Globalization has shaped the structure of the modern world, leading to multiple changes in the economy, politics, and culture. Studying the subject allows developing complex methods to deal with a set of different economic, social, political, and cultural processes that are associated with it. Understanding the nature of globalization and seeing the potential benefits and pitfalls that are associated with it is crucial for running a successful business in the modern world.
Globalization is a complex and multifaceted process, and peoples’ views on the subject are heavily influenced by the personal beliefs and political inclination of individuals. Researchers of the phenomenon have pointed out that this word has been widely used since the early 1980s, without a single generally accepted definition (Djelic & Quack 124). At the end of the twentieth century, it gained popularity in the media and public and was applied to a variety of different phenomena. As a result, the word became overused, and the meaning of the term in some literature was vague. Recent attempts to study this concept have helped to make the situation regarding the use of this word clearer (Djelic & Quack 125). In economics, globalization can be broadly defined as a process of expansion of interaction between economic entities beyond national boundaries.
Globalization of markets is characterized by relatively cheap transportation, lower tariffs, and fewer restrictions for selling a product in countries other than the home country. It allows companies to sell their products internationally and leads to increased competition in local markets (Beck 41). In the globalized world economy, businesses need to take into account the social, cultural, and economic differences of the regions in which they operate. It requires adjusting products and marketing strategies to the specifics of a local market (Beck 53). The possibility to sell internationally dramatically increases the number of potential customers for a company, providing almost unlimited space for growth. Thus, globalization of markets brings about new opportunities for business, but it also creates challenges such as a necessity for small local businesses to compete with large multinational corporations.
Globalization of production is caused by businesses’ desire to reduce costs, which leads to the relocation of production to regions with cheaper labor. Significant improvements in transportation in recent years, together with fewer restrictions on trade between countries, have led to the spread of multinational companies (Beck 53). Globalization of production led to lower consumer prices for goods from around the world. Relocation of industries creates new working opportunities in developing countries and increases investments in their economies, but also has a negative impact on the wages of some workers, contributing to inequality in the world. This process results in increased wages for skilled workers and reduces the amount of money unskilled workers earn for their labor (Helpman 21-27). At the same time, scholars from the National Bureau of Economic Research argue that evidence does not support the claim that globalization is the main cause of wage inequality in the modern world (Helpman 39). The process of globalization has changed the situation in the labor market both directly and indirectly, affecting employees as well as capitalists.
One of the main changes that were brought about with globalization was the shift from state regulations towards a more complex multi-actor system. Recent research of the connections between globalization and regulations in business by Marie-Laure Djelic and Sigrid Quack outlines the key role of non-governmental players in the modern transnational regulatory system (124). Such a system is characterized by so-called soft laws that emerge as a result of the cooperation of multiple players and include voluntary standards and conducts. At the same time, formal legal obligations have less impact on the economic behavior of businesses due to the transnational character of their activity. As researchers argue in the paper, this shift leads to the move from universal sets of standards to dynamic and adaptable international rules that are not obligatory by nature (Djelic & Quack 125). The change in regulatory platform is a unique feature of the globalized world economy, and it is critical for businesses to understand and be adjusted to it in order to successfully operate in the global market.
Globalization in finance gave rise to a new complex system of capital flows and transactions in the market and led to a variety of outcomes. Based on the presumption that increased opportunities for trade between countries bring about positive change in welfare, governments of multiple countries changed their approach to regulations. It created a new tendency and led to further fueling the process of financial globalization. Fernando Broner and Jaume Ventura argued in their research paper that as more countries lift their restrictions on international transactions, the domestic markets become more volatile, increasing the probability of crises (1499). The process of financial liberalization created a dynamic situation characterized by volatility and frequent changes, requiring businesses that operate transnationally to be highly adaptable, resilient to crises, and capable of performing in a risky environment.
The dramatic shift in the approach to regulation changed the role of government institutions. In the globalized world, governments become a player in the field rather than the controlling mechanisms and the lawmaker (Djelic & Quack 134-137). Such practice provides businesses with more space for flexibility and adjustment but also gives rise to the question of legitimacy. It creates a complex problem that has political, social, and ethical aspects, and this question has been discussed by scholars since the 1990s (Djelic & Quack 138). The unsolved problem of legitimacy in the globalized world economy contributes to the politicization of regulations. It is another major aspect of the modern business environment that needs to be taken into account by companies that operate transnationally.
Globalization is a complex process that affects all facets of life. The international character of modern capitalism defines how businesses operate in the world, and it cannot be ignored. The major shifts in economic and social processes and the new approaches to regulation led to an unprecedented situation in the world, changing the role of the government and patterns of economic behavior for businesses. It gave rise to new potential challenges but also provided multiple opportunities for development in all areas of human activity. Understanding these tendencies and mechanisms provides the business community with a better vision of the most effective ways to operate in the constantly changing globalized environment and allows looking for new opportunities for the future. It also helps develop a set of tools and a theoretical framework to study processes in the world economy and dealing with existing and potential crises.
Works Cited
Beck, Ulrich. What is globalization. John Wiley & Sons, 2018.
Broner, Fernando, and Jaume Ventura. “Rethinking the effects of financial globalization.” The Quarterly Journal of Economics 131.3 (2016): 1497-1542.
Djelic, Marie-Laure, and Sigrid Quack. “Globalization and business regulation.” Annual Review of Sociology 44 (2018): 123-143.
Helpman, Elhanan. Globalization and wage inequality. No. w22944. National Bureau of Economic Research, 2016.