Globalization has resulted in greater inter-connectedness among markets around the world and increased communication and awareness of business opportunities in the far corners of the globe. More investors can access new investment opportunities and study new markets at a greater distance than before. Potential risks and profit opportunities are within easier reach thanks to improved communications technology.
Countries with positive relations between them are able to increasingly unify their economies through increased investment and trade. Products and services previously available within one country are made more readily available to new markets, resulting directly in improved economic opportunities for workers in those economies and leading to improved household incomes.
For investors, these opportunities present a wider range of investment options and new ways to profit. Investment in global markets is possible for the investing public through stock purchasing, as most brokerage firms are able to access international stock markets and provide their clients with the opportunity to purchase shares in companies around the world.
Key Takeaways
- Globalization refers to the way businesses and organizations develop an international presence or start operating in a variety of countries.
- The rise of globalization has led to more connections among financial markets and businesses around the world, as well as increased opportunities.
- Globalization has influenced international investing, making it easier than ever before, historically, for market participants to invest in companies, industries, or other financial instruments abroad.
- Market participants can buy stocks, mutual funds, exchange-traded funds (ETFs), or American Depositary Receipts (ADRs) to gain access to the shares of internationally-based companies.
Maintaining Competitiveness
As a result, most businesses try to stay competitive with their counterparts in other parts of the world, broadening their competitive horizons past their local areas and home countries. Maintaining competitiveness often requires sourcing materials and outsourcing labor from other countries.
Competitive companies have increasingly turned to global markets as a source not only of new customers but also of production locations and partners for new ventures. Globalization has facilitated this and made the transition to global markets easier.
Globalization Increases International Investing
Over time, these practices result in increased cultural similarities between countries and increasingly connected economies that have more mutual interests and challenges. Globalization and international investment are tied together and lead to one another as companies act internationally by increasing their international investment out of mutual interest and the need to stay internationally competitive.
Companies benefit from pricing differences, or arbitrage, in different markets for labor and supplies. Globalization compels connected economies to continue to invest in each other to protect their economic health and acquire new profits. International investments have increased as a direct result of globalization and continue to do so. This is pulling more economies into globalization, further increasing international investment as this happens.
Special Considerations
When countries seek collectively to pursue the opportunities provided by globalization, the demands of the new economic activity cause social change that develops these countries and prepares them to better pursue industrial activity.
Society becomes a developed nation as its workforce begins to attract the investment activity of enough companies to cause the social and economic change necessary to produce a modern industrialized economy.
This process is a result of the international investment that characterizes globalization. The competitive nature of globalization, in other words, ultimately has a social and economic impact that transforms economies in pursuit of investment and greater economic activity. This knits economies into each other and results in increased international investment.
What Are the Benefits of Globalization on Trade?
The benefits of globalization on trade are lower production costs as companies can find more affordable places to make their goods; increases in global competition, which brings drown prices and increases the number of products available to consumers; the spread of technology and innovation; as well as access to a pool of new resources, market, and talent.
What Are the Negative Effects of Globalization?
The negative effects of globalization include increases in inequality, unequal economic growth, increased difficulty for local businesses, exploitation of certain labor markets, the increase of larger-scale recessions, and job displacement.
What Causes Globalization?
Globalization is primarily caused by the advancement of technology. Technology has allowed for the advancement and ease of communications, travel, and transport. Additionally, globalization is caused by governments and their trade policies.
The Bottom Line
Due to the rise of the Internet, cheaper air travel, and other technologies, the world is more interconnected than before. With trade agreements, economies are also deeply intertwined. This globalization has been a great advancement for investors, allowing them access and information to investments around the globe that would have been impossible decades before.
This far-reaching growth in investment also helps societies. It can help developing economies by attracting foreign investment, which slowly develops a society as more money comes into the country, creating jobs and increasing wages. Additionally, these returns on investments can be used to invest further as well as increase spending in domestic markets.
