade has created new markets, increased competition, improved the quality of products, and helped lower prices.
Furthermore, the phenomenon has created value chains and supply chains across the world and increased interdependencies. According to the International Trade Council, this has helped businesses “to tap into specialized skills, cost advantages, and access to resources in various regions.”
Such liberalization is a result of government policies and multi-state agreements like the North American Free Trade Agreement or the European Union.
2. Cultural exchange
Free exchange of ideas, customs, rituals, and lifestyles through mass media, including the internet, has influenced the everyday lives of people worldwide. The popularity of jeans, which originated in America, and how it has captured the markets across the globe is a great example.
Cultural exchanges are also in the realm of ideologies like democracy, liberty, equality, and justice, which originated in Europe but traveled to different parts of the world to influence government institutions.
Even the spread of international cuisine worldwide through chains like Pizza Hut and KFC is representative of cultural exchange in globalization.
3. Technological advancements
According to the International Monetary Fund, the positive impact of globalization has been especially large for emerging market economics as they have used foreign knowledge and technology to boost their own innovation capabilities and labor productivity growth.
Over 2004-2014, “knowledge flows from the technology leaders may have generated, for an average country-sector, about 0.7 percentage points of labor productivity growth per year”.
Globalization, then, lets countries access knowledge and innovations from one another. It also boosts competition among firms and countries to spearhead innovations.
Countries invest in education, human capital, and domestic research to boost their absorption capacities of foreign knowledge. And they also take measures to protect intellectual property rights.
Top Three Benefits of Globalization
The most significant benefit of globalization, according to the World Bank, has been a reduction in poverty levels.
As merchandise trade grew worldwide until 2013, average income grew by 24% globally and the global poverty headcount ratio declined from 35% to 10.7%.
There are several other advantages of globalization:
1. Increased market access
When economies liberalize and open to international businesses, they grow faster than the closed ones, according to the Organization for Economic Cooperation and Development (OECD). Companies gain access to newer markets across the globe they could exploit to outperform their competitors.
Moreover, open markets also help companies diversify their value chains to reduce costs by manufacturing abroad, sourcing cheaper raw materials, and employing cheaper but efficient global talent.
This also creates greater competition which slashes prices for commodities while making a variety of goods and services available for consumers. The competition makes it harder for low-productivity firms to survive. Furthermore, companies expand their customer base and are able to diversify their revenue streams.
2. Cultural awareness
By setting up operations in new countries in the form of joint ventures or wholly-owned subsidiaries, companies can closely monitor consumer preferences to design products and marketing campaigns accordingly. Companies entering the international market also create jobs in host countries to improve the quality of life.
As for recruiting global talent, companies can hire a more diverse workforce that is sensitive to the unique customs, needs, traditions, and languages of different cultures.
Globalization gives people exposure to cultures different from their own and helps reduce mistrust and strife worldwide. It helps cultivate a shared sense of “global identity”. Such a feeling of belonging to a community is crucial to combat international problems like climate change, terrorism, and pandemics.
In addition, globalization has blended myriad cultures to create “new and hybrid cultural expressions”. For instance, the mix of Eastern and Western cuisines has created dishes like sushi burritos.
3. Innovation
According to the World Economic Forum, globalization has the potential to further innovation, productivity, and growth worldwide. The diffusion of knowledge creates various exchange chains which benefit technology-receiving countries to bolster their research and development.
Globalization also lets countries and companies put their differences aside and work together for innovation. Companies today even value dispersed research and development investments to save costs, tap into special expertise, and access knowledge pools.
Three International Business Strategy Challenges of Globalization
Challenges posed by globalization, when unresolved, have led to resistance across the world. In order for businesses and companies to capitalize on globalization, these challenges must be strategically dealt with.
1. Market volatility
In a financially interconnected world, economic disruptions and market fluctuations in one country or region may have ripples for other economies.
For instance, the World Bank indicated that the sharp rise in the U.S. interest rates recently threatened emerging markets and developing economies.
In fact, researchers Cordella and Ospino in 2017 found that financial globalization could increase financial volatility in turbulent times and reduce it in more tranquil times.
Financial globalization also makes international credit more accessible, and firms and individuals may borrow excessively, which could be difficult to service. What’s more, the global stock market is driven mostly by short-term investments and speculations which may exacerbate volatilities and prevent long-term capital investments.
2. Cultural homogenization
According to academic David E. O’Connor, cultural homogenization refers to “the process by which local cultures are transformed or absorbed by a dominant outside culture”.
Certain countries with stronger control over international media promote their own cultural attributes like ideologies, language, attire, cuisines, and music. People in aspirational countries adopt these attributes, hoping for economic, social, and cultural mobility.
As a result, people the world over begin eating, dressing, and thinking alike at the expense of their own unique cultures. The prevalence of the English language and the spread of democratic ideals worldwide are great examples.
Contrarily, certain cultures are resistant to this influence for fear of losing their unique identity. As scholar Arjun Appadurai noted: “the central problem of today’s global interaction [is] the tension between cultural homogenization and cultural heterogenization”.
3. Inequality
Globalization may produce disproportionate growth both within and among nations, according to the Harvard Business School. Internationally, a few richer countries hosting multinational corporations may grow more at the expense of emerging economies, which could be sources of raw material and cheap labor and new markets.
