Globalization and its Effects on Economy

The term globalization refers to the process of amalgamation of the different markets across the world under one umbrella. It eliminates the concept of trade barriers across countries. The geographical as well as the political restrictions are also irrelevant in the application of globalization. An international company tends to see the whole world as one market which reduces the limitations across national boundaries. This type of international organization is termed as multinational corporation (MNCs).

Causes

The foreign markets attract the customers in such a way that they are indulged to be globalised. The income from overseas markets is high when domestic business can only provide a nominal benefit. The capacity utilization is achieved at optimum and hundred per cent profitability is gained in most of the cases. The production cost is also low since the raw materials are available in cheaper rates (in case of petroleum and mining activities). The other causes include reduction in time and space, higher growth opportunities, no demand constraints, liberalization effects, spin off advantages and strategic management.

The business enterprises in the countries where there is no political stability get great opportunities to go to the countries there is less political influences and high stability. The countries which have favorable governmental policies and norms are the most opted countries by the globalised companies.

How the companies go global is not a process which can be done overnight. It has different stages and strategies followed by companies which differ from market to market. Some of the strategies include:

  1. Exports (indirect or direct)
  2. Licensing
  3. Franchising
  4. Contract manufacturing
  5. Management contracting
  6. Manufacturing facilities- fully owned
  7. Assembly operations
  8. Joint ventures
  9. Mergers
  10. Acquisitions
  11. Strategic alliance
  12. Counter trade

The enhancement of global competitiveness is the main highlight of globalization.

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