Globalization has been at the center of the biggest changes in modern life. However, the benefits of globalization are not without cost. As we enjoy new ways to do business and more, it can be easy to only acknowledge the positives. However, it is important that we also understand the challenges globalization presents. In this way, we can mitigate issues and embrace globalization benefits moving forward.
Globalization and Its Importance
When discussing globalization, it is important to be clear about the concept. Globalization describes the concept of businesses, technology, geopolitics, and organizations connecting across multiple countries and through a variety of relationships. These connections impact everything, from media, commerce, travel, and culture to manufacturing and innovation.
There are real-world examples of the effects of globalization that can be seen every day. For example, McDonald’s or Starbucks in Paris, visiting an Indian restaurant in New York, talking to a friend on another continent through your smartphone that was made in China, students in California studying Shakespeare by watching a video performance of Hamlet in Stratford-Upon-Avon. All of these things, and so much more, are benefits of globalization that we take for granted. They shape our experiences in so many ways and have been in place for so long that we rarely even notice.
Consider a global beverage giant such as PepsiCo. They operate in over 200 national markets with regional offices in 26 countries. Product supply lines stretch across every continent, and an online management conference may include leaders of 20+ nationalities. That is globalization; it is bringing connections together regardless of physical location.
It is perhaps best summed up by the phrase people use so often these days, “the world is getting smaller”. With fast broadband communications available even from your smartphone today, it is true. Accessing video of a sports event that is taking place on the other side of the world is as easy as video-calling your friend who is two blocks away. Distance is no longer a barrier.
Globalization Matters for Every Business
Don’t be fooled into thinking this only applies to huge multinationals like PepsiCo. The benefits of globalization are there for businesses of all sizes. From startups onwards, the importance of globalization cannot be understated.
The impact of globalization is not always positive; this is why it is so important to understand what that impact is. For example, for every business globalization means increased competition. If you sell fruit, your competition used to be the other fruit shop in town. However, due to globalization, it is now all the other fruit shops, including the internet retailers based in the city, the direct suppliers from China, and so on. Consumers can access all of these just as easily.
However, challenges brought by globalization can be overcome, often by the benefits of globalization themselves. Consider our fruit scenario. The business may seem more competitive for their local market, but they can also access a much larger market themselves. In addition, they have new options for suppliers and can offer new lines at cheaper prices by going directly to manufacturers. All of this allows them to maintain market position and profitability even with increased competition.
If you also consider the ability to share ideas and technology with partners around the world, the capacity to diversify the workforce by bringing in talents regardless of physical location, and the potential to seek investment and trade on any continent, then the importance of globalization in every aspect of business becomes clear.
Pros and Cons of Globalization
There are benefits of globalization for an increasing number of businesses. Size and budget have become less of a factor in accessing the technology and support structures that are needed. However, as with any business strategy, it is crucial to understand those benefits. It is also important to recognize the challenges of globalization and how they impact every aspect of business operations.
Competition
Businesses have always faced competition. Even the smallest coffee house has to compete with other cafes and coffee houses in that locality. However, globalization has radically altered the type and volume of competition for almost every business.
Today, competition comes not just from local or national alternatives, but even smaller companies can find themselves competing globally. For easily distributed products, such as services that can be carried out remotely, location becomes irrelevant. Studies have shown that social media and website content affects purchasing decisions for as many as 71% of buyers.
A website doesn’t reveal the size of a company and it is accessible for anyone, regardless of location. A customer living a block from your physical location may be buying from a competitor in another country because their website was more appealing. Moreover, that may be a company a tenth of your size, but as long as they offer the expected service, the consumer will never know.
For every business, the challenge presented by increased competition is one they must overcome.
Global Recruitment
While many would see the ability to recruit the very best talent from around the world as a benefit of globalization, and it certainly is, the process of international recruitment is complex, time-consuming, and costly.
Recruiting the right people is challenging even at the local level. However, when you expand to a global employment market, the challenge becomes even greater. With the competition looking for the best talent around the world, it is something businesses may find an inevitability. Although specialist recruitment agencies can handle the process, it adds costs to every recruitment initiative.
