Globalization is an integral part of the modern world, so most of us are unaware of the benefits it brings to our daily lives – such as easy access to a variety of cuisines or new technologies developed by countries at the other side of the world.
Although globalization makes our lives better, it brings some challenges as companies begin to grow and expand across borders.
Cultural differences around the world are undeniable. These differences create obstacles for companies entering foreign markets and necessitate changes in their day-to-day operations, whether it's hiring employees in a new region or communicating the value of their product to a new audience.
Read on to learn more about the benefits and challenges of globalization and how companies are dealing with these difficulties to achieve their global expansion goals.
What is globalization?
Before we discuss the benefits and challenges of globalization, it is important to have a good understanding of what the term means.
The official definition ofglobalizationis the process by which companies or other organizations develop international influence or begin to operate internationally.
Simply put, globalization refers to an open flow of information, technology and goods between countries and consumers. This openness is achieved through various relationships, from business, geopolitics and technology to travel, culture and media.
Because the world is already so connected, most people don't see globalization working at work every day. But the world is getting smaller and companies need to understand what that means for the future of business. Companies that do not embrace globalization risk losing a competitive advantage that allows other companies to seize new opportunities in the global marketplace.
Related term:What is global expansion?
What are the benefits of globalization?
Globalization affects businesses in many different ways. However, those who decide to undertake international expansion will experience several benefits, including:
1. Access to new cultures
Globalization makes it easier than ever to access foreign cultures, including food, film, music and art. This free flow of people, goods, art and information is why you can have Thai food delivered to your apartment while you listen to your favorite British artist or stream a Bollywood movie.
Read more:The role of culture in international business
2. The spread of technology and innovation
Many countries around the world remain constantly connected, allowing knowledge and technological advances to spread rapidly. Because knowledge is also transferred so quickly, this means that scientific advances in Asia could be at work in the United States within days.
3. Lower costs for products
Globalization allows companies to find cheaper ways to produce their products. It also increases global competition, lowering prices and creating a greater range of choices for consumers. Lower costs help people in both developing and developed countries live better lives for less money.
4. Higher living standards around the world
Developing countries are experiencing improved living standards – thanks to globalization.According to the World Bankextreme poverty has fallen by 35% since 1990.
The goal of the first MDG was to halve the 1990 poverty rate by 2015. This was achieved five years ahead of schedule in 2010. Since then, almost 1.1 billion people worldwide have emerged from extreme poverty.
5. Access to new markets
Companies gain a lot from globalization, including new customers anddifferent income streams. Companies interested in these benefits are looking for flexible and innovative ways to grow their business abroad.
INglobal employer of record (EOR)makes it easier than ever to hire employees in other countries quickly and compliantly. This means that for many companies it is no longer necessary to establish a foreign unit in order to expand abroad.
Read more:Your guide to the global market
6. Access to new talent
In addition to new markets, globalization allows companies to find new, specialized talent that is not available in their current market. For example, globalization allows companies to explore technology talent in booming markets like Berlin or Stockholm, rather than Silicon Valley.
With a global EWC, companies can meet the requirementshiring talent abroad without setting up an entity, making global recruiting easier than ever.
Learn key tips and insights on how to develop your global expansion strategy, conduct market research, and engage top global talent while remaining compliant.
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What are the challenges of globalization?
Although globalization offers many benefits, it is not without challenges. Some of the obstacles companies face when trying to go global include:
1. International recruitment
A common challenge that world leaders face when they start operating globallyinternational recruitment. Recruiting across borders creates uncertainty for HR teams.
First, companies make a plan for how they will interview and thoroughly vet candidates to ensure they are qualified when they are thousands of miles away from headquarters. Next, companies must understand the market's demands for wages and benefits to make competitive offers.
To ensure successful hiring, HR teams must consider challenges such as time zones, cultural differences and language barriers to find a good fit for the company.
2. Handling immigration of employees
Despite the benefits ofglobal mobilityImmigration is a major challenge that companies face when expanding abroad. Immigration laws change frequently and in some countries it is extremely difficult to obtain visas for foreign workers. The US, for example, is becoming strictertax van H-1B visas, InBrexit makes immigration to Great Britain difficult.
3. Tariffs and export costs incurred
Another challenge managers face when going international is customs and export fees. For companies looking to sell products abroad, obtaining those goods abroad can be expensive depending on the market.
