Globalization is an established part of the modern world, so most of us do not realize the benefits it brings to our everyday lives—such as easy access to a variety of different cuisines or new technologies developed by countries half a world away.
Even though globalization makes our lives better, it brings some challenges as companies start to grow and expand across borders.
Cultural differences around the world are undeniable. These differences create hurdles for businesses entering foreign markets and necessitate changes to their daily business operations, whether it’s employing workers in a new region or communicating the value of their product to a new audience.
Keep reading to learn more about the benefits and challenges of globalization and how businesses navigate these difficulties to reach their global expansion goals.
Before discussing the benefits and challenges of globalization, it’s essential to have a strong understanding of what the term means.
The official definition of globalization is the process by which businesses or other organizations develop international influence or start operating on an international scale.
More simply, globalization refers to an open flow of information, technology, and goods among countries and consumers. This openness occurs through various relationships, from business, geopolitics, and technology to travel, culture, and media.
Because the world is already so connected, most people don’t notice globalization at work every single day. But the world is getting smaller, and companies need to understand what this means for the future of doing business. Companies that don’t embrace globalization risk losing a competitive advantage, which allows other businesses to take over new opportunities in the global marketplace.
Related Term: What Is Global Expansion?
Globalization impacts businesses in many different ways. But those who decide to take on international expansion find several benefits, including:
1. Access to New Cultures
Globalization makes it easier than ever to access foreign cultures, including food, movies, music, and art. This free flow of people, goods, art, and information is the reason you can have Thai food delivered to your apartment as you listen to your favorite U.K.-based artist or stream a Bollywood movie.
2. The Spread of Technology and Innovation
Many countries around the world remain constantly connected, so knowledge and technological advances travel quickly. Because knowledge also transfers so fast, this means that scientific advances made in Asia can be at work in the United States in a matter of days.
3. Lower Costs for Products
Globalization allows companies to find lower-cost ways to produce their products. It also increases global competition, which drives prices down and creates a larger variety of choices for consumers. Lowered costs help people in both developing and already-developed countries live better on less money.
4. Higher Standards of Living Across the Globe
Developing nations experience an improved standard of living—thanks to globalization. According to the World Bank, extreme poverty decreased by 35% since 1990.
The target of the first Millennium Development Goal was to cut the 1990 poverty rate in half by 2015. This was achieved five years ahead of schedule in 2010. Across the globe, nearly 1.1 billion people have moved out of extreme poverty since that time.
5. Access to New Markets
Businesses gain a great deal from globalization, including new customers and diverse revenue streams. Companies interested in these benefits look for flexible and innovative ways to grow their business overseas.
A global employer of record (EOR) makes it easier than ever to employ workers in other countries quickly and compliantly. This means that, for many companies, there is no longer the need to establish a foreign entity to expand overseas.
Read more: Your Guide to the Global Marketplace
6. Access to New Talent
In addition to new markets, globalization allows companies to find new, specialized talent that is not available in their current market. For example, globalization gives companies the opportunity to explore tech talent in booming markets such as Berlin or Stockholm, rather than Silicon Valley.
Again, a global EOR allows companies to compliantly employ talent overseas without establishing an entity, making global hiring easier than ever.
While globalization offers many benefits, it’s not without challenges. Some of the hurdles companies face when going global include:
1. International Recruiting
A common challenge global leaders face when going global is international recruiting. Recruiting across borders creates unknowns for HR teams.
First, companies create a plan for how they will interview and thoroughly vet candidates to make sure they are qualified when thousands of miles separate them from headquarters. Next, companies need to know the market’s demands for salaries and benefits to make competitive offers.
To ensure successful hires, HR teams must factor in challenges like time zones, cultural differences, and language barriers to find a good fit for the company.
2. Managing Employee Immigration
Despite the benefits of global mobility, immigration is a top challenge companies face when expanding overseas. Immigration laws change often, and in some countries, it is extremely difficult to secure visas for employees that are foreign nationals. The U.S., for example, is getting stricter with granting H-1B visas, and Brexit makes immigration to the U.K. difficult.
3. Incurring Tariffs and Export Fees
Another challenge leaders face when going global is incurring tariffs and export fees. For companies looking to sell products abroad, getting those items overseas can be expensive, depending on the market.
