Globalization is a leading concept which has become the main

factor in business life during the last few decades. This

phenomenon affects the economy, business life, society, and
environment in different ways, and almost all corporations have
been affected by these changes. These changes are mostly
related to increasing competition and the rapid changes of
technology and information transfer. To challenge these changes,
companies need to keep in mind various aspects of the main
effects of globalization.

Competition

Globalization leads to increased competition. This competition can be

related to product and service cost and price, target market, technological
adaptation, quick response, quick production by companies etc. When a
company produces with less cost and sells cheaper, it is able to increase
its market share.

Customers have a large multitude of choices in the market and this affects
their behaviors: they want to acquire goods and services quickly and in a
more efficient way than before. They also expect high quality and low
prices. All these expectations need a response from the company,
otherwise sales of company will decrease and they will lose profit and
market share. A company must always be ready for price, product and
service and customer preferences because all of these are global market
requirements.

Exchange of Technology

One of the most striking manifestations of globalization is the use of new

technologies by entrepreneurial and internationally oriented firms to
exploit new business opportunities. Internet and e-commerce procedures
hold particular potential for SMEs seeking to broaden their involvement
into new international markets.

Technology is also one of the main tools of competition and the quality of
goods and services. On the other hand it necessitates quite a lot of cost
for the company. The company has to use the latest technology for
increasing their sales and product quality. Globalization has increased the
speed of technology transfer and technological improvement. Customer
expectations are directing markets. Mostly companies in capital intensive
markets are at risk and that is why they need quick/rapid adapting
concerning the customer/market expectations. These companies have to
have efficient technology management and efficient R&D management.

Knowledge/Information transfer

Information is a most expensive and valuable production factor in the

current environment. Information can be easily transferred and
exchanged from one country to another. If a company have a chance to
use knowledge and information then it means that it can adapt to this
global changing. This issue is similar with the technology transfer issue in
global markets. The rapid changing of the market requires also quick
transfer of knowledge and efficient using of that knowledge and
information.

I have traveled to more than 22 countries and have had the opportunity to
transact business in various parts of Asia, the Middle East, Canada, Central,
and Latin America, Russia, and former Eastern Block countries, India, and the
European Community. Conducting business on a global basis has always
been of great personal interest to me, and it has also been both a
pleasurable and financially rewarding experience. However, the days of doing
business abroad are no longer a luxury. The ability to conduct business
internationally is an absolute necessity if you hope to remain competitive in
today’s marketplace. In today’s post, I’ll look at the impact of globalization on
business.

Expanding the geographic footprint of your business has always been an

expensive and risky proposition – the risks have not gone away, they’ve just
shifted. I believe we’re in an environment where we have a short window (3 –
5 years) before the landscape changes again. Currently, globalization is a
developing and stabilizing force, but I’m fearful that the interdependencies
now shoring up some of the risks, may at some point down the road turn
against us in the form of financial ripple turns Tsunami. Here’s the caution –
times change and markets are fluid. Short term opportunity abroad abounds,
but with that opportunity comes the potential for unforeseen future risk. That
said, and with eyes wide open, if you are not taking aggressive steps to
expatriate your business then you may be making a big mistake.

In today’s marketplace conducting business internationally

is as much of a defensive play as an offensive play. In
examining the upside of going global, consider the sheer
size of international markets as contrasted with the size of
the domestic market and you will likely find that the
majority of your potential customers live abroad.

So if you could double, triple or quadruple your revenue why wouldn’t you
aggressively pursue that goal? Now consider the downside of not going
global – if your company is not pursuing those customers your competition
will be. They will not only take a first mover’s advantage of securing
customer loyalty and brand recognition, but they will also tie-up key partners
and distribution agreements. As consumers continue to become more
demanding and the world economy continues to flatten there will soon be an
expectation that you be able to serve multiple markets in a seamless fashion.
Being a slow adopter in today’s world could eventually damage your
business.

The phenomenon of “Globalization” is not new. In fact, it has been creeping

up on us since the dawn of time; it just hasn’t been so visibly impactful until
recent years. The broad macro-economic effects of globalization being
experienced today arguably became most identifiable with the end of the
cold war, and have only continued their rapid advancement with the
development of third world countries and other emerging markets, the
establishment of free trade agreements, the creation of the Internet and
other technology/communications improvements, the growing multi-national
footprint of the business, the emergence of the European Community, the
stabilizing impact of the Euro on global currency markets, as well as the
increased liquidity of more sophisticated and efficient capital markets.

