The benefits of globalization
Globalization gives increased specialization of production. This specialization helps firms to benefit from economies of scale. This contributes to lower average costs and increased efficiency. Globalization causes increased competition between different firms and countries. This puts pressure on firms to be increasingly efficient and offer better products for consumers.
The process of globalization has encouraged firms to invest in other countries. For example, many firms are relocating call centre to countries like India, where wage costs are lower. This inward investment benefits developing countries because it creates employment, growth and foreign exchange. Some foreign companies are criticized for exploiting cheap labor.
Problems of Globalization
1. Developing Countries May Struggle to compete.
If a developing country wishes to develop a new manufacturing industry, it may face higher costs than advanced industries in the west, which will benefit from years of experience and economies of scale. To develop an industry it may be necessary to have protection from cheap imports.
2. Globalization keeps Developing countries producing primary products.
Developing countries may have a comparative advantage in primary products; however, this offers little scope for economic growth. Primary products have a low income elasticity of demand. Therefore, with economic growth demand for products increases only slowly. Primary products often have volatile prices; this can cause the economy to be subject to fluctuations in income.
3. Multinational Companies may be able to force out local retailers, leading to less choice for consumers and less cultural diversity.
4. Movement of Labor. Globalization enables workers to move easily around. However, this may cause the highest skilled workers of developing countries to leave for better paid jobs in developed countries.
Advantages of Globalization for Developing...