Globalization: how does it affect companies?
The trend towards ever stronger networking of companies and value chains across national borders is unstoppable. The question arises: What does globalization mean for companies and society?
The effects of globalization on companies and society
The cooperation between companies is less and less restricted by national borders, because the digital transformation offers completely new possibilities to make the value creation process more efficient. Innovations in the area of communication technology in particular simplify cooperation across national borders.
The costs of transporting all relevant production factors such as raw materials, goods, information, capital and also employees have fallen dramatically. This leads to an enormous increase in international trade. Export-oriented economies like Germany are particularly affected by the process of globalization and play a key role in shaping it.
The liberalization of world trade has made it much easier for companies from different countries to work together by eliminating trade barriers such as tariffs and import restrictions.
Globalization as a result of technical progress
Technical progress is leading to profound changes in many areas that are relevant for companies:
Communication technology
Transportation
Capital markets
The liberalization of world trade has made it much easier for companies from different countries to work together by eliminating trade barriers such as tariffs and import restrictions. This has an impact on society, as more and more employees are taking advantage of the opportunity to gain experience in another country. In this way, not only the interdependence of the economy but also that of the societies increases. Globalization therefore offers the opportunity for a stronger intercultural exchange.
On the other hand, global networking means that the pressure of competition for individual companies increases. It is not only the competitors in your own country that have to be considered, but the competition around the world. The increasing cost pressure in particular is a major problem for many companies. New competitive structures are emerging. Global players, corporations operating around the world, use the opportunities to optimize the value creation process across borders. On the other hand, there is a counter-movement towards locally operating companies who oppose this trend and emphasize the aspect of sustainability with short transport routes and ecological concepts.
Due to global cooperation, it no longer makes sense that all products that are needed in one country are also manufactured there.
What are the consequences of globalization for national economies?
Technical progress enables an extremely high degree of international cooperation on an economic level and consequently leads to changes in the following areas:
· Economic structures
· Financial markets
· Corporate structures
Globalization is changing economic structures
Due to global cooperation, it no longer makes sense that all products that are needed in one country are also manufactured there. The international division of labor has increased and has led to restructuring in almost all economic sectors.
Industrial mass-produced goods are produced in the countries of Asia or Africa that have the lowest wage levels. On the other hand, countries in Europe, the USA, Japan and South Korea specialize in the manufacture of technologically sophisticated products. Both the relevant production processes and qualified employees are available there. High-tech industries such as the semiconductor industry, the automotive industry or the chemical industry are predominantly located in these countries. For the so-called low-wage countries, there is a risk of becoming more and more dependent on technological progress.
The stronger international cooperation between companies leads to a sharp increase in the transport of goods around the globe. This causes an increase in maritime trade, because the goods are transported cheaply on huge container ships.
Effects of globalization on global trade
The stronger international cooperation between companies leads to a sharp increase in the transport of goods around the globe. This causes an increase in maritime trade, because the goods are transported cheaply on huge container ships. These transport options also make it more economical to transport raw materials from developing countries to production sites. Raw material deposits are easier to reach in developing countries.
This applies to the following raw materials, for example:
· Nickel
· Cobalt
· Tantalum
· Diamonds, rubies, emeralds
Changes in the financial markets
Digital communication technology has also profoundly changed the financial markets. It is possible to transfer amounts in the billions around the globe in seconds. In some cases, the financial flows are barely traceable, which leads to considerable problems. The risk of market manipulation on the stock exchanges and financial market crises has also increased. The speed of technological progress in the financial market sector is so high that the states have not yet succeeded in establishing appropriate regulatory mechanisms for globalized finance.
Digital communication technology has also profoundly changed the financial markets.
Adjustment of the group structures
The emergence of multinational corporations with locations in many states is one of the most important effects of globalization. Global players emerge who have an economic strength comparable to that of entire countries. These companies optimize their value chains perfectly and in this way reduce production costs. The exploitation of economies of scale in combination with the use of location advantages for individual areas of the value chain offers the corporations optimal opportunities to build a dominant market position.
This development is a danger for smaller companies or craft businesses that continue to limit themselves to being active in their country or even only in their region. These small companies cannot withstand the price pressure and are being pushed out of the market. Critics see this development as a threat to competition, which is the basis of the market economy. When a few large corporations dominate the markets, there is a tendency towards monopolistic structures. The losers in this development are not only the smaller companies but also the consumers.
In the corporations themselves, the production of goods and services is outsourced to low-wage countries. Here, too, modern communication technology is an engine of development. One example is the call center services that corporations are relocating to India. Tech-savvy employees who have a good education in the field of digital communication technologies work there for a fraction of the hourly wage that would have to be paid in industrialized countries.
