6 Pros and Cons of Globalization in Business to Consider (2023)

Throughout history, trade and business have been limited by certain geographical restrictions. In its early days, trade was carried out between neighboring tribes and city-states. As humans domesticated the horse and other beasts of burden, the distances they could travel to trade increased. These distances have increased further with the development of maritime capabilities.

Although people have used ships to transport goods, cargo, people and ideas around the world for centuries, it was not until the development of the airplane that the blueprint for a "globalized economy" was established. This was done for one simple reason: it allowed us to cover greater distances faster than ever before.

The evolution of the Internet and easier means of communication and collaboration have taken us from the dawn of globalization to where we are today: just a few taps or clicks away from a colleague, business partner, client, or friend.

Globalization has innumerable effects, both positive and negative, on the economy and society as a whole. Here is an overview of the pros and cons of globalization in business.

What is globalization?

globalizationis defined as the increased flow of goods, services, capital, people and ideas across international borders, according to the online courseglobal business, taught by Professor Forest Reinhardt of Harvard Business School.

"We live in the age of globalization," says Reinhardt in Global Business. "That means the economies are more interconnected than ever."

advantages of globalization

1. Economic growth

In general, it is believed that increased globalization leads to higher economic growth for all parties. This can be for a number of reasons, including:

• Access to labor:Globalization gives all nations access to a broader pool of workers. For example, developing countries with a shortage of knowledge workers can "import" labor to boost the industry. Wealthier nations, on the other hand, can outsource low-skill labor to lower-cost developing countries to lower the cost of goods sold and pass those savings on to customers.
• Access to job offers:This point is directly related to work. Globalization often gives developing countries access to jobs in the form of outsourced labor to wealthier countries. While there are potential pitfalls (see "Disproportionate Growth" below), this work can make a significant contribution to local economies.
• Access to resources:One of the main reasons that nations trade is for access to resources that they would not otherwise have. Without this cross-border flow of resources, many modern luxury items would be impossible to manufacture or produce. For example, smartphones are based on rare earth metals, which are found in limited areas around the world.
• The ability of nations to “specialize”:Global and regional cooperation allows nations to take full advantage of their economic strengths, knowing that they can exchange commodities for other resources. An example is a tropical nation that specializes in exporting a particular fruit. Trade has been shown to benefit both parties when nations specialize in the production of goods or services in which they have an advantage.

2. Greater global collaboration

For a globalized economy to survive, nations must be willing to put aside their differences and work together. For this reason, increasing globalization has been associated with a reduction, if not elimination, of conflicts.

“Of course, as long as there have been nations, they have been bound together by the exchange of deadly forces—war and conquest—and that threat has never gone away,” says Global Business's Reinhardt. "The conventional wisdom is that increasing the intensity of these other flows (goods, services, capital, people, etc.) has reduced the likelihood that the nations of the world will fall back into the cataclysm of war."

3. Increase in cross-border investment

According to the Global Business course, globalization has led to an increase in cross-border investments. At the macro level, these international investments have been shown to increase welfare on both sides of the equation.

The home country benefits because it can often generate higher returns abroad than at home. The country that receives the inflow of capital benefits because this capital contributes to investment and therefore to productivity. Foreign investment also often comes with or in the form of technology, know-how, or access to distribution channels that can help the host country.

Disadvantages of globalization

1. Increased competition

In general, global free trade is beneficial to the entire system. However, businesses, organizations and individual workers can be hurt by global competition. This is similar to how these parties can be hurt by internal competition: the pool has simply grown.

In this context, some companies, industries and citizens may elect governments to take protectionist measures aimed at protecting domestic companies or workers from foreign competition. Protectionism often takes the form of tariffs, quotas, or non-tariff barriers, such as quality or hygiene requirements, that make it difficult for a competing nation or company to justify doing business in the country. These efforts can often be detrimental to the overall economic performance of both parties.

"While we live in an age of globalization, we also seem to be living in an age of anti-globalization," says Reinhardt in Global Business. “Dissatisfaction with the results of freer trade, concerns about foreign investment, and polarized views on immigration appear to play a significant role in rich-country politics in the United States and Europe. The threats to the postwar globalist consensus on Western democracy have never been greater.

2. Disproportionate growth

Globalization can lead to disproportionate growth between and within nations. These impacts must be managed carefully, both economically and morally.

Within countries, globalization often has the effect of increasing immigration. Macroeconomically, immigration increases the gross domestic product (GDP), which can be of economic benefit to the host country. However, immigration can reduce GDP per capita in the short term if the income of immigrants is less than the average income of those already living in the country.

Like competition, immigration can benefit the country as a whole while imposing costs on people who want their government to restrict immigration to protect them from those costs. These feelings are often linked to and motivated, at least in part, by racism and xenophobia.

"Meanwhile, outside the rich world, hundreds of millions of people live in poverty," says Reinhardt of Global Business. "We can't seem to agree on whether this is due to too much globalization or not enough."

3. Environmental concerns

Increased globalization has been linked to a number of environmental challenges, many of which are serious, including:

• Deforestation and loss of biodiversity through economic specialization and infrastructure development
• Greenhouse gas emissions and other forms of pollution caused by increased freight traffic
• The introduction of potentially invasive species into new environments.

While such issues are governed by existing or proposed laws and regulations, companies have made environmental and sustainability concerns a priority, for example, by adopting the principles oftriple bottom lineand the idea of ​​corporate social responsibility.

Coping with the risks of globalization

The world will never give up on globalization. While it is true that individual countries and regions implement policies and practices that limit globalization, such as B. Tariffs, but it is here to stay. The good news is that businesses and professionals are ready to step up andprepare for the challenges of globalizationand risks have the potential to yield great rewards.

Whether you're a business owner, manager, or employee, learning to recognize the opportunities and risks associated with globalization can help you perform your role more effectively and add value to your organization.

Take a course likeglobal businessit is a way to quickly understand the macroeconomic, political and social conditions that have influenced and continue to influence modern globalization.

Are you interested in entering a global market? Expand your knowledge of the world of international business with our four-week courseglobal businessof course, and explore our otherOnline courses on economics in society.If you're not sure which course is best for you, download oursfree course flowchart.