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Benefits of Globalisation for Companies

Updated on December 17, 2011

There is no disputing that companies benefit from globalisation. Companies can benefit through outsourcing and off-shoring. Globalisation makes it possible for companies to find economies with cheaper costs and buy component parts at a reduce price. It also means firms would have a global reach thus increasing the potential customers. Samsung and Lucy-Goldstar are two huge firms in the Korean electronic and telecommunication industry that benefited from globalisation and now 45% market share in these industries (Bloom, 1993). They transformed low manufacturing costs into a global market share by subcontracting less important aspects of their production operations to companies where the economy had low labour cost and both parties could benefit from it. They outsourced foreign firms who had production technologies, product design skills and even marketing and distribution channels (Bloom, 1993).

However some argue that these benefits for only apply for multinational companies which are involved in child labour and are exploiting the cheap labour cost economies. Looking at Taiwan once again, a local firm Cha for Tea borrowed the Starbucks concepts and made their national tea tradition popular and is now expanding in the United States and in Japan. This would not have been possible without the help of globalisation (Norberg, 2006).

The two main components of globalisation involved here are; the globalisation of markets and the globalisation of production. The globalisation of markets refers to the formation of separate nations into one global market, this occurs when cultural differences are put aside and standard products are distributed globally. Companies begin to standardise products. Standardisation leads to a global market, this is evident when we look at companies like McDonalds and Coca-Cola. An economic writer states that the major driving force behind globalisation is technology, everyone in isolated and impoverished areas now wants ‘modernity’s allurement’ (Levitt, 1983). The main feature of this global market is that standardisation creates a major level of competition because whether it is consumer goods or industrial components, the same firms compete in each market they enter. The threat here is that local companies might not be financial capable of standardising goods which puts them at a competitive disadvantage and would make it very difficult for them to increase customer loyalty and brand awareness.

Also companies in a global market will always face a higher level of competition so they must keep employees on their toes by in-house training, development programmes and most continue to work on new innovative technologies to keep them in the market. This can be very expensive and also risky for companies with limited resources. The globalisation of production is basically the ability to source products and goods globally in an attempt to reduce manufacturing costs. This is evident in the two Korean companies mentioned above. Another great example can be seen in the Boeing 777 jet Airliner. The 777 contains over 130,000 component parts, which were out-source from over 500 suppliers around the globe. Suppliers in Japan makes the wings and doors while in Singapore the landing gear is made and in Italy the wing flaps are produced. This strategy is not only an attempt to reduce the overall manufacturing costs of the finished jet but in fact to generate sales from each of the countries which they outsourced to in the first place. The swan-optical firm is also another example of how the globalisation of production benefits companies. Swan outsourced its manufacturing and product design activities and in turn created a competitive edge in the global market place.


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    • pramodgokhale profile image

      pramodgokhale 2 years ago from Pune( India)

      Globalization is meant level playing field for MNCs to cut the cost. Of course they brought new technologies and work culture in developing nations and boosted local economies.

      Small poor nations lacking skills suffered but soon they will make up.

      I think globalization is cyclical process and subject to performance of economies, if robust they move up.

      It benefits companies but hire and fire affects the healthy trend of business and set up of funds to rehabilitate unemployed to survive , will do great community service instead social breakdowns.