A Comprehensive Guide to Globalization in Business
Globalization in business is the growth in movement across national borders—as people, ideas, products, services, and capital become interconnected. Through globalization, social, cultural, and economic exchange becomes more profound and influential.
Although globalization can create increased conflict and controversy in societies, globalization also creates added business opportunity and economic growth.
International expansion gives your organization an opportunity to reach new markets and find more customers, suppliers, and partnerships. Still, how can businesses best take advantage of globalization?
You can define globalization in your own business context using research and data to create a custom global strategy. By understanding the pros and cons of globalization, your company can make informed decisions. Keep reading to discover what globalization means for business and how you can benefit from international markets.
What are the benefits of globalization?
To many business leaders, the answer to the question “what is globalization in business?” starts with a list of benefits. Entering international markets helps companies expand their reach beyond domestic borders.
Staying in a domestic market typically limits an organization’s growth and influence, so many companies decide to pursue international expansion and find other countries or regions to operate in.
The benefits of global expansion can outweigh the challenges and potential risks for many businesses.
The pros of globalization
Globalization offers many advantages to businesses. These benefits may differ depending on industry, market location, company size, and other factors. As you explore other markets, consider how these areas could apply to your product or service.
Expansion into other markets
By reaching a new market, companies can grow their revenue and find more customers. Different countries or regions offer different opportunities for businesses, including different groups of customers to target and legal frameworks to operate in. The economic conditions or industry regulations may be more favorable for your company in another market, meaning that your business could benefit significantly from doing business across domestic borders.
More available talent and greater workforce diversity
You can access new talent in other markets, potentially making recruitment easier for hard-to-fill roles. Expanding your team with employees in another country can help you take advantage of different skill sets, benefit from local educational programs, or operate in markets with reduced overhead.
Lower manufacturing costs
Manufacturing may be cheaper in other countries, allowing your business to save on materials, personnel costs, and supply chain investment. Different regulatory standards may make it easier to save money on manufacturing, too. If your business is in a country where personnel costs are typically high, offshoring manufacturing processes may provide an opportunity to hire in a more accessible market.
Access to new technologies
Technology access isn’t always the same across the globe, so entering a new market may increase your options. Some technologies are limited to particular countries via trade restrictions, high tariffs, supplier availability, patents, or other restrictions, making it more practical for many businesses to consider new markets.
For example, some countries have strong patent and copyright laws. American companies generally have a high degree of protection for technology they develop. The same technology that is illegal to manufacture in the United States (US) may be legal to make in China. Patent and trademark issues are important areas for businesses to research and seek professional legal advice on before making decisions. Nevertheless, different laws in another market could be to your advantage.
Opportunity to reach other cultures
Opportunities outside of your home culture could be beneficial for your business. Other customs, religious, or cultural practices can create demand for your products or services that might be different from or not exist at all in your domestic market. New marketing and advertising strategies that wouldn’t be a good fit for your domestic market could be helpful for doing business abroad.
If your business wants to sell burkini swimwear appealing to Muslim women but your domestic market is limited, then expanding beyond your domestic market could bring you more customers and create more demand for your brand.
What are some disadvantages of globalization?
In addition to the benefits of globalization, there are also disadvantages for businesses. Globalization can add significant complexity to business operations and can present business leaders with important decisions about risk management, types of globalization to pursue, and other issues.
The cons of globalization
Careful management of globalization’s drawbacks should be an important part of businesses’ planning around international expansion. This way, you can prepare to mitigate any negative effects of globalization.
Tariff and export charges
When your business crosses borders, your company could be subject to tariffs and added export costs from other countries or your own government. Many governments are worried about how to counteract the negative effects of globalization, so they levy tariffs and other charges to influence economic behavior and raise funds for domestic investment. Your company should have a tariff management strategy or account for these expenses in your pricing.
Maintaining compliance in other markets
Aside from complying with your domestic laws and regulations, entering another country’s market means you’re required to maintain compliance there as well. Other countries may have significantly different laws and regulatory groups, adding expense and complexity.
Reduced brand and cultural distinctiveness
Business globalization could reduce your company’s unique cultural identity as your organization adapts to the conditions and expectations of other markets. You may decide to downplay aspects of your company culture to appeal to new customers, ultimately losing part of what makes your brand unique.