The above referenced worldwide macroeconomic maturation, more

commonly referred to today as “Globalization,” has served to stabilize
business and financial markets in such a dramatic fashion that many industry
pundits have yet to reach an understanding of the depth and breadth of the
impact it has had on lowering political, financial, and economic volatility.
Here’s the trick – markets don’t go up forever, and when you tie your
fortunes to a broader set of variables and unknowns you expose your
business to the potential for a domino impact that will work against you. I
mentioned a 3 – 5-year window above, but like anyone who looks forward,
this is just my best guess. At some point in the near to mid-term, I believe
we’ll see a shift in markets that unwind much of the current stability driving
our current frothy capital markets and business expansion.

Let’s examine the stabilizing factor globalization has had on the world
economy. Today’s trade deficit, petroleum pricing, down equity markets,
housing crisis, the constricted flow of funds, and the overall cost of living
should be challenging us more than it is. Conventional economic theory
would suggest that with many of the negative economic metrics in play
today, our interest rate environment should more closely resemble that of
1980 than the low-interest rates we are experiencing today. The difference
between today’s financial landscape as contrasted with that of 1980 is the
emergence of a truly global economy which is acting as a stabilizing factor. In
fact, when the US went through the Great Depression it was largely a result
of having an isolated economy. If (more likely when) the US economy does
falter again, the interdependent nature of the global economy will likely stave
off a collapse. In the event of severe financial turmoil in the US, you would
see foreign investment from the G7, and countries like China, Japan, and
Dubai would see it as an opportunity to affordably acquire interests in US
companies.

The theory espoused above, while working for us presently, can only hold
true for so long…The stability we are experiencing now could turn against us
if the economic downturn continues for an extended period. You see, the
interdependency that is presently shielding the US could, in fact, turn into a
global domino effect causing a worldwide recession if the right combination
of things falls into place. I guess what I’m trying to point out here is that the
current hedge could turn into an adverse accelerant in a worst-case
scenario…

Also keep in mind that emerging markets in Eastern Europe, India, Latin
America, China, and the rest of Asia present scenarios for higher growth,
even on a risk-adjusted basis. On an aggregate basis, the statistics are
impressive. For example, currently, 80 percent of the world’s population
accounts for 20 percent of world GDP. By 2015, 50 percent of world GDP will
be accounted for by emerging markets. Consider the following:

1. Rising Economies: Over the past decade, China has routinely

experienced 8 percent to 9 percent annualized growth and India has followed
closely with 7 percent annualized growth.

2. Demographics: For the most part, these markets represent younger

populations, growing numbers of well-educated professionals, an expanding
middle class, growing consumer bases, urbanization, and rising incomes. In
addition, the structure of family life for these modern middle-class
populations is assuming the “western” nuclear form and moving away from
the more traditional extended cohabitation family unit.

3. Commercial Demand: The economic expansion, as well as the presence

of global companies that bring employment-oriented around intellectual
capital, is creating demand for modern, western-style commercial real estate
infrastructure. Core assets such as office, industrial, retail, multi-family, and
hospitality are all experiencing rising demand.

4. Infrastructure Improvement: While communications, utilities, and

efficient transportation can still be spotty in areas, it is much improved over
what one would have experienced even a decade ago. In most metropolitan
areas you will have most of the creature comforts that you experience in
the United States.

5. Closed market systems opening up: Most successful emerging markets

have been engaged in systematic reform of basic societal values we take for
granted in the developed world. These include property rights, legal
processes, and published regulations and statutes. In addition, specific
reforms such as privatization of state-owned industry, relaxation of capital
controls, and liberalization of rules regarding foreign direct investment are all
encouraging growth and investment.
In order to meet increased consumer demand, many businesses are
attempting to expand their geographic footprint and extend their value chain
to an international level. The impact of globalization on business is best
evidenced by the huge proliferation of cross-border transactions. In order to
protect yields and maintain competitiveness, businesses are continuing to
diversify their footprint as it lowers the beta factor on their investments by
spreading risk across a broader market.

