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How Globalization Affects Business Finance

One of the most important courses in the online MBA with a Specialization in Finance program at USC Aiken is an advanced course in globalization and business. In an increasingly globalized business environment, this course is indispensable. This course surveys the economic, political, cultural and legal environment. Students will gain an understanding of how successful companies operate in diverse foreign environments, engage in specialized transactions, and adapt market, financial and managerial strategies for optimal results.

What Is Globalization?

As defined by the Peterson Institute for International Economics, globalization "describes the growing interdependence of the world's economies, cultures and populations, brought about by cross-border trade in goods and services, technology, and flows of investment, people and information." Globalization opens up markets around the world for trade; countries facilitate this through partnerships that have made trade more efficient and worthwhile for all parties. These partnerships are highly complex and require monitoring to ensure that they stay mutually beneficial. 

Finance Across Borders

Globalization has affected capital flows, with cross-border equity and bond purchases as well as loans and foreign direct investment. Large corporations, especially multinationals, benefit from greater access to capital. This boosts output and fuels growth by enabling companies to invest more in research and development. Globalization also makes it possible for newer companies that can attract media and investor attention to compete with incumbents — if they can find ways to "disrupt" a market with better ideas.

International investments in emerging economies have contributed to the rise of modern, western-style cities and urban centers. For example, international investments in a few corporations in a developing nation, if successful, lead to development of infrastructure, including office buildings, homes, schools and hospitals. In many emerging economies, none of this development would happen without globalization and money flows across borders. 

Competition and Costs

Business is all about getting the best products to the greatest number of people at the lowest cost. Globalization often lowers inflation, empowering the consumer to buy more goods. Without cheaper labor available in China and other Asian countries, for example, the cost of many electronics would be too high for most middle-class Americans, let alone people trying to work their way up in newly emerging economies. The benefits resulting from international trade include:

Manufacturing: As the quantity of products produced in a manufacturing facility rises, the production cost per unit declines. By opening more markets for any given product, the costs can be reduced. This enables the production of many products that would not have been feasible in lower quantities.

Supply chain: The more countries and businesses that have a stake in ensuring an efficient supply chain, the more investment goes into the various steps of taking products from factories to the consumer. The global supply chain is much more cost effective than a supply chain would be in a purely domestic economy.

Online commerce: Online retailers like Amazon benefit from a concept called "long end of the tail" marketing. Free from the constraints of geography, Amazon can sell thousands of copies of a book that could not be sold in a retail store, because there would not be enough buyers within proximity. This concept has created markets for all kinds of niche products that could not have found buyers without the combination of globalization and online commerce.

Demographics: Cheap labor is widely available in countries with younger demographics and urbanization. With globalization, multinational companies can benefit from access to labor markets that lower their costs relative to domestic markets.

Technology: Just as globalization provides cheaper labor to multinationals or U.S.-based corporations, it also provides the means for businesses in those countries to leverage the investments that have already been made by western companies in technology. Whether through mergers, acquisitions or partnerships, companies all over the world have access to technologies that would have been cost-prohibitive without globalization.

Marketing: Market globalization reduces the barriers to selling internationally. Although marketing messages that work well in one country may have to be refined or overhauled to appeal to citizens of another, there is plenty of cost-saving redundancy in marketing products in many markets rather than a few.

At the end of the day, globalization is about fine-tuning the exchange of resources. The world is in the nascent phase of globalization, working out problems with exploitation of resources and inequities between peoples. Potential exists for resolutions to these problems, while the benefits from the knowledge, information and resource transfer continue to bear even more fruit. Position yourself to take advantage of this trend with an MBA that emphasizes global business and finance.

Learn more about USC Aiken's online MBA with a Specialization in Finance program.


Sources:

Bookboon Blog: How Globalization Affects Business

Peterson Institute for International Economics: What Is Globalization?

NHUB: The Impact of Globalization on Business

ECIPE: The Economic Benefits of Globalization for Business and Consumers


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