Impact of Globalization

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Meaning of Globalization?

Globalization is the process through which people, corporations and governments of various nationalities are able to interact and integrate. This process is driven by investment and international trade through the help of information technology. The process affects the people’s culture, the environment, economic development, nation’s political systems, prosperity and the physical well- being of societies across the globe.

Positive effects of globalization

Through globalization, an entrepreneur is able to experience new ideas, opportunities and open markets which were not available in his home country. This is because;

  • Companies in countries that are less industrialized are able to tap larger and more markets internationally. As a result, these companies can be able to access financial and human capital, technological knowledge, large export markets and cheap imports
  • The businesses in countries that are less industrialized get to become a part of production networks in the international arena and also supply chains which are the major trade channels
  • Increased competition- When multiple producers compete in the economy, this is a positive signal for consumers because the quality of services and goods produced also increases. When there is stiff competition on the market share, every company constantly looks for means of improving goods and services by creating value for customers. Consequently this results to better products and occasionally reduced prices which is a good thing for buyers.
  • Stable security- When one country depends on the other’s economy, it is difficult for the other country to attack it; hence this promotes peace across nations.

For instance, the economies in East Asia have experienced economic growth which is a demonstration of how globalization has contributed to poverty reduction. East Asia has spectacularly grown consequently increasing its GDP hence delivering hundreds of thousands of people from poverty. This was achieved through export-led growth which sealed the technological gap with countries that were industrialized.

Additionally, the role played by companies in developing nations in terms of value chain is getting sophisticated because these companies expand beyond service and manufacturing. For instance, in countries that are industrialized, businesses normally outsource functions like customer service and data processing. The internet and advanced telecommunications simplify the transfer of service jobs to the industrialized countries from the countries with less industrialization. Consequently, this makes it cheaper and easier for companies in countries that are less industrialized to enter international markets. Moreover, outsourcing greatly helps in preventing ‘brain drain’ since the skilled workers can choose to remain in their home country as opposed to migrating to a country that is more industrialized in a bid to look for work.

Negative effects of Globalization

Globalization critics allege that international trade growth leads to income inequalities in industries of both countries that are industrialized and those that are less industrialized. This is because:

  • International commerce is progressively dominated by corporations across the globe whose main objective is profit maximization while disregarding development requirements of the populations locally and individual countries’ needs
  • In countries that are industrialized, the protectionist policies prevent many producers in the third world from accessing the export markets
  • The volatility and volume of capital flows raises the risks of currency and banking crisis particularly in nations whose financial institutions are weak
  • When developing countries compete in a bid to attract foreign investment, countries lower the environmental standards in a dangerous manner

Even then, some allegations made by those who criticize globalization are very much disputable. For instance, they claim that globalization may harm the environment or lead to rise in income inequality. Even though there are countries where economic integration has resulted to increased inequality, for example China- there is no trend that is reported globally. Foreign direct investment and international trade may offer countries that are less industrialized with incentives or adopting and accessing new technologies which are more ecologically sound. Multinationals may also assist the environment through exporting best practices and higher standards to countries that are less industrialized.

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