4. Payroll and Compliance Challenges
Another common obstacle to global expansion ismanagement of global wagesand maintaining compliance with changing labor and tax laws. This management task becomes even more difficult when you try to manage operations in multiple markets.
5. Loss of cultural identity
While globalization has made foreign countries easier to access, it has also begun to merge unique societies. The success of certain cultures around the world led other countries to imitate them. But when cultures begin to lose their distinctiveness, we lose our global diversity.
6. Exploitation of foreign workers
Lower costs benefit many consumers, but also create intense competition that drives some companies to look for cheap sources of labor. Some Western companies send their production to countries such as China and Malaysialax rulesmake it easier to exploit workers.
7. Global expansion problems
For companies that want to go global and discover the benefits of globalization, it is difficult to build a compatible foreign presence. When companies take the traditional route of setting up an entity, they require significant upfront capital, sometimes as much as $20,000, and costs of $200,000 per year to maintain the business.
Read more:The Hidden Costs of Establishing Unity
In addition, global companies must keep pace with the different and ever-changing labor laws in new countries. When expanding into new countries, companies need to be aware of how to navigate new legal systems and ensure this happensglobal compliance. Otherwise, missteps will lead to obstacles and serious financial and legal consequences.
8. Immigration problems and local job losses
The political climate in the US and Europe shows that there are different views on the consequences of globalization. Many countries around the world are tightening their immigration rules and it is harder for immigrants to find jobs in new countries.
This increase in nationalism is mainly due to the resentment arising from the perception that foreigners are filling domestic jobs or that companies are moving their operations abroad to save money on labor costs.
For example, the Economic Policy Institute reports that America's trade deficit with China (or the amount by which our imports exceed our exports) is costing Americans a lot of money.3.4 million jobssince 2001.
How globalization is changing your daily business operations
Both the benefits and challenges of globalization are changing the way a company operates in different ways. When companies decide to go global, they must be ready and willing to change internal processes. This helps them tap into new markets and ensure their global workforce feels comfortable and accepted at work.
Companies see many aspects of their business change as they enter the global marketplace. Globalization, for example, does thatworkforce more diverse. This diversity is generally a positive change, but it also brings some challenges, such as language barriers and differences in cultural expectations.
Some operational changes that companies can expect from globalization include:
1. Global communications challenges
Before companies leave their headquarters, they should have a firm internal communications plan in place, because employees worldwide are likely to work in a different time zone and have a different native language.
Software and other digital tools help break down global communication barriers and make it easy for teams to connect. Zoom, Slack, and Google all provide valuable tools for companies trying to manage employees across multiple offices, countries, and time zones.
2. International expectations of employees
Foreign workers have different expectations when it comes to things like salary and benefits, as well as how they manage their daily work schedules. Companies that want to benefit from globalization and hire foreign workers must accommodate them as much as possible. HR teams need to secure theirs tooemployee benefitsoffers are competitive and at the level of local expectations during the recruitment process.
3. Support for foreign customers
In addition to changes in employee communications, companies must also plan how they operate customer service and support in new countries. Customers in the new market where you offer your products or services may not speak your native language or be close to your time zone.
4. Increased competition
International companies have to adapt more than internal operations. Going global creates new revenue streams and increases the availability of talent. Because of these attractive benefits and the ease of going global through solutions such as collaboration with a global EoR, the global market is competitive.
As globalization becomes the norm, many companies often look for the same foreign markets, increasing competition for businesses.
5. Marketing and communication changes
Just as hiring employees in different countries poses internal communication challenges, marketing your products or services to a whole new audience creates hurdles for companies. Companies must adapt their marketing strategies to communicate the benefits of their product in a way that resonates with foreign audiences.
You can't assume that a marketing campaign aimed at a US audience (or wherever your headquarters are) will attract consumers in Europe, Asia or any other popular market, as consumers there have very different wants and needs.
Go international with the right partner
In the past, costs and regulatory challenges have been huge barriers for companies seeking thisexpand globallyseeking the benefits of globalization.
A partnership with a globalization expert now helps companies tackle every challenge that comes their way while successfully establishing a presence abroad. UsEOR solutionhelps organizations establish a presence in more than 185 international markets without the time and costs associated with setting up units.
The right EOR partner will help your company experience the benefits that globalization has to offer and quickly become a successful player in the global marketplace.
Ready to go global?Please contact us for more information.
