What is Globalization?
Globalization is defined as the free movement of goods, services, people, technology and information around the globe. It is a process which leads to the integration of various local and national markets in the world economy. Globalization describes the interconnectedness and interdependent of different countries around the world.
It promotes international trade which leads to an increase in interactions among people, government and companies of several nations. It encourages the cross border transactions across the globe with less restriction. Globalization helps in improving the economies of less-developed or poor countries by providing access to better goods or services, job opportunities and modernization.
It assists the companies in gaining competitive advantage by buying cheap raw materials and labour from abroad or manufacturing in other countries where operating cost is low. Globalization helps businesses in making their presence worldwide. Companies are able to reach millions of customers which lead to an increase in their profitability.
Advantages of Globalization
Various advantages of globalization are as follows:-
- Wider markets: Globalization enables the companies to enter the international market easily. It leads to free movement of goods and services among different nations around the world. Companies can approach a large number of customers worldwide and have a better chance to improve their sales.
- Economies of scale: It enables the businesses to benefit themselves from economies of scale. Business can acquire cheap raw materials and labour from abroad which would lower their cost. They can also operate their manufacturing activities in other countries where the cost of operation is low. This would bring down the average cost and prices for customers.
- Provides wider talent pool: Globalization provides the opportunity for attracting creative minds around the globe. Companies have a wider option of recruiting talented staff both from the home country as well as from several other countries abroad.
- Reduces labour exploitation: Globalization enables the free movement of labour among countries and save them from exploitation. They can easily migrate to places where they are getting better opportunities. Globalization removes all restrictions from country borders which facilitates the frequent migration of people in search for work anywhere.
- Increase global investment: It has enabled countries in attracting both short-term and long-term investments from across the globe. Multinational corporations by operating internationally invest a large amount of funds in different nations which helps in improving their economy.
- Lowers global inequality: Removing regional disparities and inequality is another important role played by globalization. It helps in raising the standards of living of people by supplying better quality products at the best prices in different countries. Nations are able to acquire better technologies and ideas from abroad which help in overall economic development.
- Earns foreign exchange: Globalization enables the countries in earning the sufficient foreign exchange. It allows free trade among countries and removes all restrictions on import and export of goods or services. Multinational corporations are easily able to enter and invest in a large amount in many countries. This way nations are able to generate a large amount of foreign exchange.
Disadvantages of Globalization
Disadvantages of globalization are as discussed below:-
- Creates unemployment: Globalization leads to unemployment in many countries. Many companies for taking advantage of low manufacturing cost operate all their activities in foreign countries rather than in their home country. It results in creation of unemployment in home country.
- Labour drain: Labor drain is another important disadvantage of globalization. It facilitates the free movement of labour due to which workers frequently migrate to place where they are getting better wages and opportunities. Countries find it difficult to retain and hold on their best-skilled manpower.
- Tax avoidance: Globalization has made the tax avoidance by big corporations quite easy. These corporations outsource all their activities in countries where there are less corporation tax or minimum tax restrictions. This way they pay very less tax in countries from where they operate most of their business.
- Environmental degradation: Globalization has negative effects on the environment. It has encouraged free trade among countries which has increased the usage of non-renewable resources. Companies are easily able to outsource their production in countries where environmental standards are less strict. All this lead to an increase in pollution and global warming.
- Extinct small scale industries: It has increased the overall competition in the market by allowing entry of large numbers of multinational corporations. Domestic firms lack skills and technologies as compared to these big corporations and are not able to compete with them.