When comparing countries, the five major forces that drive globalization tend to be similar. These forces are Market convergence, Competition, Exchange rates, and Cost advantages. To understand why globalization has become so important, we should examine each force separately. Let’s start with the first force, Market convergence. This force is the result of increased trade between countries. This force, in turn, affects the prices of goods. Because of this, the prices of goods can vary widely depending on where they are produced.
Market convergence
The idea of market convergence is not a new one. The early nineteenth century saw the opening of canals in Sweden. The Trollhatte canal and the Gota canal opened in the 1800s. Later, railways and telegraphs followed, and traveling from Stockholm to Gothenburg could take more than a week. As transportation improved, prices also converged, but these changes cannot be attributed to specific improvements in transportation.
While economic globalization is a positive factor, there are negative consequences as well. Inefficient trade practices can spread diseases and undermine political economies. In ancient times, the Roman Empire spread its economic system throughout the world. The Silk Road trade from China to Europe is an example of this. This trade lasted for nearly four thousand years. Today, many countries use trade agreements to promote trade and investment. They share their market access and prices.
These three drivers of globalisation are interdependent and affect different aspects of a country’s economy. How each one is managed will determine the direction of globalisation and its success. To understand the importance of each driver, the student should identify, define, and describe each of them in the context of their own country. The three drivers should be linked and supported by examples. When studying globalisation, students should identify three drivers that shape globalisation.
This is not a uniform trend and it is not irreversible. In fact, there is considerable empirical work on cross-national convergence, including work on demographics, industrial policies, regional development, and cultural values. The network structure of world polity has also been studied. We have also conducted research on national innovation, trade, and regional development. All of these findings demonstrate that market convergence is a phenomenon that will continue to occur.
Competition
Among the many factors that have contributed to globalization are competition, regulation, and technology. The five forces that drive competition include industry rivalry, price differences, bargaining power of buyers and suppliers, and threats of substitute products. All of these forces are related to globalization and have affected industry dynamics in many ways. The changes in globalization have also altered the nature of competition as a competitive force. For example, global rivals have to work to maintain their competitive edge, if they don’t, their market shares could be compromised.
Among these forces, competition has increased in recent decades because of economic globalization. As a result, competition among companies has increased and boundaries between forces have blurred. For example, lower trade barriers have opened up geographical segments. As a result, global multinational companies can compete more effectively within their respective regions. In contrast, smaller and medium-sized firms can develop under protection from foreign competition. In short, globalization has improved competition.
The effects of globalization on industry competition were studied in the literature. Porter developed the value chain concept, which shows the company as a series of interconnected activities. The activities are grouped into three categories: size, location, and pressure. The size category focuses on increased market potential, while location refers to fewer barriers to entry. The pressure category covers greater rates of change. Diversity is another factor that affects competitiveness.
The process of globalization depends on the industry and the level of government intervention. However, in fast-changing environments, minimizing costs is difficult. As a result, comparative costs between countries change constantly. But these are not the only factors that affect globalization. Listed below are some of the factors that affect globalization.
Exchange rates
The current state of the global economy depends on the currency markets. There are two primary types of exchange rates: the spot and the forward rate. A spot rate involves immediate settlement with delivery of the traded currency. A forward rate requires settlement in the future. Companies use these instruments to manage the currency risk associated with their international business. A well-functioning currency market is an essential mechanism for global firms to exchange currencies.
Currency exchange rates have a direct effect on international trade. They determine the costs of a product or service and can affect the attractiveness of a product to overseas consumers. If a business is targeting overseas customers, the rate of exchange is a key factor. In addition to currency, other factors affect global currency exchange rates, including terrorism, politics, and economics. In short, currency exchange rates affect global trade by changing the price of different commodities.
Currency risk is a problem for global companies because they have to buy and sell in different currencies to avoid paying higher prices. Currency tools like swaps and countertrade can help manage currency risk and mitigate any risks. For example, Walmart and McDonald’s are both concerned about currency exchange rates. While these two methods may seem simple, they are often the most complex to model. With so much uncertainty and a constant need to be competitive, currency rates are a significant driver of globalization.
Cost advantages
Globalization reduces costs in manufacturing by allowing companies to produce and distribute goods in other countries. Because of this, a company can offer a product at a lower price, allowing consumers to afford it. Additionally, this process encourages competition, which drives prices down. This process can also increase consumer choice, and lower costs can benefit consumers in both developed and developing countries. The following are some of the major cost advantages of globalization.
More jobs and lower prices – Globalization allows all nations to tap into a larger labor pool. Many developing nations, for example, experience a shortage of knowledge workers and may “import” labor to jump-start their industry. Similarly, wealthier countries may outsource low-skilled work to developing countries. Ultimately, this lower cost of living allows businesses to sell goods at a lower price, passing on the savings to the consumer.
Economic growth – Globalization improves the quality of life for citizens and businesses. By creating more opportunities to access other countries, globalization promotes greater wealth, better living standards and a reduction in poverty. Production costs are reduced – The global market enables more access to production and consumers with a wider range of price points. Globalization improves the quality of life – The more people that have better lives, the less money they spend, and the more money they have, the more consumers they can buy.
But globalization also brings disadvantages. Although globalization improves standard of living for many people, some critics warn that it has negative consequences for individual workers and local economies. If globalization is not properly managed, it can negatively affect the economy and individual workers. Therefore, businesses must be aware of the risks and benefits of globalization. This can be a costly mistake. But if globalization continues, businesses should make the necessary adjustments to cope with the effects.
Technological change
Among the first technological advances were farming and agricultural practices, which ushered in the Neolithic Revolution. Other breakthroughs in this area included navigation, naval, and military technology. But, despite all the advances, there are still significant gaps between developed and developing countries.
The introduction of information technology has created a global village. Globalization has also made it easier to export high-technology products and services to developing nations. Now, cheap labour is available in many developing countries, and many developed countries are outsourcing their labour-intensive services to the developing world.
The rapid spread of information technology has led to increased levels of inequality. It has also made it difficult to define the extent to which globalization has affected different parts of the world. It is a complicated concept to describe, but we can say that it is one of the drivers of globalization. Several factors are responsible for this, including the availability of cheap labor. Some of these factors are neoclassical models that assume technological change is neutral. In reality, many sectors are more susceptible to technological change than others, particularly those in the information processing sector.
The technological revolution has also altered the production function of cultural goods and services. Technological change makes it possible to produce more cultural output for the same cost as before. This causes the supply curve to fall along the demand curve, increasing the consumer surplus. Further, the rise of ICT has resulted in increased prices and production of cultural goods, while it has made it easier to bundle several cultural goods into one more valuable experience.
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