If you’ve ever eaten a Chinese takeaway while watching an American TV show from the comfort of your Swedish flat-pack sofa, you’ve experienced the effects of globalisation.
The increased interconnectivity between people and organisations across the world has also had an enormous impact on the business world over the past few decades, due in part to the rapid improvements to communication technology we’ve experienced.
Plus, thanks to the rise in home working brought about by the pandemic, there’s now more opportunity than ever for professionals to connect and work together across the globe.
But while globalisation can have huge benefits for organisations and individuals alike, it also presents some challenges to businesses that operate internationally.
In this post, we’ll share seven of the biggest benefits of globalisation from a business perspective, as well as five of the biggest challenges — and our advice on how to overcome them.
What is globalisation?
Globalisation is the process of interaction, integration and connection between people, organisations and governments across the world. In business, the term generally refers to the flow of goods, services, capital, people, technology and ideas across international borders.
7 benefits of globalisation for businesses
Here are some of the biggest benefits of globalisation for businesses:
1. Access to new markets
One of the biggest advantages of globalisation for businesses is that it gives them access to new markets, allowing them to build new and diversified revenue streams.
Companies that are suffering from market saturation in their local markets can find new ways to promote and sell their products overseas, where consumers’ needs may be different.
These days, organisations like employers of record (EORs) and global employment organisations (GEOs) allow companies to hire overseas employees and build their brand on a global scale, without having to form an entity in each country.
2. Sharing of knowledge and technology
One advantage of globalisation that we all benefit from is the sharing of ideas, knowledge, and technology across the globe.
This is particularly important when it comes to the innovation needed to solve problems that affect people everywhere.
A good example is the COVID-19 vaccine, which was developed in record time following the outbreak of the pandemic in 2020.
This was made possible partly thanks to initiatives like the Coalition for Epidemic Preparedness Innovations (CEPI), an alliance launched in 2017 to provide the technical infrastructure to quickly develop vaccines.
The fact that teams of scientists across the world had access to this infrastructure meant that the vaccine could be developed far more quickly than anticipated.
3. Potential for significant cost-savings
Globalisation allows companies to find more cost-effective ways of producing, marketing, and distributing their products.
It also creates more competition globally, leading to decreases in prices and a greater variety of choices for consumers.
Many companies choose to use labour arbitrage to outsource parts of their operations to places where the cost of living is lower.
However, ethical companies need to ensure they’re saving costs in a way that remains legal and sustainable, and ensures all employees are still paid fairly.
4. Spreading risk vs. operating in a single market
When companies operate only in one market, they are open to risk in terms of economic downturns, recessions, changes in consumer behaviour and even natural disasters and other events that can affect sales in a particular country.
Operating across borders allows them to spread this risk since they can absorb any potential losses through their operations in other countries when one is hit by an unexpected event.
5. Increased opportunity for innovation
Accessing new markets inevitably leads to companies reevaluating and developing their products in new ways.
This is a major benefit of globalisation since it creates the perfect environment for creativity and innovation.
6. Access to a broader talent pool
Thanks to globalisation, companies are no longer limited to candidates in their own country when they’re hiring for remote roles.
Since the best talent is not necessarily going to be located near your HQ, this gives you a much better chance of finding the best people for your business.
7. Ability to create a diverse workforce
Hiring from a global talent pool leads to a diverse and varied workforce, which can have a huge positive impact on your business.
The range of viewpoints and the opportunities for cultural exchange that a diverse workforce can bring to an organisation provide a healthy environment for innovation, and can even boost your bottom line.
In fact, a Forbes Insights study found that 85% of respondents either somewhat or strongly agreed that a diverse and inclusive workforce was crucial to encouraging the different perspectives and ideas that drive innovation.
5 challenges of globalisation (and how to overcome them)
Despite these benefits, globalisation also comes with certain challenges, which businesses need to overcome.
Here are a few examples:
1. Difficulties with marketing and communication across cultures
The business world has seen many horror stories about marketing campaigns that have gone disastrously wrong due to a misunderstanding of a country’s culture, customs or language.
For example, a billboard ad for Tide detergent made up of a three-panel photo series of a dirty shirt becoming clean famously flopped in the Arabic-speaking world, where people read from right to left.
In the local context, it seemed to show a clean shirt being washed with Tide and becoming dirty.
This is an extreme example, but whenever a company tries to expand internationally, they risk misunderstanding the nuances of the country they’re entering.
To avoid any mishaps, it’s vital for companies to take the time to truly understand the market and how their products fit in — ideally by working with local talent instead of bringing in people from HQ.
2. Potential for worker exploitation by unscrupulous companies
As we touched on above, one of the ethical challenges of globalisation is that it can lead to the exploitation of workers in countries where labour laws are less stringent.
The cheaper labour these countries can provide has also led to job losses in countries with stronger economies, such as the US and the UK.
Many company leaders mistakenly think that this doesn’t affect them if they’re not engaging in unethical employment practices themselves.
However, any business operating internationally should also take the time to carefully examine every stage in their supply chain to ensure that everyone is operating fairly — and refuse to do business with those who aren’t.
3. Need for high initial investment and ongoing costs
Expanding to a new country often means setting up a legal entity there — which can be an expensive operation.
And it’s not just the initial expense of incorporating: companies also need to budget for things like the rental or purchase of registered premises, appointing and paying a local director, and other ongoing administrative costs.
To avoid being hit with unexpected costs, companies looking to expand their operations overseas need to conduct extensive research into the real costs this will entail.
Consulting with experts who understand the market gives you the best chance of success.
4. Problems with taxation across borders
International tax law presents one of the most significant challenges of globalisation to companies who want to expand overseas.
Every country has its own tax laws and regulations, which dictate the taxes a company operating there has to pay. These can be confusing to understand without expert help and can represent a significant cost.
Many local and national governments are now working hard to close any loopholes and clamp down on any companies trying to operate outside of local tax law — which means that noncompliance can be met with hefty fines.
Again, the only way to overcome this challenge is to work with a local tax advisor to ensure that you understand exactly what will be expected of your company before you launch an expansion.
5. Issues with legal compliance when hiring overseas
While globalisation presents a huge opportunity to businesses and employees alike in terms of the ability to hire and work overseas, this also comes with some potential problems.
Even if you’re happy for your employees to work from wherever they’re located, you need to ensure that you’re engaging them in a way that’s compliant with the law — or potentially face fines and other legal consequences.
Overcome the challenges of globalisation with CXC
Do you need help compliantly and efficiently engaging overseas talent for remote or contingent roles? CXC can help. Our global payroll solutions can help you make sure everyone gets paid legally, compliantly, and on time, wherever they’re located. We operate across more than 65 countries through our vast network of legal entities.
Contact us today to learn more.