Compliance with Regulations and Legislation
Another area that brings significant challenges is compliance. As every business knows, making sure operations comply with local regulations and legislation is itself a significant issue. From employment regulations to taxation, with rules constantly changing and new ones added, remaining compliant requires constant diligence.
With globalization, this issue expands drastically. Employment laws for remote workers and the tax and duty implications of a supply line that spans continents are intricate. As a result of this, you are often dealing with multiple regulatory jurisdictions and governance.
Not only does this mean more time is spent on monitoring compliance, but it also increases the risk of business processes being non-compliant. That additional risk is one of the key globalization issues that every business must address. The consequences of non-compliance could be catastrophic, and for organizations that are unprepared, it is a huge challenge.
Dependence on Partners
Globalization encourages businesses to explore new options and to seek out new markets. Developing supply chains that cross the world can offer significant cost savings that aid profitability and competitiveness. However, it may also add risk.
With a supply chain reliant on several partners, from materials to manufacturing, and transport, one simple failure can spell disaster.
Your business becomes entirely dependent on these partners, and in many cases, finding alternatives would be extremely difficult. Selecting the right partners for this is critical of course, but the risk does not stop there.
Natural disasters can strike any business, but the longer your supply chain, the more risk that a flood, earthquake, or a local political/ legislative issue can affect operations. For businesses that are used to managing risk effectively, this dependence on partners can be a difficult challenge to overcome.
While these globalization issues can create significant challenges, the positive effects of globalization should be weighed against them. However, as shown, for most businesses the overall benefits of globalization outweigh the problems.
Lower Costs
Supply chains that cross borders and even continents do have their risks, as discussed above. However, the reality is that through the global market, costs can be reduced. Whether by a manufacturing supplier or through purchasing equipment or materials, businesses can lower expenditure through globalization.
This is achieved in two ways. First, with lower overheads in some locations, products can simply be created cheaper. The other way is through competition, as we mentioned. With increased competition for business, prices are driven down, benefitting all.
Increased Innovation
Staying ahead of the market in this highly competitive world means taking advantage of any innovation. With suppliers, employees, and competitors spread around the world, new innovations quickly spread. New technology introduced in Europe can be identified and implemented into a US business in just a few days or weeks.
This leads to further drives for innovation as businesses constantly seek an advantage, ensuring that new technology and other advances appear constantly. This cycle is not just an advantage to businesses, but as technology is driven forward, it benefits all.
Elevates Societies Around the World
Globalization removes the barrier of location in many ways, and that has benefits for communities on every continent. Jobs, investments, and opportunities can reach even the most remote location, with left-behind areas now able to benefit from global growth.
Improved local economies allow for infrastructure investment, better standards of living, and access to healthcare. This can transform communities, and just as importantly, preserve them. Migration to find a higher quality of life is made less desirable, which stops the shrinking of local communities.
Access New Markets
Increased competition is a challenge of globalization, however, that ability for others to compete in your business’s market is a two-way street. Even for smaller businesses, globalization means access to a broader market. With modern communications and transportation, even a startup can successfully launch into a global marketplace.
That is an opportunity for increased sales of existing products and services. But with those markets reflecting new cultures and tastes, it’s an opportunity for new products, too. While it remains true that there will be more competitors in every market, there are far more markets to approach. Those markets are more diverse than ever, allowing for new innovations and new strategies.
The result is an increase in growth opportunities for businesses overall, opening the doors to new strategies and output.
Access the Best Talent
Another benefit of globalization is the ability to access the very best talent, regardless of location. This applies across any organization, from employees to suppliers and other partners.
As aforementioned, there are globalization challenges. This includes the increased cost and logistics of identifying, negotiating, and agreeing to a relationship with individuals and businesses in other countries. However, once overcome, there is a significant benefit.
In any situation, having the best team improves performance. By widening the recruitment process to ignore location, the quality of candidates is increased. In turn, this eventually elevates the skills and knowledge within the organization. Rises in productivity and performance offset the challenges of recruitment in the long term.
It is similar with suppliers and partners. Once the location is less relevant, finding suppliers with the best balance of quality and cost is possible. Furthermore, identifying and agreeing to terms with these companies may be more challenging than with local partners. But long-term cost reduction and increased profitability bring greater benefits.
How Can Businesses Best Take Advantage of Globalization?
