How globalization impacts industrialized nations
The phenomenon of globalization began in a primitive form when people first settled in different parts of the world; however, it has recently shown fairly steady and rapid progress and has become an international dynamic that has increased in speed and scope due to technological advances, affecting and engaging countries on all five continents.
The central theses
- Globalization is a process by which companies or other organizations around the world gain influence or develop operations.
- Globalization is a combination of gross domestic product (GDP), industrialization and the Human Development Index (HDI).
- Industrialized nations benefit from globalization, as companies compete worldwide, and from the resulting reorganization of production, international trade and the integration of financial markets.
- Some economists argue that globalization promotes economic growth and increased trade between nations; however, other experts as well as the general public generally see the disadvantages of globalization as outweighing the advantages.
- Critics say globalization is detrimental to less affluent nations, to small businesses that cannot compete with larger firms, and to consumers who face higher production costs and the risk of job outsourcing.
What is globalization
Globalization is defined as a process that, based on international strategies, aims to expand business worldwide and was triggered by the facilitation of global communication due to technological advances as well as socio-economic, political and environmental developments.
The goal of globalization is to give companies a superior competitive position with lower operating costs in order to attract more products, services and consumers. This competitive approach takes place through the diversification of resources, the creation and development of new investment opportunities by opening up additional markets and access to new raw materials and resources. Resource diversification is a business strategy that increases the diversity of business products and services within different organizations. Diversification strengthens institutions by lowering organizational risk factors, distributing interests across different areas, exploiting market opportunities and taking over companies both horizontally and vertically.
Industrialized or industrialized nations are specific countries with a high level of economic development and meet certain economic theoretical socio-economic criteria such as gross domestic product (GDP), industrialization and human development index (HDI) as defined by the International Monetary Fund (IMF). ), the United Nations (UN) and the World Trade Organization (WTO). According to these definitions, some developed countries are the United Kingdom, Belgium, Denmark, Finland, France, Germany, Japan, Luxembourg, Norway, Sweden, Switzerland, and the United States.
Components of globalization
The components of globalization include GDP, industrialization and the Human Development Index (HDI). GDP is the market value of all finished goods and services that are produced within a country in one year and is used as a measure of the overall economic performance of a country. Industrialization is a process that, driven by technological innovations, brings about social change and economic development by transforming a country into a modernized industrial or industrial nation. The Human Development Index consists of three components: the life expectancy of a country’s population, knowledge and education as measured by adult literacy and income.
The degree of globalization and diversification of an organization affects the strategies with which it pursues better development and investment opportunities.
The economic impact on developed nations
Globalization is forcing companies to adapt to various strategies based on new ideological trends that seek to balance the rights and interests of both the individual and the community as a whole. This change enables companies to compete globally and also means a dramatic change for business leaders, workers and management by legitimately accepting the participation of workers and the government in the development and implementation of company policies and strategies. Risk mitigation through diversification can be achieved through the company’s participation in international financial institutions and partnering with local and multinational companies.
Globalization brings with it a reorganization on an international, national and subnational level. Specifically, it entails the reorganization of production, international trade and the integration of financial markets. This affects the economic and social relations of capitalism through multilateralism and microeconomic phenomena such as the competitiveness of companies on a global level. The transformation of production systems affects the class structure, the work process, the application of technology, and the structure and organization of capital. Globalization is seen today as the marginalization of the less educated and low skilled workers. Business expansion no longer automatically means more jobs. In addition, due to its greater mobility compared to work, it can bring about high capital rewards.
The phenomenon seems to be driven by three main forces: the globalization of all product and financial markets, technology and deregulation. The globalization of product and financial markets refers to increased economic integration in terms of specialization and economies of scale, which will lead to increased trade in financial services through both capital flows and cross-border market entry activities. The technology factor, particularly telecommunications and information availability, has facilitated remote delivery and created new channels of access and distribution, while at the same time reshaping the industrial structures for financial services by allowing access from non-banks such as telecommunications and utilities.
Deregulation refers to the liberalization of capital movements and financial services in terms of products, markets and geographic locations. It integrates banks by offering a wide range of services, allowing new providers to enter and increasing multinational presence in many markets and more cross-border activities.
In a global economy, power is a company’s ability to have tangible and intangible assets that create customer loyalty regardless of location. Regardless of size or geographic location, a company can meet global standards and access global networks, thrive and act as world-class thinkers, doers and traders by leveraging its greatest strengths: its concepts, competencies and connections.
Some economists see the net impact of globalization on economic growth as positive. These effects have been analyzed over the years by several studies attempting to measure the effects of globalization on the economies of different nations using variables such as trade, capital flows and their openness, GDP per capita, foreign direct investment (FDI), and more. These studies examined the impact of several components of globalization on growth using cross-sectional time series data on trade, FDI and portfolio investment. Although they provide an analysis of individual components of globalization on economic growth, some of the results are inconclusive or even contradictory. Overall, however, the results of these studies seem to support the positive position of economists and not that of public and non-economists.
Trade between nations through the use of comparative advantages promotes growth, which is attributed to a strong correlation between openness to trade flows and the effects on economic growth and economic performance.In addition, there is a strong positive correlation between capital flows and their impact on economic growth.
The influence of FDI on economic growth had a positive growth effect in wealthy countries and an increase in trade and FDI, which led to higher growth rates.Empirical research examining the effects of various components of globalization on growth using time series and cross-sectional data on trade, FDI and portfolio investment found that a country tends to be less globalized when it has higher trade tax revenues. Further evidence suggests that countries that are sufficiently rich, such as most developed countries, have a positive effect on growth.
The World Bank reports that integration with global capital markets without solid domestic financial systems can lead to disastrous effects.
One of the potential benefits of globalization is that it provides opportunities to reduce the macroeconomic volatility of production and consumption through risk diversification.
Non-economists and the general public expect that the costs associated with globalization outweigh the benefits, especially in the short term. Less prosperous developed countries may not have the same strongly emphasized positive effect of globalization as wealthier countries in terms of GDP per capita, etc. While free trade increases opportunities for international trade, it also increases the risk of failure for smaller businesses. that cannot compete globally. In addition, free trade can drive up production and labor costs, including higher wages for more skilled workers, which in turn can lead to the relocation of jobs to countries with higher wages.
In some countries, domestic industries may be at risk due to the comparative or absolute advantage of other countries in certain industries. Another possible danger and harmful effect is the overexploitation and misuse of natural resources in order to meet new higher requirements in the production of goods.
How globalization affects industrialized countries
The bottom line
One of the main potential benefits of globalization is that it provides opportunities to reduce the macroeconomic volatility of production and consumption through risk diversification. The overall evidence for the globalization effect on macroeconomic volatility of production shows that although direct effects are ambiguous in theoretical models, financial integration contributes to the diversification of a country’s production base and leads to greater specialization of production. However, the specialization of production, based on the concept of comparative advantage, can also lead to higher volatility in certain industries within an economy and society of a nation. Over time, successful businesses, regardless of size, will be part of the global economy.