The Benefits and Challenges of Globalization for Both Companies and National Economies - Research Paper Example

Benefits and Challenges of Globalization Companies Contents Introduction 1 Benefits of Globalization 1 Benefits of Globalization to Companies 1 Benefits of Globalization to National Economies 3 Challenges of Globalization 4 Challenges of Globalization to Companies 4 Challenges of Globalization to National Economies 5 Conclusion 6 References 7 Introduction Globalization is the increasing integration of people, ideas, finance and trade in the global marketplace (Soubbotina & Sheram, 2000). Cross border investments and international trade have been on the increase due to globalization. World today is definitely flat. Physical barriers are no longer play a role in today’s business world. It is technological advances that have immensely reduced the costs of communication, transportation and computation that has boosted globalization. Another factor that has been responsible for globalization is the increased liberalization of trade and capital markets. Unlike in the past, today governments are promoting foreign competition and investment in the local economies. Globalization has had both positive and negative impact on businesses and national economies. While some companies and economies have hugely benefited from globalization, others have been on the receiving end. This paper is aimed at identifying the various benefits and challenges of globalization to both companies and national economies. Benefits of Globalization This section identifies the various benefits of globalization for both companies and national economies: Benefits of Globalization to Companies Globalization has really made the world a small place and it is the businesses that have benefitted the most out of this. Globalization has opened new markets and opportunities for the companies. Globalization has increased the opportunity for revenue generation as companies can now establish business opportunities in foreign markets through subsidiaries and partnerships. They can even export goods and products to new markets outside of their domestic market increasing generation of revenue by manifold. Companies have access to resources that were earlier not accessible. Raw materials, skills, man power are now easily and cheaply accessible to companies from different counties. The resources which were either not present or expensive in the parent country can be now be accessed in other countries anywhere in the world. Cheap labor available in South Asian countries as a result of globalization is an example of this which many big companies in the developed countries in the west have effectively. China has transformed into a manufacturing hub for companies around the world due to cheap labor and friendly trade policies. Companies have markets across boundaries for their products and services. Access to new markets has opened greater opportunity for growth and expansion. Globalization has allowed companies to reach a wider audience and develop a larger customer base. Companies are no more handicapped by competing in a matured market. They can always find new markets and continue to grow. Companies can expand and outsource all aspects of its business operation in to achieve lower costs. All aspects such as marketing, servicing, production, advertising, etc can all be now outsourced to other companies. The savings in cost can either mean higher profits or can be transferred to the end user by lower pricing. The flexibility of business operations has increased rapidly due to globalization. Companies today have access to better external finance than in the past (Prasad et al., 2003). Financial markets have emerged worldwide and have made it possible for companies to get financial assistance from numerous sources outside of their local economies. Access to sufficient funds is very essential for a business to grow and expand. Smaller companies have a great opportunity to gain technical know from the many bigger and successful companies (Lechner & Boli, 2004). Companies can mutually benefit from each other through Joint ventures, licenses and alliances. This helps companies in developing countries to rise to international standards. Benefits of Globalization to National Economies There are various benefits of Globalization to national economies. One of the main benefits of globalization for a country is that its producers get access to international markets that are larger and open up new opportunities. This is an opportunity for national economy to benefit from international division of labor (Soubbotina & Sheram, 2000). Due to pressure from foreign competition domestic producers become more efficient and effective. Also domestic companies gain international specialization that improves the qualities of the product in the domestic market. Globalization also benefits domestic consumers as they have wider variety of products to choose from both locally produced and international. The products are available at a lower price than before due to competition. Increase of foreign investment in an economy results in creation of jobs (Lamb et al., 2011). For example outsourcing has created great employment opportunities in developing countries and boosted their economies. India and China are two economies that have benefited immensely from globalization, mainly outsourcing. An actively trading economy can benefit from technologies exchanges resulted due to globalization. The overall technological development in an economy is boosted due to globalization as there is consistent exchange