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Benefits & Costs of the Globalization of Business

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  • 0:01 Globalization
  • 1:00 Benefits of Globalization
  • 2:45 Costs of Globalization
  • 3:59 Lesson Summary
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Lesson Transcript
Instructor: Jennifer Lombardo
Globalization has become a requirement for corporations to remain competitive in the marketplace. In this lesson, you will learn about the definition of globalization and the benefits and costs.

Globalization

I usually begin my classroom lectures on globalization, or the integrating of economies across the globe through the process of procuring goods, services, and capital across the world, with an exercise. I ask my students to guess where the clothing they are wearing was made. Most students guess incorrectly. For example, the top that they purchased at the local mall in New Jersey could have been made from Chinese cotton by workers in Vietnam, which was then shipped on a French freighter with an international crew. In fact, nowadays it is hard to purchase anything that is exclusively made in America. For example, a well-known American sports car has its transmission made in China, France, and Mexico.

The growth of globalization has had a dramatic effect on international business. In this lesson, we will identify the benefits and costs of the globalization of business through one of the biggest car companies in the United States.

Benefits of Globalization

Auto company Sword is known for technologically advanced, sophisticated automobiles. In over 50 years the company has grown from selling cars throughout the United States to a growing overseas market. In fact, their production of vehicles has also spread over national borders to countries such as Mexico, Canada, and Japan.

Sword has reaped numerous benefits from the globalization of their business, such as increased international productivity. They have been able to increase production of their vehicles by over 120 percent by building factories in other countries such as Canada.

In addition, Sword is able to provide lower prices to consumers by taking advantage of the specialization of labor within different countries. For example, Sword can assemble a sedan model in the U.S., but with engines made overseas for a cheaper cost. Sword can then pass the savings onto its customers.

The third benefit of globalization is that it allows developing countries access to international investment funds. Sword has received help from the International Monetary Fund (IMF). It's an international organization consisting of 188 countries that provides assistance with currency exchange and loans. This has allowed the company to build the state-of-the-art facilities in Canada and Mexico.

Sword's globalization provides the benefit of easily sharing technology across national borders. For example, Sword's new robotic arms have been proven successful, and this new technology has been shared with all international facilities. Sword has benefited tremendously from the strategic implementation of the globalization plan, but there are also some costs to the process.

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