The Long-Term Effects of Globalization
Globalization offers many benefits for businesses. The larger international market offers massive opportunities, an increased client base and the potential for impressive revenue gains.
Clearly, when a company is slow to adopt globalization it can eventually damage their market share. If one company doesn’t explore global expansion, another certainly will.
They’ll be the first to establish brand loyalty to secure customers, making it much more difficult for latecomers to compete.
Past Trends in Globalization
Globalization has already had a profound effect on the way companies and nations do business. World Bank reports trade increased exponentially over the past decades.
In 1960, less than 25 percent of global GDP came from trade. By 2017, trade accounted for more than 70 per cent of global GDP. There’s no reason to doubt this trend won’t continue, because it has served many companies and nations well for years.
Economies operate much differently than they did in the past. For instance, the key factor that turned national economic difficulties into a worldwide depression in the 1930s was isolationism. Each country tried to protect its own financial interests and shunned collaboration.
Trade Partnerships & Alliances
Today, nations understand that working together offers outstanding benefits. As an example, the United States’ leading trade partners are Mexico and Canada.
Even though the problems with China have received plenty of press, global trade continues through their free trade agreements with 20 other countries. This reduces U.S. political and economic volatility.
Collaborating across borders also benefits businesses. All the biggest companies in the world such as Apple, Amazon, and Microsoft can reach beyond borders to operate in nations throughout the world. This allows them to tap into new markets, sell more products and services and strengthen their corporate brand.
In a globalized world, anyone with the necessary capital can enter almost any market. SMEs are less limited by their size as they have access to a larger talent pool and more suppliers making it easier for them to compete with larger enterprises.
Globalization can reduce the cost of goods and services, which increases competitiveness and supports further economic growth.
Spurs Technological Innovation
Globalization spurs technological innovation allowing companies to become more productive, environmentally conscious and profitable.
It also allows countries to gain easier access to foreign knowledge and technologies for speedier growth and increased profits in new regions.
Globalization has increased the intensity of research and development, allowing companies to specialize. They can focus their capital on groundbreaking, innovative products and services marketable to a worldwide, rather than domestic, consumer.
Increases Foreign Direct Investment
Globalization attracts foreign direct investment (FDI). This can help build infrastructure and provide badly needed financial input in times of turmoil. Foreign entities can invest in struggling or growing economies to acquire interests at a much lower cost than at home. In turn, this provides employment that helps those living in the community and the region as a whole.
Creates New Opportunities
Globalization can revitalize stagnating economies, create opportunities for training and education, expand a company’s offerings, unveil new, ideal customers and transform emerging nations.
Regions may become a haven for new technology, finance, investment and more. Workers learn valuable skills and strengthen the economy.
Future Trends in Globalization
The Secretary-General of the United Nations believes globalization is irreversible. A report delivered to the council identified three mega-trends every business will need to address as they plan ahead:
- The nature of production will continually change due to outsourcing and mechanization.
- Properly managed disruptive technologies, such as artificial intelligence and information systems, will probably play leading roles in sustainable development.
- Economic activity, lifestyle changes, and urbanization often link to globalization and may impact the environment.
Addressing these concerns is paramount for global business success, but they are also easily overcome with the right advice and expertise.
Potential Risks of Globalization
Of course, globalization includes risks too. Recent trade activity highlighted some of the potential risks. Trade wars, tariffs and regulatory changes are a few of the more obvious problems. These can seriously impact global trade, capital flow, supply lines and immigration policies.
Certainly, Brexit and the U.S./China Trade War presented more obstacles and uncertainty in the global marketplace. However, international trade remains the greatest driver of globalization.
According to the DHL Global Connectedness Index globalization hit a new record high in 2018. Predictions globalization will collapse due to economic nationalism have proven unfounded.
Consequently, businesses shouldn’t avoid global expansion. Instead, they need targeted advice, accurate, current information, and timely responses to handle the ever-changing international marketplace.
How to Protect Your Business
When a company ties their fortunes to a small market, they limit their potential. However, expansion into foreign markets shouldn’t be undertaken without detailed, accurate information.
Smart business decisions depend on an accurate overview of the foreign investment region, including short-term and long-term risks. Your company may need to rebalance strategies, adapt, localize or explore alternative locations. Not all countries present the cultural, administrative/political, geographic and economic opportunities your business needs.
Your business may need to make smarter organizational decisions to remain competitive too. Centralizing accounting and HR functions and utilizing cutting-edge technologies offers tremendous benefits.
Considering the recent backlash against globalization, companies also need to focus more on creating trust. In-country leadership is often a good solution for seamless integration into a new region and successful ongoing operations. Your business also needs to establish equitable business policies that respect local practices and tax and labor laws.
While no one can accurately predict future levels of globalization, the benefits and risks for your business always matter. Global winners will be companies that embrace the complexity of globalization, rather than avoiding it and following the same limiting national path.
Since the global market constantly changes, your business needs to accurately analyze its risks to take the necessary measures to protect its interests. Luckily, it is possible to pinpoint an excellent expansion strategy when you rely on a global expert.
Blueback Global understands the intricacies of global expansion. We’re well-positioned, highly-experienced and can provide you with a pathway to a profitable global network, as well as the technology to manage it. Contact us for a free consultation and get the advice you need in these uncertain times. Don’t pass on the opportunities globalization can provide. If your company doesn’t tap into these markets, someone else will.