There is nary a week that passes where I don’t speak with offshore entities
looking for inbound opportunities or domestic businesses seeking outbound
plays. The bottom line on globalization is that it creates an opportunity for
businesses to expand revenue streams, diversify risk, and increase brand
equity. My suggestion is to get a toe hold in the global market before the
ship leaves the harbor and your window of opportunity has closed. I would
also suggest you pick your markets well, and that you realize a few years
down the road, the landscape will look different than it does today – this
could work for you or against you. Use caution.
Globalization is an established part of the modern world, so most of us do not
realize the benefits it brings to our everyday lives—such as easy access to a
variety of different cuisines or new technologies developed by countries half
a world away.
Even though globalization makes our lives better, it does bring some
challenges as companies start to grow and expand across borders. Cultural
differences around the world are undeniable. These differences create
hurdles for businesses entering foreign markets and necessitate changes to
their daily business operations, whether it’s employing workers in a new
region or communicating the value of their product to a new audience.
What is Globalization?
Before discussing the benefits and challenges of globalization, it’s essential
to have a strong understanding of what the term means.
The official definition of “globalization” is the process by which businesses or
other organizations develop international influence or start operating on an
international scale.
More simply, globalization refers to an open flow of information, technology,
and goods among countries and consumers. This openness occurs through
various relationships, from business, geopolitics, and technology to travel,
culture, and media.
Because the world is already so connected, most people don’t notice
globalization at work every single day. But the world is getting smaller, and
companies need to understand what this means for the future of doing
business. Companies that don’t embrace globalization risk losing a
competitive advantage, which allows other businesses to take over new
opportunities in the global marketplace.
What Are the Benefits of Globalization?
Globalization impacts businesses in many different ways. But those who
decide to take on international expansion find several benefits, including:
1. Access to New Cultures
Globalization makes it easier than ever to access foreign culture, including
food, movies, music, and art. This free flow of people, goods, art, and
information is the reason you can have Thai food delivered to your apartment
as you listen to your favorite UK-based artist or stream a Bollywood movie.
2. The Spread of Technology and Innovation
Many countries around the world remain constantly connected, so knowledge
and technological advances travel quickly. Because knowledge also transfers
so fast, this means that scientific advances made in Asia can be at work in
the United States in a matter of days.
3. Lower Costs for Products
Globalization allows companies to find lower-cost ways to produce their
products. It also increases global competition, which drives prices down and
creates a larger variety of choices for consumers. Lowered costs help people
in both developing and already-developed countries live better on less
money.
4. Higher Standards of Living Across the Globe
Developing nations experience an improved standard of living—thanks to
globalization. According to the World Bank, extreme poverty decreased by
35% since 1990. Further, the target of the first Millennium Development Goal
was to cut the 1990 poverty rate in half by 2015. This was achieved five
years ahead of schedule, in 2010. Across the globe, nearly 1.1 billion people
have moved out of extreme poverty since that time.
5. Access to New Markets
Businesses gain a great deal from globalization, including new customers
and diverse revenue streams. Companies interested in these benefits look for
flexible and innovative ways to grow their business overseas. International
Professional Employer Organizations (PEOs) make it easier than ever to
employ workers in other countries quickly and compliantly. This means that,
for many companies, there is no longer the need to establish a foreign entity
to expand overseas.
6. Access to New Talent
In addition to new markets, globalization allows companies to find new,
specialized talent that is not available in their current market. For example,
globalization gives companies the opportunity to explore tech talent in
booming markets such as Berlin or Stockholm, rather than Silicon Valley.
Again, International PEO allows companies to compliantly employ workers
overseas, without having to establish a legal entity, making global hiring
easier than ever.
What are the Challenges of Globalization?
While globalization offers many benefits, it’s not without challenges. Velocity
Global’s 2020 State of Global Expansion™ Report: Technology Industry
reveals some of the top challenges that U.S. and UK tech leaders face when
taking their companies global, and leaders of other companies likely face the
same obstacles.
Some of the hurdles companies face when going global include:
1. International Recruiting
It’s not surprising that 30% of U.S. and UK tech leaders cited international
recruiting as their most common challenge. Recruiting across borders creates
unknowns for HR teams. First, companies create a plan for how they will
interview and thoroughly vet candidates to make sure they are qualified
when thousands of miles separate them from headquarters. Next, companies
need to know the market’s demands for salaries and benefits to make
competitive offers. To ensure successful hires, HR teams must factor in
challenges like time zones, cultural differences, and language barriers to find
a good fit for the company.
2. Managing Employee Immigration
Immigration challenges cause a lot of headaches internally, which is why 28%
of U.S. and UK tech leaders agreed it was one of their top challenges.
Immigration laws change often, and in some countries, it is extremely difficult
to secure visas for employees that are foreign nationals. The U.S., for
example, is getting stricter with granting H-1B visas, and Brexit makes the
future of immigration to the UK uncertain.
3. Incurring Tariffs and Export Fees
Another challenge both U.S and UK tech leaders said they face in the report is
incurring tariffs and export fees—29% agreed this is a challenge for their
global businesses. For companies looking to sell products abroad, getting
those items overseas can be expensive, depending on the market.
