Globalization: Effect On Business

Literature Review

Today’s world of business has become more globalized. Many businesses in various countries have embraced globalization and have now entered into international trade (Levitt, 2013). Globalization is a representation of integration of information technology, cultural practices, investments and international trade globally. The various global changes in the world have necessitated the need for business organizations to restructure their strategies in order to move out of their national boundaries to take part in international trade and survive the stiff competition involved in it. The changes include changes in environmental, legal, cultural, political and economic practices as well as the development of information communication technology and transport among others (Appadurai, 2016).  Globalization is not a new thing as it has been experienced by business organizations many years ago as the traditional traders used to travel for long distances across borders in search of rare commodities such as gold and salt which they then sold at their local areas to make profits.

Globalization has various effects on business which are either negative or positive but the positive effects outweigh the negative effects by a great margin. This therefore means that globalization positively impacts business and should be embraced by various nations in the world for better economic growth (Dreher, 2010). For the last three decades globalization has been rising at a fast pace and its various benefits have been witnessed in improvement of various nations economic growth such as the United States, China and India. Therefore globalization forms an interesting topic for discussion to explore its effects on environment, cultural practices, economic growth and poverty among others. The effect of globalization on business has been discussed based on the changes imposed by various businesses participating in trade across borders on their nation’s gross domestic product.

Globalization has enabled the transfer of improved technology across businesses worldwide (Mueller, 2014). Over the past years there has been a rise in the technology level for many businesses participating in international trade. The technology of communication and computing has risen over the past years enabling the flow of crucial business ideas and information between nations. More developed countries in terms of technology advancement such as the United States pass modern methods of productivity to less developed nations in the global international market. This enables businesses in various developing nations to minimize their costs of production and improve their profitability. This in long term contributes much towards improving the nation’s economic growth which is reflected by the increased gross domestic product. The transfer of technology in the global market also enables consumers to access information about the various available goods and services in the global and thus the consumers have a wide range of commodities from which they can make their choices. Through the transfer of the improved technology, smaller businesses in various nations can also take part in the global trade and compete favorably irrespective of the seller or buyer physical location. Traders located in different nations can trade on digital platforms. Also for the case of international companies, meetings can be held with various managers across all branches digitally. This actually minimizes wastage of time and money which could otherwise be spent on travelling activities to meet at a common identified venue. Technology has assisted much towards improving various business operations and it still continues to advance. A business which keeps on adjusting to technological global market changes is better placed in terms of international competition.

Efficiency in Technology Transfer

 Globalization intensifies competition among businesses involved in international trade (World Commission on the Social Dimension of Globalization, 2014). Many businesses embrace the strategies of globalization in order to enjoy competitive advantage involved in the foreign markets and also avoid the competition associated with the domestic industries. The stiff competition as a result of globalization shapes the operations of businesses. These operations include production and also distribution. Businesses have to adopt efficient methods of production adjusted according to global technology advancements in order to minimize the costs of production and improve the quality of their products. The minimized costs of production mean that businesses offer their quality products at relatively low prices and hence increase their sales which in turn improve their profitability. Businesses also have to use efficient means of distributing their goods and services to the final consumer. Efficient means of distribution eliminates the activities many middlemen and brokers which increase the prices of goods and services to the final consumer. In a nutshell, the efficiency in production and distribution of goods and services as a result of globalization enables businesses to increase their sales and improve their profitability which in turn improves the entire nation’s productivity by contributing towards improving the nation’s gross domestic product. Many businesses in the global trade prefer to offer products which their nations have comparative advantage in producing in order to minimize the level of competition in the international market. For example, many nations like Mexico in the United States of America are well known for production of oil and natural gas. Therefore many businesses from the United States prefer to participate in the global trade of oil and natural gas and hence end up competing favorably.