Nationalism and negative perceptions of immigration
In many countries, locals have negative perceptions of immigration or even of globalization itself. As a foreign brand, your business may be viewed as a threat to homegrown companies and to the career prospects of workers who live in the region. Your company may have very little control over how the market perceives you and your products or services.
Even after you are established in a new country, nationalism could still pose a threat to your work. Societies are constantly changing. The most successful international companies know how to watch local culture closely and plan their marketing and operations accordingly.
What are the effects of globalization?
Globalization changed what it means to do business today, expanding the competitive and opportunity landscape for businesses of all sizes and industries. While globalization brings markets closer together, some of the positive and negative effects of globalization become increasingly unavoidable.
With the internet allowing companies to provide services overseas easily, even small businesses can be subject to international pressures such as price competition. The advantages of globalization are increasingly interwoven into markets, too, as workers, ideas, and capital are freed from national boundaries to follow opportunities wherever they may be.
As a business leader, you’re in a dynamic position—globalization is all around you, and your company can take advantage of it by understanding how globalization works and the impact it can have on your organization. Expanding a business internationally requires research, strategic thinking, and systematic action.
The challenges of globalization
Globalization also presents significant challenges for organizations. Before your company can successfully compete in another market, you need to plan for globalization’s potential challenges. There are many challenges to be aware of—but here are a few common ones:
- Adapting to cultural differences: New markets in other countries often mean your business will be working within different cultures. These cultural differences could be significant enough to impact your business.
- Communicating across your organization: Large companies and businesses with staff in different locations may find it difficult to communicate effectively through a global transition. When your business is undergoing significant change, it is important to make sure your communication remains strong.
- Providing customer service in other countries: Even if your company provides highly effective customer service in your domestic market, other markets could prove to be more challenging. Your organization will need to provide multilingual customer support that is appropriate to the needs of each market.
What are some good globalization examples?
Companies looking for inspiration on how to benefit from globalization have a variety of examples worth studying closely. McDonald’s, Costco, The Coca-Cola Company, Starbucks, and ZARA are 5 companies that successfully expand beyond their domestic markets. Today, these examples of globalization are some of the world’s most valuable brands.
Founded in 1940 in the US, McDonald’s is known worldwide as an all-American fast food restaurant with favorites such as french fries and burgers. McDonald’s initially focused its expansion efforts domestically, adding new restaurants outside of the State of California where the company was born.
Today, though, McDonald’s is an international phenomenon thanks in part to careful market positioning. McDonald’s has more than 37K restaurants and operates in more than 100 countries. Because of their decision to enter global markets, McDonald’s now has one of the world’s highest corporate brand valuations—the golden arches are one of the best-known brand symbols globally.
Each country with McDonald’s restaurants experiences a customized version of the fast food brand. In Saudi Arabia, McDonald’s creates special campaigns for Muslim customers observing Ramadan, including locally-popular menu items and special promotions. In 2020, customers could use a special virtual hourglass app to track their fasting and countdown to when it’s ok to eat again (and presumably, visit a McDonald’s restaurant).
A global big-box retailer founded in 1983, Costco’s success in opening warehouses outside the domestic US market is well-known and inspiring. Costco is now in Japan, Canada, Korea, Australia, Iceland, the United Kingdom, Spain, China, and other countries after opening more than 500 stores in the US.
Much of Costco’s international success comes from a willingness to carefully study markets and adapt business practices to fit local preferences. For example, Costco decided not to use coupons in Australia after discovering that Australian customers weren’t as interested in using coupons for discounts as American shoppers are. Stores in different countries have their own food court menus, also—the famous Costco hotdog is made of pork in Japan, instead of the all-beef version popular in the US.
The Coca-Cola Company
The Coca-Cola Company, a global beverage company founded in 1892 in the US, turned a sugary, carbonated drink into a global phenomenon. Using simple marketing, Coca-Cola’s flagship product transcends cultural differences and appeals to nearly-universal interests—selling happiness and refreshment instead of just another beverage.
