In the 1990s, various countries around the world opened their markets to the world. After that, the process of globalization accelerated all over the world. Many internal and external factors and forces play a major role in this. The main drivers of Globalisation are the establishment of WTO, increase in FDI, regional integration, reduction of trade barriers, reduction of investment barriers, technological change and growth of multinational companies.
Following are the 5 key Driving forces & factors of Globalisation in International Business.
1. Technological drivers
Technological Changes: Advances in technology
The dramatic and unprecedented change in technology after the 1980s played a major role in this transformation of globalization.
- Fast spread of latest technology globally
- Development in Information Technology
- Spread of internet worldwide
- Transportation & logistics technologies
Rapid advancements in technology, especially in communication and transportation, have made it easier and faster for people, goods, and information to move across borders. This has led to an increase in international trade, investment, and cultural exchange.
The internet and digital communication have made it easier for people and businesses to connect with each other across borders, leading to increased trade, investment, and the transfer of knowledge and ideas. These are the technological drivers of globalisation.
2. Political Drivers
Regional integration is a process in which neighboring countries agree to improve cooperation through shared institutions and rules.
Examples: European Union (EU), SAARC, NAFTA, ASEAN, EFTA, etc.
Regional integration helps to –
- Increase the size of market
- Increases demand
- Generates employment
- Increases production quantity
- Cost affordability
Governments around the world have played a role in driving globalization by adopting policies that promote free trade, foreign investment, and economic liberalization.
Reduced Trade Barriers
This is an another important driver of globalisation. Many countries have reduced tariffs and other trade barriers, making it easier for businesses to sell goods and services across borders. Advanced countries after world war II reduced tariffs to encourage free flow of goods & services.
Example: General Agreement on Tariffs and Trade (GATT)
These reduced trade barriers & tariffs contributed a lot in Globalisation.
Declining Investment Barriers
After 1990s various countries started removing foreign investment barriers in order to encourage the growth of international business. Companies can invest in other countries or set up operations there, and investors can buy stocks or bonds from companies located in different countries.
3. Economic Drivers
Many countries have adopted policies that promote free markets and open economies, which has encouraged foreign investment and trade.
Globalization of financial markets
The globalization of financial markets has made it easier for businesses to access capital from around the world and has facilitated the flow of investment across borders.
4. Market drivers
Changing consumer preferences
Consumers are becoming more global in their tastes and preferences, and businesses are responding by developing products and services that can be sold in multiple markets.
Access to new markets
Globalization has provided businesses with access to new markets, which has helped them to grow and expand their operations.
Global supply chains
Companies can now source raw materials, components, and labor from different countries to create a final product, leading to increased efficiency and cost savings.
5. Competitive Drivers
Globalization has led to increased competition, which has driven businesses to innovate and become more efficient in order to remain competitive.
Growth of Multinational Companies (MNCs)
MNC is a company or organization doing business in more than one country. Growth of MNCs contributed to internationalization of businesses.
Overall, these drivers of globalization have transformed the world economy, making it more interconnected and creating new opportunities for businesses and consumers alike. However, globalization has also created challenges, such as increased inequality and environmental degradation, that must be addressed in order to ensure a sustainable and equitable future for all. This is all about various important Drivers of Globalisation or internationalisation.
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