Globalization can have both positive and negative effects on local businesses. On the positive side, it can increase access to new markets and customers in a number of ways, leading to increased sales and profits.
Firstly, it can open up new trade opportunities, such as exporting goods and services to other countries. This can allow local businesses to tap into new markets that they may not have been able to access before.
Secondly, it can also bring in new investment and foreign companies that can increase demand for local goods and services. For example, a foreign company setting up a manufacturing facility in a local area can create new jobs and increase demand for local suppliers.
Thirdly, it can also increase tourism, as people from other countries may be more likely to visit a location that is more connected to the global economy.
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| Fig: Manufacturing local product. |
Globalization can increase competition by making it easier for businesses from other countries to enter local markets. This increased competition can drive innovation and improve the quality of products and services in a few ways:
Companies are forced to improve their products and services in order to stay competitive. This can lead to businesses investing in new technology and processes to create better products, or improving their customer service to retain clients.
Businesses are exposed to new ideas and technologies from other countries, which can inspire them to innovate and improve their own products and services.
On the negative side, it can lead to the loss of jobs and businesses as companies move operations to other countries where labour and production costs are lower, due to a phenomenon known as "offshoring." This occurs when companies move their operations, such as manufacturing or call centres, to other countries where labour is cheaper. This can happen for the following reasons:
Lower labour costs: In many developing countries, labour is significantly cheaper than in developed countries. This can make it more cost-effective for companies to move their operations to these countries.
Less restrictive regulations: Some countries have less restrictive regulations and lower taxes, which can make it more attractive for companies to move their operations there.
Access to new markets: Some companies may also move their operations to other countries to be closer to new markets and customers.
This can lead to the loss of jobs and businesses in the countries where the operations were previously located, as companies may lay off employees or close down facilities. This can have a negative impact on local economies, as the loss of jobs and businesses can lead to a decrease in consumer spending and economic growth.