A smart international strategy and popular products have helped grow Coca-Cola to be one of the world’s most successful companies. Today, the Coca-Cola Company is publicly traded on The New York Stock Exchange (NYSE).
Wherever you are in the world, Coca-Cola drinks are usually cheap and use simple, recognizable marketing with the same branding, symbols, and short slogans such as “Enjoy.” Coca-Cola’s marketing and cultural adaptation are simple and easily transferable into new markets and cultures.
A worldwide chain with over 33K shops in 80 different countries, Starbucks grew from a single coffee shop in Seattle in 1971 to a company that redefined coffee culture for millions of fans. Today, across national borders, Starbucks shops are often the “third place” for customers—a community-gathering place outside home and the workplace. By serving as places that are welcoming, public, familiar, and open for people to gather and socialize, Starbucks is now part of the culture.
Exporting the Starbucks experience to other countries proved to be a smart investment. Today, a majority of Starbucks stores are outside the US. One of Starbucks’ greatest successes is expanding to China—Starbucks appealed to Chinese customers using similar strategies as in other countries, but with some unique customization to local culture. For example, understanding how important honoring parents is to many Chinese, Starbucks introduced a program providing health insurance for employees’ parents.
Started in 1975, Spanish clothing manufacturer and retailer ZARA expanded internationally with a potent combination of smart logistics, flexible manufacturing, and custom information systems that turn real-time customer feedback and local inventory data into new designs and product forecasting. ZARA has more than 2K stores in North America, Europe, Asia, and elsewhere around the world.
Because ZARA is able to bring new fashion from the design process to the sales floor in just weeks—instead of the typical months-long process it takes traditional clothing retailers—ZARA can be more highly responsive to changes in consumer demand and to local preferences. Fast fashion clothing can be manufactured in smaller production runs, allowing local stores to follow trends more closely. This has helped ZARA succeed across markets.
How can businesses best take advantage of globalization?
Businesses can take advantage of globalization with a clear strategy. For international success, companies need a keen understanding of the markets they operate in, how to market a product effectively overseas, and how to transition into new markets. These strategies are different for every globalization company—there are several different ways to become a global business.
What is a globalization strategy?
Globalization strategies are long-term plans guiding business development and expansion outside domestic markets and into other countries. In many instances, your globalization strategy will lean more towards one or the other, with greater localization or a greater degree of similarity from market to market. A successful global product launch requires a strategy that fits your competitive environment and leverages your company’s strengths.
Global markets can change dramatically, causing even well-established international brands to pivot in a different strategic direction. By 1999, most of The Coca-Cola Company’s profits were from outside North America, yet Coca-Cola saw declines in value driven by falling markets in Asia that caused fewer customers to buy Coca-Cola products.
In a partial departure from Coca-Cola’s previous global strategy, the company localized its approach. Smaller, cheaper soda bottles were sold in Thailand, coupons were added to products in Russia, and German customers could enter sweepstakes. Coca-Cola recognized the need to respond to each market with a unique globalization strategy.
How to create a globalization strategy?
Effective globalization calls for creating a clear strategy that departs from the domestic market. A top-down approach that translates your existing marketing strategies may backfire, failing to resonate with customers because it wasn’t developed with local insight.
Depending on your organization, your globalization strategy could be fairly simple or quite complex. Globalization takes many different forms–costs, levels of involvement, business models, products and services, and other factors vary from one company to another.
For a small business, a globalization strategy may take on a different meaning than it would for a large multinational corporation. For example, a solopreneur startup with one employee may simply need to begin marketing to international customers online without making significant investments or planning.
However, a large company offshoring manufacturing operations will need to account for the effort involved in acquiring facilities and materials, organizing logistics, and incorporating new teams into a global workforce. For these reasons, research and planning should form the basis of your globalization strategy. Here is a process that can help you create an effective globalization strategy.
Evaluate your company and target markets
Before you can develop an effective globalization strategy, you should carefully consider the status quo of your organization. Whenever possible, your conclusions should tie back to specific data and facts.
There are many different tools that can help you understand the business environment better. For example:
- A PESTEL analysis explores factors impacting your company (political, economic, social, technological, environmental, and legal).
