In: Operations Management
Globalization is very important. Has globalization been beneficial or does it have some demerits? Share your opinions providing relevant examples.
ANS. Globalization means the speedup of movements and exchanges (of human beings, goods, and services, capital, technologies or cultural practices) all over the planet. One of the effects of globalization is that it promotes and increases interactions between different regions and populations around the globe.
Often referred to as the globalization concept map, some examples of globalization are:
The Benefits of Globalization
Globalization has benefits that cover many different areas. It reciprocally developed economies all over the world and increased cultural exchanges. It also allowed financial exchanges between companies, changing the paradigm of work. Many people are nowadays citizens of the world. The origin of goods became secondary and geographic distance is no longer a barrier for many services to happen. Let’s dig deeper.
1. Encourages producers and consumers to benefit from deeper division of labour and economies of scale
2. Competitive markets reduce monopoly profits and incentivise businesses to seek cost-reducing innovations
3. Enhanced growth has led to higher per capita incomes – and helped many of poorest countries to achieve faster economic growth and reduce extreme poverty measured as incomes < $1.90 per day (PPP adjusted)
4. Advantages from the freer movement of labour between countries
5. Gains from the sharing of ideas / skills / technologies across national borders
6. Opening up of capital markets allows developing countries to borrow money to over a domestic savings gap
7. Increased awareness among consumers of challenges from climate change and wealth/income inequality
8. Competitive pressures of globalisation may prompt improved governance and better labour protection
The Engine of Globalization – An Economic Example
The most visible impacts of globalization are definitely the ones affecting the economic world. Globalization has led to a sharp increase in trade and economic exchanges, but also to a multiplication of financial exchanges.
In the 1970s world economies opened up and the development of free trade policies accelerated the globalization phenomenon. Between 1950 and 2010, world exports increased 33-fold. This significantly contributed to increasing the interactions between different regions of the world.
Globalization Benefits – A Financial Example
At the same time, finance also became globalized. From the 1980s, driven by neo-liberal policies, the world of finance gradually opened. Many states, particularly the US under Ronald Reagan and the UK under Margaret Thatcher introduced the famous “3D Policy”: Disintermediation, Decommissioning, Deregulation.
The idea was to simplify finance regulations, eliminate mediators and break down the barriers between the world’s financial centers. And the goal was to make it easier to exchange capital between the world’s financial players. This financial globalization has contributed to the rise of a global financial market in which contracts and capital exchanges have multiplied.