Since globalization has spread throughout the world, businesses of all types, including both large and small, have increased their interest to incorporate operations to outside nations. Such reasons may include saving on material costs, enter a Free-Trade Zone, or simply reduce the cost of labor. For whichever reason, these global businesses help provide jobs to nations where employment is low and also help reduce the prices in the given markets. The most important reason why companies go global, is to develop a business system that can better sustain the livelihood while competing with other businesses in a similar industry.
To better understand why businesses go global, let's consider cost to produce an item. Before producing a final item, certain supplies must be purchased. In addition, there labor to produce is also a necessary cost. Whether nationally purchased, or international purchased, there are business strategies that can lots of money. For example, there is an American company that manufactures and sells airplanes, (2012). If produced nationally, national wages must be considered which can be quite expensive compared to wages in an undeveloped country such as Columbia. However, the cost for materials are much higher in the same country. Therefore the company can save lots of money by purchasing materials nationally then shipping these materials internationally, and finally, manufacturing the product in Columbia at a cheaper wage.
If globalization is a common place between two countries within relevant industries, or countries that seek to trade with each other based on what is produced, the governments may establish a Free Trade agreement where importing and exporting will have little or no taxes, (2012). Just like on the example above where an American company works closely with Columbia, this could be considered a Free Trade zone, depending on the trade agreement. Logically, it would seem accurate being the American company's interest to work with Columbia. Again, if the global business wasn't saving or reducing costs, or to simply find means to increase profits, then there would be no reason to globalize if taxes on importing and exporting where a common factor.
On the contrary to how globalization can reduce prices on products and the costs to make them, it can affect a nation's micro economy. Particularly to domestic jobs, some jobs can be outsourced to underdeveloped countries, much like the example described above. Consider, prior to moving to Columbia, the manufacturing operations where based in America. After going global, these jobs will no longer become available in America. The results are an increase in unemployment- this reduces consumer spending. Overall, consumer spending can greatly impact a micro economy and disrupt markets for airplanes. Some critics even argue that Free Trade doesn't work because there are more failing economies now than before Free Trade, (2010). However, most companies see an opportunity for foreign investment, and can profit in their short-term and mid-term goals.
In conclusion, some companies go global because they seek an opportunity to reduce production cost and product prices, and an area of Free Trade. Depending on the industry, competition can push companies into globalization, such as the aviation industry, or electronics as another example. Although going global may seem great a company, this can potentially have negative effects on an economy where jobs are outsourced for cheaper labor. This disrupts consumer spending, affecting nearly all industries
Cobb Jr., J. (2010). Free Trade does not work. Retrieved from, http://www.globalresearch.ca/index.php?context=va&aid=20379
AIU Online. (2012). MGMT410: Unit 1: Global Operations Management [Power Point Presentation]. Retrieved from AIU Online Virtual Campus. Global Operations Management: MGMT415-1202A-06 Instructor Files
Investopedia.com. (2012). Free trade area. Retrieved from, http://www.investopedia.com/terms/f/free_trade_area.asp#axzz1q5BUFqxS
Wednesday, July 25, 2012 // // 2 comments //
2 comments to ""Ladies and gentlemen, we are going global" (as the company gasps with disappointment)"
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