- A SWOT analysis compares your business strengths and weaknesses against opportunities and threats in the business environment.
Market research doesn’t just protect you from costly mistakes—it also gives your business the best chances of success in a new and different context internationally. Whenever possible, gather input from key stakeholders in your organization throughout this process—before the decision-making and through the policy-making process.
The goal of this part of the process is to gather information that can be used to build and refine your strategy. Questions that you need to answer to prepare for global expansion may include:
- What global opportunities should your business pursue?
- What are your overall goals?
- What resources will you need to achieve your goals?
- What obstacles and challenges is your organization potentially facing?
- Is your organization prepared for global expansion, i.e. to work effectively within other cultural, linguistic, political, or legal environments?
- Do your expectations and needs align with the business environment in a target market? Why or why not?
- If you don’t have the resources in-house for global expansion, how can you get the resources you need?
- What’s the worst that could happen if you start expanding globally, and how can you manage the risks?
Think about what type of globalization strategy fits best
There are different types of global expansion strategies. When you develop a globalization strategy, you’ll most likely choose one of the 4 strategies outlined below or create a holistic strategy that combines elements of several strategies:
- International strategy: International companies enter new markets without significantly changing product features or pricing strategies. All key operations, including production, are located in the home country, while the company exports the same standardized products and services to foreign markets without taking local tastes into account.
- Global strategy: Global companies coordinate their operations in foreign markets to make the most of the advantages offered by each country while centralizing all decisions at the headquarters. Take Apple as an example: They offer the same phones and laptops in all markets under one strong brand, while their products are made in multiple countries.
- Multidomestic strategy: Multidomestic companies seek to adapt their products and services to local markets thanks to foreign subsidiaries with a high degree of independence from the headquarters. Their products match local tastes, which can give them a competitive advantage over international companies in a foreign market. This strategy is common in large companies in the food industry, such as Procter & Gamble.
- Transnational strategy: This type of strategy can be seen as a combination of global and multidomestic strategies. Decisions are made together by the headquarters and the interconnected foreign subsidiaries, while the products and services are tailored to local markets. An example of a transnational strategy is the cosmetic giant L’Oréal: They offer strong brands both from the US, like Maybelline, and from France, like Lancôme.
Knowing how you’ll compete–on price, on fit for the market, or both–is important because it helps you anticipate challenges and opportunities your business is likely to encounter. For example, a company applying a transnational strategy must focus relentlessly on applying economies of scale and reducing costs as much as possible in order to become the most affordable option for global customers.
Use your strategy to shape your business decisions
Consider how different areas of the company are potentially impacted by the strategy work you’ve just completed. Based on your globalization strategy, you can start planning action items and strategies for different functional areas, departments, and operations within your organization. Your decision to enter markets in the Middle East, for example, could have significant implications across the company for marketing, product development, manufacturing, logistics, human resources, or finance.
As you create your strategy and begin the earliest stages of your global expansion, it’s important to keep these best practices in mind:
- Get buy-in and ownership: Your entire organization needs a globalization-savvy mindset. Everyone from the executive team to rank-and-file employees should be prepared and dedicated to the success of your global strategy. If possible, you should consider designating a globalization champion—this could be an individual, a team, or an entire department, but someone should have ownership and everyone should embrace responsibility for your globalization strategy.
- Prioritize localization: Localization should be a priority within your organization and localization efforts should start early. New companies can also use a localization strategy effectively—there’s no need to wait as long as globalization fits with your goals and available resources. Your localization strategy can also start much earlier in the product life cycle, as part of initial product development, rather than being pushed towards the end of it.
- Team up with local partners: Locals are an invaluable resource. Your local employees, consultants, and customers should have opportunities to provide feedback and input shaping your strategy.
- Create a working plan: Keeping your globalization strategy open and flexible helps you adapt to new information and market changes. With a strategy draft, you can start and adjust as the market and your research inform your localization strategy.
Position your business with a global strategy
Continuous improvement should be central to your organization’s globalization and market entry strategy. Your company may not have a perfect approach initially, but your globalization investment can add significant value to your organization and can serve your business goals as long as your company is committed to your global business for the long haul.
Last updated on November 15, 2022.