What is globalization, and what are some of the traditional international trade theories that support concept of globalization?
Globalization refers to the shift toward a more integrated and interdependent world economy. There are two sides to globalization, which include markets and production. Globalization of markets refers to the coming together of all nations to create one huge marketplace. Many companies today have created a global market by selling their products worldwide. There are many companies today that would be recognized if you were to go halfway across the world. An example of such companies includes Coca Cola and Starbucks. The globalization of production refers to the sourcing of goods and services from locations around the world. By doing this, companies can take advantage of national differences in the cost and quality of factors of production. For example, an airplane that has many different components and parts can be made by a variety of nations. Some nations would charge less then another nation. Or, one nations quality of work exceeds another nation. Such factors would determine which nation would build the specific parts. Such actions reduce the cost to make the plane, therefore making the production of the plane more profitable. Globalization has been around for a very long time and will continue to exist. The only difference will be the scope at which business is being done in the future (Hill, 2009).
List the major drivers of globalization and provide three examples of each. There are two factors that underlie the trend toward greater globalization. One is the decline in barriers to the free flow of goods, services, and capital. The second factor is the technological change particularly the dramatic developments in communication, information processing, and transportation technologies. For the first factor, removing barriers to allow free trade is one way to drive globalization. Removing high tariffs allowed countries to freely trade without the high tax amount. Along with removing the high tariffs, many countries have also removed restrictions to foreign direct investments. This allowed for companies to manufacture their goods in a country that has low labor cost. This optimizes their profits, as they do not have to spend exaggerated amounts to make a product. The role of technology is single handedly the most important innovation which enabled the growth of high-power, low-cost computing, vastly increasing the amount of information that can be processed by companies. This also includes the abilities of transportation. The ability to travel to another country across the globs within a day is very convenient for many companies. With transport being so easily accessible, cultures can mix and influence generations. For example, it is becoming the norm to have laptops, iPods, and iPhones in any given modern
