Understanding Globalization: Causes, Effects, and Growth Strategies
Globalization: Concept, Causes, and Effects
Globalization is the extension of economic relations between different countries, ultimately creating a world economy where each participating economy depends on the others.
Causes of Globalization
- Reduction of barriers to free trade, leading to increased trade in goods and services.
- Advances in transportation and the revolution in new technologies, especially communications, computing, and the Internet.
- The incorporation of former communist bloc countries and South America and Asia into the international market.
- The increasing economic power of large multinational companies.
- The role of international organizations that promote free trade.
Effects of Globalization
The effects provoked by globalization can be positive or negative:
Positive Effects:
- Facilitated economic growth in many countries by promoting trade and offshoring, providing access to new technologies, knowledge, and manufacturing methods.
- Enables the rapid expansion of knowledge and scientific discoveries in all fields.
- Consumers have access to products and services they never would have in isolation. Increased variety of products, improved quality, and lower prices.
- Companies have increased opportunities to produce and sell their products in a global market, consequently increasing their profits.
Negative Effects:
- Intensified differences between rich and poor, as some are excluded from international trade. Barriers for agricultural products remain an obstacle to incorporation.
- Increased power of multinational corporations dealing with small companies, making it increasingly difficult for them to compete.
- Loss of power of individual states in favor of economic blocs.
- The contagion effect of crises spreads quickly from one country to another, becoming a global problem rather than a local one.
Internal and External Company Growth
Internal Growth
Internal growth is based on productive investments within the company, increasing its production capacity.
Forms of Internal Growth:
- Market Penetration: Increasing the company’s market share with existing products.
- Market Development: Introducing the company’s current products into new markets.
- Product Development: Offering new products in existing markets.
- Diversification:
- Horizontal (growth through the creation of improved, new, or different products).
- Vertical Integration (expanding the range of complementary products to the principal sector).
- International Diversification (applying previous forms in other countries).
External Growth
External growth is carried out through absorption, merger, participation, and cooperation with existing companies.
Forms of External Growth:
- Mergers: A process of concentration of companies regulated by law.
- Takeovers: A company buys the assets of another and integrates them.
- Participation in Society: Acquiring a group of shares to achieve control of the investee.
- Cooperation and Joint Ventures: Intended to remove competition; agreements can be reached in concentrated markets that function as if they were the same financial group.
- Franchises: A commercial arrangement arising in two ways: the franchisor, which owns the business idea in a specific economic activity, and the franchisee, which gets the concession to use the business idea.