Challenges of Globalization Report

This report examines the challenges of globalization, focusing on its impact on international businesses. The research methodology involved a review of secondary sources, including books, research papers, and articles. The analysis reveals that while globalization offers significant opportunities, it also presents considerable challenges. These include cultural differences impacting communication and negotiation, political risks stemming from varying government regulations and potential corruption, economic challenges like exchange rate fluctuations and inflation, and strategic challenges related to product positioning and market adaptation. Ethical considerations, environmental standards, and demographic factors also pose significant challenges. The report concludes that while globalization benefits developed countries, developing nations face unique hurdles due to a lack of resources and skills to compete effectively in the global market.

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Challenges of globalization 1
Abstract
This process of globalization is supported by the technological changes that are happening at a
very fast pace in the world, the prices of the products in the international markets and the
liberalization of trade between countries. The trade liberalization or the international business
has the greatest contribution in the emergence and popularity of globalization. The research has
been made using the secondary sources. The literature from various sources has been studies and
reviewed for analyzing the challenges of globalization that the companies face worldwide and
the implications of those challenges on their business. It has been concluded that the
globalization is a very attractive process for the developed countries. But there are many
challenges of globalization including differences in the regulations of different countries, the
inflation and exchange rate fluctuation challenges, changes in price and taxation, the strategic,
the challenge related to positioning of their product in the international markets. The minor
challenges are related to the ethical consideration, the maintenance of environmental standards in
different countries and the challenge related to the demographics of the countries.

Challenges of globalization 2
Contents
Introduction.................................................................................................................................................3
Literature Review........................................................................................................................................3
Methodology...............................................................................................................................................6
Analysis and Findings...................................................................................................................................7
Conclusion.................................................................................................................................................10
References.................................................................................................................................................11

Challenges of globalization 3
Introduction
The concept of globalization is strongly underway in almost every part of the globe.
Globalization is the process of continuous integration of the countries in the world. This process
is supported by the technological changes that are happening at a very fast in the world, the
prices of the products in the international markets and the liberalization of trade between
countries. The trade liberalization or the international business has the greatest contribution in
the emergence and popularity of globalization. International business involves performing the
activities of trade and investment by the firms across the national borders. With globalization, the
tendency of the companies to think, operate, plan and grab the opportunities has increased but, it
is not a panacea, brings with it many challenges that have to be dealt with. It is important to
determine these challenges because they have a major impact on the way businesses are done
internationally. With globalization, many countries become susceptible to shocks and they need
to put in place the required rules or legislations so that they protect their sovereignty.
The purpose of this research paper is to determine the challenges of globalization so that the
countries can be given a perspective about how they can deal with the same and what are the
things that are needed to be taken care of when they are indulging in international business or
going global.
Literature Review
The globalization of business and commerce has become an increasingly significant reality
worldwide: in 2010, the global trade in goods and services reached 25% of world GDP
(Govidarajan & Gupta 2010), while in terms of manufactured goods, international trade has

Challenges of globalization 4
multiplied by more than 100 times since 1955 (Schifferes 2007). The rise of globalization posits
a number of important challenges to a business seeking international presence. Numerous
strategic aspects must be taken into account prior to commitment at an international level, and
afterwards. Constant flexibility is required to adapt to changing patterns at local, regional and
international levels. This research paper seeks to identify the main issues affecting international
businesses, including accounting practices, cultural issues, strategic choices and political risk.
Globalization has significantly impacted on the business environment, prompting the
development of the multi-national enterprise (MNE). The governance of the MNE is recognized
as being different than that of a national company. For instance, Bartlett and Ghoshal (1998)
have introduced the influential concept of the transnational model, which allows the transfer of
knowledge developed and jointly shared on a worldwide basis. In order to create a successful
global business, Bengley and Boyd (2003) have underlined the importance of a global mindset,
defined as the ability to develop and interpret criteria for business performance that are not
dependent on the assumptions of a single country, culture or context. Corporate management
must not automatically assume that the culture of the home office is equally applicable elsewhere
(Bradley 2005). An important new development in the international business arena has been the
rise of ‘mini-multinationals’ – small and medium size enterprises that do business on a global
basis (Hill 2005)
Culture is an elusive term that has received hundreds of definitions. Hofstede’s (1984, p. 21)
influential definition is that culture is “the collective programming of the mind which
distinguishes the members of one human group from another” Hofstede (1984) identified the
main dimensions of culture that affect work practices in different countries: Power distance,

