Explain the Term “Globalization” and discuss the drivers of Globalization.

It is a process which helps to spread the ideas, goods and services throughout the world. This term is utilized often in businesses particularly in an economic context to describe an integrated economy marked by free trade, the free flow of the capital and cooperate use of foreign labor markets so that the profits can be maximized and the common goods can get benefited.

How Globalization works

The main motive is to ultimately promote and often necessitate the increase of interaction and dependency among the nations. This motive is achieved by the convergence of political, cultural and economic systems.

The world becomes more globalized when the disparate regions of the world become intertwined politically, culturally and economically.

The advances in technologies such as transportation and telecommunications help to enable and accelerate international interactions and dependencies. Nowadays, there is an increase in the flow of money, technology, materials and even people across national boundaries as compared to the past. The internet connection has helped to increase the flow of knowledge, ideas and culture among the people living in different parts of the world.

Types of Globalization:

There are three types of Globalization

1. Economic Globalization: it focuses on the integration and unification of the international financial markets as well as the multinational corporations which have a significant influence on the global markets.
2. Political Globalization: it includes the policies that are made to facilitate international trade and commerce. The institutions which implement these policies come under it. These organizations may consist of the national government as well as the international institutions such as the World Trade Organization and International Monetary Fund.
3. Cultural Globalization: the social factors are focused on it. These factors help to converge the different cultures, such as increased ease of communication and transportation brought up by the technology.

Effects of Globalization

The effects of each type of Globalization can be felt globally as well as locally, and it can be observed through the interaction at every level of society. It can be seen from an individual at the micro-level to community at the macro level.

The individual-level covers how international influence affects the ordinary people present within a region or a nation.

The effect to local or regional organizations, businesses and economies are included in the community level.

The effects to multinational corporations, national governments and higher education institutions that have the crowd of international students are included in institutional level effects. Decisions are made keeping in the mind that they make an impact at the lower levels.

Drivers of Globalization

1. Technological drivers.

The foundation of modern Globalization is laid and shaped by technology. The industry is revolutionized by the innovations made in transportation. In the late 1970s and 1980s, two of the most important developments among these are the commercial jet aircraft and the concept of containerization. The inventions were made in the area of microprocessors and telecommunications helped to enable the highly effective computing and communication at a low-cost level. Hence, the rapid growth of the internet is among the latest technology driver who helped to create e-business and e-commerce.

2. Political drivers.

The tariffs got lowered and the foreign direct investment in every part of the world due to the liberalized trading rules and deregulated markets. The institution of GATT (General Agreement on Tariffs and Trade) 1947 and the WTO (World Trade Organization) 1995 as well as the ongoing opening and privatization in Eastern Europe are only some examples of latest developments.

3. Market drivers

As domestic markets become more and more saturated, but there is a limited opportunity for growth, and hence, global expanding is away, most organizations choose to overcome this situation. The reasons to select internationalization are everyday customer needs and the opportunity to use global marketing channels and transfer marketing.

4. Cost drivers

There is a variation of sourcing efficiency and costs from country to country, and global firms take the advantage. The other drivers to Globalization are the opportunity to build global scale economies and high product development costs nowadays. (Ferrier, 2004).

5. Competitive drivers

With the extension of the global market, global inter-firm competition increases and organizations are forced to “play” international. It is strongly inter-depended.