Globalization: Types, Effects, and Driving Factors

Globalization is the process by which goods, services, people, information flow more freely between various countries, making them interconnected and dependent. The process ultimately leads to more significant interaction and integration, both in the economic, financial, trade, and communication fields.

Previously, such interactions were less intensive. Factors such as low technology, expensive transportation costs, significant cultural differences, and strict government regulation are among the inhibiting factors. 

Now such inhibiting factors are diminishing. And, the presence of the internet is a fundamental part of a global transformation in a more integrated direction.

Types of globalization

Textbooks usually divide globalization into three categories:

1. Economic globalization, namely, increasing economic interaction between various countries, both in the form of cross-border movement of goods, services, labor, technology, and capital.
2. Cultural globalization. It is the transmission of values, ideas, and meanings throughout the world, whether through the internet, popular culture media, or international travel.
3. Political globalization. An example is a political cooperation between countries, both bilaterally, multilaterally. Such cooperation is also through membership in international bodies such as the World Trade Organization (WTO).

Globalization trends and examples

Many examples show the presence of globalization around us. Here, we will show you eight examples.

1. More and more companies are operating outside their home countries. They are multinational or transnational companies operating in various countries, utilizing comparative advantages in each country, for example, related to raw materials and cheap labor.
2. Outsourcing between countries continues to grow. Companies outsource some non-core functions such as call centers to developing countries. That way, the company can focus on its core competence and be able to collect low wages in developing countries.
3. Manufacturers no longer rely on domestic production facilities to produce all needs, from raw materials to finished products. So, they might produce raw materials and intermediate goods in other countries. Then, they import these goods and assemble them domestically, then sell the final product locally or abroad. That all gave rise to global value chains.
4. Global brands such as Coca-Cola, Nike, and McDonald’s spread to various countries. It contributes to changing tastes and preferences in various countries.
5. The internet is a major contributor to globalization today. The effect does not only affect the information technology sector but also in other sectors. It raises new business model and disrupts old business models. It also makes us easy to copy overseas business models and adapt them domestically.
6. The reach of the news network is getting wider. We can not only easily access local and national economic developments, but also other countries. As long as we are connected to the internet, we can access news from any country. We can use translator services like Google Translate when language is an obstacle.
7. People connect on social media without meeting in person. Mobile phones connect them through various platforms such as Facebook Messenger, WhatsApp, Instagram, and Snapchat.
8. The travel and tourism industry supports the broader exchange of money, culture, ideas, and knowledge.

The driving factors of globalization

Globalization arises from the interdependence between countries. Not all goods are available to meet the needs of domestic consumers. That may be due to the unavailability of raw materials or inefficient production. Because there is no domestic supply, a country will supply it from abroad through imports. From there, international trade emerged.

International trade is increasingly intensive in line with increasing consumer needs. And, at present, this interaction does involve not only the movement of goods and services but also the mobility of capital and labor. Technological advances also bring information flowing freely to various countries. Why did that happen?

Several factors have caused globalization to intensify in recent years, including:

• Faster and cheaper transportation
• Advances in telecommunications and information technology
• Transforming media from conventional channels to digital
• The financial system is increasingly standardized globally, such as the adoption of Basel and international accounting standards
• Payment system innovations, from credit cards to online payment systems
• The expansion of transnational companies in developing global value chains
• The establishment of a trade bloc encourages the movement of goods and services between member countries
• Reduced obstacles in international trade and capital flows
• Increased individual mobility, either to get a job or better education

Faster and cheaper transportation

Transportation technology is increasingly sophisticated, making global travel faster. Also, transportation costs are significantly reduced, both due to the effects of competition and technological progress.

In the past, we relied on sea transportation to deliver goods and people. Now, we can see air travel is increasing. Air travel moves people and goods bigger and faster throughout the world.

In 2018, air transportation will carry about 4.2 billion passengers in 2018, citing World Bank data. The number is almost double compared to the previous decade of 2.25 million passengers in 2009.

The world is getting online

Now, more and more people go online. Besides reaching the majority of the global population, internet usage is also increasing thanks to the support of more sophisticated device technology. We can interact globally through online channels faster, both social media and websites.

Now, we can shop for goods anywhere and anytime. Whatever products abroad we like, we can get them without having to visit the seller’s shop. We can buy it through eCommerce channels.

We can also get jobs and money from abroad through online channels. Sites like freelance.com offer us various types of work. We can do work at home, work together, and communicate with partners in other countries, as long as we are near the internet.

Financial innovation

Financial innovations support more significant flows of goods and capital. To buy United States products, we don’t need to bring money, buy tickets and go there to pay. We only need to use a credit card or online account like Paypal to pay for it. Such facilities increase cross-border transactions.

A report from Accenture Research shows cross-border transactions will increase with a compound annual growth rate (CAGR) of around 5.6% to USD30.2 trillion in 2022 from USD21.78 trillion in 2016. The 2022 figure consists of corporate payments of USD26.64 trillion and retail payments of USD3.56 trillion.

Greater media exposure

Technology is transforming media access globally. In the past, we relied on radio and television to watch movies and access news information. Now, we can do it on the smartphone screen. We can access it anytime and anywhere.

Global media consumption also shifts our preferences and tastes. Likewise, we can quickly learn the culture of other countries, both through channels such as Youtube and film. Therefore, although not 100%, this shift will ultimately lead to cultural homogenization.