The Negative & Positive Effects of Globalization

Representatives from different countries in a business meeting.
Representatives from different countries in a business meeting. (Image: Digital Vision./Photodisc/Getty Images)

Globalization, as it relates to business, is the ability of consumers and businesses in different countries to more easily communicate, work together and buy from and sell to one another. Some people enjoy increased benefits from this ease of interaction, such as finding more access to goods and services. In other cases, globalization leads to increased competition, creating more winners and losers in the marketplace.

More Access to Goods and Services

With increased ease of travel and shipping and decreased trade barriers, consumers and businesses have more access to goods and services, says David Kilgour, a former member of the Canadian Parliament. This helps businesses obtain things they might not have been able to get before and allows them to make things better or cheaper. When consumers can more easily get goods and services, this brings more potential buyers to businesses. Small-business owners can take advantage of globalization by advertising and selling their items to more markets via the Internet and ship them using an exporter.

Price Elasticity Effects

When more people are able to buy and sell in a marketplace, it causes price fluctuation. If a product is in limited supply and more people are asking for it, prices increase. When more people are able to sell items previously supplied by providers in only a few countries, the price for those items can plummet. Small-business owners facing new competition from overseas suppliers can try to combat this by rebranding, emphasizing a distinctive selling benefit or providing personalized and added-value services a foreign competitor can’t.

Employment Pros and Cons

Countries that improve their logistical infrastructure can attract more manufacturers and create more jobs. This can lead to higher wages, a broader tax base and more consumer spending. Wages can also plummet when an area that’s had little competition for its industry suddenly faces a rash of new competitors. Globalization can seriously damage a place that’s heavily dependent on one industry if that industry loses market share to new competitors. Business owners operating in an area with little industrial diversification should project what might happen if the area faces increased competition in that industry. Even if the business does not operate in that industry, it might be hurt if factories close, jobs vanish and people leave the area or cut back on spending.

Mixed Cultural Impacts

As people from different cultural backgrounds interact more frequently, their fears about each other can decrease as they learn from each other. When many cultures interact on a regular basis, though, one of the cultures can become more dominant or integrated into another’s and threaten the other group's cultural traditions. Businesses that enter foreign markets should be prepared for local competitors to try to maintain market share by playing on the fears of local residents. Companies thinking about expanding into new foreign markets should work with a consultant who is knowledgeable about that market’s culture before making a move.

Lack of Regulation

Not all countries regulate businesses or industries the way America does. This worldwide inconsistency means American small-business owners might face competition from foreign companies that follow labor, safety and environmental practices that are illegal in the U.S. Companies shipping products to global markets might find them banned by a protectionist local government wishing to shelter its businesses from competition. Companies that pirate products or copy trademarks are more difficult for small-business owners to prosecute overseas.

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