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 FOR FINANCE , , ,

11 Advantages &
Disadvantages of
Globalization in 2024
  Drew Donnelly, PhDSenior Regulatory Specialist
 March 18, 2024
 6:03 am

Key Takeaways
1. Globalization is the spread of business activity
(products, services and people) across international
borders.

2. Potential benefits of globalization for the economy

include increased choice, higher quality products,
increased competition, economies of scale, increased
capital flows, increased labor mobility and improved
international relations.

3. For businesses, the advantages of globalization can

include cost savings, international recruitment,
specific market opportunities, and the spreading of
risk.

4. Potential disadvantages of globalization for world

economies include possible monopolization, structural
unemployment, inter-dependence and tax avoidance.

5. Potential disadvantages of globalization for

individual businesses include compliance, control and
inadequate market knowledge.

6. Once the globalization decision has been made,

there are a range of subsequent challenges for any
business moving in this direction.
Globalization means a world without international borders. In this
article, we delve into the definition of globalization, and explore the
benefits of globalization for individual businesses, and economies as
a whole. In addition, we look at some of the challenges of
globalization for companies that choose go down that route.
Globalisation has become an inevitable and transformative force in
the financial world, and New Zealand banks have been no exception
to its reach. As financial institutions adapt to the dynamics of an
interconnected world, they are redefining their roles and strategies
to thrive in the global marketplace. The globalisation
of NewZealandBanks NZ represents a significant shift from
traditional domestic banking to a more diversified and international
approach. New Zealand banks have sought to tap into new markets
beyond their home country. By establishing a presence in foreign
countries, they can serve local and international customers,
diversify their revenue streams, and reduce dependency on the
domestic market. In conclusion, the globalisation of New Zealand
banks is a strategic response to the changing dynamics of the
financial industry. It reflects the banks’ adaptability, resilience, and
commitment to providing world-class financial services to
customers, both at home and abroad. As these banks continue to
navigate the complexities of the global financial landscape, they
play a crucial role in supporting New Zealand’s economic growth
and prosperity.
Benefit from globalization. Hire with
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What is the definition of
globalization?
In the broadest terms, globalization is the spread of products,
services, people, and activities across national borders and across
cultures. On an individual business level, this might be referred to as
global or overseas expansion. Sometimes it is used to refer to a
more specific phenomenon in economics — the spread of “free
market” policies across the world economy.

Thought of in this way, globalization is still a work-in-progress: For

example, in some countries, there are trade sanctions in place which
prevent economic engagement with other countries. But at the root
of this concept is international trade. This is not a new phenomenon
— it’s ancient, in fact. For example, the incense trade route between
the southern Arabian peninsula and the Mediterranean began in
roughly the 7th century BCE.

In the modern age, the terms of global trade are largely governed
by agreements such as the Comprehensive and Progressive
Agreement for Trans-Pacific Partnership (CPTPP) between eleven
major Asia-Pacific countries, and the work of international
organizations, such as the World Trade Organization. Through these
agreements, countries usually agree to reduce import tariffs on
goods which make the cost of importing those goods higher than
they would otherwise be.
Globalisation, a phenomenon characterized by the
interconnectedness of nations and the flow of goods, services, and
information across borders, has been significantly influenced by the
emergence and proliferation of online casinos like
here: https://topcasinosuisse.com/en/. The impact of online casinos
on globalisation is multifaceted and extends across various aspects
of the global economy and culture. The rise of online casinos has
contributed to the growth of the digital economy. This sector
encompasses a wide range of online businesses, including gaming,
e-commerce, and fintech. Online casinos have become a prominent
player in this digital landscape, promoting technological
advancements and innovation. In summary, the impact of online
casinos on globalisation is significant and far-reaching. These digital
platforms have influenced economic integration, technological
innovation, and cultural exchange on a global scale. As online
casinos continue to evolve and expand, their role in shaping the
interconnected world of globalisation will likely continue to grow.

Below we will consider some of the major advantages of

globalization, both for an individual country’s economy, and for
individual businesses. We also look at the challenges of globalization
in the same way.
Chart: The globalization trend over
time
In the chart below, from Fredrik Erixon at European Centre for
International Political Economy (ECIPE), the barriers to globalization
over time are made clear.

