Globalisation remains an attractive proposition for businesses all over the world. But choosing to globalise your company is also fraught with complexity.
There are many reasons why a company would want to expand overseas.
- The opportunity for new revenue streams.
- Increasing your company’s global brand.
- The ability to access a wider talent pool or solve a talent shortage.
- The potential cost savings when operating in new markets.
And many businesses are choosing to capitalise on these advantages. For example, the latest edition of Santander’s Trade Barometer found that almost a third (28%) of UK domestic businesses are considering international expansion in the next three years. Likewise, 56% of businesses in the USA, 39% of businesses in Spain and 38% of Poland are weighing up global expansion as part of their wider growth strategies.
But global expansion has never been more complex. Laws and regulations surrounding employment, payroll, tax and worker classification are changing all the time.
In this article, we provide an overview of what globalisation means for businesses, the pros and cons of globalisation, and some guidelines for how to make the most of it and build an effective global strategy for your company.
What is globalisation?
Globalisation is a unique process that involves the interaction and interconnection of people, governments, and companies around the world. Businesses expand internationally with the help of international trade agreements created by partnering governments while local brands become internationally recognised, and people move across continents to build or join new companies.
Globalisation allows people, goods, services, ideas, languages, information, and commodities to flow across national borders, making the world increasingly smaller and more connected.
It’s also important to note that globalisation itself is nothing new—it’s merely in a new phase.
The World Economic Forum charts the history of globalisation back to the age of discovery.1 In the 15th through 18th centuries, the scientific revolution enabled easier and safer travel by sea, which would jump-start global trade. Exports went from under 5% of global GDP in that era to about 14% in the 19th to early 20th century, then jumped to over 20% by the dawn of the 21st.
At present, exported goods and services make up about 30% of global GDP.2 Despite a small dip in 2023 after a historic high in 2022, this trend figures to continue in the future. Driven by the exponential rate of advancement in technology, globalisation will only continue to grow.
Thankfully, there are some major advantages to expect because of this.
What Are The Benefits of Globalisation for Multinational Corporations?
Globalisation can be extremely rewarding for growing businesses. But it’s also hugely beneficial for the general development of the global economy. By tapping into the global market and expanding your customer base, you bring people and products closer together.
Discover some of the immediate benefits of modern globalisation for your organisation.
Access to new markets
One of the major advantages of globalisation is that it provides access to new or foreign markets for international business. With bi- and multilateral trade agreements, multinational corporations can operate in multiple countries and jurisdictions. This means reaching more customers, gaining more and better market insights, and building your brand on a global scale.
Product development and new revenue streams
By accessing the global market, you develop your products and services in new ways. When branching out to a different country, businesses are often required to adapt their offerings to meet local demand. While this may seem like more work, it is a great opportunity for innovation. By building successful products and services, and a solid customer base, you can increase your revenue streams beyond national or state borders.
Sharing knowledge, technology and culture
Another one of the brilliant effects of globalisation is that sharing has become the norm. Knowledge, information, technological advancements, and cultural values are being shared across the globe. Business practices are no exception. While we are far from a multicultural utopia of global businesses, sharing and creating global partnerships has never been easier.
Benefits of global innovation, information dissemination, and resource distribution include:
- Mobile banking – Developing nations have seen a meteoric rise in mobile banking adoption, which has improved users’ quality of life and optimised service delivery.3
- Microlending – Global microfinance operations have helped low-income and other communities across the world escape extreme poverty and establish economic independence.4
- Freedom of information – Globalised trade enables the frictionless flow of ideas across borders, which expands worldwide adoption of values central to human prosperity.5
Without globalisation, individuals and communities in developing nations would face greater obstacles in harnessing information and logistical conveniences, along with baseline resources.
Developing universal standards
While this may sound like whitewashing a complex issue, globalisation has had the effect of helping set impactful universal standards. Through knowledge sharing, industry standards have been set and international bodies are working to establish unified labour and tax regulations.
The Organisation for Economic Cooperation and Development (OECD), for example, drafted the Model Tax Convention in 2017 to help authorities and businesses understand when they are liable to pay corporate taxes and how they can prepare when expanding internationally.6
The Role of Multinational Corporations
One of the reasons globalisation can create beneficial universal standards is that power players in the global economy are able to influence politics. Multinational corporations’ (MNCs) influence on geopolitics and economic outcomes has been studied for decades, and much of the scholarship focuses on the kind and extent of influence MNCs exert on geopolitics.
For example, per a 2019 Brookings Institute study, MNCs enjoy great influence on global economies specifically through their influence on geopolitical policymaking in the US.7 This is because of the relatively low costs of lobbying in the US’s political context, which is itself a product of MNCs’ economic dominance. In practice, this low barrier to entry allows MNCs to achieve disproportionate impacts on global policy, especially from nations favourable to MNCs like the US.
One under-studied implication of this well-documented phenomenon is the potential MNCs have to influence global economic and political policymaking—and outcomes—for the better.
Access to a diverse talent pool
Taking your pick of job candidates from an incredibly diverse talent pool is a benefit of globalisation with immediate rewards. If your company is hiring remotely, you can offer employment opportunities on the basis of skillsets or behaviours, regardless of background or location. Companies looking to hire for their offices or foreign subsidiaries are also able to find talent that will help them develop, change, and grow as a company more broadly. Each new, diverse employee brings a wealth of new perspectives and possibilities to a business.
A diversified workforce and workplace culture
A diverse talent pool not only leads to a diverse workforce; it also has significantly positive effects on workplace culture. While some employers are concerned about cultural differences affecting productivity, internal communication, and collaboration, a solid hiring strategy and inclusive company culture can do the trick. Focus on building an open company culture, where different perspectives are championed and inclusive behaviours are rewarded.