The positive effects of globalization are clear, but that information is only useful for businesses that can take advantage. Successful companies have always had a well thought international expansion plan that helped them efficiently penetrate the markets. Overcoming the challenges of globalization is an essential part of this, but to truly take advantage requires a proactive approach from an organization’s leadership.
In practice, businesses can use globalization to their advantage by lowering costs and broadening their market access. How this is accomplished will affect the overall impact of the business strategy.
Exploring New Markets
One of the obvious benefits of globalization is that it opens up new markets for every business. Even a one-person startup selling digital art online can reach out to consumers around the world. Yet, most situations are not as perfect as a singular digital product.
For products or services, it pays to take a more methodical approach. For instance, a US business may consider Canada, the UK, or Australia for expansion. These countries share a language thus reducing the cost of developing marketing materials. Aside from that, they also share a similar culture, making it easier to successfully present products.
This allows for expansion without the stress on business operations that markets without the shared culture. As the business establishes a foothold in these first markets, it can put in place the processes and organization needed to operate effectively at a distance. Once created, these new initiatives may be used to support entry into other markets, including those with different languages and cultures, adapting as needed.
Improving Supply Chains
Business supply changes need to be flexible during expansion into new markets. Having established suppliers and partners is important, but it is possible to find alternatives within any new market. If a cheaper supplier or a supplier that offers higher service standards is available within the new market, use them. In this way, as the business grows into new opportunities, the supply chain grows and adapts with it.
The search for new providers should not be restricted to a single market. Chinese industry unlocks endless new opportunities for quality products and lower costs, but there are similar possibilities from suppliers across Asia and Eastern Europe. There may be a culture shock in dealing with some of these companies, however, there are specialist business consulting services that can help you navigate these challenges to uncover new, profitable opportunities.
Exploring suppliers, manufacturers, and more in China and elsewhere can yield impressive results, cutting overheads through lower-cost supplies. More than that, with a different approach to production, they can often improve products or parts, too. Added flexibility often means it is easier to integrate new innovations or technology. Together, all these benefits can improve your offer in every market.
Recruiting the Best People
In addition to business processes, there are operational changes that leverage the benefits of globalization. One of the best ways businesses can use globalization to their advantage is through the vast pool of global talent.
Embracing globalization can mean bringing that talent to you, or it could mean a distributed workforce. Both options bring new talent to your business. Today, many large organizations have distributed teams as the backbone of operations. The recent pandemic further emphasized the benefits of this approach, and it is often a more attractive offer for potential employees. It allows them access to the rewarding career they seek without having to leave their own community.
Again, recruitment across cultures and borders can be challenging and may seem daunting. Nonetheless, specialist consultants have the expertise, insight, and experience to take on these tasks for you. They will screen, assess and even interview applicants, leaving you to make the final choice. It is time and cost-efficient while allowing you to remain in control of the final decision.
The benefits of bringing together the very best people are clear. It allows higher productivity, increased innovation, and superior outcomes. Through a distributed workforce, or simply bringing the best people to your location, the talent will elevate any business.
Go Global with Xinergy Global
Taking advantage of the benefits of globalization should be part of any business strategy moving forward, even for a startup. That is not to say that there are globalization issues, we have discussed them at length. However, the benefits clearly outweigh the challenges. As a matter of fact, in several cases, the benefits overcome those issues themselves.
With so many opportunities to seize hold of, it can be a daunting prospect to know where to begin. This is especially true when implementing new approaches that include suppliers or customers from other cultures. Very few organizations have the in-house experience, expertise, and understanding of such situations, which can often result in expensive mistakes. That is where Xinergy Global’s business consulting can help.
Our team of highly experienced business professionals can smooth the transition from being local to going global. We guide you to an effective strategy that embraces the benefits of globalization. From supply chains to logistics management, we are here to help. Globalization, by its very nature, introduces large-scale operations to your business. We have the management and leadership expertise to help you adapt and integrate this new approach seamlessly. Whether you need assistance identifying new suppliers or ensuring compliance with local legislation, we are here to help.
If you need any guidance about accessing the benefits of globalization, or would like to discuss your strategy going forward, get in touch with us at Xinergy Global today, and take full advantage of the expertise and insight we can provide.
With Xinergy Global, you can move from local to global smoothly and confidently.