4. Payroll and Compliance Challenges
Another common global expansion obstacle is managing global payroll and maintaining compliance with changing employment and tax laws. This management task gets even more difficult if you’re trying to manage operations in multiple markets.
5. Loss of Cultural Identity
While globalization has made foreign countries easier to access, it has also begun to meld unique societies together. The success of certain cultures throughout the world caused other countries to emulate them. But when cultures begin to lose their distinctive features, we lose our global diversity.
6. Foreign Worker Exploitation
Lower costs do benefit many consumers, but it also creates tough competition that leads some companies to search for cheap labor sources. Some Western companies ship their production overseas to countries like China and Malaysia, where lax regulations make it easier to exploit workers.
7. Global Expansion Difficulties
For businesses that want to go global and discover the benefits of globalization, setting up a compliant overseas presence is difficult. If companies take the traditional route of setting up an entity, they need substantial upfront capital, sometimes up to $20,000, and costs of $200,000 annually to maintain the business.
Read more: The Hidden Costs of Entity Establishment
Additionally, global businesses must keep up with different and ever-changing labor laws in new countries. When expanding into new countries, companies must be aware of how to navigate new legal systems and ensure global compliance. Otherwise, missteps lead to impediments and severe financial and legal consequences.
8. Immigration Challenges and Local Job Loss
The political climates in the U.S. and Europe show that there are different viewpoints on the results of globalization. Many countries around the globe are tightening their immigration rules, and it is harder for immigrants to find jobs in new countries.
This rise in nationalism is mainly due to anger from the perception that foreigners fill domestic jobs or that companies move their operations abroad to save money on labor costs.
For example, the Economic Policy Institute reports that the U.S. trade deficit with China (or the amount by which our imports exceed our exports) cost Americans 3.4 million jobs since 2001.
Both the benefits and challenges of globalization change how a business operates in different ways. When companies decide to go global, they must be ready and willing to change internal processes. This helps to accommodate new markets and make their global workforce feel comfortable and accepted at work.
Companies see many aspects of their businesses change once they enter the global marketplace. For example, globalization makes the workforce more diverse. This diversity is an overall positive change, but it creates some challenges, such as language barriers and differences in cultural expectations.
Some operational changes companies should expect from globalization include:
1. Global Communication Challenges
Before starting to branch out from headquarters, firms have to put an established internal communication plan in place since global employees likely work in a different time zone and have a different native language.
Software and other digital tools help smooth global communication hurdles and allow teams to connect easily. Zoom, Slack, and Google all provide valuable tools for companies trying to manage employees in multiple offices, countries, and time zones.
2. International Employee Expectations
Foreign employees have different expectations when it comes to things like salary and benefits, as well as how they manage their daily work schedules. Companies that want to take advantage of globalization and hire foreign workers need to accommodate them as much as possible. HR teams must also ensure their employee benefits offerings are competitive and on par with local expectations during the hiring process.
3. Supporting Foreign Customers
Similar to communication changes with employees, companies must also plan for how they run customer service and support in new countries. Customers in the new market where you offer your products or services might not speak your native language or be close to your time zone.
4. Increased Competition
International companies have to adjust more than internal operations. Going global opens up new revenue streams and increases availability to talent. Because of these attractive benefits and the ease of going global due to solutions like partnering with a global EoR, the global marketplace is competitive.
As globalization becomes the norm, many companies often seek the same foreign markets, which increases competition for businesses.
5. Marketing and Communication Changes
Just like hiring employees in different countries creates internal communication challenges, marketing your products or services to a completely new audience creates obstacles for companies. Businesses need to adjust their marketing strategies to communicate the benefits of their product in a way that resonates with a foreign audience.
You cannot assume that a marketing campaign targeting an American audience (or wherever your HQ location is) attracts consumers in Europe, Asia, or any other popular market, as the consumers there have very different wants and needs.
In the past, cost and regulatory challenges were massive barriers to companies seeking to expand globally in search of the benefits of globalization.
Now, partnering with a globalization expert helps firms navigate any challenge that comes their way—while successfully setting up an overseas presence. Our Employer of Record (EOR) solution helps organizations establish a presence in 185+ international markets without the time and costs associated with entity establishment.
The right EOR partner helps your company experience the benefits that globalization has to offer and quickly become a successful player in the global marketplace.
Ready to go global? Contact us to learn more.