Benefits of Globalization from a business perspective

Globalization is regarded both; as a major challenge and an opportunity for many businesses in the world today. The aim of this essay is to investigate the role of globalization on businesses. This essay identifies the benefits and disadvantages of globalization and then compares the two to finally conclude the way globalization influence businesses.

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Globalization simply means “interconnection” of politics, trade, culture, environment and economy (Metz, 2013). Hence globalization directly influence society, institutions and individuals. This essay will investigate the influence on businesses. Although globalization has many advantages but at the same time disadvantages cannot be ignored.  Globalization is regarded as a controversial topic and no consensus are made on its exact definition. However “Globalization can be seen as a process of changes that intensifies global relationships in numerous levels” (Metz, 2013), hence complexity bought by globalization can have huge impacts which will be investigate in this essay.

Globalization positively influences businesses because new industries are developed, new jobs are created, and materials can be procured at relatively less costly prices, hence giving cost advantage to the business. However on the other hand at the same time businesses face more competition from the global competition. In today’s world firms are competing in global markets due to increased globalization. These businesses are competing in the international markets and hence have to develop global strategies for selling the product, for sourcing the material in order to gain low cost advantage. These businesses further form alliances with other businesses in other nations to gain the overall advantage of globalization. Globalization has huge impact on the way business operates because it decouples the firm from “factor endowment” of one nation. Since components, materials and services are available on comparable terms in the global markets businesses gets advantage. Another important role has been played by the improvement in the transportation mechanism and now goods can be exchanged at relatively less costly (Porter, 2011).

Generally globalization offers both advantages and disadvantages to businesses. The positive effects of globalization include employment opportunities for people as a result better human resource for business, competitive pricing to competitors, ability to decrease cost of business, access to bigger markets, increased customer base and technological advantages.

On the other hand unrestricted globalization negatively affect small business, who are unable to sustain due to large giants in the market. Similarly small businesses lack resources and hence are unable to compete in the global market as a result they are unable to grow and expand. Many businesses become dependent on other countries for raw material and hence it is negative in case of conflict among countries (Metz, 2013). Overall some businesses gain advantages while others face consequences as a result of globalization.

Globalization has completely changed the business scenario, today businesses outsource the departments to countries where cost advantage can be achieved. For example many brands like Zara outsourced its production to developing countries where resources are cheap, as a result the business (Zara) was able to gain cost advantages and eventually higher profits. Global trade further gives businesses serval opportunities, as raw material can be purchased from any part of the world as a result options have increased for businesses. Global trade has particularly benefited small farmers who can now sell to bigger markets. According to Idris (2012) globalization impacts businesses by affecting the work values which in turn have an impact on the decision making and finally business profitability. This reinforces that with increased globalization work practices get better and businesses are hence able to achieve economies of scale.

Spence (2011) highlights that globalization has increased rapidly and in past 60 years it has accelerated due to many factors including technology and management expertise. This further highlights the importance of globalization, since it has increased rapidly businesses have to operate within global market dynamics which are both positive and negative. While different statistics are present many countries have experienced massive growth due to globalization (Hill, Cronk & Wickramasekera, 2013).

On the business level various businesses have gown global and hence achieved massive growth. There are numerous examples consider “Walmart” whose revenue increased exponentially by going global, similarly there are many other businesses including “Toyota”, “Royal Dutch Shell”, “Coca Cola”, “BP”, “Nestle” (Fortune, 2014).

In the same way if specific examples are considered, Walmart is an American multinational giant which is present in about 27 countries (About Walmart, 2014). The reason for its massive growth in these countries is globalization. With globalization Walmart was able to gain economies of scale and build competitive advantage. Globalization helped Walmart in getting cheaper raw materials and in increasing customer base. This company has been regarded as a company with highest revenue in 2014 hence it can be said that globalization positively contributed to growth of Walmart.

Nestle is another multinational company which has gained huge advantages from the globalization. Although globalization also bought challenges for the business but the company now operates in 87 different countries due to globalization. With entry in various countries the company grew extensively and achieved economies of scale (About Nestle, 2013). In the same way Procter and Gamble was able to grow due to globalization, it was able to cross national boundaries and reach multi nations. All these examples are of big companies however small businesses have also gained advantages and were able to expand.

Globalization although bought several challenges and these small business were not able to gain the advantages as much as big giants but still these businesses also expanded. The major challenge faced by small companies was that they had to face tough competition from already existing giants. However wide customer base and cost advantage are major benefits bought by globalization. There are numerous examples that support the statement that globalization has affected in positive ways to many businesses.

To confirm the above mentioned statements; Awuah and Amal (2011) conducted a research to investigate the impact of globalization on firm’s competitiveness in least developed countries. Their major research question was to see the impact of globalization on small to medium sized enterprises and the way opportunities and challenges are handled by these firms. They argue that the abilities of firm including learning, internationalization and innovation which directly increase competitiveness of the firm are increased with globalization. They further claimed that in global setup to gain such competitiveness it is important to establish relationships with governmental and non- governmental institutions in order to gain resources, and to enter the global markets.  They finally argued that globalization has bought several advantages for many firms in the global market but the role in SME’s is still controversial and overall the impact of globalization is dependent upon the firm’s own ability to learn and to innovate.

