Globalization offers businesses great advantages, yet also presents some unique challenges. Companies sourcing from multiple nations may become exposed to political conflicts or nationalist sentiment that threaten to derail operations.
Economic globalization often comes hand-in-hand with political globalization, the growth of nongovernment-dependent elements in an international political system such as international nongovernmental organizations and social movement organizations.
Changes in Government Policies
Government policies have an enormous effect on businesses in numerous ways. They can affect trade, taxation and regulation of the economy as a whole as well as business environments in specific industries or nations. A government that prioritizes economic growth might levy taxes or duties to boost specific sectors by stimulating investment while simultaneously decreasing competition within them and strengthening overall economies.
Changes in government policies can be disruptive to businesses. They may not always reflect the needs or priorities of the economy. For instance, governments might attempt to attract investors by cutting taxes on energy; this would boost economic growth but potentially harm general prosperity by driving up energy prices and forcing consumers away from certain providers.
Companies operating abroad must understand the political environment in the countries in which they operate. Furthermore, it is crucial that they know how the political system of each country functions and which type of democracy exists therein. Different political systems have differing philosophies regarding individual rights and government participation which could impact business policy decisions.
So it is vital that businesses gain an understanding of the variations between economic and trade policies across countries. Established democracies such as those found in Western Europe and Asia tend to offer high levels of policy stability while emerging nations may see their policies rapidly adapt to changes caused by external forces such as climate change.
Frontline workers may struggle to adjust to rapid and inconsistent policy changes, according to research. This may have an adverse impact on their perceptions of policy meaning and legitimacy causing them to be more critical towards it (Van Engen et al. 2016).
Government inconsistency may contribute to an erosion of trust in global governance systems, leading to regionalism and decreased global coordination, which ultimately isn’t in businesses’ best interests. Many developing nations complain that they aren’t fairly represented on core councils of international financial institutions and standard-setting bodies, for instance.
Conflicts
Politics plays an integral part of business both domestically and internationally, from corruption to government subsidization for domestic companies or competitor globalization – politics can have an immense influence over business operations and success. Understanding this fact can assist entrepreneurs, small business owners and strategists determine which markets to expand into or how best to optimize potential for success – for instance a country’s minimum wage laws could drastically change company operating costs while protecting national industries can inhibit foreign firms from acquiring advanced technology or resources from domestic suppliers.
Conflict is defined as any opposition between two or more things and can take various forms: verbal arguments, disagreements and even physical fights. Conflict can also arise due to differences in beliefs, values or goals; for example value conflicts can result from cultural identity differences such as religion, ethics norms or politics that cause defensiveness, distrust and often results in clashing needs – particularly within international businesses where cultural values may drive business decisions and this type of dispute tends to escalate over time.
Political Risk
As a business owner, it is critical that you understand the political climate in the countries and emerging markets where your operations take place. When something goes amiss in one part of the world, its effects can ripple throughout your global supply chain – whether directly if your company deals with that country directly, or indirectly through various components.
Politics often brings to mind violent situations like wars, terrorist attacks or civil unrest; but less obvious yet more subtle situations may also create political risk – for instance a government may impose trade restrictions due to disagreement over foreign policy; or another country could renege on contractual agreements due to money disputes.
These situations can increase operational costs, delay production or require you to relocate operations; furthermore they could even lead to intellectual property theft – all risks which become increasingly significant when considering that much of your business is tied into global markets.
Political risk can be managed effectively with a comprehensive international business insurance policy. Such an insurer protects businesses against costs related to government policies, retaliation for commercial decisions and shifting political conditions that might otherwise cost businesses dearly. These policies also can protect key personnel against politically-driven threats or decisions as well as covering costs related to relocating your business if necessary.
Another way to reduce political risk is through partnerships with local businesses, professional trade organizations and research and development companies. Doing so will give you access to “on the ground” intelligence as well as enable you to develop strong relationships with local leaders and politicians.
The best companies integrate political risk analysis into their daily operations and ensure that everyone from boardroom to salesfloor understands their risk appetite, before working collaboratively to prepare their business for all eventualities. This approach can be particularly helpful in extractive industries such as oil and gas where long-term investments with limited exit options leave companies vulnerable when problems arise.
Globalization
Globalization refers to the growing interdependence among nations, businesses and people worldwide. It has been driven by technological and economic developments – including international communication and transportation systems; multinational corporations; and international financial institutions that have increased in power over time.
Globalization of business has many positive benefits for economies and societies alike. It can boost economies, raise living standards, provide access to education and health care and even foster cultural diversity by encouraging businesses and individuals alike to explore different cultures and lifestyles. Furthermore, business globalization may even aid the environment by encouraging companies to develop more eco-friendly technologies.
Globalization can have both positive and negative consequences. For instance, it can create income inequality as some countries take advantage of its perks while others do not; labor exploitation as large corporations move production to countries with lower wages and laxer working standards; as well as worsen environmental problems, such as climate change by dispersing more pollutants into our air and water supplies.
Globalization advocates point out how globalization has strengthened nations by making them more interdependent and sharing resources such as energy, water and people between nations. Furthermore, it can facilitate more equitable economic growth by allowing nations to specialize in their strengths while encouraging trade, investment and innovation; on the other hand, its critics point to evidence showing it may cause environmental degradation and income disparity.
Global economic integration has been propelled forward by technology and transportation advances that have reduced shipping costs, multinational corporation formation, more competitive marketplaces provided by multinationals and changes to government policies including liberalizing trade and foreign investment agreements and the development of international organizations that set standards and enforce rules.
Globalization has also been enhanced by the Internet’s popularity and rapid advancement, creating a world in which information travels swiftly across borders and people communicate easily across borders.