Globalization is the process by which ideas, goods and services spread throughout the world. In business, the term is often used in an economic context to describe an integrated economy marked by free trade, the free flow of capital and corporate use of foreign labor markets to maximize returns and benefit the common good.

How globalization works

Globalization is driven by the convergence of political, cultural and economic systems that ultimately promote -- and often necessitate -- increased interaction, integration and dependency amongst nations.

The more that disparate regions of the world become intertwined politically, culturally and economically, the more globalized the world becomes.

These international interactions and dependencies are enabled and accelerated by advances in technology, especially in transportation and telecommunications. In general, money, technology, materials and even people flow more swiftly across national boundaries today than they ever have in the past. The flow of knowledge, ideas and cultures is expediated through internet communications.

Types of globalization: Economic, political, cultural 

There are three types of globalization: 

  1. Economic globalization. This type focuses on the unification and integration of international financial markets, as well as multinational corporations that have a significant influence on international markets.
  2. Political globalization. This type deals mainly with policies designed to facilitate international trade and commerce. It also deals with the institutions that implement these policies, which can include national governments as well as international institutions, such as the International Monetary Fund and the World Trade Organization.
  3. Cultural globalization. This type focuses on the social factors that cause cultures to converge -- such as increased ease of communication and transportation, brought about by technology.

It's important to note that all the types influence each other. For example, economic globalization is made possible by certain liberal trade policies that fall under the category of political globalization. Cultural globalization is also affected by policies passed in political globalization and is affected by economic globalization via the imports and exposure a culture has to other cultures through trade.

The unifying thread between the three types of globalization is the advancement of technology. As mentioned previously, technology plays a role in expediating each type.

Effects of globalization

The effects of each type of globalization can be felt both locally and globally, and can be observed in interactions at every level of society, from an individual at the micro level to a society at the macro level.

  • The individual level includes the way international influence affects ordinary people within a nation or region
  • The community level includes effects to local or regional organizations, businesses and economies.
  • The institutional level includes effects to multinational corporations, national governments and higher education institutions that have international students. At this level, decisions are made that affect the lower levels.

 While the effects of globalization can be clearly observed, analyzing the net impact of globalization is a complex proposition, as specific results of globalization are often seen as positive by proponents and negative by critics. Many times, a relationship that benefits one entity may end up damaging another, and whether globalization benefits the world at large remains a point of contention. 

Examples of globalization

One relevant example of globalization is the existence of multinational corporations. The term multinational corporation simply refers to a business that conducts operations in more than one country. McDonalds, for instance, is a multinational fast-food corporation with 37,855 restaurants spread over 120 countries and territories as of 2018. With 1.7 million employees, it is the second-largest private employer in the world behind Walmart.

Other examples of multinational corporations include the following:

  • Ford Motor Company, an organization that works with about 1,200 suppliers it identifies as tier 1 around the globe; and
  • Amazon, an organization that uses tens of thousands of suppliers and employs more than 250,000 full-time workers in 175 distribution centers around the world.

Through their expansive presence and influence on social and economic development in the countries that host them, multinational corporations like McDonalds, Amazon and Ford are symbolic of the contradictions of globalization. On the one hand, the multinational corporations can bring jobs, skills and wealth to the region they are in by investing in the local people and resources.

On the other hand, multinational corporations can destroy local businesses, exploit cheap labor in developing countries and threaten cultural diversity. While they do offer benefits to the regions they operate in, they are often unsustainable because the loyalty of the corporation ultimately is to its bottom line and not the culture it has integrated itself into.

Advantages of globalization

Proponents of globalization argue that it can solve fundamental problems with the global economy, such as poverty and unemployment, by promoting a free market that benefits rich and poor nations alike.

Free trade aims to reduce the amount of trade barriers between nations. A trade barrier is any imposed restriction on international trade, including tariffs and subsidies. This consequently promotes economic growth, creates jobs, makes companies more competitive and lowers prices for consumers.

It also theoretically gives poorer countries an opportunity for economic development through exposure to foreign capital and tech, resulting in conditions that foster an improved standard of living for the citizens of that nation.

Disadvantages of globalization

The biggest advantages of globalization are also its biggest disadvantages. While many proponents view globalization as an avenue for solving core economic problems, critics see it as worsening global inequality.

For instance, while some proponents say globalization creates new markets and wealth -- and promotes greater cultural and social integration by eliminating barriers -- critics blame the elimination of barriers for undermining national policies and cultures and destabilizing advanced labor markets in favor of lower-cost wages elsewhere.

Similarly, some proponents point to the rising economies of poor countries benefiting from companies moving operations there to minimize costs. Meanwhile, some critics say such moves could lower living standards in developed countries by eliminating jobs.

While proponents focus on the increased trade benefits and political cooperation that come from a united global economy, critics acknowledge that tightly integrated global economic markets carry greater potential for global recessions.

Advocates of cultural globalization point to improved acknowledgement of human rights on a global scale and shared understanding of our impact on the environment, while critics decry the decimation of unique cultural identity and language, especially in the age of social media.

Advocates view the increased ability to travel and experience new cultures as a selling point of cultural globalization. However, critics point out that increased travel has the potential to increase the risk of pandemics, with the H1N1 (swine flu) outbreak of 2009 and the coronavirus of 2020 serving as two examples of serious diseases that spread to multiple nations very quickly.

History of globalization

Although many consider this process a relatively new phenomenon, globalization has been happening for millennia.

The Roman Empire, for example, spread its economic and governing systems through significant portions of the ancient world for centuries.

Similarly, the trade routes of the Silk Road carried merchants, goods and travelers from China through Central Asia and the Middle East to Europe and represented another wave of globalization.

European countries had significant investments overseas in the decades prior to World War I, prompting some economists to label the prewar period as an earlier golden age of globalization.

The term globalization as it's used today came to prominence in the 1980s, reflecting several technological advancements that expediated international transactions.

Globalization has ebbed and flowed throughout history, with periods of expansion, as well as retrenchment. The 21st century has witnessed both. Global stock markets plummeted after the Sept. 11, 2001, terrorist attacks in the United States, but rebounded in subsequent years.

Overall, however, the early 21st century has seen a dramatic increase in the pace of global integration, driven primarily by rapid advances in technology and telecommunications.

Future of globalization

Technology advances, particularly blockchain, mobile communication and banking are fueling economic globalization.

Nonetheless, the rapid pace of globalization in the early 21st century could be slowed or even reversed by potentially rising levels of protectionism and anti-globalization sentiment happening in several countries.

Aside from nationalism and the growing trend of increasingly conservative economic policy, global trade is under rising threat from climate change, decaying infrastructure, cyberattacks and human rights abuses, all requiring responses from both corporations and governments, according to the Council on Foreign Relations.

This was last updated in January 2020

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