Globalization: Definition, Features, Merits & Demerits

Globalization: Definition, Features, Advantages & Disadvantages

The use of this term has been used since the 80s. That is, since technological advances have facilitated and accelerated international commercial and financial transactions. And for this reason, the phenomenon has as many defenders – such as the International Monetary Fund (IMF) or the World Bank – as detractors.

In this process there is an economic interdependence, where companies and markets go beyond national borders and reach a global dimension.

It is a particularly economic process, where an integration of national economies takes place, causing an increase in the volume and complexity of the exchange of goods and services in the world economy.

The market for goods and services travels freely to any country in the world, due to the great openness that has occurred in the trade and investment sector. At present, production factors such as capital, labor and technology flow from one country to the other with great ease, thanks to the process of globalization.

Globalization has made markets internationalize, this implies that any producer competes with all producers in the world. The competition is becoming stronger because it must compete with companies that apply technology and innovation, delivering better products produced at low cost.

When we talk about the free flow of capital, we are talking about three types of capital:

• Commercial capital: It is the capital that is used in the commercialization of goods and services in the world market, to obtain profits. As an example, we can mention the Shell company, which sells gasoline in almost every country in the world.
• Productive capital: It is the capital that is invested in the purchase of production factors to manufacture goods and services. The example of a company that invests in productive capital is Nike, which has its production factories in China and Vietnam.
• Financial capital: It is all the money that is invested in another country in the form of foreign direct investment or through credits. In this case, we can mention the Nestlé company that invests in many countries around the world as a large transnational company.

Globalization is a fairly complex process that has a series of characteristics that we mention below:

• Facilitates access to a greater number of goods and services.
• Accelerate the learning and research process.
• It is based on new technologies and internet access.
• Allows you to combine cultures from different countries or geographic areas.
• It promotes tourism and the mobility of people.
• Encourage specialization.

The globalization process begins in the 20th century. This is due to a change in the geopolitical strategy of the different world economic powers. From this moment on, barriers to international trade began to be eliminated and agreements as important as the creation of the European Union were reached. These types of measures made it possible to liberalize trade between countries and begin this process.

On the other hand, the advancement of technologies and communications made it possible to simplify international operations. In this sense, the development of the internet has made it possible to acquire a product manufactured anywhere in the world without leaving home.

Along with this, another of the effects of globalization is innovation in the world of transport. This R + D + i process has made it possible to develop much more efficient means of transport, lowering their costs and favoring the exchange of goods between countries.

As for the consequences, globalization has improved the quality of life of the planet’s inhabitants because it has facilitated access to many goods and services. Although it is true, it has also generated situations of companies with a very large market power and that suffocate small businesses.

Likewise, the culture of each country is modified by customs imported from other countries. Today, we can find traits in the society of each nation that are not indigenous, generating a globalized and generalist culture.

Although all economic agents participate in globalization, there are some that are especially relevant:

• Multinational banks: They are formed with foreign capital and participate in investment financial operations, their objective is to increase their capital by supporting multinationals in their investments in different countries.
• Multinational companies : These are companies that sell goods and services abroad, or also produce goods and services abroad in their different subsidiaries. They have a lot of presence worldwide, they are large, they have a high degree of integration and they are financially independent.
• International institutions : These are organizations that facilitate commercial and financial transactions between globalization actors. They are entities such as the International Monetary Fund, the World Bank, the World Trade Organization, among others.

Advantages and Disadvantages of Globalisation

Merits of Globalization (Interaction With other Nations)

The arguments usually advanced in support of interaction with other nations (or globalisation) usually include the following:

• Interaction increases the interdependence and modernisation of nations.
• It leads to the removal, or reduction, of the external economic constraints that act upon nation states.
• Interaction or globalisation promotes rapid technological advancement and innovation.
• It leads to rapid expansion of international trade and investment.
• Interaction among nations leads to increased awareness of environmental problems which generally a have international dimension.
• With increasing interaction among nations, there is a decline in the utility of military power. The instruments of interaction are not coercive but persuasive, coordinating and issue-based.
• Interaction has created the conditions for the emergence of a dynamic global or transnational civil society. As a result of economic interdependence new physical infrastructures (such as new systems of communication and transportation) and new technologies (satellites, computer networks etc) have increased the costs and difficulty for governments to control the flows of information and this has facilitated the diffusion of values, knowledge and ideas, and enhanced the ability of like-minded groups to organise across national boundaries Transnational Civil Society therefore refers to those self-organised intermediary groups that are relatively independent of both public authorities and private economic actors, that are capable of taking collective action in pursuit of their interests or values, and act across state bordens.
• As a result of interaction among nations, the domination of politics in the international system has been gradually displaced by economic domination.
• It leads to improvement in economic performance.