Pangarkar (2012) explored the role of globalization on performance of firms in China, he investigated the impact of globalization 6 industries and 166 publicly listed companies. The finding was that increased globalization positively affected these firms and their performance improved due to globalization.  Similar study was conducted in Malaysia to investigate the impact of globalization on the Malaysian firms (Mamman, Baydoun, Sulaiman, & Ismail, 2013). For this study 165 managers and professionals were taken as sample, the results were interesting and majority of the respondents claimed that they regard globalization as a system which is similar to other systems of the society including political and economic system. It was further highlighted that globalization positively impacts by transferring good business practices and by inflow of foreign direct investment. Overall the results showed that the view was impacted by the ethnicity of the respondents while Chinese were positive about the impact of globalization on businesses Malays were not.

Zhang, Ma, Wang and Wang (2014) claimed that the competitive advantage of the SMEs is in the flexibility of the organization, the level of flexibility directly impacts on the level of benefit a firm can obtain from globalization. The research showed that strategic flexibility has a direct impact on the business and it helps firm in gaining the benefits of globalization.

Butter (2012) claims that with the rise in globalization, supply chains become complex because production is them fragmented into various steps. In today’s world transaction costs can have huge impact and hence managing them is of utmost importance.

Overall globalization has more advantages than disadvantages on the businesses due to various factors highlighted above. This essay made several points which are highlighted again in this part; although globalization increased complexity for businesses still the positive impact outweigh the negatives. Globalization positively influences businesses because new industries are developed, new jobs are created, and materials can be procured at relatively less costly prices, hence giving cost advantage to the business. However on the other hand at the same time businesses face more competition from the global competition. In today’s world firms are competing in global markets due to increased globalization. These businesses are competing in the international markets and hence have to develop global strategies for selling the product, for sourcing the material in order to gain low cost advantage. These businesses further form alliances with other businesses in other nations to gain the overall advantage of globalization. Globalization has huge impact on the way business operates because it decouples the firm from “factor endowment” of one nation.

In general situations globalization offered both advantages and disadvantages to businesses. The positive effects of globalisation include employment opportunities for people as a result better human resource for business, competitive pricing to competitors, ability to decrease cost of business, access to bigger markets, increased customer base and technological advantages.

However on the other hand unrestricted globalization negatively affect small business, who are unable to sustain due to large giants in the market. Similarly small businesses lack resources and hence are unable to compete in the global market as a result they are unable to grow and expand. Many businesses become dependent on other countries for raw material and hence it is negative in case of conflict among countries.

Globalization has completely changed the business scenario, today businesses outsource the departments to countries where cost advantage can be achieved. Several examples of various businesses highlighted that globalization positively affected these businesses.

Globalization although bought several challenges and these small business were not able to gain the advantages as much as big giants but still these businesses also expanded. The major challenge faced by small companies was that they had to face tough competition from already existing giants. However wide customer base and cost advantage are major benefits bought by globalization. There are numerous examples that support the statement that globalization has affected in positive ways to many businesses.

On the whole globalization is a complex phenomenon and has contributed both negatively and positively to businesses. The major impact was positive as businesses were able to grow, expand and gain profits hence globalization is good for businesses. Globalization contributed by increasing market for the businesses, it helped businesses in gaining raw materials and labor at relatively less costly from other countries. Although it increased competition for the business but that competition helped in improving performance of the business which was essential to remain and sustain in today’s dynamic competitive world. Globalization offers both advantages and disadvantages and businesses who struggle are able to gain most advantages.

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References

About Walmart (2014). Available [Online] www.walmart.com

About Nestle (2014). Available [Online] www.nestle.com

Awuah, G. B., & Amal, M. (2011). Impact of globalization: The ability of less developed countries'(LDCs’) firms to cope with opportunities and challenges.European Business Review, 23(1), 120-132.

Butter, F. A. D. (2012). The transaction management perspective on procurement in the era of globalization. International Journal of Procurement Management, 5(2), 123-139

Fortune (2014). Global 500.

Hill, C. W., Cronk, T., & Wickramasekera, R. (2013). Global business today. Mcgraw Hill Book Company of Aust P/l.

Idris, A. (2012). Globalization and Socio-economic Development in Malaysia: Wither Small Businesses?. Asian Journal of Business and Accounting, 5(1), 109-127.

Mamman, A., Baydoun, N., Sulaiman, M., & Ismail, I. (2013). Globalization and its consequences: Malaysian managerial perspectives and implications. Asia Pacific Business Review, 19(1), 102-128.

Metz, F. (2013). Globalization. Advantages and Disadvantages.

Pangarkar, N., & Wu, J. (2012). Industry globalization and the performance of emerging market firms: Evidence from China. International business review,21(2), 196-209.

Porter, M. E. (2011). Competitive advantage of nations: creating and sustaining superior performance. Simon and Schuster.

Spence, M. (2011). Impact of Globalization on Income and Employment: The Downside of Integrating Markets, The. Foreign Aff., 90, 28.

Zhang, X., Ma, X., Wang, Y., & Wang, Y. (2014). How can emerging market small and medium-sized enterprises maximize internationalisation benefits? The moderating effect of organizational flexibility. International Small Business Journal, 32(6), 667-692.