Globalization is the process by which the world is becoming increasingly interconnected as a result of massively increased trade and cultural exchange. The ever-increasing flow of cross-border traffic in terms of money, information, people and technology isn’t going to stop.
THREE CRUCIAL TIPS FOR UNDERSTANDING GLOBALIZATION
Globalization is the way that local or national ways of doing things become global, that is, done together around the world. It is about economics or trade, technology, politics, and culture. Some people, like Noam Chomsky, do not like globalization because they feel it only helps rich people get richer by making poor people poorer. However, others like Thomas Friedman, believe that globalization can bring people together and make everyone richer without getting rid of local cultures.
Globalization ranges from a vast area such as:-
- (PEST) – Politics, Economics, Social, Technology
- (LIFTT) – Labor, Investments, Finances, Trade, Technology
SWOT analysis – a study undertaken by an organization to identify its internal strengths and weaknesses, as well as its external opportunities and threats.
- (SWOT) – Strength, Weakness, Opportunity, Threats
“No generation has had the opportunity, as we now have, to build a global economy that leaves no-one behind. It is a wonderful opportunity, but also a profound responsibility.” – Former U.S. President Bill Clinton
Causes of globalization
- The development of communication technologies such as the Internet, E-mail, and mobile devices have been vital to the growth of globalization because they help Multinational Companies (MNCs) to operate throughout the world.
- The development of satellite TV channels such as SKY and CNN have also provided worldwide marketing avenues for the concept and products of globalization.
- The development of refrigerated and container transport, bulk shipping and improved air transport has allowed easy mass movement of goods throughout the world. This also assists the spread of globalization.
Free Trade Agreements (FTAs)
- Multinational companies and rich capitalist countries have always promoted global free trade as a way of increasing their own wealth and influence.
- International organisations such as the World Trade Organisation (WTO) and the International Monetary Fund (IMF) also promote free trade.
- Modern communication technologies allow vast amounts of capital to flow freely and instantly throughout the world.
- The equivalent of up to $US 1.3 trillion is traded each day through international stock exchanges in cities such as New York, London, and Tokyo.
The growth of Multinational Companies
- The rapid growth of big MNCs such as Microsoft, McDonald’s and Nike are a cause as well as a consequence of globalization.
- The investments of MNCs in farms, mines, and factories across the world is a major part of globalization.
- Globalization allows MNCs to produce goods and services and to sell products on a massive scale throughout the world.
What Drives Global Businesses?
Over the years, the relative success of globalization is evident in terms of increased foreign trade and capital flows, acceleration of growth rates and rising real per capital GDP in the those countries that have opened up their economies more to the rest of the world than those that have preferred to follow a close economy model.
Global businesses considers growth by:-
- Higher Profits & Market Access in global markets
- Reduced Technological Barriers in movements of Goods & Services
- Extending the life cycle of products by sales in foreign countries
Financial Opportunities and consumption patterns
In this digital age, Smartphones and the Internet go hand in hand, consumers use them to access services faster than ever before. This in turn, allows easier accessibility to many more products and services worldwide, thus increasing global opportunities and better financial status for international businesses.
Factors in the growth of consumption patterns in online businesses:-
- Consumers have a greater access to choices of products
- Widespread use of mobile devices
- widespread use of the Internet
- Social media awareness of products
- Secure and reliable payment systems
- Better shopping experience, simplicity of websites
Technology and its advancements
Information Technology (IT) is one of the driving factors of rapid globalization. Since its debut, computers have drastically improved to better serve humans, from a large bulky home personal computer to the lightest ultrabooks on the market today. With globalization, it accelerates the change of technology. Technology innovations such as The iPhone and the smartphone industry are ideas brought forth by globalization. Now, technology is in the forefront of the modern world, creating jobs for countless people and changing more lives in the process.
Impacts of Globalization
Changing food supply
- Food supply is no longer tied to the seasons. People can buy food anywhere in the world at anytime of the year.
Division of labor
- Because MNCs search for the cheapest locations to manufacture ans assemble components, production processes may be moved to developing countries where costs are lower.
Lesser job security
- In a global economy, jobs are becoming more temporary and insecure.
Damage to the environment
- More trade means more transport, which uses more fossil fuels and causes pollution.
- Climate change is a very serious threat to the future of earth.
- Websites such as YouTube connect people across the planet. As the world becomes more unified, diverse culture are being ignored. MNCs can create a mono-culture as they remove local competition and thereby force local firms to close.
Increase anti-globalization protests
- There is a growing awareness of the negative impacts of globalization. It can be challenged by communities supporting each other in businesses and society, and through public protest and political lobbying.
World Trade Organisation (WTO)
The World Trade Organization — the WTO — is the international organization whose primary purpose is to open trade for the benefit of all.
The WTO can:
- Cut living costs and raise living standards
- Settle disputes and reduce trade tensions
- Stimulate economic growth and employment
- Cut costs of international business
- Encourage good governance
- Help countries develop
- Give the weak a stronger voice
- Support the environment and health
- Contribute to peace and stability
- Be effective without hitting news headlines
The World Trade Organization (WTO) is the only global international organization dealing with the rules of trade between nations. At its heart are the WTO agreements, negotiated and signed by the bulk of the world’s trading nations and ratified in their parliaments. The goal is to help producers of goods and services, exporters, and importers conduct their business.
Tax minimization is when you legitimately arrange your tax affairs to reduce the amount of tax you pay. Businesses use two methods to minimize taxes, theses are:
- Tax Havens
- Transfer Pricing
Tax Havens are countries with secretive taxes and financial systems and low taxes for non-residents and foreign owned companies.
A country can be classified as a tax haven if in terms of taxation and financial there is:
- Lack of transparency where no or weak laws about businesses records and reports, making it difficult for tracking business transactions, profits and money.
- Lack of information exchange where governments and financial institutions do not share information with other governments and resists sharing information in international investigations.
Transfer pricing refers to internal prices and is used by multinational companies to reduce their tax bills, such as using the trade of supplies or labor between departments.
Tax authorities usually frown upon transfer pricing aimed at tax avoidance and insist that each internal part of the firm deals with the other on ‘arm’s length’ (market price) basis.