Pros & Cons of Globalization for Businesses (2024)

Globalization provides incredible rewards for businesses today. The benefits of globalization for businesses include expanded customer bases, more revenue streams, and a diverse workforce.

But globalization also poses some daunting challenges like environmental degradation, legal compliance issues, and worker exploitation. The important thing to remember, though, is that the challenges of globalization can be overcome.

When considering whether globalization and expansion are right for your business, you’ll need to ask: what are the benefits of globalization for people and businesses everywhere, how does globalization affect your life as a business specifically, and how can you overcome the challenges of globalization?

Here we provide some guidelines for how to make the most of globalization and build an effective strategy for your business.

What Is Globalization?

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Globalization is an incredibly unique and diverse process. In a nutshell, it describes the interaction and interconnection of people, governments, and companies around the world. Businesses expand internationally with the help of trade agreements created by partnering governments. Local brands become internationally recognized and people move across continents to build or join new companies.

Globalization allows people, goods, services, ideas, languages, information, and commodities to flow across national borders all the time. The effect of globalization is that the world is becoming increasingly smaller as we all become more and more connected.

What Are The Benefits of Globalization?

‍Globalization can be extremely rewarding for growing businesses. But it’s also hugely beneficial for the general development of the global economy. By tapping into new markets and expanding your customer base, you are bringing people closer together. Here are some of the immediate benefits of globalization for you.

Access to New Markets

‍One of the major advantages of globalization is that it provides access to new or different markets for companies like yours. With bi- and multilateral trade agreements, businesses can operate in multiple jurisdictions. This means reaching more customers, gaining more and better market insights, and building your brand on a global scale.

Product Development and New Revenue Streams

‍By accessing new markets, you also inevitably develop your products and services in new ways. This is one of the greatest pros of globalization. When branching out to different markets, businesses are often required to adapt their offerings to meet local demand. While this may seem like more work, it is a great opportunity for innovation. By building successful products and services, and a solid customer base, you can increase your revenue streams beyond national or state borders.

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Sharing Knowledge, Technology, and Culture

‍Another one of the brilliant effects of globalization is that sharing has become the norm. Knowledge, information, technologies, and cultural practices and values are being shared across the globe. This includes business practices also. While we are a far cry still from a multicultural utopia of global businesses, sharing and creating global partnerships has never been easier.

Developing Universal Standards

‍While this may sound like whitewashing a complex issue, globalization has had the effect of helping set some universal standards. Through knowledge sharing, basic industry standards have been set and international bodies are working to set standards for labour and employment law, as well as tax regulation. The OECD, for example, drafted the Model Tax Convention in 2017 to help authorities and businesses, understand when businesses are liable to pay corporate taxes and how they can prepare when expanding internationally.

Access to a Diverse Talent Pool

‍Taking your pick of job candidates from an incredibly diverse talent pool is a benefit of globalization with immediate rewards. If your company is hiring remotely, you can choose according to skillset, progressive behaviours like adaptability, regardless of background or where they are based. Companies looking to hire for their offices or foreign subsidiaries are also able to find great talent that will help them develop, change, and grow as a company more broadly. Each new diverse employee brings a wealth of new perspectives and possibilities to a business.

A Diversified Workforce and Workplace Culture

‍A diverse talent pool also leads to a diverse workforce. The positive effects of globalization on workplace culture can be tremendous. While some employers are afraid of cultural differences affecting productivity and internal communication and collaboration, a solid hiring strategy and inclusive company culture can do the trick. Look for suitable candidates by focusing on the necessary skills and the right behaviours needed to succeed in your business and industry. Then build an open company culture, where different kinds of communication and collaboration are championed, and inclusive behaviours are rewarded.

What Are the Challenges of Globalization?

‍With this plethora of benefits, you may still encounter some challenges of globalization. The disadvantages of globalization generally refer to wider socio-political issues that all governments and companies have to face. You will need to be aware of these in order to build an effective global expansion strategy for your business.