From a high point in around the year 2000, regulatory and other
barriers to trade have been applied to place a break on globalization
efforts.
What are the economic benefits of
globalization?
As globalization is imperfect, and at various stages of
implementation, it is hard to make a universal claim about its
benefits. However, some of the potential benefits of globalization to
economies include:
1. Increased choice
No individual country could produce the sheer variety of goods that
can be produced globally. Through globalization, consumers in one
country can have access to goods and services that they would
never otherwise have access to.

2. Higher quality goods

As each nation concentrates on its own specialty industries, there is
far less ‘re-inventing the wheel’. For example, every country does
not need to waste its scarce resources producing its own version of
the smartphone when one can be imported from a country that
specializes in this product.

3. Increased competition
The presence of increased competition in a country’s economy from
foreign companies means a more efficient market and lower prices
for consumers. Suppliers of goods and services need to keep their
prices low to stay competitive.

4. Economies of scale
As globalization provides companies with a much bigger effective
market in which to sell their goods, they can scale up their
production. As the level of production increases, their margin on
each good or service provided can increase as their fixed costs
remain the same, or become incrementally smaller.

5. Increased capital flows

Capital is able to flow into developing economies providing a
significant form of finance that businesses in that economy would
not otherwise have access to.

6. Increased labor mobility

By allowing individual workers to move to other countries, the global
economy can better match supply and demand. Countries that are
excellent in educating certain professionals can export those
professionals to other countries which do not have the same
specialty. For example, New Zealand must import a significant
number of skilled agricultural workers every year to harvest its
crops.

7. Improved international relations

Countries that have a positive trade relationship with each other,
have an incentive not to get into conflict. On a global scale, this
should reduce the likelihood of armed conflict between countries.
What are the benefits of
globalization for individual
businesses?
Putting aside the possible benefits of globalization for individual
economies and the world economy as a whole, what are the
potential benefits or advantages of globalization for individual
companies.

1. Cost savings
By outsourcing certain functions, such as payroll and HR, to
countries where this can be provided at a lower cost, an
international enterprise can increase its overall profitability.

But globalization doesn’t just mean outsourcing: Setting up separate

legal entities (such as foreign subsidiaries), branches, or
using Global PEO solutions can be effective mechanisms for setting
up a more cost-effective business location.

2. International recruitment
If you struggle to find the right talent in your own country, an
advantage of globalization is that you may be able to source
workers in another country where there is significant capability in
that area.
3. Specific market opportunities
You may have identified specific countries where there is
an opportunity to corner the market with your product or service.
Moving into that market can be an important growth opportunity for
your business;

4. Spreading risk
Individual countries are vulnerable to economic events and
fluctuations specific to that country. An advantage of globalization
and expanding into multiple countries is that an enterprise can
spread this risk and ensure that they don’t place “all their eggs in
the same basket”.

What are the potential economic

disadvantages of globalization?
While there are some clear benefits to globalization, there may also
be costs associated with this for individual economies, depending on
how it is implemented. Some of the challenges or disadvantages of
globalization that have been identified include:

 Possible monopolization of multi-national

companies
 Large enterprises from developed countries may
move into smaller developing nations and take
over the market. Their specialization and efficiency
in providing a particular good or service may mean
that local producers in a developing country are
knocked out of the market;

 Structural unemployment
 If a country is no longer competitive in the
production of a particular good, this may mean
that its production rapidly moves offshore, and
workers are left unemployed. While it may be
possible to re-train these staff and deploy them to
 a more efficient market, this lag can take years,
resulting in a significant rise in unemployment and
inequality;

 Inter-dependence
 Individual countries become dependent on other
nations for their supply chains. If there is a
disruption to this chain, they may no longer be
able to produce the good themselves

 Tax avoidance
 It may be that some companies are able to avoid
paying taxes that one might expect that company
to pay in a given country through legal tax
arrangements.
 It is worth emphasizing that all these potential
disadvantages are ones that apply to the economy
as a whole, they are not costs for individual
businesses.

What are the potential

disadvantages of globalization for
businesses?
While a global outlook is usually to the benefit of a business, there
are a few potential disadvantages. These include:

 Compliance
 Individual businesses will often be less familiar
with the compliance environment overseas than
they are with the compliance environment in their
own location. To mitigate this disadvantage it can
be useful for businesses to engage a foreign
partner who is an expert in local legal, tax, and
compliance issues.