What Are the Challenges of Globalisation?
Despite the variety of benefits, you may still encounter some challenges with globalisation. These disadvantages generally refer to wider socio-political issues that all governments and companies have to navigate and address, whether directly or indirectly. You will need to be aware of these in order to build an effective global expansion strategy for your business.
Impact on domestic economies
One of the most hotly debated negative effects of globalisation is the loss of jobs. This is particularly the case in developed countries with mature economies, such as the US, where many service-based jobs have been outsourced to developing countries. As a result, many locals have lost their jobs or been forced to accept lesser wages and poorer working conditions.
This issue is not limited to just the US. Per Brookings, the same issue is observed in advanced economies such as Australia, Canada, France, Germany, Italy, Japan, Korea, and the UK.8
In these nations, globalisation has led to the richest 10% of the population controlling larger shares of the economy over time, with shares in the most unequal places approaching 50%. And the problem can be even worse in emerging economies. In countries such as Argentina, Brazil, China, India, Indonesia, Mexico, Russia, South Africa, and Turkey, the share of the economy enjoyed by the richest individuals ranges all the way up to over 60% in some of the worst cases.
Globalisation is not the only phenomenon to blame for inequality, but its role can’t be ignored.
And, while it is the job of governments and political actors to protect the local workforce and create favourable business conditions for companies, you will still need to assess how you want your business to work around this challenge—and potentially work to help alleviate it.
Trade imbalances and economic risks
The rapid ebb and flow of globalisation during and after the height of the COVID-19 pandemic made clear what economic risks exist during major worldwide market shake-ups. Namely, the world economy has contended with dramatic supply chain disruptions, labour fluctuations, and record inflation. And while these issues are largely resolving themselves, the International Monetary Fund (IMF) notes that the global economic risks will remain into 2024 and beyond.9
The organisations best positioned to navigate these risks are the ones taking them seriously.
In particular, economists have argued that modelling trade imbalances from globalisation is critical to understanding the dynamics underlying market shocks.10 That kind of econometric modelling is key to predicting and preparing for upcoming dips, spikes, and other phenomena.
High investment and startup costs
Globalisation and international expansion are generally very expensive endeavours. This is one of the most deterring disadvantages of globalisation. It requires businesses to invest a lot of their resources into designing and implementing an effective globalisation strategy.
Setting up a company, paying taxes, hiring, signing contracts with new partners, and scouring the customer base all require mountains of research, capital, and time. Not all companies will feel comfortable doing this, especially smaller businesses or those just scaling up globally.
Environmental and ethical concerns
As great as increased flows of goods and information are for people and the economy, the underlying business activities adversely affect the environment. Global trade and transportation networks mean more fuel use and greenhouse gas emissions. More demand also means more production, causing more raw material usage. Remote working can help businesses save on environmental costs, but it’s not enough to solve the environmental challenge of globalisation.
A related issue is the fact of worker exploitation in poorly executed globalisation efforts.
Many companies in more developed countries outsource production or services to developing countries, cutting costs by creating cheaper goods. While this has often been beneficial for their economies, local workers are still exposed to high degrees of exploitation. The United Nations International Labour Organisation has been working to set international standards to protect workers everywhere, but they have been hard to enforce and may continue to be in the future.
On the other hand, more and more consumers demand that organisations create products and services that are ethical, sustainable, and affordable—an economic pressure to do good.
Taxation complications across borders
Taxes can be a nightmare both for employees and for businesses. Different countries or states have their own tax authorities and unique regulations on what taxes need to be paid, how, when, and to whom. One of the big ones to watch out for is permanent establishment risk, which makes a company liable for paying corporate taxes to countries it does business in.
Many regional and national governments or organisations are now working together to prevent companies from finding loopholes so as not to pay corporate taxes. You will need to do your research in order to stay on the right side of the law wherever your business operates.
Additional complications exist specifically for remote employees (‘digital nomads’); for more information, see our guide to global tax and legal complications for remote workers.
Legal compliance for employers
Global employers must also consider how to employ people legally across all the different countries they’re based in. All countries have their own labour law, which covers things like working hours, types and amount of paid leave, termination rights, intellectual property rights, salaries, benefits, and social security. You will need to be aware of the labour code of each jurisdiction where your employees are based so you can employ them compliantly.
This is a massive administrative task that requires a thoughtful and responsive strategy.
Thankfully, there are services, like Omnipresent, that can help you navigate the complexities of international employment, such as global employee benefits, and remain compliant.
Strategic Approaches to Globalisation for Your Business
All businesses can use globalisation to their advantage, but you need the right approach. As always, compliance is key. Running a global business with employees all over the world can be rewarding, but also requires foresight and appropriate processes in place to remain compliant.
When expanding globally, you may need to consider:
- Having a legal presence in the countries you operate in or where workers are based
- Paying corporate taxes the right way, on time, and to the right authority
- Looking for the right traits and watching out for biases when recruiting and hiring
- Ensuring employment contracts and payroll remain fully compliant with regulations
- Providing progressive benefits competitive with local companies’ offerings
- Managing intellectual property rights compliantly and securing IP effectively
- Creating a smooth, standardised onboarding process for global workers
- Building a solid communication and collaboration strategy across your teams
- Establishing a sustainable, inclusive, and supportive workplace culture
As a company navigating the effects of globalisation, you will need to respond to all its challenges while finding the best path for your business. The first step is to find the right people—and employ them the right way—so they can get your business up and running.
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