The Effects of Globalization on Business: Opportunities & Challenges

This essay examines the multifaceted effects of globalization on business, highlighting the increasing pace of international trade driven by technological advancements. It discusses how globalization enables businesses to minimize production costs through efficient methods adopted from developed nations, while also expanding consumer choices with access to a variety of commodities in the global market. The heightened competition leads to high-quality, affordable products, and globalization facilitates employment opportunities, particularly for individuals from less developed nations seeking jobs abroad. The analysis includes a dynamic panel data model to assess the impact of economic globalization on growth, considering factors such as government expenditure, inflation, human capital, and institutional quality. The conclusion emphasizes that while globalization generally has a positive impact, its benefits are contingent on a nation's initial conditions and individual income levels, explaining why some countries are more successful in leveraging globalization than others. The essay references key literature to support its arguments and provides a comprehensive overview of globalization's influence on the modern business landscape. Desklib provides similar solved assignments and past papers for students.

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GLOBALIZATION: EFFECT ON BUSINESS
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Abstract
Globalization in the today’s world of business has been increasing at a fast pace. Many
businesses have realized the benefits associated with international trade and have committed
themselves into it. Globalization is mainly driven by the advancement in technology which has
improved the way of doing things (Giddens, 2018). With technology, businesses have been able
to minimize their production costs by adopting efficient production methods from developed
nations. Customers have also been able to increase their choice by accessing various
commodities offered in the global market. Consumers enjoy high quality cheap commodities as a
result of globalization since the stiff competition involved in the global market calls for all
members to be smart enough in what they offer in order to survive and win market share.
Globalization has also enabled many people especially those from the less developed nations to
secure employment as they move to different nations in search for jobs. In a nutshell,
globalization has changed the business world for better and much better results are anticipated in
future.
Introduction
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 the international trade and survive the stiff
competition involved in it. The changes include changes in environmental, legal, cultural,

GLOBALIZATION: EFFECT ON BUSINESS 3
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.
Literature Review
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

GLOBALIZATION: EFFECT ON BUSINESS 4
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.
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

GLOBALIZATION: EFFECT ON BUSINESS 5
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

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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.
A model and data
For us to investigate the effect of globalization on business or on economic growth we
will consider a dynamic panel data model of the following form
GDPis=β1GDPis-1+𝛼1HOFis+𝛼2CZis+𝜇i+𝜈is
(1)
Where i represents country index, s represents time index, 𝛼 and β are
constants to be estimated, GDP represents the logarithm of real GDP per
capita, HOF is economic globalization, CZ is a vector of other control
variables which affect economic growth, 𝜇i represents unobserved country
specific effect term and 𝜈is is the usual error term. We also have that the
group of control variables is composed of variables like inflation,
government consumption, human capital, liquid liability, domestic
investment, and institutional quality.
Interpretation and discussion of results

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Based on the dynamic panel data or the equation (1) above the
following below table shows analysis on the results of economic
globalization on growth.
Variables Coefficient t-statistics p-value
L1.GDP (Real GDP per capita, lag) 0.13 1.93
0.054
HOF (Economic globalization) 0.67 3.85
0.000
Government consumption ( percentage GDP) −0.0003 −0.09
0.92
Inflation (Consumer prices index) −0.003 −0.89
0.37
Human capital 0.0031 1.67
0.09
Domestic investment (Gross capital formation % GDP) 0.03 3.13
0.002
Liquid liabilities 0.055 3.16
0.002

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Institutional quality −0.032
−0.34 0.73
Countries 33
Sargan Test 0.45
First order serial correlation (p -value) 0.000
Second order serial correlation ( p -value) 0.601
From the data model above we notice that GDPis is a dependent variable
while GDPis-1,HOFis,CZis, 𝜇i,𝜈i are independent variables. The result obtained
from the table above shows that economic globalization can lead to a
positive growth if the coefficient is significant at one percent level. Again
with the plenty of the existing empirical literature positive effect is
consistent so as to aid beneficial effect of globalization on economic growth.
Low level of government expenditure, low level of inflation, high level of
human capital, better institution and deep financial development also
enhances growth.
Conclusion
In conclusion, the economic globalization on growth affects economic growth in a
positive way this is simply because the coefficient measuring the effect of the economic

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globalization on growth was positive and significant. Many countries around the globe with high
level of human capital and deep financial development increases positive effect of globalization
on growth. Last but not list economic growth of any nation is not necessarily positive because of
the economic globalization but it being positive depends on the level of income of each
individual. Therefore for countries in the world to experience positive economic growth they
ought to have initial conditions which can lead them benefit from the positive effects of
globalization. This is the reason why some countries in the globalizing world have been and still
proceeding to be more successful than others.
References
Appadurai, A. (2016). Modernity al large: cultural dimensions of globalization (Vol. 1). U of
Minnesota Press.

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Dreher, A. (2010). Does globalization affect growth? Evidence from a new index of
globalization. Applied economics, 38(10), 1091-1110.
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.
Chang CP, Lee CC (2010) Globalization and Economic Growth: A Political Economy Analysis
for OECD Countries. Global Economic Review 39: 151–173.
Birdsall N (2002) A stormy day on an open field: asymmetry and convergence in the global
economy. In: Gruen D, O'Brien T, Lawson J, editors. Globalisation, living standards and
inequality. Sydney: Reserve Bank of Australia and Australian. 66–87.
Solt F (2009) Standardizing the World Income Inequality Database. Social Science Quarterly
90: 231–242 SWIID Version 233.230, July 2010.

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Beck T, Demirgüç-Kunt A, Levine R (2009) Financial Institutions and Markets across Countries
and over Time. Policy Research Working Paper No.4943