 Control
  While it may be possible for a business to operate
directly in a foreign country (known as opening a
branch office), this is not the most common
method of international expansion. More
commonly, the company opens a subsidiary or
separate business entity which is no longer in the
direct ‘chain of command’ of the original business.
 The lack of direct control of an overseas location of
a business can lead to significant compliance,
business, and reputational risks (this is discussed
in greater detail in our article ‘Branch versus
Subsidiary‘).

 Inadequate Market Knowledge

 Global expansion means understanding the market
dynamics of each country of expansion. Without in-
depth knowledge of that market, it can be difficult
to know whether it is an appropriate target country
for a product or service.

Video: Pros and cons of

globalization — Stiglitz speaks
World-renowned economist Joseph Stiglitz explores the
benefits, the disadvantages and the challenges of
globalization.

What are the challenges of

globalization?
While the benefits are substantial, there are challenges which await
any company that wishes to exploit the benefits of globalization.
Those challenges, while managable, include:

1. The need for a legal presence

Many companies realize the vast opportunities that are available in
new markets, but they usually do not have a legal entity in these
countries.

This can be problematic because there are restrictions on the

activities of companies who do not have a legal entity, such as a
subsidiary, in the country of expansion. While the company may be
able to incorporate a business in a new country, many business
owners are hesitant to invest a substantial amount of money in a
new endeavor when they do not know if their expansion will be
successful

Even if they are willing to take on this risk, they may not have
the resources available to pay for large expenses, such as the
incorporation costs or paid-up capital requirements (for example,
the most common form of incorporated entity in Germany, the
‘GmbH’, requires a minimum of €25,000 in paid-up capital.

Additionally, many countries require businesses to inject capital into

a bank in that country that can only be used on business activities,
which makes the prospect of setting up a separate entity cost-
prohibitive for many businesses.

2. The difficulty of testing the market

Most prudent business owners realize that their product or service
may not be embraced on a global scale with the same function and
marketing information. Therefore, they invest in market research to
see how the potential market perceives their product and brand.

However, businesses that are overseas may have difficulty testing

the market when they do not have a local presence.

Additionally, they may run afoul of complex regulations pertaining to

foreign businesses. For example, sometimes advertising activities
require that the business possesses a specific licence which can only
be held by businesses registered in that country: Businesses will
want to avoid issues with foreign bureaucratic agencies so that they
are not later prohibited from conducting business in the country.
3. Hiring staff in a compliant manner
To have any type of expansion in a new country, key staff members
will need to be in place.

However, many countries do not allow foreigners to hire

staff without a legal entity in the country. Even if the company
establishes a legal entity in the country or opens a sales office, the
employee’s activities may be restricted.

Additionally, many business leaders may not be familiar with foreign

laws regarding employment law, tax, and other legal issues in that
country.

4. Regulatory and legal compliance

Of course, businesses want to expand into another country without
violating any laws or regulations. However, setting up operations in
a foreign country can be complex, especially when business leaders
do not speak the local language. The regulatory framework in
foreign countries can also often be confusing for foreigners.

To comply with applicable regulations in other countries, the

business may need to perform the following tasks:

 Incorporate a business
 Register with tax authorities
 Open a corporate bank account
 Acquire necessary certifications
 Maintain corporate records and filings
 Register trademarks and other intellectual
property
 Process payroll and administer employee
compensation and benefits
Completing these tasks in a compliant manner can be a difficult
undertaking for someone who is not an expert in the country’s
regulatory scheme.
Explore the benefits of globalization
with Horizons
While there is an ongoing debate on the pros and cons of
globalization for individual nations, and the world economy, the
benefits of expanding globally for individual businesses are clear.

Horizons provides international consulting and expansion services to

support your globalization mission, and help you overcome the
challenges of globalization. Our specialists can advise on tax,
compliance, and legal issues and implement the
outsourcing or staffing solutions that best suit your company.

Frequently asked questions

What are the economic benefits of globalization?
Does globalization benefit everyone?
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In this guide hide

What is the definition of globalization?

Chart: The globalization trend over time

What are the economic benefits of globalization?

What are the benefits of globalization for individual businesses?

What are the potential economic disadvantages of globalization?

What are the potential disadvantages of globalization for businesses?

Video: Pros and cons of globalization — Stiglitz speaks

What are the challenges of globalization?

Explore the benefits of globalization with Horizons

Frequently asked questions

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