Globalization has enabled the development and access of diversified market by businesses participating in the international trade (Rodrik, 2012). Globalization brings together people and businesses from different nations either physically or digitally. With the vast number of customers in the global trade, businesses can sell their products to many people from different and hence diverse their market. The huge market over which businesses sell their products enables them to increase their sales and hence improve their productivity. Also consumers can choose a variety of products from the many businesses in the global market. This will enable consumers to choose their best quality at the cheapest price possible in the global market. Globalization also provides employment to jobless people from different countries participating in international trade. The people from the less developed nations benefit most from global trade as they move to different countries in search for jobs. Through globalization the concept of outsourcing arises whereby the nations with comparative advantage in performing certain jobs are assigned the jobs. A good example is India which benefits much from being assigned technological jobs such as software development and support.

To establish the effect of globalization on business, the world global exports and the world GDP annual growth rate percentage from the year 2005 to 2014 have been considered. The improvement in businesses performance as a result of globalization improves the economy of the respective nation which is measured by the use of the gross domestic product and the economy of the entire world. Globalization involves the trading activities across nation’s boundaries and hence the value of the global exports has been considered as the best measurement of globalization. The following data has been obtained (Federico, Giovanni & Antonio Tena-Junguito, 2016):

The world annual gross domestic product growth rate is the dependent variable. The global exports values which have been measured in $ trillion amounts are the independent variables. The expected regression model is  where =the world annual gross domestic product growth rate, α is the y intercept, β is the constant term and  is the value of the global exports.

The following regression results were obtained:

Regression Statistics
Multiple R	0.287
R Square	0.083
Adjusted R Square	-0.032
Standard Error	1.837
Observations	10.000
ANOVA
	df	SS	MS	F	Significance F
Regression	1	2.4315	2.4315	0.7203	0.4207
Residual	8	27.0065	3.3758
Total	9	29.4379
	Coefficients	Standard Error	t Stat	P-value	Lower 95%	Upper 95%	Lower 95.0%	Upper 95.0%
Intercept	-6.40561	10.85311	-0.59021	0.57134	-31.43292	18.62171	-31.43292	18.62171
Global exports	0.00202	0.00238	0.84868	0.42073	-0.00347	0.00752	-0.00347	0.00752

From the regression results the linear regression model that fits the data is . This means that the value of α is -6.40561 and β is 0.00202. From the regression statistics results, the value of multiple R is 0.287. Since this value is close to zero, then it means that the value of the global exports and the world annual gross domestic product growth rate are not so linearly related. This is due to the fact that in some cases, globalization might have negative effects on the growth of gross domestic product of a given nation. Also the world gross domestic product growth is affected by other factors apart from globalization.

Conclusion

Business world today has become more globalised. Many businesses from different nations have realized the value of international trade and have moved out of their national borders to seek for greener zones. Globalization increases the profitability of businesses in various ways. The adoption of improved methods of production improves the production efficiency hence minimizing production costs.  Globalization also avails diversified market where businesses can sell their goods among others (Dunning, 2014). The improvement in various businesses productivity improves the economic performance of individual nations and that of the whole world.  

References 

Appadurai, A. (2016). Modernity al large: cultural dimensions of globalization (Vol. 1). U of Minnesota Press. 

Dunning, J. H. (2014). The Globalization of Business (Routledge Revivals): The Challenge of the 1990s. Routledge. 

Dreher, A. (2010). Does globalization affect growth? Evidence from a new index of globalization. Applied economics, 38(10), 1091-1110. 

Federico, Giovanni and Antonio Tena-Junguito  (2016 b). ‘A tale of two globalizations: gains from trade and openness 1800-2010’. London, Centre for Economic Policy Research. (CEPR WP.11128).

Giddens, A. (2018). Globalization. In Sociology of Globalization (pp. 19-26). Routledge.

Levitt, T. (2013). The globalization of markets. Readings in international business: a decision approach, 249.

Mueller, F. (2014). Societal effect, organizational effect and globalization. Organization Studies, 15(3), 407-428.

Rodrik, D. (2012). One economics, many recipes: globalization, institutions, and economic growth. Princeton University Press.

World Commission on the Social Dimension of Globalization. (2014). A fair globalization: creating opportunities for all. International Labour Organization.