Challenges of globalization 5
uncertainty avoidance, individualism vs. collectivism, masculinity vs. femininity, long vs. short-
term orientation.
In a national culture framework, large power distance can translate into potential corruptive
practices. Takyi-Asiedu (1993) associated power distance to corruption in sub-Saharan Africa.
Cohen, Pant and Sharp (1996) also found that high power-distance culture people tend to view
unethical practices as acceptable. On the other hand, Gray (1988) correlated high power distance
with uniformity of financial and accounting practices, which may be more or less costly to a
company depending on its manner of doing business.
Uncertainty avoiding countries tend to have solid legal frameworks and strict rules of doing
business (Pagell & Halperin 2001). In such countries, thorough auditing tends to be carried out to
ascertain compliance with rules (Hill 2004). These countries tend to have uniform accounting
procedures and low disclosure levels (Gray 1988). Coming from a different cultural perspective,
an international business may find it costly to adapt to the national standards and rules of the
country it wishes to do business in. Paradoxically, uncertainty avoidance can also translate into
unethical practices as persons seek to secure a more certain result through corruption (Husted
1999). In terms of entry modes into the country, businesses may find that uncertainty avoidant
countries favors solid frameworks such as established subsidiaries or local ownership, which are
more costly and risky.
Then, the political risk implies negative business consequences due to the behavior of
governments and public sector organizations (Suder 2004).The most important political risk has
been the threat of nationalization (Brooks et al 2004). The extreme threat of nationalization
sometimes takes milder forms as when, in times of crisis, some governments resort to exchange

Challenges of globalization 6
rate controls. Another source of political risk is wars or civil strife. Another important political
risk is represented by corruption practices (Hill 2005). For instance, a company may lose a
contract because of a government’s unethical dealings (Madura 2006). Political risk can also
translate in the change in tariff barriers, which make a company more or less competitive
globally.
Empirical trade analysis has concluded that the traditional trade models must be adjusted to fit
the trade data (Rivera-Batiz & Oliva 2003). Such modifications should include technology
differentials, home biases in consumption, trade costs and distance and intermediate outputs.
Trefler (1993) created a modified H-O model that accounted for a difference in technologies and
home bias. Rivera-Batiz and Oliva (2003) maintain that, once such model modifications are
introduced, the H-O model appears to hold fairly well. Davis and Weinstein (2001) and Trefler
and Zhu (2000) have achieved up to 74% correlation between predictions and measurements
under the modified H-O model. Despite this, the H-O model continues to fail to account for
intra-industry trade and increasing returns to scale in major industries (Rivera-Batiz & Oliva
2003, Dunning 2009).
Methodology
The research has been made using the secondary sources. The literature from various sources has
been studies and reviewed for analyzing the challenges of globalization that the companies face
worldwide and the implications of those challenges on their business. The secondary sources
have helped in establishing the analysis of the research. The challenges have been picked from
various books, research paper and articles and they have been complied here in the literature

Challenges of globalization 7
review. This research is descriptive in nature because it tries to describe the nature of
globalization and the challenges that are posed by it in the international business.
Analysis and Findings
Analysis:
From the literature that has been reviewed above, it has been analyzed that:
 The process of advancement of globalization has not been smooth and pain free. The
changes that have been brought by globalization have spurred a political backlash, which
can be seen during the street protests at the WTO ministerial.
 Broadly, there are two greatest challenges of globalization, one is the undetermined labor
and other is the poor maintenance of the environmental standards. With globalization, the
gap between the rich and the poor has been exacerbated among and within the countries.
 The countries have become interdependent on each other. They have to design the public
policies so that maximum potential benefits can be obtained from globalization. The
countries that are not much developed face the downside risks of marginalization and
destabilization.
 The benefits related to globalization are not extended to all the countries, they are
provided much to the developing countries. Instead, the developed countries reap most
of the benefits of the globalization. So, they see globalization as a challenge rather than
useful thing.
 The globalization leads to integration of firms and movement of people. They have to
move to various countries for doing business and job. When people from one culture
moves to another culture while changing the organization, he faces various risks that arise

