Globalization: Concept, Cause, and Consequences
Globalization is everywhere, and it touches every part of our lives, from the products we buy, the food we eat, and our clothing.
Globalization is the increasing interconnectedness of countries, cultures, and economies around the globe. Borders across countries and even companies are becoming less restrictive as trade, information flow, and people move more freely from one to the other.
The International Monetary Fund offers a more in-depth definition of the concept. Here, globalization refers to:
«…the increasing integration of economies worldwide, particularly through the movement of goods, services, and capital across borders. The term sometimes also refers to the movement of people (labor) and knowledge (technology) across international borders. There are also broader cultural, political, and environmental dimensions of globalization.»
Globalization stretches across many different concepts and topical areas. Some of the most common include:
- Cultural Globalization: Cultures across the world are becoming increasingly similar and assimilated. As an example, picture Hollywood movies being available around the world.
- Economic Globalization: The development of international trade systems makes moving goods from one country to another easier. Free trade areas like the European Union are the most common expression of economic globalization.
- Political Globalization: This refers not just to transnational bodies like the UN and the EU but also to increasing similarities across the governments of different countries.
- Financial Globalization: This concept focuses on the increased simplicity of money flow to and from different countries for personal and business transactions, stock market investments, and more.
- Technological Globalization: Technology interlinks people worldwide through social networking apps, messaging apps, and the general ease of digital communication.
That is just the beginning. The same concept also applies to increasing sociological, geographical, and ecological synergies. The broad nature of this concept ensures what we already mentioned. Escaping globalization in personal life and business strategy or operations is impossible.
Exploring the Causes of Globalization
To say that globalization began when early humans first began to travel is not wrong. But it is just as accurate to state that recent technological advancements have accelerated the pace of global interconnectedness at a previously unseen speed.
Thanks to modern technology, businesses can build distributed workforces across the globe. Those same technologies and political and economic alignments have made global expansion easier. Even when keeping your company in your local market, the ability to source products from more cost-effective countries can make or break your long-term revenue flow.
More specifically, researchers have identified a few events in modern history that have driven the rise of globalization:
- 1945: The creation of the United Nations at the end of World War II significantly increased political and economic connections worldwide.
- 1947: The creation of GATT (the General Agreement on Tariffs and Trade) started the rise of free and low-tariff trade agreements worldwide.
- 1991: The creation of the World Wide Web drastically accelerated the speed and ease of communication across countries for individuals and businesses.
- 1995: The creation of the World Trade Organization as a continuation of GATT created a powerful, unified body to regulate trade worldwide.
Of course, we must also recognize the importance of other historical events in this development. Many inventions, from the printing press to the telephone, have contributed to our modern interconnected world.
COVID-19 as a Case Study in the Complex Nature of Globalization
At the same time, the rise of globalization is sometimes linear. For example, the recent COVID-19 pandemic shows how complex world events can become in helping or hindering this interconnectedness.
On the one hand, significant evidence exists that the COVID-19 virus spread across the globe so fast precisely because of the increasing travel, trade, and interconnectedness between countries and continents. That faster spread, in turn, also ground to a halt the global supply chains that entire economies have come to rely upon. As a result, we saw significant product shortages across industries.
However, the same concept that accelerated the global virus’s initial rise has also helped fight the pandemic. Product shortages were generally short-lived because suppliers could source from other countries. The pooling of global resources, not to mention the international collaborations involved in developing various vaccines, has been an unequivocal triumph of globalization in the face of a worldwide challenge.
The COVID-19 case study illustrates just how interwoven globalization has become. It is not a surprise, then, that its consequences reach every part of business operations.
Business Consequences of Globalization
Globalization undoubtedly offers many benefits to businesses, which is true whether they are looking to stay within their home market or expand into new markets. At the same time, some drawbacks are just as significant to consider. Understanding these combined consequences can go a long way toward building a sustainable strategy that leverages the concept in a context-appropriate manner.
The most apparent benefit of globalization consists of increased ease in business operations and market exploration:
- Supply chains can extend globally and provide significantly more choices. Ultimately, they can become better options for anyone, from manufacturers, looking for raw materials to retailers selling finished goods.
- Thanks to remote work, partially spurred by the COVID-19 pandemic, organizations are now open to more than just the local talent pool or wage expectations in their immediate surroundings.
- Potential markets extend beyond country boundaries, and this can unlock more opportunities for selling your goods and services worldwide.
These benefits trickle down to more tactical initiatives, as well. For example, increased cultural globalization means cultural references are more easily understood in marketing and communications. A reference to Seinfeld may be just as applicable in Asia and Europe as in the United States.
At the same time, not all consequences of globalization are positive. For example, organizations like UNESCO have expressed significant concern about the increasing cultural unification worldwide. This risks the loss of local traditions and even languages in favor of a more homogeneous culture. Issues like the exploitation of weak labor laws in developing countries, increasing immigration challenges, and local job losses are also frequently mentioned as a reason why polls worldwide have shown a cooling of attitudes toward globalization.
How to Reflect on Globalization’s Effect on Your Organization
Global businesses must be aware of these potential negative consequences. It makes concepts like localization—adapting to local markets and cultures—important when planning a global strategy.
We live in a globalized world, and grappling with the positive and negative implications is essential to build a sustainable business model. Contact us today.