Worker Exploitation

‍Many companies in developed countries have outsourced their production and some of their services to developing countries. While this has generally been good for local economies in developing countries, local workers are still exposed to high degrees of exploitation. Organisations like the ILO have been working to set international standards to protect workers everywhere, but this is hard to enforce. In developing countries, companies have also been able to make increasingly exploitative demands of their workers as they are able to source cheaper labour elsewhere.

On the other hand, more and more consumers are posing businesses with the daunting demand of creating products and services that are ethical, sustainable, and affordable. This is one of the most challenging negative effects of globalization for businesses today.

Job Loss

‍One of the most debated negative effects of globalization is the loss of jobs. This is particularly the case in developed countries, such as the US, from where many services and unskilled labor have been outsourced to developing countries. Many locals have lost their jobs or been forced to accept lesser wages and poorer working conditions as a result. Though it is the job of governments to protect the local workforce and create favourable business conditions for companies, you will still need to assess how you want your business to work around this challenge.

High Investment

‍Globalization and international expansion are generally very expensive endeavours. This is one of the most deterring disadvantages of globalization. It requires businesses to invest a lot of their resources into designing and implementing an effective globalization strategy. Setting up a company or presence elsewhere, paying taxes, hiring, signing contracts with new partners, scouring the customer base - all these things require mountains of research, capital, and time. Not all companies will feel comfortable doing this, especially smaller businesses or those just scaling up globally.

Environmental Degradation

‍Sadly, the environment also suffers as a negative effect of globalization. As great as increased flow of goods and knowledge are for people, the underlying business activities adversely affect the environment. Global transportation networks and increased market demand means more use of fuels, contributing to higher exertion of greenhouse gases. Planes, ships, and trucks transporting goods all over the world are harmful for the atmosphere and affect local ecosystems. More demand also means more production, again causing more fuel and raw materials to be used up. Interestingly, remote working can help businesses save on environmental costs, but remote working alone won’t solve the environmental challenge of globalization.

Taxes Across Borders

‍Taxes can be a nightmare both for employees and for businesses. Different countries or states have their own tax authorities and unique regulations on what taxes need to be paid, how, to whom, and when. One of the big ones to watch out for is permanent establishment risk, which makes your company liable to paying corporate taxes. Many regional and national governments and organisations are now working together to clamp down on companies finding loopholes so as not to pay corporate taxes. You will need to do your research in order to stay on the right side of the law wherever your business operates.

Legal Compliance for Employers

‍Global employers also need to consider how to employ people legally in all the countries where they are based. One of the disadvantages of globalization is that all countries have their own labour law. This covers things like working hours, types and amount of paid leave, termination rights, intellectual property rights, salaries, benefits, and social security. You will need to be aware of the labour code of each jurisdiction where your employees are based so you can employ them compliantly. This is a mammoth administrative task and requires a thoughtful and responsive strategy.

Thankfully, there are services, like Omnipresent, that can help you navigate the complexities of international employment and remain compliant.

How Does Globalization Affect Your Life as a Business?

‍All businesses can use globalization to their advantage. What you need is the right approach. Running a global business with employees all over the world can be extremely rewarding, but also requires foresight and appropriate processes in place to make sure you stay compliant. As always, compliance is key. When expanding globally, you may need to consider:

1. Having a legal presence in the countries you are operating in / where your employees are based
2. Paying corporate taxes the right way, on time, and to the right authority
3. Who you hire (look for the right traits and watch out for your own hiring bias)
4. Compliant employment contracts and payroll
5. Offering progressive benefits
6. Managing intellectual property rights compliantly
7. Creating a smooth, standardized onboarding process
8. Building a solid communication and collaboration strategy across your teams
9. Creating a sustainable, inclusive, and supportive workplace culture

As a company navigating the effects of globalization, you will need to respond to all its challenges while also finding the best path for your business. The first step is always to find the right people and employ them the right way so they can get your business up and running.