4. Payroll and Compliance Challenges
Another common global expansion obstacle is managing overseas payroll and
maintaining compliance with changing employment and tax laws. This
management task gets even more difficult if you’re trying to manage
operations in multiple markets.
5. Loss of Cultural Identity
While globalization has made foreign countries easier to access, it has also
begun to meld unique societies together. The success of certain cultures
throughout the world caused other countries to emulate them. But when
cultures begin to lose their distinctive features, we lose our global diversity.
6. Foreign Worker Exploitation
Lower costs do benefit many consumers, but it also creates tough
competition that leads some companies to search for cheap labor sources.
Some western companies ship their production overseas to countries like
China and Malaysia, where lax regulations make it easier to exploit workers.
7. Global Expansion Difficulties
For businesses that want to go global and discover the benefits of
globalization, setting up a compliant overseas presence is difficult. If
companies take the traditional route of setting up an entity, they need
substantial upfront capital, sometimes up to $20,000, and costs of
$200,000 annually to maintain the business. Additionally, global businesses
must keep up with different and ever-changing labor laws in new countries.
When expanding into new countries, companies must be aware of how to
navigate new legal systems. Otherwise, missteps lead to impediments and
severe financial and legal consequences.
8. Immigration Challenges and Local Job Loss
The political climates in the United States and Europe show that there are
different viewpoints on the results of globalization. Many countries around
the globe are tightening their immigration rules, and it is harder for
immigrants to find jobs in new countries. This rise in nationalism is mainly
due to anger from the perception that foreigners fill domestic jobs or at
companies moving their operations abroad to save money on labor costs.
For example, the Economic Policy Institute reports that the U.S. trade deficit
with China (or the amount by which our imports exceed our exports) cost
Americans 3.4 million jobs since 2001.
How Globalization Changes Your Daily Businesses
Operations
Both the benefits and challenges of globalization change how a business
operates in different ways. When companies decide to go global, they must
be ready and willing to change internal processes. This helps to
accommodate new markets and make their global workforce feel comfortable
and accepted at work.
Companies see many aspects of their businesses change once they enter the
global marketplace. For example, globalization makes the workforce more
diverse. This diversity is an overall positive change, but it creates some
challenges, such as language barriers and differences in cultural
expectations.
Some operational changes companies should expect from globalization
include:
1. Global Communication Challenges
Before starting to branch out from headquarters, firms have to put an
established internal communication plan in place since global employees
likely work in a different time zone and have a different native language.
Software and other digital tools help smooth global communication hurdles
and allows teams to connect easily. Zoom, Slack, and Google all provide
valuable tools for companies trying to manage employees in multiple offices,
countries, and time zones.
2. International Employee Expectations
Foreign employees have different expectations when it comes to things like
salary and benefits, as well as how they manage their daily work schedules.
Companies that want to take advantage of globalization and hire foreign
workers need to accommodate them as much as possible. HR teams must
also ensure their offers are competitive and on-par with local expectations
during the hiring process.
3. Supporting Foreign Customers
Similar to communication changes with employees, companies must also
plan for how they run customer service and support in new countries.
Customers in the new market where you offer your products or services
might not speak your native language or be close to your time zone.
4. Increased Competition
International companies have to adjust more than internal operations. Going
global opens up new revenue streams and increases availability to talent.
Because of these attractive benefits, and the ease of going global due to
services like International PEO, the global marketplace is competitive. As
globalization becomes the norm, many companies often seek the same
foreign markets, which increases competition for businesses.
5. Marketing and Communication Changes
Just like hiring employees in different countries creates internal
communication challenges, marketing your products or services to a
completely new audience creates obstacles for companies. Businesses need
to adjust their marketing strategies to communicate the benefits of their
product in a way that resonates with a foreign audience. You cannot assume
that a marketing campaign targeting an American audience (or wherever
your HQ location is) attracts consumers in Europe, Asia, or any other popular
market, as the consumers there have very different wants and needs.
Go Global with the Right Partner
In the past, cost and regulatory challenges were massive barriers to
companies going global in search of the benefits of globalization.
Now, partnering with a globalization expert helps firms navigate any
challenge that comes their way—while successfully setting up an overseas
presence. Our International PEO solution helps organizations establish a
presence in new international markets, without the time and costs associated
with entity establishment.
The right International PEO partner helps your company experience the
benefits that globalization has to offer and quickly become a successful
player in the global marketplace. Ready to go global? Contact us to learn
more.

How has globalization changed business?

Globalization allows companies to find lower-cost ways to produce their
products. It also increases global competition, which drives prices down and creates
a larger variety of choices for consumers. Lowered costs help people in both
developing and already-developed countries live better on less money.

Why is globalization an issue for businesses nowadays?

Globalization leads to increased competition. This competition can be related to
product and service cost and price, target market, technological adaptation, quick
response, quick production by companies etc. When a company produces with less
cost and sells cheaper, it is able to increase its market share.