Globalization - Development and Impacts (26.1)

Chapter 26, Business and The International Economy

Learning Objectives: To understand the impact of globalization on business activity

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This last chapter discusses how globalization impacts international businesses.

Goods and services are produced and sold in multiple parts of the world nowadays.

This is called Globalization - the process by which businesses or other organizations develop international influence or start operating on an international scale.

We also have the emergence of multinational businesses - companies that have their headquarters in one country but branches/offices and factories in other countries:

A variety of factors have led and boosted globalization nowadays:

- Communication Technology has been developing and breaking down language and geographic barriers.

- International Transportation/Logistics has become much more efficient allowing for faster and cheaper movement of goods.

- Trading Blocks and Free Trade Agreements have been on the raise facilitating trade between countries:

NAFTA, MERCOSUR, European Union...

- Trade Tariffs have also been decreasing overtime and countries been following the trend of facilitating the flow of imports.

- Laws and Regulations for the setup and operations of multinational companies have been loosen up by countries.

This combination of factors has allowed globalization to quickly develop over the last decades.

The main outcomes of increased globalization in today's world are:

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In your opinion, is globalization a positive phenomena for businesses and societies?

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There are opportunities and threats of globalization to businesses:

Opportunities to Businesses	Threats to Businesses
Access to international markets (↑ sales)	Local businesses suffer from international competition
Access to cheaper labor (↓ costs)	Multinational business' profits can be negatively impacted by exchange rate fluctuations
Opportunity for economies of scale (↓ costs)	Overall increase in competition to both local and multinational businesses
Competition leads to higher efficiency (↓ costs)	More investments in marketing and distribution is required for competing internationally

Likewise, societies can benefit as well as face limitations from globalization:

​Benefits to Society	Threats to Society
Multiculturalism due to various products/services available to consumers	Multinational business relocation generate job losses in the home country
↓Prices and ↑Quality of products due to increased competition	Environmental damages caused by multinational businesses in host countries
Lower unemployment rates due to multinational businesses	Local culture might be diminished (e.g. fast food in Mongolia)
Growth of local businesses benefit the local society

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To-Do-List:

• Activity 26.1 (p. 329)

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Chapter 26, Business and The International Economy