Globalization and Technological Advancements

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What are the drivers of globalization?

The drivers of globalization are the reduction of barriers to international trade, increased consumer demand, lowered costs of shipping and production, and technological advancements in communication and transportation.

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Globalization can be defined as the free movement of goods, people, information, and technologies across national borders in an unimpeded manner. The phenomenon not only has economic consequences, but it also has social, cultural, political, and legal ramifications.

It would be a mistake to think that globalization is purely a modern phenomenon. In fact, historical precedent is one of the drivers of globalization. For millennia humankind has attempted to integrate commercially, socially, and culturally to mutual advantage. For instance, as far back as the 1st century, China exchanged luxury goods such as silk and spices with Europe via the Silk Road. Although the Silk Road, after centuries of commercial and informational exchange, eventually closed, during the spread of Islam between the 7th and 15th centuries new international trade routes opened up. Europeans circumnavigating the globe between the 15th and 18th centuries radically furthered international links through trade and information exchange.

The industrial era took globalization to new levels with its rapid global transportation networks via railroad and steamship. Although impeded by the disasters of World War I and World War II, the postwar global economy recovered. The fall of the Berlin Wall in 1989 allowed globalization to flourish like never before. Organizations such as the European Union and the World Trade Organization contributed to this growth.

Modern globalization, which has been termed "globalization on steroids," owes its rapid expansion to a few overwhelming factors. One is a reduction in barriers to worldwide investment and trade. After World War II, nations saw the need to reduce trade barriers to stimulate international growth, leading to the creation of the General Agreement on Tariffs and Trade (GATT) followed by the World Trade Organization. Lower tariffs and other reduced barriers to trade coupled with increased international production output drive globalization. Many nations have also liberalized regulations to allow foreign investments in local companies.

Technological advancements have converted the world informational system into a global village. This of course drives globalization by facilitating not only international investments and trade, but also social, cultural, and informational exchanges. Microprocessors have led to the development of global communications through fiber optics, satellites, and the internet. Business and cultural leaders around the world can interact and even hold conferences in real time. Modern means of transportation have enabled the rapid deployment of people, goods, and services around the world. Businesses assured of easy and swift communications and transportation are able to form alliances with companies anywhere on the globe.

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Globalization is the term used for trade that occurs across several nations. There are many components that have allowed countries to do business across the globe. These include the following areas:

Communication: With the major advances in technology in the past years, we are now able to pick up the phone or send a message within seconds across the globe. With the internet, consumers have access to any company with a website. Consumers are able to research trends and products available thousands of miles away.

Reduction in government control: With free trade agreements, countries import and export goods on a more regular basis. Businesses are encouraged to search outside of their immediate area for business partners.

Consumer demands: As the population of the world increases and consumers have access to more goods, companies are finding customers outside of their local region. As more and more people are exposed to media coverage, movies, and television, their exposure to goods, and thus their desire for these products, is increasing.

Cost: Due to the advances in communication and transportation, companies may open locations in areas where their supplies and work force are less expensive. They can take advantage of low production costs and then transport their goods throughout the world to meet their consumer needs.

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A driver is a contributing factor of change. The term is most commonly used to describe factors associated with some type of growth. The main drivers of globalization include technological advancement, international trade, and international investment.

Technological advancement drives globalization by making it easier for people, goods, and ideas to move across borders. For example, advancements in transportation have made it possible to move vast amounts of people and product around the world in just a short amount of time. Advancements in telecommunications have allowed people to send messages and information to each other in seconds as opposed to days, weeks, or even months. And advancements in automation have made it possible to increase the production and flow of goods and services.

International trade drives globalization because it encourages and strengthens interdependence between countries. It is very difficult for any nation to be self-sufficient. They must import goods, services, and capital to maintain a certain standard of living for their citizens. As a result, many countries and international organizations have enacted economic policies that fuel globalization. For example, the elimination of trade barriers and the reduction of foreign investment restrictions has helped to create a global marketplace.

International investment drives globalization by increasing economic integration. In recent years, there has been an uptick in international investment, including commercial loans, foreign direct investment (FDI), and foreign portfolio investment (FPI). Many countries have encouraged this to reap the benefits of international investment, which include the creation of productive enterprises, jobs, and new sources of income.

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There are a number of factors that drive globalization.  Let us look at a few of the most important categories of these drivers.

  • Market drivers.  This is the degree to which the tastes of people around the world are similar.  The more similarity, the more globalization.
  • Cost drivers.  There are times when it is cheaper to be globalized in one's business.  There are economies of scale available to large firms.  As shipping costs are reduced, it becomes more possible to globalize to realize these economies.
  • Government drivers.  The more that government policies such as free trade allow for globalization, the more globalization occurs.
  • Competitive drivers.  The more competitive a market is, the greater the need to globalize.
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