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11 Advantages & Disadvantages of Globalization in 2024

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Benefits of Globalization

Recruit, hire and pay remote teams with Horizons

Key Takeaways

1. Globalization is the spread of business activity (products, services, and people) across international borders.  

2. Potential benefits of globalization for the economy include increased choice, higher quality products, increased competition, economies of scale, increased capital flows, increased labor mobility, and improved international relations. 

3. Globalization can offer businesses advantages such as cost savings, international recruitment, specific market opportunities, and the spread of risk. 

4. Potential disadvantages of globalization for world economies include possible monopolization, structural unemployment, interdependence, and tax avoidance. 

5. Potential disadvantages of globalization for individual businesses include compliance, control, and inadequate market knowledge.

6. Once the decision to globalize has been made, any business moving in this direction will face various subsequent challenges. 

Globalization means a world without international borders. In this article, we delve into the definition of globalization, and explore the benefits of globalization for individual businesses, and economies as a whole. In addition, we look at some of the challenges of globalization for companies that choose go down that route.

What is the definition of globalization?

In the broadest terms, globalization is the spread of products, services, people, and activities across national borders and cultures. On an individual business level, this might be referred to as global or overseas expansion. Sometimes, it is used to refer to a more specific phenomenon in economics—the spread of “free market” policies across the world economy.

Globalization is still a work in progress. For example, in some countries, trade sanctions prevent economic engagement with other countries. However, at the root of this concept is international trade. This is not a new phenomenon—it’s ancient. For example, the incense trade route between the southern Arabian peninsula and the Mediterranean began roughly in the 7th century BCE.

In the modern age, the terms of global trade are primarily governed by agreements such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) between eleven major Asia-Pacific countries, as well as the work of international organizations such as the World Trade Organization. Through these agreements, countries usually agree to reduce import tariffs on goods, making the cost of importing those goods higher than expected.

Globalisation, a phenomenon characterized by the interconnectedness of nations and the flow of goods, services, and information across borders, has been significantly influenced by the emergence and proliferation of online casinos like here: https://topcasinosuisse.com/en/. The impact of online casinos on globalisation is multifaceted and extends across various aspects of the global economy and culture.

The rise of online casinos has contributed to the growth of the digital economy. This sector encompasses a wide range of online businesses, including gaming, e-commerce, and fintech. Online casinos have become a prominent player in this digital landscape, promoting technological advancements and innovation.

In summary, the impact of online casinos on globalisation is significant and far-reaching. These digital platforms have influenced economic integration, technological innovation, and cultural exchange on a global scale. As online casinos continue to evolve and expand, their role in shaping the interconnected world of globalisation will likely continue to grow.

Below we will consider some of the major advantages of globalization, both for an individual country’s economy, and for individual businesses. We also look at the challenges of globalization in the same way.

Chart: The globalization trend over time

In the chart below, from Fredrik Erixon at the European Centre for International Political Economy (ECIPE), the barriers to globalization over time are made clear. 

From a high point in around the year 2000, regulatory and other barriers to trade have been applied to place a break on globalization efforts. 

Globalisation has become an inevitable and transformative force in the financial world, and New Zealand banks have been no exception to its reach. As financial institutions adapt to the dynamics of an interconnected world, they are redefining their roles and strategies to thrive in the global marketplace. The globalisation of NewZealandBanks NZ represents a significant shift from traditional domestic banking to a more diversified and international approach.

New Zealand banks have sought to tap into new markets beyond their home country. By establishing a presence in foreign countries, they can serve local and international customers, diversify their revenue streams, and reduce dependency on the domestic market.

In conclusion, the globalisation of New Zealand banks is a strategic response to the changing dynamics of the financial industry. It reflects the banks’ adaptability, resilience, and commitment to providing world-class financial services to customers, both at home and abroad. As these banks continue to navigate the complexities of the global financial landscape, they play a crucial role in supporting New Zealand’s economic growth and prosperity.

What are the economic benefits of globalization?

