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How Globalization Is Changing Business

"It's a Small World After All" is no longer just a song to enjoy on a Disney ride. It is now a mantra for a business world that has become increasingly interconnected, where national economies are dependent on one another, as are multi-national businesses that operate across borders.

How the Globalization Trend Developed

National borders no longer have the economic significance they did three decades ago, when the United States was the largest consumer economy in the world. Then, U.S. companies could focus their efforts on the domestic market with a secondary focus on neighboring countries. Europe operated similarly, with most trading between nations occurring between countries in the same geographical zones.

In both North America and Europe, debates raged between free trade advocates and protectionists, but globalization proved to be a force that could not be harnessed. It was a different world then; the internet had just come into being, Japan was the world's leader in manufacturing, and China was known primarily as a source of low-cost labor, not the economic superpower it has become.

Though international trade began increasing sharply after World War II and continued its ascent through the end of the 20th century, an inflection point occurred at the turn of the century. The trade value of all goods and services doubled from 2005 to 2015, and that period marks the beginning of what we now refer to as globalization.

Globalization Today

The United States remains the world's economic superpower, but our grip is no longer as firm. The U.S. is the largest importer and third largest exporter, yet is only the 7th most complex economy, according to the Economic Complexity Index (ECI). U.S. sales to foreign nations now account for 33 percent of revenue for S&P 500 companies, but the real surprise is that 97 percent of American companies that export have fewer than 500 employees.

The proliferation of low-barrier trade agreements between nations has been a catalyst, and these agreements have been driven by an increased share in exports from developing economies and cost-effective improvements in shipping logistics and communications. Chief among these economies is China, which is on its way to surpassing the U.S. as the world's leading consumer economy.

Today, international trade is no longer regional; it occurs between nations large and small, near and far. In theory, global trade leads to efficiency gains as market diversification benefits suppliers of products and services. While it has been a boon to developing nations and their corporations, it has also served as a source of consternation for the U.S. government and American businesses for two reasons.

First, an ongoing trade deficit — meaning a trade imbalance favoring imports to exports — continues to be a drag on the economy. The disparity has been gradual and any quick fixes could start a tariff war — the situation with China currently, for example. Second, America's education of its workforce to adapt to globalization-related changes has been slow.

How Can the U.S. Adapt to a Globalized World?

The United States government and its business leaders share an objective of empowering the domestic workforce to prosper from the forces of globalization. To do this, the United States must create more favorable trade deals with foreign partners and reduce the trade deficit. By doing so, U.S.-based companies will be on a more competitive footing.

The U.S. higher education system must also prepare business leaders to operate in a global economy. Top MBA programs like those at the University of South Carolina Aiken focus on international business. In these programs, students learn about logistics, international marketing, and the international legal and ethical environment in which companies operate.

Programs like these are developed with input from major multi-national companies, and graduates are being aggressively sought for roles with international exposure and leadership development potential. Concurrently, professional development, training, and re-education of established leaders is also helping to modernize their skills.

As a future business leader, you can help your current and future employers — and your country — by studying the fundamentals of globalization in an MBA program.

Learn more about the USC Aiken online MBA program.


Sources:

Chron: How Does Globalization Affect an Organization's Business Approach?

Our World in Data: International Trade

Atlas Media: United States

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