In addition to considering the economic effects, the question also arises: What does globalization mean for political systems?
Significance of globalization for politics
In addition to considering the economic effects, the question also arises: What does globalization mean for political systems? The recent past has shown that it is not easy for governments to align their actions with increasing global interdependence. One answer to the growing international competitive pressure is the formation of alliances of several states such as the European Union, which work together economically as well as politically.
More cooperation and greater integration inevitably leads to more conflicts. Politicians are called upon to provide conflict resolution mechanisms and to promote constructive cooperation. It is necessary to approach the problems across borders and to create structures for them.
Trade alliances or treaties between several states are gaining in importance. In this way, attempts are being made at the political level to form new, binding structures. Otherwise, where national borders lose their importance for the actions of companies, a vacuum arises that should be filled by new agreements. Globalization is not limited to economic issues. Problems such as international drug trafficking, organized crime, arms trafficking, terrorism and human trafficking have also increased and governments are trying to find solutions through closer cooperation.
Crucial for the future: what does globalization mean for the environment?
The environmental pollution has risen sharply because the relocation of the manufacture of mass products to low-wage countries has led to a strong expansion of industrial production there. Since these countries have less stringent environmental protection regulations, the air pollution from greenhouse gases and the waterways from toxins are increasing. This is all the more dramatic because the problem of climate change would have long since required a reduction in industrial emissions.
In this respect, too, international cooperation continues to gain in importance. The industrialized nations, for example, decided to reduce greenhouse gases in the Kyoto Protocol. Success has been achieved through international agreements in the Montreal Protocol to limit the release of CFCs so that the ozone hole is slowly closing.
The environmental pollution has risen sharply because the relocation of the manufacture of mass products to low-wage countries has led to a strong expansion of industrial production there.
Which cultural changes result from globalization?
The effects on culture are manifold and partly in opposite directions. Growing mobility means that diversity is promoted within societies. It is completely normal, especially for the younger generation, to live and work in another country, at least temporarily. On the other hand, foreign colleagues are a natural part of the workforce. These factors promote cultural diversity and thus also ensure a generally stronger understanding of cultures among one another.
On the other hand, international interdependencies make standards necessary, which in turn displace cultural characteristics. English has established itself as the language in the business sector. It is not uncommon for German corporations to hold the conferences in English so that all participants can actively exchange ideas. English is also the dominant language in the field of entertainment and communication electronics. Sometimes there is no translation into another language for the individual terms. Critics see this as an impoverishment of the culture in the individual countries.
A positive contribution of the stronger global networking of economy and society is the increasing change in values in many hierarchical forms of society in African, Arab and Asian countries. Issues such as equality for women and the importance of an independent legal system also gain in importance when compared with Western democracies. On the other hand, internationally operating aid organizations such as “Doctors without Borders” provide information on widespread grievances. In this way, people around the world are made aware of the need to support developing countries and are made aware of the negative consequences of globalization.
English has established itself as the language in the business sector. It is not uncommon for German corporations to hold conferences in English so that all participants can actively exchange ideas.
Change in global perception
The way we perceive the world around us has changed significantly, because the perspective is no longer national but global. Communication technologies, above all the Internet, ensure that for the first time in human history we know exactly what is happening in other countries. News about environmental disasters, military upheavals or banking crises spread in real time. Often the spread of the news even contributes to an intensification of developments. If the prices on the Asian stock exchanges drop drastically, prices also fall worldwide.
In addition, people are more aware of the imbalances in living conditions, so that global awareness of grievances is developing. In general, the population in most countries has better access to information. This is an important reason for critical groups to organize. One sign is the increasing number of non-governmental organizations (NGOs) that operate internationally with the help of modern communication technologies and network across national borders.
Technological development is so rapid that politics and society are unable to find quick solutions to problems such as environmental pollution, the exploitation of low-wage countries and the suppression of market-economy structures.
Technological development is so rapid that politics and society are unable to find quick solutions to problems such as environmental pollution, the exploitation of low-wage countries and the displacement of market-economy structures
Outlook into the future of global relationships
The process of globalization is irreversible, because the flow of information now runs unhindered around the globe. This means that the national economies enter into a stronger exchange, because isolated action is hardly possible. This gives rise to opportunities and risks. How the process develops depends crucially on whether it is possible to agree on fair regulations.
Technological development is so rapid that politics and society are unable to find quick solutions to problems such as environmental pollution, the exploitation of low-wage countries and the suppression of market-economy structures. New answers are sought as to how society and the economy can be adapted to the development towards global systems. Many people ask themselves: what does globalization mean to me? In the best case scenario, there are new opportunities to live in a world that works more closely together and uses this potential to jointly solve pressing economic, social and political issues.
