Advantages and Challenges of Globalization

Advantages and Challenges of Globalization

Part A

This part will define international business and discuss the advantages and challenges of globalization. International business is defined as any situation where goods and services are produced and distributed across borders of a country (Aswathappa, 2010). In terms of production, a company can source goods and services easily from other countries. International business includes a wide range of cross-border exchanges of goods, services or resources between two or more nations. The exchanges involve international transfers of other resources such as people, intellectual property (copyrights, patents or trademarks) and various assets. Large multinational firms with thousands of employees and small one-person companies acting as an importer or exporter are among the entities involved in international business. International business may be done for profit border-crossing transactions or in form of transactions that are nonfinancial motivated (Corporate Social Responsibility or political favors).

Globalization has turned the world into a small village. It describes the nature of international trading dominating corporations as well as how these corporations are not limited to serve specific groups of consumers in one country. Globalization has brought about a series of benefits (Daniels, 2002). The first benefit is that it encourages competition among firms and this helps to serve the consumer needs by offering equal and better services. The levels of quality and low prices are maintained. The second benefit is that firms are not restricted by their geographical and economic bounders thus creating opportunities for people that may not have been possible otherwise. For example, technological growth offers more attractive wages to corporations thus growth in education and development of new skills. There is increased productivity since money, if allowed to circulate freely; it can go where it is most needed. Therefore, cooperation among richer countries is growing through coordination of their money policies. Machinery, expertise and cheaper products are easily transferred thus a high productivity. Consumers have a variety of products and services to choose. Employment is also increased because of economic growth as well as the need for specialized international services.

Globalization is also associated with various disadvantages. Absence of a regulatory framework to monitor business practices is evident (Zekos, 2004). Business practices are growing at a swift pace and the change that governs them is not well known. Often, public bodies do not regulate it effectively. Social power between institutions is unequal where the more powerful parties have stakes to maintain unequal relationships with the less powerful social institutions thus remain in control. This widens the gap between the rich and the poor. Established traditional norms and values are challenged through the introduction of foreign ones where people add more words to their languages and embrace new religions. People also lack interest in traditional products and prefer foreign ones (Abeles, 2001).

Part B

This part will bring out the advantages and disadvantages of international business. International business is highly advantageous in that products that do not sell in local markets may find greater demand abroad instead of dumping unsold inventory at deep discounts (Gereffi, 1999). Those products can be sold at higher prices as compared to their prices in the local markets. One can also find new products that they do not offer where they are based. Therefore, a much wider range of products can be marketed globally. Competition may be a threat locally. One can easily find international markets that have less competition and move quickly to capture the market share. This is highly beneficial since there is an access to high quality versions of products that are superior to versions in other countries. Even though the local competitors may also access such markets, one has little competition if they find an international market that has been buying products, which are inferior.

However, international businesses face challenges too. Cultural differences among countries reduce their economic exchange. The culture of people (their norms, values and beliefs) dictates their consumption. For example, Genetically Modified Foods (GMO’s) are commonly accepted in North America and highly rejected in Western Europe. This cultural difference makes it possible to sell GMO’s in USA but impossible to sell in Germany. Economic distance is another challenge because counties are of different sizes as compared to the GDP (Gross Domestic Product). Economic distance has the greatest effect when; the nature or demand varies with income level, there is a limitation in the economic scale; there are different distribution systems, there are cost differences and so much more. In the case where there are different distribution systems, it means that international markets have a variety of suppliers to choose (Gereffi, 1999). A firm may find it challenging to form a strong market base and become a sole supplier of the products and services. Demand for products should match the income level in order to increase the purchasing power of people. If this is not the case, the supply of goods and services to international markets may be limited. Despite all these challenges, companies have to respond to their consumers’ needs, which highly recur.

 

References

Abeles, T.P. (2001) ‘The impact of Globalization’, On the Horizon, Vol. 9, No.2, pp. 1-4.

Aswathappa, K. (2010). International business. New Delhi: Tata McGraw Hill Education.

Daniels, J. D., Radebaugh, L. H., & Sullivan, D. P. (2002). Globalization and business. Upper Saddle River, New Jersey: Prentice Hall.

Gereffi, G. (1999) ‘International trade and industry upgrading in the apparel commodity chain’ Journal of International Economics, Vol.48, pp.37-70.

Zekos, G.I. (2004) ‘Ethics versus corruption in globalization’, Journal of Management Development, Vol. 23, No.7, pp.631-647.

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