Globalization is a phenomenon based on the continuous increase of the interconnection between the different nations of the world in the economic, political, social and technological plane.
The use of this term has been used since the 1980s. That is, since technological advances have facilitated and accelerated international commercial and financial transactions. And for this reason, the phenomenon has as many defenders – as the International Monetary Fund (IMF)or the World Bank – as detractors.
In this process there is an economic interdependence, where companies and markets surpass national borders and reach a global dimension.
It is an especially economic process, where there is an integration of national economies, causing an increase in the volume and complexity of exchanges of goods and services in the world economy.
The market for goods and services travels freely to any country in the world, due to the great openness that has taken place in the trade and investment sector. At present, the factors of production such as capital, labor and technology flow from one country to another with great ease, thanks to the process of globalization.
Globalization has made the markets internationalize, this implies that any producer competes with all producers in the world. The competition is becoming stronger because it must compete with companies that apply technology and innovation, delivering better products produced at low cost.
What capital is mobilized?
When talking about free flow of capital, we talk about three types of capital:
- Commercial capital:It is the capital that is used in the commercialization of goods and services in the world market, to obtain profits. As an example we can mention the Shell company that markets gasoline in almost every country in the world.
- Productive capital:It is the capital that is invested in the purchase of production factors to manufacture goods and services. The example of a company that invests in productive capital is Nike, which has its production factories in China and Vietnam.
- Financial capital:It is all the money that is invested in another country in the form of foreign direct investment or through credits. In this case we can mention the Nestlé company that invests in many countries of the world as a large transnational company.
Actors of globalization
Although all economic agents participate in globalization, there are some that are especially relevant:
- Multinational banks:They form with foreign capital participate in financial investment operations, their objective is to increase their capital by supporting multinationals in their investments in different countries.
- Multinationalcompanies : They are companies that sell goods and services abroad, or also produce goods and services abroad in their different subsidiaries. They have a large presence worldwide, are large, have a high degree of integration and are financially independent.
- International institutions: They are organizations that facilitate commercial and financial transactions between globalization actors. They are entities such as the International Monetary Fund, the World Bank, the World Trade Organization, among others.
Advantages offered by globalization
Among the most outstanding advantages or opportunities we have to:
- Larger markets :Markets are getting bigger because there are more and more commercial agreements and free trade agreements, which hope to make the international trade process between the different nations of the world more homogeneous and easier.
- Leveraging the economy of scale: As the market grows larger, companies can take advantage of producing at higher levels and this allows them to reduce their production costs, making their production chain more efficient and economical.
- Quick access to modern technology:This access to all modern forms of technology allows companies to improve their production, transportation and communication process within the markets in which they compete. Facilitating all its processes in a real and effective way.
Risks of globalization
- You have to compete with more companies and products:Companies compete with all the world’s producers due to deregulation and easy access to the different markets in the world. That forces to be more competitive, since it competes with all types of companies.
- Consumers are more demanding:Due to the improvements observed in communication processes, consumers are better informed and this means that they are increasingly asking for greater added values in the delivery of market proposals.
- Less profit margin:The greater the competition, the more the difference between the cost of production and the sale price of the product is reduced. So companies can see their profit margin reduced.
- Permanentinnovation : Innovation is a priority requirement in today’s markets, because the company that does not innovate disappears from the market. Its products quickly become obsolete, compared to the value-added improvements presented by the competition.
Finally, we can say that companies have had to adapt to the process of globalization. They have had to change radically, since the world markets are increasingly free, open and globalized. They have to learn to be competitive, because the economy is increasingly integrated and this means that there are globalized standards in the production and marketing processes.
In the global market, all companies can have access to technology, capital, labor and customers from anywhere in the world with little or no restrictions.
To cope with the global environment and in the face of growing global competition, companies must increase their capacity for adaptation and innovation; as well as they must improve their productivity processes, to achieve productive processes with low costs.
Criticisms of globalization
Its greatest critics ensure that this phenomenon leads to greater inequality within each nation and between different countries, undermining the particular identity of each people. Other arguments of no less weight argue that the global process favors privatization, increases competition and overexploits the environment.
More specifically, the IMF ensures that countries that have integrated into the world economy have registered faster monetary growth and have managed to reduce poverty. In fact, the financial organization argues that most of the East Asian countries, which were among the poorest in the world 40 years ago, have become prosperous countries thanks to the application of foreign opening policies. In addition, as living conditions improved, they advanced in their democratic process and, economically, made progress on issues such as the environment and working conditions.
However, and according to the Monetary Fund, “the opportunities offered by globalization have as a counterpart the risk of the volatility of capital flows and the possibility of deterioration of the social, economic and environmental situation; for all countries to benefit from globalization, the international community should strive to help the poorest nations integrate into the world economy, supporting reforms that strengthen the global financial system to achieve faster growth and ensure the reduction of poverty”.
For their part, anti-globalization activists demand a fairer society, control of the unlimited power of multinationals, the democratization of world economic institutions and the more equitable distribution of wealth; in fact, the cancellation of the external debt is one of the requirements of this movement and, therefore, hold the World Bank and the IMF responsible for the suffocating situation in which most of the poor countries are, unable to face the debt that in many cases exceeds its GDP (Gross Domestic Product).