The world interacting together

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What is Globalization?

Globalization is essentially the means by which individuals, governments, companies, and countries interact with and affect one another, with the goal of helping to build strong alliances that mutually benefit one another.

Globalization is accomplished through the use of technology, as well as through trades and investments made internationally. The process can and does affect how different countries and regions develop and progress economically, how political systems are shaped, and how the environment and cultures of societies around the world are impacted.


The Current Wave

Today, globalization is taking on a newer, faster, and more thorough form. This is due, in large part, to political and trade policies that have allowed economic structuring to open up in a way that facilitates both domestic and international trade.

Since World War II – and especially in the past two decades – the majority of the world’s governments have taken on a free-market economic system, which not only increases each country’s own potential for productivity but the possibility for international investments and trading. A lot of governments have gone to the bargaining table, removing restrictive commerce barriers between nations, as well as high taxes and tariffs on global goods and services.

Perhaps the most predominant aspect of the recent wave of globalization is the fact that countries are capable of and willing to explore foreign markets, with companies setting up international headquarters and building factories and businesses in a number of new regions. This has opened up the industrial and financial structures of countries, enabling them to cater to broader and more diversified audiences.

Technology is Key

Much credit for the pace and depth of the globalization occurring today must be given to technology. Individual economic entities, such as businesses, investors, traders, and even consumers, have a large number of new and ever-evolving technological tools that make international connection and trade more attainable. These tools enable individuals and companies to study economic trends and effects more effectively, transfer and trade assets more readily, and collaborate with partners on a global scale.

The Pros of Globalization

A number of positive aspects of globalization include:

  • Building up the economic and social structures of struggling countries and economies through free trade
  • Creation of world power and less and less compartmentalized power sectors
  • Learning about and sharing of new and interesting cultures with one another
  • The opportunity and desire for prosperous nations to help countries struggling with serious issues like unemployment, disease, and natural disasters

The Cons of Globalization

Though it comes with perks, there are a number of cons to globalization that analysts and critics have noted for years. They include:

  • The oppression of weaker and poorer economies by those that are more robust; “the rich get richer, the poor get poorer”
  • The danger of job loss, with certain industries and sectors sending jobs to countries where workers are willing to do the same amount of work or more for smaller wages
  • Multinational corporations often get away with poor, unsafe, unethical, or exploitative working conditions due to variations in laws and regulations from one country to another
  • Multinational corporations can exploit tax haven nations, sending large portions of revenue offshore to avoid taxation

Globalization is a complicated and ever-changing process that has both good and bad aspects. Globalization, with the door to many countries open to one another, will continue. The primary goal, then, is to ensure that countries and independent financial actors work in harmony with one another for the betterment of everyone.

Additional Resources

CFI is the official provider of the global Financial Modeling & Valuation Analyst certification program, designed to help anyone become a world-class financial analyst. Check out these additional resources from the Corporate Finance Institute:

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