As globalization is imperfect, and at various stages of implementation, it is hard to make a universal claim about its benefits. However, some of the potential benefits of globalization to economies include:

Increased choice

No individual country could produce the sheer variety of goods that can be produced globally. Through globalization, consumers in one country can access goods and services that they would never otherwise have access to.

Higher quality goods

As each nation concentrates on its specialty industries, there is far less ‘re-inventing the wheel.’ For example, every country does not need to waste its scarce resources producing its smartphone version when one can be imported from a country specializing in this product.

Increased competition

Increased competition from foreign companies in a country’s economy means a more efficient market and lower prices for consumers. Suppliers of goods and services must keep their prices low to stay competitive.

Economies of scale

Globalization provides companies with a much bigger effective market in which to sell their goods, allowing them to scale up their production. As the level of production increases, their margin on each good or service provided can increase as their fixed costs remain the same or become incrementally smaller.

Increased capital flows

Capital can flow into developing economies, providing a significant form of finance that businesses in that economy would not otherwise have access to.

Increased labor mobility

The global economy can better match supply and demand by allowing individual workers to move to other countries. Countries that excel in educating certain professionals in dynamic sectors like project management and farming can export those professionals to other countries that do not have the same specialty. For example, New Zealand must import many skilled agricultural workers yearly to harvest its crops.

Improved international relations

Countries that have positive trade relationships with each other have an incentive not to get into conflict. This should reduce the likelihood of armed conflict between nations on a global scale.

What are the benefits of globalization for individual businesses?

Putting aside the possible benefits of globalization for individual and world economies, what are the potential benefits or advantages for individual companies.

Cost savings

An international enterprise can increase its overall profitability by outsourcing certain functions, such as payroll and HR, to countries where this can be provided at a lower cost.

But globalization doesn’t just mean outsourcing: Establishing separate legal entities (such as foreign subsidiaries) and branches or using Employer of Record solutions can be effective mechanisms for establishing a more cost-effective business location. 

International recruitment

If you struggle to find the right talent in your own country, an advantage of globalization is that you may be able to source workers in another country where there is significant capability in that area. 

Specific market opportunities

You may have identified specific countries with an opportunity to corner the market with your product or service. Moving into that market can be an essential growth opportunity for your business.

Spreading risk

Individual countries are vulnerable to economic events and fluctuations specific to that country. An advantage of globalization and expanding into multiple countries is that an enterprise can spread this risk and ensure it doesn’t place “all its eggs in the same basket.”

What are the potential economic disadvantages of globalization?

While globalization has some clear benefits, there may also be costs associated with it for individual economies, depending on how it is implemented. Some of the challenges or disadvantages of globalization that have been identified include:

Possible monopolization of multi-national companies

Large enterprises from developed countries may move into smaller developing nations and take over the market. Their specialization and efficiency in providing a particular good or service may mean that local producers in a developing country are knocked out of the market.

Structural unemployment

If a country is no longer competitive in the production of a particular good, this may mean that its production rapidly moves offshore, and workers are left unemployed. While it may be possible to re-train these staff and deploy them to a more efficient market, this lag can take years, resulting in a significant rise in unemployment and inequality.

Inter-dependence

Individual countries become dependent on other nations for their supply chains. If there is a disruption to this chain, they may no longer be able to produce the good themselves.

Tax avoidance

It may be that some companies are able to avoid paying taxes that one might expect that company to pay in a given country through legal tax arrangements.

It is worth emphasizing that all these potential disadvantages are ones that apply to the economy as a whole, they are not costs for individual businesses.

What are the potential disadvantages of globalization for businesses? 

While a global outlook is usually to the benefit of a business, there are a few potential disadvantages. These include: 

Compliance

Individual businesses will often be less familiar with the compliance environment overseas than they are with the compliance environment in their own location. To mitigate this disadvantage it can be useful for businesses to engage a foreign partner who is an expert in local legal, tax, and compliance issues.

Control

While it may be possible for a business to operate directly in a foreign country (known as opening a branch office), this is not the most common method of international expansion. More commonly, the company opens a subsidiary or separate business entity which is no longer in the direct ‘chain of command’ of the original business.