and “spill over” of technology from trading partners. This benefit is more advantageous to developing economies as they can catch up fast with the developed countries on the technological front (D'Anieri, 2009). Globalization has lead to interdependence of economies on each other like never before. Hence, adverse economic conditions in one country can negatively affect other economies also. In some extreme instances, this can also lead to global economic crisis. Therefore, national economies must ensure that globalization does not make then hopelessly dependent on other economies and in turn make them fragile. Challenges of Globalization The challenges that companies and national economies face as a result of globalization are discussed here: Challenges of Globalization to Companies There are numerous challenges that companies face with respect to globalization. It is true that globalization has made resources available worldwide for companies but it is also true that many companies fail due to their inability to manage these resources across borders. For example, human resources across numerous cultures is a very difficult to manage with a single human resource strategy. Globalization calls multicultural approach to human resource management. Hence, it is a great challenge for companies to effectively manage their various resources in different parts of the world. With presence in different markets it is a great challenge for a company to develop workable supply chain and predictable logistical support. It also needs to develop different market strategies for different countries. Hence, new markets have definitely opened for companies but at the same time it also brings with it numerous challenges. Failure to design the right strategy and implementing them can be disastrous for a company. Many companies have failed to expand their operations to international markets and as a result their businesses in domestic markets have been negatively affected. Smaller companies are at a greater risk of being negatively affected by globalization. Smaller companies may lack the expertise and resources needed to compete with international companies and as a result can be forced out of business. Hence, if a company cannot adapt and compete with bigger companies it will end up on the receiving end of globalization. Companies that outsource operations to other countries have been criticised in the parent country. The ethical responsibility and social responsibility of a company towards its parent country is questioned. It is a challenge for companies to handle this criticism (Lawrence & Weber, 2010). This can sometimes lead to backlash and boycott of products in the domestic market if not handled in the right manner. Also companies when outsource their business operations must ensure that they are carried out in an ethical and legal manner. Outsourcing of manufacturing jobs to China has raised a lot of fingers as the working conditions for employees in China is said to be substandard and violate basic human rights (Heslam, 2004). Hence, companies must be very careful while outsourcing or else their corporate image will be at stake. Challenges of Globalization to National Economies Globalization is not all beneficial and brings along with it numerous challenges for economies. Those markets and industries where competition is very high can force local companies that cannot adopt and are less competitive out of business affecting the overall economy. When consumers have access to great quality international products for the same price as domestic products, they tend to choose the international one. This can mean dooms day for the domestic company of they cannot catch up with the quality. An important challenge to economies is to reduce the dependence on foreign suppliers for products related to national interest such as food, power, etc. This is a major challenge as the failure or non-compliance by a foreign supplier can mean disaster to local economy. Therefore, irrespective of the benefits of international trade and foreign investment, economies must try to develop their local companies that can meet the domestic needs (Aslund & Dąbrowski, 2008). Hence, it is necessary to maintain a balance between domestic and international suppliers based on its comparative advantages and failure of this can affect a country’s terms of trade. Conclusion This paper has successfully discussed the numerous benefits and challenges of globalization to both companies and national economies. Both companies and national economies have great opportunity for growth and development and at same time if not managed effectively can result in their downfall. References Aslund, A. & Dąbrowski, M. (2008). Challenges of globalization: imbalances and growth. Washington: Peterson Institute. D'Anieri, P. (2009). International Politics: Power and Purpose in Global Affairs. OH: Cengage Learning. Heslam, P.S. (2004). Globalization and the good. MI: Wm. B. Eerdmans Publishing. Lamb, C.W., Hair, J.F. & McDaniel, C. (2011). Essentials of Marketing. OH: Cengage Learning. Lawrence, A.T. & Weber, J. (2010). Business and Society: Stakeholders, Ethics, Public Policy. NY: McGraw-Hill. Lechner, F.J. & Boli, J. (2004). The globalization reader. MA: Wiley-Blackwell. Prasad, E., Rogoff, K., Wei, S. & Kose, M.A. (2003). Effects of financial globalization on developing countries: some empirical evidence. Washington: International Monetary Fund. Soubbotina, T.P. & Sheram, K. (2000). Beyond economic growth: meeting the challenges of global development. Washington: World Bank Publications. Read More