It is something nice to hear, but hard to implement
In recent decades, the concept of globalization has been widely celebrated as a unifying force that can connect economies and societies around the world. However, it is important to recognize that economic globalization is very different from simply opening up borders and physical spaces.
Economic globalization: a difficult game to play
Economic globalization is often celebrated as an opportunity for companies to:
- access new markets
- reduce production costs
- increase competitiveness
However, the reality on the field is much more complex. Companies face cultural, regulatory and language barriers, which can make expansion into new markets challenging.
For example, opening a branch office in a foreign country requires:
- an accurate analysis of local economic conditions
- an understanding of business practices
- an understanding of local laws
The price of homogenization
Another critical aspect of economic globalization is the trend toward homogenization of products and services.
While this may seem like an initial advantage, as it allows companies to reach a wider audience, it also leads to the loss of cultural diversity and local identity.
Globalized products often suppress the authenticity and creativity of local productions, creating a uniform and homogenized world.
The dark side of financial flows
Economic globalization has also highlighted the risks and inequalities of international financial flows.
Indeed, we note that large multinational corporations can take advantage of being able to move capital and profits through favorable tax jurisdictions. This often leaves host countries with few real economic benefits.
The result of this is the widening gap between global elites and local economies, thus, fueling, economic inequality.
Free competition: an illusion
This kind of globalization, in theory, promotes free competition and economic efficiency. However, in practice, many global companies face:
- asymmetric market conditions
- unfair trade practices
Local companies often struggle to compete with global giants, which enjoy larger resources and distribution networks. This creates a distorted economic environment in which local small and medium-sized businesses are at a disadvantage.
Economic globalization leads to cheap but inhuman labor
The opening of the borders has also allowed for a comparison of labor and where it can cost less.
Companies clearly are inclined to relocate and adjust to other countries if it constitutes savings in the long run. But when a company relocates, workers do not, and so not only are jobs lost, but consumption also shrinks: people without a paycheck who are struggling to find new employment cannot consume as they did before.
In the long run, broader fields, such as demographics, are also affected. A company that moves abroad basically impoverishes the country it leaves behind both directly and indirectly.
While economic globalization has been lauded for its potential to create an interconnected and prosperous world, it is important to recognize that theory is quite different from reality.
The challenges and complexities of economic globalization in the field of business and economics are obvious.
At Kilton, we believe it is essential to take a critical and, above all, realistic approach to address inconsistencies and current issues in order to protect cultural diversity.
We hope that reading this article has been an enjoyable food for thought.
Read our other blog articles as well!