A paper by WTO suggests that since the 1980s, countries have experienced growth in country inequalities, largely attributed to increasing globalization. In the 1980s, the top 1% of U.S. households earned less than 10% of the national income. Today, this figure has climbed to 20%, according to inequality.org.
The benefits of global companies landing on shores largely accrue to skilled workers, executives, and shareholders. Within countries, globalization could benefit mostly coastal cities and few manufacturing and service-sector-oriented cities, leading to uneven growth.
The Five Best Globalization Strategies for Global Market Access and Success
Globalization heralds several opportunities for businesses in the form of fresh markets, access to raw materials, and cheaper labor. To cash in on the phenomenon, they must adopt a few strategies:
1. Tap into global talent pools
You could rope in subject-matter experts from around the globe in different specializations to bridge your skills gap and propel critical projects toward completion.
Tapping into global talent can also prove cheaper when excess labor with specific skill sets means lower labor costs in certain geographies. Additionally, hiring employees locally can make your brand relatable to the native population. With a local presence, you could capture market sentiment for your campaigns more accurately.
When you access a global talent pool, you also can flexibly hire contractors, permanent, freelancers or remote workers. This brings down your HR costs and enhances your employee value proposition. Besides, research has shown that flexible work boosts employee productivity.
To expand the global workforce, organizations may rope in global workforce management and EOR solutions providers to help them hire and onboard employees, handle payroll, and manage compliance.
2. Match strategies to context
Companies must match their business strategies to a country’s context. They can then take advantage of a location’s unique strength, as suggested by research in Harvard Business Review.
The researchers believe that the “context” relates to a country’s political and social systems, its product markets, labor markets, capital markets, and degree of openness.
But if the companies find that the risk of adapting to the context is too great, they should either change the context in which they operate or stay away from that market.
For instance, Dell used different sales strategies for the U.S. and China. While in the U.S. the firm relied on direct sales without involving distributors or resellers, in China, it realized the same approach wouldn’t work as consumers weren’t used to buying PCs on the internet. So, Dell switched to fax machines and phones to take orders in China.
3. Value local cultures
When you operate in new territories, acknowledging and valuing local values, customs, traditions, and preferences is important to win customers’ trust. You must be respectful by using polite language or avoiding offensive language while communicating.
Next, build enduring relationships with the local elite including businesspersons, regulators, politicians, and local lobbies that could influence public sentiment.
Valuing local cultures also means having a diverse workforce and leadership. A Boston Consulting Group study has found that companies with diverse management teams yield 19% higher revenue owing to innovation.
4. Ensure compliance
Operating in multiple jurisdictions can get complicated owing to differences in regulatory frameworks and business and cultural norms.
According to Lexology, cross-border compliances include regulatory compliance, risk management, internal controls, due diligence, monitoring and reporting, cultural and ethical considerations, and cross-border data transfers.
Organizations must first conduct risk assessments to spot potential compliance roadblocks in different jurisdictions. Then, they must set up teams to resolve these concerns using comprehensive compliance plans.
You must also strengthen internal monitoring, reporting, and auditing to avoid violations. Teams should stay abreast of the latest legal changes in the jurisdictions in which they operate and accordingly incorporate them. You could also engage local lawyers to ensure smooth compliance.
To simplify compliance for your workforce, you could rely on EOR solutions with legal presence in different countries. For instance, Multiplier’s EOR ensured complete compliance for MoEngage in 19 countries.
5. Invest in innovation
Establish research and development centers in different locations to tap into local expertise and knowledge base and accelerate innovation. You may also collaborate with researchers, universities, and companies in related industries to boost research.
Innovating products, marketing efforts, and sales strategies can lend you a competitive edge in volatile markets. But remember to create robust systems to protect your intellectual property rights.
A globalization partner for worldwide market access
To thrive in global markets, businesses with global mobility plans should consider partnering with an employer of record (EOR) platform.
Such platforms, like Multiplier for instance, have the experience, knowledge, and systems in place to handle global payroll, compliance, talent acquisition, global workforce management, and more.
With Multiplier in your corner, you don’t just get an international business strategy expert to back you up, but also the collective expertise, connections, and knowledge of a legal and compliance team, HR team, finance team, and cultural exchange specialists.
To help businesses navigate globalization, Multiplier provides the following technological solutions:
- International Hiring: Employ and onboard individuals globally, including permanent and freelancers, while creating compliant contracts and offering competitive benefits and employee ESOPs.
- Global payroll: Run a risk-free, global payroll that automatically accounts for multi-country tax, benefits, and compensation. On a centralized dashboard, schedule payments, review payouts in local currencies, and access audit trails.
- Ensure global compliance: Draft locally compliant contracts for employees that adhere to labor and tax laws. Offer benefits packages that fulfill social security obligations. With local field teams, Multiplier ensures that deductions and withholdings comply with recent regulations.
- Easy visa processing: With immigration expertise in over 140 countries, Multiplier allows you to attract talent from different regions for critical roles. Their mobility specialists handle country visa administration, enabling your HR team to focus on employee engagement.
Speak to an expert today and leverage Multiplier to capitalize on the opportunities of globalization.