Demerits of Globalisation

The arguments usually advanced against interaction with other nations include the following:

• Interaction with other nations weakens the state and its power to take decisions. This makes nonsense of the independence and sovereignty of these countries.
• Interaction leads to further . subordination and dependence of developing countries (struggling for development, equitable balance in the world economic order) to developed countries in “quest of development sustainability and capital technological migration”.
• As a result of interaction or globalisation, certain sets of economic policy tools have ceased to be viable and states (especially developing nations) face ever increasing pressures to adopt increasingly pro-market policies. Because of increasing power of financial markets, governments are forced into pursuing macroeconomic policies that meet with the approval of these markets. Increasing trade also places governments under pressure to adopt pro-market policies, avoiding policies which would imply the need to harm business by taxation or to raise interest rates as a consequence of increased borrowing. They also find themselves being forced to cut back the role of the public sector in order to attract foreign investments from multinational companies and governments which fail to do this may be punished as the foreign companies may exit the economy.
• Although civil society groups (e.g. Non-governmental organisations, social movements and multi-national companies) play a key role in global interaction, yet many civil society groups are engaged in transnational drug trafficking, criminal activities and terrorism. A notorious example is the corrupt practices of ENRON.
• Interaction with other nations may not necessarily lead to economic development and equitable distribution of national wealth in countries that lack patriotic leadership that can maximise the benefits of interaction. Despite interaction with other nations, Nigeria, for example, remains poor and a large proportion of economic activities are found in the traditional agricultural sector and trading. For example, while Brazil has subtly encouraged multinational corporations to develop local technology for their production and induce them to either transfer their technology or develop local technology, Ghana governments are content with the mere inflow of foreign investments into the country. It does not matter whether there is transfer of technology or the development of local technology.
• Interaction tends to undermine the values of self-reliance, patriotism and nationalism.

• You have to compete with more companies and products: Companies compete with all producers in the world due to deregulation and easy access to different markets in the world. This forces us to be more competitive, since we compete with all kinds of companies.
• Consumers are more demanding: Due to the improvements observed in communication processes, consumers are better informed and this makes them increasingly ask for greater added values ​​in the delivery of market proposals.
• Less profit margin: The more competition, the more the difference between the cost of production and the selling price of the product is reduced. So companies can see their profit margin reduced.
• Permanent innovation: Innovation is a priority requirement in current markets, because the company that does not innovate disappears from the market. Your products quickly become obsolete in the face of value-added improvements from the competition.

Finally, we can say that companies have had to adapt to the globalization process. They have had to change radically, since world markets are becoming more free, open and globalized. They have to learn to be competitive, because the economy is increasingly integrated and this means that there are globalized standards in the production and marketing processes.

In the global marketplace, all companies can access technology, capital, labor and customers from anywhere in the world with little or no restrictions.

To cope with the global environment and with growing global competition, companies must increase their capacity for adaptation and innovation; as well as they must improve their productivity processes, to achieve production processes with low costs.

Its biggest critics assure that this phenomenon fosters greater inequality within each nation and between different countries, undermining the particular identity of each people. Other arguments of no less weight maintain that the global process favors privatization, increases competition and overexploits the environment.

More specifically, the IMF ensures that the countries that have integrated into the world economy have registered faster monetary growth and have managed to reduce poverty. In fact, the financial organization maintains that most of the East Asian countries, which were among the poorest in the world 40 years ago, have become prosperous countries thanks to the application of policies of opening to the outside. In addition, as living conditions improved, they advanced in their democratic process and, economically, they made progress on issues such as the environment and working conditions.

However, and according to the Monetary Fund, “the opportunities offered by globalization have as a counterpart the risk of the volatility of capital flows and the possibility of deterioration of the social, economic and environmental situation; For all countries to benefit from globalization, the international community should strive to help the poorest nations integrate into the world economy, supporting reforms that strengthen the global financial system to achieve faster growth and ensure lower income. poverty”.

For their part, anti-globalization activists demand a fairer society, control of the unlimited power of multinationals, democratization of global economic institutions, and a more equitable distribution of wealth; In fact, the cancellation of the foreign debt is one of the demands of this movement and, therefore, they blame the World Bank and the IMF for the suffocating situation in which most of the poor countries find themselves, unable to cope with the crisis. debt that in many cases exceeds its GDP (Gross Domestic Product).

Today it is easy to find cases of globalization in our daily life. We propose the following examples:

• Feeding: Food is one of the aspects that has become more global. We can buy a hamburger or pizza to eat anywhere on the planet without the need to be in the country that developed that food.
• Audiovisual content: Streaming platforms allow us to listen to songs by any artist on the planet or watch a series produced in the United States from wherever we are.
• Learning new languages: It is one of the most representative examples of this process. The learning of new languages ​​is linked to an increasingly globalized world in which it is required to be able to communicate with anyone on the planet.