The roots of globalization can be traced to the 1st century BC when Chinese silk traders began selling their products across the European continent. For centuries, businesses have been expanding their operations into foreign countries, causing consumers to become increasingly reliant on imported goods and services.
For over two thousand years, humans have looked to globalization as a positive force, bringing goods and services to new areas and providing a model for the efficient use of resources. However, recent trends have highlighted the risks associated with globalization – raising the questions: Is globalization still a positive force? And, where do we go from here? The answers to these questions could shape the future of business.
Why has the globalization movement been so successful?
Globalization has provided many benefits to businesses, consumers, and countries over the centuries. Some of these include:
Specialization – With a global economy, each country can specialize in what they do best, and import goods and services that are less efficient to produce domestically. This is often referred to as comparative advantage.
Innovation – Globalization can lead to a faster pace of innovation, as ideas and goods traverse political borders.
Availability of goods and services – With globalization, it is easier for consumers to purchase a wide variety of goods and services, particularly those that originate in other countries. Additionally, globalization leads to expanded markets for businesses to sell their products.
Which factors threaten the success of globalization?
While there are numerous benefits to increased global interconnectedness, there are also some factors that threaten the continued success of globalization. Some of these include:
Dependence – When a country relies on trade for an essential product, it becomes dependent on the country that produces that good or service. This can make for complicated international politics, especially in cases where one country has an uneven share of the bargaining power.
Political unrest – When countries go to war, economic sanctions and restricted trade capacity can prevent consumers from accessing products and services they need. In addition, businesses can lose a significant share of their markets when important trade partners experience turmoil.
Disease / natural disasters – When one country is a significant exporter, a natural disaster that impacts their reserves or their manufacturing can have global consequences.
Exploitation – As cheaper goods are favored in most scenarios, businesses that need to increase exports can turn to unfair labor practices to reduce costs. Since worker protection laws vary, those countries with strong protections can find that their prices are undercut by countries with less stringent laws.
Challenges to Globalization During the COVID-19 Pandemic
During the COVID-19 pandemic, global supply chains were severely impacted. As a result, there were long wait times at ports, uneven factory closures around the world, and shortages of goods and services.
These struggles were felt acutely in the accessibility of vaccines. Over the past several decades, a few high-income countries have dominated the production and distribution of medicines and medical supplies. During the COVID-19 pandemic, these countries were able to develop, manufacture, and disseminate vaccines, while low-income countries struggled to import enough of the vaccine to meet their needs.
This inequality is still evident more than two years after the start of the pandemic. As of May 11, 72.08% of people in high income countries had received at least one dose of a COVID-19 vaccine. On the other hand, only 17.4% of people in low-income countries had received one dose.
Globalization of health care has helped bring much needed medical care to countries that otherwise would not have been able to efficiently produce essential medicines and devices. However, the COVID-19 pandemic brought the challenges of such a system to the forefront.
Challenges to Globalization During the Russia-Ukraine Conflict
Russia and Ukraine produce about a third of the world’s wheat, a quarter of its barley, and three quarters of its sunflower oil. The combination of sanctions against Russia, blocked ports in Ukraine, and the inability of Ukrainian farmers to raise their crops has significantly impacted the flow of food from these two countries.
In addition, Russia supplies about 10% of the global oil supply, and sanctions against the country have caused a gap in supply. This has driven up prices in oil-importing countries and caused countries like the United States to release strategic reserves to regulate supply.
During peaceful times, globalization provides a steady influx of goods and services to consumers around the globe. But, as evidenced by the COVID-19 pandemic and the Russia-Ukraine conflict, disruptions in one area of the world can have spillover effects for the entire global economy. For this reason, some argue for deglobalization – or the unwinding of globalization.
The Push for Deglobalization
Complete deglobalization would come with a steep cost. Businesses could lose access to significant portions of their target markets, consumers could go without goods and services as businesses adjusted, and prices could increase as countries lose their comparative advantage.
For many, these costs are prohibitive. However, onshoring of some key industries could be necessary going forward. For example, the White House has made strides in bringing semiconductor manufacturing back to the U.S. after supply chain shortages during the COVID-19 pandemic made these critical components difficult to source. Going forward, similar initiatives could be undertaken by governments and businesses to provide integral goods and services to their people regardless of political or health crises in other parts of the world.
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