The lack of direct control of an overseas location of a business can lead to significant compliance, business, and reputational risks (this is discussed in greater detail in our article ‘Branch versus Subsidiary‘).

Inadequate Market Knowledge

Global expansion means understanding the market dynamics of each country of expansion. Without in-depth knowledge of that market, it can be difficult to know whether it is an appropriate target country for a product or service.

Video: Pros and cons of globalization — Stiglitz speaks 

World-renowned economist Joseph Stiglitz explores the benefits, the disadvantages and the challenges of globalization. 

What are the challenges of globalization?

While the benefits are substantial, some challenges await any company that wishes to exploit the benefits of globalization. Those challenges, while manageable, include: 

The need for a legal presence  

Many companies realize the vast opportunities in new markets, but they usually do not have a legal entity in these countries.

This can be problematic because there are restrictions on the activities of companies that do not have a legal entity, such as a subsidiary, in the country of expansion. While the company may be able to incorporate a business in a new country, many business owners are hesitant to invest a substantial amount of money in a new endeavor when they do not know if their expansion will be successful.

Even if they are willing to take on this risk, they may not have the resources available to pay for large expenses, such as the incorporation costs or paid-up capital requirements (for example, the most common form of incorporated entity in Germany, the ‘GmbH’, requires a minimum of €25,000 in paid-up capital. 

Additionally, many countries require businesses to inject capital into a bank in that country that can only be used on business activities, which makes the prospect of setting up a separate entity cost-prohibitive for many businesses.  

The difficulty of testing the market 

Most prudent business owners realize their product or service may not be embraced globally with the same function and marketing information. Therefore, they invest in market research to see how the potential market perceives their product and brand.

However, overseas businesses may have difficulty testing the market without a local presence.

Additionally, they may run afoul of complex regulations about foreign businesses. For example, sometimes advertising activities require that the business possesses a specific licence which can only be held by businesses registered in that country: Businesses will want to avoid issues with foreign bureaucratic agencies so that they are not later prohibited from conducting business in the country. 

Hiring staff in a compliant manner

Key staff members will need to be in place for any type of expansion in a new country.

However, many countries do not allow foreigners to hire staff without a legal entity in the country. Even if the company establishes a legal entity in the country or opens a sales officethe employee’s activities may be restricted.

Additionally, many business leaders may not be familiar with foreign laws regarding employment law, tax, and other legal issues in that country.   

Regulatory and legal compliance  

Of course, businesses want to expand into another country without violating any laws or regulations. However, setting up operations in a foreign country can be complex, especially when business leaders need to speak the local language. The regulatory framework in foreign countries can also often be confusing for foreigners.  

To comply with applicable regulations in other countries, the business may need to perform the following tasks: 

  • Incorporate a business 
  • Register with tax authorities 
  • Open a corporate bank account 
  • Acquire necessary certifications 
  • Maintain corporate records and filings 
  • Check trademark availability, register trademarks and other intellectual property
  • Process payroll and administer employee compensation and benefits 

Completing these tasks compliantly can be difficult for someone who is not an expert in the country’s regulatory scheme. Utilizing case management (AML) and Finance tracking tools can simplify this process. These tools help ensure that businesses stay compliant with local regulations, particularly in anti-money laundering and fraud prevention areas.

Explore the benefits of globalization with Horizons

While there is an ongoing debate on the pros and cons of globalization for individual nations and the world economy, the benefits of expanding globally for individual businesses are clear.

Horizons provides international consulting and expansion services to support your globalization mission and help you overcome its challenges. 

Frequently Asked Questions

Economic benefits of globalization include increased consumer choice, higher quality products, economies of scale and increased capital flows into locations where it is needed most. 

Not directly. For example, globalization means that it is not cost-effective for iPhones to be manufactured by a US business, compared to a Chinese manufacturer. In that case, globalization would not directly benefit the US business. 

However, it is debatable and controversial whether globalization benefits everyone overall. 

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