Challenges of globalization 8
from the differences in lifestyle, languages, religion, attitudes, customs etc. Thus, cultural
miss-communication happens and that can jeopardize the culturally valued behavior or
mindset. The people also have to deal with the different negotiation patterns of different
countries. For example, in Mexico, social relations are given importance and people are
friendly there, so the negotiation should be done in that way and American are assertive
so there, the pattern of negotiation is different.
 When the globalization opens the boundaries for the countries to do with business with
each other, there is a challenge of political environment that is faced by the companies.
The intervention by government, barriers to trade etc. are different in different countries.
The companies face red tapeism, corruption issues, administrative delays etc. when they
do business with the global companies. There are less legal safeguards that are provided
to the companies abroad and if some company wants to obtain the intellectual property
rights in some other country, then the procedure are lengthy and it is difficult to get that.
Sometimes, the economic failures happen and miss-management is there in global
companies that again pose a challenge for the firm who is planning to do or is presently
doing business internationally.
 The exchange rate keeps on fluctuating on daily basis. So, there is challenge of dealing
with the unfavorable exchange rate fluctuations. The change in the rate of exchange in
globalization, changes the value of the assets that adversely affect the assets and
liabilities of the companies who are involved in the international business. They also
suffer from the risk of paying the different foreign taxation. Then when the rate of
inflation changes, the planning of business in the international markets becomes
complicated, there is also change in the pricing of inputs and the finished goods.

Challenges of globalization 9
 The companies face challenge of commercial activities. Their business partner is
unknown in the international market and he may be weak as compared to the other
company which may not be known in advance. This can create operational problems.
The strategy may get executed poorly.
 The global demographics have to be approached differently in globalization. In this, the
international product and the service are considered and it needs to be localized
successfully. This is a significant challenge related to globalization. When any strategy is
implemented in globalization, the various tastes and strategies have to be considered
during the implementation of that strategy.
 The ethical and environment constraints are also faced by the countries. The global
culture has to be adopted which is particular to every individual country. It is very
difficult to retain the cultural identity during the globalization phase.
Findings:
From the above discussion, it has been found that globalization is a very attractive process
and must to adopt for those countries and businesses that have resources, capabilities and
skills to go global. They are benefitted because they have everything with which they can
compete in the global market. But, the developing countries face the challenges of
globalization as they are incompetent in the international markets. They lack the necessary
skills to compete. Apart from this, the challenges of globalization includes the cultural
challenges where the employees are suffered the most, the political challenges due to
differences in the regulations of different countries, the inflation and exchange rate
fluctuation challenges that makes the companies suffer losses due to changes in price and
taxation, the strategic challenges because the companies continuously have to change their

Challenges of globalization 10
strategies as per the needs of global markets, then the companies also face the challenge
related to positioning of their product in the international markets. The minor challenges are
related to the ethical consideration that differ in every country, the maintenance of
environmental standards in different countries and the challenge related to the demographics
of the countries.
Conclusion
From the above discussion, it can be concluded that the trade liberalization or the international
business has the greatest contribution in the emergence and popularity of globalization. From the
above discussion, it can be concluded that the globalization is a very attractive process for the
developed countries. But there are many challenges of globalization including differences in the
regulations of different countries, the inflation and exchange rate fluctuation challenges, changes
in price and taxation, the strategic, the challenge related to positioning of their product in the
international markets. The minor challenges are related to the ethical consideration, the
maintenance of environmental standards in different countries and the challenge related to the
demographics of the countries.

Challenges of globalization 11
References
Anderson, J.E. (1979). A Theoretical Foundation for the Gravity Equation. American Economic
Review, 69, pp. 106-116.
Anderson, S.W. & Lanen, W.N. (1997). Economic Transition, Strategy and the Evolution of
Management Accounting Practices: The Case of India. University of Michigan, 1-Apr-1997, 61.
Bartlett, C. & Ghoshal, S. (1998). Managing across Borders: the Transnational Solution. London:
Random House.
Begley, T.M. & Boyd, D.P. (2003). The Need for a Corporate Global Mind-Set. Sloan
Management Review, 44 (2), pp. 25-32.
Bradley, R. (2005). The Survival of International Engineering Consultancies: the Need to Adjust
to Reality. Leadership and Management in Engineering.
Briscoe, D.R. & Schuler, R.S. (2004). International human resource management: policy and
practice for the global enterprise, 2nd edition. Routledge.